HICL Infrastructure Regulatory News (HICL)

HICL Infrastructure Company Limited

22 May 2013

ANNUAL RESULTS FOR YEAR TO 31 MARCH 2013

The Directors of HICL Infrastructure Company Limited announce the results for the year ended 31 March 2013.

Highlights

Graham Picken, Chairman of the Board, said:

"Last year the Company was again able to grow its assets and its distributions. The business performed well operationally and, as a result, the Company met its long term target of an annual distribution of 7.0p per share within the seven year time horizon set at the time of the IPO in March 2006.

During the year the Company's Investment Adviser, InfraRed Capital Partners Ltd, successfully leveraged its wide network of industry relationships to secure value-accretive new investments, often through exclusive negotiation with potential vendors. By actively managing the assets acquired, their value is both protected and enhanced. Based on its expectations for current year cashflows, the Board is targeting a total dividend of 7.1p per share for the year ending 31 March 2014.

Growing investor interest in infrastructure as an asset class, and the Company in particular, was evidenced by the strong support for the Company's issue of New Ordinary Shares in March and two tap issues in November and December. Although each issue priced at a premium to the prevailing NAV per share, all were oversubscribed.

These equity issues funded the growth in the Company's portfolio from 70 to 79 investments during the year, as well as providing finance for the four acquisitions of £36.1m completed since the year end and the £27.5m of Conditional Investments awaiting completion. Given the Group's healthy pipeline of potential investments, including five opportunities where we are in exclusive negotiations, we confidently expect the remaining proceeds of the equity issue in March to be invested by the summer, ahead of plan.

Opportunities in the UK secondary market for social and transportation assets remain good. The announcement of PF2 in December 2012 will hopefully breathe new life into the UK Government's primary infrastructure pipeline which has grown to over 550 projects requiring £310bn of capital investment. However, it is too early to say whether these projects, when executed, will meet with the Company's investment criteria.

Outside the UK, other governments continue to use PFI/PPP/P3 as a tried-and-tested model for public sector infrastructure procurement and the Board expects that the Company will take advantage of secondary market opportunities overseas provided that the risks and rewards are similar to, or more favourable than, those accepted to date.

Pricing of social infrastructure assets in the UK has risen slightly over the year and this is reflected in the lower discount rates used. After consultation with the independent third-party valuation expert, the Board remains comfortable that the Investment Adviser employs a robust screening and valuation process. During the year a number of prospective acquisitions in the UK and overseas did not progress beyond an early phase, or were lost in auctions, where it was judged that the return did not justify the risk or too much of the value potential was being paid to the vendor.

Asset management and client relationships remain a priority and we continue to work closely with co-shareholders, sub-contractors and clients to implement contract variations and to improve the efficiency and cost profile of the concessions for the benefit of all stakeholders. We are also keen to work with the local communities in which the projects are located and will target social initiatives accordingly.

Finally, I am pleased to welcome Susie Farnon and Ian Russell to the Board. Their respective skills, knowledge and experience will be valuable to the Group as we pursue the strategy that has served us well over the years."

Contacts for the Investment Adviser on behalf of the Board:

InfraRed Capital Partners Limited: +44 (0) 20 7484 1800

Tony Roper

Keith Pickard

Robin Hubbard

Contacts for Tulchan Communications: +44 (0) 20 7353 4200

Edward Orlebar

Rebecca Scott

Copies of this announcement can be found on the Company's website, www.hicl.com. The Annual Report and Consolidated Financial Statements for the year to 31 March 2013 will be available to shareholders in early June, and an electronic version will be available from the Company's website at that time.

Chairman's Statement

Introduction

Once again, on behalf of the Board, I am pleased to be able to report that the year to 31 March 2013 has been a busy and successful period for the Company. Not only did the Company achieve its stated long-term distribution target of 7.0p per share, but its strong performance enabled it to deliver a total shareholder return (based on share price and dividends paid) of 14.7% in the year.

With interest rates in many developed markets still at low levels, and no imminent prospect of material increases, the low-volatility, inflation-linked, cash-yielding features of the Group's portfolio are exceptionally attractive to investors looking to match their long term assets and liabilities.

Given the underlying strong fundamentals of the current portfolio, coupled with the new investment pipeline, we expect the Company to be able to provide shareholders with sustainable distributions alongside preservation of capital value.

Financial Results and Performance

Financial results

As in previous periods, the Company has prepared pro-forma accounts on an Investment basis (treating all 79 holdings as investments). On an Investment basis profit before tax was £93.1m (2012: £62.0m) and earnings per share were 10.4p (2012: 9.8p per share). This increase reflects a combination of rising secondary market prices, contributions from new investments, actual inflation exceeding the 2.75% p.a. valuation assumption and value enhancements to existing investments.

Cash received from the portfolio by way of distributions, capital repayments and fees was £76.8m (2012: £51.2m). After Group costs, net cash inflows of £64.3m adequately covered the distributions paid in the year. The growth in cash generated was in line with our projections, benefitting from the acquisitions made in the current and the prior year.

On a consolidated IFRS basis, the profit before tax was £55.4m (2012: £84.2m). Profit before tax has decreased due predominantly to a £52.7m reduction in gains on finance receivables arising from lower reductions in UK long term gilt rates in the year compared to the prior year.

The Company has raised a total of £272.6m (before expenses) in the year: £105.3m through tap issues and £167.3m through the New Ordinary Shares capital raising in March 2013.

Total fees accruing to InfraRed Capital Partners Limited (the Investment Adviser) amounted to £13.0m in the year, comprising their management fee, the fees paid on the acquisitions made and the advisory fee. The Investment Adviser does not receive any fees from, nor are there any contracts with, the project companies in the portfolio.

The Association of Investment Companies ("AIC") recommends reporting an Ongoing Charges Percentage. As at 31 March 2013, using the AIC methodology, the Company's Ongoing Charges Percentage was 1.19% (1.38% for the year to 31 March 2012). There is no performance fee payable to any service provider.

More details of the financial results are set out below.

Portfolio Performance

The Group's portfolio continues to perform well, and as at 31 March 2013 consisted of 79 social and transportation infrastructure projects (70 as at 31 March 2012). The return generated from the portfolio (after rebasing it for new investments, disposals and distributions) was 8.9% (2012: 9.1%) which reflects not only the unwinding of the discount rate, but value-accretive acquisitions and asset management derived value enhancements which include contract variation income and insurance benefits.

In November 2012, the Group made its first divestment, the Doncaster Schools PFI project, for £5.3m which yielded a £0.5m capital gain on the September 2012 Directors' valuation.

Following completion of construction works on the M80 Motorway DBFO in Scotland in December 2012, the Group currently has no projects in the construction phase.

The Investment Adviser's asset management team continues to be actively engaged across the Group's portfolio of assets, maintaining dialogue with our public sector clients and partners to find new efficiencies and savings. Guidance published by HM Treasury has prompted a constructive response from public sector clients. Some clients are working very closely with the Group to share our experiences of past initiatives; others have been very pleased with the current levels of service and associated contractual costs and have not sought to make changes.

Valuation

As in previous periods, the Investment Adviser has prepared a fair market valuation for each investment in the portfolio as at 31 March 2013. This valuation is based on a discounted cashflow analysis of the future expected equity and loan note cashflows accruing to the Group from each investment. This valuation uses key assumptions which are benchmarked from a review of recent comparable market transactions in order to arrive at a fair market value.

The Directors have satisfied themselves as to the methodology used, the economic assumptions adopted, and the discount rates applied. The Directors have again taken independent third party advice on the valuation carried out by the Investment Adviser.

The Directors have approved the valuation of £1,213.1m for the portfolio of 79 investments as at 31 March 2013. This includes one outstanding investment commitment to a single project of £12.7m as at 31 March 2013 which was subsequently paid in April 2013.

The valuation of £1,213.1m compares with £902.0m as at 31 March 2012, £1,015.9m as at 30 September 2012, and £1,174.1m as at 31 December 2012 as reported in the Company's prospectus of 26 February 2013 ("Prospectus"). An analysis of the increase in the valuation is detailed in the Investment Adviser's Report.

On an Investment basis the NAV per share was 120.0p at 31 March 2013 (2012: 116.3p). The Investment basis NAV per share after the second interim distribution at 31 March 2013 was 116.4p; an increase of 3.2% over the comparable figure at 31 March 2012 being attributable to increased pricing for secondary market assets, the operational performance of the portfolio and new, value-accretive investments.

The NAV per share on an IFRS basis at 31 March 2013 was 117.9p (2012: 117.0p).

Acquisitions

The Group has made 10 new investments and 11 incremental acquisitions during the year for a total consideration of £278.0m. Further details are set out in the Investment Adviser's report.

The Board is pleased that, even in the competitive environment for these types of investments, the Investment Adviser has been able to generate a consistently strong pipeline of potential acquisitions, sourced through a wide network of industry relationships, the majority of which are then negotiated on an exclusive basis. During the year the Investment Adviser participated in 15 auctions and was successful in three, indicating pricing was higher than the Group was prepared to pay.

Since the financial year end the Group has acquired four new investments totalling £36.1m. These are the 50% interest in the Tameside General Hospital project for £16.0m, 33.3% interest in Addiewell Prison for £10.3m, and a 60% interest in two further LIFT projects in London and Kent for £9.8m.

In addition, the conditional contract to acquire the two Conditional Investments identified in the Prospectus, being a 50% interest in the University of Sheffield Accommodation project and a 29.2% interest in the Bradford Schools Phase I project, has been signed and the acquisitions are now subject to certain third party approvals and consents.

These post period transactions were all part of the identified pipeline of new investments reviewed by the Board at the time of the New Ordinary Shares issue in March 2013. Following the completion of the two Conditional Investments, the Group will have circa £43.2m from the capital raising still to be invested and the Board is very confident that these funds will be invested by the summer and ahead of plan.

Distributions

On 21 February 2013, the Board declared a second interim distribution of 3.575p per share for the year to 31 March 2013 (2012: 3.50p). This brought the total distributions paid for the year to 7.00p, representing a 2.2% growth on the prior year total of 6.85p. The second interim dividend was declared, and subsequently paid, to allow the share price to trade ex-dividend during the New Ordinary Shares capital raising in March 2013.

As in prior years, a scrip dividend alternative was offered which secured a 13.7% take-up. The distribution (or scrip dividend) was paid on 22 April 2013 to those shareholders on the register as at 1 March 2013.

At the Annual General Meeting ("AGM") in July 2012, shareholders gave the Board the power to offer a scrip dividend alternative and this power runs until the next AGM on 25 July 2013. Based on the level of take-up and feedback from shareholders, it is the Board's intention to seek a renewal of this power at the forthcoming AGM.

Based on the current performance of the portfolio, the Board is targeting total distributions for the year to 31 March 2014 of 7.1p per share (2013: 7.0p).

Risks and Uncertainties

The UK has been at the forefront of public infrastructure procurement in partnership with private sector capital for almost two decades. Following a consultation on how the original PFI model of procurement could be improved and enhanced, the UK Government used the Chancellor of the Exchequer's Autumn Statement on 5 December 2012 to present the new procurement model called PF2.

The Investment Adviser's Report provides more detailed commentary on both PF2 and the UK Government's 2012 National Infrastructure Plan but, essentially, the framework is now in place for the participation by private sector capital in the construction and funding of new public infrastructure. Moreover, PF2 clearly attaches significant importance to the involvement of long-term institutional investors both in the provision of equity as well as debt capital for these projects. While these are very positive steps, it remains unclear how quickly new projects will come to market and when capital will be required.

A component of the new PF2 model is competition for project equity which is aimed at reducing the cost of capital. It is too early to say whether the risks and rewards achievable under the new model will be suitable for the Group.

The Group's project cashflows are positively correlated with inflation, and future inflation, based on current expectations, is one of the key drivers of the Directors' valuation. In late 2012 the UK's Office for National Statistics ("ONS") undertook a consultation on the method of calculation of RPI and RPIx inflation in the UK. Although there was speculation around a formula change which would deliver a lower figure for RPI, and thus create a one-off downside impact on the Company's portfolio valuation, the ONS announced a 'no change' recommendation in February 2013.

The Group is reliant on its clients, namely public sector entities, to fulfil their payment obligations under the PFI contracts. An NHS trust in South London with financial difficulties, and party to two PFI projects (in neither of which the Company is invested), was put into special administration in 2012. The outcome of administration was a re-organisation of healthcare services in the area and an agreement on continued central funding to support these projects.

This outcome provided comfort that the UK Government would not unilaterally seek to amend or renege on existing contracts, especially relevant given the importance of private capital for the funding of new infrastructure in the National Infrastructure Plan.

Every project in the Group's portfolio has long-term non-recourse debt. The term is typically one to two years shorter than the term of the contract. There is no refinancing risk.

Projects have exposures to banks in the form of interest rate swaps and deposit accounts. The Investment Adviser monitors and manages these exposures as appropriate.

The projects in the portfolio rely on partners who contract to provide services. There is good diversification amongst our service partners which has again increased with the new acquisitions made in the year. There are no material performance or credit issues to report.

The Investment Adviser monitors project performance and, if issues arise, takes action to minimise any impact. As one would expect for a portfolio of this size, there will always be some investments with operational matters to be resolved, and the Investment Adviser's team is actively engaged in facilitating timely and acceptable outcomes. Our investments in Holland and Ireland have not been impacted by the Eurozone crisis, but we remain watchful.

The Alternative Investment Managers Directive ("AIFMD") is scheduled to come into force in July 2013, with transitional arrangements for a year. This could impact on our ability to market the Company in various European jurisdictions, with a consequent impact on share price and liquidity. We have monitored developments closely and have taken professional advice and worked with the Investment Adviser to ensure that we are appropriately prepared to make any changes required in a timely fashion.

Corporate Governance

On 30 September 2011 the Guernsey Financial Services Commission (the 'Commission') issued the Finance Sector Code of Corporate Governance. This Code comprises Principles and Guidance, and provides a formal expression of good corporate practice against which shareholders, boards and the Commission can better assess the governance exercised over companies in Guernsey's finance sector. As the Company reports against the AIC Code of Corporate Governance, it is also deemed to meet this Code.

The Company reports governance against the Association of Investment Companies (the "AIC") Code of Corporate Governance dated October 2010. In September 2012, the Financial Reporting Council issued a new edition of the UK Corporate Governance Code, and in February 2013, the AIC published its updated AIC Code of Corporate Governance. This new AIC code has been endorsed by the Financial Reporting Council and the Company will report governance against this revised code in the financial year ending March 2014, albeit the Company has been mindful of the amendments to the new AIC code in this Annual Report.

As part of good corporate governance, all four of the Directors offered themselves for re-election at the AGM held in July 2012 and were duly re-elected. It is proposed to continue with this process of all Directors seeking annual re-election, which is more regular than the Company's Articles require.

At the AGM in July 2012 shareholders approved the Board's proposals to adopt, substantially as presented, the recommendations of an independent consultant to increase the directors' remuneration in line with companies of a similar size and complexity. Inflationary increases, which were also part of the recommendations, have been endorsed by the Board for the year to 31 March 2014 and are subject to shareholder approval at the forthcoming AGM in July.

As mentioned in the Prospectus for the New Ordinary Shares issue in March, the Board felt that given the growth in size and scope of the Company in recent years, it would be beneficial to recruit at least one further Director. It would also facilitate succession planning as both John Hallam, the senior independent Director, and I have been Directors for seven years.

Trust Associates were retained to evaluate potential candidates and we are pleased to have been able to attract individuals of the calibre and experience of Ian Russell, CBE and Susie Farnon. Ian's background as CFO and subsequently CEO of a major listed utility (Scottish Power plc), together with Susie's experience on regulatory, governance and audit matters will be of considerable benefit to the Company. Ian and Susie were appointed with effect from 1 May 2013, and like all the other Directors are offering themselves for re-election at the forthcoming AGM in July.

Following the introduction of a further fee taper agreed with the Investment Adviser last year, the Board believes the fee structure remains transparent, straightforward and competitive for the asset class. The Board is also pleased to see the Investment Adviser further expand the team which services the Group, with an additional four hires. The Group will also benefit from the expansion of the Investment Adviser's global infrastructure team, and notes their opening of a new office in Sydney, Australia.

Corporate Social Responsibility

Public procurement and engagement

During the last year the UK witnessed sluggish economic growth and there were fears of a triple-dip recession. Capital expenditure on public infrastructure procurement is regarded as having the potential to reinvigorate the economy and the opportunity is not particular to the UK. The US, for example, has now made headway with its infrastructure procurement programme which has achieved broad political acceptance.

The Group, through its Investment Adviser, is an active participant in the evolution of public policy and has a regular dialogue with various interest groups in both the public and private sectors.

A key part of the Investment Adviser's role is to build and maintain good open relationships with all of the stakeholders associated contractually with the Group's projects, especially public sector clients. The Investment Adviser's asset management team is heavily focused on client engagement; resolving issues, seeking efficiencies and/or facilitating variations, which may include the provision of additional services or assets.

Investor Communications

With the capitalisation of the Company exceeding £1.4bn and an investor base of over 4,500 shareholders, the Board is acutely aware of the need to keep shareholders up to date with developments through regular engagement. During the last 12 months, the Investment Adviser has strengthened its Investor Relations team to provide greater coverage of existing shareholders and to cultivate relationships with potential new investors in the UK and overseas.

The Company's Directors also make themselves available to meet with shareholders. During the last year, I have met personally with representatives from some of our larger shareholders in order to promote an understanding of the Company's plans and to receive feedback. The Board welcomes the opportunity to engage directly with investors as a means of correlating and supplementing the regular feedback received from the Investment Adviser and the Broker.

The Board also takes a keen interest in the level and quality of the information which the Company publishes both on the Company website and in reports and presentations. Our intention is to remain at the forefront of disclosure and transparency for our asset class.

January 2013 saw the formal introduction of the legislation proposed under the Retail Distribution Review ("RDR"). As expected, there has been no overnight change as most organisations involved in the distribution of financial products had been adapting to the proposed changes during the prior year. The expected levelling of the playing field, such that investment companies are not disadvantaged by the commissions paid to IFAs and other intermediaries on open-ended/unit trust vehicles, is now taking place. Self-selection and self-execution through trading platforms has begun to increase and, over the medium term, we expect larger, liquid stocks such as ours to benefit.

Environment, Social and Governance Policies

The Investment Adviser is a subscriber to the United Nations' Policies for Responsible Investment and has established and documented environmental, social and governance policies not just for itself as Investment Adviser and Operator, but also for the Group, its subsidiaries and the other project companies in which it has a stake. The Company now operates within this framework and ensures, to the extent that it is able, that project companies adhere to these polices and other relevant best practice.

Outlook

Infrastructure spending is becoming increasingly relevant around the world as other public policy measures reduce costs but often fall short of delivering the necessary economic growth. Against this backdrop, the investment community has developed a much greater understanding of the dynamics of infrastructure as an asset class, and the Company is benefiting from its strategy of investing in lower-risk, operational, social and transportation infrastructure projects with public sector counterparties. Demand for the Company's shares has enabled it to raise, at a premium to NAV per share, capital which it has then successfully deployed by acquiring value-accretive investments. The Group continues to look for further acquisitions in the UK and overseas which meet its investment criteria and its stated return objectives.

With funds available from the recent New Ordinary Shares issue, the Group is well placed to make further acquisitions over the coming months from the healthy pipeline of opportunities that were identified at the time of the equity raising and which continue to arise. Nevertheless, we will not compromise our strict investment criteria and our disciplined investment processes by overpaying for assets or acquiring those with structural or operational issues. The Investment Adviser is currently in exclusive positions on five new investments, worth over £100m, and this is a testament to its sector knowledge and wide network of industry relationships. Its reputation for diligently valuing new investments and executing the purchases in a timely and efficient manner underpins our success in acquiring suitable assets.

We remain cautious of investing in certain countries where, while the sovereign risk may have diminished, the risk-adjusted returns are still not attractive. Northern Europe, Canada and Australia remain firmly of interest, although aggressive pricing, or structural investment advantages accruing to domestic buyers, has meant that assets in the UK generally offer a more compelling investment case on a risk-adjusted basis.

The investment portfolio performed well last year and, with prior year acquisitions adding value and greater diversification, we are confident that future cashflows are both strong and resilient.

The Company has now met its target distribution of 7.00p per share and is satisfied that this distribution level can be sustained, with some upside potential. In conjunction with the Investment Adviser, the Board has reviewed the performance and cash flow generation of the portfolio forecast for the current year and is setting a target total distribution for the year to 31 March 2014 of 7.10p per share.

Graham Picken

Chairman

21 May 2013

Investment Adviser's Report

Market Developments

The primary market in the UK for new social infrastructure slowed further during the last year in anticipation of the announcement of the outcome of the UK Government's consultation on future infrastructure procurement. The announcement of PF2 in December 2012 was welcomed by market participants as it not only put forward a more refined and efficient form of procurement, albeit very similar to PFI, but it augured well for a pipeline of new projects. Moreover, the revised National Infrastructure Plan 2012 saw more projects announced with an even greater value than its predecessor. The Plan now specifies 576 projects with a capital value of £310bn (source: HM Treasury).

The UK Government hopes that this revised procurement approach together with the "Infrastructure Procurement Routemap" published by HM Treasury in January 2013 will accelerate the roll-out of the pipeline whilst improving the efficiency, transparency and value for money of infrastructure spending through the partnership between the public and private sectors.

Despite the initial positive response to these announcements, there has been limited progress to date in converting the pipeline into live procurement processes. A delay in primary procurement does not affect the Group in the near to medium term as it is not typically an investor in new primary projects. It does however mean the pool of secondary opportunities in the UK market is barely growing currently. It is also too early to say whether future UK projects procured under PF2 will have sufficiently attractive risk/return profiles to make them acceptable potential investments for the Group.

The secondary market for social infrastructure assets in the UK continues to be active, and in the year there has been a good flow of assets onto the market with both single assets and portfolios being marketed by contractors, operators and financial investors. This is expected to continue over the next few years as certain owners seek to monetise the value of these assets.

The number of buyers has increased in recent years with several new listed and unlisted infrastructure funds entering the market, as well as some pension funds looking to invest directly in the asset class. This increase in demand has had a slight impact on pricing during the year, leading to a small reduction in the weighted average discount rate used to value the portfolio of 0.2%.

The Investment Adviser's broad network of long-standing relationships with potential vendors is proving extremely valuable in this environment, enabling direct negotiations with the relevant seller and the conclusion of transactions on acceptable terms in a timely and cost efficient way for both parties. Over the last 12 months, the majority of the Group's acquisitions have been completed in this manner.

Similarly, the Investment Adviser has been able to capitalise on its relationships with co-shareholders on projects in which the Group does not own a 100% stake. Through these relationships, the Group has successfully acquired a further eleven stakes in existing investments during the year to 31 March 2013.

Based on an analysis of the portfolio and an assessment of whether co-shareholders are likely to be sellers, the Investment Adviser estimates that there is at least £150m of potential incremental investment which the Group is in a strong position to acquire over the next three years.

During the year, the Investment Adviser participated in 15 auctions to acquire new investments and was successful on three, indicating others were prepared to pay a higher price than the Group for these investments. Careful bid management ensures that the costs of due diligence are generally only incurred after shortlisting or preferred bidder status.

The overseas social and transportation infrastructure market for secondary purchases continues to grow, but is smaller than the UK market. With near-term opportunities less numerous, the increase in the number of new infrastructure projects currently being procured in these markets should hopefully lead to more opportunities in the medium-term.

InfraRed has a main office in London as well as smaller offices in New York, Paris and, more recently, Sydney. Through this network, the team has sourced and evaluated appropriate investment opportunities in a number of overseas markets over the last 12 months.

During the year, the Investment Adviser was unsuccessful in bids to acquire social infrastructure investments in France, Belgium, Holland and Germany where local investors appear willing to accept lower returns.

In such cases, the Group chose not to match the prices paid by local investors, who either had a domestic tax advantage or seemed to take a more bullish view on price and risk. This trend is not expected to change materially in the foreseeable future and, whilst the Investment Adviser is optimistic of acquiring additional overseas investments, the portfolio will continue to have a UK focus for the most part.

The team continues to evaluate new investment opportunities in countries with developed pipelines of opportunities and a stable fiscal position. North America, Australia and countries in Northern Europe broadly satisfy our requirements, while the risk/return balance in Southern Europe remains insufficiently compelling to target this region at the present time.

Current Investment Priorities

The Group, as part of its Investment Policy, adopts an investment strategy which has been consistently applied since May 2009. The investment strategy remains focused on social and transportation infrastructure (such as PFI/PPP/P3) concessions, predominantly with availability-based contracts and likely to be operational, although projects under construction will be considered. Of possible secondary interest, but only selectively, are:

·; debt funding of infrastructure projects (without taking an equity interest), where attractively priced and appropriately structured;

·; toll roads where there is proven demand history and an appropriate risk/return profile;

·; regulated utilities and transmission systems, if of an appropriate scale; and

·; operational renewable energy projects such as wind farms, solar parks or hydro-electric schemes, where there are suitable contractual structures in place which enable the Group to secure long-term income streams, comparable in nature to those of social infrastructure projects.

In setting the above strategy, the Board and the Investment Adviser carried out a fundamental analysis of certain market segments to ensure they are complementary or additive to the existing portfolio. All potential investment opportunities are carefully screened by the team, initially to determine whether the opportunity is suitable for the Group, including assessing the counterparties and the jurisdiction.

When seeking to acquire an investment, the proposition needs to be fully assessed and vetted by the Investment Committee of the Investment Adviser, and this committee meets on a number of occasions before an investment is acquired for the Group. Detailed, thorough commercial and technical due diligence is undertaken by the team and includes a peer-group review. Third party legal, technical and insurance due diligence is commissioned as appropriate to support the acquisition.

The characteristics of new investments are not expected to deviate materially from the underlying risk and reward characteristics of the existing portfolio, nor should any new investment cashflows be subject to risk or revenue dynamics which are substantially different from the profile already established.

Since 2009, a number of renewable energy projects have been considered by the Investment Adviser but no investments have been made. This is because the risk profile of the potential acquisition has been too high, or the yield profile insufficiently attractive when compared to a social infrastructure investment.

During the year, the Investment Adviser has considered a number of potential investments in all segments of the investment strategy. In one case, Investment Committee approval was granted to acquire a tranche of infrastructure debt, but ultimately the vendor was unwilling to sell a sufficiently large stake, as originally marketed. In another case, the vendor of a European road investment decided not to sell.

Portfolio Update

Current performance

The Group's portfolio continues to perform in line with expectations enabling the dividend to be increased to 7.0p per share for the year to 31 March 2013. The operational strategy for each project within the portfolio is to deliver services to the required contractual standards and to maximise value through active asset management.

The Group and its clients, contractors, and co-shareholders have worked together successfully on a number of cost-saving pilot studies in the UK, including at Romford Hospital, the Greater Manchester Police Stations, the Defence Sixth Form College, and the Dorset Fire & Rescue project. These studies have been carried out by reference to HM Treasury guidance on how to facilitate and achieve cost savings from existing PFI projects in the UK.

On the basis of this experience, the Investment Adviser's asset management team has initiated cost saving and efficiency programmes involving clients and contractors across more UK projects than simply those with formal pilot studies. Such programmes cover a wide variety of themes of which improved energy management is the most prevalent.

A typical spend-to-save scheme will involve an initial investment by either the shareholders, a sub-contractor or the client with a view to payback from savings in the short term followed by incremental savings shared with the client over the medium term. Savings come from using energy at the time, place and level at which it is specifically required through the use of intelligent control systems. Space reconfiguration and better asset utilisation benchmarked on private sector occupancy levels are also releasing excess capacity for additional occupants.

On certain projects, notably schools, promoting the community use of facilities has increased revenue for our clients e.g. a variety of local groups have taken school classrooms and halls outside school hours and at weekends, thus generating incremental revenue and promoting community goodwill.

The Group owns a large portfolio of projects across which such experiences can be shared and implemented for the benefit of all stakeholders. The Investment Adviser will continue to encourage clients to take advantage of such schemes by assisting their facilitation even when the Group itself does not receive an economic benefit.

Contract Variations

The Investment Adviser's asset management team continues to seek value enhancements across the portfolio, an important component of which are project variations. Variations are requests from the client to amend the scope of services delivered, be it a capital project or an additional or amended service for which the project earns incremental revenue. During the year the team has worked on a number of variations, many of which have been environmentally focused, and which have included:

·; On the Dutch High Speed Rail link, the client has recently commissioned a pilot study to test various technologies to improve noise attenuation relating to the high speed trains, especially at bends in the route. Solutions include the use of rail dampening and noise absorption materials between or beside the tracks and the scope includes removal at the end of the 1 year study period. We have responded to the client's request and the implementation works are due to commence shortly.

·; At West Middlesex Hospital in London, the project assisted the client in procuring £0.5m of match-funding from Salix, an independent not-for-profit company, which, together with a £0.3m investment from the client, was spent on implementing the findings of an energy-saving consultancy project. This has led to the introduction of variable speed power drives, LED lights, and other advanced energy management systems which will achieve overall energy savings of circa 15% p.a. and effect a significant reduction in carbon emissions for the Trust.

·; At the Metropolitan Police Specialist Training Centre, the client funded several million pounds of upfront capital investment through a spend-to-save programme focused on more efficient energy consumption. This included the installation of a voltage optimiser, occupancy sensors and PV panels as well as additional metering and enhanced boiler management. The result has been an 11% reduction in energy consumption in 2012, together with the separate generation of over 85,000 Kwh of additional electricity. A feasibility study into the use of a wind turbine is also currently being progressed.

·; At the Medium Support Helicopter Aircrew Training Facility at RAF Benson in Oxfordshire, the project team has been working with CAE (Canadian Aviation Electronics Ltd) to deliver the latest of a number of variations to the helicopter simulators. It is essential that the simulators accurately reflect live aircraft in terms of performance, equipment and physical layout. This year the variations included major upgrades in respect of the Puma Mk 2 helicopter and the Dutch Block 6 Chinook. These upgrades require downtime of the simulators which reduces availability to the MoD and third party customers, so effective relationship management is vitally important to a successful outcome.

Acquisitions

As noted in the Chairman's Statement, the Group made ten new investments and 11 incremental acquisitions during the year for an aggregate consideration of £278.0m.

·; In May 2012 the Group acquired an additional 14% stake in the Colchester Garrison project for £15.0m taking its interest up to 56%. The Group also completed the acquisition of a 19.5% interest in the Connect PFI project for £39.0m, and the acquisition of a 30% interest in the Birmingham Hospitals project for £34.6m from a division of RBS.

·; In July 2012 the Group announced the acquisition of a 75% interest in a primary care facility in Blackpool from the Eric Wright Group for £2.9m.

·; In August 2012, additional interests were acquired in four PFI projects for a total consideration of £10.4m taking the Group's total interests in these projects to 66.67% on Romford Hospital, 50.0% on Fife Schools (completed January 2013), and 100% on both Exeter Crown Courts and Stoke Mandeville Hospital.

·; In September 2012 the Group paid £4.9m in aggregate to acquire incremental stakes in Dorset Fire & Rescue (final 33%) and Ealing Care Homes (further 16%).

·; In October 2012, the Group acquired 30% stakes in two operational LIFT companies, the Birmingham & Solihull LIFTCo and the Staffordshire LIFTCo, as well as a further interest in the Connect PFI Project, giving it a 28.5% interest overall. The combined consideration was £33.8m. The Group also acquired a 30% interest in the Fife Schools 2 PPP, a 25 year concession for nine primary schools and one special education needs facility for £3.9m from The Miller Group.

·; In November 2012 the Group signed a contract to acquire a 50% equity and loan note interest in the Northwood MoD HQ PFI project from Carillion for £30.6m. This completed on 14 January 2013.

·; In December 2012 the Group paid £75.0m aggregate consideration for 100% interests in the Edinburgh Schools PFI project and the Perth & Kinross Schools PFI project (17 schools across 13 sites), both from Eiser Infrastructure Partners Ltd, as well as a 37.5% interest in the West Lothian Schools PFI project from Dawn Construction Ltd. It also acquired the remaining 10.1% equity interest in the Sussex Police Authority Custody Centre PFI project for £0.5m.

·; In March 2013, the Group acquired the remaining 50% interest in the Highland Schools PFI project from 3i Infrastructure plc for £21.2m, as well as an additional 37.5% stake in the West Lothian Schools PFI project from Hochtief PPP Solutions (UK) Ltd for £6.2m.

Full control of a project can give rise to opportunities for value enhancement which would not be available as a co-shareholder.

As part of the consideration for the Perth & Kinross Schools PFI project acquisition in December, the Group had a contractual investment obligation of £12.7m which was paid in April, after the financial year end.

Since 31 March 2013, the Group has announced four further acquisitions:

·; On 30 April 2013, the Group acquired a 60% shareholding in two further LIFT companies, the Medway LIFTCo and the Redbridge & Waltham Forest LIFTCo, which have together successfully developed seven new primary care facilities with a total development cost of approximately £50m. The total consideration paid by the Group for the investment in the two LIFTCos was £9.8m.

·; On 1 May 2013, the Group announced that it had acquired a 50% stake in the Tameside General Hospital PFI project from Balfour Beatty Infrastructure Investments Limited for £16.0m.

·; On 8 May 2013 the Group acquired a 33.3% interest in the Addiewell Prison PFI project from a division of RBS for £10.3m

Acquisitions during the year increased the Group's portfolio to 79 social and transportation infrastructure investments as at 31 March 2013. The acquisitions completed since the year end and highlighted above have increased the portfolio to 83 investments, all of which are now fully operational following the completion of construction of the M80 DBFO Road in Scotland in December 2012.

Since the year end, the Group has signed a conditional contract to acquire the two Conditional Investments from a fund managed by an affiliate of the Investment Adviser. This was documented in the February 2013 Prospectus and was subject to shareholder approval at the Extraordinary General Meeting in March 2013. It is expected that these two investments will be acquired when the conditions have been satisfied and the necessary approvals obtained. The total consideration for these two investments will be £27.5m and no acquisition fee will be payable to the Investment Adviser. The Rules of Engagement as set out in the Investment Policy were followed and the Directors received a third party valuation opinion.

Disposals

In November 2012 the Group made its first disposal. This was its 50% stake in the Doncaster Schools PFI project for £5.3m which the Group originally acquired in December 2011 within a 26 project portfolio. The purchaser of the stake was Vinci Pensions Limited, an affiliate of the 50% co-shareholder in the project, Vinci (Holdings) Limited.

The Group had originally sought to take its own stake up to 100%. However, a price was offered for our stake well in excess of our valuation of the project and which delivered a capital gain of £0.5m on the 30 September 2012 valuation.

Valuation of the Portfolio

The Investment Adviser is responsible for carrying out the fair market valuation of the Group's investments which is presented to the Directors for their approval and adoption. The valuation is carried out on a six monthly basis as at 31 March and 30 September each year.

The Directors receive an independent third party report and opinion on this valuation from a third party valuation expert.

For non-market traded investments (being all the investments in the current portfolio), the valuation principles used are based on a discounted cash flow methodology, and adjusted in accordance with the European Venture Capital Associations' valuation guidelines where appropriate to comply with IAS 39, given the special nature of infrastructure investments. Where an investment is traded, a market quote is used.

This is the same method used at the time of launch and in each subsequent six month reporting period (further details can be found in the Company's New Ordinary Shares Prospectus of February 2013, available from the Company's website).

The Directors' Valuation of the portfolio as at 31 March 2013 was £1,213.1m, including the £12.7m outstanding investment obligation on Perth and Kinross Schools PFI project. This valuation compares to £902.0m as at 31 March 2012 (up 34%). A reconciliation between the valuation at 31 March 2013 and that shown in the financial statements is given in Note 1 to the unaudited consolidated pro-forma financial statements, the principal difference being the £12.7m equity commitment outstanding on the Perth & Kinross Schools PFI project, which has now been satisfied.

 A breakdown in the growth in the Directors' Valuation in the year is tabled below.

Allowing for the acquisitions during the year of £278.0m, the divestment of £5.3m (Doncaster Schools) and investment receipts of £76.8m, the rebased valuation was £1,097.9m. The growth in the valuation of the portfolio at 31 March 2013 over the rebased value was 10.5%. This increase is a product of the return from the portfolio, the reduction in the discount rate, the lowering of deposit rate assumptions and UK corporate tax rates, and forex movements.

The return from the portfolio of £97.5m represents a 8.9% increase in the rebased value of the portfolio and includes:

·; The unwinding of the discount rate (future cashflows are a year closer and hence more valuable)

·; Value enhancement initiatives from existing investments

·; Contributions from new investments

·; Acquisitions made at above the portfolio discount rate

·; Actual inflation in the year being greater than the 2.75% p.a. valuation assumption

·; Gain from the disposal

Fair value for each investment is derived from the application of an appropriate discount rate to the investment's future cash flows to give the present value of those cashflows. We exercise our judgment in assessing the expected future cash flows from each investment based on the detailed concession life financial models produced by each Project Company. These are adjusted where necessary to include the Group's economic assumptions as well as any specific operating assumptions.

Discount rates

The discount rate used for valuing each investment is based on the appropriate long term Government Bond yield and a risk premium. The risk premium takes into account risks and opportunities associated with the project earnings (e.g. predictability and covenant of the concession income), all of which may be differentiated by project phase and market participants' appetite for these risks.

The discount rates used for valuing the projects in the portfolio are as follows:

We use our judgement in arriving at the appropriate discount rate. This is based on our knowledge of the market, taking into account intelligence gained from bidding activities, discussions with financial advisers knowledgeable of these markets and publicly available information on relevant transactions.

The discount rate to reflect market pricing for an operational asset has been judged as 8.4% - down 0.2% from the prior year - reflecting market conditions discussed in the Market Developments section above.

An analysis of the weighted average discount rates for the investments in the portfolio analysed by territory is shown below:

The risk premium for each country is derived from the market discount rate for operational social and transportation infrastructure investments less the appropriate long term Government Bond yield. Long term Government Bond yields in the UK, Canada and Holland are currently low and this is reflected in higher country risk premium, which includes a buffer to allow for increases from these historically low yields.

For the Irish assets, where there is limited transactional evidence, we believe the appropriate discount rate for the operational school projects in which the Group is invested is 10%. This is also the opinion of the third-party valuation expert appointed by the Board.

An analysis of the movements in the weighted average risk free rate and risk premium for the social and transportation infrastructure assets is shown below:

Long term Government Bond yields have continued to trend lower over the year as the authorities use all means at their disposal to try and stimulate economic growth. However, as in previous years we have not reduced our discount rate to the same extent, as investors in the social and transportation infrastructure market believe Government Bond yields are artificially low as a result of government intervention and other factors, and yields will return to more normalised levels in due course. The discount rate therefore reduces this potential short term volatility and, all other factors being equal, could accommodate a material rise in yields before the discount rate would need to rise.

The 0.2% reduction is attributable to a more competitive environment for social infrastructure assets. While there is a steady supply of new investment opportunities, new market entrants, attracted by the favourable risk-adjusted returns, have had a small upward impact on pricing, and hence caused a slight reduction in discount rates during the year.

Valuation Assumptions

Discount Rate Sensitivity

The discount rates used to derive the Directors' valuation is a key judgement, based on the knowledge of the Investment Adviser and the third party advice which the Board receives on the valuation. As in previous years, the Company prepares certain valuation sensitivities including changing the weighted average discount rate. A change to the weighted average rate of 8.4% by plus or minus 0.5% has the following effect on the valuation;

1. NAV per share based on 1,116m Ordinary Shares as at 31 March 2013

Inflation Rate Sensitivity

The projects in the portfolio have contractual income streams with public sector clients, which are rebased every year for inflation. UK projects tend to use either RPI (Retail Price Index) or RPIx (RPI excluding mortgage payments), and revenues are either partially or totally indexed (depending on the contract and the nature of the project's financing). Facilities management sub-contracts have similar indexation arrangements. The portfolio valuation assumes UK inflation of 2.75% per annum for both RPI and RPIx, the same assumption as for the prior year. The March 2013 forecasts for RPI out to December 2014 range from 1.7% to 4.0% from 25 independent forecasters as compiled by HM Treasury, with an average forecast of 3.0%.

As mentioned by the Chairman, during the year the Office for National Statistics ("ONS") undertook a consultation on the method of calculation of RPI and RPIx inflation in the UK. While not directed at the infrastructure sector, a change in the calculation methodology could have had a one-off adverse impact on the value of the Group's portfolio. In February 2013, the ONS announced that its consultation had concluded that so many aspects of the financial services industry would have been unduly impacted by such a change that no change should be made to the calculation methodology and that RPI would continue to be measured and reported as before. This outcome is clearly positive for the sector and for the Company.

A change of 0.5% p.a. to the assumed inflation rate of 2.75% p.a. would have the following effect on the valuation:

1. NAV per share based on 1,116m Ordinary Shares as at 31 March 2013

Changing the assumption for future inflation by a 1.0% p.a. increase (i.e. from 2.75% p.a. to 3.75% p.a. for the UK investments) has the effect of increasing the forecast return from the portfolio from 8.4% (being the weighted average discount rate) to 9.0%.

Deposit Rate Sensitivity

Each project's interest costs are at fixed rates, either through fixed rate bonds or bank debt which is hedged with an interest rate swap, or linked to inflation through index-linked bonds. A project's sensitivity to interest rates relates to the cash deposits which the project is required to maintain as part of its senior debt funding. For example most projects would have a debt service reserve account in which 6 months of debt service payments are held.

As at 31 March 2013 cash deposits for the portfolio were earning interest at a rate of 0.4% per annum on average. There is a consensus that UK base rates will remain low for an extended period, with a current median forecast for UK base rates in December 2014 of 0.5%.

The portfolio valuation assumes UK deposit interest rates are 1% to March 2017 and 3.50% thereafter. This is lower than applied in the March 2012 valuation, which assumed 1% deposit interest rates to March 2015 and 3.75% thereafter. These changes have reduced the portfolio valuation by approximately £11.9m and are included within the £5.8m aggregate reduction in portfolio value attributable to changes in Economic Assumptions.

A change of 0.5% p.a. to the assumed deposit rates would have the following effect on the valuation:

1. NAV per share based on 1,116m Ordinary Shares as at 31 March 2013

Tax Rates

The profits of each UK project company are subject to UK corporation tax. On 1 April 2013 the prevailing rate of corporation tax reduced from 24% to 23%. In the 2013 Budget Statement the Chancellor announced the Government's intention to bring UK corporation tax down to 20%, reducing the rate in April 2014 to 21% and by a further 1% the following year.

The UK corporation tax assumption for the portfolio valuation is 23%, which has reduced by 1% from 24% at March 2012, to reflect the current rate of UK corporation tax. This change has increased the portfolio valuation by approximately £6.1m and is included within the £5.8m aggregate change in portfolio value attributable to changes in Economic Assumptions.

Financing

The Company raised £272.6m (before expenses) during the year from the issue of 140m of New Ordinary Shares in February 2012 raising £167.3m, and £105.3m by way of Ordinary Share tap issues in November and December 2012. The net proceeds from the share issues were used to fund new investments and to reduce the Group's debt. As at 31 March 2013, the Group had overall net cash of £146m and £12.7m of outstanding future investment obligations.

The AIC has recently published new guidance in relation to gearing disclosures which is defined for a company with net cash as: a company's net exposure to cash and cash equivalents expressed as a percentage of shareholders' funds after any offset against its gearing. It is calculated by dividing total assets (less cash/cash equivalents) by shareholders funds. On an Investment basis, the Group had a net cash position of 10.0% at 31 March 2013 (2012: 11.4%).

The Group uses its £100m revolving debt facility, which matures in February 2015, to fund new acquisitions, and to provide letters of credit for future investment obligations. This facility was put in place for working capital purposes just before the Company's C Share issue in March 2012, and it originally included a further £50m tranche which matured after 18 months. The Company cancelled this tranche in August 2012 as the benefit of the incremental £50m did not justify the commitment fee.

The Board's policy is that the Company should not hold cash to any material extent above any outstanding equity commitments in respect of existing investments or the amount required to fund potential acquisitions which are likely to be secured in the near future. The target and maximum size of the recent New Ordinary Shares issue was therefore set by the Board based on an analysis of the pipeline of potential new investment opportunities that were likely to be concluded by September 2013. Even though the issue was heavily oversubscribed, the Company only issued the maximum of 140m shares, and the Investment Adviser is confident that the remaining proceeds will be invested by the summer, ahead of plan.

All the projects in the portfolio all have long-term debt in place which does not need refinancing to meet their business plans. The weighted average project concession length remaining is 22.3 years at 31 March 2013 and the weighted average debt tenor is 20.7 years.

Counterparty Exposures

All project clients are public sector bodies. Each project subcontracts the delivery of services to one or more experienced facilities managers such as Carillion, Bouygues, Siemens, Mitie or Sodexo. The Group has a diversified range of facilities management companies, with the acquisitions in the year providing further diversification of the supply chain.

On a quarterly basis the portfolio's counterparty exposure to both the operational supply chain and the financial providers of bank deposit accounts and interest rate swaps is reviewed. The Investment Adviser's risk and control function monitors financial creditworthiness, while our asset management team monitors project performance for service issues which may indicate financial difficulties. The review processes have not identified any significant counterparty concerns for any of the portfolio's construction or facilities management contractors.

Financial Results

Accounting

At 31 March 2013, the Group had 25 investments classified for IFRS reporting purposes as subsidiaries which it was deemed to control by virtue of having the power, directly or indirectly, to govern the financial and operating policies of the project entities. This has increased by five over the year due to three incremental acquisitions and the purchase of two wholly-owned new investments. Under International Financial Reporting Standards ("IFRS"), the results of these companies are required to be consolidated in the Group's financial statements on a line-by-line basis.

However, these investments form part of a portfolio of similar investments which are held for investment purposes and managed as a whole and there is no distinction for operational purposes made between those investments classified as subsidiaries and those which are not. Further, all debt owed by the Group's investments is non-recourse and the Group does not participate in their day-to-day management.

As in previous periods, in order to provide shareholders with further information regarding the Group's net asset value, coupled with greater transparency in the Company's capacity for investment and ability to make distributions, the results have been restated in pro-forma tables which follow the Financial Results. The pro-forma tables show all investments accounted for on an Investment basis, which are reconciled to the consolidated financial statements on a line by line basis. By deconsolidating the subsidiary investments, the performance of the business under consolidated IFRS basis may be compared with the results under the Investment basis.

In October 2012 revised IRFS standards were issued (Investment Entities - Amendments to IRFS 10, IFRS 12 and IAS 27) to address the consolidation of investments held by investment companies. These revised accounting standards are expected to require the Group in the future to prepare IFRS financial statements which do not consolidate subsidiaries in a similar manner to the Group's current pro-forma Investment basis tables. The Group expects that these revised standards will apply to the Group and anticipate adoption of these standards in respect of the year ending March 2014 following their official adoption by the EU.

Income and Costs

On an Investment basis, Profit before tax and valuation movements was £49.9m (2012: £33.2m), an increase due to contributions from acquisitions.

Fair value movements are a £43.2m profit (2012: £28.8m) which represents the increase in the portfolio valuation recognised in the income statement. The portfolio valuation benefited from a 0.2% reduction in the weighted average discount rate applied in the Directors' valuation, positive contributions from acquisitions, actual inflation above the 2.75% valuation assumption and a solid performance from the portfolio. Further detail on the valuation movement is given in the Investment Adviser's Report.

Earnings on an Investment basis were £93.0m (2012: £61.9m), an increase of £31.1m compared to the prior year, with earnings per share of 10.4p up 0.6p or 6.1% as compared to 2012. The uplift in earnings reflects a reduction in the weighted average discount rate of 0.2%, positive contributions from acquisitions and a good operation performance from the portfolio.

On a consolidated IFRS basis, the earnings per share were 7.3p (2012: 13.1p). The results on a consolidated IFRS basis show a reduction in earnings per share due to lower gains on financial receivables and higher adverse inflation swap mark to market costs. Gains on finance receivables have reduced due to the 0.3% fall in UK long term gilt rates in the year compared with the 1% reduction in the prior year.

Total income on a consolidated IFRS basis increased to £333.0m (2012: £249.8m) driven by contributions from new subsidiaries. Profit before tax and valuation movements on a consolidated IFRS basis increased materially driven by growth in gains on investments reflecting contributions from acquisitions.

Interest was a net cost of £3.0m in the year (2012: £2.1m). It increased from the prior year due to a £0.9m write-off of debt arrangement costs in relation to the cancellation of the £50m 18 month tranche of the Group's debt facility.

Total fees accruing to InfraRed Capital Partners Limited (the Investment Adviser) were £13.0m (2012: £11.1m) for the year, comprising the 1.1% per annum management fee (1.0% for assets above £750m, 0.9% for assets above £1.5bn, and 1.5% for assets in construction), the 1.0% fee on the acquisitions made from third parties, and the £0.1m per annum advisory fee. The increase reflects the management fee on a growing portfolio value.

In the year, the Group incurred £0.2m of third party bid costs (mainly legal, technical and tax due diligence) on unsuccessful bids. The Investment Adviser earned £1.7m in acquisition fees, for its work on financial, commercial and structuring due diligence.

Neither the Investment Adviser nor any of its affiliates receives other fees from the Group or the Group's portfolio of investments.

1. Excludes acquisition fees of £1.7m (2012: 2.4m)

2. Excludes £164.7m net share capital raised in March 2013 (and £246.8m raised in March 2012)

In 2012 the AIC published new guidance in relation to calculating Ongoing Charges which is defined as annualised ongoing charges (i.e. excluding acquisition costs and other non-recurring items) divided by the average published undiluted net asset value in the period. On this basis, the Ongoing Charges Percentage is 1.19% (2012 equivalent : 1.38%). There are no performance fees paid to any service provider.

The Ongoing Charges reduced in the year by 0.2% reflecting a combination of lower gearing during the year on an Investment basis and the Group's expenses being spread over a larger capital base. As the Investment Adviser's management fee is based on a percentage of portfolio value, lower gearing on an Investment basis means that the Investment Adviser's fee as a percentage of net assets is lower and hence the Ongoing Charge Percentage is reduced.

Balance Sheet

1 This is net assets attributable to the Group net of non-controlling interests

2 The NAV per share at 31 March 2013 is that applicable to the 976.4m Ordinary Shares in issue on the record date of 1 March 2013. The 140m Ordinary Shares issued on 27 March 2013 pursuant to the New Ordinary Shares Prospectus of 26 February 2013 were not eligible for the second interim dividend of 3.575p. See Note 2 to the pro-forma financial statements and Note 13 to the financial statements.

On an Investment basis, Investments at fair value were £1,200.4m (2012: £902.0m), net of the £12.7m of future investment obligations on Perth and Kinross Schools PFI project. This is an increase from 31 March 2012 of £298.4m or 33%. Further detail on the movement in Investments at fair value is given in this Report under Valuation.

Following the acquisitions and share issues during the year, the Group had a net cash position at 31 March 2013 on an Investment basis of £146.0m (2012: net cash of £129.4m). An analysis of the movements in net cash is shown in the cashflow analysis below. The £164.7m of net proceeds of the New Ordinary Shares issue were used to pay down £27.9m of drawings under the credit facility as well as to fund two acquisitions with an aggregate consideration of £27.4m at the end of March. Since 31 March 2013, the Group has made a further four acquisitions totalling £36.1m and these have been funded from cash resources.

On an Investment basis, NAV per Ordinary Share was 116.4p after the 3.575p distribution (2012: 112.8p post dividend distribution of 3.5p).

On a consolidated IFRS basis, net assets attributable to Ordinary Shares have increased to £1,311.3m (2012: £778.1 m) reflecting £274.8m from the issue of shares (net of costs) in the year and £11.6m of retained profits. NAV per Ordinary Share was 117.9p (2012: 117.0p).

Cashflow analysis

1. The year to 31 March 2013 includes £1.4m profit on disposal of Doncaster Schools.

2. Includes amortisation of debt issue costs of £1.7m (2012: £0.4m)

On an Investment basis the Group's net cash at 31 March 2013 was £146.0m (31 March 2012: net cash of £129.4m).

Cash inflows from the portfolio were up 52.7% at £78.2m (2012: £51.2m). The growth in cash generation was driven by contributions from acquisitions combined with active cash management across the portfolio.

Cost of investments of £270.2m (2012: £283.3m) represents the cash cost of the 10 new investments and 11 incremental acquisitions, and associated acquisition costs of £5.1m. The disposal in the year was Doncaster Schools which had been acquired in December 2011 for £3.9m.

The £3.4m (2012: £2.9m) movement in forex and hedging arises from the strengthening of the Euro against Sterling in the year. The forward sales are to hedge the Group's forex exposure on the Dutch High Speed Rail Link, two Irish assets and two Canadian assets.

The 140m New Ordinary Shares capital raising in March 2013, placing of 88.3m Ordinary Shares via tap issues and the £1.8m of delayed C Share proceeds provided net cash receipts in the year of £270.1m (2012: £320.9m).

Dividends paid increased £11.3m to £48.1m (2012: £36.8m) for the year (being the payment of 3.50p in June 2012 and the payment of 3.425p per share in December 2012). The dividends declared for the year to 31 March 2013 represent a total of 7.00p per share (2012: 6.85p).

Dividend cash cover, which compares operational cash flow of £64.3m (2012: £41.0m) to dividends attributable to operational assets, was 1.38 times (2012: 1.23 times). The proportion of the total dividend attributable to operational assets (96.9%) and construction assets (3.1%) is based on their respective share of the portfolio valuation during the year.

Gearing

The Group started the financial year with a committed £150m revolving credit facility comprising a £50m 18 month tranche and a £100m three year multi-currency tranche jointly provided by Royal Bank of Scotland and National Australia Bank. The facility was signed in February 2012 and for regulatory reasons was sized to reflect the maximum potential working capital requirements for the 18 months following the £250m C Share issue in March 2012. In August 2012 the Company cancelled the £50m 18 month tranche as the anticipated level of utilisation prior to expiry did not justify the ongoing commitment fee.

The Group's debt facility is used to fund acquisitions and is on a recourse basis to the Group. The Company's Articles of Association limit the Group's recourse debt to 50% of Adjusted Gross Asset Value of its investments and cash balances. As at 31 March 2013, the Group's cash drawings under the £100m facility were £27.9m, the balance having been repaid in April from the proceeds of the New Ordinary Shares issue. As such, on an Investment basis the Group is ungeared with net cash as at 31 March 2013 of £146.0m (2012: £129.4m).

Since 31 March 2013, the Group has utilised £36.1m to make four new investments, £12.7m to finance the loan note subscription on Perth and Kinross Schools project, as well as £30.1m for the payment of the second interim dividend of 3.575p per share on 22 April.

To manage interest rate risk the Group can use interest rate swaps to hedge drawings under the Group's debt facility. During the year the Group did not utilise any interest rate swaps due to the limited period during which the Group was a net borrower under the facility.

On a consolidated IFRS basis, the Group had net debt of £1,624.3m at 31 March 2013 (2012: £1,473.3m). This increase in net debt over the year reflects the consolidation of five new subsidiaries arising from the various acquisitions in the year.

As previously reported, all of the projects have either long-term bank borrowings with interest rate hedges, or bonds with fixed or indexed coupon payments. This ensures the Group's investments have minimal exposure to interest rate volatility or debt market appetite.

Foreign Exchange Risk

Foreign exchange risk from non-Sterling assets has been managed on a balance sheet basis through the forward sale of Euros and Canadian Dollars and by debt drawings under the Group's credit facility. This has minimised the volatility in the Group's NAV from foreign exchange movements. The Group has undertaken increased hedging of investment income from overseas assets through the forward sale of the respective foreign currency and reduced the balance sheet hedge. The net effect of these changes is expected to give more yield certainty and to limit NAV per share sensitivity to no more than 1.0p for a 10% forex movement.

See Note 2(a) of Notes to the consolidated financial statements for the definition of revenue and capital items.

Notes to the unaudited consolidated proforma financial statements

for the year ended 31 March 2013

1. Investments

The valuation of the Group's portfolio at 31 March 2013 reconciles to the consolidated balance sheet as follows:

Portfolio valuation on an investment basis is represented by:

Investments per audited consolidated balance sheet on an IFRS basis is represented by:

2. Net assets on Investment Basis

* 3.575p declared on 21 February 2013 and paid on 22 April 2013

† 3.5p declared on 12 April 2012 and paid on 29 June 2012

The Net assets per share at 31 March 2013 is that applicable to the 976.4 million Ordinary Shares in issue on the record date of 1 March 2013. The 140 million Ordinary Shares issued on 27 March 2013 pursuant to the New Ordinary Share Prospectus of 26 February 2013 were not eligible for the second interim dividend of 3.575p.

The Net assets per share at 31 March 2013 applicable to the 140 million Ordinary Shares issued on 27 March 2013 is 116.4p on an Investment basis.

Statement of Directors' responsibilities

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the EU and applicable law.

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

·; Select suitable accounting policies and apply them consistently;

·; Make judgments and estimates that are reasonable and prudent;

·; State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·; Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report and Corporate Governance Statement that comply with company law and regulations.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

·; the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and Group included in the consolidation as a whole; and

·; the Chairman's Statement and Report of the Directors include a fair review of the development and performance of the business and the position of the Company and Group included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that it faces.

Disclosure of Information to the Auditors

The Directors who held office at the date of approval of this Directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

AuditorsKPMG Channel Islands Limited have expressed their willingness to continue in office as auditors and a resolution proposing their re-appointment will be submitted at the Annual General Meeting.

By order of the Board

Authorised signatory

Dexion Capital (Guernsey) Ltd

Company Secretary

21 May 2013

Registered Office:

1 Le Truchot

St Peter Port

Guernsey

Channel Islands GY1 1WD

Independent auditor's report to the members of HICL Infrastructure Company Limited

We have audited the Group financial statements of HICL Infrastructure Company Limited (the "Company", and together with its subsidiaries, the "Group") for the year ended 31 March 2013 which comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Shareholders' Equity, the Consolidated Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the EU.

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board of Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

·; give a true and fair view of the state of the Group's affairs as at 31 March 2013 and of the Group's profit for the year then ended;

·; are in accordance with International Financial Reporting Standards as adopted by the EU; and

·; comply with the Companies (Guernsey) Law, 2008.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

·; the Company has not kept proper accounting records, or

·; the financial statements are not in agreement with the accounting records; or

·; we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the UK Corporate Governance Code specified for our review. We have nothing to report in respect of this review.

Steven D. Stormonth

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

20 New Street, St Peter Port

Guernsey GY1 4AN

21 May 2013