HICL Infrastructure Regulatory News (HICL)

RNS Number : 4613M

HSBC Infrastructure Company Limited

25 May 2010

 

HSBC Infrastructure Company Limited

 

25 May 2010

 

ANNUAL RESULTS FOR YEAR TO 31 MARCH 2010

 

The Directors of HSBC Infrastructure Company Limited announce the results for the year ended 31 March 2010.

 

Highlights

for the year ended 31 March 2010 (on an Investment basis unless noted otherwise1)

 

·; Good portfolio performance and operational cash generation ·; Five new investments, three incremental stakes acquired and a project variation, with a combined investment of £68.0m ·; Steady pipeline of further investment opportunities under consideration ·; Successful raising of £128.1m (before expenses) through a C share capital raising of £80.0m in December 2009 and utilising the block listing to place 43.1m shares in the year ·; Net asset value ("NAV") per share at 31 March 2010 of 107.1p (31 March 2009: 111.1p) on a consolidated IFRS basis and 110.7p (31 March 2009: 110.5p) on an Investment basis ·; NAV per share post distribution of 107.4p at 31 March 2010 compared to 107.2p at 31 March 2009 ·; Directors' Valuation of the portfolio at 31 March 2010 of £509.6m, up from £445.7m at 31 March 2009, a 14.3% increase ·; Profit before tax of £25.0m (2009: £22.0m loss) ·; Second interim distribution of 3.35p for the year to 31 March 2010 declared, with a scrip dividend alternative, giving total distributions of 6.55p for the year, an increase of 2.3%   1 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, as in previous periods, the results have been restated in proforma tables with all investments accounted for on an Investment basis.

 

 

 

Graham Picken, Chairman of the Board, said:

 

"The Board is pleased to report another encouraging set of results, coupled with dividend growth. The Company has performed as expected in the last 12 months and we are well positioned to add further investments to the Group.

 

The Investment Adviser has secured the acquisition of five new investments, three incremental stakes and a project variation in the year with a combined investment value of £68.0m.

 

There is a steady pipeline of new investment opportunities within our target sectors and geographies, and we expect to secure new investments in the coming months.

 

In line with our funding strategy, we raised £80m by way of an issue of C share capital in December 2009. This was 50% oversubscribed, affirming investors' confidence in the business.

 

Strong demand for the Company's shares has enabled the placing of 43.1m shares via the block listing in the year, and the directors will consider further opportunities to use this listing as and when new acquisitions are made or are imminent.

 

The Company declared a second interim dividend on 20 May 2010, with a scrip dividend alternative. This brings the distributions for the year to 31 March 2010 to 6.55p per share.

 

With the economy likely to remain subdued for some time, the directors believe the Company offers shareholders an attractive yield with a robust net asset value."

 

 

Contacts for the Investment Adviser on behalf of the Board:

HSBC Specialist Fund Management Limited: +44 (0) 20 7991 8888

Tony Roper

Keith Pickard

Sandra Lowe

 

Contacts for M: Communications: +44 (0) 20 7920 2330

Edward Orlebar

Andrew Benbow

 

 

Copies of this announcement can be found on the Company's website, www.hicl.hsbc.com. The Annual Report and Consolidated Financial Statements for the year to 31 March 2010 will be posted to shareholders in early June, and an electronic version will be available from the Company's website.

 

 

Chairman's Statement

 

Introduction

 

On behalf of the Board, I am pleased to report that the Company has maintained steady progress during the year to 31 March 2010. The Group's portfolio continues to perform as we expected. We have sourced 5 new investments, 3 incremental stakes and a project variation in the year, with a total investment of £68.0m. The Company has raised a total of £126.3m net of expenses through the issue and placing of new shares, of which £80.0m was raised through the successful C share capital raising in December 2009 which was 50% oversubscribed.

 

Our share price has continued to trade at a premium to the last published net asset value per share, which the Board takes as an expression of confidence in our investment strategy, yield prospects and balance sheet stability.

 

Performance of the portfolio

 

The Group's portfolio now consists of 33 investments, 32 PFI/PPP projects and an investment in the junior loan in Kemble Water. Apart from the Bradford BSF Schools Phase II project, which remains in construction, all the projects are fully operational.

 

As in previous periods, there are no operational matters of materiality upon which to report. The Investment Adviser remains active in adding value across the portfolio.

 

Construction on the Bradford BSF Schools project is currently behind programme, due to the need to carry out certain remedial works. Given the contractual arrangements and protections, any delay to the hand-over of the completed buildings is unlikely to have a financial impact on the Group's investment. The Investment Adviser's asset management team has been active in understanding the issues and seeking suitable remedies from the contractors.

 

Financial results

On a consolidated IFRS basis, the profit before tax was £7.7m (2009: £12.4m loss). The profit before tax has benefited from contributions made from the recognition of new subsidiaries arising from the incremental acquisitions. There have also been positive fair value movements year on year.

As in previous periods, the Company has prepared pro-forma accounts on an Investment basis (treating all 33 holdings as investments). Profit before tax on an Investment basis was £25.0m (2009: £22.0m loss) and earnings per share on an Investment basis were 6.5p (2009: 6.8p loss per share). This return to profits reflects mainly upward fair value movements compared to downward movements in the prior year.

Cash received from the portfolio by way of distributions, capital repayments and fees was £39.2m. After Group costs, net cash of £27.6m adequately covers the distributions paid in the year. Cash generation was ahead of forecast for the first half of the year, but was lower in the second half. Net receipts were in line with plan for the full year.

Total fees accruing to HSBC Specialist Fund Management Limited (the Investment Adviser) amounted to £6.0m in the year, relating to their 1.1% pa management fee (1.5% pa assets in construction) and the 1.0% fee on the acquisitions made, and £0.1m advisory fees. In addition, the Group contracted with other parts of the HSBC Group on an arm's length basis for the provision of bank accounts, foreign exchange hedges and insurance broking.

The total expense ratio for the Group on an Investment basis was 1.45% (being the Group's operational expenses excluding acquisition costs, divided by the Group's net assets on an Investment basis). This compares with 1.74% for the year to 31 March 2009.

More details of the financial results are set out below.

 

Distributions

The Board declared on 20 May 2010 a second interim distribution of 3.35p per share for the year to 31 March 2010 (2009: 3.275p). This brings the total distributions declared to 6.55p for the year to 31 March 2010 representing a 2.3% growth on the prior year. The Board continues to target a 7.0p annual distribution per share by March 2013.

A circular is being sent to shareholders to explain the scrip dividend alternative. Shareholders need to decide by 17 June on whether to take up the scrip dividend offer in part or in full. The payment of a scrip dividend may be beneficial to a number of shareholders, particularly to certain UK residents. The distribution (or scrip dividend) will be paid to those shareholders on the register as at 28 May, and will be settled at the end of June.

At the Annual General Meeting ("AGM") in August 2009, shareholders gave the Board the power to offer a scrip dividend alternative and this power runs until the next AGM in 2010. Based on the take-up and current feedback from shareholders, it is the Board's current intention to seek a renewal of this power at the forthcoming AGM in July.

 

Valuation

 

As in previous periods, the Investment Adviser has prepared a fair market valuation for each investment in the portfolio as at 31 March 2010. For the PFI/PPP investments, 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 derived from a review of recent comparable market transactions in order arrive at a fair market value.

 

The Directors have satisfied themselves with the methodology used, the economic assumptions, 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 the portfolio of 33 investments to be £509.6m as at 31 March 2010. On the Bradford BSF Schools Phase II project and the Helicopter Training project there are combined outstanding equity commitments of £8.3m.

 

The valuation of £509.6m compares with £445.7m at 31 March 2009 and £464.5m as at 30 September 2009. An analysis of the growth in the valuation is detailed in the Investment Adviser's Report.

 

The resulting NAV per share on an IFRS basis at 31 March 2010 is 107.1p (31 March 2009: 111.1p).

 

On an Investment basis the NAV per share is 110.7p at 31 March 2010 (31 March 2009: 110.5p). The Investment basis NAV per share after the second interim distribution at 31 March 2010 was 107.4p; an increase of 0.2p over the comparable figure at 31 March 2009 being due to a solid performance from the portfolio, increased short term inflation forecasts, partly offset by an increase of 0.5% in the discount rate used to value operational PFI/PPP projects, as described in more detail in the Investment Adviser's Report.

 

Portfolio acquisitions and pipeline

The Group has made the following acquisitions in the year to 31 March 2010:

·; In June, the Group acquired a 30% interest in Renfrewshire schools for £6.8m,

·; In July, the Group acquired a 50% interest in the Highland Schools PPP project for £16.8m,

·; In September, the Group made a 34% investment in the Bradford BSF Schools Phase II project with a total funding requirement from the Group of £7.4m,

·; In November, the Group acquired additional stakes in three existing PFI police projects for a total consideration of £8.0m,

·; In December, the Group acquired a 50% interest in the Romford Hospital PFI project for £23.9m, and

·; In March, the Group acquired a 50% interest in the Newcastle Libraries PFI project for £3.0m.

In addition, the Group announced in December an investment of £2.1m to fund a project variation at the Helicopter Training project.

Total investments (including equity commitments) made by the Group in the year to 31 March 2010 were £68.0m.

The Group continues to look selectively for further acquisitions consistent with its publicly stated policy for new investments. Its current focus is on the following sectors:

·; PFI/PPP/P3 projects in the UK, mainland Europe, North America, and Australia (both operational and in their construction phases).

·; 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 in PFI/PPP/P3 projects.

Of possible interest are:

·; Regulated utilities, albeit most investment opportunities in this sector are too large for the Group.

·; Debt funding of infrastructure projects, where attractively priced and appropriately structured.

There is a steady flow of investment opportunities to consider but we remain selective. The Group does not need to make acquisitions to meet the yield trajectory imputed from our target distribution.

The Investment Adviser is currently assessing a number of investment opportunities. Clearly, there is no certainty that any of these investments will come to fruition.

 

Corporate Governance and Social Responsibility

On 20 May 2010, we announced that Henri Grisius will retire from the Board on 1 June 2010. Henri had been a director since the launch of the Company in 2006 and has made a valuable contribution to the Company's development. With my fellow directors, I wish Henri well in his retirement and thank him for his help and dedication to the Company.

We also announced on 20 May that Chris Russell has agreed to join the Company as a Director on 1 June 2010. Chris is a Guernsey resident who has spent his career in the investment management industry in the UK, USA and Asia.

After discussions last year with several shareholders, the Board has been working with the Investment Adviser to develop appropriate Environmental, Social and Governance Policies for the Company and the Group.

As an Investment Company, we have no employees and the underlying investments in PFI/PPP projects are structured with most of the commercial obligations sub-contracted. We have therefore developed a series of policies and procedures which are appropriate to these circumstances. These are set out in our section on Corporate Responsibility. The Board intends to use feedback from shareholders to further develop these policies and procedures, as appropriate.

 

Risks and uncertainties

In our Interim Report last November, I advised that the Investment Adviser had assessed the impact to the Group of the UK Finance Bill 2009, specifically the new legislation affecting the tax deductibility of inter-group loan interest in UK subsidiaries of foreign companies. Further analysis has taken place but there has been no change to our assessment that the impact is unlikely to be material.

We also reported that it was not possible to accurately assess what impact the European Directive on Alternative Investment Fund Managers would have on the Group and the Company. This remains the case. The Company joined the Association of Investment Companies, ("AIC") in the year and is satisfied that through the efforts of the AIC and other relevant UK bodies, an acceptable outcome on the provisions of this directive will be achieved.

Each of the PFI projects within the portfolio has long term funding in place and there is no refinancing risk within any of the PFI projects within the portfolio. These projects do have exposures to banks in the form of interest rate swaps and deposit accounts. As previously reported, the portfolio has limited exposure to monoline insurers. Any further downgrade of a monoline will have no impact on the valuation of the Group's investments.

The projects in the portfolio rely on contracting partners to provide services. There is a good spread of service partners with no material performance or credit issues to report. The Investment Adviser monitors project performance, and if issues arise takes action to minimise any impact on the performance of the projects affected.

 

Outlook

 

The outlook for our business has not changed materially from when I last commented. The economic recovery in the UK and Europe has been slow to emerge. Global financial markets remain uncertain. Public finances are the focus of attention in many countries. In the UK, where all but one of our PFI/PPP assets are concentrated, a new coalition government has been formed and we expect action to address the budget deficit.

 

Looking ahead, we are satisfied that our investment portfolio is of sufficient quality to perform resiliently. Cash flows are generally predictable and, whilst the valuation of the portfolio is in part correlated with the rates that apply to long dated gilts, we do not anticipate significant fluctuations as a consequence.

 

Our goal is to grow prudently by the selective acquisition of assets which deliver the quantity and quality of income consistent with the targets we have set for future distributions and mindful at all times of our appetite for risk. At present, our business is effectively debt free and so we have adequate capacity through established funding lines to invest further. This we will do as suitable opportunities arise.

 

The primary market for new PFI projects in the UK may experience a slowdown over the short term as the new government determines its spending priorities. There should not, however, be a major impact on the secondary market from which we make our investments. More generally though, private sector skills and finance will continue to be required by governments to maintain and develop their countries' social and economic infrastructures.

 

Against this background, and in the knowledge that we are investing in tangible, long duration assets, we look to the future with confidence and believe we will secure further investments in the coming months.

 

 

Graham Picken

Chairman

24 May 2010

 

 

 

 

 

Investment Adviser's Report

 

Introduction

 

The Group recorded a solid performance with the portfolio providing a good cash yield in the year. The cashflows from the portfolio have enabled the Company to meet its distribution target for the year.

 

Acquisitions in the year have increased the Group's portfolio to 33 infrastructure investments. These comprise 32 PFI/PPP projects and a junior loan in Kemble Water, part of the Thames Water group. All the PFI/PPP projects are operational and yielding except Bradford Schools which is under construction, with completion due in 2011.

 

The generally challenging economic environment in the UK has not significantly impacted the portfolio. The robustness of the portfolio's performance is supported by the underlying long term contractual availability based revenues from public sector clients, with no requirement for refinancing of a PFI/PPP project to meet its business plan.

 

Operationally there are no significant matters to report on the portfolio. The asset management team continues to work on a number of initiatives to enhance value and to integrate the new acquisitions into the portfolio.

 

The secondary market activity picked up in the year as the recession motivated contractors and financial institutions to dispose of PFI/PPP assets to enable them to generate profits on sale and de-leverage or recycle capital. This is a trend we see continuing in these uncertain economic times which we expect will provide opportunities for the Group to make further acquisitions in accordance with the Investment Policy.

 

Strategy

 

The Group remains focused on maintaining and creating value from active asset management of the portfolio and securing new investments to enhance the portfolio.

 

Successful service delivery is key to maximising value from the portfolio. Working in partnership with our clients, and fostering good working relationships are an integral part of our strategy. Strong relationships developed by our asset management team, we believe, will assist us to increase revenues through client variations and resolve issues successfully.

 

The strategy for new investments is as documented in the November 2009 C share prospectus and the Chairman's statement - we are concentrating on PFI/PPP concessions, both in operations and in construction, and other infrastructure assets with comparable risk and return profiles. Acquisitions will be selective with due consideration given to counter-party exposure and project performance.

 

The geographic focus for new opportunities remains the UK, Europe, Canada and Australia - countries that have a developed PFI/PPP market.

 

Market

 

The number of assets being put up for sale has increased compared to the prior year. Both individual assets and portfolios were marketed by contractors and financial institutions. This increase in the supply of opportunities, the limited number of potential buyers and an increase in long term gilt rates, resulted in an increase in discount rates used to value these investments.

 

There are signs that the current return levels in the secondary PFI/PPP market are attracting new entrants as well as the return of previously active participants. An example of this is the sale by Balfour Beatty plc of investments in two UK PFI projects. The bid for these was won by a fund managed by AMP Capital Investors, but was subsequently sold to co-shareholders in each project, who exercised their pre-emption rights. Investor interest in PFI investments is further evidenced by recent sales by companies such as John Laing plc and Interserve plc of PFI portfolios to their pension funds.

 

Current market intelligence suggests that the number of assets being put up for sale is likely to increase as vendors seek sales of non-core assets to achieve profit targets and/or reduce gearing by the calendar year end.

 

With the formation of a coalition government in the UK following elections on 6 May 2010, it is not yet clear what impact this will have on the supply of new PFI projects being procured by public sector clients. Since the Group does not bid for these new PFI projects, it is unlikely to affect the Group's pipeline of opportunities.

 

There was a greater number of sale processes involving overseas PFI/PPP/P3 investments than in the prior year. This is a trend we expect to continue as these markets grow and mature as more projects become operational. The PFI/PPP/P3 assets we have reviewed in the year were located in Europe, Canada and Australia.

 

The secondary market in PV solar parks has been buoyant during the year. We have evaluated a number of operational schemes and in each case we were either outbid or we did not proceed for a number of reasons These included projects with short term debt that required refinancing by longer term debt with a banking market with selective appetite. As a result, we are yet to find a solar PV asset suitable for the Group. We continue to assess opportunities in this sector carefully.

 

We expect the flow of attractive investment opportunities to continue as economic pressures on vendors motivate them to redefine their core assets and seek disposals to reduce gearing or recycle capital.

 

Portfolio performance

 

The portfolio continues to perform in line with forecast and to produce a growing yield. The difficult economic environment has not impacted significantly on the projects. In particular the absence of "demand based" projects in the portfolio, where income is wholly dependent on usage, means that the portfolio is not exposed to changes in consumer usage or spending.

 

On the Dutch High Speed Rail Link, the first scheduled train services commenced in September, and were then followed by scheduled high speed train services in December. This does not affect the revenues for the project, which are paid dependent only on the availability of the track, power and signalling. The project's management is now working on a client-requested variation for an additional four signal stations. This variation is being funded by the Dutch state and will provide incremental revenues for the project.

 

Following the five new acquisitions in the year the portfolio contains 33 investments, all operational and yielding with the exception of Bradford BSF Schools Phase II project. This project is in construction with completion due in 2011. As noted in the Chairman's statement, construction is behind schedule, but this delay is not expected to impact the value of the Group's investment, since the project company has recourse against the construction contractor in relation to the delay.

 

As reported in the Group's Interim Results, the value of the Group's investment in the Blackburn Hospital project has decreased due to the increase in the project's debt costs because the monoline Ambac Assurance UK Limited ("Ambac") was downgraded in the period. Since the downgrade, Ambac's US parent company in March entered into rehabilitation proceedings instigated by its US based regulator. This has had no impact on the Blackburn Hospital project and neither would any future downgrades of Ambac. This is the only project in the portfolio which is affected by Ambac's downgrade.

 

We continue to seek opportunities to maximise value across the portfolio. Our asset management team has individual business plans for each of the investments, prepared on acquisition and updated periodically. These plans cover incremental revenue opportunities, cost savings, treasury management and financial optimisation. For example in the year we have added to the projects in the insurance arrangement where the Group buys insurance across a number of projects. Adding to this arrangement reduces insurance premium and increases the economies of scale achieved.

 

Project variations provide further upside above those identified in the project business plans, as client changes to the scope of services generally provide some incremental revenue. These vary greatly in size and scope, and can include a funding requirement from shareholders. In December, there was a shareholder funded variation on the Helicopter Training project for which the Group committed to invest an additional £2.1m. This variation is to upgrade a Chinook simulator for the Royal Netherlands Air Force, which uses the facility in addition to the facility's main customer, the Royal Air Force.

 

In September, at Colchester Garrison, significant savings were achieved for the project and the MOD through an innovative financing initiative. £52m from surplus land sale proceeds was repaid to bondholders 2½ years earlier than scheduled with a 0.5% repayment premium. The difference between the 5.4% bond interest coupon and 1% to 2% cash on deposit interest rates less transaction costs provided the cost saving, which was shared 50:50 with the MOD, the project's client.

 

The PFI/PPP projects in the portfolio all have long term debt in place which does not need refinancing to meet their business plan. The weighted average PFI/PPP project concession length remaining is 23.5 years at 31 March 2010 and the weighted average debt tenor is 21.8 years.

 

In April 2010 the Government introduced legislation known as the carbon reduction commitment ('CRC', now renamed the CRC Energy Efficiency Scheme) with the aim of improving energy efficiency and cutting emissions in large public and private sector organisations. It works through payments and rebates for participants depending on their percentage carbon emission reductions relative to other participants in the scheme. The scheme is revenue neutral to the Government. We do not expect the legislation to materially impact the portfolio but we are working with stakeholders in each investment to ascertain which project companies are required to participate within the scheme.

 

Acquisitions

 

As outlined in the Chairman's Statement, the Group made five new investments and three incremental acquisitions in the year.

 

In June, the Group acquired a 30% interest in the Renfrewshire Schools project for a consideration price of £6.8m. The project comprises ten primary and secondary schools, all located in Renfrewshire. It was developed and built by Carillion and has been operational since January 2008. A subsidiary of Amey plc operates the schools under a long-term services agreement.

 

In July, the Group acquired a 50% interest in the second Highland Schools PPP project for a consideration price of £16.8m. The 30 year, all new build concession comprises five primary schools, three secondary schools, a combined primary and secondary school, and a special needs school. Construction was completed in September. 

 

In September, the Group acquired a 34% interest in the Bradford Schools project which had a funding commitment of £7.4m, the majority of which is due at the end of the construction period in early 2011. The scheme, which is part of the Bradford 'Building Schools for the Future' Programme, is for the provision of four Secondary Schools. Design and construction is by a joint venture between Costain and Ferrovial Agroman. Amey Communities will undertake the facilities management services and provide the information and communications technology. 

In November, the Group acquired additional 22.92% interests in the equity and loan notes in the Metropolitan Police Training Facilities, the Durham & Cleveland Firearms Training, and the Greater Manchester Police Authority PFI project for a total consideration of £8.0m. This takes the Group's interests in these projects to 72.92%.

In December, the Group acquired a 50% interest in the Queen's Hospital PFI project in Romford for £23.9m. The project involves the design, build and finance of the Queen's Hospital in Romford, followed by the maintenance of the hospital and the provision of non-clinical services for a term of 36 years from January 2004.

In March, the Group acquired a 50% interest in the Newcastle City Libraries PFI project for £3.0m. The project is a 25 year concession for the new city centre library in Newcastle and an additional satellite library in High Heaton. Construction was completed in March 2009. Maintenance and other facilities management services are provided by Integral UK Limited.

Counterparties

 

All the PFI clients are public sector bodies. We maintain a risk and control function that undertakes regular reviews of the portfolio's counterparty exposure to both the operational supply chain and the financial providers of bank deposit accounts and interest rate swaps.

 

The facilities management services are carried out by a range of experienced providers including Bouygues, Sodexo, Mitie and Interserve. We monitor project performance and are not aware of any service issues to date that indicate financial difficulties for any of the significant facilities management contractors. The Group's portfolio has a diversified range of facility management suppliers with no over reliance on any one supplier.

 

Valuation

 

We are 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 these valuations.

 

For non-market traded investments, 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, such as the Kemble Water Junior Loan, a market quote is used.

 

This is the same method used at the time of launch and each subsequent six month reporting period (further details can be found in the November 2009 C Share prospectus, available from the Company's website).

 

The Directors' Valuation of the portfolio as at 31 March 2010 is £509.6m (including £8.3m of loan stock commitments). This portfolio valuation compares to £445.7m as at 31 March 2009 (up 14.3%) and £250.4m at the time of launch (a reconciliation between the valuation at 31 March 2010 and that shown in the financial statements is given in Note 1 to the unaudited consolidated proforma financial statements, the principle difference being the £8.3m of loan stock commitments on Bradford Schools and Helicopter Training projects).

 

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

 

Valuation movement during the year to 31 March 2010			£'m
Valuation at 31 March 2009			445.7
Investments		68.0
Cash receipts		(39.2)
Change in DCF rate		(22.5)
Economic assumptions		6.3
Forex movement on Dutch High Speed Rail Link		(2.8)
Return		54.1
Valuation at 31 March 2010			509.6

 

Netting out acquisitions in the period of £68.0m, and investment receipts of £39.2m, the growth over the rebased value of £474.4m was 7.4%. This increase arose from a solid performance across the portfolio, revised economic assumptions (inflation and deposit rates as outlined below) and value uplifts from acquisitions and on the Kemble Water junior loan which more than off-set the effect of an increase of 0.5% in the discount rate used to value the operational PFI/PPP projects.

 

Fair value for each investment is derived from the present value of the investment's expected future cash flows, using reasonable assumptions and forecasts and an appropriate discount rate. 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.

 

Discount rates

 

The discount rates used for valuing each PFI/PPP investment are based on the appropriate risk free rate (derived from the relevant government bond or gilt) 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:

 

Period ending	Whole portfolio		Excluding Kemble Water Junior Loan
	Range	Weighted average	Range	Weighted average
31 March 2009	7.8% to 22.4%	8.3%	7.8% to 8.6%	8.1%
30 September 2009	8.2% to 17.1%	8.7%	8.2% to 11.0%	8.6%
31 March 2010	8.4% to 13.2%	8.8%	8.4% to 11.0%	8.7%

 

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 in the appropriate market and publicly available information on relevant transactions.

 

An analysis of the movements in the weighted average risk free rate and risk premium for the PFI/PPP assets excluding the Kemble Water Junior Loan is shown below:

 

Excluding Kemble Water Junior Loan	31 March 2010	31 March 2009	Movement
Risk free rate	4.4%	4.1%	+0.3%
Risk premium	4.3%	4.0%	+0.3%
Discount Rate	8.7%	8.1%	+ 0.6%

 

As noted in the Market commentary above there has been an increase in long term gilt rates and an increased supply of PFI/PPP assets to the market as contractors and financial institutions have sought to deleverage and realise profits by disposing of PFI/PPP assets. The effect of this has increased discount rates used to value these assets. The average risk free rate, based on long term gilt and bond rates, has increased 0.3% in the year to 4.4%. The risk premium necessary to reflect market pricing for an operational asset has been judged as 4.2% to give an average discount rate of 8.6% for operational assets - an aggregate increase of 0.5% to 8.6%. This and an increase of 0.1% due to the 11.0% discount rate applied to the asset in construction has resulted in an increase in the weighted average rate (excluding Kemble) of 0.6% to 8.7%.

 

Inflation indexation

 

The PFI 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, which is an increase from the March 2009 assumption of zero inflation to March 2011 and 2.75% thereafter. This judgement has been applied in the light of short term economic forecasts and the long term Bank of England CPI target. RPI and RPIx as at March 2010 were 4.4% and 4.8% respectively. The current forecasts for RPI in December 2010 range from 1.9% to 4.2% from 22 independent and City institutions as compiled by HM Treasury, with an average forecast of 3.1%.

 

Deposit rates

 

Each PFI project in the portfolio has cash held in bank deposits, which is a requirement of their senior debt financing. As at 31 March 2010 cash deposits for the portfolio were earning interest at a rate of 0.7% per annum on average.

 

The portfolio valuation assumes UK deposit interest rates are 1% to March 2012 and 4.5% thereafter. This is a change from the March 2009 valuation which assumed 1% deposit interest rates to March 2011 and 4.5% thereafter. There is a consensus that UK base rates will remain low for an extended period, with a current average forecast for UK base rates in December 2011 of 2.2%.

 

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

 

Financing

 

The Company successfully raised £126.3m (net of expenses) in the year from the £80m C share issue in December 2009 and the issue of 43.1m shares by way of tap issues under the Company's block listing. The net proceeds from the share issues net of the cost of new investments have been used to reduce the Group's debt. As at 31 March 2010, the Group had net cash of £11.0m and outstanding loanstock commitments on two projects totalling £8.3m.

 

The strategy is to use the Group's £200m revolving debt facility to fund new acquisitions, to provide letters of credit for future subscription obligations, and to provide a prudent level of debt for the portfolio to improve the operational gearing.

 

The Board's policy is that the Company should not be hold cash awaiting investment to any material extent above any outstanding contractual subscription obligations in respect of existing investments.

 

Financial Results

 

Accounting

 

At 31 March 2010, the Group had eleven investments 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 is an increase from eight investments at 31 March 2009, due to the three incremental acquisitions in November. 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 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 proforma tables which follow the Financial Results. The proforma tables are prepared with all investments accounted for on an Investment 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.

 

The proforma tables show all investments accounted for on an Investment basis, which are reconciled to the consolidated financial statements on a line by line basis.

 

Income and Costs

 

	Year to 31 March 2010				Year to 31 March 2009
£m	Investment basis	Consolidation adjustments	IFRS basis		Investment basis	Consolidation adjustments	IFRS basis
Total revenue income	31.2	128.5	159.7		29.5	88.6	118.1
Expenses & finance costs	(13.4)	(121.0)	(134.4)		(9.1)	(91.0)	(100.1)
Profit before tax & valuation movement	17.8	7.5	25.3		20.4	(2.4)	18.0
Fair value movements	7.2	(24.8)	(17.6)		(42.4)	12.0	(30.4)
Tax and minority interests	(0.2)	(1.5)	(1.7)		-	(1.7)	(1.7)
Earnings/(loss)	24.8	(18.8)	6.0		(22.0)	7.9	(14.1)
Earnings/(loss) per share	6.5p		1.6p		(6.8)p		(4.3)p

 

On an Investment basis, Profit before tax and valuation movements was £17.8m. This is slightly lower than the prior year due to increased finance costs and because the prior year benefited from significant one-off revenues from the Colchester Garrison PFI project following construction completion.

 

Fair value movements are a £7.2m profit which is due to increased valuations recognised within the Directors' valuation. The Directors' valuation benefited from a strong mark to market uplift on the Kemble Water junior loan and a robust performance generally from the portfolio. Further detail on the valuation movement is given in the Investment Adviser's Report.

 

Earnings on an Investment basis were £24.8m, more than off-setting the £22.0m loss for the prior year. Earnings per share were 6.5p as compared to a loss per share of 6.8p in 2009. The improved earnings reflect the upwards fair value movements in the year compared to the downward movements of the prior year.

 

On a consolidated IFRS basis, the earnings per share were 1.6p (2009: 4.3p loss). The results on a consolidated IFRS basis are worse than on an Investment basis due to a combination of factors. These included the intangible amortisation cost of £8.3m under IFRS which is not applicable to the investment basis and the effect of the increase in the risk free rate in the year given the Group's policy under IFRS of valuing finance receivables at fair value while borrowings are valued at amortised cost. The value of the subsidiaries recognised under IFRS has therefore been more significantly impacted by the increase in the risk free rate than the market values of the subsidiaries that underpin earnings on the Investment basis.

 

Profit before tax and valuation movements on a consolidated IFRS basis has increased over 40% at £25.3m reflecting full year contributions from the four additional subsidiaries recognised through incremental acquisitions in the prior year on the Home Office, West Middlesex, Central Middlesex and Barnet projects.

 

	Year to 31 March 2010		Year to 31 March 2009
£m	Investment basis		Investment basis
Interest income	0.1		0.4
Interest expense	(5.5)		(2.7)
Investment Adviser	(6.0)		(5.3)
Auditor - KPMG - for the Group	(0.2)		(0.2)
Directors fees & expenses	(0.1)		(0.1)
Other expenses	(1.7)		(1.2)
Expenses & finance costs	(13.4)		(9.1)

 

Interest was a net cost of £5.4m in the year (2009: £2.3m) increased from the prior year due to interest swap payments arising from reduced interest rates and a reduced cost in the prior year arising from a reversal of an interest accrual in that year.

Total fees accruing to HSBC Specialist Fund Management Limited (the Investment Adviser) totalled £6.0m (2009: £5.3m) in the year, comprising the 1.1% per annum management fee (1.5% for assets in construction), the 1.0% fee on the acquisitions made, and the £0.1m per annum advisory fee. The increase is a combination of the 1.0% acquisition fee on a larger number of acquisitions and the management fee on a growing portfolio value.

In addition, the Group contracted with other parts of the HSBC Group on an arms length basis for the provision of bank accounts, foreign exchange hedges, and insurance broking.

Other expenses are up £0.5m from the prior year, reflecting increased bidding activity.

 

	Year to 31 March 2010		Year to 31 March 2009
£m	Investment basis		Investment basis
Administrative expenses	8.0		6.8
Less operator acquisition investment fees	(0.7)		(0.3)
Total expense	7.3		6.5

 

Net assets	502.9		373.7

 

TER

1.45%

1.74%

 

The TER for the Group has reduced 0.29% in the year to 1.45%. This is a result of the positive effect of the Group's capital raisings which have enabled the expenses to be spread over an enlarged asset base.

 

Balance Sheet

 

	31 March 2010				31 March 2009
£m	Investment basis	Consolidation adjustments	IFRS basis		Investment basis	Consolidation adjustments	IFRS basis
Investments at fair value	501.3	(193.9)	307.4		445.7	(165.6)	280.1
Other non-current assets	-	979.3	979.3		-	838.3	838.3
Working capital	(4.8)	11.8	7.0		(3.5)	8.4	4.9
Net cash/(borrowings)	11.0	(604.0)	(593.0)		(57.7)	(505.2)	(562.9)
Other non-current liabilities	(4.6)	(196.7)	(201.3)		(10.8)	(169.4)	(180.2)
Minority interests	-	(12.8)	(12.8)		-	(4.1)	(4.1)
Net Assets	502.9	(16.3)	486.6		373.7	2.4	376.1
NAV per share (before distribution)	110.7p		107.1p		110.5p		111.1p

 

 

On an Investment basis, Investments at fair value were £501.3m (31 March 2009: £445.7m) net of £8.3m of future equity commitments on the Bradford Schools and the Helicopter Training projects. This is an increase of £55.6m or 12.5%. Further detail on the movement in Investments at fair value is given in the Investment Adviser's Report under Valuation.

 

Following the equity capital raisings in the year the Group has a net cash position on an Investment basis of £11.0m (31 March 2009: Net debt £57.7m), comprising £12.8m of cash, and £1.8m of debt under the Group's facilities. The breakdown of the movements in net debt is shown in the cashflow analysis below.

 

Other financial liabilities of £4.6m (31 March 2009: £10.8m) are the mark to market valuation of the Group's interest rate swaps and a foreign currency hedging contract. In January following the C share capital raising the Group's interest rate swaps were re-profiled resulting in a payment of £2.8m to partially settle the swaps.

 

On an Investment basis, NAV per share was 110.7p before the 3.35p distribution (110.5p at 31 March 2009).

 

On a consolidated IFRS basis, net assets have increased to £486.6m (31 March 2009: £376.1m) reflecting £127.5m from the issue of shares, earnings of £6.5m less distributions of £23.0m. NAV per share was 107.1p (31 March 2009: 111.1p).

 

Cashflow analysis

 

	Year to 31 March 2010			Year to 31 March 2009
£m	Investment basis			Investment basis
Net borrowings at start of period		(57.7)			(105.6)
Cash from investments	39.2			31.5
Operating costs outflow	(6.7)			(5.0)
Net interest paid	(4.9)			(3.1)
Net cash inflow before acquisitions/financing		27.6			23.4
Cost of new investments		(60.1)			(51.9)
Forex movements on borrowings & hedging		(3.2)			(11.6)
Share capital raised net of costs		126.3			106.2
Dividends paid		(21.9)			(18.2)
Net cash (borrowings) at end of period		11.0			(57.7)

 

 

On an Investment basis the Group's net cash at 31 March 2010 was £11.0m (31 March 2009: net debt £57.7m)

 

Cash generation from the portfolio was up 24% at £39.2m (2009: £31.5m). The increase was a combination of contributions from acquisitions and the result of active cash management across the portfolio.

 

Cost of investments of £60.1m (2009: £51.9m) represents the cost of the five new investments, three incremental acquisitions and further investment in the Helicopter Facility.

 

The £3.2m (2009: £11.6m) movement in forex and hedging arises from the re-profiling of the interest rate swaps and the timing of the forward Euro sales. The forward Euro sales are to hedge the Group's Euro exposure on the Dutch High Speed Rail Link asset.

 

The £80.0m C share capital raising in December 2009 and placing of shares under the block listing provided cash receipts in the year of £126.3m (2009: £106.2m).

 

Dividends paid increased £3.7m to £21.9m (2009: £18.2m) for the year (being the payment of 3.275p in June 2009 and the payment of 3.2p per share in December 2009). The dividends paid were cash covered 1.26 times by the operational cash flow of £27.6m (2009: £23.4m).

 

The dividends declared for the year to 31 March 2010 represent a total of 6.55p per share (2009: 6.4p).

 

 

Gearing

 

The Group has a committed £200m five year revolving facility from Bank of Scotland plc ('BoS') expiring in December 2012. This 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 2010, the Group had debt drawings of £3.1m under the facility.

 

With the successful C share equity raising in December, and the subsequent tap issue on 15 January 2010, the Group is effectively ungeared with net cash on an Investment basis as at 31 March 2010 of £11.0m (31 March 2009: net debt £57.7m). The payment of £15.2m for the second interim dividend of 3.35p per share in June will reduce the net cash of the Group.

 

To manage interest rate risk the Group has interest rate swaps to partially hedge the Group's debt facility. Following the degearing of the Group in January 2010 the interest rate hedges were re-profiled to reflect the likely gearing of the Group over the next three years. Foreign exchange risk from Euro income from the Dutch High Speed Rail Link has been managed in the period through financial derivatives and by drawing Euros under the debt facility.

 

The Group as at 31 March 2010 had £8.3m (31 March 2009: nil) of outstanding equity subscription obligations for the portfolio. This includes £7.2m for Bradford Schools which is supported by a letter of credit drawn under the BoS facility.

 

On a consolidated IFRS basis, the Group had net debt of £593.0m at 31 March 2010 (31 March 2009: £562.9m). This increase in net debt over the year reflects the additional debt consolidated from the three incremental acquisitions and the cost of new investments offset by the proceeds from shares issued in the year.

 

As previously reported, all the PFI 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.

 

Unaudited consolidated proforma income statements
for the year ended 31 March 2010
	Year ended 31 March 2010							Year ended 31 March 2009
	Investment basis				Consolidation	Consolidated		Investment basis			Consolidation	Consolidated
	Revenue		Capital	Total	adjustments	IFRS basis		Revenue	Capital	Total	adjustments	IFRS basis
	£million		£million	£million	£million	£million		£million	£million	£million	£million	£million
Services revenue	-		-	-	102.6	102.6		-	-	-	66.5	66.5
Gains on finance receivables	-		-	-	16.2	16.2		-	-	-	52.3	52.3
Gains/(loss) on investments	31.2		3.6	34.8	(15.5)	19.3		29.5	(27.2)	2.3	3.5	5.8
Total income/(loss)	31.2		3.6	34.8	103.3	138.1		29.5	(27.2)	2.3	122.3	124.6
Services costs	-		-	-	(89.1)	(89.1)		-	-	-	(55.4)	(55.4)
Administrative expenses	(8.0)		-	(8.0)	(2.0)	(10.0)		(6.8)	-	(6.8)	(1.7)	(8.5)
Profit/(loss) before net finance costs and tax	23.2		3.6	26.8	12.2	39.0		22.7	(27.2)	(4.5)	65.2	60.7
Finance costs	(5.5)		-	(5.5)	(30.1)	(35.6)		(2.7)	(16.1)	(18.8)	(56.7)	(75.5)
Finance income	0.1		3.6	3.7	0.6	4.3		0.4	0.9	1.3	1.1	2.4
Profit/(loss) before tax	17.8		7.2	25.0	(17.3)	7.7		20.4	(42.4)	(22.0)	9.6	(12.4)
Income tax (expense)/credit	(0.2)		-	(0.2)	3.4	3.2		-	-	-	1.6	1.6
Profit/(loss) for the year	17.6		7.2	24.8	(13.9)	10.9		20.4	(42.4)	(22.0)	11.2	(10.8)
Attributable to:
Equity holders of the parent	17.6		7.2	24.8	(18.8)	6.0		20.4	(42.4)	(22.0)	7.9	(14.1)
Minority interests	-		-	-	4.9	4.9		-	-	-	3.3	3.3
	17.6		7.2	24.8	(13.9)	10.9		20.4	(42.4)	(22.0)	11.2	(10.8)
Earnings/(loss) per share - basic and diluted (pence)		4.6	1.9	6.5	(4.9)	1.6		6.3	(13.1)	(6.8)	2.4	(4.3)

 

 

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

 

 

Unaudited consolidated proforma balance sheet
as at 31 March 2010
	31 March 2010				31 March 2009
	Investment basis	Consolidation adjustments	Consolidated IFRS basis		Investment basis	Consolidation adjustments	Consolidated IFRS basis
	£million	£million	£million		£million	£million	£million
Non-current assets
Investments at fair value through profit or loss (Note 1)	501.3	(193.9)	307.4		445.7	(165.6)	280.1
Finance receivables at fair value through profit or loss	-	772.0	772.0		-	634.1	634.1
Intangible assets	-	170.6	170.6		-	168.9	168.9
Deferred tax assets	-	36.7	36.7		-	35.3	35.3
Total non-current assets	501.3	785.4	1,286.7		445.7	672.7	1,118.4
Current assets
Trade and other receivables	0.1	12.0	12.1		0.1	7.5	7.6
Finance receivables at fair value through profit or loss	-	16.6	16.6		-	12.5	12.5
Cash and cash equivalents	12.8	54.3	67.1		9.1	45.1	54.2
Total current assets	12.9	82.9	95.8		9.2	65.1	74.3
Total assets	514.2	868.3	1,382.5		454.9	737.8	1,192.7
Current liabilities
Trade and other payables	(4.7)	(16.2)	(20.9)		(3.6)	(11.4)	(15.0)
Current tax payable	(0.2)	(0.6)	(0.8)		-	(0.2)	(0.2)
Loans and borrowings	-	(29.6)	(29.6)		-	(23.4)	(23.4)
Total current liabilities	(4.9)	(46.4)	(51.3)		(3.6)	(35.0)	(38.6)
Non-current liabilities
Loans and borrowings	(1.8)	(628.7)	(630.5)		(66.8)	(526.9)	(593.7)
Other financial liabilities (fair value of derivatives)	(4.6)	(80.3)	(84.9)		(10.8)	(65.6)	(76.4)
Deferred tax liabilities	-	(116.4)	(116.4)		-	(103.8)	(103.8)
Total non-current liabilities	(6.4)	(825.4)	(831.8)		(77.6)	(696.3)	(773.9)
Total liabilities	(11.3)	(871.8)	(883.1)		(81.2)	(731.3)	(812.5)
Net assets	502.9	(3.5)	499.4		373.7	6.5	380.2
Equity
Shareholders' equity	502.9	(16.3)	486.6		373.7	2.4	376.1
Minority interest	-	12.8	12.8		-	4.1	4.1
Total equity	502.9	(3.5)	499.4		373.7	6.5	380.2
Net assets/(liabilities) per share (pence)	110.7	(3.6)	107.1		110.5	0.6	111.1

Unaudited consolidated proforma cash flow
for the year ended 31 March 2010
	Year ended 31 March 2010				Year ended 31 March 2009
	Investment basis	Consolidation adjustments	Consolidated IFRS basis		Investment basis	Consolidation adjustments	Consolidated IFRS basis
	£million	£million	£million		£million	£million	£million
Cash flows from operating activities
Profit/(loss) before tax	25.0	(17.3)	7.7		(22.0)	9.6	(12.4)
Adjustments for:
(Gains)/loss on investments	(34.8)	14.3	(20.5)		(0.5)	(5.3)	(5.8)
Gains on finance receivables	-	(4.4)	(4.4)		-	(52.3)	(52.3)
Interest payable and similar charges	5.5	26.4	31.9		2.7	35.0	37.7
Changes in fair value of derivatives	(3.6)	(0.4)	(4.0)		14.3	23.5	37.8
Interest income	(0.1)	(0.2)	(0.3)		(1.3)	(1.1)	(2.4)
Amortisation of intangible assets	-	8.2	8.2		-	6.4	6.4
Operating cash flow before changes in working capital	(8.0)	26.6	18.6		(6.8)	15.8	9.0
Changes in working capital:
(Increase)/decrease in receivables	-	(16.1)	(16.1)		2.9	(0.3)	2.6
Increase/(decrease) in payables	1.3	2.6	3.9		(1.1)	(5.4)	(6.5)
Cash flow (used in)/from operations	(6.7)	13.1	6.4		(5.0)	10.1	5.1
Interest received on bank deposits and finance receivables	1.5	0.2	1.7		0.3	1.2	1.5
Cash received from finance receivables	-	41.4	41.4		-	46.6	46.6
Interest paid	(9.9)	(28.5)	(38.4)		(10.8)	(33.3)	(44.1)
Corporation tax paid	-	(0.7)	(0.7)		-	(3.0)	(3.0)
Net cash (used in)/from operating activities	(15.1)	25.5	10.4		(15.5)	21.6	6.1
Cash flows from investing activities
Purchases of investments	(60.1)	8.0	(52.1)		(51.9)	12.7	(39.2)
Interest received on investments	27.8	(6.7)	21.1		21.3	(4.8)	16.5
Dividends received	8.3	(1.7)	6.6		3.8	(0.9)	2.9
Fees and other operating income	2.0	(0.7)	1.3		4.1	(1.4)	2.7
Acquisition of subsidiaries net of cash acquired	-	7.0	7.0		-	24.0	24.0
Loanstock and equity repayments received	1.1	-	1.1		2.3	-	2.3
Net cash (used in)/from investing activities	(20.9)	5.9	(15.0)		(20.4)	29.6	9.2
Cash flows from financing activities
Proceeds from issue of share capital	126.3	-	126.3		106.2	-	106.2
Proceeds from issue of loans and borrowings	66.6	-	66.6		85.2	-	85.2
Repayment of loans and borrowings	(132.2)	(20.8)	(153.0)		(145.9)	(14.7)	(160.6)
Distributions paid to Company shareholders	(21.9)	-	(21.9)		(18.2)	-	(18.2)
Distributions paid to minorities	-	(1.4)	(1.4)		-	(1.8)	(1.8)
Net cash from/(used in) financing activities	38.8	(22.2)	16.6		27.3	(16.5)	10.8
Net increase/(decrease) in cash and cash equivalents	2.8	9.2	12.0		(8.6)	34.7	26.1
Cash and cash equivalents at beginning of year	9.1	45.1	54.2		16.8	10.4	27.2
Exchange gains on cash	0.9	-	0.9		0.9	-	0.9
Cash and cash equivalents at end of year	12.8	54.3	67.1		9.1	45.1	54.2

Notes to the unaudited consolidated proforma financial statements

for the year ended 31 March 2010

 

1. Investments

 

The valuation of the Group's portfolio at 31 March 2010 reconciles to the consolidated balance sheet as follows:

 

	31 March 2010	31 March 2009
	£million	£million
Portfolio valuation	509.6	445.7
Less : undrawn loanstock commitments	(8.3)	-
Portfolio valuation on an investment basis	501.3	445.7
Less : equity and loanstock investments in operating subsidiaries eliminated on consolidation	(193.9)	(165.6)
Investments per audited consolidated balance sheet on an IFRS basis	307.4	280.1

 

 

 

 

Statement of Directors' responsibilities

 

The Directors are responsible for preparing this 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 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 polices 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 to enable them to ensure that the financial statements comply with the Company (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 (including a Business Review) and Corporate Governance Statement that comply with that law and those 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 ought to have taken as a Director to make himself 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

24 May 2010

 

Regisered Office:

1 Le Truchot

St Peter Port

Guernsey

Channel Islands GY1 1WD

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

We have audited the group and Company financial statements (the "financial statements") of HSBC Infrastructure Company Limited for the year ended 31 March 2010 which comprise the Consolidated and Company Income Statements, the Consolidated and Company Balance Sheets, the Consolidated and Company Statement of Changes in Shareholders' Equity, the Consolidated and Company Cash Flow Statements and the related notes. These financial statements have been prepared under the accounting policies set out therein.

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 auditors

The directors' responsibilities for preparing the financial statements which give a true and fair view and are in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU and are in compliance with applicable Guernsey law are set out in the Statement of Directors' Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view, are in accordance with IFRS as adopted by the EU, and comply with the Companies (Guernsey) Law, 2008. We also report to you if, in our opinion, the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.

We read the other information accompanying the financial statements and consider whether it is consistent with those statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements:

·; give a true and fair view of the state of the group's and Company's affairs as at 31 March 2010 and of its 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.

 

Deborah J Smith

For and on behalf of

KPMG Channel Islands Limited

Chartered Accountants Guernsey 24 May 2010

 

 

Consolidated income statement
for the year ended 31 March 2010
			Year ended 31 March 2010				Year ended 31 March 2009
	Note		Revenue	Capital	Total		Revenue	Capital	Total
			£million	£million	£million		£million	£million	£million
Services revenue	5		102.6	-	102.6		66.5	-	66.5
Gains/(loss) on finance receivables	17		35.5	(19.3)	16.2		29.7	22.6	52.3
Gains/(loss) on investments	6		21.6	(2.3)	19.3		21.9	(16.1)	5.8
Total income/(loss)			159.7	(21.6)	138.1		118.1	6.5	124.6
Services costs	7		(89.1)	-	(89.1)		(55.4)	-	(55.4)
Administrative expenses	8		(10.0)	-	(10.0)		(8.5)	-	(8.5)
Profit/(loss) before net finance costs and tax			60.6	(21.6)	39.0		54.2	6.5	60.7
Finance costs	9		(35.6)	-	(35.6)		(37.7)	(37.8)	(75.5)
Finance income	9		0.3	4.0	4.3		1.5	0.9	2.4
Profit/(loss) before tax			25.3	(17.6)	7.7		18.0	(30.4)	(12.4)
Income tax (expense)/credit	10a		(1.1)	4.3	3.2		(2.1)	3.7	1.6
Profit/(loss) for the year			24.2	(13.3)	10.9		15.9	(26.7)	(10.8)
Attributable to:
Equity holders of the parent			24.6	(18.6)	6.0		11.9	(26.0)	(14.1)
Minority interests			(0.4)	5.3	4.9		4.0	(0.7)	3.3
			24.2	(13.3)	10.9		15.9	(26.7)	(10.8)
Earnings/(loss) per share - basic and diluted (pence)		11			1.6				(4.3)

 

Supplementary information has been provided analysing the income statement between those items of a revenue nature and those of a capital nature, in order to better reflect the Consolidated Group's

activities as an investment company. See Note 2 (a) to the consolidated financial statements for the definition of revenue and capital items.

 

All results are derived from continuing operations. There is no other comprehensive income or expense apart from those disclosed above and consequently a consolidated statement of comprehensive

income has not been prepared.

Consolidated balance sheet
as at 31 March 2010
		31 March 2010	31 March 2009
	Note	£million	£million
Non-current assets
Investments at fair value through profit or loss	15	307.4	280.1
Finance receivables at fair value through profit or loss	17	772.0	634.1
Intangible assets	14	170.6	168.9
Deferred tax assets	10c	36.7	35.3
Total non-current assets		1,286.7	1,118.4
Current assets
Trade and other receivables	18	12.1	7.6
Finance receivables at fair value through profit or loss	17	16.6	12.5
Cash and cash equivalents	19	67.1	54.2
Total current assets		95.8	74.3
Total assets		1,382.5	1,192.7
Current liabilities
Trade and other payables	20	(20.9)	(15.0)
Current tax payable		(0.8)	(0.2)
Loans and borrowings	21	(29.6)	(23.4)
Total current liabilities		(51.3)	(38.6)
Non-current liabilities
Loans and borrowings	21	(630.5)	(593.7)
Other financial liabilities (fair value of derivatives)	22	(84.9)	(76.4)
Deferred tax liabilities	10c	(116.4)	(103.8)
Total non-current liabilities		(831.8)	(773.9)
Total liabilities		(883.1)	(812.5)
Net assets		499.4	380.2
Equity
Ordinary share capital	23	-	-
Share premium		234.0	106.5
Retained reserves		252.6	269.6
Total equity attributable to equity holders of the parent		486.6	376.1
Minority interests		12.8	4.1
Total equity		499.4	380.2
Net assets per share (pence)	13	107.1	111.1

 

 

The accompanying notes are an integral part of these financial statements.

 

The financial statements were approved and authorised for issue by the Board of Directors on 24 May 2010, and signed on its behalf by:

 

 

J Hallam G Picken

Director Director

 

Consolidated statement of changes in shareholders' equity
for the year ended 31 March 2010
Year ended 31 March 2010
	Attributable to equity holders of the parent				Minority interests	Total equity
	Share capital	Share Premium	Retained reserves	Total shareholders' equity
	£million	£million	£million	£million	£million	£million
Shareholders' equity at beginning of year	-	106.5	269.6	376.1	4.1	380.2
Profit for the year	-	-	6.0	6.0	4.9	10.9
Minority share of acquired business	-	-	-	-	5.2	5.2
Distributions paid to Company shareholders	-	-	(23.0)	(23.0)	-	(23.0)
Distributions paid to minorities	-	-	-	-	(1.4)	(1.4)
Ordinary shares issued	-	129.3	-	129.3	-	129.3
Costs of share issue	-	(1.8)	-	(1.8)	-	(1.8)
			-
Shareholders' equity at end of year	-	234.0	252.6	486.6	12.8	499.4

 

 

 

Year ended 31 March 2009
	Attributable to equity holders of the parent				Minority interests	Total equity
	Share capital	Share Premium	Retained reserves	Total shareholders' equity
	£million	£million	£million	£million	£million	£million
Shareholders' equity at beginning of year	-	-	302.2	302.2	3.6	305.8
Profit for the year	-	-	(14.1)	(14.1)	3.3	(10.8)
Distributions paid to Company shareholders	-	-	(18.5)	(18.5)	-	(18.5)
Distributions paid to minorities	-	-	-	-	(2.8)	(2.8)
Ordinary shares issued	-	108.3	-	108.3	-	108.3
Costs of share issue	-	(1.8)	-	(1.8)	-	(1.8)
Shareholders' equity at end of year	-	106.5	269.6	376.1	4.1	380.2