Annual Financial Report

RNS Number : 9158S

HSBC Infrastructure Company Limited

28 May 2009

HSBC Infrastructure Company Limited

28 May 2009

RESULTS FOR THE YEAR TO 31 MARCH 2009

The Directors of HSBC Infrastructure Company Limited announce the results for the year ended 31 March 2009.

Good operational performance from the portfolio with solid cash generation and dividend growth

Highlights

for the year ended 31 March 2009 (on an Investment basis unless noted otherwise (1))

Operational profit from the portfolio of £20.4m, a 35% increase on the prior year (2008: £15.1m)
Loss before tax of £22.0m due to a £42.4m capital loss resulting from lower valuations within the portfolio
Total expense ratio for the Group of 1.74% (2008: 1.85%)
Net operational cashflow of £23.4m, representing 1.26 times cover for the distributions paid in the year
Second Interim dividend of 3.275p for six months to 31 March 2009 declared on 20 May 2009, giving total dividend of 6.4p for the year, a growth of 2.4% (with a scrip dividend alternative)

Directors' Valuation of the portfolio at 31 March 2009 of £445.7m, up from £437.9m at 31 March 2008 (2), a 1.8% increase
Net asset value ('NAV') per share post dividend of 107.2p at 31 March 2009, in line with guidance given in January
NAV per share at 31 March 2009 of 110.5p on an Investment basis and 111.1p on a consolidated IFRS basis
Investments in the year of £51.2m including a 50% stake in the Oxford John Radcliffe Hospital

(1) In order to provide shareholders with further information regarding the Group's net asset value, coupled with greater transparency in the Company's capacity for investment and ability to make distributions, as in previous periods, the results have been restated in proforma tables with all investments accounted for on an Investment basis.

(2) The Directors' Valuation of £437.9m at 31 March 2008 reconciles to the value of £417.4m in the Investment basis financial statements since it includes £20.5m of unfunded loan stock commitments.

Graham Picken, Chairman of the Board, said:

'I am pleased to report good operational performance from our portfolio of investments, with strong cash generation enabling growth in the annual dividend. Given the economic and financial climate, this is testament to the quality and robustness of the underlying assets, coupled with the hard work and expertise of the team managing our investments.

Total dividends for the year are 6.4p per share, equating to an annual yield of 5.7% based on the 31 March 2009 closing share price. Whilst the net asset value ('NAV') per share on an Investment basis has fallen from that reported at 31 March 2008, it is in line with our guidance issued in January 2009. The reduction is mainly a function of revised economic assumptions (inflation rates and bank deposit rates) which affect long term forecasts, coupled with a softening of the discount rates which apply to operational PFI/PPP assets. Despite this reassessment of NAV, the Company's total annualised return since launch has been 9.1% per annum to 31 March 2009.

The Group is fully invested, and had net debt at the fund level of £57.7m at 31 March 2009. This leaves us with around £140m of committed debt facilities and cash with which to make further acquisitions, and we are now seeing some attractively priced opportunities, and therefore expect to grow our investment portfolio in the year ahead.'

Contacts for the Investment Adviser on behalf of the Board:

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

Sandra Lowe

Keith Pickard

Tony Roper

Contacts for M: Communications: +44 (0) 20 7153 1530

Edward Orlebar

Tilly von Twickel

Copies of this announcement can be found on the Company's website, www.hicl.hsbc.com. The Annual Report and Consolidated Financial Statements for the year to 31 March 2009 will be posted to shareholders in early June, and an electronic version will then be available from the website.

Chairman's Statement

The Company's portfolio of PFI/PPP investments has continued to perform operationally in line with our forecasts. As a result, your Board was able to announce a second interim dividend of 3.275p per share, in line with previously stated targets. This makes a total for the year of 6.4p which was fully cash covered.

The current economic climate and disruption to financial markets has had a limited impact on the Group, but most specifically on the valuation of the investment portfolio. In our Interim Management Statement ('IMS') issued on 28 January 2009, the Board and the Investment Adviser gave guidance on how the economic and financial upheaval might affect their assessment of NAV. We have today reported a NAV per share on an Investment basis of 107.2p post the second interim dividend.

The Board continues to see opportunities for growth and value as we acquire new assets and actively manage the existing portfolio.

Performance of the portfolio

The portfolio of 28 investments comprises 27 PFI/PPP projects in the UK and the Netherlands, plus a mezzanine debt loan to Kemble Water, the Thames Water acquisition structure. All have performed in the period in accordance with their business plans.

All the projects are now operational and providing services to their public sector clients. From time to time, as is normal, issues arise over service delivery at project level but none have approached materiality for the Group.

On the Dutch High Speed Rail Link, certain signalling matters have emerged during testing. These are now being corrected by the signalling sub-contractor and will be retested to ensure compliance and reliability, in good time for the formal launch of the train service expected this summer.

The downgrade of Ambac Assurance UK Limited has caused the senior funding on Blackburn Hospital to become marginally more expensive. There are 6 projects in the portfolio involving monoline insurers but Blackburn is the only project where a downgrade has had financial implications.

There are no land sale payments outstanding in the current portfolio, the proceeds from surplus land at Colchester Garrison having been received on time in December 2008.

Financial results

In overview, on a consolidated IFRS basis, the loss before tax was £12.4m (2008: £9.2m profit). The loss per share on a consolidated IFRS basis were 4.3p per share, compared to earnings per share of 2.7p in 2008.

As in previous periods, the Company has also prepared pro-forma accounts on an Investment basis (treating all 28 holdings as investments). The loss before tax on an Investment basis was £22.0m (2008: £19.6m profit) and loss per share on an Investment basis were 6.8p, compared to earnings per share of 7.8p in 2008.

Cash received from the portfolio by way of distributions, capital repayments and fees was £31.5 m, and after Group costs, produced a net operational cashflow of £23.4m, representing 1.26 times cover for the distributions paid in the year. Net debt at the Group level was £57.7m at 31 March 2009 (2008: £105.6m).

The total expense ratio for the Group on an Investment basis was 1.74% for the year to 31 March 2009 (being the Group's operational expenses excluding acquisition costs, divided by the Group's net assets on an Investment basis). This compares with 1.85% in the prior year.

More details of the financial results are set out below.

Distributions

As announced on 20 May 2009, the Board has declared a second Interim dividend of 3.275p per share, and again there is a scrip dividend alternative. This brings the combined dividend for the year to 6.4p (year to March 2008: 6.25p, and period to March 2007: 6.1p). The Board remains committed to progressively growing the annual distribution with the aim of achieving 7.0p by March 2013.

As previously, a circular is being sent to shareholders to explain the scrip dividend alternative. Shareholders need to decide by 22 June 2009 on whether to take up the scrip dividend offer in part or in full. The payment of a scrip dividend is expected to be beneficial to a number of shareholders. The dividend (or scrip dividend) will be paid to those shareholders on the register as at 29 May 2009, and will be settled at the end of June.

The Board is seeking to renew its power to offer a scrip dividend alternative at the next Annual General Meeting ('AGM') in August.

Valuation

As in previous periods, the Investment Adviser has prepared a fair market valuation for each investment in the portfolio as at 31 March 2009. For the PFI/PPP investments, this valuation is based on a discounted cashflow analysis of the future expected equity and loan note cashflows accruing to the Group from each investment. In relation to the Kemble Water junior loan, since this is a tradable debt instrument, it is valued on a market quote basis as at 31 March 2009. This approach has been applied consistently since the launch of the Company in 2006.

The Directors have satisfied themselves with the methodology used, the discount rates applied, and the valuation. The Directors have also obtained an independent opinion from a third party, with considerable expertise in valuing this type of investments, supporting the reasonableness of the valuation.

The Directors have determined the valuation of the portfolio to be £445.7m as at 31 March 2009. There are no outstanding equity commitments still to be invested. The weighted average discount rate used was 8.3%, up from 7.5% at 31 March 2008, and 7.9% at 30 September 2008.

The valuation of £445.7m compares with £437.9m at 31 March 2008 and £450.5m as at 30 September 2008. A description of the process, an analysis of the valuation movements, and key sensitivities are set out in more detail in the Investment Adviser's Report.

The resulting NAV per share on an IFRS basis at 31 March 2009 is 111.1p (31 March 2008: 120.9p).

On an Investment basis the NAV per share is 110.5p at 31 March 2009 (31 March 2008: 123.1p). The Investment basis NAV per share after the second interim dividend at 31 March 2009 is 107.2p (31 March 2008: 119.9p). The decline was presaged in the IMS statement of 28 January 2009 which highlighted those factors likely to produce a valuation shift.

Portfolio development

The Group made the following acquisitions in the year to 31 March 2009:

In July the Group acquired additional stakes in three existing projects for a total consideration of £8.3m, taking the Group's economic interest in each project to 100%. These projects are: the Home Office, the Central Middlesex Hospital and the West Middlesex Hospital,
In August the Group acquired a 50% interest in The Hospital Company (Oxford John Radcliffe) Holdings Ltd from Carillion plc for a consideration price of £18m,
In December the Group acquired the 30% equity held by Siemens plc in the Barnet Hospital PFI project for a consideration of £2.7m. This acquisition increased the Groups equity interest in the project from 51% to 81%, and
In February the Group purchased the 19% equity stake held by a subsidiary of Bouygues UK and Ecovert FM in the Barnet Hospital PFI project for a consideration of £1.7m. This transaction takes the Group's interest in this project to 100%.

The Group continues to selectively pursue new business. The Board and the Investment Adviser continue to believe that at this time it is prudent to focus on new investment opportunities with broadly similar revenue and risk profiles to the existing portfolio. Revenues need to be contractual or regulated and costs need to be certain. Where services are subcontracted, specific attention is paid to the counter-parties' ability to perform.

Current target assets include:

PFI/PPP/P3 projects in the UK, Europe, North America, and Australia (both operational and in their construction phases).
Operational renewable energy projects such as wind farms, solar parks or hydro-electric schemes, where there are suitable contractual structures in place, enabling the Group to secure long term income streams comparable in nature to those in PFI/PPP/P3 projects. A number of these schemes have now been developed in Europe with established contractual tariff regimes.
Regulated utilities. To date we have passed up investment opportunities on the grounds of size and pricing. However, opportunities to acquire stakes in regulated businesses are now expected to arise at acceptable returns.
Selectively, debt funding in infrastructure projects where it is attractively priced and appropriately structured.

At the present time, the Group is unlikely to acquire investments in assets such as toll roads, airports and ports since the ability to forecast revenues and determine appropriate valuations remains difficult.

Quasi-infrastructure investments in assets like ferries, motorway services stations and care homes are outside the Group's investment policy and therefore will not be considered.

The Group does not rule out disposals. Investments (or stakes in investments) will be sold when the prices offered are considered attractive and it is value enhancing overall.

Corporate Governance and Support

The Board was strengthened on 9 June 2008 with the appointment of Sarah Evans as a director of the Company. Sarah is a qualified accountant with many years experience working in financial institutions, and is a Guernsey resident. Sarah was appointed to the Audit Committee on 12 November 2008.

As Chairman, I would like to take this opportunity to thank my fellow directors for their input and commitment over the last year. Apart from the regular board meetings, there have been frequent other meetings, not least in connection with the C share capital raising in May 2008.

The Company is reliant on the Investment Adviser's team for the success of the business. Whilst the Board retains control over strategy, capital and distribution policy, the day-to-day management of the business rests with the Investment Adviser, working closely with other service providers, including our Guernsey-based Administrator and Company Secretary. The infrastructure equity team at HSBC has a great depth of experience in this asset class. On behalf of the Board, I would like to thank them for their hard work and dedication.

Risks and uncertainties

With the availability of debt to fund new projects now scarcer than it was a year ago, it should be noted that each PFI project in the portfolio has long term funding in place and so does not need access to new debt capital. The PFI projects do have exposures to banks in the form of interest rate swaps and cash in deposit accounts. Such exposures are monitored and controlled.

The projects in the portfolio rely on contracting partners to provide various services to each project. There is a good spread of supply-chain providers with no material performance issues to report. In the changing economic climate, it is possible that some of our suppliers might encounter difficulties in their wider businesses that could impact on the performance on the Group's projects. The Investment Adviser monitors project performance and the Group's counterparty risk exposure. When any performance issues arise, prompt action is taken to ensure performance at the project level is not compromised.

The UK Government announced in the Budget on 22 April 2009 its intention to introduce new tax legislation concerning the tax deductibility of inter-group loan interest in UK subsidiaries of foreign companies (the World Wide Debt Cap). The Investment Adviser's initial assessment of the proposed legislation is that this will have an impact on the Group if enacted in its current form. The new legislation will not take effect before 2010 and the Investment Adviser is currently assessing the best commercial solutions to minimise the consequences of this new tax regime on the Group.

Outlook

Whilst the rapid decline in inflation rates (RPI and CPI) and bank deposit rates (LIBOR and EURIBOR) has resulted in lower valuations, there has been no material impact on the current operational performance of the Group's investments. Our focus to date on PFI/PPP infrastructure assets has protected the business from significant asset value diminution particularly when compared to the falls in valuation of economic infrastructure (eg toll roads, airports and ports).

We continue to see a number of opportunities to acquire PFI/PPP/P3 projects, both in the UK and abroad. At launch there were five projects still under construction, all of which are now operational, and the Group has an appetite to acquire more.

We believe that there will be opportunities in the current environment to acquire a slightly wider range of infrastructure assets which will support growth in both our NAV and annual yield, without significantly changing the risk profile of the portfolio.

Our strategy of using acquisition debt finance at the Group level has been effective. There has been no pressure to deploy surplus cash. A further equity raising is a possibility as we believe investors remain attracted to our proposition. We were pleased with the results of the C share issue in 2008 given the challenging market conditions at the time.

It is difficult to predict how long the economy will be in recession, and how long before the financial markets operate more freely. We do however feel that the Group is well positioned, and the Board, together with the Investment Adviser, will continue to pursue a prudent strategy of asset and distribution growth.

Graham Picken

Chairman

27 May 2009

Financial Results

Accounting

At 31 March 2009, the Group had eight investments which it was deemed to control by virtue of having the power, directly or indirectly, to govern the financial and operating policies of the project entities. This is an increase from the four investments at 31 March 2008, due to the incremental acquisitions in July, December and February. Under International Financial Reporting Standards ('IFRS'), the results of these companies are required to be consolidated in the Group's financial statements on a line-by-line basis.

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

As in previous periods, in order to provide shareholders with further information regarding the Group's net asset value, coupled with greater transparency in the Company's capacity for investment and ability to make distributions, the results have been restated in proforma tables which are presented in the Investment Adviser's Report. The proforma tables are prepared with all investments accounted for on an Investment basis. By deconsolidating the subsidiary investments, the performance of the business under consolidated IFRS basis may be compared with the results under the Investment basis.

Income and Costs

Summary income statement

	Year to 31 March 2009			Year to 31 March 2008
£m	Investment basis	Consolidated adjustments	IFRS basis	Investment basis	Consolidated adjustments	IFRS basis

Total Revenue Income	29.5	88.6	118.1	25.5	28.1	53.6

Expenses & Finance Costs	(9.1)	(91.0)	(100.1)	(10.4)	(23.7)	(37.7)

Profit before tax & valuation movement	20.4	(2.4)	18.0	15.1	0.8	15.9

Fair value movements	(42.4)	12.0	(30.4)	4.5	(11.2)	(6.7)

Tax and minority interests	-	(1.7)	(1.7)	-	(2.4)	(2.4)

(Loss)/Earnings	(22.0)	7.9	(14.1)	19.6	(12.8)	6.8

(Loss)/Earnings per share	(6.8)p		(4.3)p	7.8p		2.7p

On an Investment basis, Profit before tax and valuation movement increased 35% to £20.4m (2008: £15.1m) reflecting income from the Colchester Garrison PFI project following construction completion and contributions from acquisitions made by the Group in the last 24 months.

Fair value movements are a £42.4m cost which represent a reduction in the Directors' valuation of the portfolio and mark to market movements taken through the Income Statement. This has arisen, as advised in the Company's January 2009 IMS, as a result of adverse changes in the key economic assumptions applied to the Directors' valuation, recognition of downward mark to market movements of £7.8m on the Group's interest rate swaps used to hedge the Group's £200m five year debt facility with Bank of Scotland plc and decline in the market value of the Kemble Water junior loan. Further detail on the valuation movement is given in the Investment Adviser's Report.

Earnings on an Investment basis were a loss of £22.0m as compared to earnings of £19.6m in 2008. This represents a loss per share of a 6.8p as compared to earnings per share of 7.8p in 2008. This is due to the fair value movements.

On a consolidated IFRS basis, the loss per share was 4.3p as compared to earnings per share of 2.7p in 2008. The results on a consolidated IFRS basis are better than on an Investment basis because the value of the subsidiaries recognised under IFRS is not as significantly impacted by the adverse changes in key economic assumptions as the market values of the subsidiaries that underlie earnings in the investment basis. For example, the fall in future deposit interest rates assumed in the Directors' valuation has negatively impacted the value of each of the subsidiaries on an Investment basis, but has not affected their value on a consolidated IFRS basis.

Total income on a consolidated IFRS basis of £118.1m is approximately double that in the previous year due to the recognition of gross revenue on four additional subsidiaries, following incremental acquisitions in the year of equity in the Home Office, West Middlesex hospital, Central Middlesex hospital and Barnet hospital projects.

Cost analysis

	Year to 31 March 2009	Year to 31 March 2008
£m	Investment basis	Investment basis

Interest Income	0.4	1.0

Interest Expense	(2.7)	(5.0)

Investment Adviser	(5.3)	(5.1)

Auditor - KPMG - for the Group	(0.2)	(0.1)

Directors fees & expenses	(0.1)	(0.1)

Other Expenses	(1.2)	(1.1)

Expenses & Finance Costs	(9.1)	(10.4)

Interest was a net cost of £2.3m in the year (2008: £4.0m) reduced from the prior year. This was due to a reduction in average indebtedness in the year following the C share issue, and the reversal of an interest accrual at the year end relating to a prior year.

Total fees accruing to HSBC Specialist Fund Management Limited (the Investment Adviser) totalled £5.3m (2008: £5.1m) in the year, comprising the 1.1% pa management fee, the 1.0% fee on the acquisitions made, and the £0.1m advisory fee. Growth in the year relates to the 1.1% management fee on the increase in portfolio value partly off-set by a lower cost relating to the 1% fee on acquisitions. In addition, the Group contracted with other parts of the HSBC Group on an arms length basis for the provision of bank accounts, foreign exchange hedges, and insurance broking.

Balance Sheet

Summary balance sheet

	Year to 31 March 2009			Year to 31 March 2008
£m	Investment basis	Consolidated adjustments	IFRS basis	Investment basis	Consolidated adjustments	IFRS basis

Investments at Fair Value	445.7	(165.6)	280.1	417.4	(32.7)	384.7

Other non-current assets	-	850.8	850.8	-	206.4	206.4

Working Capital	(3.5)	(4.1)	(7.6)	(2.6)	(9.4)	(12.0)

Net cash/(borrowings)	(57.7)	(505.2)	(562.9)	(105.6)	(143.2)	(248.8)

Other non-current liabilities	(10.8)	(169.4)	(180.2)	(1.4)	(23.1)	(24.5)

Minority interests	-	(4.1)	(4.1)	-	(3.6)	(3.6)

Net Assets	373.7	2.4	376.1	307.8	(5.6)	302.2

NAV per share (before distribution)	110.5p		111.1p	123.1p		120.9p

On an Investment basis, Investments at Fair Value were £445.7m (2008: £417.4m) an increase of £28.3m or 7% in the year. Further detail on the movement in Investments at Fair Value is given in the Investment Adviser's Report under Valuation.

Net borrowings on an Investment basis were £57.7m (2008: £105.6m), comprising £9.1m of cash held by the Group, and £66.8 million of debt under the Group's facilities. The breakdown of the movements in net debt is shown in the cashflow analysis below.

Other financial liabilities of £10.8m (2008: £1.4m) are the mark to market valuation of the Group's interest rate swaps and a foreign currency hedging contract.

On an Investment basis, NAV per share was 110.5p before the 3.275p distribution (2008: 123.1p and 121.4p at 30 September 2008).

On a consolidated IFRS basis, net assets have increased to £376.1m (2008: £302.2m) reflecting the C share issue in May, reduced by the £14.1m loss in the year and £18.5m of dividend payments. NAV per share was 111.1p (2008: 120.9p).

The gross assets, liabilities and net debt on an IFRS basis have approximately doubled as a result of the incremental acquisitions in the year of equity in the Home Office, West Middlesex hospital, Central Middlesex hospital and Barnet hospital projects so that these investments are now recognised as subsidiaries and consolidated on a line-by-line basis.

Cashflow analysis

Summary cash flow

	Year to 31 March 2009		Year to 31 March 2008
£m	Investment basis		Investment basis

Net borrowings at start of year		(105.6)		(16.4)

Cash from investments	31.5		24.0

Operating costs outflow	(5.0)		(5.9)

Interest (paid) / received	(3.1)		(2.0)

Net cash inflow before acq/financing		23.4		16.1

Cost of new investments		(51.9)		(82.0)

Forex movement on borrowings/hedging		(11.6)		(7.6)

Share capital raised net of costs		106.2		-

Dividends paid		(18.2)		(15.7)

Net borrowings		(57.7)		(105.6)

On an Investment basis net debt at March was £57.7m (2008: £105.6m).

Cash from investments was £31.5m (2008: £24.0m). This has increased from the previous year reflecting contributions from acquisitions and the Colchester Garrison PFI project which commenced distributing in September 2008.

Cost of investments of £51.9m (2008: £82.0m) represents the final loan note subscription on Colchester Garrison of £20.5m, the cost of the Oxford John Radcliffe hospital of £18.0m, the 4 incremental acquisitions from Bouygues of £10.0m, incremental acquisition of Barnet from Siemens of £2.7m, and associated acquisition costs of £0.7m.

The £11.6m (2008: £7.6m) forex movement arises from the effect of the strengthening value of the Euro on both the revaluation of Euro borrowings and forward sales of Euros. The Euro borrowings and forward Euro sales are to hedge the Group's Euro exposure on the Dutch High Speed Rail Link asset.

Share capital raised net of costs was £106.2m. This represents the C share issue in May 2008 which raised £101.8m (net of expenses) and the issue of an additional 3.6 million shares through the block listings in September 2008 and February 2009.

Dividends paid were £18.2m (2008: £15.7m) in the year (being the payment of 3.2p per share in May 2008 and the payment of 3.125p per share in December 2008), which were cash covered by the net cash inflow before financing of £23.4m (2008: £16.1m).

The dividends declared for the year to 31 March 2009 represent a total of 6.4p per share (2008: 6.25p).

Gearing

The Group has a committed £200m five year revolving facility from Bank of Scotland plc ('BoS') expiring in December 2012, which has been used to fund acquisitions. The interest rate has been partially hedged for the duration of the facility. Foreign exchange risk from Euro income from the Dutch High Speed Rail Link has been managed in the period through financial derivatives and by drawing Euros under the debt facility.

As at 31 March 2009, the Group had drawn down £68.7m of this debt facility, and had net debt on an Investment basis of £57.7m (2008: £105.6m).

The BoS facilities are on a recourse basis to the Group and are 15.4% (excluding cash and cash equivalents) of the Directors' Valuation of £445.7m as at 31 March 2009.

There are no outstanding equity subscription obligations on any project and the Group no longer has any outstanding letters of credit, the investment subscription in Colchester Garrison PFI project having now been paid.

On a consolidated IFRS basis, the Group had net debt of £562.9m at 31 March 2009 (2008: £248.8m). This increase in net debt primarily results from the consolidation of £370.3m of net debt in relation to the recognition of four projects as subsidiaries rather than as investments following the acquisitions of incremental stakes in four projects in the year, which has been partially off-set by the decrease in recourse net debt analysed in the summary cashflow table above.

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

The Company's Articles of Association limit the Group's recourse debt to 50% of Adjusted Gross Asset Value of its investments and cash balances.

Investment Adviser's Report

Introduction

The Group's revenue performance in the year from the portfolio of 28 investments has been good. As advised in the January 2009 Interim Management Statement ('IMS'), adverse movements in the economic assumptions used to value the portfolio have caused a capital loss for the year.

The Group's portfolio of 28 infrastructure investments has performed in line with our forecast. All the PFI/PPP projects are now fully operational and delivering services under long-term availability-based concessions with public sector clients. None of the equity stakes in the portfolio are in 'demand based' infrastructure investments, where income can be affected by the level of usage (e.g. toll roads or airports). The Group is therefore not exposed to changes in consumer usage or spending.

There are no material service delivery matters to report on any of the projects. As previously reported, the Colchester Garrison PFI Project received the final land sale proceeds in December 2008. No further capital contributions from third parties are outstanding on any projects.

Despite the global economic downturn and the volatile financial markets, there remains strong investor interest for well-structured infrastructure investments. In the current environment we are beginning to see a number of suitable assets come to market as owners of these assets either seek to realise cash or to generate profit on disposal. We continue to believe there will be suitable new investment opportunities that meet the Investment Policy and can be acquired at prices which will be value accretive to the portfolio.

Strategy

The Group's strategy is as previously outlined: to focus on both maximising value from the existing portfolio and to secure new investments opportunities to enhance the portfolio.

For new investments, we continue currently to be selective concentrating on PFI/PPP concessions and assets with comparable risk and return profiles (see Chairman's statement for more detail).

The geographic focus for investment opportunities depends on the type of asset. For PFI/PPP projects, we are focused on those countries that have a developed PFI/PPP market with a pool of opportunities. This currently includes UK, Europe, Canada (where the programme is called P3) , and Australia. In the case of renewable energy projects, we are now seeing a number of operational projects in Europe.

Ensuring service delivery to the required standards on all projects is an important element of the Group's strategy. Our asset managers work with the project teams to maintain good client relations to enable early identification of potential issues and to assist in their resolution.

Market

Over the year new PFI/PPP projects have continued to close although at a slower rate as long-dated debt is scarcer than previously. In the secondary PFI/PPP market there has gradually been an increase in the flow of investment opportunities as vendors have redefined core assets and sought to make disposals to de-leverage. Assets which have been reviewed in detail have included PFI/PPP assets in construction and in operations, regulated utilities and renewable energy projects, in the UK, Europe and in Australia.

The majority of acquisition opportunities we expect to continue to be in the UK as sponsors continue to sell down their interests in projects and portfolios. In Europe, Canada and Australia, there is a growing pipeline of PFI/PPP projects and those with PFI/PPP characteristics such as wind farms and solar parks. In the same way as in the UK, the sponsors of these projects will want, in due course, to sell their investments.

In relation to demand based 'economic' infrastructure such as toll roads, ports and airport, reductions in traffic volumes and hence revenues have been observed, due to higher oil prices followed by the changing economic climate. This, combined with limited leverage acquisition finance, has been impacting valuations which are now lower than 2 years ago. In due course, when valuations stabilise and revenue forecasts for these asset types is more predictable, the Investment Adviser may consider seeking suitable, proven assets of this type to add to the portfolio.

Portfolio performance

All the projects are now fully operational, following the successful completion of Phase 2 of the Colchester Garrison PFI project in April 2008.

The asset managers in the Investment Adviser's team continue to take an active role managing the projects to ensure value is preserved and enhanced. They sit on each PFI/PPP project company's board and play an active role in the management of the project. Value enhancements are identified in performance plans for each project. These plans cover incremental revenue opportunities, cost savings, treasury management, and financial efficiencies. Efficiencies and savings will only be taken where they do not impact on either the services being provided or the quality of the service level delivery.

An example of an enhancement in the year was the replacement of the FM provider on the Bishop Auckland Hospital project, following a tendering process. This has both improved the forecast returns on the project as well as improving the project's risk profile. Where savings are delivered to a project company, these benefits are reflected in the Directors' valuation.

At our Clients' request we have undertaken and are working on a number of variations on our projects. These range from changes to the cleaning specifications on hospital projects, to reconfiguration of helicopter simulators, to increases in capacity on a police project. These demonstrate a successful partnership with our public sector clients. These and future variations provide opportunities to grow revenues and the returns from the portfolio.

In March 2008, a planned area of value enhancement was to optimise the debt repayments and reduce the overall cost of debt in these projects. As a result of the state of the debt markets these have been put on hold (and hence no longer feature in the Directors' valuation of the portfolio).

All the PFI/PPP projects have long term financing in place, with no refinancings required to meet their long-term business plans. The average concession length is 24.1 years remaining and the average debt term remaining is 22.3 years (both weighted by valuation) for the 27 PFI/PPP projects in the portfolio.

Counterparties

The Investment Adviser undertakes regular reviews of the portfolio's counter-party exposure. All the PFI clients are public sector bodies. The projects have a broad range of supply chain counterparties both operationally for facilities management services and financially for providers of bank deposit accounts and interest rate swaps.

The facilities management services are carried out by a range of experienced providers including Bouygues, Sodexo, Mitie and Interserve. There have been no service issues to date that might indicate financial difficulties for any of our service providers. The portfolio has a good spread of facility management suppliers providing services to our projects and there is no over-reliance on any one supplier.

The banks that provide bank accounts and swaps to the projects are predominately from a range of corporate banks. In aggregate across the PFI/PPP projects there was circa £250m on deposit as at March 2009. The potential risk in relation to the interest rate swaps is further mitigated by the fact that the majority of these are net liabilities for the projects concerned, and therefore less reliant on the counterparty.

Valuation

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

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

This is the same method used at the time of launch and each subsequent six month reporting period.

The Directors' valuation of the portfolio as at 31 March 2009 is £445.7m. This portfolio valuation compares to £437.9 million as at 31 March 2008 (up 1.8%) and £250.4 million at the time of launch (a reconciliation between the valuation at 31 March 2008 and that shown in the financial statements is given in Note 1 to the unaudited proforma financial statements, the principal difference relating to £20.5m of unfunded loan stock commitments that were invested in April 2008).

Fair value for each investment is derived from the present value of the investment's expected future cash flows, using reasonable assumptions and forecasts and an appropriate discount rate. The Investment Adviser exercises its judgment in assessing the expected future cash flows from each investment. Each Project Company produces detailed concession life financial models and the Investment Adviser will, inter alia, typically take the following into account in its review of such models and make amendments where appropriate:

due diligence findings where current (e.g. a recent acquisition)
outstanding subscription obligations or other cash flows which are contractually required or assumed in order to generate the returns
project performance against milestones
opportunities for financial restructuring
changes to the economic, legal, taxation or regulatory environment
claims or other disputes or contractual uncertainties
changes to revenue, cost and economic assumptions.

Discount rates used for valuing each investment are based on the appropriate risk free rate (derived from the relevant government bond or gilt) and a risk premium. The risk premium takes into account risks associated with the financing of a project such as project risks (e.g. liquidity, currency risks, market appetite) and any risks to project earnings (e.g. predictability and covenant of the concession income), all of which may be differentiated by project phase.

The Investment Adviser uses its judgement in arriving at the appropriate discount rate. This is based on its knowledge of the market, taking into account intelligence gained from its bidding activities, discussions with financial advisers in the appropriate market and publicly available information on relevant transactions.

The current economic climate is impacting the Group's valuation of the portfolio, and in particular, the rapid decline in the annual UK Retail Price Index ('RPI') from 5.0% in September 2008 to -0.4% in March 2009. Since PFI/PPP projects tend to have cash on deposit, the decline in UK bank base rates, from 5.0% in March 2008 to 0.5% currently, has also impacted the valuation.

The growth in the Directors' Valuation over the last 12 months is from £437.9m to £445.7m, the components of which are tabled below.

Valuation movement during the year to 31 March 2009 - £m
Valuation at 31 March 2008		437.9
Investments	30.7
Cash receipts	(31.5)
Change in DCF rate	(31.2)
Changes in economic forecasts	(19.8)
Forex movement on Dutch HSL	11.3
Return	48.3
Valuation at 31 March 2009		445.7

As advised in the January IMS, the valuation has been affected by adverse movements in economic assumptions - the valuation discount rate, short term inflation and deposit rate assumptions. These adverse movements have been significantly off-set by a strong project performance from improved operational and financial efficiencies evidenced by returns of £48.3m.

Discount rates

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

Period ending	Whole portfolio		excluding Kemble Water Junior Loan
Period ending	Range	Weighted average	Range	Weighted average
31 March 2009	7.8% to 22.4%	8.3%	7.8% to 8.6%	8.1%
30 September 2008	7.6% to 10.8%	7.9%	7.6% to 8.3%	7.9%
31 March 2008	7.0% to 12.0%	7.5%	7.0% to 7.8%	7.4%

The average discount rate used for the valuation of the PFI projects has increased to 8.1% at 31 March 2009 from 7.4% at 31 March 2008. This increase has arisen from an increase in the risk premium of 1.0% to 4.0% over the year, partly off-set by a decrease in the long-dated risk-free rate of 0.3% to 4.1% (derived from the average of the 20 and 30 year gilt rates).

The increase in the risk free rate is a judgment of the Investment Adviser based upon anecdotal evidence from secondary market bidding, feedback from financial advisers and pricing of new primary PFI projects.

Inflation indexation

The PFI projects in the portfolio have contractual income streams with public sector clients, which are rebased every year for inflation. UK projects tend to use either RPI (Retail Price Index) or RPIx (RPI excluding mortgage payments), and revenues are either partially or totally indexed (depending on the contract and the nature of the project's financing).

Facilities management sub-contracts have similar indexation arrangements. In the light of the significant decline in current inflation rates, the valuation has assumed a UK inflation rate of zero for the next 2 years, returning to 2.75% pa thereafter. In arriving at these rates, consideration has been given to current short term economic forecasts and the long term Bank of England targets for inflation. In relation to the valuation, this profile of inflation indexation is broadly equivalent to an average 2.5% pa inflation assumption for short and long term inflation. In the 31 March 2008 valuation, an inflation rate of 2.75% pa was assumed for the valuation.

Deposit rates

Each PFI project in the portfolio has cash held in bank deposits, and this is a function of their financing structure. In the first half of the year, short-term deposit rates of 5% pa were available and this was also the long-term assumption used to value the portfolio at 30 September 2008.

As at 31 March 2009 the UK base rate was 0.5% and cash deposits in the portfolio were earning interest at rates in the range of 0% - 2% per annum. Therefore, for the valuation, a deposit rate of 1.0% pa rates has been assumed for the next two years, followed by a rate of 4.5% pa thereafter. This compares to 5.0% pa deposit rate assumed in the 31 March 2008 valuation for both short and long term deposit rates.

Financing

The Company successfully raised £103.6m (before expenses) by way of a C Share issue in May 2008. The proceeds of the C Share issue were used to reduce the Group's debt. As at 31 March 2009, the Group had £131.3m of undrawn debt capacity available to fund further acquisitions in line with the Company's stated strategy.

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

Further capital raisings will be considered either when a sufficient number of new assets have been acquired or when a large/strategic acquisition is secured, to free up resources for further acquisitions.

Unaudited consolidated proforma income statements
for the year ended 31 March 2009


	Year ended 31 March 2009						Year ended 31 March 2008

	Investment basis				Consolidation	Consolidated	Investment basis			Consolidation	Consolidated
	Revenue		Capital	Total	adjustments	IFRS basis	Revenue	Capital	Total	adjustments	IFRS basis
	£million		£million	£million	£million	£million	£million	£million	£million	£million	£million

Services revenue	-		-	-	66.5	66.5	-	-	-	22.1	22.1
Gains on finance receivables	-		-	-	52.3	52.3	-	-	-	7.2	7.2
Gains/(loss) on investments	29.5		(27.2)	2.3	3.5	5.8	25.5	5.9	31.4	(7.7)	23.7
Total income/(loss)	29.5		(27.2)	2.3	122.3	124.6	25.5	5.9	31.4	21.6	53.0

Services costs	-		-	-	(55.4)	(55.4)	-	-	-	(15.9)	(15.9)
Administrative expenses	(6.8)		-	(6.8)	(1.7)	(8.5)	(6.4)	-	(6.4)	(0.6)	(7.0)
Profit/(loss) before net finance costs and tax	22.7		(27.2)	(4.5)	65.2	60.7	19.1	5.9	25.0	5.1	30.1

Finance costs	(2.7)		(16.1)	(18.8)	(56.7)	(75.5)	(5.0)	(1.4)	(6.4)	(16.0)	(22.4)
Finance income	0.4		0.9	1.3	1.1	2.4	1.0	-	1.0	0.5	1.5
Profit/(loss) before tax	20.4		(42.4)	(22.0)	9.6	(12.4)	15.1	4.5	19.6	(10.4)	9.2

Income tax credit/(expense)	-		-	-	1.6	1.6	-	-	-	(0.9)	(0.9)
Profit/(loss) for the year	20.4		(42.4)	(22.0)	11.2	(10.8)	15.1	4.5	19.6	(11.3)	8.3

Attributable to:
Equity holders of the parent	20.4		(42.4)	(22.0)	7.9	(14.1)	15.1	4.5	19.6	(12.8)	6.8
Minority interests	-		-	-	3.3	3.3	-	-	-	1.5	1.5
	20.4		(42.4)	(22.0)	11.2	(10.8)	15.1	4.5	19.6	(11.3)	8.3

Earnings/(loss) per share – basic and diluted (pence)		6.3	(13.1)	(6.8)	2.4	(4.3)	6.0	1.8	7.8	(5.1)	2.7

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

Unaudited consolidated proforma balance sheet
as at 31 March 2009


	31 March 2009			31 March 2008
	Investment basis	Consolidation adjustments	Consolidated IFRS basis	Investment basis	Consolidation adjustments	Consolidated IFRS basis
	£million	£million	£million	£million	£million	£million
Non-current assets
Investments at fair value through profit or loss (Note 1)	445.7	(165.6)	280.1	417.4	(32.7)	384.7
Finance receivables at fair value through profit or loss	-	646.6	646.6	-	170.4	170.4
Intangible assets	-	168.9	168.9	-	28.0	28.0
Deferred tax assets	-	35.3	35.3	-	8.0	8.0
Total non-current assets	445.7	685.2	1,130.9	417.4	173.7	591.1
Current assets
Trade and other receivables	0.1	7.5	7.6	2.9	6.2	9.1
Cash and cash equivalents	9.1	45.1	54.2	16.8	10.4	27.2
Total current assets	9.2	52.6	61.8	19.7	16.6	36.3
Total assets	454.9	737.8	1,192.7	437.1	190.3	627.4

Current liabilities
Trade and other payables	(3.6)	(11.4)	(15.0)	(5.5)	(15.6)	(20.6)
Current tax payable	-	(0.2)	(0.2)	-	-	(0.5)
Loans and borrowings	-	(23.4)	(23.4)	-	(8.6)	(8.6)
Total current liabilities	(3.6)	(35.0)	(38.6)	(5.5)	(24.2)	(29.7)
Non-current liabilities
Loans and borrowings	(66.8)	(526.9)	(593.7)	(122.4)	(145.0)	(267.4)
Other financial liabilities (fair value of derivatives)	(10.8)	(65.6)	(76.4)	(1.4)	(10.0)	(11.4)
Deferred tax liabilities	-	(103.8)	(103.8)	-	(13.1)	(13.1)
Total non-current liabilities	(77.6)	(696.3)	(773.9)	(123.8)	(168.1)	(291.9)
Total liabilities	(81.2)	(731.3)	(812.5)	(129.3)	(192.3)	(321.6)
Net assets	373.7	6.5	380.2	307.8	(2.0)	305.8

Equity
Shareholders' equity	373.7	2.4	376.1	307.8	(5.6)	302.2
Minority interest	-	4.1	4.1	-	3.6	3.6
Total equity	373.7	6.5	380.2	307.8	(2.0)	305.8
Net assets per share (pence)	110.5	0.7	111.1	123.1	(2.2)	120.9

Unaudited consolidated proforma cash flow
for the year ended 31 March 2009


	Year ended 31 March 2009			Year ended 31 March 2008
	Investment basis	Consolidation adjustments	Consolidated IFRS basis	Investment basis	Consolidation adjustments	Consolidated IFRS basis
	£million	£million	£million	£million	£million	£million

Cash flows from operating activities
(Loss)/profit before tax	(22.0)	9.6	(12.4)	19.6	(10.4)	9.2
Adjustments for:
(Gains)/loss on investments	(0.5)	(5.3)	(5.8)	(31.4)	7.7	(23.7)
Gains on finance receivables	-	(52.3)	(52.3)	-	(7.2)	(7.2)
Interest payable and similar charges	2.7	35.0	37.7	5.0	11.3	16.3
Changes in fair value of derivatives	14.3	23.5	37.8	1.4	4.7	6.1
Interest income	(1.3)	(1.1)	(2.4)	(1.0)	(0.5)	(1.5)
Amortisation of intangible assets	-	6.4	6.4	-	2.1	2.1
Operating cash flow before changes in working capital	(6.8)	15.8	9.0	(6.4)	7.7	1.3

Changes in working capital:
Decrease/(increase) in receivables	2.9	(0.3)	2.6	-	(0.6)	(0.6)
(Decrease)/increase in payables	(1.1)	(5.4)	(6.5)	0.5	1.2	1.7
Cash flow (used in)/from operations	(5.0)	10.1	5.1	(5.9)	8.3	2.4

Interest received on bank deposits and finance receivables	1.2	1.2	2.4	1.1	0.5	1.6
Cash received from finance receivables	-	46.6	46.6	-	13.2	13.2
Interest paid	(10.8)	(33.3)	(44.1)	(3.1)	(10.4)	(13.5)
Corporation tax paid	-	(3.0)	(3.0)	-	(0.1)	(0.1)
Net cash (used in)/from operating activities	(14.6)	21.6	7.0	(7.9)	11.5	3.6

Cash flows from investing activities
Purchases of investments	(51.9)	12.7	(39.2)	(82.0)	-	(82.0)
Interest received on investments	21.3	(4.8)	16.5	15.2	(0.8)	14.4
Dividends received	3.8	(0.9)	2.9	5.3	(0.7)	4.6
Fees and other operating income	4.1	(1.4)	2.7	0.6	-	0.6
Acquisition of subsidiaries net of cash acquired	-	24.0	24.0	-	-	-
Loanstock and equity repayments received	2.3	-	2.3	2.9	-	2.9
Net cash (used in)/from investing activities	(20.4)	29.6	9.2	(58.0)	(1.5)	(59.5)

Cash flows from financing activities
Proceeds from issue of share capital	106.2	-	106.2	-	-	-
Proceeds from issue of loans and borrowings	85.2	-	85.2	182.8	-	182.8
Repayment of loans and borrowings	(145.9)	(14.7)	(160.6)	(98.2)	(8.5)	(106.7)
Distributions paid to Company shareholders	(18.2)	-	(18.2)	(15.7)	-	(15.7)
Distributions paid to minorities	-	(1.8)	(1.8)	-	(1.4)	(1.4)
Net cash from/(used in) financing activities	27.3	(16.5)	10.8	68.9	(9.9)	59.0
Net (decrease)/increase in cash and cash equivalents	(7.7)	34.7	27.0	3.0	0.1	3.1
Cash and cash equivalents at beginning of year	16.8	10.4	27.2	13.8	10.3	24.1
Cash and cash equivalents at end of year	9.1	45.1	54.2	16.8	10.4	27.2

Notes to the unaudited consolidated proforma financial statements

for the year ended 31 March 2009

1. Investments

The valuation of the Group's portfolio at 31 March 2009 reconciles to the consolidated balance sheet as follows:

	31 March 2009	31 March 2008
	£million	£million

Portfolio valuation	445.7	437.9
Less : undrawn loanstock commitments	-	(20.5)
Portfolio valuation on an investment basis	445.7	417.4
Less : equity and loanstock investments in operating subsidiaries eliminated on consolidation	(165.6)	(32.7)
Investments per audited consolidated balance sheet on an IFRS basis	280.1	384.7

Statement of Directors' responsibilities

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

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

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

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

Select suitable accounting polices and apply them consistently
Make judgments and estimates that are reasonable and prudent
State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors confirm that they have complied with the above requirements in preparing the financial statements and that to the best of our knowledge and belief:

a) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets liabilities, financial position and losses of the Company; and

b) This annual report provides a fair review of the information required by:

DTR 4.1.8 of the Disclosure and Transparency Rules, being a fair review of the Company business and a description of the principal risks and uncertainties facing the Company; and
DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of important events that have occurred since the end of the financial year and the likely future development of the Company.

Each of the Directors who held office at the date of approval of this directors' report, further confirms that, to the best of his knowledge the financial statements in this annual report have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit of the company and the group taken as whole; and this report, includes a fair review of the development and performance of the business and the position of the company and the group taken as a whole, together with a description of the principal risks and uncertainties that they face.

Disclosure of Information to the Auditors

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

Auditors

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

Approved by the Board on 27 May 2009.

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

We have audited the group and Company financial statements (the 'financial statements') of HSBC Infrastructure Company Limited for the year ended 31 March 2009 which comprise the Consolidated and Company Income Statements, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statement of Changes in Shareholders' Equity and the related notes. These financial statements have been prepared under the accounting policies set out therein.

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

Respective responsibilities of directors and auditors

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

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

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

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

Basis of audit opinion

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

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

Opinion

In our opinion the financial statements:

give a true and fair view, in accordance with International Financial Reporting Standards, as endorsed by the EU, of the state of the group's and Company's affairs as at 31 March 2009 and of the group's and Company's loss for the year then ended; and

have been properly prepared in accordance with The Companies (Guernsey) Law, 2008.

KPMG Channel Islands Limited

Chartered Accountants

20 New Street, St Peter Port

Guernsey GY1 4AN

27 May 2009

Consolidated income statement
for the year ended 31 March 2009


			Year ended 31 March 2009			Year ended 31 March 2008
	Note		Revenue	Capital	Total	Revenue	Capital	Total
			£million	£million	£million	£million	£million	£million

Services revenue			66.5	-	66.5	22.1	-	22.1
Gains on finance receivables	16		29.7	22.6	52.3	8.0	(0.8)	7.2
Gains/(loss) on investments	5		21.9	(16.1)	5.8	23.5	0.2	23.7
Total income/(loss)			118.1	6.5	124.6	53.6	(0.6)	53.0

Services costs	6		(55.4)	-	(55.4)	(15.9)	-	(15.9)
Administrative expenses	7		(8.5)	-	(8.5)	(7.0)	-	(7.0)
Profit/(loss) before net finance costs and tax			54.2	6.5	60.7	30.7	(0.6)	30.1

Finance costs	8		(37.7)	(37.8)	(75.5)	(16.3)	(6.1)	(22.4)
Finance income	8		1.5	0.9	2.4	1.5	-	1.5
Profit/(loss) before tax			18.0	(30.4)	(12.4)	15.9	(6.7)	9.2

Income tax (expense)/credit	9a		(2.1)	3.7	1.6	(6.6)	5.7	(0.9)
Profit/(loss) for the year			15.9	(26.7)	(10.8)	9.3	(1.0)	8.3

Attributable to:

Equity holders of the parent			11.9	(26.0)	(14.1)	7.4	(0.6)	6.8
Minority interests			4.0	(0.7)	3.3	1.9	(0.4)	1.5
			15.9	(26.7)	(10.8)	9.3	(1.0)	8.3

(Loss)/earnings per share - basic and diluted (pence)		10			(4.3)			2.7

All results are derived from continuing operations.

Consolidated balance sheet
as at 31 March 2009


		31 March 2009	31 March 2008
	Note	£million	£million
Non-current assets
Investments at fair value through profit or loss	14	280.1	384.7
Finance receivables at fair value through profit or loss	16	646.6	170.4
Intangible assets	13	168.9	28.0
Deferred tax assets	9c	35.3	8.0
Total non-current assets		1,130.9	591.1

Current assets
Trade and other receivables	17	7.6	9.1
Cash and cash equivalents	18	54.2	27.2
Total current assets		61.8	36.3

Total assets		1,192.7	627.4

Current liabilities
Trade and other payables	19	(15.0)	(20.6)
Current tax payable		(0.2)	(0.5)
Loans and borrowings	20	(23.4)	(8.6)
Total current liabilities		(38.6)	(29.7)

Non-current liabilities
Loans and borrowings	20	(593.7)	(267.4)
Other financial liabilities (fair value of derivatives)	21	(76.4)	(11.4)
Deferred tax liabilities	9c	(103.8)	(13.1)
Total non-current liabilities		(773.9)	(291.9)
Total liabilities		(812.5)	(321.6)
Net assets		380.2	305.8

Equity
Ordinary share capital	22	-	-
Share premium		106.5	-
Retained reserves		269.6	302.2
Total equity attributable to equity holders of the parent		376.1	302.2
Minority interests		4.1	3.6
Total equity		380.2	305.8
Net assets per share (pence)	12	111.1	120.9

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 27 May 2009, and signed on its behalf by:

J Hallam G Picken

Director Director

Consolidated statement of changes in shareholders' equity
for the year ended 31 March 2009


Year ended 31 March 2009
	Attributable to equity holders of the parent				Minority interests	Total equity
	Share capital	Share Premium	Retained reserves	Total shareholders' equity
	£million	£million	£million	£million	£million	£million

Shareholders' equity at beginning of year	-	-	302.2	302.2	3.6	305.8

(Loss)/profit for the year	-	-	(14.1)	(14.1)	3.3	(10.8)

Distributions paid to Company shareholders	-	-	(18.5)	(18.5)	-	(18.5)
Distributions paid to minorities	-	-	-	-	(2.8)	(2.8)
Ordinary shares issued	-	108.3	-	108.3	-	108.3
Costs of share issue	-	(1.8)	-	(1.8)	-	(1.8)

Shareholders' equity at end of year	-	106.5	269.6	376.1	4.1	380.2

Year ended 31 March 2008
	Attributable to equity holders of the parent				Minority interests	Total equity
	Share capital	Share Premium	Retained reserves	Total shareholders' equity
	£million	£million	£million	£million	£million	£million

Shareholders' equity at beginning of year	-	-	311.1	311.1	3.5	314.6

Profit for the year	-	-	6.8	6.8	1.5	8.3

Distributions paid to Company shareholders	-	-	(15.7)	(15.7)	-	(15.7)
Distributions paid to minorities	-	-	-	-	(1.4)	(1.4)
Ordinary shares issued	-	-	-	-	-	-
Costs of share issue	-	-	-	-	-	-

Shareholders' equity at end of year	-	-	302.2	302.2	3.6	305.8

Consolidated cash flow statement
for the year ended 31 March 2009


	Year ended 31 March 2009	Year ended 31 March 2008
	£million	£million

Cash flows from operating activities
(Loss)/profit before tax	(12.4)	9.2
Adjustments for:
Gains on investments	(5.8)	(23.7)
Gains on finance receivables	(52.3)	(7.2)
Interest payable and similar charges	37.7	16.3
Changes in fair value of derivatives	37.8	6.1
Interest income	(2.4)	(1.5)
Amortisation of intangible assets	6.4	2.1
Operating cash flow before changes in working capital	9.0	1.3

Changes in working capital:
Decrease/(increase) in receivables	2.6	(0.6)
(Decrease)/increase in payables	(6.5)	1.7
Cash flow from operations	5.1	2.4

Interest received on bank deposits and finance receivables	2.4	1.6
Cash received from finance receivables	46.6	13.2
Interest paid	(44.1)	(13.5)
Corporation tax paid	(3.0)	(0.1)
Net cash from operating activities	7.0	3.6

Cash flows from investing activities
Purchases of investments	(39.2)	(82.0)
Interest received on investments	16.5	14.4
Dividends received	2.9	4.6
Fees and other operating income	2.7	0.6
Acquisition of subsidiaries net of cash acquired (Note 15)	24.0	-
Loanstock and equity repayments received	2.3	2.9
Net cash from/(used in) investing activities	9.2	(59.5)

Cash flows from financing activities
Proceeds from issue of share capital	106.2	-
Proceeds from issue of loans and borrowings	85.2	182.8
Repayment of loans and borrowings	(160.6)	(106.7)
Distributions paid to Company shareholders	(18.2)	(15.7)
Distributions paid to minorities	(1.8)	(1.4)
Net cash from financing activities	10.8	59.0
Net increase in cash and cash equivalents	27.0	3.1
Cash and cash equivalents at beginning of year	27.2	24.1
Cash and cash equivalents at end of year	54.2	27.2

Notes to the consolidated financial statements

for the year ended 31 March 2009

1. Reporting entity

HSBC Infrastructure Company Limited (the 'Company') is a company domiciled in Guernsey, Channel Islands, whose shares are publicly traded on the London Stock Exchange. The consolidated financial statements of the Company as at and for the year ended 31 March 2009 comprise the Company and its subsidiaries (together referred to as the 'Consolidated Group'). The Consolidated Group invests in infrastructure projects in the UK and Europe. The parent company financial statements present information about the Company as a separate entity and not about its Consolidated Group.

Of the Consolidated Group's portfolio of 28 investments, 20 have been accounted for as purchases of investments (the 'Entity Investments') in accordance with the accounting policies set out in parts (b) and (d) of note 2. The eight remaining investments are deemed to be subsidiaries of the Company (the 'Operating Subsidiaries'), and are therefore treated as business combinations as described in parts (b) and (c) of note 2. Certain items of the accounting policies apply only to the Operating Subsidiaries. Where applicable, this is noted in the relevant accounting policy note.

2. Key accounting policies

(a) Basis of preparation

The consolidated financial statements and the company financial statements were approved and authorised for issue by the Board of Directors on 27 May 2009.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ('EU') using the historical cost basis, except that the following assets and liabilities are stated at their fair values: derivative financial instruments and financial instruments classified at fair value through profit or loss. The accounting policies have been applied consistently. The consolidated financial statements are presented in sterling, which is the Consolidated Group's functional currency.

The preparation of financial statements in conformity with IFRS as adopted by the EU, requires the Directors and advisers to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The Directors have assessed the ability of the group to continue as a going concern with regard to the risks of the business, in particular those listed in Note 4, and are of the view that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that year or in the period of the revision and future periods if the revision affects both current and future periods. Note 3 shows critical accounting judgements, estimates and assumptions.

Supplementary information has been provided analysing the income statement between those items of a revenue nature and those of a capital nature, in order to better reflect the Consolidated Group's activities as an investment company. Those items of income and expenditure which relate to the interest and dividend yield of investments and annual operating and interest expenditure are shown as 'revenue'. Those items of income and expenditure which arise from changes in the fair value of investments, foreign exchange movements, finance receivables and derivative financial instruments are recognised as capital.

Standards adopted early by the Consolidated Group

In previous years the followings standards were adopted early by the Consolidated Group:

Amendment to IAS 1 Presentation of Financial Statements - Capital Disclosures (adopted 2007)

IFRS 7 Financial Instruments: Disclosures (adopted 2007)

IFRIC 12 Service Concession Arrangements (adopted 2007)*

* In the years ending 31 March 2007 and 31 March 2008 IFRIC 12 had not been endorsed by the EU. Therefore the Directors agreed to adopt the principles of IFRIC 12. There would have been no difference in the numbers reported if IFRIC 12 had been fully adopted by HICL in the previous years' financial statements. During the year IFRIC 12 was endorsed by the EU and the standard has been fully adopted by the Consolidated Group.

During the year no new standards have been adopted early by the Consolidated Group.

New standards effective for the current year

The following standards which have been applied in this year's financial statements are:

IFRIC 10 'Interim Financial Reporting and Impairment' - provides guidance on the recognition of impairment losses with respect to IAS 34 Interim Financial Reporting, IAS 36 Impairment of Assets and IAS 39 Financial Instruments: Recognition and Measurement.

IFRIC 11 / IFRS 2 'Group and Treasury Share Transactions' - the definition of vesting conditions in IFRS 2 has been amended to clarify that vesting conditions are limited to service conditions and performance conditions. Conditions other than service or performance conditions are considered non-vesting conditions. Under the amendment, non-vesting conditions are taken into account in measuring the grant date fair value of the share-based payment and there is no true-up of equity-settled arrangements for differences between expected and actual outcomes.

IFRIC 14 / IAS 19 'The limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction' - IFRIC 14 clarifies the requirements of IAS 19 paragraph 58, which limits the measurement of a defined benefit asset to the 'present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan' plus unrecognised net actuarial losses and past service cost; this is known as the 'asset ceiling'. The IFRIC addresses when refunds or reductions in future contributions should be regarded as available; how a minimum funding requirement might affect the availability of reductions in future contributions; and when a minimum funding requirement might give rise to an additional liability.

The adoption of these standards has not led to any changes in the Consolidated Group's accounting policies.

Standards not yet applied

As at 31 March 2009 the following standards applicable to the Consolidated Group, which have not been applied in this financial information, were in issue and endorsed by the EU but not yet effective:

IFRS 1 (amended)/IAS 27 (amended) 'Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate' - the amendments to IFRS 1 and IAS 27 address issues that have arisen in practice related to the accounting for investments in subsidiaries, jointly controlled entities and associates in separate financial statements at cost in accordance with paragraph 38(a) of IAS 27.

IFRS 8 'Operating Segments' - this standard replaces IAS 14 and requires segment disclosure based on the components of an entity that management monitors in making operating decisions, rather than disclosure of business and geographical segments. Even where an entity has only one reportable segment, which will be unusual, IFRS 8 will now require disclosure of information about the entity's products and services, its geographical areas, including sales by country and major customers.

IAS 1 (revised 2007) 'Presentation of Financial Statements' - these amendments to IAS 1, constitute Phase A of the IASB's project on performance reporting. Where previously companies were required to present only one of either a SORIE or a SOCIE, the amendments require companies to present both a SOCIE and either a statement of comprehensive income or an income statement accompanied by a statement of other comprehensive income as financial statements formerly referred to as 'primary statements'.

IAS 23 (revised 2007) 'Borrowing Costs' - the amendments remove the option of expensing borrowing costs relating to qualifying assets. Although the amendments are intended to clarify definitions of qualifying assets and eligible borrowing costs (especially in the case of land under development) the amendments are not intended to change the definitions fundamentally. If adoption of the revised Standard constitutes a change in accounting policy for an entity, then the entity should apply the revised Standard to borrowing costs relating to qualifying assets for which the commencement date for capitalisation of borrowing costs is on or after the effective date.

IAS 32 (amended)/IAS 1 (amended) 'Puttable Financial Instruments and Obligations Arising on Liquidation - the amendments provide exemptions from the requirement to classify as a liability financial instruments under which an entity has an unavoidable obligation to deliver cash. The exemptions apply to two categories only of instruments issued by an entity. They are:

a puttable financial instrument; or
an instrument, or components of instruments, that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation. This scope exemption relating to the classification of instruments is applicable only when accounting for the instruments under IAS 1, IAS 32, IAS 39 and IFRS 7. Consequently the scope exemption should not be applied when accounting for instruments under other IFRS's, e.g., under IFRS 2 Share Based Payments.

Improvements to IFRSs (May 2008) - the Improvements to IFRSs 2008, which are endorsed for use in the EU, is the result of the IASB's first annual improvements project (AIP). The Improvements to IFRSs 2008 contains 35 amendments and is divided into two parts:

Part I includes 24 amendments that result in accounting changes for presentation, recognition or measurement purposes (Part I amendments). The effective dates and transitional requirements are set out on a standard by standard basis.
Part II includes 11 terminology or editorial amendments that the IASB expects to have either no or only minimal effects on accounting (Part II amendments). The amendments in Part II shall be applied for annual periods beginning on or after 1 January 2009. Earlier application is permitted.

The Directors anticipate that the adoption of the above standards in future years will not have a material impact on the financial statements of the Consolidated Group.

(b) Basis of consolidation

The consolidated financial statements of the Consolidated Group include the financial statements of the Company and its subsidiaries up to 31 March 2009. Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities as defined in IAS 27 'Consolidated and Separate Financial Statements'. The financial statements of subsidiaries are included in the consolidated financial statements on a line by line basis from the date that control commences until the date control ceases. Six of the eight subsidiaries have a different statutory financial reporting date to the Company, being 31 December. Their results for the year to 31 March are included by reference to management accounts.

Associates are those entities over which the Company has significant influence as defined in IAS 28 'Investments in Associates'. By virtue of the Company's status as an investment fund and the exemption provided by IAS 28.1, investments in such entities are designated upon initial recognition to be accounted for at fair value through profit or loss.

Joint ventures are those entities over which the Company has joint control as defined by IAS 31 'Interests in Joint Ventures'. By virtue of the Company's status as an investment fund and the exemption provided by IAS 31.1, investments in such entities are designated upon initial recognition to be accounted for at fair value through profit or loss.

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

All business combinations are accounted for using the purchase method. Goodwill represents the difference between the cost of acquisition over the Consolidated Group's share of the fair value of assets acquired and liabilities and contingent liabilities assumed (including intangible assets) of a subsidiary at the date of acquisition. Identifiable intangibles are those which can be measured reliably, sold separately or which arise from legal rights regardless of whether those rights are separable.

Costs comprise the fair values of assets given and liabilities assumed, plus any direct costs of acquisition.

(d) Financial instruments

Financial assets and liabilities are recognised on the Consolidated Group's balance sheet when the group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IAS 39 'Financial instruments: Recognition and measurement'

(i) Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, finance receivables, trade and other receivables, cash and cash equivalents, loans and borrowings and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value including directly attributable transaction costs, except for financial instruments measured at fair value through profit or loss. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.

Investments in equity and debt securities

Entity Investments (investments in the equity and loanstock of entities engaged in infrastructure activities which are not classified as subsidiaries of the Consolidated Group) are designated at fair value through profit or loss since the Consolidated Group manages these investments and makes purchase and sale decisions based on their fair value.

The initial difference between the transaction price and the fair value, derived from using the discounted cash flows methodology at the date of acquisition, is recognised only when observable market data indicates there is a change in a factor that market participants would consider in setting the price of that investment. After initial recognition, investments at fair value through profit or loss are measured at fair value with changes recognised in the income statement.

Finance receivables

Finance receivables are recognised initially at fair value. Subsequent to initial recognition, finance receivables are measured at fair value using the discounted cash flows methodology, with changes recognised in the income statement as gains/(loss) on finance receivables as a capital item.

Loans and borrowings

Borrowings are recognised initially at fair value of the consideration received, less transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses.

(ii) Derivative financial instruments

The Operating Subsidiaries hold derivative financial instruments to mitigate their interest rate risk and inflation rate risk exposures. All derivatives are recognised initially at fair value with attributable transaction costs recognised in the income statement as incurred. Thereafter, derivatives are measured at fair value with changes recognised in the income statement as part of finance costs. Fair value is based on price quotations from financial institutions active in the relevant market. The Consolidated Group has not used hedge accounting.

(iii) Fair values

The fair values are determined using the income approach which discounts the expected cash flows attributable to each asset at an appropriate rate to arrive at fair values. In determining the appropriate discount rate, regard is had to risk free rates, the specific risks of each investment and the evidence of recent transactions.

(iv) Effective interest

The effective interest rate is that rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the relevant asset's carrying amount.

(e) Intangible assets

Intangible assets are recognised as part of a business combination if they are reliably measurable and separable from the acquired entity or give rise to other contractual/legal rights. Only one category of intangible asset has been recognised as part of a business combination to date, being the fair value of service concessions in Operating Subsidiaries as at the date of acquisition. Fair values were determined using the income approach which discounts the expected cash flows attributable to the services portion of the service concessions acquired at an appropriate rate to arrive at fair values. In determining the appropriate discount rate, regard is had to risk free rates and the specific risks of each project. These assets are being amortised over the life of the concessions concerned on a straight-line basis.

The accounting policies for intangible assets arising under IFRIC 12 are disclosed in part (k) of this note.

(f) Impairment

(i) Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost the reversal is recognised in the income statement.

(ii) Non-financial assets

The carrying amounts of the Consolidated Group's non-financial assets are reviewed at each reporting date to determine whether there is any evidence of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount.

The recoverable amount of an asset is the greater of its net selling price and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount after the reversal does not exceed the amount that would, have been determined, net of applicable depreciation, if no impairment loss had been recognised.

(g) Share capital and share premium

Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or associated with the establishment of the Company that would otherwise have been avoided are written-off against the balance of the share premium account.

(h) Cash and cash equivalents

Cash and cash equivalents comprises cash balances, deposits held at call with banks and other short-term, highly liquid investments with original maturities of three months or less. Bank overdrafts that are repayable on demand are included as a component of cash and cash equivalents for the purpose of the cash flow statement.

(i) Minority interests

The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the carrying value of the minority interest are allocated against the interest of the parent, except to the extent that the minority has both a binding obligation and the ability to make an additional investment to cover the losses.

(j) Revenue

(i)Services revenue

Services revenue (in accordance with IFRIC 12), which relates solely to the Operating Subsidiaries, is comprised of the following components:

revenues from the provision of facilities management services to Private Finance Initiative ('PFI') projects calculated as the fair value of services provided (see note k(i));
non-core facility recharges being recovered for ad hoc services delivered by the PFI projects at the request of the client;
availability fees and usage fees on PFI projects where the principal asset is accounted for as an intangible asset (see note k(ii)); and
third party revenues on PFI projects.

(ii) Gains on finance receivables

Gains on finance receivables relate solely to the Operating Subsidiaries.

Revenue

Gains on finance receivables included in the 'revenue' category includes interest, dividends and other operating income relating to finance receivables designated at fair value through profit or loss.

Interest income arising on finance receivables at fair value through profit or loss is recognised in the income statement as it accrues, using the effective interest rate of the instrument concerned as calculated at the acquisition or origination date.

Dividends are recognised when the Consolidated Group's rights to receive payment have been established. That part of the dividend which has already been recognised in the fair value of finance receivable is deducted from the carrying amount of the relevant finance receivable.

Fees and other operating income are recognised when the Consolidated Group's rights to receive payment have been established.

Capital

Gains on finance receivables included in the capital category arise from the movement in the fair value of the finance receivables excluding the movements shown as revenue above.

(iii) Gains on investments

Gains on investments relates solely to the Entity Investments.

Revenue

Gains on investments included in the 'revenue' category includes interest, dividends and other operating income relating to the Entity Investments.

Interest income arising on Entity Investments is recognised in the income statement as it accrues, using the effective interest rate of the instrument concerned as calculated at the acquisition or origination date.

Dividends are recognised when the Consolidated Group's rights to receive payment have been established. That part of the dividend which has already been recognised in the fair value of investments is deducted from the carrying amount of the relevant investment.

Fees and other operating income are recognised when the Consolidated Group's rights to receive payment have been established.

Capital

Gains on investments included in the capital category arise from the movement in the fair value of the Entity Investments excluding the movements shown as revenue above.

(k) Service concessions

In accordance with IFRIC 12 and the various provisions of IFRS, the Consolidated Group has determined the appropriate treatment of the principal assets of, and income streams from, PFI and similar contracts within the Operating Subsidiaries. Results of all service concessions which fall within the scope of IFRIC 12 conform to the following policies depending on the rights to consideration under the service concessions:

(i) Service concessions treated as financial assets

Service concessions are determined to give rise to finance receivables where the Consolidated Group, as operator, has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor.

Revenue is recognised by allocating a proportion of total cash receivable to construction income and service income. The consideration received will be allocated by reference to the relative fair value of the services delivered, when the amounts are separately identifiable.

During the construction phase, revenue is recognised at cost, plus attributable profit to the extent that this is reasonably certain, in accordance with IAS 11. Costs for this purpose include valuation of all work done by subcontractors whether certified or not, and all overheads other than those relating to the general administration of the relevant companies.

During the operational stage, cash received in respect of the service concessions is allocated to service revenue (see part j(i) of this note) based on its fair value, with the remainder being allocated between capital repayment and interest income using the effective interest method (see part j(ii) of this note).

The finance receivables are designated as at fair value through profit or loss in accordance with part (d) of this note. The fair values of the finance receivables are determined in a similar manner to that described in part (d)(i), with changes recognised in the income statement.

(ii) Service concessions treated as intangible assets

Service concessions are determined to give rise to intangible assets to the extent the Consolidated Group, as operator, has a contractual right to charge users of the public services. The intangible asset represents the construction cost of assets which give rise to the contractual right to charge. The intangible asset is amortised to estimated residual value over the remaining life of the service concession and tested each year for impairment.

Revenue arising in respect of these service concessions is recognised when the services are delivered.

(l) Borrowing costs

Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed.

(m) Income tax

Under the current system of taxation in Guernsey, the Company itself is exempt from paying taxes on income, profits or capital gains. Dividend and interest income received by the Consolidated Group may be subject to withholding tax imposed in the country of origin of such income, but all such tax is currently recoverable.

Income tax on the profit for the year of the Operating Subsidiaries comprises current and deferred tax. Current tax is the tax payable on the taxable income for the year. Deferred tax is provided in full using the balance sheet liability method on temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for differences arising on:

the initial recognition of goodwill;
the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and
investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(n) Foreign exchange gains and losses

Transactions entered into by group entities in a currency other than their functional currency are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement as capital amounts.

(o) Segmental reporting

The Directors are of the opinion that the Consolidated Group is engaged in a single segment of business, being investment in Private Finance Initiative companies and predominantly in one geographical area, the United Kingdom.

(p) Expenses

All expenses are accounted for on an accruals basis. The Consolidated Group's investment management and administration fees, finance costs (including interest on long-term borrowings) and all other expenses are charged through the consolidated income statement.

(q) Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends, this is when declared by the directors. In the case of final dividends, this is when approved by the shareholders at the AGM.

(r) Provisions

Provisions are recognised when the Consolidated Group has a present obligation as a result of a past event, and it is probable that the Consolidated Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(s) Statement of compliance

Pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 the Company is an Authorised Closed-Ended Investment Scheme. As an authorised scheme, the Company is subject to certain ongoing obligations to the Guernsey Financial Services Commission.

3. Critical accounting judgements, estimates and assumptions

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions in certain circumstances that affect reported amounts. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

(i) Investments at fair value through profit or loss

The Consolidated Group has a greater than 50% shareholding in certain entities (see Note 14), where in the opinion of the Directors it is unable to govern the financial and operating policies of the entities by virtue of agreements with the other shareholder(s). These entities are consequently not treated as subsidiaries, and instead they are accounted for as financial assets at fair value through profit or loss, as set out in Note 2(b).

By virtue of the Company's status as an investment fund and the exemption provided by IAS 28.1 and IAS 31.1, investments in associates and joint ventures are designated upon initial recognition to be accounted for at fair value through profit or loss.

Fair values for those investments for which a market quote is not available are determined using the income approach which discounts the expected cash flows at the appropriate rate. In determining the discount rate, regard is had to risk free rates, specific risks and the evidence of recent transactions. The Directors have satisfied themselves that the PFI/PPP investments share the same investment characteristics and as such constitute a single asset class for IFRS 7 disclosure purposes.

The carrying amount of the PFI/PPP investments would be an estimated £7.0 million higher or £6.7 million lower (2008: £11.6 million higher or £11.1 million lower) if the discount rate used in the discounted cash flow analysis were to differ by 25 basis points from that used in the fair value calculation. The weighted average discount rate for the portfolio as at 31 March 2009 was 8.1% (2008: 7.5%).

(ii) Finance receivables at fair value through profit or loss

Fair values are determined using the income approach which discounts the expected cash flows at the appropriate rate. In determining the discount rate, regard is had to risk free rates, specific risks and the evidence of recent transactions.

The carrying amount of finance receivables would be an estimated £15.9 million higher or £15.3 million lower (2008: £3.1 million higher or £3.0 million lower) if the discount rate used in the discounted cash flow analysis were to differ by 25 basis points from that used in the fair value calculation. The discount rates at 31 March 2009 were between 5.0% and 6.4% (2008: between 5.5% and 6.8%).

(iii) Adoption of IFRIC 12

IFRIC 12 has been applied in this year's financial statements. Previously the Directors decided to adopt early the principles of IFRIC 12. The full adoption of IFRIC 12 has not changed the financial statements. As part of this process, the service concessions of each subsidiary were assessed to determine whether they fell within the scope of IFRIC 12. Service concessions fall within the scope where the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and the price; and the grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the infrastructure at the end of the service agreement. Following this review it was determined that all eight subsidiaries controlled at the year end, fall within this scope. Service concessions are determined to be finance receivables where the operator has a contractual right to receive cash or another financial asset from or at the direction of the grantor. Alternatively, service concessions are determined to be intangible assets to the extent the operator has a contractual right to charge users of the public services.

4. Financial instruments

Financial risk management

Financial risk is managed by the group on an investment basis, so for the purposes of this note, the group comprises the Company, its two wholly-owned Luxembourg subsidiaries (HICL Infrastructure 1 SARL and HICL Infrastructure 2 SARL) and the English Limited Partnership (Infrastructure Investments Limited Partnership ('IILP')), and is referred to as the 'Investment Group'. The objective of the Investment Group's financial risk management is to manage and control the risk exposures of its investment portfolio. The Board of Directors has overall responsibility for overseeing the management of financial risks, however the review and management of financial risks are delegated to the Investment Adviser and the Operator of the group which has documented procedures designed to identify, monitor and manage the financial risks to which the Investment Group is exposed. This note presents information about the group's exposure to financial risks, its objectives, policies and processes for managing risk and the group's management of its financial resources. The Investment Group owns a portfolio of investments predominantly in the subordinated loanstock and ordinary equity of project finance companies. These companies are structured at the outset to minimise financial risks where possible, and the Investment Adviser and Operator primarily focus their risk management on the direct financial risks of acquiring and holding the portfolio, but continue to monitor the indirect financial risks of the underlying projects through representation, where appropriate, on the Boards of the project companies and the receipt of regular financial and operational performance reports.

Interest rate risk

The Investment Group invests in subordinated loanstock of project companies, usually with fixed interest rate coupons. Where floating rate debt is owned the primary risk is that the Consolidate Group's cash flows will be subject to variation depending upon changes to base interest rates. The portfolio's cash flows are continually monitored and reforecasted both over the near future (five year time horizon) and the long-term (over whole period of projects' concessions) to analyse the cash flow returns from investments. The Investment Group has made limited use of borrowings to finance the acquisition of investments and the forecasts are used to monitor the impact of changes in borrowing rates against cash flow returns from investments as increases in borrowing rates will reduce net interest margins.

The group's policy is to ensure that interest rates are sufficiently hedged to protect the group's net interest margins from significant fluctuations when entering into material medium/long term borrowings. This includes engaging in interest rate swaps or other interest rate derivative contracts.

The Investment Group has an indirect exposure to changes in interest rates through its investment in project companies, which are financed by senior debt. Senior debt financing of project companies is generally either through floating rate debt, fixed rate bonds or index linked bonds. Where senior debt is floating rate, the projects typically have concession length hedging arrangements in place, which are monitored by the project companies' managers, finance parties and boards of directors. Floating rate debt is hedged using fixed floating interest rate swaps.

The finance costs in the income statement would be an estimated £5.5 million higher or £5.5 million lower (2008: £3.1 million higher or £3.1 million lower) if the interest rates used in the fair value calculation of the interest rate swaps were to differ by 25 basis points.

The finance costs in the income statement would be an estimated £2.4 million higher or £2.4 million lower (2008: £1.7 million higher or £1.7 million lower) if the RPI rates used in the fair value calculation of the inflation swaps were to differ by 25 basis points.

Inflation risk

The group's project companies are generally structured so that contractual income and costs are either wholly or partially linked to specific inflation where possible to minimise the risks of mismatch between income and costs due to movements in inflation indexes. The Investment Group's overall cashflows are estimated to partially vary with inflation. The effects of these inflation changes do not always immediately flow through to the Investment Group's cashflows, particularly where a project's loanstock debt carries a fixed coupon and the inflation change flows through by way of dividends.

Market risk

Returns from the Investment Group's investments are affected by the price at which they are acquired. The value of these investments will be a function of the discounted value of their expected future cash flows, and as such will vary with, inter alia, movements in interest rates, market prices and the competition for such assets.

Currency risk

The projects in which the group invests all conduct their business and pay interest, dividends and principal in sterling other than its investment in Dutch High Speed Rail project, which conducts its business and pays its interest, dividends and principal in Euros. The group monitors its foreign exchange exposures using its near term and long-term cash flow forecasts. Its policy is to use foreign exchange hedging to provide protection to the level of sterling distributions that the Investment Group aims to pay over the medium term, where considered appropriate. This may involve the use of forward exchange and other currency hedging contracts, as well as the use of Euro and other currency denominated borrowings. The Investment Group hedged its Euro exposure on its investment in Dutch High Speed Rail project through £46.7 million of Euro borrowings which are included within loans and borrowings (see Note 20), and through the forward sale of Euros.

Credit risk

Credit risk is the risk that a counterparty of the group will be unable or unwilling to meet a commitment that it has entered into with the group. The group's key direct counterparties are the project companies in which it makes investments. The Investment Group's near term cash flow forecasts are used to monitor the timing of cash receipts from project counterparties. Underlying the cash flow forecast are project company cash flow models, which are regularly updated by project companies and provided to the Operator, for the purposes of demonstrating the projects' ability to pay interest and dividends based on a set of detailed assumptions. Many of the Investment Group's investment and subsidiary entities generally receive revenue from government departments, and public sector or local authority clients. Therefore a significant portion of the group's investments' revenue is with counterparties of good financial standing.

The group is also reliant on the project's subcontractors continuing to perform their service delivery obligations such that revenues to projects are not disrupted. The Investment Adviser has a subcontractor counterparty monitoring procedure in place. The credit standing of subcontractors is reviewed, and the risk of default estimated for each significant counterparty position. Monitoring is ongoing, and period end positions are reported to the Board on a quarterly basis. The Investment Group's largest credit risk exposure to a project at 31 March was to the Dutch High Speed Rail project (19% of portfolio by value) and the largest subcontractor counterparty risk exposure was to subsidiaries of the Bouygues group which provided facilities management services in respect of 31% of the portfolio by value.

Cash investments and derivative transactions are limited to financial institutions of a suitable credit quality.

The Consolidated Group has a broad spread of financial counterparties with no material issues to report. An analysis of exposure to banks by deposit value and project value is included in the Investment Adviser's Report

As at 31 March 2009, the ageing of trade receivables overdue but not impaired were as follows:

	31 March 2009	31 March 2008
	£million	£million
3 to 6 months due	0.1	0.1
Over 6 months due	-	-
	0.1	0.1

No classes within trade and other receivables contain impaired assets. The Consolidated Group's maximum exposure to credit risk over financial assets is the carrying value of those assets in the balance sheet. The Consolidated Group does not hold any collateral as security.

Liquidity risk

Liquidity risk is the risk that the group will not be able to meet its financial obligations as these fall due. The group's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient financial resources and liquidity to meets its liabilities when due. The Investment Group's investments are predominantly funded by share capital and medium term debt funding.

The Investment Group's investments are generally in private companies in which there is no listed market and therefore such investment would take time to realise and there is no assurance that the valuations placed on the investments would be achieved from any such sale process. One of the Investment Group's investments is a loan to Kemble Water, the acquisition vehicle for Thames Water. There is an informal (unlisted) market for this investment providing a level of liquidity above that of the Investment Group's other investments.

The Investment Group's investments have borrowings which rank senior to the Investment Group's own investments into the companies. This senior debt is structured such that, under normal operating conditions, it will be repaid within the expected life of the projects. Debt raised by the investment companies from third parties is without recourse to the Investment Group.

The Investment Group's investments may include obligations to meet future subscription amounts. These obligations will typically be supported by standby letters of credit, issued by the Investment Group's bankers in favour of the senior lenders to the investment companies. Such subscription obligations are met from the Investment Group's cash resources when they fall due. Such obligations totalled £nil (2008: £20.5 million) at the year end.

The Investment Group currently has a committed £200m five year revolving bank facility expiring in December 2012. The facility is of a sufficient size to meet the Investment Group's foreseeable funding requirements, and to provide significant headroom available to support acquisitions, should suitable opportunities be identified and executed.

The table below analyses the Consolidated Group's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts in the table are the contracted undiscounted cashflows.

31 March 2009	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	More than 5 years
	£'m	£'m	£'m	£'m
Bank borrowings	13.5	12.0	101.2	214.6
Trade and other payables	15.0	-	-	-
Interest on bank borrowings	17.6	16.8	45.4	158.2
Letter of credit facility	-	-	-	-
Other loans and borrowings	9.9	13.0	32.2	236.9
Interest on other loans and borrowings	13.1	12.9	36.8	151.8
Total	69.1	54.7	215.6	761.5

31 March 2008	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	More than 5 years
	£'m	£'m	£'m	£'m
Bank borrowings	8.3	8.8	155.9	76.6
Trade and other payables	19.1	-	-	-
Interest on bank borrowings	7.7	7.0	17.6	49.1
Letter of credit facility	20.5	-	-	-
Other loans and borrowings	0.7	0.7	2.0	32.5
Interest on other loans and borrowings	2.0	2.0	5.6	15.6
Total	58.3	18.5	181.1	173.8

Capital management

The capital structure of the Consolidated Group consists of loans and borrowings (note 20), cash and cash equivalents and equity attributable to the equity holders of the parent, comprising issued capital, reserves and retained earnings. The Board's policy when managing capital is to

safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to sustain the future development of the business.

In order to maintain or adjust the capital structure, the Investment Group may issue new shares or raise medium/long term third party debt. From time to time the Investment Group may, at the sole discretion of the Directors, purchase its own shares in the market; the timing of these purchases depends on market prices. Any changes will be considered in the light of the impact they have on shareholders' return on their equity. The Board aims to achieve a progressive distribution policy and grow annual distributions to 7.0p per share within 4 years. There were no changes in the group's approach to capital management during the period.

Fair value estimation

The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments:

Non-derivative financial instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Consolidated Group uses the income approach which discounts the expected cash flows attributable to each asset at an appropriate rate to arrive at fair values. In determining the discount rate, regard is had to risk free rates, the specific risks of each investment and the evidence of recent transactions.

Derivative financial instruments

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Consolidated Group is the current bid price. Note 2 discloses the methods used in determining fair values on a specific asset / liability basis. Where applicable, further information about the assumptions used in determining fair value is disclosed in the notes specific to that asset or liability.

Classification of financial instruments

	2009	2008
	£million	£million
Financial assets

Designated at fair value through profit or loss
Investment in Entity Investments	280.1	384.7
Operating Subsidiaries' financial assets	646.6	170.4


Financial assets at fair value	926.7	555.1

Loans and receivables
Trade and other receivables	7.6	9.1
Cash and cash equivalents	54.2	27.2

Financial assets at amortised cost	61.8	36.3

Financial liabilities

Designated at fair value through profit or loss
Other financial liabilities (fair value of derivatives)	(76.4)	(11.4)

Financial liabilities at fair value	(76.4)	(11.4)
At amortised cost
Trade and other payables	(15.0)	(20.6)
Current tax payable	(0.2)	(0.5)
Loans and borrowings	(617.1)	(276.0)

Financial liabilities at amortised cost	(632.3)	(297.1)

The Directors believe that the carrying values of all financial instruments, except the fixed rate and RPI-linked bonds, are not materially different to their fair values. See note 20 for the comparison between fair values and the carrying values of the fixed rate and RPI-linked bonds.

Secured bank and bond borrowings totalling £606.7 million (2008: £241.8 million) are secured by fixed and/or floating charges over the Consolidated Group's financial assets.

	For the year ended 31 March 2009			For the year ended 31 March 2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£million	£million	£million	£million	£million	£million

Interest from investments	17.2	-	17.2	18.4	-	18.4
Dividend income from investments	1.9	-	1.9	4.6	-	4.6
Fees and other operating income	2.8	-	2.8	0.5	-	0.5
(Loss)/gains on valuation (Note 14)	-	(16.1)	(16.1)	-	0.2	0.2
	21.9	(16.1)	5.8	23.5	0.2	23.7

5. Gains on investments

Included within (loss)/gains on valuation is an unrealised exchange loss of £4.8 million on the Consolidated Group's Euro borrowings (2008: £7.6 million). The Euro exchange rate used as at 31 March 2009 was 0.93 (2008: 0.80).

6. Service costs

	For year ended 31 March 2009	For year ended 31 March 2008
	£million	£million

Service costs	47.2	12.7
Amortisation of intangibles (see Note 13)	6.4	2.1
Other costs	1.8	1.1
	55.4	15.9

7. Administrative expenses

	For year ended 31 March 2009	For year ended 31 March 2008
	£million	£million

Fees payable to the Consolidated Group's auditors for the audit of the Consolidated Group accounts	0.1	0.1
Fees payable to the Consolidated Group's auditors and its associates for other services:
The audit of the Company's Operating Subsidiaries and other audit related services	0.2	0.2
Taxation advisory services	-	0.1
Advisory fees	-	0.1
Management fees (Note 23)	5.8	4.6
Investment fees (Note 23)	0.3	0.7
Directors' fees (Note 23)	0.1	0.1
Professional fees	0.5	0.4
Project bid costs	0.6	0.3
Other costs	0.9	0.4
	8.5	7.0

In addition to the above an amount of £0.1 million (2008: £0.1 million) was paid to associates of the Consolidated Group's auditors in respect of audit and tax services provided to Entity Investments (and therefore not included within consolidated administrative expenses). The Consolidated Group had no employees during the year.

8. Net finance costs

	For year ended 31 March 2009			For year ended 31 March 2008
	Revenue	Capital	Total	Revenue	Capital	Total
	£million	£million	£million	£million	£million	£million

Interest expense:
Interest on bank loans and overdrafts	(16.4)	-	(16.4)	(12.9)	-	(12.9)
Interest and indexation on other loans	(19.9)	-	(19.9)	(3.2)	-	(3.2)
Other finance costs	(1.4)	(8.3)	(9.7)	(0.2)	-	(0.2)
Change in fair value of interest and inflation rate swaps	-	(29.5)	(29.5)	-	(6.1)	(6.1)
Total finance costs	(37.7)	(37.8)	(75.5)	(16.3)	(6.1)	(22.4)

Interest income:
Interest on bank deposits	1.5	-	1.5	1.5	-	1.5
Other finance income	-	0.9	0.9	-	-	-
Total finance income	1.5	0.9	2.4	1.5	-	1.5
Net finance costs	(36.2)	(36.9)	(73.1)	(14.8)	(6.1)	(20.9)

9a. Income tax expense
	For year ended 31 March 2009	For year ended 31 March 2008
	£million	£million
Foreign current tax:
Foreign corporation tax on loss/(profits) for the year	(0.3)	(0.7)

Total current tax expense	(0.3)	(0.7)

Deferred tax:
Origination and reversal of temporary differences	1.9	(0.2)

Total income tax credit/(expense) in the income statement	1.6	(0.9)

As noted in note 2(m) the Company is exempt from paying tax in Guernsey. Therefore, income from investments is not subject to any further tax in Guernsey, although these investments will bear tax in the individual jurisdictions in which they operate.

Subsidiaries in the UK have provided for UK corporation tax at the rate of 28% (2008: 30%). The UK corporation tax rate was reduced from 30% to 28% commencing 1 April 2008.

9b. Reconciliation of effective tax rate	For year ended 31 March 2009	For year ended 31 March 2008
	£million	£million
(Loss)/profit before taxation	(12.4)	9.2

Expected tax on (loss)/profit at 0% (2008:0%)	-	-
Different tax rates applied in overseas jurisdictions	0.3	(3.7)
Utilisation of tax losses	1.3	2.8

Total income tax credit/(expense) for the year	1.6	(0.9)

9c. Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

	As at 31 March 2009			As at 31 March 2008
	Assets	Liabilities	Net	Assets	Liabilities	Net
	£million	£million	£million	£million	£million	£million

Finance receivables at fair value through profit or loss	3.4	(18.3)	(14.9)	-	(6.7)	(6.7)
Intangible assets	-	(48.5)	(48.5)	-	(4.7)	(4.7)
Subordinated debt	8.5	(1.2)	7.3	1.4	(0.7)	0.7
Other financial liabilities (fair value of derivatives)	18.4	(8.2)	10.2	2.9	(0.1)	2.8
Tax losses	5.0	-	5.0	3.7	-	3.7
Carrying value of finance receivable on acquisition where there is no available tax deduction	-	(27.6)	(27.6)	-	-	-
Other	-	-	-	-	(0.9)	(0.9)
Net assets/(liabilities)	35.3	(103.8)	(68.5)	8.0	(13.1)	(5.1)

9d. Deferred tax movements

	For the year ended 31 March 2009				For the year ended 31 March 2008
	Opening balance	Acquired in business combination	Recognised in profit or loss	Closing balance	Opening balance	Recognised in profit or loss	Closing balance
	£million	£million	£million	£million	£million	£million	£million

Finance receivables at fair value through profit or loss	(6.7)	(9.4)	1.2	(14.9)	(8.6)	1.9	(6.7)
Intangible assets	(4.7)	(42.4)	(1.4)	(48.5)	(5.0)	0.3	(4.7)
Subordinated debt	0.7	7.0	(0.4)	7.3	1.3	(0.6)	0.7
Other financial liabilities (fair value of derivatives)	2.8	4.5	2.9	10.2	1.1	1.7	2.8
Tax losses	3.7	2.6	(1.3)	5.0	6.5	(2.8)	3.7
Carrying value of finance receivable on acquisition where there is no available tax deduction	-	(27.6)	-	(27.6)	-	-	-
Other	(0.9)	-	0.9	-	(0.2)	(0.7)	(0.9)
	(5.1)	(65.3)	1.9	(68.5)	(4.9)	(0.2)	(5.1)

10. Earnings per share and diluted earnings per share

Basic and diluted earnings per share is calculated by dividing the (loss)/profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

	2009	2008


(Loss)/profit attributable to equity holders of the Company	(£14.1 million)	£6.8 million

Weighted average number of ordinary shares in issue	325.1 million	250.0 million

Basic and diluted (loss)/earnings per share	(4.3 pence)	2.7 pence

Details of shares issued in the year are set out in Note 22.

11. Dividends

	For year ended 31 March 2009	For year ended 31 March 2008
	£million	£million

Amounts recognised as distributions to equity holders during the year:

Second interim dividend for the year ended 31 March 2008 of 3.2p (2007: 3.225p) per share	8.0	8.1
Interim dividend for the year ended 31 March 2009 of 3.125p (2008: 3.05p) per share	10.5	7.6
	18.5	15.7

Second interim dividend for the year ended 31 March 2009 of 3.275p (2008: 3.2p) per share	11.1	8.0

The second interim dividend was approved by the Board on 20 May 2009 and is payable on 30 June 2009 to shareholders on the register as at 29 May 2009. The second interim dividend is payable to shareholders as a cash payment or alternatively as a scrip dividend. The dividend has not been included as a liability at 31 March 2009.

The 2008 second interim distribution and the 2009 interim distribution are included in the statement of changes in shareholder equity.

	For year ended 31 March 2009	For year ended 31 March 2008	For year ended 31 March 2007

Interim dividend for the period ended September	3.125p	3.05p	2.875p
Interim dividend for the period ended March	3.275p	3.20p	3.225p
	6.4p	6.25p	6.1p

12. Net assets

The calculation of net assets per share is based on shareholders' equity of £376.1 million as at 31 March 2009 (£302.2 million as at 31 March 2008) and 338.3 million (2008: 250 million) ordinary shares in issue at that date.

13. Intangible assets

	31 March 2009	31 March 2008
	£million	£million

Cost
Opening balance	32.2	32.2
Acquisition through business combinations	147.3	-
Balance as at 31 March	179.5	32.2

Amortisation
Opening balance	(4.2)	(2.1)
Amortisation for the year	(6.4)	(2.1)
Balance as at 31 March	(10.6)	(4.2)

Carrying amounts
At 31 March	168.9	28.0

Intangible assets represent the fair value of customer contracts for operating subsidiary projects recognised on acquisition, which are primarily attributable to the service portion of the project contracts, and intangible assets recognised under IFRIC 12. Intangibles are being amortised on a straight line basis over the forecast remaining life of the concessions concerned on acquisition of the subsidiaries (range from between 11.5 and 30.5 years). Amortisation of £6.4 million (2008: £2.1 million) is included within service cost expenses in the consolidated income statement.

14. Investments at fair value through profit or loss

	31 March 2009	31 March 2008
	£million	£million

Opening balance	384.7	293.9
Investments in the year	30.7	82.9
Accrued interest	4.3	11.4
Repayments in the year	(4.2)	(2.4)
Subscription obligations	20.5	-
(Loss)/gain on valuation	(15.4)	1.4
Investments consolidated during the year	(139.7)	-
Other movements	(0.8)	(2.5)
Carrying amount at year end	280.1	384.7

(Loss)/gain on valuation as above	(15.4)	1.4
Less : transaction costs incurred	(0.7)	(1.2)
(Loss)/gain on investments	(16.1)	0.2

The Investment Adviser has carried out fair market valuations of the investments as at 31 March 2009. The Directors have satisfied themselves as to the methodology used, the discount rates applied, and the valuation. The Directors have also obtained an independent opinion from a third party, with considerable expertise in valuing these type of investments, supporting the reasonableness of the valuation. The Kemble Water junior loan was valued on a market quote basis and the other investments, which are all investments in PFI/PPP projects, are valued using a discounted cashflow methodology. The valuation techniques and methodologies have been applied consistently with the prior year. Discount rates applied range from 7.8% to 8.6% (weighed average of 8.1%) (2008: 7% to 12% (weighted average of 7.5%)).

The following economic assumptions were used in the discounted cashflow valuations:

UK inflation rates	Zero for 2 years to March 2011 and 2.75% thereafter
UK deposit interest rates	1% for 2 years to March 2011 and 4.5% thereafter
Euro/Sterling exchange rate	0.93 for all future periods

Details of investments recognised at fair value through profit or loss were as follows:

	Percentage Holding
	31 March 2009			31 March 2008
Investments (project name)	Equity	Subordinated loanstock	Mezzanine debt	Equity	Subordinated loanstock	Mezzanine debt
Barnet Hospital*	-	-	-	51.0%	99.0%	100.0%
Bishop Auckland Hospital	36.0%	36.0%	100.0%	36.0%	36.0%	100.0%
Blackburn Hospital	50.0%	50.0%	-	50.0%	50.0%	-
Central Middlesex Hospital*	-	-	-	85.0%	100.0%	-
Colchester Garrison	42.0%	42.0%	-	42.0%	42.0%	-
Darlington Schools	50.0%	50.0%	-	50.0%	50.0%	-
Defence Sixth Form College	45.0%	45.0%	-	45.0%	45.0%	-
Durham and Cleveland Firearms Training Centre	50.0%	50.0%	-	50.0%	50.0%	-
Dutch High Speed Rail Link	37.5%	37.5%	-	37.5%	37.5%	-
Ealing Schools	50.0%	50.0%	-	50.0%	50.0%	-
GMPA Police Stations	50.0%	50.0%	-	50.0%	50.0%	-
Haverstock School	50.0%	50.0%	-	50.0%	50.0%	-
Health & Safety Laboratory	80.0%	90.0%	-	80.0%	90.0%	-
Health & Safety HQ	50.0%	50.0%	-	50.0%	50.0%	-
Helicopter Training Facility**	21.8%	21.8%	-	21.8%	21.8%	-
Home Office*	-	-	-	80.0%	100.0%	-
Kemble Water Junior Loan	-	-	3.6%	-	-	3.6%
MPA South East London Police Stations	50.0%	50.0%	-	50.0%	50.0%	-
MPA Specialist Training Centre	50.0%	50.0%	-	50.0%	50.0%	-
North Tyneside Schools	50.0%	50.0%	-	50.0%	50.0%	-
Oxford John Radcliffe Hospital	50.0%	50.0%	-	-	-	-
Pinnacle Schools, Fife	40.0%	40.0%	100.0%	40.0%	40.0%	100.0%
Sussex Custodial Centre	82.3%	82.3%	-	82.3%	82.3%	-
West Middlesex Hospital*	-	-	-	95.0%	96.3%	-
Wooldale Centre	50.0%	50.0%	-	50.0%	50.0%	-

* - Incremental acquisitions of additional stakes during the year has resulted in these investments being deemed subsidiaries of the Company (see Note 15 and 27).

** - The Consolidated Group's economic interest in the Helicopter Training project includes the above investment in CAE Aircrew Training Services Plc (Op Co) and the controlling interest in CVS Leasing Limited (Asset Co) (see note 27).

15. Acquisition of subsidiaries

During the year the group acquired additional interests in the equity and loan stock of West Middlesex Hospital, Central Middlesex Hospital, UK Home Office and Barnet Hospital PFI projects. These acquisitions take the group's economic interest in these four projects to 100% in each. The total consideration paid in cash for the interests in these projects was £12.7 million. The transaction costs for the four acquisitions in aggregate were £0.3 million.

Prior to the acquisition of the remaining equity these PFI projects were held as investments at fair value and therefore there has been no gain or loss as a result of re-measuring to fair value the interests held prior to the acquisitions. Fair values were determined using the income approach which discounts the expected cash flows attributable to each asset at an appropriate rate to arrive at fair values.

West Middlesex Hospital

In July 2008 the group acquired 5% of the equity and 2% of the loan stock in the project bringing the total equity and loan stock interests to 100%. The aggregate consideration paid for the interests in the project before the July acquisition was £12.7 million.

This project is a concession to design, construct, finance, operate and maintain a 228 bed hospital in West Middlesex, UK which became operational in June 2003.

	Book value at acquisition	Fair value adjustments	Fair value acquired
	£million	£million	£million
Intangible assets	-	12.5	12.5
Finance receivables at fair value through profit or loss*	50.3	2.6	52.9
Deferred tax assets	1.0	0.8	1.8
Cash and cash equivalents	2.6	-	2.6
Other current assets	1.3	-	1.3
Current liabilities	(1.8)	-	(1.8)
Deferred tax liabilities	-	(4.2)	(4.2)
Other non-current liabilities	(54.8)	(2.8)	(57.6)

Net assets acquired	(1.4)	8.9	7.5
Goodwill			-
Fair value of consideration for equity			7.5
Fair value of consideration for loan stock			9.2
			16.7
Less: Carrying amount of investment previously held as fair value through profit or loss			(16.0)
Consideration paid for the remaining interests			0.7
Cash acquired			(2.6)
Net cash inflow			(1.9)

* - the finance receivable in the book value at acquisition under IFRS is valued at amortised cost rather than at fair value through profit or loss, and therefore there is a fair value adjustment to reflect the fair value acquired.

Central Middlesex Hospital

In July 2008 the group acquired 15% of the equity in the project bringing the total equity interest to 100%. The aggregate consideration paid for the interests in the project before the July acquisition was £13.2 million.

This project is a concession to design, construct, finance, operate and maintain hospital facilities for 214 beds and three main theatres, as well as refurbishing some existing facilities, on the Central Middlesex Hospital site in North West London, UK. Construction was completed in January 2007.

	Book value at acquisition	Fair value adjustments	Fair value acquired
	£million	£million	£million
Intangible assets	-	45.2	45.2
Finance receivables at fair value through profit or loss*	77.5	4.7	82.2
Deferred tax assets	9.0	0.5	9.5
Cash and cash equivalents	5.4	-	5.4
Other current assets	2.0	-	2.0
Current liabilities	(1.7)	-	(1.7)
Deferred tax liabilities	-	(14.0)	(14.0)
Other non-current liabilities	(115.2)	(1.6)	(116.8)

Net assets acquired	(23.0)	34.8	11.8
Goodwill			-
Fair value of consideration for equity			11.8
Fair value of consideration for loan stock			9.3
			21.1
Less: Carrying amount of investment previously held as fair value through profit or loss			(19.7)
Consideration paid for the remaining interests			1.4
Cash acquired			(5.4)
Net cash inflow			(4.0)

Home Office

In July 2008 the group acquired 20% of the equity in the project bringing the total equity interests to 100%. The aggregate consideration paid for the interests in the project before the July acquisition was £70.2 million.

This project is a concession commissioned by the UK Home Office to build, finance, operate and maintain a new headquarters building to replace their existing offices on a 4.3 acre site, followed by the construction of a building comprising three purpose-built interconnecting office blocks to accommodate up to 3,450 staff. Construction was completed in January 2005.

	Book value at acquisition	Fair value adjustments	Fair value acquired
	£million	£million	£million
Intangible assets*	-	80.0	80.0
Finance receivables at fair value through profit or loss**	272.6	17.5	290.1
Deferred tax assets*	29.6	0.4	30.0
Cash and cash equivalents	18.3	-	18.3
Other current assets	4.5	-	4.5
Current liabilities	(3.6)	-	(3.6)
Deferred tax liabilities*	(57.0)	(27.3)	(84.3)
Other non-current liabilities	(296.6)	(1.8)	(298.4)

Net assets acquired	(32.2)	68.8	36.6
Goodwill			-
Fair value of consideration for equity			36.6
Fair value of consideration for loan stock			51.4
			88.0
Less: Carrying amount of investment previously held as fair value through profit or loss			(81.8)
Consideration paid for the remaining interests			6.2
Cash acquired			(18.3)
Net cash inflow			(12.1)

* - The group has taken advantage of the provisions within IFRS 3 Business Combinations and has adjusted these assets and liabilities recognised in the 30 September 2008 Interim Report. The adjustment is due to additional deferred tax liabilities provided on temporary differences arising from the carrying amount of the finance receivable where there is no available tax deduction.

** - the finance receivable in the book value at acquisition under IFRS is valued at amortised cost rather than at fair value through profit or loss, and therefore there is a fair value adjustment to reflect the fair value acquired.

Barnet Hospital

In December 2008 and February 2009 the group acquired 49% of the equity and 1% of loan stock in the project bringing the total equity and loan stock interests to 100%. The aggregate consideration paid for the interests in the project before the December acquisition was £10.4 million.

This project is a concession to design, construct, operate and maintain the re-building of Barnet General Hospital in North London for the Wellhouse National Health Service Trust. The project has been operating since April 2000.

	Book value at acquisition	Fair value adjustments	Fair value acquired
	£million	£million	£million
Intangible assets	-	9.6	9.6
Finance receivables at fair value through profit or loss*	32.9	12.7	45.6
Deferred tax assets	-	2.1	2.1
Cash and cash equivalents	10.4	-	10.4
Other current assets	2.2	-	2.2
Current liabilities	(2.3)	-	(2.3)
Deferred tax liabilities	-	(6.2)	(6.2)
Other non-current liabilities	(42.6)	(7.4)	(50.0)

Net assets acquired	0.6	10.8	11.4
Goodwill			-
Fair value of consideration for equity			11.4
Fair value of consideration for loan stock			7.1
			18.5
Less: Carrying amount of investment previously held as fair value through profit or loss			(14.1)
Consideration paid for the remaining interests			4.4
Cash acquired			(10.4)
Net cash inflow			(6.0)

If all the acquisitions had occurred on 1 April 2008, the estimated consolidated total income would have been £150.9 million and consolidated loss for the year would have been £5.8 million. The aggregate loss in respect of the acquired subsidiaries was £5.5 million during the year.

Year ended 31 March 2008

There were no acquisitions of subsidiaries during the year ended 31 March 2008.

Purchase of investment holding company

Investments in holding companies are not treated as a business combination where the Directors judge that the holding companies have no real operations, business activities or material balances other than in investments they hold. In these circumstances consideration is allocated between the individual assets and liabilities in the investment holding company based on their relative fair values at the date of acquisition.

Year ended 31 March 2009

In August 2008, the group acquired a 50% interest in the equity and loanstock of The Hospital Company (Oxford John Radcliffe) Holdings Limited for a consideration price of £18.0 million.

Year ended 31 March 2008

In August 2007 the group acquired a 50.0% interest in the equity and the loanstock of four police PFI projects through the acquisition of a 100.0% interest in the vendor's investment holding company, Amalie Infrastructure Limited. The total consideration paid in cash for the interest in these projects was £36.5 million.

In October 2007 the group acquired a 50.0% interest in the equity and the loanstock of five education projects and the Health and Safety Executive's Merseyside headquarters through the acquisition of a 50.0% interest in the investment holding company, Redwood Partnership Ventures Limited. The total consideration paid in cash for the interest in these projects was £30.2 million.

In December 2007 the group acquired additional equity and debt interests in the Home Office PFI Project for total consideration of £14.4 million. The group held 80.0% of the issued share capital of the Holding Company and 100.0% of the subordinated debt issued by the Holding Company as at March 2008.

16. Finance receivables at fair value through profit or loss

	31 March 2009	31 March 2008
	£million	£million
Finance receivables at fair value through profit or loss balance	646.6	170.4

The operating subsidiaries' concession contracts with public sector bodies are considered as financial assets. Gains in fair values of financial assets of £22.6 million for the year ended 31 March 2009 (2008: Loss £0.8 million), are separately disclosed in the consolidated income statement as a capital amount. See Note 3 (ii) for the methods and assumptions used in determining the fair values. The maximum exposure to credit risk at the reporting date is the fair value of the financial assets in the balance sheet.

Interest income in relation to finance receivables of £29.7 million has been recognised in the consolidated income statement for the year ended 31 March 2009 as a revenue amount (2008: £8.0 million).

17. Trade and other receivables

	31 March 2009	31 March 2008
	£million	£million
Trade receivables	3.2	3.3
Other debtors	0.4	2.5
Prepayments and accrued income	4.0	3.3
	7.6	9.1

18. Cash and cash equivalents

	31 March 2009	31 March 2008
	£million	£million
Bank balances	30.4	26.4
Call deposits	23.8	0.8
Cash and cash equivalents	54.2	27.2

The effective interest rate on call deposits was between 0.3% and 2.2% (2008: 5.4%). The deposits had a maturity of between 17 and 264 days (2008: 16 days).

19. Trade and other payables

	31 March 2009	31 March 2008
	£million	£million
Trade payables	3.6	0.9
Accruals	7.0	14.3
Other payables	4.4	5.4
	15.0	20.6

20. Loans and borrowings

	31 March 2009	31 March 2008
	£million	£million
Non-current liabilities
Bank borrowings	327.9	234.2
Subordinated debt	10.4	11.2
RPI-linked bonds	171.6	22.0
Fixed rate bond	83.8	-
	593.7	267.4
Current liabilities
Bank borrowings	13.5	7.7
RPI-linked bonds	9.9	0.9
	23.4	8.6
Total loans and borrowings	617.1	276.0

Terms and debt repayment schedule

The terms and conditions of outstanding loans are as follows:

	Weighted average effective interest rate	Average year of maturity	Carrying amount
	Weighted average effective interest rate	Average year of maturity	2009	2008
			£million	£million

Secured bank borrowings - Operating Subsidiaries	5.9%	2029	274.6	119.5
Secured bank borrowings - Partnership	5.8%	2012	66.8	122.4
Subordinated debt	12.9%	2020	10.4	11.2
RPI-linked bonds	6.8%	2030	181.5	22.9
Fixed rate bond	5.7%	2031	83.8	-

			617.1	276.0

The bonds are guaranteed by FSA (UK) Limited and Ambac Assurance UK Limited and are secured by a fixed and floating charge over the assets of the respective subsidiary companies. The index-linked bonds are indexed annually and semi-annually using published RPI figures. The index ratio uses a base index figure ranging from 173.3 to 174.5 and a numerator index figure that is published by the Office for National Statistics.

The fair value of all borrowings is deemed to reflect their carrying value, except fixed rate and RPI-linked bonds. An analysis of fair values and carrying values of bonds is detailed below:

	31 March 2009		31 March 2008
	Carrying amount	Fair value	Carrying amount	Fair value
	£million	£million	£million	£million
RPI-linked bonds	181.5	173.9	22.9	22.9
Fixed rate bond	83.8	75.2	-	-
	265.3	249.1	22.9	22.9

The currency profile of the Consolidated Group's loans and borrowings is as follows:

	2009	2008
	£million	£million

Pound Sterling	570.4	199.6
Euro	46.7	76.4
	617.1	276.0

The exchange rate used as at 31 March 2009 to convert the Euro loan was 0.93 (2008: 0.80).

The Consolidated Group has the following undrawn borrowing facilities at 31 March:

	2009	2008
Floating rate:	£million	£million

Secured
- expiring within one year	-	-
- expiring between 1 and 2 years	-	-
- expiring between 2 and 5 years	131.3	54.9
- expiring after 5 years	8.2	-
	139.5	54.9
Unsecured
- expiring within one year	-	-
	139.5	54.9

21. Other financial liabilities (fair value of derivatives)

	31 March 2009	31 March 2008
	£million	£million
Non-current liabilities
Interest rate swaps	55.1	6.1
Inflation swap	19.5	5.3
Forward foreign exchange contract	1.8	-
	76.4	11.4

Financial liabilities have been fair valued in accordance with Note 2(d). The loss in fair values of interest and inflation rate swaps of £29.5 million for the year ended 31 March 2009 (2008: £6.1 million) is disclosed within finance costs in the consolidated income statement as a capital amount (see Note 8).

In order to manage exposure to movements in interest rates, project companies financed by floating rate debt swap their floating rate exposure for fixed rates using interest rate swaps. The notional amounts of the outstanding interest rate swap contracts at 31 March 2009 were £412.0 million (2008: £264.8 million). As at 31 March 2009, the fixed interest rates on the swaps range from 4.53% to 6.51% (2008: 4.53% to 6.51%) and maturities range from 2009 to 2036 (2008: 2009 to 2036). The notional amount of the outstanding inflation rate swap contracts at 31 March 2009 was £1.4 million (2008: £0.9 million). As at 31 March 2009, the fixed inflation rates on the swaps range from 2.12% to 2.77% (2008: 2.77%) and maturities range from 2009 to 2036 (2008: 2008 to 2036).

22. Share capital and reserves

	31 March 2009	31 March 2008
Issued and fully paid:	£000	£000

338,288,733 (31 March 2008: 250,000,000) ordinary shares of 0.01p each	33.8	25
2 Management Shares of 0.01p each	-	-
	33.8	25

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

Management Shares carry one vote each on a poll, do not carry any right to dividends and, in winding-up, rank only for a return of the amount of the paid-up capital on such shares after return of capital on Ordinary Shares and Nominal Shares. The Management Shares are not redeemable and are accrued for and on behalf of a Guernsey charitable trust.

Retained reserves

Retained reserves comprise retained earnings and the balance of the share premium account, as detailed in the consolidated statements of changes in shareholders' equity.

Issued share capital

On 16 May 2008 the Company announced the results of its Placing and Offer for Subscription of C shares. The Company raised £103.6 m (before expenses) through the issue of 103,600,000 C shares at a price of £1.00 per C share, of which 7,123,913 C shares were issued pursuant to the offer for subscription and 96,476,087 C shares were issued by way of the placing. The C shares were converted to 84,361,480 ordinary shares and admitted to trading on the London Stock Exchange on 4 June 2008.

On 10 September 2008 2 million new ordinary shares were issued for cash to a single institutional investor at an issue price per share (before expenses) of 126.25p.

On 31 December 2008 0.3 million new ordinary shares of 0.01p each fully paid in the Company were issued as a scrip dividend alternative in lieu of cash for the interim dividend in respect of the year ending 31 March 2009.

On 6 February 2009 1.6 million new ordinary shares were issued for cash to a single institutional investor at an issue price per share (before expenses) of 115p.

23. Related party transactions

HSBC Specialist Fund Management Ltd ('HSFML') is the Company's Investment Adviser and the Operator of a limited partnership through which the group holds its investments. HSFML's appointment as Investment Adviser is governed by an Investment Advisory Agreement which may be terminated after an initial four year term, starting in February 2006, by either party giving one year's written notice. The appointment may also be terminated if HSFML's appointment as Operator is terminated. The Investment Adviser is entitled to a fee of £0.1 million per annum (disclosed within management fees in Note 7) (2008: £0.1 million), payable half-yearly in arrears and which is subject to review, from time to time, by the Company.

HSFML has been appointed as the Operator of Infrastructure Investments Limited Partnership by the General Partner of the Partnership, Infrastructure Investments General Partner Limited, a sister subsidiary of HSFML. The Operator and the General Partner may each terminate the appointment of the Operator after an initial four year term, starting in February 2006, by either party giving one year's written notice. Either the Operator or the General Partner may terminate the appointment of the Operator by written notice if the Investment Advisory Agreement is terminated in accordance with its terms. The General Partner's appointment does not have a fixed term, however if HSFML ceases to be the Operator, the Company has the option to buy the entire share capital of the General Partner and HSBC Group has the option to sell the entire share capital of the General Partner to the Company, in both cases for nominal consideration. In aggregate HSFML and the General Partner are entitled to fees and/or profit share equal to: i) 1.1 per cent per annum of the adjusted gross asset value of all investments of the group that are not in either their construction or ramp-up phases; ii) 1.5 per cent per annum of investments of the group that are in either their construction or ramp-up phases, excluding investments acquired with the acquisition of the initial portfolio (the ramp-up phase of an investment means the period following completion of a project's construction phase during which it is building up to be fully operational with full service provision); and iii) 1.0 per cent of the value of new portfolio investments, that are not sourced from entities, funds or holdings managed by the HSBC Group. The total Operator fees charged to the Income Statement (disclosed within management fees in Note 7) was £4.9 million (2008: £4.3 million) of which £2.5 million remained payable at year end (2008: £2.3 million). The total charge for new portfolio investments (disclosed as investment fees in Note 7) was £0.3 million (2008: £0.7 million) of which £nil million remained payable at year end (2008: £0.3 million).

Transactions during the year

The following summarises the transactions between the Consolidated Group and its associates in the year:

	Transactions		Balance
	Year ended 31 March 2009	Year ended 31 March 2008	31 March 2009	31 March 2008
	£million	£million	£million	£million
Loanstock investments	30.5	36.9	178.3	226.6
Loanstock repayments	(3.1)	(2.4)	-	-
Equity investments	8.0	46.0	77.2	91.5
Equity repayments	(1.1)	(2.0)	-	-
Outstanding subscription obligations	-	-	-	(20.5)
Loanstock interest	17.2	16.9	6.4	12.6
Dividends received	1.9	4.6	-	-
Fees and other income	2.8	0.5	-	-

At 31 March 2009 the Consolidated Group had total cash holdings with HSBC Bank plc of £49.1 million (2008: £10.4 million). Total interest income earned from cash holdings held with HSBC Bank plc for the year was £1.3 million (2008: £0.5 million).

The Consolidated Group paid £0.1 million (2008: £0.1 million) to HSBC Insurance Brokers Limited in the year for premiums in respect of Directors and Officers liability insurance.

The Consolidated Group entered into Euro to Sterling sale and forward sale agreements with HSBC Bank plc during the year. Net payments paid in respect of these agreements were £6.5 million (2008: £0.6 million), and as at 31 March 2009 the mark to market of the outstanding Euro sale agreement was a £1.8 million liability.

The Directors of the Consolidated Group, who are considered to be key management, received fees for their services. Total fees for the year were £94,672 (2008: £78,848). Directors expenses of £6,134 (2008: £5,387) were also paid in the year.

RSM Henri Grisius & Associés, a firm of which Mr H. Grisius is a partner, earned £16,866 (2008: £33,891) in fees for tax, accounting and administrative services provided in the year. Amounts were billed based on normal market rates for such services and were due and payable under normal payment terms.

All of the above transactions were undertaken on an arm's length basis.

Transactions in the prior year

In the year ending March 2008, the Consolidated Group was charged £3.5 million interest and fees relating to bank facilities with HSBC Bank plc.

During the prior year the Consolidated Group acquired additional equity and debt interests in the Home Office PFI Project for £14.4 million from HSBC Infrastructure Limited. The group's investment adviser, HSBC Specialist Fund Management Limited is part of the same group as HSBC Infrastructure Limited.

24. Guarantees and other commitments

There are no guarantees or other commitments as at 31 March 2009 (2008: £20.5 million commitment for future equity subscriptions to project investments).

25. Events after balance sheet date

There were no events after the balance sheet date, which are required to be disclosed.

26. Disclosure - Service Concession Arrangements

The group holds investments in 27 service concession arrangements in the Accommodation, Education, Health and Law and Order sectors. The concessions vary on the required obligations but typically require the financing and operation of an asset during the concession period. As at 31 March 2009 all 27 of the service concessions were fully operational.

The rights of both the concession provider and concession operator are stated within the specific project agreement. The standard rights of the provider to terminate the project include poor performance and in the event of force majeure. The operator's rights to terminate include the failure of the provider to make payment under the agreement, a material breach of contract and relevant changes of law which would render it impossible for the service company to fulfil its requirements.

Project	Short description of concession arrangements	Start date	End date	Number of years	Project Capex	Key subcontractors
Barnet Hospital	Design, construct, operate and maintain the re-building of Barnet General Hospital in North London for the Wellhouse National Health Service Trust.	1999	2032	33	£65m	Ecovert South Ltd Compass Contract Services (UK) Ltd
Bishop Auckland Hospital	Design, construct, finance, service and maintain a redevelopment of Bishop Auckland General Hospital, County Durham for South Durham Health Care NHS Trust.	1999	2062	60 (with break clause option by Grantor at Year 30, 40 & 50)	£66m	ISS Mediclean Ltd
Blackburn Hospital	Design, construct, finance and maintain new facilities at the Queens Park Hospital in Blackburn for the East Lancashire Hospitals NHS Trust.	2003	2041	38	£100m	Haden Building Management
Central Middlesex Hospital	Design, construct, finance and maintain new hospital facilities, and to refurbish some existing facilities, for the Brent Emergency Care and Diagnostic Centre on the Central Middlesex Hospital site in North West London.	2003	2036	33	£75m	Ecovert FM Ltd
Colchester Garrison	Design, construct, finance and maintain a new garrison facility at Colchester, Essex for The Secretary of State for Defence.	2004	2039	35	£550m	Sodexo Defence Services Ltd WS Watkins Facilities Management Ltd

Conwy Schools	Design, build, operate and maintain three schools for Conwy County Borough Council in North Wales.	2003	2030	27	£40m	Sodexo Education Services Ltd
Cleveland and Durham Police Tactical Training Centre	Construction of a state of the art firearms and tactical training centre at Urlay Nook in the North of England. Construction completed successfully in March 2002.	2000	2026	26	£6m	John Laing Integrated Services Ltd
Darlington Schools	Darlington Schools is a four-school education PFI project consisting of an Education Village (which brought together three existing schools) and one primary school. The facilities became available on a phased basis in 2005 and 2006	2004	2031	27	£31m	Mitie PFI Ltd
Defence 6th Form College	Design, build, operate, finance and maintain a new residential sixth form college for the Secretary of State for Defence.	2003	2033	30	£40m	TQ Education and Training Ltd Interserve Defence Ltd
Dutch High Speed Rail	Design, construct, finance, operate and maintain one of the largest high speed railway projects in Europe to date.	2001	2031	30	£625m	Siemens Nederland By Koninklijke BAM NBM NV Fluor Infrastructure BV
Ealing Schools	Ealing Schools is a four-school education PFI project consisting of one secondary school and three primary schools in the London Borough of Ealing. The schools became operational in 2004.	2004	2031	27	£31m	Mitie PFI Ltd
Exeter Crown Court	Build and service a new crown and county court building in Exeter.	2002	2034	32	£20m	Sodexo Ltd
Fife Schools	The facility involved the construction of 3 new schools and a sports hall, all of which have been constructed successfully and are now fully operational.	2001	2028	27	£40m	Sodexo Ltd

GMPA Police Stations	Construction of 17 police stations on 16 sites around Greater Manchester. Construction of all stations were complete by September 2006.	2002	2030	28	£82m	John Laing Integrated Services Ltd
Haverstock School	Haverstock is a single school education PFI project consisting of a new secondary school on an existing school site on Haverstock Hill, Camden. Phase 1 of the new school became operational in 2004 with subsequent phases handed over one year later.	2003	2030	27	£21m	Mitie PFI Ltd
Health & Safety Merseyside HQ	HSE Merseyside HQ is an accommodation PFI project. It is a four-storey office building that serves as the HSE s operational headquarters and houses 1,500 employees. The building became operational in 2005.	2002	2035	30	£62m	Honeywell Control Systems Reliance Integrated Services Ltd
Health & Safety Laboratory	Building of new workshops and offices in Buxton and the disposal of old facilities at Sheffield.	2002	2035	33	£60m	Interserve (Facilities Management) Ltd
Helicopter Training Facility	Design, construction, management, operation and financing of a simulator based training facility for RAF helicopter pilots.	1997	2037	40 (with break clause by Grantor at Year 20)	£100m	Serco Ltd Vega Software Engineering Ltd
Home Office HQ	Build, finance, operate and maintain a new headquarters building to replace the Home Office's existing London office accommodation with purpose-built serviced offices.	2002	2032	29	£200m	Ecovert FM ltd
MPA Specialist Training Centre	Construction of a firearms and public order training facility in Gravesend, Kent for the Metropolitan Police Authority. Construction was completed in February 2003.	2001	2028	27	£40m	John Laing Integrated Services Ltd

MPA SEL Police Stations	Construction of 4 police stations in South East London for the Metropolitan Police Authority. Construction was completed in February 2004.	2001	2029	28	£80m	John Laing Integrated Services Ltd
North Tyneside Schools	North Tyneside Schools is a four-school education PFI project consisting of one secondary school (Burnside) and three primary schools (Western, Marine, Coquet) in North Tyneside. The schools became operational in 2003 / 2004.	2002	2034	32	£30m	Mitie PFI Ltd
Oxford John Radcliffe Hospital	Design, construction, management, financing, operation and maintenance of a new wing adjacent to the former Radcliffe Infirmary. Construction was completed ahead of schedule in March 2001.	2003	2036	33	£161m	Carillion Services Ltd
Stoke Mandeville Hospital	Design, finance, construct, refurbish, operate and maintain a new hospital facility for the Buckingham Hospitals NHS Trust.	2004	2036	30	£40m	Sodexo Healthcare Services Ltd
Sussex Custodial Centre	Build and service three custody centres in Sussex for Sussex Police Authority. The centres are at Worthing, Chichester and Brighton. A fourth centre at Eastbourne was subsequently contracted for as a variation.	2001	2031	30	£20m	Reliance Task Management Ltd
West Middlesex Hospital	Design, construct, finance, operate and maintain a new 228 bed hospital for West Middlesex University Hospital NHS Trust.	2001	2036	35	£60m	Ecovert FM Ltd
Wooldale Centre for Learning	Wooldale Centre for Learning is an education PFI project consisting of a Centre for Learning (CfL) comprising a secondary school with sixth form, public library, primary school and nursery on a large site in Northamptonshire. The first phase of the CfL (the primary school, library and part of the secondary school) became operational in 2004.	2003	2029	26	£24m	Mitie PFI Ltd

27. Principal subsidiaries

Name	Country	Ownership interest

HICL Infrastructure 1 SARL	Luxembourg	100.0%
HICL Infrastructure 2 SARL	Luxembourg	100.0%
Infrastructure Investments Limited Partnership	United Kingdom	100.0%
Infrastructure Investments Holdings Limited	United Kingdom	100.0%
AGP Holdings (1) Limited*	United Kingdom	100.0%
AGP (2) Limited*	United Kingdom	100.0%
Annes Gate Property PLC*	United Kingdom	100.0%
ByCentral Holdings Limited*	United Kingdom	100.0%
ByCentral Limited*	United Kingdom	100.0%
ByWest Holdings Limited*	United Kingdom	100.0%
ByWest Limited*	United Kingdom	100.0%
CVS Leasing Limited	United Kingdom	80.4%
Enterprise Civic Buildings (Holdings) Limited*	United Kingdom	90.0%
Enterprise Civic Buildings Limited*	United Kingdom	90.0%
Enterprise Education Conwy (Holdings) Limited*	United Kingdom	90.0%
Enterprise Education Conwy Limited*	United Kingdom	90.0%
Enterprise Healthcare (Holdings) Limited*	United Kingdom	90.0%
Enterprise Healthcare Limited*	United Kingdom	90.0%
Metier Healthcare Limited	United Kingdom	100.0%
Metier Holdings Limited	United Kingdom	100.0%

* = Reporting date 31 December

This information is provided by RNS

The company news service from the London Stock Exchange

END

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