HICL Infrastructure Regulatory News (HICL)

ANNUAL RESULTS FOR YEAR TO 31 MARCH 2014

The Directors of HICL Infrastructure Company Limited announce the results for the year ended 31 March 2014.

Highlights

Graham Picken, Chairman of the Board, said:

"I am pleased to report a strong set of results, a consequence of successful, accretive acquisitions made over the last two years. The Group's portfolio is performing well, with strong cash generation, which has enabled the Company to meet its dividend target for the year of 7.1p per share with good cash cover.

The Group made 16 new investments and six incremental acquisitions in the year, investing £230.0m net of disposal proceeds. This was funded by deploying proceeds from the March 2013 equity raising and from subsequent tap issues, and by utilising the Group's revolving credit facility.

The Board is extremely pleased with the performance of the Group's portfolio and we remain confident of achieving the target total dividend of 7.25p per share for the year to 31 March 2015. This will be paid (for the first time) by way of four quarterly interim dividends, the first of which is expected to be declared in July and paid in September."

Tony Roper, Director at InfraRed Capital Partners Limited (the Company's Investment Adviser), said:

"The Investment Adviser continues to focus on asset management and to exercise pricing discipline on new investments. The latter was illustrated by the acquisition of only four investments from the 18 auction processes in which the Group participated this year.

The prices of UK investments have increased to levels which are at times unattractive for the Group. Elsewhere, we have made progress in France and Ireland and the Group is in the process of making an investment in a PPP project in Australia. Whilst geographic diversity has certain benefits, the geographic composition of the portfolio is expected to remain materially the same. Despite competitive markets, we still believe we will be able to make further investments, both in the UK and, selectively, overseas."

1 The Company has prepared its accounts for the year to 31 March 2014 in accordance with IFRS, including IFRS 10 and the Investment Entity amendments, and 2013 comparatives have been restated. These require the Company to prepare IFRS financial statements which do not consolidate the project company subsidiaries and hence closely resemble the pro-forma Investment Basis financial reporting which have been presented in prior years.

2 includes £5.1m of future investment obligations

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

Martha Walsh

Victoria Huxster

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 ended 31 March 2014 will be available to shareholders in early June, and an electronic version will be available from the Company's website at that time.

Results Summary

1 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 11 to the financial statements.

Section 1 : Chairman's Statement

Introduction

I am pleased to be writing to you with another good set of results for the Group. Overall performance was strong, with the portfolio generating good underlying profitability and cashflows. The quality of the Group's assets, coupled with their active investment management, has ensured that the dividend target of 7.1p per share was comfortably met.

Social infrastructure assets remain attractive with their low-volatility, inflation-linked yield. With increasingly high valuations attributed to assets in the UK secondary market, the Investment Adviser has had to maintain its disciplined approach to acquisition pricing. The Group has still been able to source attractive new investments in the UK, as well as diversifying into new geographies such as France, and, since the year end, Australia.

Financial Results and Performance

Financial results

The Company has prepared its accounts for the year to 31 March 2014 in accordance with IFRS, including IFRS 10 and the Investment Entity amendments. These require the Company to prepare IFRS financial statements which do not consolidate the project company subsidiaries and hence closely resemble the pro-forma Investment Basis financial reporting which has been presented in prior years.

Profit before tax was £153.8m (2013 restated: £93.1m) and earnings per share were 13.1p (2013 restated: 10.4p).

Cash received from the portfolio by way of distributions, capital repayments and fees was £112.4m (2013 restated: £78.2m). After Group costs, net cash inflows of £94.9m adequately covered the £67.1m distributions paid in the year.

The Company raised a total of £109.0m (before expenses) during the year through two tap issues totalling 83.7m new ordinary shares in July 2013 and February 2014.

In March 2014, the Group renewed and increased its revolving credit facility on improved terms with a larger bank group.

More details of the financial results are set out in Section 2.6.

Portfolio Performance

The Group's portfolio continues to perform well, and as at 31 March 2014 consisted of 93 social and transportation infrastructure projects (79 as at 31 March 2013). The return generated from the portfolio (after rebasing it for new investments, disposals and distributions) was 9.5% (2013: 8.9%) which reflects not only the unwinding of the discount rate, but also value-accretive acquisitions and disposals as well as value enhancements such as insurance premia reductions and other cost saving initiatives.

In January 2014, the Group announced a transaction to rationalise its portfolio through the divestment of an 80% stake in two PFI projects, Swindon Police and Dorset Police, for £9.2m. A £1.1m profit was made on the original cost of these investments.

Although the Group began the financial year with no projects in construction, it has subsequently acquired or invested in four projects in their construction phases. These represent around 7% of the portfolio by value as at 31 March 2014. The largest of these, Allenby and Connaught MoD Accommodation PFI project (5% of the portfolio by value), is expected to complete the final phase of its construction on schedule later this year.

Valuation

As in previous periods, the Investment Adviser has prepared a fair market valuation for each investment in the portfolio as at 31 March 2014.

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 £1,500.6m for the portfolio of 93 investments as at 31 March 2014, which includes £5.1m of future subscription obligations. This compares with £1,437.6m as at 30 September 2013, and £1,213.1m as at 31 March 2013 (including £12.7m of subscription obligations). An analysis of the increase in the valuation is detailed in Section 2.7.

The net asset value ("NAV") per share was 126.7p at 31 March 2014 (2013 restated: 120.0p). After taking into account the 3.6p per share second interim distribution, the NAV per share at 31 March 2014 was 123.1p; an increase of 5.8% over the comparable figure (restated) as at 31 March 2013. This increase is attributable to higher valuations of infrastructure investments, the strong operational performance of the portfolio, issuance of shares at a premium to NAV and value-accretive new investments.

Acquisitions

The Group made 16 new investments and six incremental acquisitions during the year for a total consideration of £239.2m including £5.1m commitment for future loan note subscriptions. Further details are set out in Section 2.6 and Note 12b to the accounts.

Despite an increasingly competitive environment, the Investment Adviser has been able to build a consistently strong pipeline of potential acquisitions, sourced through a wide network of relationships, and has successfully secured a fair share of the opportunities presented, sometimes on an exclusive basis. During the year the Investment Adviser participated in 18 auctions and was successful in only four, indicating that prices were generally higher than the Group was prepared to pay.

Since the financial year-end the Group has acquired a 10% interest in the N17/N18 Road Project in Ireland, an additional 16.5% interest in the Miles Platting Project and is in the process of acquiring a 5.85% interest in the AquaSure desalination PPP project, for a combined investment of approximately £52.1m.

Fees and Costs

Given the growth in the size of the Group's investment portfolio, the Investment Adviser engaged with the Board to review the management fee structure. The outcome was agreement to two changes.

Firstly, the provision for a higher annual management fee for projects in ramp-up or under construction was removed, thereby simplifying the fee structure. Secondly, a further taper of the annual management fee was introduced.

As there are no performance fees or any other fees which might be paid to the Investment Adviser from the project companies, the Directors believe the Company leads the sector in terms of transparency and enjoys highly competitive terms.

Distributions

On 13 May 2014, the Board declared a second interim dividend of 3.6p per share for the year to 31 March 2014 (2013: 3.575p). This brought the total distributions paid for the year to 7.1p, representing 1.4% growth on the prior year total of 7p. As in prior years, a scrip dividend alternative will be offered to shareholders on the register as at 23 May 2014.

After taking advice from the Company's corporate broker and the Investment Adviser, the Board has decided to move to paying dividends to shareholders on a quarterly basis, the first of which will be declared in July and paid in September.

It remains the Board's intention to offer a scrip alternative in respect of the quarterly dividends; further details will be provided in July when the first distribution is declared.

Risks and Uncertainties

As infrastructure, particularly social infrastructure, has matured as an asset class so the benefits have become more widely recognised and understood. With growth in the universe of PFI/PPP investments having slowed considerably due to less procurement in the UK, the balance between project supply and investor demand has now tipped in favour of the vendors. This has served to drive up prices, thus reducing returns, a phenomenon which has been particularly evident in competitive auctions.

As the Group invests in project companies, the key revenue risk is the risk of deductions from the availability payment made by the public sector client under each concession contract. To date, through effective asset management, performance deductions made under the contracts have been relatively small and borne by subcontractors. We recognise the importance of working with all stakeholders in a project to ensure value for money is achieved.

The Group seeks investments which are serviced by reliable and experienced, third-party operators. Although there is always a risk that some may not perform satisfactorily or, in extremis, go out of business, diversification of the projects' service partners, provides some mitigation.

With a large portfolio, some projects not unexpectedly experience operating issues from time to time. The Investment Adviser's team closely monitors each project, attends Board meetings and client liaison discussions, and takes appropriate action to resolve issues in a timely manner. There are currently no performance or credit issues of any materiality upon which to report at a portfolio level.

The Group currently has 13 investments located in Scotland representing 15% of the portfolio by value as at 31 March 2014. If Scotland votes for independence in September, it is unclear how, if at all, this would affect these investments which are secured under legal concession contracts from public sector counterparties and provide essential assets and services. The Board will take appropriate action when the outcome is known.

Financial regulation continues to change and affect the Company. The Board monitors such changes, evaluates the likely impact, and takes advice and acts appropriately to ensure that the business is compliant. The key elements of regulatory change that affect us are outlined below.

Corporate Governance and Regulation

As in previous years, all of the Company's Directors will offer themselves for re-election at the AGM. This is more regular than the Company's Articles require but from a governance perspective adopts best practice.

For the first time, the Annual Report includes a Remuneration Committee Report. This sets out the Directors remuneration policy and remuneration recommendations for the coming year and will be included in resolutions for shareholder approval at the forthcoming AGM on 22 July 2014.

As announced on 6 January 2014, following the UK Financial Conduct Authority's rules concerning non-mainstream pooled investments ("NMPI"), the Board confirmed that it conducts the Company's affairs, and intends to continue to conduct the Company's affairs, such that the Company would qualify for approval as an investment trust if it were resident in the United Kingdom. It is the Board's intention that the Company will continue to conduct its affairs in such a manner and that IFAs should therefore be able to recommend its Ordinary Shares to ordinary retail investors in accordance with the NMPI rules.

During the year, in addition to the Board meeting shareholders at the Home Office event, I held a number of one-on-one meetings and was able to feedback the results of these discussions to the Board. Good and effective communication with shareholders is enormously important to the Board which receives regular reports from the Investment Adviser and the Company's broker, both of whom participate in many meetings with existing and prospective investors.

In July 2013, the Alternative Investment Fund Managers Directive ("AIFMD") came into force. The Company has taken advantage of the transitional arrangements which allow a one year's period of grace in order to put in place the policies, procedures and registration to enable compliance by July 2014.

After taking professional and legal advice, the Board has determined that it will become a self-managed Alternative Investment Fund ("AIF"). The Company will, in due course, register as a self-managed AIF, and a small number of changes to processes and procedures are being implemented to enable the Board to fulfil its prescribed role in the supervision of investment decisions and the management of risk across the Group.

Outlook

With the attractions of infrastructure investments better understood, new and additional capital has entered the market. As a result, it has become more challenging to source investment opportunities with the risk-reward characteristics of earlier acquisitions. That said, the Company continues to benefit from the Investment Adviser's network of long-established relationships with potential vendors and developers. The Group has proven to be a reliable party capable of evaluating acquisition opportunities efficiently, having the finance available and possessing the ability to execute a purchase on time and without last minute renegotiation.

Whilst the Group is evaluating more potential investments overseas, and also investments in projects under construction, it is unlikely that the overall composition of the portfolio will change materially.

New investments that meet our requirements continue to come to market and include both single and portfolio opportunities. Despite the more competitive environment in which we now trade, the prospects remain good for the Group to make further value-accretive investments this year.

With the recent acquisitions funded from the Group's revolving credit facility, the Directors are considering the timing and quantum of further tap issuance.

The Board is pleased with the performance of the Group's investment portfolio and the returns generated. We are confident that previous guidance we gave of 7.25p per share aggregate dividend for the year to March 2015 remains appropriate.

Graham Picken

Chairman

20 May 2014

Section 2 : Strategic Report

2.1 Introduction

This Strategic Report sets out:

2.2 - the Company's Objectives;

2.3 - the Strategy adopted to deliver these Objectives;

2.4 - the Company's Business Model;

2.5 - the Investment Policy and Current Acquisition Strategy;

2.6 - an Operational and Financial Review for the year, including KPIs;

2.7 - the Directors' Valuation of the Group's Portfolio as at 31 March 2014;

2.8 - the current Outlook; and

2.9 - the Ten Largest Investments;

References in this report to the Company mean HICL Infrastructure Company Limited (and together with its consolidated subsidiaries, the "Group").

The Company's business purpose is to invest shareholders' funds for returns from capital appreciation, investment income or both.

The Company is an investment company with a current portfolio of investments in social, transportation and related infrastructure projects, mostly structured under a public sector infrastructure procurement model (called PFI or PPP in the UK, and PPP or P3 in other countries) which has been used by a number of countries over the last 20 years to procure new infrastructure investment. These projects provide serviced assets in a number of sectors including education, health, justice, road, rail and general accommodation sectors (such as libraries, barracks, social housing). The majority of the Company's investments are in projects which are operational, having successfully completed their construction phase.

2.2 Objectives

The aim of the Company is to invest shareholders' funds in a portfolio of lower risk, predominantly operational, infrastructure projects to earn a return that allows the Company to pay a sustainable annual dividend with the potential for an element of capital growth.

Financial 

In the year to 31 March 2014, the Company was targeting a total dividend of 7.1p per share and this has been achieved. The Directors have set a target for the year to 31 March 2015 of 7.25p per share which is considered achievable based on current portfolio performance. Future targets will be set having regard to the portfolio performance and the long-term sustainability of the dividend level.

Dividends paid are expected to be cash covered (with an allowance for that part of the portfolio's assets still under construction).

The dividend is paid gross as the Company is registered in Guernsey and the Company also offers shareholders a scrip dividend alternative to cash dividends as this can be advantageous to certain investors.

The Company is also seeking to preserve the capital value of a shareholder's investment and deliver an element of capital growth. At the time of the March 2013 share capital raising, the target total return was forecast to be circa 7.0% p.a. over the long term for investors acquiring shares at a price of 119.5p per share. The Board still considers this achievable.

Part of the attraction of the Group's investment portfolio is its positive correlation to inflation (described in more detail in Section 2.7). In making new investments, an important consideration is that this correlation is maintained and, where possible, enhanced.

As the Group has overseas investments, it has a foreign currency hedging policy (explained in Section 2.6) which forward hedges investment cashflows and seeks to reduce balance sheet volatility from currency fluctuations.

Whilst the Group does not need to make further investments to achieve the targeted returns, further growth provides the opportunity to enhance returns and manage any price premium to NAV per share. Issuing further shares, either by way of a prospectus or tap issue, is the main mechanism by which the Board moderates any share price premium. New shares are only issued at or above the current NAV per share, thus avoiding NAV dilution.

Non-Financial

The key non-financial objectives of the Group are:

· To seek and maintain strong relationships with all key stakeholders of both the Company and the Group's investments, including clients, local communities, key contractors and financial lenders. Experience has demonstrated that good relationships and a positive approach to partnering and working together helps to deliver the required investment returns.

· To build and develop a portfolio of investments in infrastructure projects and companies with diversified clients, funders and subcontractors.

· To manage the Group and its investments in accordance with the Company's stated Corporate Social Responsibility statements and policies.

· Through disclosure, case studies, and site visits, to inform existing shareholders and potential investors and increase the understanding of infrastructure as an investment class.

2.3 Strategy

New Investments

Any new investment that the Group makes needs to meet the Investment Policy published by the Company, as well as the Acquisition Strategy which the Company reviews and publishes regularly (both are set out in Section 2.5). All new investments need to support the achievement of the Objectives set out in Section 2.2 above, and balance the risks involved against the projected forecast returns, to enable the Group to achieve its long-term targets without materially changing the risk profile of the Group.

Part of the Investment Strategy is to acquire new investments which are value accretive to the current portfolio. Accretion can be achieved through the initial gross yield, the potential total return, and the inflation correlation.

When acquiring a new investment, the Group seeks sufficient percentage ownership to allow it to appoint at least one director to the project company board. The size of a new investment is less important but must be less than 20% of the current portfolio valuation.

The Group seeks new investments in both the UK and in certain overseas countries where there is a well-developed market for infrastructure assets and appropriate laws, regulations and government sponsorship.

Portfolio Diversification

The Group's strategy is to have a diversified portfolio by asset type, asset location (geography), public sector counterparties, supply chain contractors, and project company managers. The Board believes diversification is important in the portfolio as it mitigates risk.

As at 31 March 2014, the Group had the following geographic diversity:

Each project subcontracts the delivery of services to one or more experienced facilities managers specialising in a particular field (e.g. catering; cleaning; security; mechanical and engineering maintenance). The Group's portfolio of investments has a diversified range of facilities management companies.

Portfolio and Asset Management

The active management of investments to achieve the desired investment returns is a key strategy.

With oversight from the Company, the Investment Adviser is tasked with the day-to-day management of the portfolio and reports to the Board formally on a quarterly basis (or more frequently if there are matters to discuss, note and approve).

This management task is carried out by two functions with the Investment Adviser's team; Portfolio Management and Asset Management.

Portfolio Management is concerned with the financial performance and, working closely with the Asset Managers, it seeks to:

· monitor the financial performance of each investment against Group targets and forecasts;

· consider the portfolio composition and mix with respect to achieving the Group's desired target returns within the agreed risk appetite;

· manage the investment cashflows from the Group's investments;

· minimise cash drag (having un-invested cash on the balance sheet) and improve cash efficiency generally;

· manage the processes and analysis which underpin the draft semi-annual valuation of the Group's portfolio submitted to the Board;

· ensure good financial management of the Group and each investment, having regard to accounting, tax, and debt covenants;

· manage cash and debt at the Group level; and

· hedge non-sterling investments.

Asset Management complements Portfolio Management and is focused on the successful management and operational performance of the Group's investments. Activities include:

· the management oversight of each investment through the appointment of a director to each project company board;

· where the project involves the construction of new facilities, the monitoring of progress to ensure successful delivery;

· the building of closer, open relationships with all parties involved;

· the facilitation of early resolution of operational issues as they arise, including contractual disputes; and

· the working together with project companies to achieve contract variations, both to extend the scope of the project, and to find cost savings and efficiencies.

2.4 Business Model

Introduction

The Company is a Guernsey-registered investment company with an independent board of directors whose shares are listed on the London Stock Exchange.

Through the group structure, the Company owns a portfolio of over 90 infrastructure investments and is seeking to protect and enhance value through active management of the existing portfolio and the sourcing of new investments using the expertise of the Investment Adviser.

The Company has a 31 March year-end and announces interim results in November and full year results in May. It also publishes two interim management statements a year, normally in February and July.

The Company's Board and the Committees

The Board of the Company comprises six independent, non-executive directors whose role is to manage the governance of the Company in the interests of shareholders and other stakeholders. In particular the Board approves and monitors adherence to the Investment Policy and Acquisition Strategy, determines risk appetite of the Group, sets Group policies and monitors the activities and performance of the Investment Adviser and other key service providers against agreed objectives.

The Board meets a minimum of four times a year for regular Board meetings and there are a number of other ad hoc meetings dependent upon business need. In addition, the Board convenes five committees, including a newly formed Risk Committee, which meet on a regular basis, such that on four occasions a year the business of the Company spans two days to cover committee agendas.

Management of the Group's portfolio, as well as investment decisions within agreed parameters, are delegated to the Investment Adviser, who reports regularly to the Board. At quarterly Board meetings, operating and financial performance of the portfolio, its valuation and the appropriateness of the risk and controls are reviewed.

In July 2013, the Alternative Investment Fund Managers Directive ("AIFMD") came into force. The Company is deemed to be an Alternative Investment Fund ("AIF") under the Directive. Having taken advice, the Board has determined that the most appropriate status for the Company is to be a self-managed AIF and expects to complete its registration before the expiry of the AIFMD transitional period on 22 July 2014. The practical implications of these changes are modest, being mainly to formalise the current working practices into an appropriately documented reporting structure..

The Investment Adviser

The Investment Adviser (since launch) is InfraRed Capital Partners Limited (formally HSBC Specialist Fund Management Limited until its management buy-out in 2011), part of the InfraRed Group.

The InfraRed Group is a privately owned, dedicated real estate and infrastructure investment business, managing a range of infrastructure and real estate funds and investments. The InfraRed Group has a strong record of delivering attractive returns for its investors, which include pension funds, insurance companies, funds of funds, asset managers and high net worth investors domiciled in the UK, Europe, North America, Middle East and Asia.

The InfraRed Group comprises InfraRed Capital Partners (Management) LLP and a number of wholly-owned subsidiaries, two of which are regulated by the Financial Conduct Authority (including the Investment Adviser). The InfraRed Group currently manages six infrastructure funds and five real estate funds with total equity under management of more than US$7 billion. The InfraRed Group has over 100 employees and partners, based mainly in offices in London and with smaller offices in Paris, Sydney, Hong Kong and New York.

Since 1998, the InfraRed Group (including predecessor organisations) has raised 13 private institutional investment funds investing in infrastructure and property, in addition to the Group and The Renewables Infrastructure Group Limited (which are publicly listed investment companies). InfraRed Capital Partners (Management) LLP is 80.1 per cent. owned by 27 partners through InfraRed Capital Partners (Management) LLP, and 19.9 per cent. owned by a subsidiary of HSBC. This ownership structure was the result of a management buyout of the specialist infrastructure and real estate business which was previously known as HSBC Specialist Investments Limited (HSIL) which was completed in April 2011.

The infrastructure investment team within the InfraRed Group currently consists of 50 investment professionals, all of whom have an infrastructure investment background. The team currently has approximately 500 years' combined experience in the infrastructure sector, and approximately 270 years with the InfraRed Group (including predecessor organisations), and has a broad range of relevant skills, including private equity, structured finance, construction and facilities management.

The Company has an advisory contract with the Investment Adviser which can be terminated with 12 months' notice. The Investment Adviser is also operator of the Group's Limited Partnership, through which the Group's investments are held. Details of the fees paid to the Investment Adviser during the year are set out in Section 2.6.

Other Key Service Providers

Apart from the Investment Adviser, the Company and the Group have the following key service providers:

The Board reviews the performance of all key service providers on an annual basis.

Group Financing, Gearing and Interest Rate Hedging

The Board's policy is that the Company should not hold material amounts of uninvested cash beyond what is necessary to meet outstanding equity commitments for existing investments or to fund potential acquisitions in the near term. New investments are typically funded by the Group's revolving credit facility. The Board will consider the appropriate timing and price for the issuance of new shares to repay the debt, in consultation with the Company's broker.

The Company raised £109.0m (before expenses) of new equity in the year to 31 March 2014 from tap issues of 66.7m Ordinary Shares in July 2013 and 17.0m Ordinary Shares in February 2014. The net proceeds from the share issues were used to pay down drawings on the Group's revolving credit facility.

There was good take-up by shareholders of the scrip dividend alternatives to the two interim dividends with 7.4m (2013: 4.5m) new Ordinary Shares being issued in April 2013 and December 2013.

In March 2014 the Group signed an increase and extension to its existing £100m debt facility which was due to mature in February 2015. The new multi-currency revolving credit facility is £150m and is available to be drawn in cash and letters of credit for future investment obligations. It matures in May 2016. The Company took the opportunity to broaden its credit providers beyond its current relationship banks, Royal Bank of Scotland and National Australia Bank, who jointly provided the existing facility, and include Lloyds Bank and Sumitomo Mitsui Banking Corporation.

As at 31 March 2014, the Group's drawings under the £150m facility were nil by way of cash and £5.3m by way of letters of credit and guarantees. The Group had net cash as at 31 March 2014 of £42.7m (2013: £146.0m).

The Association of Investment Companies ("AIC") has published guidance in relation to gearing disclosures which is defined for a company with net cash as the 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 this basis, the Group had a net cash position of 2.1% at 31 March 2014 (2013: 10.0% net cash). This analysis excludes any debt in the Group's investments, which are typically leveraged.

Since 31 March 2014, the Group has utilised a further £52.1m in order to make two new investments and the acquisition of an incremental stake. These are the 5.85% stake in the AquaSure PPP project in Victoria, Australia (due to complete shortly), a 10% interest in the N17/N18 Gort to Tuam road PPP in the Republic of Ireland, and a further 16.5% interest (equity only) in the Miles Platting Social Housing PFI project in Manchester.

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.

The Company's equity base now comprises almost 6,000 shareholders, broadly split 50:50 between retail investors and institutions. With the share liquidity that a larger market capitalisation offers, the Company's shares are increasingly attractive to large institutional investors.

How a new Investment is made

The Group acquires the majority of its investments from vendors wishing to sell equity in projects once they are operational. In addition, the Group will invest in projects during their construction phase when suitable opportunities arise. Further details of the Group's Investment Policy and Acquisition Strategy are set out in Section 2.5.

Under agreed delegations from the Board, the Investment Adviser identifies potential investments which, if they fall within the Investment Policy and agreed Acquisition Strategy, progress to approval from the Investment Adviser's Investment Committee. Potential acquisitions falling outside these agreed delegations require Board/Risk Committee approval before proceeding. Similar procedures apply if an acquisition is proposed from a fund managed by the Investment Adviser where, in such circumstances, a Buyside Committee is formed, a third party valuation is obtained, the Board approves the transaction and shareholder approval is sought for the related party aspect. Further details are set out in Section 2.5.

As the Group often acquires investment stakes in the secondary market, the long-term contractual arrangements are already in place with limited scope for amendment during the remaining life. Prior to acquisition appropriate due diligence is undertaken to ensure the projects are appropriately structured, the pass-down of obligations to subcontractors is adequate, and that all material counterparties are creditworthy.

New investments are typically financed by borrowing under the Group's committed revolving debt facility. This allows new investments to be made in a timely manner.

Processes by which the Group bids and acquires new investments can vary both in terms of the steps and time taken. The main methods by which the Group interacts with vendors are:

· by way of an auction process, either run by the vendor or using a third party adviser;

· through a one-on-one negotiation with a vendor, usually via a long-standing relationship of the Investment Adviser; and

· in the case of acquiring additional stakes in existing investments, by agreement with the co-shareholder.

Each process involves different steps and varying degrees of due diligence. The Investment Adviser has been successful in making a number of acquisitions through the negotiated process, thus minimising the transaction risks. Bid costs are incurred in carrying out due diligence, involving third party advisers, and the Investment Adviser seeks to focus the cost exposure to the later stages of the acquisition process.

For a typical social infrastructure investment, due diligence will include:

· confirmatory legal due diligence, to check the project is appropriately structured

· technical due diligence, looking at the adequacy of the lifecycle budgets and plans compared to the current state of the built asset

· insurance due diligence, looking at the level of insurances and likely future premiums

· commercial, valuation, tax and accounting due diligence, normally carried out by the Investment Adviser

Additional specialist advice is taken when considering investments with variable revenue streams: for example a traffic consultant will be retained when evaluating a toll road investment.

A typical Infrastructure Project explained

Each investment is made in a project typically with a long-term concession contract with a finite life and limited, if any, residual value. The counterparty to the concession agreement is a public sector body, such as a local authority for a schools project and a NHS Trust for a hospital project.

The Group's investments are structured as equity, subordinated debt and occasionally mezzanine debt stakes in unlisted single-purpose companies ("SPC"), with the sole purpose of delivering the asset and services in accordance with the terms of the project agreement.

Normally all services specified in the project agreement are subcontracted to specialist providers. Construction is subcontracted to a construction company (or companies in joint venture if a large asset) on a fixed priced, date certain construction contract to design and build the asset required under the project agreement.

The operational services such as the provision of catering, cleaning, maintenance, and similar services are subcontracted to a specialist facilities management ("FM") company. Projects either have a single FM subcontractor or more than one, depending on the services being provided.

Day-to-day management of the SPC is either outsourced on a fixed price contract, or is performed by an in-house team. Contract terms vary but usually the contract lengths are between 3 and 5 years.

The key performance indicators ("KPIs") and the service levels set out in the project agreement are mirrored as far as possible in the subcontracts such that the operating risks of the project are passed down to the individual subcontractors who are best placed to manage those risks. The term of the operating subcontracts normally matches the term of the project agreement and the costs of such services are largely fixed at the outset and subject to increases linked to inflation.

The majority of the Group's investments are in projects structured with an availability-based revenue stream such that the public sector client makes a contractual payment under the project agreement provided the asset, such as a school, hospital, prison or road, is available for use. The availability payments are normally linked to inflation, either wholly or partially, depending on whether the project's costs are indexed or fixed.

Each project is typically leveraged with amortising debt which is fully repaid one to two years prior to expiry of the concession. The majority of the projects do not require refinancing during their concessions lives. The interest rate on the debt is either fixed rate or inflation linked, such that changes in interest rates are largely mitigated. The debt raised for a project is secured against that project's cashflows alone, and so is non-recourse to both the Group and its other investments.

Most projects are required by their lenders to withhold some cash in reserve accounts to pay for expected future capital expenditure as well as to potentially service debt if there are operating issues. These cash balances are deposited across a spread of investment grade banks to mitigate default risk and the interest income, which is for the benefit of the project (and hence the Group's investment), varies according to short term deposit rates.

Valuation and Group Investment Cash Flows

As the Group's investments are in projects with long-term contractual income and cost these investments are valued using a discounted cashflow analysis of the forecast investment cashflows from the project.

The key external drivers when forecasting each project's cashflows are the inflation rate; the deposit interest rate; and the local corporation tax rate. These cashflows are used with a market discount rate to derive the value of each investment.

The Investment Adviser makes forecast assumptions for each of these based on market data and economic forecasts, and the Company publishes twice a year the Directors' valuation, the assumptions used and key sensitivities to the valuation of the portfolio (see Section 2.7). The Directors' valuation is the key component in determining the Company's NAV and so the Directors seek a third party opinion on the valuation prepared by the Investment Adviser.

In the current portfolio, the majority of projects are operational and so the number of investments with construction risk is small (four as at 31 March 2014). An investment in a project under construction can offer a higher overall return compared to buying an investment in an operational project, but it does not usually yield during the construction period and there is the risk that delays in construction affect the investment value.

2.5 Investment Policy and Current Acquisition Strategy

Investment Objectives

The Company seeks to provide investors with long-term distributions, at levels that are sustainable, and to preserve the capital value of its investment portfolio over the long term with potential for capital growth. The Company targets an annual distribution of at least 7.10p per Ordinary Share, with the prospect of increasing this figure provided it is sustainable with regard to the portfolio's forecast operational performance and the prevailing macro-economic outlook.

The Company is targeting an IRR of 7 to 8% on the original issue price of its Ordinary Shares in March 2006, to be achieved over the long term via active management, including the acquisition by the Group (being the Company and its wholly-owned subsidiaries) of further investments to complement the Current Portfolio and by the prudent use of gearing.

Investment Criteria

The Group's Investment Policy is to ensure a diversified portfolio which has a number of similarly sized investments and is not dominated by any single investment. The Group will seek to acquire infrastructure equity with similar risk/reward characteristics to the current portfolio, which may include (but is not limited to):

· public sector, government-backed or regulated revenues;

· concessions which are predominantly "availability" based (i.e. the payments from the concession do not generally depend on the level of use of the project asset); and/or

· companies in the regulated utilities sector.

The Group will also seek to enhance returns for Shareholders by acquiring more diverse infrastructure investments. The Directors currently intend that the Group may invest in aggregate up to 35% of its total assets (at the time the relevant investment is made) in:

· project companies which have not yet completed the construction phases of their concessions but where prospective yield characteristics and associated risks are deemed appropriate to the investment objectives of the Company. This may include investment in companies which are in the process of bidding for concessions, to the extent that such companies form part of a more mature portfolio of investments which the Group considers it appropriate to acquire; and/or

· project companies with "demand" based concessions where the Investment Adviser considers that demand and stability of revenues are not yet established, and/or project companies which do not have public sector sponsored/awarded or government-backed concessions; and

· to a lesser extent (but counting towards the same aggregate 35%, and again at the time the relevant investment is made) other funds that make infrastructure investments and/or financial instruments and securities issued by companies that make infrastructure investments, or whose activities are similar or comparable to infrastructure investments.

Geographic Focus

The Directors believe that attractive opportunities for the Group to enhance returns for investors are likely to arise outside as well as within the UK (where the majority of the projects in the current portfolio are based). The Group may therefore make investments in the European Union, Norway, Switzerland, the Americas and selected territories in Asia and Australasia. The Group may also make investments in other markets should suitable opportunities arise.

The Group will seek to mitigate country risk by concentrating on investment opportunities in jurisdictions where it considers that contract structures and enforceability are reliable, where (to the extent applicable) public sector obligations carry a satisfactory credit rating and where financial markets are relatively mature.

Single investment limit and diversity of clients and suppliers

For each new acquisition that is made, the Company will ensure that the investment acquired does not have an acquisition value (or, if it is an additional stake in an existing investment, the combined value of both the existing stake and the additional stake acquired) greater than 20% of the total gross assets of the Company immediately post acquisition. The total gross assets will be calculated based on the last published gross investment valuation of the portfolio plus acquisitions made since the date of such valuation at their cost of acquisition.

The purpose of this limit is to ensure the portfolio has a number of investments and is not dominated by any single investment.

In selecting new investments to acquire, the Investment Adviser will seek to ensure that the portfolio of investments has a range of public sector clients and supply chain contractors, in order to avoid over-reliance on either a single client or a single contractor.

Other investment restrictions

The Company is subject to certain investment restrictions pursuant to the UKLA Listing Rules. These are as follows:

(a) The Company's primary objective is investing and managing its assets with a view to spreading or otherwise managing investment risk. The Company must, at all times, invest and manage its assets in a way which is in accordance with the Investment Policy;

(b) The Company will not conduct a trading activity which is significant in the context of the Group as a whole. The Company will not cross-finance businesses forming part of the Group's investment portfolio; and

(c) No more than 10%, in aggregate, of the Company's assets will be invested in other listed closed-ended investment funds.

The Listing Rules may be amended or replaced over time. To the extent that the above investment restrictions are no longer imposed under the Listing Rules those investment restrictions shall cease to apply to the Company.

Group Gearing

The Group intends to make prudent use of leverage to finance the acquisition of investments, to enhance returns to investors and to finance outstanding subscription obligations.

Under the Articles, the Group's outstanding borrowings, excluding intra-group borrowings and the debts of underlying investee companies, but including any financial guarantees to support subscription obligations, are limited to 50% of the Adjusted Gross Asset Value (meaning the fair market value, without deductions for borrowed money or other liabilities or accruals, and including outstanding subscription obligations) of its investments and cash balances at any time.

The Group may borrow in currencies other than pounds sterling as part of its currency hedging strategy.

Amendments

Any material amendments to the Investment Policy will require the approval of Shareholders.

New investments and conflicts of interest

It is expected that further investments will be sourced by the Investment Adviser and it is likely that some of these will be investments that have been originated and developed by, and may be acquired from, the Investment Adviser (or its affiliates) or from a fund managed by the Investment Adviser (or its affiliates). In order to deal with these potential conflicts of interest, detailed procedures and arrangements have been established to manage transactions between the Group, the Investment Adviser (or its affiliates) or funds managed by the Investment Adviser (or its affiliates) (the "Rules of Engagement"). If the Group invests in funds managed or operated by the Investment Adviser (or its affiliates), the Group shall bear any management or similar fees charged in relation to such fund provided, however, that the value of the Group's investments in such funds shall not be counted towards the valuation of the Group's investments for the purposes of calculating the fees/profit share payable to the Investment Adviser or the General Partner.

It is possible that in future the Group may seek to purchase certain investments from funds managed or operated by the Investment Adviser (or its affiliates) once those investments have matured and to the extent that the investments suit the Group's investment objectives and strategy. If such acquisitions are made, appropriate procedures from the Rules of Engagement will be put in place to manage the conflict.

Key features of the Rules of Engagement include:

· the creation of separate committees within the Investment Adviser. These committees represent the interests of the vendors on the one hand (the "Sellside Committee") and the Group on the other (the "Buyside Committee"), to ensure arm's length decision making and approval processes. The membership of each committee is restricted in such a way as to ensure its independence and to minimise conflicts of interest arising;

· a requirement for the Buyside Committee to conduct an independent due diligence process on the assets proposed to be acquired prior to making an offer for their purchase;

· a requirement for any offer made for the assets to be supported by a report on the Fair Market Value for the transaction from an independent expert;

· the establishment of "Chinese walls" between the Buyside and Sellside Committees with appropriate information barrier procedures to ensure information that is confidential to one or the other side is kept confidential to that side; and

· the provision of a "release letter" to each employee of the Investment Adviser who is a member of the Buyside and Sellside Committees. The release letter confirms that the employee shall be treated as not being bound by his/her duties as an employee to the extent that such duties conflict with any actions or decisions which are in the employee's reasonable opinion necessary for him/her to carry out as a member of the Buyside or Sellside Committee.

In considering any such acquisition the Directors will, as they deem necessary, review and ask questions of the Buyside Committee and the Group's other advisers, to ensure that the Directors are satisfied that the terms of any such acquisitions are negotiated on an arm's length basis.

Current Acquisition Strategy

In seeking new investments, the Group adopts an acquisition strategy which has been consistently applied since May 2009. The focus remains 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; and

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

The Board and Investment Adviser consider the Acquisition Strategy on a regular basis and there is a specific strategy discussion held at least once a year.

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.

2.6 Operational and Financial Review

Key Financial Objectives and Performance Indicators

The Company has been targeting a long-term total return (IRR) of 7 to 8% on the original 100p issue price of its Ordinary Shares in March 2006. For the period since IPO until 31 March 2014 the total shareholder return has been 9.7% p.a. as measured by share price appreciation and dividends, or 9.1% p.a. as measured by Net Asset Value (NAV) appreciation and dividends. The difference results from the share price premium to NAV per share.

The Company has paid a progressive dividend which has risen from 6.1p per share in the year to 31 March 2007 to 7.1p per share in the year ended 31 March 2014. It was cash covered 1.5 times in the year to 31 March 2014. (2013: 1.4 times). This equates to a dividend yield of 5.2% based on the share price of 135.9p at 31 March 2014 (2013: 5.3%).

Set out below is a table of the Company's key performance indicators ("KPIs") used by the Board to measure the performance of the Company against targets set.

Acquisitions

As noted in the Chairman's Statement, the Group made 16 new investments and six incremental acquisitions in the period for an aggregate consideration of £239.2m including £5.1m commitment for future loan note subscriptions. A summary is set out in the table below and further detail can be found in Note 12b to the accounts.

1 Aggregate value of consideration paid for multiple acquisitions announced on the same day.

Since the year end, there has been the following new investment activity:

· a new investment of a 10% interest in the N17/N18 Gort to Tuam PPP Scheme. The project is located in the Republic of Ireland, and has just reached financial close. It involves the financing, design, construction and operation of a new 57km dual carriageway section of the N17/N18 near Galway for the National Roads Authority of Ireland. Construction of the new road will commence in June 2014 and is expected to be completed in November 2017.

· an incremental acquisition of a further 16.5% interest (equity only) in the Miles Platting Social Housing PFI Project ("Miles Platting Project") in Manchester from Adactus Housing Association Limited.

· On 15 April 2014, shareholders approved the acquisition, from a fund managed by the Investment Adviser, of a 5.85% equity stake in the AquaSure desalination PPP Project near Melbourne in the State of Victoria, Australia. The process of acquiring this AUS$ 84.5m investment has commenced and will complete shortly.

Acquisitions during the year increased the Group's portfolio to 93 social and transportation infrastructure investments as at 31 March 2014. The acquisitions completed since the year-end and highlighted above have increased the portfolio to 95 investments, of which five are still in construction.

In 2013, the Group signed a conditional contract to acquire an investment in the Bradford Schools BSF (Phase 1) Project for £6.5m. This has been delayed pending agreement of a settlement agreement between the project parties which has now been signed. This transaction will proceed once third party consents and pre-emption processes are complete.

During the year the Group participated in 18 auction processes and was successful in only four, losing the remainder either through the bidding process or through pre-emption by another shareholder. The remaining investments were secured via the Investment Adviser relationships and direct negotiations with vendors. Recent experience suggests that certain disposal processes are attracting prices well above what the Group and the Investment Adviser is prepared to pay. If this continues, the rate at which further acquisitions are made in the UK is likely to slow.

Portfolio Performance

During the year the portfolio increased from 79 to 93 investments, with the top 10 holdings representing 40% of the Directors' valuation as at 31 March 2014. The portfolio once again performed as expected and delivered strong cashflows supporting an increased dividend which was well covered from portfolio returns. This strong performance is the result of value accretive acquisitions made in the last two years and management across the portfolio.

Each of the projects has a public sector client, such as a local government education department, and users such as teaching staff and pupils. The feedback from these important stakeholders was again, generally, very positive on the level of engagement, interaction and influence of the Group's representatives across the portfolio.

As with any operational business, projects have challenges from time to time and during the year a number of projects incurred deductions due to operational issues which reflected the fact that not all the KPIs in the relevant project agreement had been met at all times. Generally, any deductions will have been reclaimed from the relevant service provider although occasionally there may be a cost to equity. On a portfolio basis, there is negligible impact on investment performance from operating issues and the benefits from cost saving and other incremental revenue-generating initiatives, such as contract variations, significantly outweigh any deductions.

On one road project acquired as part of a portfolio of assets, there are a number of ongoing issues including possible construction defects with the road surface, drainage issues, insufficient forecast lifecycle budget and lower than expected revenues. The asset management team is working though these issues but, as there is no certainty of a successful outcome, the valuation of this investment has been prudently written down. Being a small investment, the impact on the whole portfolio is negligible.

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 the 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.

Asset Management and Contract Variations

Each project is assigned an asset manager by the Investment Adviser to represent the Group's interests at the project company board meetings by monitoring performance of the project and ensuring the implementation of appropriate remedial action if and when operational issues arise.

The asset managers ensure that new investments are integrated into the governance and reporting processes employed across the portfolio, as well as focusing on implementing asset level business plans. The aim is to drive additional value through such initiatives as incorporating a new project within the Group's group insurance scheme or changing the provider of management services.

The Investment Adviser added two more asset managers to its staff during the year.

Project or contract variations are a way of enhancing value across the portfolio both for the Company and other stakeholders. Clients typically make variation requests 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. These vary considerably in size. During the year the Investment Adviser processed a number of variations including:

· A £20m variation to support the expansion and redevelopment of emergency service, maternity and neo-natal services at Barnet Hospital, North London was completed in December 2013 ahead of the originally agreed programme. The works formed an integral part of a significant re-organisation of NHS facilities within Barnet, Enfield and Haringey to deliver improvements in patient care.

· At Blackburn Hospital, a programme of variations continued during the year. They included the conversion of an existing ward into a specialist Dementia Ward with a "home in hospital" environment designed to help patients feel more calm and relaxed in what can otherwise be a distressing situation.

· At the Medium Support Helicopter Aircrew Training facility at RAF Benson in Oxfordshire, the simulators continue to be upgraded through variations to ensure that the training carried out in the simulators remains at the vanguard of the operational helicopter requirement. Following extensive upgrade the Puma Mk2 simulator is now training pilots full time.

At Stoke Mandeville Hospital a serious fire broke out in one of the wards in June 2013 which resulted in 48 beds being taken out of service across two wards. All of the building systems operated as designed and the Hospital Trust initiated their major accident plan. Despite the incident occurring at a weekend, the project team was able to mobilise surveyors to scope out the remedial works and commence the planning process.

Following round the clock repairs the least damaged ward was returned to full operational service within a week and a total of 85% of affected bed space was back in service within two months. The worse affected bed bays were finally handed back to the client after just three months. The cost of the remedial works was covered by the project insurances. Fortunately no one was injured as a result of the fire. The Investment Adviser and project company staff liaised closely with the Hospital Trust's senior management throughout the incident and remediation period.

Disposals

As part of the ongoing review of the portfolio, the Group undertook the sale of two investments in December 2013 generating aggregate disposal proceeds of £9.2m. These comprised 80% stakes in the Swindon Police and the Dorset Police projects which had been acquired as part of a portfolio from infrastructure funds managed by Barclays. As with a previous disposal, the purchaser of the two stakes was Vinci Pensions Limited, an affiliate of the 20% co-shareholder in the project, Vinci Investments Limited.

Accounting

The Company has adopted IFRS 10, 11 and 12 as well as Investment Entities - Amendments to IFRS 10, IFRS 12 and IAS 27 following their official adoption by the EU in November 2013. These revised accounting standards require the Company to prepare IFRS financial statements which do not consolidate project subsidiaries, in a similar manner to the pro-forma Investment basis tables that the Company prepared previously.

The Company and its advisers have concluded that these revised standards improve stakeholders' understanding of the financial performance and position of the Group. In particular they 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.

This change in accounting has had a material impact on the Consolidated Group's financial statements as described in Note 2(b) to the financial statements, and the 2013 comparatives have been restated accordingly.

The Finance Act 2009 introduced new legislation in respect of the requirement of large companies to appoint a Senior Accounting Officer ('SAO') to ensure the establishment and maintenance of appropriate tax accounting arrangements. Growth in the revenues and assets in the year has resulted in the Group falling within SAO legislation thresholds. This means the main UK Group will be allocated an HMRC customer relationship manager and be required to confirm to HMRC that it has appropriate tax accounting arrangements and reporting processes in place.

Income and Costs

1Includes forex hedging movement of £6.3 gain (2013: £1.8m loss)

Total Income has increased 58% to £175.7m (2013 restated: £111.1m) which represents the return from the portfolio recognised in the income statement from dividends, sub-debt interest and valuation movements. The drivers for the increase are contributions from acquisitions combined with a 2% reduction in UK corporation tax rates and the 0.2% reduction in the weighted average discount rate applied in the Directors' valuation supported by continued outperformance from the portfolio. Further detail on the valuation movements is given in Section 2.7.

Foreign exchange movements have not materially impacted profits as £6.7m foreign exchange losses (2013 restated: £2.1m gain) on revaluing the non-UK assets in the portfolio using year-end exchange rates have been offset by £6.3m foreign exchange hedging gains (2013 restated: £1.8m loss).

Earnings were £153.6m, an increase of £60.6m against the prior year. This reflected growth in the portfolio, the reduction in the UK corporation tax rate and a fall in the average discount rate, coupled with a good performance from the portfolio. Earnings per share were 13.1p (2013 restated: 10.4p).

Total fees accruing to InfraRed Capital Partners Limited (the Investment Adviser) were £17.2m (2013: £13.0m) 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 - no longer applicable from 1 April 2014), a 1.0% fee on acquisitions made from third parties, and the £0.1m per annum advisory fee.

During the period, the Company and the Investment Adviser agreed to remove the higher management fee for assets in their ramp-up or construction phase such that with effect from 1 April 2014 all assets incur the same management fee per annum as set out above. A new taper level of 0.8% per annum for assets in excess of £2.25bn was also agreed.

In the year, the Group incurred £0.7m of third party bid costs (2013: £0.2m) on unsuccessful bids (mainly legal, technical and tax due diligence). The Investment Adviser earned £2.2m in acquisition fees (2013: £1.7m), for its work on financial, commercial and structuring due diligence on successful acquisitions.

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 £2.2m (2013: 2.4m)

2. Excludes £164.7m net share capital raised in March 2013

Ongoing Charges in accordance with AIC guidance 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 1.15% (2013: 1.19%) with the reduction arising from further scale economies as the Company grows in size. There are no performance fees paid to any service provider.

Balance Sheet

1 The NAV per share at 31 March 2013 was 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 11 to the financial statements.

Investments at fair value were £1,495.5m (2013: £1,200.4m) net of £5.1m of future investment obligations on RD901 Road and University of Bourgogne PPP projects. This is an increase from 31 March 2013 of £295.1m or 25%. Further detail on the movement in Investments at fair value is given in Section 2.7.

The Group had cash at 31 March 2014 of £42.7m (2013: net cash of £146.0m) which covers the 3.6p second interim dividend due for payment in June 2014. An analysis of the movements in net cash is shown in the cashflow analysis below.

NAV per share was 126.7p before the 3.6p distribution (31 March 2013: 120.0p). NAV per share has increased by 0.7p more than retained earnings per share over the period as a result of the 83.7m shares issued in July 2013 and February 2014 at a premium to par.

1. Post interim dividend declared

Cashflow Analysis

1. The year to 31 March 2014 includes £1.1m profit on disposals (2013: £1.4m).

2. Disposal of £8.1m and profit on disposal of £1.1m equals the proceeds from disposal of investments of £9.2m.

3. Includes amortisation of debt issue costs of £1.1m (2013: £1.7m)

Cash inflows from the portfolio increased to £112.4m (2013: £78.2m). The growth in cash generation was driven by contributions from acquisitions combined with active cash management across the portfolio.

Cost of investments of £251.2m (2013: £270.2m) represents the cash cost of the 16 new investments, the six incremental acquisitions and the £12.7m subscription payment for Perth and Kinross, net of deferred consideration and acquisition costs of £4.5m (2013: £5.1m).

The £4.3m cash inflow (2013: £3.4m cash outflow) in foreign exchange rate hedging arises from the weakening of the Euro against Sterling in the year. The Group enters forward sales to hedge forex exposure on the Dutch High Speed Rail Link, two Irish assets, two French assets and two Canadian assets.

The placing of 83.7m Ordinary Shares via tap issues in July 2013 and February 2014 provided net cash receipts in the year of £107.7m (2013: £270.1m).

Dividends paid increased £19.0m to £67.1m (2013: £48.1m) for the year (being the payment of 3.575p in April 2013 and the payment of 3.5p per share in December 2013). The dividends declared for the year to 31 March 2014 represent a total of 7.1p per share (2013: 7.0p).

Dividend cash cover, which compares operational cash flow of £94.9m (2013: £64.3m) to dividends attributable to operational assets, was 1.51 times (2013: 1.38 times). The proportion of the total dividend attributable to operational assets (93.9%) and construction assets (6.1%) is based on their respective share of the portfolio valuation during the year.

After taking advice from the Company's corporate broker and the Investment Adviser, the Board has decided to move to paying distributions to shareholders on a quarterly basis. We believe that shareholders, particularly smaller retail holders, will appreciate more regular dividends. It is intended that they will be broadly equal in size and will be declared in July, November, February and May, with corresponding payments at the ends of September, December, March and June. Based on this timetable, the first quarterly distribution for the year to 31 March 2015 will be declared in July 2014 and paid on 30 September 2014.

It remains the Board's intention to offer a scrip alternative and further details will be provided in July when the first interim dividend is declared.

Group Debt Facility

In March 2014 the Group's revolving credit facility ("RCF") was increased and extended. The previous £100m RCF, jointly provided by Royal Bank of Scotland and National Australia Bank, which was due to expire in February 2015, was increased to £150m and its term extended to May 2016 with the margin reduced to 2.20%. Lloyds Bank and Sumitomo Mitsui Banking Corporation were added to the facility as two new lenders.

With the RCF now available until May 2016, the Company will be able to confirm sufficient working capital for the financial years ending 31 March 2014 and 31 March 2015 prior to needing to refinance.

While no leverage exists at the Company in Guernsey, the Group's RCF is in place which had no cash drawings at the year end and which for the purposes of the Level 2 measures of the Alternative Investment Fund Managers Directive, does not constitute substantial leverage.

Foreign Exchange Hedging

Foreign exchange risk from non-Sterling assets has been managed by hedging investment income from overseas assets through the forward sale of the respective foreign currency (for up to 24 months) combined with balance sheet hedging 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 hedging policy is designed to provide confidence in the near term yield and to limit NAV per share sensitivity to no more than 1.0p for a 10% forex movement.

2.7 Valuation of the Group's 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 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 and IFRS 13, given the special nature of infrastructure investments. If an investment was traded, a market quote would be 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 2014 was £1,500.6m. This valuation compares to £1,213.1m as at 31 March 2013 (up 24%). A reconciliation between the valuation at 31 March 2014 and that shown in the financial statements is given in Note 12a to the consolidated financial statements, the principal difference being the £5.1m outstanding equity commitments on the RD 901 Road and University of Bourgogne PPP projects.

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

Allowing for the acquisitions during the year of £239.2m, the divestments of £9.2m (Swindon Police and Dorset Fire and Police) and investment receipts of £111.3m, the rebased valuation was £1,331.8m. The growth in the valuation of the portfolio at 31 March 2014 over the rebased value was 12.7%. This increase is a product of the return from the portfolio, the reduction in the discount rate and UK corporate tax rates partly offset by the lowering of deposit rate assumptions and forex movements.

Return from the Portfolio

The return from the portfolio of £126.5m (2013: £97.5m) represents a 9.5% (2013: 8.9%) increase in the rebased value of the portfolio. As expected, the majority of this 'return' (8.3%, being the average) was generated by the unwinding of the weighted average discount rate used to value the portfolio in the year.

The remaining 1.2% (2013: 0.5%) of incremental value arose as a result of the net positive contributions from a number of factors including:

· Contributions from new investments;

· Acquisitions made at, or above, the portfolio discount rate;

· Gains from disposals;

· Net operational out performance including savings from portfolio insurances;

· UK actual inflation in the year being lower than the 2.75% p.a. valuation assumption; and

· Impairment of an operational road project.

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. The Investment Adviser exercises its judgment in assessing the expected future cash flows from each investment based on the detailed concession life financial models produced by each Project Company. Cash flows are adjusted where necessary to include the Group's economic assumptions as well as any specific operating assumptions.

Discount rates

The main method for determining the appropriate discount rate used for valuing each investment is based on the Investment Adviser's 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.

When there are limited transactions or information available, and as a second method and sense check, a "bottom up" approach is taken based on the appropriate long-term Government Bond yield and an appropriate 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:

The average discount rate reflecting market pricing for an operational asset has been assessed as 8.2% - down 0.2% from the prior year - reflecting market conditions discussed in Section 2.6 above.

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

In the UK, there is sufficient market data on discounts rates and hence the risk premium is derived from this market discount rate for operational social and transportation infrastructure investments less the appropriate long-term Government Bond yield. For Canada, France, Holland and Ireland, where there is less market data, the "bottom up" approach is adopted to determine discount rates. The Board discusses the proposed valuation with the third-party valuation expert to ensure that the valuation of the Group's portfolio is appropriate.

As long term Government Bond yields in the UK, Canada, France and Holland are currently low, this is reflected in higher country risk premium, which includes an allowance for increases from these historically low yields.

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:

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 driven prices upwards, and hence caused discount rates to fall during the year.

Valuation Assumptions and Sensitivities

Apart from the discount rates, the other key economic assumptions used in determining the Directors' valuation of the portfolio are:

1. Retail Price Index or Retail Price Index excluding mortgage interest payments

These assumptions are judgements in determining the valuation and, as in previous years, the Company prepares certain key sensitivities, which are set out in Note 4 to the accounts.

In the UK, RPI and RPIx were 2.5% for the year ending March 2014. 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 2014 forecasts for RPI out to December 2015 range from 2.6% to 4.2% from 24 independent forecasters as compiled by HM Treasury, with an average forecast of 3.3%.

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 8.2% (being the weighted average discount rate) to 8.8%.

As at 31 March 2014 cash deposits for the portfolio were earning interest at a rate of 0.5% 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 2015 of 1.2%.

The portfolio valuation assumes UK deposit interest rates are 1% p.a. to March 2018 and 3.5% p.a. thereafter. This extends the period of 1% deposit interest rates as applied in the March 2013 valuation, which assumed 1% deposit interest rates to March 2017 and 3.5% thereafter. These changes have reduced the portfolio valuation by approximately £5.7m and are included within the £12.1m aggregate increase in portfolio value attributable to changes in Economic Assumptions.

The UK corporation tax assumption for the portfolio valuation is 21%, which has reduced by 2% from 23% at March 2013, to reflect the current rate of UK corporation tax. This change has increased the portfolio valuation by approximately £17.8m and is included within the £12.1m aggregate change in portfolio value attributable to changes in Economic Assumptions.

Additional Sensitivities

The Investment Adviser has prepared two additional sensitivities this year, for lifecycle and tax rates.

Lifecycle (also called asset renewal or major maintenance) concerns the replacement of material parts of the asset to maintain it over the concession life. It involves larger items that are not covered by routine maintenance and for a building will include items like the replacement of boilers, chillers, carpets and doors when they reach the end of their useful economic lives.

The lifecycle obligation, together with the budget and the risk, is usually either taken by the project company (and hence the investor) or is subcontracted and taken by the FM contractor. The lifecycle sensitivities consider a +/-10% change to the projected budget for lifecycle where the risk is taken by the project company.

Of the 20 largest assets, only 11 have lifecycle as a project company obligation (i.e. not subcontracted). This is broadly typical of the portfolio as a whole.

The tax sensitivity looks at the effect on changing the tax rates by +/- 5% each year and is provided to show that tax can be a material variable in the valuation of investments.

The analysis to prepare the above sensitivities was carried out on the 20 largest investments (61% of the portfolio by value).

1. Sensitivity on the 11 investments where the project company retains the lifecycle obligation, within the 20 largest investments

2. Sensitivity based on 20 largest investments, of which only 11 have lifecycle as a project company obligation

2.8 Outlook

Portfolio

The current portfolio is performing as expected with no material operating issues. This is due in part to the successful value accretive acquisitions made over the last two years which have been operating and performing in-line or ahead of projections.

Provided unforeseen issues do not arise, the Board is confident that the current portfolio can continue to deliver the targeted returns for the Company. Through careful management, outperformance is possible and the Board regularly reviews the opportunities for this with the Investment Adviser.

As noted in Section 2.6, the Company intends to move to paying quarterly interims dividends to give investors a more regular payment. The first quarterly interim dividend for the year to 31 March 2015 will be announced at the end of July 2014 and paid at the end of September 2014.

Infrastructure Market Developments - UK

The Company's focus has been mainly on secondary, or operational, infrastructure assets, particularly in the UK which has a long history of public sector procurement as a consequence of which it now has the largest number of operational social infrastructure projects of any global economy.

With the maturing of the infrastructure asset class and the greater understanding of its positive investment attributes by the broader investment community, more investors have been seeking to acquire stabilised operational assets in the secondary market. Although the Company was one of the first entrants to the market back in 2006, it has been followed by further listed and unlisted infrastructure funds and, more recently, by institutional investors making direct investments into the asset class. At the same time, the majority of the available equity stakes in the 600+ UK social infrastructure projects have been acquired by long-term, buy-and-hold end investors. The result in the UK is a reduced supply of potential new investment opportunities, with a growing number of investors seeking this type of investment.

Procurement of new infrastructure projects in the UK which would be attractive to the Group remains slow and offers limited potential.

However, new investment opportunities continue to arise in the UK secondary market and, even with more intense competition, the Group is cautiously confident of sourcing new investments with similar risk reward dynamics to the existing portfolio.

Infrastructure Market Developments - Europe, Australia and North America

Outside the UK, investment opportunities vary by country, but with active procurement programmes, the number of potential new investment opportunities continues to grow and the Investment Adviser is using its wide network of relationships to source new opportunities, through the InfraRed offices in New York, Paris and Sydney.

In Europe, the Company made its first two investments in France in January. These were originated through the Investment Adviser's relationship with the Bouygues Group and the Company is optimistic of sourcing further investments in France. In May 2014, the Group secured its third investment in Ireland, an availability-revenue road currently under construction.

The number of projects being procured in France, Belgium and the Netherlands continues to grow and we expect further investment opportunities to arise in the secondary market. There are also several larger multi-jurisdictional portfolios expected to be marketed during the coming year as some unlisted funds mature and look to realise gains for their investors. Competition is expected to be fierce and the Company will continue to be cautious rather than risk overpaying.

The Australian market offers promise with the recently-elected Government indicating its intention to use infrastructure investment, including PPP procurement, as a driver of domestic growth. Whilst the Australian economy is well developed and political risk is low, the long-term foreign exchange and inflation rate risks relative to Sterling are less predictable. Nevertheless, provided new investments meet the investment criteria and objectives on a risk adjusted basis, further opportunities will be considered.

In North America, the largest PPP market remains Canada where there continues to be strong support for P3 procurement. Unfortunately, the tax breaks afforded to domestic pension funds make it challenging for foreign investors to compete for many operational infrastructure assets. The US is a potentially much larger but longer term opportunity. The pace of primary procurement is gradually increasing and, as projects become operational, a secondary market of investment opportunities will develop.

The Group's Investment Pipeline and Acquisition Approach

In the UK, the imbalance between supply and demand for these assets has been driving up the pricing of social and transportation infrastructure investments. The Group has been unsuccessful in a number of auction processes in the last year with pricing levels that the Investment Adviser believes would dilute the Company's ability to meet the return objectives to shareholders. Typically these processes have related to larger investments where the scale of the opportunity attracts a broader universe of bidders. Participating in auction processes is time consuming and often fruitless, but this provides valuable insight into how other parties are pricing investments: not just the yield they are prepared to accept but, to a degree, the underlying cashflows which they assume.

The Investment Adviser is successfully deploying an acquisition strategy built on long-established relationships and direct negotiations with potential vendors. Together with buying incremental stakes in existing projects, the Company has been able to make value-accretive acquisitions without compromising on returns or by making unrealistic assumptions on future forecast cashflows. The Group has also considered assets which some consider too small or too complex, but which can often offer attractive returns.

In addition, the Investment Adviser is actively exploring new investment opportunities outside the UK in developed markets. Only those which fit the Company's Investment Policy and pricing disciplines are considered. Significant due diligence is undertaken in-house by the Investment Adviser before any third-party costs are incurred.

Although there is no exclusive right-of-first-refusal in respect of investments being sold by other infrastructure funds managed by the Investment Adviser, the Company may benefit from these opportunities, and the Board continues to ensure shareholders' interests are protected through establishment of a buy-side engagement committee and independent third-party valuation.

The Company's current portfolio mix geographically is not expected to alter materially, and similarly, the Group's exposure to investments under construction will not materially increase. This is due, in part, to the Group's largest asset in construction, the Allenby and Connaught MoD accommodation project, being expected to achieve final completion this summer.

Overall, the Group still believes it will be able to make further investments in the UK and, selectively, overseas but the rate of growth will be determined by the extent to which price competition impacts value.

2.9 Ten Largest Investments

Set out below are details of the ten largest investments in the portfolio and details of each project. As at 31 March 2014, the largest investment (the Home Office project) accounted for less than 7% (2013: 8%) of the portfolio.

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.

⃰ Comparative information, including relevant Notes, has been restated as a result of applying IFRS 10, including Investment Entities (Amendments to IFRS10, IFRS 12 and IAS 27).

See Note 2 (b) for details.

⃰ Comparative information, including relevant Notes, has been restated as a result of applying IFRS 10, including

Investment Entities (Amendments to IFRS10, IFRS 12 and IAS 27). See Note 2 (b) for details.

¹ 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 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 20 May 2014, and signed on its behalf by:

J Hallam G Picken

Director Director

⃰ Comparative information, including relevant Notes, has been restated as a result of applying IFRS 10, including

Investment Entities (Amendments to IFRS10, IFRS 12 and IAS 27). See Note 2 (b) for details.