BBGI Global Infrastructure Regulatory News (BBGI)

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.

31 August 2023

BBGI Global Infrastructure S.A.

("BBGI" or the "Company")

Interim results for the six months ended 30 June 2023

Strong operational and resilient financial performance

BBGI Global Infrastructure S.A. (LSE ticker: BBGI), the global infrastructure investment company, is pleased to announce its interim results for the six months ended 30 June 2023.

Sarah Whitney, Non-Executive Chair of BBGI, commented:

"I am pleased to report the strong operational performance of our globally diversified portfolio of social infrastructure assets for the first six months of 2023. These results reflect the low-risk investment strategy, prudent financial management and value driven asset management approach that we have successfully deployed since our IPO in 2011.

Our financial performance was resilient throughout H1 2023, despite the ongoing challenging macroeconomic environment. The defensive and global nature of our portfolio has again provided stable, predictable and inflation-linked cash flows, and we have continued to generate secure, high-quality inflation-linked income and increased dividends that are expected to remain well covered.

BBGI has not been immune to the uncertain market and economic backdrop that has impacted investor sentiment on almost all UK listed investment companies. The Board does not believe the current share price adequately reflects the value of the portfolio and its high-quality inflation linkage, nor does it reflect our strong financial position and operational performance."

Duncan Ball and Frank Schramm, Co-CEOs of BBGI, said:

"Our results for H1 2023 demonstrate our continued strong operational performance despite the challenging economic times. Through our consistent, disciplined approach to active asset management and prudent financial management, our investments have continued to deliver during the period, with a resilient financial performance.

In the current macro-economic environment, our strategy focuses on directing surplus capital towards the repayment of any outstanding drawings on the revolving credit facility. We will continue to maintain a disciplined approach to capital allocation and transaction activity, only participating in the market and evaluating potential investment opportunities when they are clearly value accretive.

Preserving and enhancing the value of our portfolio remain our top priorities. The strength of our assets is evidenced by the continued strong market demand for similar assets, thanks to their high-quality, secure, and long-term inflation-linked contracts, which generate predictable cash flows. This, in turn, enables us to deliver attractive returns to our shareholders over the long term. We approach the future with confidence."

Six months in numbers

Financial highlights[i]

Financial and operational highlights

Strong operational performance

Generating secure, inflation-linked income

Global portfolio and financial performance resilient despite market volatility and uncertainty

Prudent financial and risk management

Value-driven asset management

Sustainability

Market trends and pipeline

Company presentation for analysts and investors

A Company presentation for analysts and investors will take place today, Thursday, 31 August 2023, at 9.00am (BST) time via an in-person meeting and a live webcast and audio only dial in conference call.

For those analysts and investors who wish to attend the in-person presentation or live conference call, please contact InvestorServices@bb-gi.com

To access the live webcast, please register in advance here:

https://www.lsegissuerservices.com/spark/BBGISICAVSA/events/9a49493e-5908-4e1b-902b-55f19a7739e1

Webcast participants can type questions into the question box.

The recording of the interim results presentation and slides will be made available later in the day via the Company website: www.bb-gi.com*

FOR FURTHER INFORMATION, PLEASE CONTACT:

NOTES

BBGI Global Infrastructure S.A. (BBGI) is a responsible infrastructure investment company and a constituent of the FTSE 250. We invest in and actively manage for the long-term a globally diversified, low-risk portfolio of essential social infrastructure investments. Our purpose is to deliver healthier, safer and more connected societies, while creating sustainable value for all our stakeholders.

BBGI is committed to delivering stable and predictable cash flows with progressive long-term dividend growth and attractive, sustainable, returns for shareholders. Through our proactive and disciplined approach to active asset management and prudent financial management, and with a strong focus on ESG, we preserve and enhance the value of our investments, and deliver well maintained social infrastructure that serve and support local communities and end users.

All of BBGI's investments are availability-style and supported by secure public sector-backed contracted revenues, with high quality inflation-linkage. Availability-style means that our revenues are paid so long as the assets are available for use, and we maintain a consistently high level of asset availability of 99.9%.

BBGI's investment portfolio is over 99% operational with all its investments located across highly rated investment grade countries with stable, well developed operating environments.

BBGI's in-house management team is incentivised by shareholder returns and consistently maintains low comparative ongoing charges to shareholders.

BBGI is targeting dividends of 7.93 pence and 8.40 pence per ordinary share for the twelve months ending 31 December 2023 and 31 December 2024, respectively, representing a 6% increase year on year, and a dividend target of 8.57pps for 2025: all are expected to be fully cash-covered**.

Further information about BBGI is available on its website at www.bb-gi.com*

The Company's LEI: 529900CV0RWCOP5YHK95

Any reference to the Company or BBGI refers also to its subsidiaries (where applicable).

* Neither the Company's website nor the content of any website accessible from hyperlinks on its website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

** These are guidance levels or targets only and not a profit forecast and there can be no assurance that they will be met.

BBGI Global Infrastructure S.A. Interim Results for the Six Months Ended 30 June 2023

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 responsible capital to build and maintain critical social infrastructure[v].

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.

Our purpose: 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:

Six months in numbers

Financial highlights

Portfolio highlights

Portfolio at a Glance

The fundamentals

Based on portfolio value as at 30 June 2023.

Investment type

100 per cent availability-style[vi] 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 46 per cent of portfolio by value with a duration of greater than or equal to 20 years; weighted average life of 19.8 years. Average portfolio debt maturity of 15.9 years.

Our top five investments

Well-diversified portfolio with no major single asset exposure.

Investment ownership

78 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[vii].

Projected portfolio cash flow

Our underlying assets generate a consistent and long-term stream of inflation-linked cash flows, extending up to 2051. These cash flows are predictable due to the involvement of government or government-backed counterparties and the contractual nature of the agreements.

Based on current estimates, and assuming no further acquisitions for illustrative purposes only, the portfolio is forecasted to enter the capital repayment phase in September 2039. After this, cash inflows from the portfolio are paid to our shareholders as capital and the portfolio valuation reduces as assets reach the end of their concession term.

As at 30 June 2023, BBGI had a weighted average portfolio life of 19.8 years, a decrease of 0.4 years compared with 31 December 2022. By prioritising the acquisition of assets with a long residual life, we have maintained a portfolio with a long weighted average life.

This illustrative chart is a target only, as at 30 June 2023, 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 chart 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 the strong operational performance of our globally diversified portfolio of social infrastructure assets for the first six months of 2023. These results reflect the low-risk investment strategy, prudent financial management and value driven asset management approach that we have successfully deployed since our IPO in 2011.

Our financial performance was resilient throughout H1 2023, despite the ongoing challenging macroeconomic environment, which has been characterised by high inflation and rising interest rates, general market uncertainty and the volatile geopolitical backdrop.

The defensive and global nature of our portfolio has again provided stable, predictable and inflation-linked cash flows, and we have continued to generate secure, high-quality inflation-linked income and increased dividends that are expected to remain well covered.

Revenue from our 56 assets is 100 per cent availability-style, meaning revenues are paid so long as the assets are available for use. We are insulated from demand risk which can be subject to the volatility of the economic cycle. At the period end, BBGI's investment portfolio was 99.4 per cent operational, underlining the strength of our portfolio and the quality of the operational management delivered by our teams. We have only one asset under construction, Highway 104 in Nova Scotia, Canada, where completion is scheduled for Q3 2023.

Global portfolio resilient despite market volatility and uncertainty

There has been market rerating across all sectors in the alternative asset space in H1 2023. During this period, we have observed a modest decrease in the NAV per share of 1.4 per cent to NAV 147.8pps, impacted by macroeconomic variables beyond our control. This reduction is mainly attributed to an increase in discount rates and negative foreign exchange movements. The increase in discount rates particularly impacted our UK assets, which constitute 33 per cent of our portfolio. In the UK, the risk-free rate has materially increased during H1 2023, with c. 0.5 per cent added to 20-year gilt yields since 31 December 2022. Conversely, outside the UK, long-term government bond yields have declined in all jurisdictions except Norway.

The negative valuation effects have been partly mitigated by increased deposit and inflation rates, as well as the value enhancements our team has delivered across our portfolio.

Strong liquidity position and robust portfolio-level debt financing arrangements

We continue to benefit from a robust liquidity position - of the 56 assets in our portfolio, only one has a refinancing obligation for a small tranche of debt. We are therefore largely insulated from recent increases in interest rates. Our fund level leverage also remains modest. Drawings on our RCF could be repaid using excess cash generated by the Company's portfolio of investments by 31 December 2023. We have no investment transaction commitments.

Re-affirming our progressive dividend policy and dividend targets

In March 2023, we provided revised dividend targets for 2023 and 2024 of 7.93pps and 8.40pps, respectively. These revised dividend targets will increase the dividend growth rate to 6 per cent, ensuring our shareholders benefit from the increased value created by our high-quality, inflation-linked portfolio. We had strong cash dividend cover of 1.68x in H1 2023, with cash receipts ahead of projections, and no reported lock-ups or material defaults reported at any of our Portfolio Companies. We expect our dividend targets to be fully cash covered.

Strengthening our environmental, social and governance processes and progress

Our purpose is to focus on delivering social infrastructure for healthier, safer and more connected societies, while creating sustainable value for all stakeholders. Our portfolio investments are the essential assets on which people rely every day, such as schools, hospitals, fire and police stations, affordable housing, modern correctional facilities and transport. We partner with the public sector, underpinned by government or government-backed counterparties, to help deliver and manage responsibly these assets for the long term.

Given our role as a steward of essential infrastructure, ESG is a fundamental part of how we do business and we are focused on embedding our environmental and social commitments as part of our sustainability obligations. We are developing our ESG reporting processes and now report Scope 1, 2 and material Scope 3 GHG emissions, where possible, for all our Portfolio Companies. We believe that the measuring and reporting of emissions is the first step towards meaningful progress on our journey to net zero.

Outlook

BBGI has not been immune to the uncertain market and economic backdrop that has impacted investor sentiment on almost all UK listed investment companies. The Board does not believe the current share price adequately reflects the value of the portfolio and its high-quality inflation linkage, nor does it reflect our strong financial position and operational performance. As part of its overall capital allocation strategy, the Board will continue to closely monitor the discount and will take it into consideration. However, any potential actions to reduce the discount will only be undertaken after thorough consideration and taking into account the long-term implications.

The macroeconomic environment is expected to remain volatile, particularly in the UK, and inflation is likely to remain high at least for the near term. As an internally-managed investment company, our leadership team's alignment of interest with our shareholders is clear. In this period of economic volatility, we will continue to be disciplined in our approach to capital allocation and will only consider transactions that are accretive to our shareholders.

Sarah Whitney

Chair

Co-CEO's statement

Our investment proposition is robust and defensive: we invest in creditworthy, government-backed assets, with high-quality inflation-linked cash flows, that perform well throughout market and economic cycles.

Our results for H1 2023 demonstrate our continued strong operational performance despite the challenging economic times. Through our consistent, disciplined approach to active asset management and prudent financial management, our investments have continued to deliver during the period, with a resilient financial performance. Over the past six months, we have continued to generate high-quality, predictable and inflation-linked cash flows, and strong dividend cover for our shareholders. 

We are creating a positive sustainable impact on the local communities served by our 56 infrastructure assets, helping to provide the responsible capital required to build and maintain critical social infrastructure in the countries where we do business. 

Key highlights for H1 2023

Valuation and NAV update

As at 30 June 2023, our NAV per share decreased by 1.4 per cent to 147.8pps (31 December 2022: 149.9pps). There are several market-specific factors that contributed to the net decrease in the NAV, the more notable being:

The number of availability-style transactions and available market data points have increased in H1 2023 compared to H2 2022, and these data points support our revised discount rate of 7.2 per cent. Notwithstanding, the Company complements its market-based approach 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.

During H1 2023, short-term interest rates continued to rise. The most significant impact on long-term government bond yields, and subsequently on the discount rates used in the valuation process, was observed in the UK, where we have seen an increase of c. 0.5 per cent on the risk-free rate thereby contributing to an increase in the UK discount rate for stable operational projects to 7.5 per cent. In contrast, in all other countries where we invest with the exception of Norway, long-term government bond yields have declined and as a result the weighted average risk-free rate across the portfolio remained flat. We benefitted from the global nature of our portfolio of investments with no singular concentration risk in any one country.

Capital Allocation Policy

In the current macro-economic environment, our strategy focuses on directing surplus capital towards the repayment of any outstanding drawings on the revolving credit facility. However, when appropriate opportunities arise, we have a structured process for considering potential new investments. These opportunities are evaluated with a focus on both dividends and returns, illustrating our commitment to pursuing selective and disciplined growth.

Prudent financial and 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 conflict in Ukraine or energy price volatility. Through our effective hedging strategy, we have managed to limit foreign exchange losses.

As of 30 June 2023, our liquidity position remains robust, with a net debt position of £7.9 million and £25.8 million of cash drawings under our £230 million multi-currency RCF, maturing in May 2026. Fund level leverage remains modest, representing only 2.4 per cent of NAV with no investment transaction commitments. All cash drawings at 30 June 2023 were in Euros, with an all-in debt rate of 5.08[ix] per cent. By using excess cash generated by the Company's portfolio of investments, these drawings could be repaid 31 December 2023.

Furthermore, we have benefitted from strong liquidity and our portfolio-level debt financing arrangements, therefore rising debt costs have had a limited impact on our financial health, as evidenced by:

Value-driven asset management

We focus on operational performance to drive efficiencies and generate portfolio optimisation. Our hands-on approach preserves and enhances the value of our investments, delivering well-maintained social infrastructure for communities and end-users, and attractive returns over the long term for shareholders.

Value-accretive activities, including effective lifecycle cost management, Portfolio Company cost savings, and optimised cash reserving, contributed approximately £7.6 million to the NAV.

We maintain our track record of no reported lock-ups or material defaults at our Portfolio Companies, and we continue to generate a consistently high asset availability rate of 99.9 per cent.

As the sole internally managed equity infrastructure investment company on the London Stock Exchange, our structure ensures our interests are fully aligned with our investors. We are not incentivised by assets under management, but rather value creation.

Dividend

We declared a half-year dividend of 3.965pps for H1 2023, in line with our target. We are reconfirming our progressive dividend policy and our dividend targets, which we revised in March 2023 for 2023 and 2024, increasing the dividend growth rate to 6 per cent. This ensures our shareholders benefit from the increased value created by our high-quality, inflation-linked portfolio. We also introduced a new dividend target of 8.57pps for 2025 and we expect all our dividend targets to be fully cash covered. While our dividend growth target is set at 6 per cent for 2023 and 2024 in response to higher short term inflation assumptions, our 2025 target projects a 2 per cent growth under our progressive dividend policy, predicated on an assumption of a more stable macroeconomic environment. Assuming a scenario where no additional investments are made, the projected cash flows generated in the income phase from BBGI's current portfolio of 56 investments would sustain the Company's progressive dividend policy[xi] for at least 15 years.

Contributing to a net-zero future

Our asset management approach is aligned to six Sustainable Development Goals ('SDGs') with a focused ESG approach fully integrated into our business model, which is led by our purpose. In June 2023, we published our 2022 ESG report, which provides detailed information on our ESG progress and showcases achievements at our 56 Portfolio Companies.

Under Sustainable Finance Disclosure Regulation ('SFDR'), we fall within the scope of Article 8, where the investment product promotes social characteristics and follows good governance practices. In June 2023, we filed our latest SFDR disclosures, including details on how we measure our performance in engaging with our stakeholders and our contributions to meeting our social characteristics.

During the period, a comprehensive data collection exercise was conducted to capture Scope 1, 2 and material Scope 3 GHG emissions data from all our Portfolio Companies between 2019 to 2022.

Our objective is to have 70 per cent of our Portfolio Companies by value to be 'net zero' 'aligned', or 'aligning', by 2030, with these principles embedded in our executive remuneration targets.

Looking ahead

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

We will continue to maintain a disciplined approach to capital allocation and transaction activity, only participating in the market and evaluating potential investment opportunities when they are clearly value accretive. Preserving and enhancing the value of our portfolio remain our top priorities. The strength of our assets is evidenced by the continued strong market demand for similar assets, thanks to their high-quality, secure, and long-term inflation-linked contracts, which generate predictable cash flows. This, in turn, enables us to deliver attractive returns to our shareholders over the long term. We approach the future with confidence.

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. Our 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:

Low-risk

Globally diversified

Strong ESG approach

Internally managed

Our business model is the bedrock of our success, enabling us to deliver:

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, which are fundamental to our success. This model aims to preserve and create value, while achieving portfolio growth, ensuring that ESG considerations are embedded in our processes.

Our active asset management approach seeks to ensure stable operational performance, preservation of value and, where possible, identification and incorporation of value enhancements over the lifetime of the assets under our stewardship. Our approach aims to reduce costs to our public sector clients and asset end-users, to enhance the operational efficiency of each asset and to generate a high level of asset availability, underpinning the social purpose of our portfolio.

Our prudent financial management approach focuses on efficient cash and corporate cost management and the implementation of our foreign exchange hedging strategy. Due to our portfolio's extensive geographical diversification, we are exposed to foreign exchange volatility, which we actively seek to mitigate.

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, through portfolio construction, acquisitions with long-term, predictable, and inflation-protection characteristics that support our contracted, high-quality, inflation linkage of 0.6 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 clients' experience, including:

Prudent financial management

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

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:

We 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 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:

Portfolio review

Portfolio summary

Our investments as at 30 June 2023 consisted of interests in 56 high-quality, availability-style social infrastructure assets, 99.9 per cent of which are fully operational (by portfolio value). The 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.

Located in Australia, Canada, Germany, the Netherlands, Norway, the UK, and the US, all Portfolio Companies are in stable, well-developed, and highly-rated investment grade countries.

Projects listed above are in alphabetical order

Operating model in action

Preserving and enhancing value through active asset management

Increasing short-term interest rates across all jurisdictions over the past 12 to 18 months has led to a renewed emphasis on treasury management and optimisation. During the reporting period, we have finalised cash pooling arrangements in the UK and Canada to maximise interest generated on cash deposits of our Portfolio Companies.

Value-accretive activities, including effective lifecycle cost management, Portfolio Company savings, and optimised cash reserving, contributed approximately £7.6 million to the NAV.

The operational performance of the Portfolio Companies continued to be strong. Through our active value-driven approach to asset management and the robustness of our portfolio we have achieved an asset availability level of approximately 99.9 per cent. 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, default events or covenant breaches in the underlying debt financing agreements reported in the six months to 30 June 2023. This means that all our investments contributed to our strong dividend cover with distributions ahead of projections. We are very proud of this achievement.

High-quality inflation linkage

During the reporting period, inflation and interest rates continued to remain at elevated levels 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 0.6 per cent. If long‑term inflation is 1 per cent higher than our assumptions for all future periods, returns should increase from 7.2 per cent to 7.8 per cent. 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 - providing an inflation cost hedge to effectively manage our cost base. The Portfolio Companies enter 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 our inflation linkage is underpinned by:

Contractual increases: The adjustment for inflation is a contractual component of the availability-style cash flows for each Portfolio Company, supported by creditworthy government or government-backed counterparties in AA to AAA-rated countries. While other types of assets may offer a strong theoretical inflation linkage (e.g., the ability to raise prices in response to an increase in CPI), they may be subject to changes in elasticity of demand. For example, toll roads and student accommodation projects 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. Such assets would therefore need to be priced at an appropriate risk-adjusted basis. 

Protection against rising costs: We transfer the indexation mechanism to our subcontractors, who are crucial in supporting the operations of our assets. This arrangement serves as an inflation cost hedge, helping us to efficiently control our cost base. Similarly, in most cases, the risk of energy cost increases rests with our 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: Our inflation linkage comes from diverse Portfolio Companies in different countries.

Prudent financial management

Our assets continued to perform well during the reporting period with cash receipts during the period ahead of projections.

Our net debt position as of 30 June 2023 was £7.9 million with drawings outstanding under the RCF representing 2.4 per cent of NAV.

We have efficient cash management in place, which aims to avoid cash drag. We use the proven financing methodology of drawing on our RCF before raising new equity to repay the temporary debt. The committed amount available to the Company from the RCF is £230 million, which matures in 2026. Furthermore, the Company has the possibility of increasing the quantum to £300 million by means of an accordion provision. This provides us with the ability to execute larger acquisitions in an efficient manner, and ensures we are a trusted and repeat partner in our key markets.

Despite increasing cost pressures resulting from heightened levels of inflation, our diligent approach to cost management has enabled us to maintain our ongoing charges at a competitive level of 0.92 per cent.

Selective acquisition strategy

During the period, we remained active in the market and carefully assessed new investment opportunities. Although we evaluated several opportunities, the Management Board chose not to pursue them as they did not meet our criteria for accretive inflation-linkage, yield, or residual life.

Supply chain monitoring

The Management Board consistently monitors the potential concentration risk posed by operations and maintenance (O&M) contractors that provide counterparty services to our assets. The table below depicts the level of O&M contractor exposure as a percentage of portfolio value.[xiv]

The Management Board has thoroughly assessed the risk exposure and has not identified any significant risks. We have a strict supply chain monitoring policy in place and maintain a diverse contractor base and supply chain, with no concentrated exposure. Additionally, we have implemented risk mitigation measures to address any potential supply chain issues proactively.

Construction defects

We proactively monitor the quality of our assets to promptly identify any construction defects. When necessary, we take appropriate remediation measures to ensure the highest standard of our portfolio. The responsibility for, and the cost of remediation and related deductions lie with the relevant construction subcontractor on each asset, in line with statutory limitation periods. This plays an important role in our effective counterparty risk management.

Latent defects risk was mitigated during the reporting period, with 58 per cent of portfolio value covered by either limitation or warranty periods and there were no material defects reported on any of our portfolio assets.

Project hand back

At the end of a concession, the private partner transfers control and management of the project back to the public sector. This process is termed 'hand back'. The concessions for two of the Company's UK accommodation assets will expire in January 2026 and August 2027. Preparations for their hand back is underway. Following the Infrastructure and Projects Authority UK's guidelines, collaborative working groups have been established, comprising representatives from the Authority, the FM contractor, and the Portfolio Companies, each involved in the projects. The FM contractor bears the hand back risk for both assets.

The hand back process is progressing positively, with notable advancements made so far. Interactions and cooperation among all parties are robust, fostering strong relationships. As of now, no risks that could affect either of the Portfolio Companies have been detected in the process.

Market trends and pipeline

BBGI continues to operate in an unpredictable macroeconomic and geopolitical environment. Financial markets remain volatile, and peak inflation and interest rate levels and timing remain uncertain.

As rising long-term risk-free rates were predominantly observed in the UK during the reporting period, we have seen robust demand and only a moderate increase in pricing for high-quality availability-style infrastructure assets, as evidenced by third-party transactions. However, the changing macroeconomic conditions have negatively impacted the share prices of listed infrastructure companies, limiting sector participants' short-term access to equity capital markets. Therefore, we will continue to exercise discipline and only pursue transactions that are accretive and enhance our portfolio construction.

We believe infrastructure will remain an attractive asset class due to its defensive nature, predictable cash flows, and inflation linkage. Looking ahead, the social infrastructure asset class shows promising prospects, driven by the need for decarbonisation, digitalisation, and the upgrade or replacement of ageing infrastructure.

With a healthy balance sheet and a largely untapped RCF, we are well positioned to navigate the evolving core infrastructure landscape with discipline and ambition. Our objective is to deliver accretive long-term predictable and inflation-linked cash flows to our shareholders.

As many market participants are evaluating the prospects of an economic recession, we take comfort in the resilience of the contractual nature of our cash flows, which are paid by high credit-quality government clients, in return for delivering essential social infrastructure.

Within the broader infrastructure sector, there has been a wide variation in how different types of assets have performed. Going forward, economic infrastructure investments may be impacted if the economy grows at lower rates than forecast. However, the availability-style infrastructure assets in which we invest are less cyclical, and thus more resilient during potential economic downturns.

New opportunities

While BBGI's primary focus remains on the secondary market, we recognise that primary market activity serves as an essential indicator for future secondary opportunities in the medium to longer term. Although there is no guarantee that the planned infrastructure spending will result in investment opportunities, we expect that governments will seek private sector capital to support their ambitious plans, especially considering the significant strain on government balance sheets following the Covid pandemic.

Numerous countries have announced substantial infrastructure investments in response to climate change targets. The OECD forecasts a need for US$6.9 trillion in global investment annually until 2030 to meet climate and development objectives.[xv]

Canada: The 'Investing in Canada Plan' commits over C$180 billion until 2035 for infrastructure projects benefitting Canadians. Over C$136 billion has been invested to date. The Investing in Canada Plan is designed to achieve three objectives: create long-term economic growth to build a stronger middle class; support the resilience of communities and transition to a clean growth economy; and build social inclusion and socio-economic outcomes for all Canadians. Investments will be directed towards infrastructure to support a resilient recovery, focusing on public transit, low-carbon transition initiatives, and a national infrastructure fund.

UK: The UK Infrastructure Bank, established in 2021, aims to stimulate growth and transition to net zero by 2050. Together with the private sector and local government, the bank is leading a shared mission to accelerate investment in the UK's infrastructure. The government expects to support at least £40 billion of investments in various sectors, including transport, water, waste and digital.

US: The Infrastructure Investment and Jobs Act, a US$1.2 trillion bipartisan bill approved in November 2021, commits significant funding to infrastructure development across various areas, including roads, bridges, public transit and broadband. It is the largest such investment programme in more than a generation and raises federal infrastructure spending to its highest share of GDP since the early 1980s.

EU: The European Commission unveiled a major infrastructure investment strategy aimed at mobilising up to €300 billion of investments in global development between 2021 and 2027[xvi]. The strategy will seek to develop physical infrastructure in five key sectors: digital; climate and energy; transport; health; and education and research and allows the EU to leverage public and private investment in priority areas. The European Commission said the European Fund for Sustainable Development will make up to €135 billion available for guaranteed investments for infrastructure projects between 2021 and 2027.

Australia: The Australian Government is investing A$120 billion over ten years from 2022-2033 in land transport infrastructure through its rolling infrastructure pipeline, most of which is delivered under the Infrastructure Investment Program. The government has committed to upgrading key freight routes in the regions, reducing traffic congestion in cities, developing faster rail, improving road safety, and empowering local councils to support projects that matter to local communities.

2023 and beyond: BBGI's pipeline for transactions

BBGI remains committed to expanding its essential social infrastructure portfolio. From 19 availability-style assets in 2011, our portfolio has grown to 56 assets, including roads, schools, healthcare facilities, transport and modern correctional facilities.

Our focus remains on assets with long-term predictable and inflation-linked revenues, often with public sector counterparties, either through concessions or direct ownership. These opportunities will further diversify and strengthen our portfolio, ensuring sustainable returns for our shareholders.

Operating and financial review

The Management Board is pleased to present the Operating and Financial Review for the six months ended 30 June 2023.

Highlights and key performance indicators

Certain key performance indicators ('KPIs') for the past 3.5 years are outlined below:

Asset management

Cash performance

Our portfolio of 56 high-quality, availability-style PPP infrastructure investments performed well during the period, with total cash flows ahead of projections and the underlying financial models.

Construction exposure

Our investment policy is to invest principally in assets that have completed construction and are operational. Accordingly, investments in assets that are under construction are limited to 25 per cent of the portfolio's value. We aim to produce a stable dividend, while gaining exposure to the potential NAV uplift that occurs when assets move from successful construction to the operational phase.

As at 30 June 2023, 99.4 per cent of our assets were operational. Highway 104 in Canada is the only project in construction. We reached financial close on our Highway 104 project in May 2020, with substantial completion scheduled for Q3 2023. The Management Board believes measured construction exposure will not compromise our ability to meet our dividend targets.

Investment performance

Return track record

Like many other listed companies in the infrastructure and renewables sectors, macro uncertainty has weighed on investor sentiment and our shares have traded at a discount to NAV for a notable portion of the reporting period.

The share price weakness and associated discount to Net Asset Value, has been seen across BBGI's UK listed peers and reflects amongst other things the markets concern about the effects of higher inflation, higher interest rates and potential consumer recessions, on areas such as discount rates, the availability and price of debt and the volume and price of infrastructure transactions going forward. However, the Board does not believe the current share price accurately reflects the value of our portfolio or its prospects.

Since going public in 2011, BBGI shares have only briefly traded at a discount to NAV, namely at the start of the global pandemic in March 2020, during the UK Prime Minister Truss 'Mini budget', and more recently during H1 2023 amidst concerns about the impact of rising interest rates on the valuations of infrastructure and renewable investments. The Company is focused on long-term investing with its low-risk portfolio of long duration assets providing the opportunity to look beyond these periods of market stress. The Board closely monitors the discount and takes it into consideration as part of its overall capital allocation strategy, however, actions to try to reduce the discount will only be undertaken after thorough consideration and taking into account the long-term implications.

Against the FTSE All-Share, the Company has shown a low ten-year correlation of 26.3 per cent and a beta of 0.2620.

The share price closed at 138.0 pence on 30 June 2023, representing a 6.6 per cent discount to the NAV per share at the period-end.

The total NAV return per share from IPO to 30 June 2023 was 163.8 per cent or 8.8 per cent on an annualised basis[xviii].

Distribution policy

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

Dividends

On 5 April 2023, we paid a second interim dividend of 3.74pps for the period 1 July 2022 to 31 December 2022. Together with the first interim dividend (which was paid in October 2022), the total dividend for the year ended 31 December 2022 amounted to 7.48pps. The Board approved a 2023 interim dividend of 3.965pps to be paid on 19 October 2023, which is in line with its dividend target for the year of 7.93pps. Furthermore, the Board is reaffirming its 2024 dividend target of 8.40pps and a dividend target for 2025 of 8.57 pence per share.

· Average dividend increase of 3.4 per cent on a compound annual growth rate from 2012 to 2023.

Valuation

The Management Board is responsible for carrying out the fair market valuation of the Company's investments, which is then presented to the Supervisory Board for consideration as part of its approval of the Annual and Interim Reports. The valuation occurs semi-annually on 30 June and 31 December 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. Our forecast assumptions for key macroeconomic factors impacting cash flow include inflation rates and deposit rates, and enacted changes in taxation rates during the reporting period. These assumptions are based on market data, publicly available economic forecasts, and long-term historical averages. We also exercise judgement in assessing the future cash flows from each investment, using detailed financial models produced by each Portfolio Company and adjusting these models where necessary to reflect our 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 determined by applying an appropriate discount rate, alongside contracted foreign exchange rates, or reporting period-end foreign exchange rates and withholding taxes (as applicable).

The discount rates applied considers investment risks, including the phase of the investment (construction, ramp-up or stable operation), investment-specific risks and opportunities, and country-specific factors.

Our determination of appropriate discount rates involves judgement based on market knowledge, insights from investment and bidding activities, benchmark analysis with comparable companies and sectors, discussions with advisers, and publicly available information and analysing the equity risk premium over government bond yields. As a reasonability check to our market-based approach and providing further guidance to determine the appropriate market discount rates, the Company complements its market-based approach by using the Capital Asset Pricing Model where government risk-free rates plus an equity risk premium are used to calculate discount rates.

The table below illustrates the breakdown of movements in the NAV.

NAV movement 31 December 2022 to 30 June 2023

The NAV at 30 June 2023 was £1,056.7 million (31 December 2022: £1,069.2 million), representing a decrease of 1.2 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 Interim Report for further detail.

ii 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 table are shown net of withholding tax.

iii 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.

 iv Includes the positive unrealised mark-to-market movement on the balance sheet hedge of £8.1 million. Under IFRS, the related asset is recorded separately as a derivative financial asset in the Condensed Consolidated Interim Statement of Financial Position. 

Key drivers for NAV change

The rebased opening portfolio value, after cash distributions from investments of £51.9 million, was £1,045.2 million.

Portfolio return consists of several components, including the unwinding of the discount rate, portfolio performance, the net effect of actual inflation, and updated operating assumptions:

During the period, the Company recognised a £45.0 million portfolio return, representing a 4.2 per cent increase in the NAV resulting from the unwinding of discount rates, and portfolio performance, which reflects 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. £7.6 million of the £45.0 million is attributable to value enhancements delivered by our active asset management approach. These value-accretive activities included effective lifecycle cost management, Portfolio Company cost savings, and optimised cash reserving.

Change in market discount rates supported by transactional data points:

The number of availability-style transactions and available market data points have increased in the H1 2023 compared to H2 2022. Our objective when using market data points is to provide further validation of the discount rates applied in the valuation process. The Company has obtained at least one relevant transactional data point for each currency in which we invest, except for the Norwegian krone. Each data point considered represents a transaction closed in December 2022 or later; therefore, each data point considers recent macroeconomic changes. In the case of Norway, where no transactional data was available, a risk premium of 3.0 per cent has been adopted.

We continue to complement our 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 construct discount rates. This analysis is used as a reasonability 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.

Based on data from transactional activity, benchmark analysis with comparable companies and sectors, discussions with advisers in the relevant markets, and publicly available information gathered over the period, we have increased the weighted average discount rate to 7.2 per cent (31 December 2022: 6.9 per cent), which management believes to be conservative for a portfolio of availability-style social infrastructure investments. This perspective is further informed by our recent participation in auction processes in North America. While we ultimately decided not to proceed, reliable feedback from the sell-side advisor indicates that discount rates from bidders were c. 7.0 per cent. This methodology calculates the weighted average based on the value of each investment in proportion to the total portfolio value, that is, based on the net present value of their respective future cash flows.

The demand for availability style transactions remained robust, with transactional data points outside the UK indicating a modest increase in discount rates with only the UK showing a different trend. As a result, the UK, which represents 33 per cent of our portfolio value, displays the most significant discount rate increase, rising by approximately 0.7 per cent to 7.5 per cent for stable operational projects. In contrast, the increase in other jurisdictions is up to a maximum of 0.2 per cent.

While individual risk-free rates have moved in a heterogenous manner during the period (see table below), the weighted average risk-free rate has remained stable at c. 3.8 per cent since December 2022. The discount rate of 7.2 per cent represents a risk premium of c. 340 basis points, which the Company views to be adequate and towards the conservative end for low-risk availability-style investments. 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 view is supported by an announcement of the German Network Agency, which calculated equity risk premium for regulated gas and assets of around 300 basis points. 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 300 basis points mark.

In Canada, representing 35 per cent of the Company's investment portfolio, the 20-year government bond rate decreased c. 0.2 per cent[xix] over the period with broadly similar movements in Australia, Germany, the US and the Netherlands. The single material outlier has been the UK, representing 32 per cent of the Company's investment portfolio, with the 20-year government gilt rate increasing c. 0.5 per cent[xx] over the period with a broadly similar movement in Norway. This divergence across jurisdictions has a stabilising effect on the overall weighted average discount rate applied in the valuation process, which further emphasises the benefits of a global investment strategy with no singular concentration risk to any one country.

Going forward, the Company is confident that investment demand for availability-style social infrastructure, offering long-term, predictable and inflation-linked cash flows will remain strong.

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, and country-specific factors. For investments in the construction phase, we apply a risk premium to reflect the higher-risk inherent during this stage of the 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 H2 of 2023.

Furthermore, we have applied risk premiums or discounts to a limited number of other investments based on their individual circumstances. For example, we have made adjustments 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, representing less than 1 per cent of the overall NAV. This risk premium reflects the ongoing situation in the UK, where some public health clients are facing cost pressures and are actively seeking cost savings, including deductions. To date, BBGI has not been affected.

Change in macroeconomic assumptions:

During the period, the Company recognised an increase in the portfolio value of £13.8 million, or a 1.3 per cent increase in the NAV, resulting from changes in macroeconomic assumptions. The main drivers were short-term and long-term deposit rates accounting for £12.9 million of this increase, with the balance reflecting marginal changes in short-term inflation forecasts.

The Company's forecasted inflation rates were broadly in line with actual inflation, delivering on the projected growth in the portfolio value. See 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, bringing them in line with long-term averages. The effect of revised deposit rate assumptions resulted in a £12.9 million, or a 1.2 per cent increase in NAV.

Foreign exchange:

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.

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, or at the closing foreign exchange rate for the unhedged future cash flows.

During the period ended 30 June 2023, the appreciation of Sterling ('GBP') against the Canadian Dollar ('CAD'), Australian Dollar ('AUD'), the Euro ('EUR'), the US Dollar ('USD'), and the Norwegian Krone ('NOK') accounted for a net decrease in the portfolio value of £12.9 million, which includes the positive unrealised mark-to-market movement on the Company's balance sheet hedge of £8.1 million. 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 a decrease of £1.0 million, or 0.1 per cent of the 30 June 2023 NAV.

The table below shows the closing exchange rates, which were used to convert unhedged future cash flows into the reporting currency at 30 June 2023.

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 3 per cent, for a 10 per cent adverse movement in foreign exchange rates.[xxi] This is achieved by hedging a portion of the non-Sterling and non-Euro portfolio value.[xxii] It is worth noting that forecasted distributions in Euro are not hedged, as a natural hedge is in place due to a significant portion of the running costs incurred at the consolidated level being denominated in Euro. 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 30 June 2023 would need to be approximately 77 per cent to obtain the same NAV sensitivity to a 10 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. Against this backdrop, the Company is well-positioned through its high-quality contracted 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 because the Company holds a low-risk, 100 per cent availability-style portfolio, coupled with strong stakeholder collaboration to identify and mitigate any potential adverse effects.

Macroeconomic assumptions

In addition to 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 Territories; 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 7.2 per cent.

Inflation has increased in all jurisdictions across BBGI's geographies, and interest rates have risen from historical lows, although in some jurisdictions these trends have reversed over the period. Should long-term interest rates rise substantially further, this is likely to further 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 8.2 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 assumptions in the table above:

Short-term inflation sensitivity

Inflation may continue to 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 30 June 2023 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). As at 31 March 2023, BBGI's proportionate share in the total deposits held by the Portfolio Companies exceeds £375 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 equipment. Lifecycle obligations are generally passed down to the facility maintenance provider, except for transportation investments, where these obligations are typically retained by the Portfolio Company.

Of the 56 investments in the portfolio, 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 in the forecasted debt rate.

Refinancing sensitivity relates to the Northern Territory Secure Facilities, as it is common practice in the Australian infrastructure market to have senior debt durations that are typically between five and seven years. We assume three refinancings for the Northern Territory Secure Facilities, between December 2025 and December 2038. Long-term interest rate hedges fully mitigate base rate risk, leaving exposure only to potential changes in margin.

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:

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

Basis of accounting

We have prepared the Group's Condensed Consolidated Interim 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, therefore, does not consolidate its investments in subsidiaries that qualify as investments at fair value through profit or loss. However, 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 consistent with those principles applied in the prior year reporting.

Income and costs

During the six-month period, the Group recognised a net income from investments at FVPL amounting to £19.7 million (30 June 2022: £100.4 million). This income is derived from a combination of factors, including the positive effect of inflation and deposit interest rate increases, the net effect of foreign exchange, the unwinding of discount and value enhancements.

The movement in income from investments at FVPL on a comparative basis can be primarily attributed to foreign exchange fluctuations and changes in discount rates. In the June 2022 reporting period, we recorded a net foreign exchange income, after considering the net effect of unrealised results from balance sheet hedging, of £32.4 million. However, in the June 2023 reporting period, we recognised a loss of £12.9 million, resulting in a significant swing of £45.3 million. Additionally, discount rates remained unchanged in the June 2022 reporting period; however, in the June 2023 reporting period, we recognised a loss of £26.8 million. Together, these factors contributed to a total swing of £72.1 million on a comparative basis.

During the reporting period, the Company recognised a net gain of £8.1 million on balance sheet hedging and £5.7 million on cash flow hedging (30 June 2022: £13.6 million net loss on balance sheet hedging and £14.1 million net loss on cash flow hedging). For pro-forma purposes, the net result of balance sheet and cash flow hedging is included in income from investments at FVPL.

Further detail on the income generated by the Group's Investments at FVPL is provided in the Valuation section of this Interim Report.

Administrative expenses include personnel expenses, legal and professional fees and office and administration expenses. See further detail in the Group level corporate cost analysis.

Profit for the six-month period decreased to £11.1 million (30 June 2022: £92.5 million). This reduction is primarily attributable to those factors outlined above, being the adverse effects of foreign exchange movements on our non-Sterling denominated portfolio and the increase in UK risk-free-rates, which has led to an increase in the discount rates applied in valuing our UK assets.

Group level corporate cost analysis

The table below is prepared on an accrual basis.

Personnel expenses for the six-month period were £4.1 million (30 June 2022: £3.7 million) with the increase driven largely by inflation adjustments to staff salaries.

The net finance result for the six-month period was £1.4 million (30 June 2022: £0.9 million). This figure reflects borrowing costs, commitment fees and other fees relating to the Group's RCF. At 30 June 2023, the Group had £25.8 million of borrowings outstanding under the RCF.

Acquisition-related costs incurred during the six-month period amounted to £0.2 million (30 June 2022: £0.4 million), which relates to unsuccessful bid costs amounting to £0.2 million (30 June 2022: less than £0.1 million).

Ongoing charges

Using costs incurred to 30 June 2023, the Company's estimated annualised ongoing charges ('OGC') percentage at 30 June 2023 is 0.92 per cent (31 December 2022: 0.87 per cent).

The OGC has increased slightly compared to the reported figure as of 31 December 2022. This increase is primarily due to underlying cost increases driven by inflationary pressures, including staff salaries, with limited offsetting denominator effect from the average NAV.

The estimated annualised OGC percentage is prepared in accordance with the Association of Investment Companies ('AIC') recommended methodology. The percentage represents the annualised reduction or drag on shareholder returns as a result of recurring operational expenses incurred in managing the Group's consolidated entities and provides an indication of the level of recurring costs likely to be incurred in managing the Group in the future.

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.

Annualised fees directly linked to investment performance as a percentage of average NAV are estimated to be 0.11 per cent. Combined therefore, the estimated annualised aggregate of ongoing charges plus investment performance fees is 1.03 per cent.

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 Group's portfolio of investments continued to perform strongly over the six-month period, with gross distributions exceeding projections. However, on a comparative basis, the distributions were down due to the previously reported opportunistic refinancing completed in H1 2022, which resulted in a one-off distribution of proceeds.

Cash dividends paid during the six months ended 30 June 2023 amounted to £25.1 million (30 June 2022: £25.1 million).

Cash dividend cover

For the six months ended 30 June 2023, the Group achieved a cash dividend cover ratio of 1.68x (period ended 30 June 2022: 2.03x) calculated as follows:

The strong cash dividend coverage for the period was underpinned by BBGI's high-quality, contracted, inflation linked cash flows. The cash dividend cover for FY 2023 is forecast to be in the range of 1.30x to 1.40x. The projected reduction on an annual basis is due to the front-ended distribution profile of the portfolio.

Pro forma balance sheet

As at 30 June 2023, cash and cash equivalents amounted to £17.9 million (£31.2 million as at 31 December 2022). A reconciliation of cash and cash equivalent to net debt is provided below:

The Investment Basis NAV decreased by 1.2 per cent to £1,056.7 million as at 30 June 2023 (31 December 2022: £1,069.2 million) and by 1. 4 per cent on an Investment Basis NAV per share basis). The NAV total return on a per share basis for the six months to 30 June 2023 was 1.1 per cent.

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 Interim Report. The Management Board believes that these APM provide additional information that may be useful to the users of this Report.

The APM presented here should supplement the information presented in the Financial Statement section of this 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.

1 Calculated using the Morningstar methodology.

Reconciliation of investment basis to IFRS

Reconciliation of condensed consolidated

Interim Income Statement

Reconciliation of Condensed Consolidated

Interim Statement of Financial Position

(i) Represents the value of the Group's total net assets 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.

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:

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 which risks 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 and acceptable.

The following table summarises our material risks but is not an exhaustive list of all the potential risks BBGI faces. 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.