BBGI Global Infrastructure Regulatory News (BBGI)

28 August 2020

BBGI SICAV S.A.('BBGI' or the 'Company' and together with its consolidated subsidiaries, the 'Group')

Interim Results for six months ended 30 June 2020

The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (Regulation 596/2014). Upon the publication of this Announcement via a Regulatory Information Service this inside information is now considered to be in the public domain.

ABOUT BBGI

BBGI (the 'Company', and together with its subsidiaries, the 'Group') is a global infrastructure investment company helping to provide the responsible capital required to build and maintain critical transport and social infrastructure in the countries where we do business.

These are the infrastructure assets that citizens rely on every day to keep local economies moving, and as a long-term custodian, we partner with the public sector to help deliver and manage them.

In doing so, we follow a low-risk, globally diversified and internally managed investment strategy to deliver long-term and predictable shareholder returns.

BBGI provides access to a diversified portfolio of infrastructure investments that generate long-term, sustainable returns and serve an inherent social purpose in supporting local communities. The healthy demand for responsible private sector finance for public infrastructure is underpinned by the widening infrastructure spending gap in the developed countries where BBGI invests.

In return for long-term investment in and active ownership of essential infrastructure assets such as roads, bridges, schools, healthcare and justice facilities procured using availability-based investment models, BBGI receives stable, predictable and contracted cash flows. These are backed by government or government-backed counterparties.

The predictability of these contracted revenues allows BBGI to return to investors a stable and progressive income stream in the form of a semi-annual dividend. The Management Board follows a proven operating model of value-driven active asset management, prudent financial management and a selective acquisition strategy to preserve value, achieve portfolio growth and ensure Environmental, Social and Governance ('ESG') considerations are embedded in our investment processes. These operational pillars are fundamental to the Company's low-risk, globally diversified and internally managed investment strategy.

1. Low-risk[i]

Committed to an availability-based investment platform which focuses on investing principally in lower risk road and bridge assets. This commitment to an availability-based investment strategy generates stable, predictable cash flows backed by secure, contracted public sector revenues. This is the Management Board's area of expertise, avoiding style drift by maintaining a disciplined approach to this strategy.

2. Globally diversified

The investment strategy is deployed in stable, well-established developed markets where governments and local authorities maintain support for availability-based models to finance public infrastructure. This provides focused exposure to highly-rated investment grade countries, across the UK, North America, Australia and Continental Europe.

3. Internally managed

The Company's in-house management team is focused on delivering shareholder value, incentivised by shareholder returns and growth in Net Asset Value ('NAV') per share. This means that no NAV-based management or acquisition fees are charged and the internal management team's interests are fully aligned with those of the shareholders, resulting in full pricing discipline when managing the portfolio and assessing investment opportunities. As a result, the Company consistently maintains the lowest comparative ongoing charges to its shareholders.[ii]

For the six months ended 30 June 2020

FINANCIAL HIGHLIGHTS

• Investment Basis NAV up 0.3% to £860.8 million as at 30 June 2020 (31 December 2019: £858.6 million)[iii]

• Investment Basis NAV per Share up 0.1% to 136.4pps[iv] as at 30 June 2020 (31 December 2019: 136.2pps)

• Total Shareholder Return ('TSR') since IPO[v] 136.2% (FY 2019: 136.2%)

• Annual Total Shareholder Return since IPO[vi] 10.6% (FY 2019: 11.3%)

• 2020 Target Dividend of 7.18pps up 2.6% on the 2019 dividend.

• 2021 Target Dividend of 7.33pps up 2.1% on the 2020 dividend target

• Cash Dividend Cover[vii] of 1.58x (FY 2019:1.30x)

• Annualised Ongoing Charges[viii] of 0.90% (FY 2019: 0.88%)

PORTFOLIO HIGHLIGHTS

• Diversified global portfolio of 49 high-quality, availability-based PPP infrastructure assets.

• Resilient portfolio performance during the reporting period despite the wider market and economic uncertainty, thanks to the Company's focus on value preservation and the low-risk nature of the portfolio's composition.

• Consistently high level of asset availability at 99.8 per cent underpinned by active asset management where the Company works in strong collaboration with its asset operators and users.

• No material adverse operational or financial impact related to the Covid-19 pandemic with cash receipts ahead of business plan.

• At 30 June 2020, the Group had a net cash position of £8.2 million on an Investment Basis, consisting of a total cash balance of £15.2 million and total borrowings outstanding of £7.0 million.

• A combined £17.9 million was invested to finance three new and follow-on acquisitions, including: the Company's equity interest in Highway 104, Canada; the acquisition of an additional stake in N18 Motorway, Netherlands and to acquire the remaining 75 per cent equity interest in Stanton Territorial Hospital, Canada.

• Attractive global pipeline of availability-based assets in highly-rated investment grade countries including a pipeline agreement with a North American contractor which provides additional investment opportunities in availability-based PPP assets.

The fundamentals

Based on portfolio value at 30 June 2020.

Investment type

100% availability-based revenue stream.

Investment status

Low-risk operational portfolio (less than 1% of NAV under construction).

Geographical split

Geographically diversified in stable developed countries.

Sector split

Well-diversified sector exposure with large allocation to lower risk availability-based road and bridge assets, and less than 1% exposure to UK acute health (by NAV).

1This includes one rail asset in Canada

Investment life

Long investment life with 61% of portfolio by value with a duration of greater than 20 years; weighted average life of 20.7 years. Average portfolio debt maturity of 17.7 years.

Top five investments

Well-diversified portfolio with no major single asset exposure.

Investment ownership

81% of assets by value in the portfolio are 50% owned or more.

Country rating

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

Projected portfolio cash flow 

The portfolio has a steady stream of cash flows deriving from the Company's underlying assets until 2051. The cash flows are stable and long-term, with their predictability enhanced by government or government-backed counterparties and their contracted nature. The index-linked provisions provide a positive inflation linkage of approximately 0.5 per cent.

The investments made during the period contributed positively to both stable cash flows and the weighted average length of the portfolio. Based on current estimates, and if there were to be no further acquisitions, the existing portfolio is forecast to enter into the repayment phase in 2037, after which cash inflows from the portfolio would be paid to the Company's shareholders as capital.

As at 30 June 2020, BBGI has a weighted average portfolio life of 20.7 years.

Dear Shareholders,

I hope you are reading this in good health as we all deal with the ongoing implications of the Covid-19 pandemic. Whilst the beginning of 2020 was an extraordinary time for the global economy, the Company's interim performance has again proven the resilience of our portfolio and operating model. Our 49 assets continued to provide essential infrastructure services to the communities in which we operate.

The Management Board and investment team's focus on active asset management has continued to preserve the value of our underlying assets. Our focused approach of investing in low-risk, availability-based infrastructure has not resulted in any interruption to the expected cash flows received from a globally diversified group of creditworthy government counterparties. Despite the unprecedented economic environment, the Company did not experience any material adverse operational or financial impact related to the pandemic, with cash receipts ahead of business plan.

Consistent shareholder returns

Our strong operating model continues to support the Company's established progressive dividend policy which has delivered a Total Shareholder Return since IPO of 136.2 per cent, or 10.6 per cent on an annualised basis. In a challenging investment environment, where cancelled or reduced dividends amongst the FTSE 250 companies now exceeds £22 billion in Q2 2020 alone[ix], our dividend cover has increased to 1.58x owing to the Company's high cash flow visibility. Accordingly, the Board reaffirms its 2020 dividend target of 7.18pps (up 2.6% on FY2019) and 2021 dividend target of 7.33pps (up 2.1% on FY2020).

Our established internal management structure aligns the interests of management with shareholders and delivers good value for money. This has been evidenced by the Company's low comparative ongoing charge for our shareholders[x] at 0.90 per cent on an annualised basis.

Preserving value through active management

Amid the global uncertainty caused by the pandemic, the Management Board focused primarily on preserving the value of our diversified portfolio of 49 infrastructure assets, generating modest NAV growth to record a total investment basis NAV of £860.8 million. 

Active management manifests itself in the Company's strong culture of collaboration and communication. The Management Board and investment team work in close partnership with those who operate and use our assets. This dialogue is critical in ensuring the Company serves its communities properly.

Within our portfolio, we have 11 healthcare assets which includes clinics, ambulatory care facilities and traditional hospitals. In total, this numbers over 2,000 beds. These assets are facing unprecedented capacity constraints as a result of Covid-19. We have worked closely with the various health authorities and supported them in configuring key facilities as they navigate the changing environment.

Most schools in our portfolio, representing 11 per cent by total NAV, either closed or operated at reduced capacity for much of the period. In all cases, availability-based cash flows have continued to be paid. We have taken advantage of the reduced occupancy to complete maintenance works on many schools to ensure a high standard of facilities for the students and schoolteachers upon the eventual return to more normal usage levels.

There has been no material impact on the performance of our roads and bridges portfolio over the reporting period. A key contributor to this being the fact that our portfolio of roads and bridges includes no demand-based asset. Equally, our justice facilities have continued to operate as normal.

Therefore, I am pleased to report another period of high asset availability of 99.8 per cent with no material lock-ups or default events reported. Any deductions over the period were either borne by third-party facility managers and road operators, or as part of planned lifecycle budgets.

Selective acquisition strategy

The Management Board continued to pursue a selective acquisition strategy, with new and follow-on investments funded by the Company's existing cash resources and debt facilities.

In May, the Company acquired a 50 per cent stake in Highway 104, an availability-based motorway in Canada. We also completed two follow-on acquisitions in Stanton Territorial Hospital in Canada to increase our equity interest from 25 per cent to 100 per cent and acquired a minor additional interest in the N18 Motorway in the Netherlands to bring BBGI's total equity interest to 52 per cent.

These acquisitions, with a total aggregate value of £17.9 million, demonstrate the strength of our industry relationships and the effectiveness of our nimble operating model. Furthermore, the Company announced in August 2020 post-period end that it had completed the acquisition of the remaining 50 per cent interest in Kelowna and Vernon Hospitals in Canada.

In line with previous periods, we assessed many more assets than the Company acquired and declined all potential investments which did not match our disciplined investment criteria.

Risk management and preparedness

The Management Board continued to manage the Company's foreign exchange exposure and execute its cash flow hedging for another four years. This strategy, which is further reinforced by some balance sheet hedging, is effective in limiting NAV sensitivity arising from the global diversification of the assets and has successfully de-risked the portfolio.

The Company benefits from a diversified contractor base and supply chain which prevents concentrated counterparty risk. We monitor our supply chain rigorously and have not recorded any adverse issues over the period. Our subcontractors have ably navigated the implications of the lockdown. Where permitted, remedial and enhancement works have continued at the asset level.

The Company initiated its business continuity plan with all staff working remotely for most of the period prior to the easing of lockdown restrictions. I am pleased to say that the Company was well prepared for these challenging times, with robust business continuity plans in place that have been tested every year since IPO. As Chairman, I am grateful to our employees for their dedication and commitment as we juggled the demands of remote working.

Asset availability

99.8%

Total new cash investments

£17.9m

Corporate governance

Over the period, the Supervisory Board acting in its capacity as Remuneration Committee, initiated an independent third-party review of our remuneration structure. We look forward to providing a further update no later than the 2020 Annual Report at which time the review will be complete and the recommendations implemented.

The Company also enhanced its governance processes by formally constituting Nomination and Remuneration Committees; roles which hitherto were conducted by the Supervisory Board. These committees are now chaired by myself and Howard Myles, respectively.

After almost nine years of service, Colin Maltby stepped down as Independent Chairman on 31 July 2020 in compliance with the Association of Investment Companies ('AIC') Code of Corporate Governance ('AIC Code'). Colin has been instrumental in overseeing the Company's growth since IPO, including its entry into the FTSE 250 with a market capitalisation of over £1 billion. On behalf of the Board, I would like to thank Colin for his significant contribution to BBGI over this time.

Environmental, Social and Governance

Following the preliminary filing to the United Nations Principles of Responsible Investment ('UNPRI') in 2020, I am pleased to announce that the Company received an A-rating on its initial submission. This result reaffirmed the careful attention we have always paid to delivering non-financial outcomes to all our stakeholders, and they will complement our forthcoming voluntary membership of the UN Global Compact. To improve our ESG disclosure, the Company will continue to focus on enhancing the quality of our data collection, so we can better track our environmental impact and drive progress in all primary indicators.

Our outlook

I take up the role as Chairman at a time of strong Company performance, notwithstanding the uncertain economic backdrop. As the headroom for sustained intense monetary policy declines, governments have signalled a renewed fiscal commitment to infrastructure spending as part of a post-pandemic recovery. This is combined with the ongoing low interest rate environment, in which infrastructure investment remains highly attractive, due to the long-term and stable distributions which the asset class and the Company provides.

This will continue to underpin the positive fundamentals for infrastructure investment to which the Company will apply a selective acquisition strategy when assessing diverse market opportunities, alongside a primary focus on value preservation.

As a result, I am confident in the Company's ability to maintain robust long-term, predictable and stable income derived from our diversified global portfolio of infrastructure assets. 

Sarah Whitney

Chairman

27 August 2020

INVESTMENT PROPOSITION

We are a responsible global infrastructure investor with a low-risk investment strategy focused on delivering long-term sustainable returns.

1 In comparison to other equity infrastructure asset classes.

2 In comparison to the latest publicly available information for all LSE-listed equity infrastructure investment companies.

The Company seeks to provide its shareholders with unique access to a global portfolio of high-quality infrastructure assets which generate stable, predictable cash flows over the life of government or government-backed contracts that typically extend to more than 20 years in length.

The predictability of these government-backed revenues enables BBGI to return to investors a sustainable and progressive income stream in the form of a semi-annual dividend.

The Company's investment policy dictates that no more than 25 per cent of the Company's portfolio value calculated at the time of investment will be derived from assets whose revenue streams are not public sector or government-backed (currently zero per cent). To ensure a spread of investment risk, any new acquisition will not have an acquisition value greater than 25 per cent of portfolio value of the Company immediately post-acquisition.

Avoiding style drift

As the competition to acquire availability-based assets at attractive valuations has intensified, the Company's Management Board has consciously worked to avoid 'style drift'. This refers to the practice of moving up the risk spectrum both to find investible assets and to make the targeted returns to investors.

The Management Board has made the conscious decision to avoid investing in infrastructure transactions where the revenue stream is demand-based which is typically highly correlated to Gross Domestic Product or subject to uncertainty due to regulatory review periods. However, some emerging regulated asset subsectors are increasingly reaching a level of maturity whereby the regulatory regime provides long-term, secure, availability-based payments akin to the investment profile of more traditional PPPs - as is the case in the OFTO sector or Direct Procurement for Customers.

While this disciplined approach may at times result in periods of lower portfolio growth, we believe the benefits of this continued specialisation and focus on a low-risk, availability-based investment model result in dependable and consistent income and returns with low volatility. By staying focused on the availability sector and by remaining within our sphere of expertise, we believe we offer a less complex business proposition, and consequently there should be fewer surprises and the returns to our shareholders should remain predictable and consistent. The robustness of this strategy has been validated during the recent global pandemic - as the Company does not have any demand-based assets and the portfolio is over 99 per cent operational. Consequently, the portfolio performance has been strong and there has been no material impact on our distributions due to Covid-19.

Strategic investment partnerships

Due to the Management Board's expertise in procuring assets through off-market transactions, the Company continues to leverage strong relationships with leading construction companies to source a potential pipeline that supports a low-risk and globally diversified investment strategy.

One notable relationship being the North American strategic partnership with SNC-Lavalin which covers five assets. The Company estimates that further investment opportunities in excess of C$250 million could result from the pipeline agreement over the next years; all of which will be assessed on a case-by-case basis.

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. The Company is an attractive partner for a number of reasons:

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

· Having a financial partner is a pre-requisite for some construction companies so they can avoid consolidating the Project Company debt onto the balance sheet of the parent company.

· 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 which is attractive to government and government-backed counterparties.

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

OPERATING MODEL

The Management Board follows a proven operating model of value-driven active asset management, prudent financial management and a selective acquisition strategy to preserve value, achieve portfolio growth and ensure ESG considerations are embedded in our investment processes. These three operational pillars are fundamental to the Company's success.

We ensure stable operational performance through an active asset management approach, where we actively seek to preserve value and where possible also to identify and incorporate value enhancements over the lifetime of asset ownership. In turn, this helps to reduce cost to our public sector clients and the asset's end-users, and enhance the operational efficiency of each asset. This active asset management approach allows the Company to generate a high level of asset availability, which supports high client satisfaction rates and underpins the strong social purpose of our entire portfolio.

Our prudent financial management is focused on efficient cash management and implementation of our foreign exchange hedging strategy. The portfolio's geographical diversification results in exposure to multiple currencies. We actively seek to manage geographical concentration and mitigate foreign exchange risk by balance sheet hedging through foreign exchange forward contracts, hedging of forecast portfolio distributions and borrowing in non-Sterling currencies. Furthermore, Euro-denominated running costs provide a natural hedge against the Euro-denominated portfolio distributions.

The Company's selective acquisition strategy ensures that the Management Board's focus remains within its area of expertise and that the strategic pillars defined by the Company's investment proposition are upheld.

We actively consider acquisitions that have inflation-protection characteristics which supports the portfolio's inflation linkage.

Value-driven active asset management

We pursue a standardised approach across all investments in the portfolio to help derive operational and value enhancements and preserve value, including:

· Preserving value and where possible identifying and delivering value enhancements to improve customer experience and financial performance.

· Ensuring fulfilment of contractual and legal obligations, which additionally serves to maintain high availability levels and prevent deductions.

· Strong client relationship management, including regular meetings to uphold client satisfaction and monitor ESG performance.

· Focused and active asset management including site visits to all significant assets annually and proactive management of issues.

· Focused cost management and portfolio-wide cost-saving initiatives leveraging economies of scale (e.g. portfolio insurance and standardised management contracts for project companies).

· Applying a high-quality corporate governance framework, as part of an enhanced ESG profile.

· Identifying and continuing initiatives at the individual asset level to outperform base case (e.g. lifecycle reviews).

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

Prudent financial management

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

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

· The portfolio's geographical diversification brings with it exposure to multiple currencies. We actively seek to manage and mitigate foreign exchange risk through our hedging strategy.

· Maintaining modest cash balances to limit cash drag.

· Maintaining a low ongoing charge through an efficient and cost-effective internal management structure.

· Progressive future dividend growth underpinned by strong portfolio distributions.

Selective acquisition strategy

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

· Broad industry relationships in multiple geographies to pursue off-market opportunities.

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

· Global exposure to avoid geographical concentration.

· Revolving corporate debt facility to support transaction execution and maintain prudent leverage.

· Visible pipeline through a North American strategic partnership.

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

Portfolio summary

The Company's assets at 30 June 2020 consist of interests in 49 high-quality, availability-based infrastructure assets in the transport, healthcare, justice, education and other sectors.

The portfolio carries no exposure to demand-based or regulatory risk assets, and benefits from well-diversified sector exposure. The Company has 50 per cent allocation to lower risk availability-based road and bridges[xi].

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

Portfolio breakdown1

1 In alphabetical order

2 In August 2020, the Company announced the acquisition of the remaining 50 per cent interest in Kelowna and Vernon Hospital

For portfolio statistics, refer to the Portfolio at a Glance section.

Operating model in action

Preserving value through active asset management

The Management Board's focus, which was primarily focused on preserving value during the period, resulted in a further £3.5 million of operational and value‑accretive enhancements over the period, equating to a 0.4 per cent increase in NAV.

The Company's portfolio is over 99 per cent operational. As referenced in the Chairman's Statement, the asset management activities undertaken in the period supported our clients through the uncertainty stemming from the implications of the pandemic. Owing to our active approach to asset management and the robustness of our portfolio, the availability level of the Company's assets was recorded at approximately 99.8 per cent and deductions were either borne by third-party facility management companies and road operators or were part of planned lifecycle expenditures.

There were no material lock-ups or events of default reported during the period.

Prudent financial management

The assets performed well during the reporting period with cash receipts ahead of business plan. This robust performance and the confidence in the business model allows the Company to reconfirm its dividend target of 7.18 pence per share for 2020 and 7.33 pence per share for 2021.

The Company has efficient cash management in place and aims to avoid cash drag. The net cash position at 30 June 2020 was GBP 8.2 million.

The Company's hedging strategy aims to limit a 10 per cent adverse foreign exchange sensitivity to approximately 3 per cent of NAV movement.

The Company has a Revolving Credit Facility ('RCF') of £180 million in place which matures in 2022, with the possibility to increase the total size to £250 million by making use of an accordion provision. This enables the Company to be a trusted and repeat partner in its key markets and supports the Management Board's ability to execute acquisitions in an efficient manner.

Selective acquisition strategy

The Company continued to pursue a selective acquisition strategy over the period, with availability-based acquisitions secured on accretive terms. This demonstrates the Management Board's commitment to avoiding style drift and evidences how BBGI's strong industry relationships and nimble operating model continue to enable a strong pipeline of acquisition opportunities.

Over the period, the Company made four new and follow-on acquisitions with a total aggregate value of £17.9 million. These included:

· Highway 104 (Canada): In May, the Company acquired a 50 per cent stake in Highway 104, an availability-based motorway project in Nova Scotia. Construction mobilisation work began in May 2020, with an estimated completion date of the end of 2023.

· N18 Motorway (Netherlands): In April, the Company completed a follow-on acquisition in the N18 Motorway, bringing BBGI's total equity interest in the project to 52 per cent.

· Stanton Territorial Hospital (Canada): During the period, the Company completed two follow-on acquisitions in Stanton Territorial Hospital, increasing BBGI's interest in the project from 25 per cent to 100 per cent. Stanton is an operational 27,000 m2 hospital with 100 patient rooms located in Yellowknife, Northwest Territories. The concession runs until 2048.

As announced on 19 August 2020 post-period end, the Company completed a follow-on acquisition for the remaining 50 per cent interest in Kelowna and Vernon Hospital.

Supply chain monitoring

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

The Management Board has not identified any significant risk exposure and remains comfortable with the current contractor allocation.

The Company benefits from a diversified contractor base and supply chain with no concentrated exposure, combined with a rigorous supply chain monitoring policy. We pay close attention to how subcontractors are performing on an ongoing basis and have risk mitigation procedures in place in case of any supply chain failure.

The emergence of the Covid-19 pandemic was inevitably a key area of focus for the Management Board during the reporting period and further reinforced the absolute importance of active asset management and a robust supply chain. Our immediate response was to request all Facility Managers ('FM') and Operations & Maintenance ('O&M') contractors conduct a review of their Business Continuity Policies under severely stressed scenarios. The Company is pleased to confirm that, despite the unprecedented strain on our supply chain resulting from Covid-19, we have not recorded any material adverse supply chain issues over the period.

Construction defects

The Company routinely monitors the quality of its assets to identify any construction defects early on and 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 over the period with 69 per cent of portfolio value covered by either limitation or warranty periods and there were no material defects on any of the Company's portfolio assets reported.

Managing for the impact of Covid-19

At the point of publication of this Interim Report, the Company and its portfolio has not experienced any material adverse operational or financial impact related to the implications of Covid-19. The focus on value preservation will continue as the pandemic evolves.

In doing so, the pandemic has presented opportunities to develop and evolve our active asset management approach. In close collaboration with our FM and O&M contractors, we have supported our clients - and by association their end-users - to ensure the facilities which they operate are performing their optimal social and economic purpose for local communities.

Managing the Company's portfolio effectively will be complemented by selective investment activities in assets which meet our strict investment criteria. The pipeline for new investments remains strong and combines both attractive primary and secondary opportunities.

New primary opportunities

The level of PPP procurement is expected to vary between markets. Some projects have been cancelled or delayed due to Covid-19, while other projects are being accelerated as governments look for 'shovel ready' initiatives to stimulate economic productivity. The longer lead times to reach financial close on new investments will likely continue, as the Company experienced in the successful acquisition of a stake in the Highway 104 project in May 2020.

Some governments are seeing the current situation as a valuable chance to improve infrastructure and expand economic opportunity. Lower interest rates make borrowing cheaper compared to recent years, reducing the upfront costs of generational projects. Infrastructure spending can also create immediate professional opportunities across a mix of design, construction, and operational jobs. The mix of short-term employment and long-term investment makes infrastructure an attractive area for countercyclical fiscal stimulus. We expect this to be the theme in many of the markets where we are active including Canada, US, UK and Europe.

Canada: The Investing in Canada Infrastructure Program is being adjusted so that provinces and territories can use federal funding to act quickly on a wider range of more pandemic-resilient infrastructure projects. Under a new Covid-19 Resilience funding stream worth up to $3.3 billion, projects will be eligible for a significantly larger federal cost share and a simplified funding application process will ensure that projects can get underway as soon as possible. These changes are designed as short-term measures to address the current situation while the Federal Government works towards its long-term infrastructure objectives, including better public transit, more high-speed broadband, wastewater infrastructure and clean energy projects.

UK: In the UK, the Chancellor's 'Plan for Jobs' issued in July 2020 set out the UK Government's policy response to help the economy recover from the Covid-19 lockdown, following the infrastructure investment plans announced by the Prime Minister the previous week. The £30 billion fiscal package includes £5.6 billion of infrastructure spending which has been brought forward from future years' budgets.

US: In the US, there are expectations of support for increased infrastructure spending. There is little doubt about the political and economic value of investing in good infrastructure. The non-partisan Congressional Budget Office estimated that every $1 on infrastructure brought an economic benefit of up to $2.20. The US Council of Economic Advisers has calculated that $1 billion of transportation-infrastructure investment supports 13,000 jobs for a year.[xiii] We are expecting that infrastructure spending will be a key foundation for economic recovery going forward, irrespective of which party is elected in November 2020.

EU: In July 2020, the European Union's executive arm announced a €750 billion stimulus plan which includes funds earmarked for sectors of strategic importance such as critical infrastructure and healthcare.

While the prospects are promising for increased infrastructure spending in many markets, this is not a universal theme.

Australia: Some governments are cutting infrastructure projects due to expectations of reduced sales and income taxes. As an example, the State of Victoria in Australia recently cancelled the A$2.2 billion arterial roads PPP. The Australian Government has said it favoured a more 'streamlined' procurement process which breaks up the work into 12 contracts with smaller, local construction companies, which it believes would be a better way to add more jobs during the Covid-19 related economic downturn.

The Company has significant investment expertise in key developed infrastructure markets internationally, and its global portfolio provides a platform to access opportunities and to support the Company's selective growth strategy. The Management Board continues to believe that geographic diversification is in the best interests of the Company's long-term growth and as a result BBGI is not dependent on the activity level of any one market.

Ongoing secondary opportunities

Historically, construction companies have been a good source of investment opportunities for BBGI. Amid the tough operating environment triggered by the Covid-19 pandemic, and the general slowdown in construction activity in many markets, the Management Board anticipates that many construction companies may accelerate their plans to sell PPP assets. BBGI was able to acquire interests in the Stanton Territorial Hospital project from two construction companies who were partners in the project. We anticipate this trend to continue.

The Company has well established relationships with potential vendors and an exceptional reputation for transacting quickly with extremely low execution risk, which is appealing to vendors in the current market. These factors support the Company's selective acquisition strategy and the Management Board continues to believe that attractive opportunities will be available for the Company to grow on favourable terms. The Company is currently working on a number of attractive secondary opportunities.

2020 and beyond:

Investment activities in 2020 and beyond will involve sourcing and originating, bidding for and winning new operational availability-based assets, with consideration for measured exposure to construction assets to support valuation uplift.

The pipeline for availability-based transactions remains strong within the Company's target markets. The Company will maintain its selective acquisition strategy in assessing any potential new assets and we remain confident in our ability to originate attractive investment opportunities which match our investment criteria. We anticipate these will come from a variety of sources, including:

• Soliciting off-market transactions through the Company's extensive network of market participants in Europe, North America and Australia;

• A pipeline agreement with SNC-Lavalin covering five potential future availability-based PPP investment opportunities;

· Participating in primary investment opportunities and bidding on new availability-based assets as part of public sector procurement processes including OFTOs;

· Acquiring equity interests from co-shareholders in existing assets; and

· Participating selectively in competitive sale processes.

The Company will continue to source assets that fit the requirements of its low-risk and globally diversified investment strategy.

Pipeline agreement assets: (All assets have availability-based revenue streams)

Primary bidding opportunities:

The Management Board is very pleased to present the Operating & Financial Review for the six months ended 30 June 2020

Highlights and Key Performance Indicators

Please see the Financial and Operational Highlights for a summary of Six Months in Numbers for 2020. Certain key performance indicators ('KPIs') for the last 3.5 years are highlighted below:

Asset Management

Cash Performance

The Company's portfolio of 49 high quality, availability-based PPP infrastructure investments performed well during the period, with total cash flows ahead of the business plan and the underlying financial models.

Construction exposure

The Company's investment policy is to invest principally in assets that have completed construction and are operational. Accordingly, investment in assets that are under construction 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 at the same time gaining some exposure to the potential NAV uplift that occurs when assets move from a successful construction stage to the operational stage.

As at 30 June 2020, over 99 per cent of the assets were operational. During the period the Company reached financial close on the Highway 104 project and design and construction mobilisation work began in May 2020.

The Management Board believes that the Company's ability to meet its dividend targets will not be compromised by having some measured construction exposure. Further information on construction risk can be obtained from the Company's prospectus, which is available on the Company's website.

Investment performance

Return track record

The Company's share price maintained a strong premium to NAV through the vast majority of the reporting period although there was a period of volatility during the height of the market sell-off in March due to Covid-19. 

All peers in the listed infrastructure sector experienced a sharp share price decline without exception, which is the anticipated market behaviour in the initial adjustment phase of a severe market downturn. BBGI holds some of the most uncorrelated assets in the listed sector.

Listed securities, regardless of their typical correlation to the market and their underlying asset base tend to show exaggerated levels of correlation during the initial adjustment phase in periods of severe market stress. This is due to several technical factors including: market makers taking risk off their books resulting in greater price volatility; passive investor flows including Exchange Traded Funds, withdrawing money indiscriminately from equities and certain investors having to sell investments to meet margin calls.

BBGI's share price quickly rebounded after this initial adjustment phase, likely due to investors realising that Covid-19 would have limited impact on BBGI's future cash flows, which come exclusively from long-term availability-based government or government-backed contracts. Against the FTSE AllShare, the Company has shown a low five-year correlation of 26.1 per cent and a beta of 0.31.[xvii]

BBGI's Share Price Performance

The share price closed for the period at 163 pence on 30 June 2020, representing a 19.5 per cent premium to the NAV per share at the period-end.

TSR from IPO to 30 June 2020 was 136.2 per cent or 10.6 per cent on an annualised basis.

The total accounting return[xviii] per share in the six-month reporting period was 2.7 per cent.

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 2 April 2020, the Company paid a second interim dividend of 3.5pps for the period 1 July 2019 to 31 December 2019. Together with the first interim dividend (which was paid in October 2019) the total dividend for the year ended 31 December 2019 amounted to 7.00pps. The Board has approved a 2020 interim dividend of 3.59pps, which is in line with its increased target of 7.18pps, to be paid on 22 October 2020. Furthermore, the Board is reaffirming its 2021 dividend target of 7.33pps, which represents an increase of 2.1% on the prior year.

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 their consideration and, if appropriate, approval of this report. The valuation is carried out on a six-monthly basis as at 30 June and 31 December each year. The valuation is reviewed by an independent third-party valuation expert.

The valuation is determined using the discounted cash flow methodology. The Company makes forecast assumptions for key macro-economic and taxation factors having an effect on the cash flows forecast of assets such as inflation rates, deposit rates and tax rates and assumptions are based on market data and publicly available economic forecasts. In addition, the Company exercises its judgement in assessing the expected future cash flows from each asset based on the detailed financial models produced by each Project Company and adjusting where necessary to reflect the Company's assumptions as well as any specific cash flow assumptions.

The fair value for each asset is then derived from the application of an appropriate discount rate, reporting period end currency exchange rate and withholding taxes (if applicable). The discount rate considers risks associated with the asset including the phase the asset is in such as construction, ramp up or stable operation, asset specific risks and opportunities as well as country specific factors. The Company uses its judgement in arriving at the appropriate discount rates. This is based on its 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. The valuation methodology remains unchanged from previous reporting periods.

Portfolio movement 31 December 2019 to 30 June 2020

The Company's portfolio value at 30 June 2020 was £860.6 million (31 December 2019: £846.0 million), representing an increase of 1.73 per cent.

1These figures represent the net assets of the Group after excluding the investments at fair value through profit or loss (Investments at FVPL). Refer to the Pro forma balance sheet for further breakdown.

2Refer to the Portfolio Review section further details on the acquisitions during the period.

3While distributions from assets reduce the portfolio value, there is no impact on the Company's NAV as the effect of the reduction in the portfolio value (investments at fair value through profit or loss) is offset by the receipt of cash at the consolidated Group level. Distributions are shown net of withholding tax.

4The result from balance sheet hedging is recorded at the consolidated Group level, and while inversely correlated, does not impact portfolio value. During the period, the Company recorded a loss of £6.1 million on balance sheet hedging contracts entered into in November 2019. The net foreign exchange loss on hedging over the period, recorded at the consolidated Group level, was £11.3 million.

Key drivers for NAV change

The rebased opening portfolio value after considering acquisitions in the reporting period of £17.9 million and cash distributions from assets of £39.8 million was £824.1 million.

Unwinding the discount and value enhancements:

During the period, the Company recognised £32.8 million, or a 3.8 per cent increase in NAV, from the unwinding of discounts and value accretive enhancements. As the Company moves closer to forecast asset distribution dates, the time value of those cash flows increases on a net present value basis. The portfolio value growth from unwinding of discount during the period was approximately £29.3 million or a 3.4 per cent change in NAV.

The remaining £3.5 million, or a 0.4 per cent change in NAV, represents inter alia the net effect of value accretive enhancements across the portfolio through active management. This includes amongst others the net valuation effect of enhanced operational performance through active asset management; the positive effect from adjusting risk premiums reflected in specific asset discount rates such as the removal of risk premium for prison assets; as well as reducing premiums for assets moving towards the stable operational phase.

Change in macro-economic assumptions:

During the period, the Company recognised a reduction in the portfolio value due to changes in the macro-economic assumptions: a change in the UK corporate tax rate from 17 per cent to 19 per cent resulting in a decrease of £3.2 million; a change in the forecasted deposit rates, short term inflation rates and the actual indexation against the previously modelled indexation resulting in a decrease of £11.1 million. In total, the Company recognised a reduction of £14.3 million, or a 1.7 per cent decrease in NAV, from changes in these assumptions.

Foreign Exchange:

The present values of these cash flows are converted to Sterling at either the hedged rate, for a predetermined percentage of cash flows forecast to be received over the next four years, or at the closing rate for 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 period, the depreciation of Sterling against the Euro, Canadian Dollar, US Dollar and Australian Dollar, and the appreciation of Sterling against the Norwegian Krone accounted for a net increase in the portfolio value of £17.8 million. This increase was partially offset by a loss of £6.1 million from balance sheet hedging at the consolidated Group level with the corresponding liability included in the other net assets at 30 June 2020. The net foreign exchange loss on hedging over the period, recorded at the consolidated Group level, was £11.3 million. Since listing in December 2011, the net cumulative effect of foreign exchange movements on the portfolio value, after taking into account the effect of balance sheet hedging, has been an increase of £1.3 million.

The table below shows those closing rates, which were used to convert unhedged future cash flows into the reporting currency at 30 June 2020.

Although the closing rate is the required conversion rate to use, 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 movement in foreign exchange rates[xix]. This is achieved by hedging a portion of the non-Sterling and non-Euro portfolio value. The benefit 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 would need to be approximately 68 per cent to obtain the same NAV sensitivity to a 10 per cent adverse change in foreign exchange rates as shown below.

Covid-19

As a result of strong stakeholder collaboration, the portfolio continued its strong performance over the reporting period with no material adverse effect on valuation resulting from Covid-19. There continues to be significant uncertainty surrounding Covid-19 with the consequences and potential disruptions difficult to foresee; currently, our portfolio remains resilient in this challenging market environment. We will continue to work very closely with all stakeholders in an effort to mitigate the risks of this global pandemic.

Discount rates

The discount rates used for individual assets range between 6.25 per cent and 9.00 per cent. The weighted average rate is approximately 7.03 per cent (31 December 2019: 7.07 per cent), representing a reduction of 4 bps from 31 December 2019, which management believes to be towards the conservative end of the range for a high-quality portfolio of availability-based PPP assets. This methodology calculates the weighted average based on the value of each asset in proportion to the total portfolio value i.e. based on the net present value of their respective future cash flows.

The discount rate considers risks associated with the asset including the phase the asset is in, such as construction, ramp up or stable operation, asset specific risks and opportunities as well as country specific factors.

BBGI applies a premium for assets in construction to reflect the higher risk inherent in the construction phase of any asset's lifecycle. Currently, the portfolio has one asset in construction, Highway 104, which represents less than 1 per cent of the overall portfolio value. BBGI has also applied a risk premium to a limited number of other assets 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. This risk premium reflects the special situation in the UK where some public health clients are under cost pressure and are actively looking for savings. This drive for cost savings has resulted in some large deductions on UK acute hospitals and, consequently, distribution lock ups. To date, BBGI has not been affected. The only UK acute hospital in the portfolio is Gloucester Royal Hospital, which represents less than 1 per cent of the overall portfolio value.

Macro-economic assumptions

Apart from the discount rates the Company uses the following assumptions for the cash flows:

1 Short-term indexation rates were adjusted until the end of 2020 as follows: UK 1.3%, Canada 0.5%, Australia 0.3%, Germany 0%, Netherlands 0%, Norway 1.75% and USA 0.5%. Generally, for UK assets, the annual inflation rate is set in March of each year, therefore, only assets that do not fix the annual inflation rate have been changed to reflect the decrease in 2020.

2 CPI indexation only. Where projects are subject to a basket of indices, these non-CPI indices are not considered.

3 80 per cent of ORB indexation factor for revenue is contractual and is not tied to CPI.

4 Individual tax rates vary among Canadian Provinces. As at 30 June 2020, the tax rate for Alberta is decreasing gradually from 12% to 8% by 2022.

5 Individual local trade tax rates are considered in addition to the tax rate above.

General market activity

Through the course of the Covid-19 pandemic, there has been an increased focus on valuation from investors as the varied risk profiles of the different asset classes within the infrastructure sector have become more pronounced; for example, demand-based assets such as airports, and (shadow) toll roads have suffered severe traffic reductions, thereby reducing revenue. Investors in demand-based assets have had to revisit traffic growth assumptions, at least in the short-term. In addition, lower than forecasted volumes will not only impact demand-based income but also other third-party income such as retail business in airports and rail stations, motorway service station and other income sources reliant on customer footfall.

On the other hand, availability-based assets passed the stress test and proved to be very robust as the sector has not experienced any material negative impact. This, coupled with the low interest rate environment where government yields are less than 1 per cent or negative, has further contributed to increased competition for PPP assets.

The Company's weighted average discount rate is 7.03 per cent. The weighted[xx] long-term government bond rates for Australia, Canada, Germany, Netherlands, Norway, UK and the USA is 0.8 per cent resulting in a premium over risk-free rates of 6.2 per cent. This is the highest risk premium since 2007. We are also seeing new investors entering the market and recent auction processes attracting a large number of bidders. Our market intelligence of these recent transactions suggests that discount rates in the secondary market appear to have further declined. If this current market trend continues, an additional reduction in discount rates is likely to be considered for the next valuation.

Sensitivities

Discount rate sensitivity

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

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

1 Based on the weighted average discount rate of 7.03 per cent.

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:

1 Sensitivity in comparison to the spot foreign exchange rates at 30 June 2020 and taking into account the contractual and natural hedges in place, derived by applying a 10 per cent increase or decrease to the Sterling/foreign currency rate.

Inflation sensitivity

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

Currently, there is an ongoing review by the UK Statistics Authority to align the RPI calculation methodology more closely with the CPIH methodology. In September 2019, the UK Chancellor of the Exchequer rejected scrapping the RPI outright, stating changes to the index could take place between 2025 and 2030. A further update was due in March 2020 and the UK Government released the 'Consultation on the Reform to Retail Prices Index Methodology' on 11 March 2020. The Company is closely monitoring developments around potential changes to the RPI but any change is unlikely to have a material effect as the portfolio's UK exposure is 30 per cent. Furthermore, the 25-year RPI swap rate at 29 June 2020 was 3.04 per cent, 0.29 per cent above BBGI's UK RPI long-term forecast assumption of 2.75 per cent.

The table below demonstrates the effect on the NAV of a change in inflation rates compared to the assumptions in the table above:

Deposit rate sensitivity

The asset cash flows are correlated with the deposit rates. The table below demonstrates the effect on the NAV of a change in deposit rates compared to the assumptions above:

Lifecycle costs sensitivity

Of the 49 assets in the portfolio, 16 assets retain the lifecycle obligations. The remaining 33 assets have this obligation passed down to the subcontractor.

The table below demonstrates the impact on the NAV of a change in lifecycle costs:

1 Sensitivity applied to the 16 assets in the portfolio which 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 company is located.

The table below demonstrates the effect on the NAV of a change in tax rates compared to the assumptions outlined above:

In June 2020, Alberta's general corporate income tax rate for active business income decreased to 10 per cent (from 11 per cent) effective 1 January 2020. The corporate tax rate will further decrease to 9 per cent on 1 January 2021 and 8 per cent on 1 January 2022. Although Alberta announced on 29 June 2020 that it intends to accelerate the reduction of its general corporate income tax rate such that the 8 per cent rate comes into effect on 1 July 2020, this change has not been substantively enacted as of 30 June 2020[xxi]. It is the Company's policy to value those tax rates that have been enacted into law at the reporting period date.

Senior debt refinancing sensitivity

Assumptions are used where a refinancing of senior debt financing is required for an asset during the remaining asset concession term. There is a risk that such assumptions may not be achieved. The below table shows the effect of a +100bps adjustment to the forecasted margins. The base rate for senior debt is either fixed or a long-term interest swap is available with the effect that none of our assets are subject to changes in base rates.

1 The Northern Territory Secure Facilities asset is the only remaining asset in the BBGI Portfolio with refinancing risk.

GDP sensitivity

The BBGI 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 Project Company and portfolio cash flow assumptions underlying NAV calculation include:

· Discount rates and the assumptions as set out below continue to be applicable.

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

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

· Non-UK Project Companies are valued in local currency and their cash flows converted to Sterling at either the period-end exchange rates or the contract hedge rate.

· Where the operating costs of the Project Companies are fixed by contract, 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 Project Companies, they remain in line with the current forecasts in the valuation models.

· Contractual payments to the Project Companies remain on track and are not terminated before their contractual expiry date.

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

· Where the Project Companies own the residual property value in an asset, the projected amount for this value is realised.

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

· There are no tax or regulatory changes in the future which negatively impact cash flow forecasts.

In forming the above assessments, BBGI works with Project Company management teams, as well as using due diligence information from, or working with suitably qualified third parties such as technical advisors, legal advisors and insurance advisors.

Basis of accounting

The Group has prepared its Condensed Consolidated Interim Financial Statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. 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 ('Investments at FVPL'). 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.

Income and costs

Pro forma Income Statement

During the six-month period, the Group recognised a FVPL income of £36.8 million (30 June 2019: £42.4 million). This FVPL income is made up of a combination of the positive effect of unwinding of discount, foreign exchange gains on the underlying Investments at FVPL during the period, value enhancements with a partial offset resulting from effect of changes in deposit rates, changes in macro-economic assumptions and indexation adjustments. A more detailed analysis of the movement in Investments at FVPL is outlined in the Valuation section of this Report.

Administration expenses include, amongst others, staff costs, legal and professional fees and office administration costs. See further detail in the Corporate Cost analysis below.

The Group has implemented a policy of using forward currency swaps to hedge a portion of its anticipated foreign currency cash flows on a four-year rolling basis and also uses 12-month forward currency swaps to hedge part of the non-Sterling, non-Euro denominated portfolio values. During the six month period the Company recognised a net loss of £5.1 million on cash flow hedging (30 June 2019: £4.7 million) and is reflected in 'Other operating expenses' above.

During the six month period, the Company acquired a 50 per cent equity interest in the Highway 104 motorway project in Canada and additional follow-on interests in both the Stanton Territorial Hospital in Canada and the N18 Motorway in the Netherlands. The total acquisition costs incurred during the six-month period amounted to £0.5 million (30 June 2019: £0.8 million) and are reflected in 'Other operating expenses' above.

The balance sheet hedging and net finance loss increased slightly on a comparative basis to £7.0 million (30 June 2019: £6.7 million). This increase was driven largely by an increase in the net loss from balance sheet hedging of £6.1 million (30 June 2019: £5.6 million).

Profit from continuing operations for the six months to 30 June 2020 decreased to £17.7 million (30 June 2019: £24.3 million).

Group Level Corporate Cost Analysis

The table below is prepared on an accruals basis.

Net finance costs for the six months period were £0.9 million (30 June 2019: £1.1 million). The Company used the proceeds from distributions during the period to repay outstanding borrowings, resulting in a decrease in finance costs during the period. The cash flow analysis section of this report provides further information regarding utilisation and repayments under the RCF during the period.

Personnel costs include those fees and expenses paid to the Company's Non-Executive Directors.

Ongoing Charges

Based on current costs, the Company's annualised Ongoing Charges at 30 June 2020 is 0.90 per cent (31 December 2019 actual is 0.88 per cent).

The annualised Ongoing Charge percentage is prepared in accordance with the AIC recommended methodology[xxii]. The percentage represents the cost of recurring operational expenses incurred in managing the Group's consolidated entities over the Company's average Net Asset Value and provides an indication of the level of recurring costs likely to be incurred in managing the Group in the future.

As the Group is internally managed, it is not subject to performance fees or acquisition-related fees which are typical in externally managed investment companies. The Ongoing Charges include an accrual for the Short-Term Incentive Plan ('STIP')/bonuses and the Long-Term Incentive Plan ('LTIP') and exclude all non-recurring costs such as the costs of acquisition and financing costs.

Cash flows

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

1 These distributions 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 performed well during the period, with rebased cash flows[xxiii] ahead of business plan. Distributions from Investments at FVPL increased over the comparative period by 33.9 per cent to £42.3 million.

Additional investments during the period were financed through a combination of RCF utilisation and reinvestment of distributions received from Investments at FVPL.

The Group borrowed under the RCF during the period to finance investment activity. An amount of £22.0 million was drawn under the RCF during the period while a total of £36.0 million was repaid during the period. Cash dividends paid during the six months ended 30 June 2020 amounted to £21.6 million.

Refer to the Condensed Consolidated Interim Statement of Cash flows for further detail of cash flows during the six months ended 30 June 2020.

For the period ended 30 June 2020, the Group has a cash dividend cover ratio[xxiv] of 1.58x (year ended 31 December 2019: 1.30x) and is calculated as follows:

Management believe this to be a strong coverage ratio and a good proxy as to the ability of the Company to pay its target dividend.

Balance Sheet

Pro forma Balance Sheet

As at 30 June 2020, the Group had 49 availability-based Investments at FVPL (31 December 2019: 48). A detailed analysis of the increase in Investments at FVPL over the period is provided under the Portfolio movement bridge graph in the Valuation section of this report.

The derivative financial liability adjustment of £4.3 million during the six months ended 30 June 2020 reflects the fair value of forward currency swaps, which are being used to hedge future portfolio distributions. Under the Investment Basis NAV, the contracted forward rates are applied to hedged future distributions and therefore embedded in the Investments at FVPL. The unhedged distributions are converted at the 30 June 2020 closing rate.

As at 30 June 2020, cash and cash equivalents amounted to £15.2 million (£34.8 million as at 31 December 2019).

A reconciliation of net cash under IFRS and Investment Basis NAV is as follows:

Comparative of Investment Basis NAV

The Investment Basis NAV increased by 0.3 per cent to £860.8 million at 30 June 2020 (31 December 2019: £858.6 million). This equates to a growth in Investment Basis NAV per share of 0.1 per cent to 136.4p at 30 June 2020 (31 December 2019: 136.2p). The Investment Basis NAV per share is the Investment Basis NAV divided by the number of Company shares issued and outstanding. This information presents the residual claim of each Company shareholder to the net assets of the Group. Refer to the Condensed Consolidated Interim Statement of Financial Position for further detail on the IFRS NAV.

Each quarter, the Supervisory and Management Boards review and consider updates to the Company's principal risks, and the controls and strategies used to mitigate those risks. The risks to which the Company is exposed have not materially changed since those set out in detail in the 31 December 2019 Annual Report.

These risks and uncertainties are expected to remain relevant to the Group for the next six months of its financial year and include (but are not limited to):

Refer to the sensitivity / stress test analysis in the Valuation section for further information and analysis on some of the above-mentioned risks.

The Management Board of the Company is responsible for preparing this interim financial report in accordance with applicable law and regulations. The Management Board confirms that to the best of its knowledge:

- The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union; and

- The Chairman's Statement and the Strategic Report of the Management Board meet the requirements of an interim management report and include a fair review of the information required by:

· DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year; and

· DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last Annual Report that could do so.

Luxembourg, 27 August 2020

To the Shareholders ofBBGI SICAV S.A.6E, route de Trèves

L-2633 Senningerberg

Grand Duchy of Luxembourg

We have reviewed the accompanying condensed consolidated interim financial statements of BBGI SICAV S.A. (the "Company") and its subsidiaries (the "Group") which comprise the condensed consolidated interim statement of financial position as at 30 June 2020, and the condensed consolidated interim income statement, the condensed consolidated interim statement of other comprehensive income, the condensed consolidated interim statement of changes in equity and the condensed consolidated interim statement of cash flows for the six-month period then ended, and notes to the condensed consolidated interim financial statements (the "condensed consolidated interim financial information"). Management is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review.

We conducted our review in accordance with the International Standard on ReviewEngagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" as adopted, for Luxembourg, by the Institut des Réviseurs d'Entreprises. A review of condensed consolidated interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information as at 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union.

Luxembourg, 27 August 2020

KPMG Luxembourg, Société coopérative

Cabinet de révision agréé

Joseph de Souza

The accompanying notes form an integral part of the unaudited condensed consolidated interim financial statements.

The accompanying notes form an integral part of the unaudited condensed consolidated interim financial statements

The accompanying notes form an integral part of the unaudited condensed consolidated interim financial statements.

The accompanying notes form an integral part of the unaudited condensed consolidated interim financial statements.

The accompanying notes form an integral part of the unaudited condensed consolidated interim financial statements.

The accompanying notes form an integral part of the unaudited condensed consolidated interim financial statements.

1. Corporate information

BBGI SICAV S.A. ('BBGI', or the 'Company' or, together with its consolidated subsidiaries, the 'Group') is an investment company incorporated in Luxembourg in the form of a public limited company (société anonyme) with variable share capital (société d'investissement à capital variable, or 'SICAV') and regulated by the Commission de Surveillance du Secteur Financier ('CSSF') under Part II of the amended Luxembourg law of 17 December 2010 on undertakings for collective investments with an indefinite life. The Company qualifies as an alternative investment fund within the meaning of Article 1 (39) of the amended law of 12 July 2013 on alternative investment fund managers ('2013 Law') implementing Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 and is authorised as an internal alternative investment fund manager in accordance with Chapter 2 of the 2013 Law. The Company was admitted to the official list of the UK Listing Authority (premium listing, closed-ended investment company) and to trading on the main market of the London Stock Exchange on 21 December 2011.

The Company's registered office is EBBC, 6E, route de Trèves, L-2633 Senningerberg, Luxembourg.

The Company is a closed-ended investment company that invests principally in a diversified portfolio of Public Private Partnership ('PPP')/Private Finance Initiative ('PFI') infrastructure or similar style assets.

As at 30 June 2020, the Group employed 20 staff (30 June 2019: 20 staff).

Reporting period

The Company's interim reporting period runs from 1 January to 30 June each year. The Company's condensed consolidated interim statement of financial position, condensed consolidated interim income statement, condensed consolidated interim statement of comprehensive income, condensed consolidated interim statement of changes in equity and condensed consolidated interim statement of cash flows include comparative figures as at 31 December 2019 and 30 June 2019, as appropriate.

The amounts presented as 'non-current' in the consolidated interim statement of financial position are those expected to be settled after more than one year. The amounts presented as 'current' are those expected to be settled within one year.

These condensed consolidated interim financial statements were approved by the Management Board on 27 August 2020.

2. Basis of preparation

Statement of compliance

The condensed consolidated interim financial statements of the Group have been prepared in accordance with International Accounting Standards ('IAS') 34 Interim Financial Reporting in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the European Union, and do not include all information required for full annual consolidated financial statements.

The condensed consolidated interim financial statements have been prepared on a historical cost basis, except for investments at fair value through profit or loss ('investments at FVPL') and derivative financial instruments that have been measured at fair value.

Changes in accounting policy

The accounting policies, measurement and valuation principles applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its annual consolidated financial statements as at and for the year ended 31 December 2019.

New and amended standards applicable to the Group are as follows:

Amendments to IFRS 3: Definition of Business (effective 1 January 2020)

The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no significant impact on the condensed consolidated interim financial statements of the Group but may impact future periods should the Group enter into any business combinations.

Amendments to IAS 1 and IAS 8: Definition Material (effective 1 January 2020)

The amendments provide a new definition of material that states, "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity".

The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements.

A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no significant impact on the condensed consolidated interim financial statements nor is there expected to be any future impact to the Group.

Functional and presentation currency

These condensed consolidated interim financial statements are presented in Pounds Sterling, the Company's functional currency. All amounts presented in tables throughout the report have been rounded to the nearest thousand, unless otherwise stated.

The Company as an Investment Entity

The Management Board has assessed that the Company is an Investment Entity in accordance with the provisions of IFRS 10. The Company meets the following criteria to qualify as an Investment Entity:

a) Obtains funds from one or more investors for the purpose of providing those investors with investment management services - The Group is internally managed with management focused solely on managing those funds received from its shareholders in order to maximise investment income/returns.

b) Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both - The investment objectives of the Company are to:

§ Provide investors with secure and highly predictable long-term cash flows whilst actively managing the investment portfolio with the intention of maximising return over the long term.

§ Target an annual dividend payment with the aim to increase this distribution progressively over the longer term.

§ Target an IRR in the region of 7% to 8% on the £1 IPO issue price of its ordinary shares, to be achieved over the longer term via active management, to enhance the value of existing investments.

The above-mentioned objectives support the fact that the main business purpose of the Company is to seek to maximise investment income for the benefit of its shareholders.

c) Measures and evaluates performance of substantially all of its investments on a fair value basis - The investment policy of the Company is to invest in equity, subordinated debt or similar interests issued in respect of infrastructure assets that have been developed predominantly under the PPP/PFI or similar styled procurement models. Each of these assets is valued at fair value. The valuation is carried out on a six-monthly basis as at 30 June and 31 December each year.

Based on the Management Board's assessment, the Company also meets the typical characteristics of an Investment Entity as follows:

a) it has more than one investment - as at 30 June 2020, the Company has 49 investments;

b) it has more than one investor - the Company is listed on the London Stock Exchange with its shares held by a broad pool of investors;

c) it has investors that are not related parties of the entity - other than those shares held by the Supervisory Board and Management Board Directors, and certain other employees, all remaining shares in issue (more than 99 per cent) are held by non-related parties of the Company; and

d) it has ownership interests in the form of equity or similar interests - ownership in the Company is through equity interest.

3. Summary of significant accounting policies

a) Basis of consolidation

Business combination

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to direct the relevant activities, i.e. the activities that significantly affect the investee's returns and to obtain those returns. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.

The Group measures goodwill at the acquisition date as:

- the fair value of the consideration transferred; plus

- the recognised amount of any non-controlling interests in the acquiree; plus

- if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

- the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When there is an excess of value over consideration, a bargain purchase gain is recognised immediately in the consolidated income statement.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in the consolidated income statement. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in fair value of the contingent consideration are recognised in the consolidated income statement.

Subsidiaries

Subsidiaries are investees controlled by the Company (directly or indirectly). The Company controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The Company is an Investment Entity and measures investments in certain subsidiaries at fair value through profit or loss. In determining whether the Company meets the definition of an Investment Entity, the management considered the Group structure as a whole.

Although the Company qualifies as an Investment Entity and is required to value certain subsidiaries at fair value, the Company has a number of subsidiaries which provide services that relate to the Company's investment activities. These subsidiaries are consolidated on a line by line basis.

Acquisition of non-controlling interests (consolidated subsidiaries)

Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary.

Loss of control (consolidated subsidiaries)

For subsidiaries which are consolidated on a line by line basis, upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the consolidated income statement. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an investment at fair value through profit or loss or as an available-for-sale financial asset depending on the level of influence retained.

Transactions eliminated on consolidation (consolidated subsidiaries)

Intra-group receivables, liabilities, revenue and expenses are eliminated in their entirety when preparing the consolidated financial statements. Gains that arise from intra-group transactions and that are unrealised from the standpoint of the Group, at the date of the consolidated statement of financial position, are eliminated in their entirety. Unrealised losses on intra-group transactions are also eliminated in the same way as unrealised gains, to the extent that the loss does not correspond to an impairment loss.

a) Functional and presentation currency

These condensed consolidated interim financial statements are presented in Pounds Sterling, the Company´s functional currency.

b) Fair value measurement

The Group accounts for its investments in PPP/PFI entities ('Project Companies') as investments at FVPL. The valuation is determined using the discounted cash flow methodology. The cash flows forecasted to be received by the Company or its consolidated subsidiaries, generated by each of the underlying assets, and adjusted as appropriate to reflect the risk and opportunities, have been discounted using asset-specific discount rates. The valuation methodology is the same one used in previous reporting periods.

The fair value of other financial assets and liabilities, other than current assets and liabilities, is determined by discounting future cash flows at an appropriate discount rate and with reference to recent market transactions, where appropriate. Further information on assumptions and estimation uncertainties are disclosed in Note 14. 

Fair values are categorised into different levels in a fair value hierarchy based on the inputs in the valuation methodology, as follows:

§ Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.

§ Level 2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

§ Level 3: inputs for the asset or liability that are not based on observable market data ('unobservable inputs').

If the inputs to measure fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety at the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of fair value hierarchy at the end of the reporting period in which the change has occurred.

4. Segment reporting

IFRS 8 - Operating Segments adopts a 'through the eyes of the management' approach to an entity's reporting of information relating to its operating segments, and also requires an entity to report financial and descriptive information about its reportable segments.

Based on a review of information provided to the Management Board, the Group has identified five reportable segments based on the geographical concentration risk. The main factor used to identify the Group's reportable segments is the geographical location of the asset. The Management Board has concluded that the Group's reportable segments are: (1) UK; (2) North America; (3) Australia; (4) Continental Europe; and (5) Holding Activities. These reportable segments are the basis on which the Group reports information to the Management Board.

Segment information is presented below:

Statement of financial position per segment information as at 30 June 2020 and 31 December 2019 are presented below:

The Holding Activities of the Group include the activities which are not specifically related to a specific asset or region but to those companies which provide services to the Group. The total current assets classified under Holding Activities mainly represent cash and cash equivalents.

Transactions between reportable segments are conducted at arm's length and are accounted for in a similar way to the basis of accounting used for third parties. The accounting methods used for all the segments are similar and comparable with those of the Company.

5. Administrative expenses

The Group has engaged certain third parties to provide legal, depositary, audit, tax and other services to the Group. The expenses incurred in relation to such services are treated as legal and professional fees.

Legal and professional fees include amounts incurred for audit related services provided by the Group's external auditor. The audit fees during the six months period 30 June 2020 amounted to £104,000 (30 June 2019: £109,000) and audit related fees amounted to £57,000 (30 June 2019: £43,000). Audit fees consist of fees for the consolidated audit of the Group, the statutory audit of the Company´s stand-alone financial statements and the statutory audits of the consolidated subsidiaries financial statements, where carried out by the Group's external auditor. There were no non-audit related fees charged by the Group's external auditor during the six months ended 30 June 2020 (30 June 2019: nil).

6. Other operating expenses

1 Relates to foreign exchange hedging on forecasted distributions from investments at FVPL

7. Net finance result

8. Investments at FVPL