Final Results

RNS Number : 3625V

HSBC Infrastructure Company Limited

28 May 2008

 



HSBC Infrastructure Company Limited

28 May 2008

PRELIMINARY RESULTS

The Directors of HSBC Infrastructure Company Limited announce the results for the year ended 31 March 2008.

Highlights

Expanded portfolio of 27 investments continues to perform well Profit before tax (Revenue) on an Investment basis of £15.1m (2007: £11.8m) Net asset value per share at 31 March 2008 of 120.9p on a consolidated IFRS basis and 123.1p on an Investment basis Directors' Valuation of the portfolio at 31 March 2008 of £437.9m, up from £342.0m at 31 March 2007, a 28.0% increase Total distribution for the year of 6.25p New interests acquired in 4 PFI police projects in August for £36.5m Investments in 6 projects acquired from Kajima Partnerships Ltd in October for £30.2m Additional stake in Home Office project acquired for £14.4m in December Colchester Garrison project completes its second phase of construction Successful raising of £103.6m through the C Share Issue

Results on an Investment basis

• Profit before tax (Revenue)	£15.1m	(2007: £11.8m)
• Profit before tax (Capital)	£4.5m	(2007: £53.1m)
• Profit before tax	£19.6m	(2007: £64.9m)
• Earnings per share	7.8p	(2007: 26.0p)
• Final distribution per share	3.2p	(2007: 3.225p)
• Total distribution per share in year / period	6.25p	(2007: 6.1p)

The 2007 Profit before tax (Capital) of £53.1m was exceptional, and was due to an uplift in the Directors' Valuation from projects completing construction in the period and portfolio scale economies.

2007 comparatives are for the period 11 January 2006 to 31 March 2007

Net Asset Values

	Consolidated IFRS basis	Investment basis
• Net Asset Value (NAV) per share at listing	98.4p	98.4p
• Net Asset Value (NAV) per share at 31 March  2008	120.9p	123.1p
• Second Interim distribution per share (paid on 23 May 2008)	3.2p	3.2p
• NAV per share at 31 March 2008 after deducting the second interim distribution	117.7p	119.9p
• NAV per share at 31 March 2007 after deducting the final distribution	121.2p	118.3p

  Results on a Consolidated IFRS basis

• Profit before tax (Revenue)	£15.9m	(2007: £9.2m)
• Profit/(Loss) before tax (Capital)	£(6.7)m	(2007: £73.2m)
• Profit before tax	£9.2m	(2007: £82.4m)
• Earnings per share	2.7p	(2007: 28.8p)
• Second interim distribution per share	3.2p	(2007: 3.225p)

2007 comparatives are for the period 11 January 2006 to 31 March 2007.

Graham Picken, Chairman of the Board, said: 

'In our second year of trading, we have continued to build for the future by growing our investment portfolio consistent with our twin aims of a prudent appetite for risk and a progressive distribution policy.

At an operational level, we have acquired ten new high quality assets, refinanced our Group's bank facilities on attractive terms and delivered forecast cashflows.

Following the year end, we have also successfully raised £103.6m of new capital from existing and new investors which will enable the business to make further investments, as and when suitable opportunities arise

I look forward to reporting further progress in the achievement of our investment objectives in the coming year and I believe the Company is well placed for this to happen.'

Contacts for the Investment Adviser on behalf of the Board:

Sandra Lowe [phone]

Tony Roper [phone]

Contacts for M: Communications:

Edward Orlebar [phone]

Louise Hatch [phone]

  Chairman's Statement

Introduction

This is the second annual report for HSBC Infrastructure Company Ltd (the 'Company', and with its wholly owned subsidiaries, the 'Group'). I am pleased to report another successful year for the Group. The number of investments owned by the Group has grown from 17 to 27 in the year, and operational performance of all our investments has been very good.

Financial Results

On a consolidated IFRS basis, the Group's profit before tax was £9.2m (2007 - £82.4m). The profit before tax has been impacted by accounting adjustments related to the project subsidiaries and by the absence of an exceptional uplift in the Directors' Valuation of the portfolio which was a feature of the previous year's results. The accounting adjustments included the revaluations of interest rate swaps and as noted in my Interim Statement in November 2007, a downward revaluation of the finance debtor in one project subsidiary, following a change to the implicit rate of interest applied in the financial model. These adjustments have no bearing on the cashflows forecast from the underlying projects.  

On a consolidated IFRS basis, earnings per share were 2.7p (2007 - 28.8p).

As in previous periods, the Company has also prepared pro forma accounts on an investment basis. Profit before tax on an investment basis was £19.6m (2007 - £64.9m) and the earnings per share on an investment basis were 7.8p (2007 - 26.0p).

Profit before tax on an investment basis is less than in the previous year to 31 March 2007 due to a lower revaluation uplift of the portfolio in the year compared to the previous period. The reasons for this are mentioned above and explained in more detail in the Investment Adviser's report.

In the Company's last Interim Report, I advised that the Group was carrying an asset relating to an amount of withholding tax to be reclaimed, pending resolution of the Group's tax submission to H M Revenue & Customs. I am pleased to report that our claim has now been satisfactorily concluded.

Valuation

As in previous periods, the Investment Adviser has prepared a fair market valuation for each investment in the portfolio as at 31 March 2008. 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.

The directors have satisfied themselves with the methodology used, the discount rates applied, and have taken appropriate advice.

As announced on 23 April, the Directors have approved the valuation of the portfolio to be £437.9m as at 31 March 2008. This includes £20.5m of future capital contribution which has now been invested.

The valuation of £437.9m compares with £384.1m at 30 September 2007 and £342.0m as at 31 March 2007. An analysis of the growth in the valuation is detailed in the Investment Adviser's Report.

The resulting NAV per share on an IFRS basis at 31 March 2008 is 120.9p (2007 - 124.4p, and 98.4p at 31 March 2006).

On an investment basis the NAV per share is 123.1p at 31 March 2008 (2007 - 121.5p, and 98.4p at 31 March 2006). Over the year the investment basis NAV per share has grown by 4.1% (from 118.3p after deducting the distribution of 3.225p).

Gearing

The Group was fully invested at launch and in order to make further investments, it has used the Group debt facilities to make acquisitions. The Group originally negotiated debt facilities provided by HSBC Bank plc. These were replaced in December 2007 by a £200m five year revolving facility from Bank of Scotland plc. The interest rate has been partially hedged for the duration of the facility.

As at 31 March 2008, the Group had drawn down £122.4m of this debt facility, and had net debt on an investment basis of £105.6m (2007 - £16.4m). In addition, there was a £20.5m letter of credit in relation to the outstanding subscription obligation for Colchester Garrison which has now been paid.

These loans are on a recourse basis to the Group and are 32.6% (excluding cash and cash equivalents) of the Directors' Valuation of £437.9m as at 31 March 2008.

On a consolidated IFRS basis, the Group had net debt of £248.8m at 31 March 2008 (2007 - £163.6m).

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

The Company's Articles limit the Group's recourse debt to 50% of gross asset value.

C Share Issue

On 23 April 2008, the Company announced its intention to raise additional equity by way of a C Share Issue, the purpose of which was to allow the Group to reduce the Group's debt and make the revolving facility available to fund new suitable acquisitions, as and when good opportunities arise. This is in line with our funding strategy set out at the time of our launch.

I am pleased to report that the Company has raised £103.6m (before expenses) in C Shares from both existing and new shareholders. The C Shares in issue will convert in early June into Ordinary Shares in the Company. Details of the conversion mechanics are set out in the April 2008 C Share Prospectus available on the Company's web site.

Portfolio Development

The Group started the year with 17 investments, of which one phase of the Colchester Garrison project was still in construction. We finished the year with 27 investments and Colchester has recently received its construction certificate for the remaining works, ahead of programme.

All projects have performed over the year as or better than expected. The Investment Adviser's asset management team has worked hard to ensure each project's contractual obligations have been met and that good relationships exist with clients and contracting partners.

During the year two of our projects successfully completed the benchmarking of their services, and the experience gained will inform similar reviews across the remaining portfolio. In February, His Royal Highness the Prince of Wales officially opened the Central Middlesex Hospital project in which the Group has an 85% equity stake.

The Group made three acquisitions in the year comprising two portfolios of assets and an additional stake in an existing project. They were:

• In August, the Group acquired 50% interests in 4 UK police PFI projects from a subsidiary of Allianz SE. These interests were acquired for a total consideration of £36.5m The four projects comprise grouped police stations in South East London and Manchester, a firearms and public order training facility at Gravesend, and a firearms and tactical training centre at Urlay Nook on the outskirts of Stockton. These projects have performed well since acquisition.

• In October, the Group acquired 50% interests in six PFI projects from Kajima Partnerships Ltd for £30.2m. Five interests were schools projects, and the sixth was a government office project for the Health and Safety Executive. Kajima remains the joint shareholder and all the projects are performing well.

• In November, the Company announced the proposed acquisition of additional equity and debt interests in the Home Office project owned by a subsidiary of the HSBC Group. The Company issued a circular seeking shareholder approval (since the acquisition was from a related party) and the £14.4m investment was successfully completed in December.

Accounting

At the year-end, the Group had four 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. Under International Financial Reporting Standards ('IFRS'), the results of these companies are required to be fully consolidated in the Group's financial statements on a line-by-line basis.

As in previous periods, in order to provide shareholders with a more meaningful representation of 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.

Distributions

As announced on 23 April 2008, the Directors have declared a second interim distribution of 3.2p for the year to 31 March 2008. This was paid to shareholders on 23 May 2008.

No further distributions for the year to 31 March 2008 are proposed. The total distribution for the year to 31 March 2008 was 6.25p (2007 - 6.1p). The Board has declared the intention of progressively growing this to 7.0p within 5 years.

In the course of meeting shareholders and investors in relation to the C Share Issue, the possibility of the Company paying a scrip dividend was raised. After taking advice, the Directors have decided to seek shareholder approval at the Company's AGM in July to allow shareholders to elect and receive future dividends by way of scrip dividend.

Corporate Governance

As a Guernsey incorporated company, the Company is not required to comply with the recommendations of the Combined Code on Corporate Governance. However, as I reported last year, the Directors are complying with the Combined Code to the extent it is applicable to the Company. The necessary procedures for this to happen are in place and during the year the Directors and the Investment Adviser have adhered to these procedures. This has included both reviews of the performance of the Board and reviews of the performance of each key service provider to the Group.

As noted in the C Share Prospectus, the Company is currently seeking to appoint a fourth director to the Board who will be a Guernsey resident. It is expected that an appointment will be made in the near future, and in accordance with the Company's Articles, the new director will retire and stand for re-election at the Company's Annual General Meeting in July.

Shareholder Communications

The Investment Adviser and the joint brokers have been active during the year in our relations with shareholders. The Company appointed Oriel Securities as joint broker last September, and as recently announced, we have also appointed Dresdner Kleinwort as joint broker, after their successful joint placing of the C Share Issue with Oriel Securities.

The Investment Adviser meets existing shareholders regularly to explain the Group's performance and strategy. Meetings are also held with potential new investors to explain the attractions of both infrastructure and the Company as an investment opportunity.

The Company has a web site (www.hicl.hsbc.com) which is kept current, and produces quarterly fact sheets.

In January, an investor visit was arranged to one of our projects (the MPA Firearms Training facility) to explain how the project is structured and how it is performing. Guests saw the facilities being used by the police, and were given a presentation by the Investment Adviser on how the project works financially. This presentation is available from our web site.

Outlook

As I noted in my statement in the Company's Interim Report in November, the global credit crisis had not had a noticeable impact on the Company or its investments. Six months on, I am pleased to report that the same is true and the Company's performance has not been impacted by the lack of liquidity in the markets. New PFI and PPP projects are still being funded in the UK and abroad, mainly now with bank debt.

In terms of opportunities, the Company and the Investment Adviser still regularly review a number of potential acquisition opportunities. It is possible that the economic slow down coupled with growing pressure on liquidity may cause some holders of infrastructure assets to make disposals. If so, the Group is well placed to pursue suitable opportunities that arise.

In the C Share Prospectus we set out the current aims of the Group in looking for new acquisitions to complement the current portfolio and to enhance the returns to shareholders. This may include the Group acquiring assets overseas, assets still in construction, or demand based assets (where income is a function of usage) where these have a demonstrable trading history.

We continue to believe that there are good acquisition opportunities in the UK and whilst the Investment Adviser is selectively considering overseas markets, we will only acquire assets abroad where the risk profiles are similar to those in our current portfolio, and where the assets are attractively priced.

Whilst the current economic climate raises uncertainties for many businesses, the Board is confident that the current portfolio will continue to perform and deliver investment cashflows to the Group as targeted. We also believe that new investments can be added to the current portfolio which enable us to deliver on our aim of a progressive distribution policy.

I would like to take this opportunity to thank my fellow Directors for their hard work in the last year and particularly in relation to the C Share Issue. Finally, this Company would not have achieved what it has done to date without the dedication and focus on value from the Investment Adviser. I would like to congratulate the team on their efforts and the results achieved over the last 12 months.

Graham Picken

Chairman

27 May 2008

Investment Adviser's Report

Introduction

We are pleased that the Group has produced a solid investment performance for the year.

The Group's portfolio has performed better than forecast. In particular the Colchester Garrison project achieved practical completion of construction in April 2008, within budget and 5 months ahead of the original programme. Of the five projects in the Initial Portfolio in construction at the time of launch in March 2006, all have successfully completed their construction phases as planned and are now earning income and delivering services.  

Service performance on all projects is good and there are no material operational matters to report.

We review on an on-going basis each investment in the portfolio to ensure it is delivering the correct services to its client, it is managed cost efficiently, and potential value opportunities are identified and included in both the Directors' Valuation and future projections.  

Our asset managers, by actively participating on the project boards, monitor each project's performance and the delivery of identified enhancements.  These include savings on insurance premia, treasury efficiencies, adding incremental income and maintaining costs to agreed operational budgets.

Notwithstanding the current credit environment, there remains considerable investor interest in infrastructure assets, which we see as an expanding asset class. This appetite for infrastructure assets has been reflected in the launch and capital raising of various large funds targeting the larger economic infrastructure market. In the current market, we still believe there will be suitable new investment opportunities that meet the Investment Policy, complement the current portfolio, and can be acquired at attractive prices which offer good value potential.

Strategy

The Group's strategy is focused on both maximising the potential from the existing portfolio and on seeking new suitable investment opportunities.

For new investments, we continue to concentrate on assets which have all the core infrastructure credentials, and have the appropriate financial and risk characteristics to enable the Group to meet its investment targets. The current focus is primarily on operational concessions and projects in the following infrastructure sectors - social infrastructure (like PFI/PPP assets), roads, bridges, airports, ports, tunnels, utilities, transmission grids and renewables.  

We believe attractive investment opportunities are likely to arise outside as well as within the UK. The Group therefore may make investments in Europe, the Americas, and selected territories in Asia and Australasia.  

Making sure each project delivers services to the required standards is an important part of the Company's strategy. Time is taken by our asset management team to ensure that good client contact is maintained so that potential issues are identified and resolved at an early stage.

Portfolio 

Each project in the portfolio has a performance plan prepared by our asset management team, which is reviewed and developed on a regular basis. These plans cover incremental revenue opportunities, cost savings, treasury optimisation, 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.

A planned area of value enhancement on selected projects is to optimise the debt repayments and reduce the overall cost of debt in these projects. Progress is being made in pursuing these financial restructurings, and proposals have been made to a number of public sector clients who will share the gains from any successful refinancing. Discussions with these public sector clients are on-going. The potential benefits and timings of refinancings have been affected by the current conditions in the PFI/PPP debt markets. The Directors' Valuation has been calculated reflecting these lower cost savings available due to higher PFI/PPP debt margins compared to a year ago. We are still pursuing refinancing on a number of projects where the outcome is still forecast to be positive.

The projects are usually responsible for taking out insurances for their assets and income streams, and accordingly this is a significant cost item. In the year we have continued to add projects to those already included within our group-arranged insurance portfolio. This collective buying has enabled economies of scale through reductions in insurance premia paid. 

We have been actively working with our project company shareholders and their sub-contractors to ensure both efficiency and the quality of service provision to our clients. This work has included the benchmarking and market testing of suppliers and in certain cases, the replacement of suppliers. Where these have delivered savings to project companies, these benefits have been reflected in the Directors' Valuation.

Acquisitions

In August 2007 the Group acquired a 50% interest in four police PFI projects from a subsidiary of Allianz SE for £36.5 million. The four police projects are:

• Metropolitan Police Specialist Training Centre - a firearms and public order training facility in Gravesend, Kent

• South East London Police Stations - 4 police station buildings for the Metropolitan Police Authority (London), in Deptford, Lewisham, Bromley and Sutton

• Greater Manchester Police Stations - 17 police station buildings on 16 sites around Greater Manchester

• Durham & Cleveland Firearms Training Centre - a firearms and tactical training centre at Urlay Nook on the outskirts of Stockton, northern England

All the projects are fully operational. The operational support services are being provided by John Laing Integrated Services (formally Equion FM), the facilities management division of John Laing plc. 

In October 2007 the Group acquired 50% interests in five education PFI projects and an accommodation PFI project for £30.2 million, through a new joint venture with Kajima Partnerships Ltd ('KPL'), a subsidiary of Kajima Corporation ('Kajima'). These six PFI accommodation projects are:

• The headquarters of the Health & Safety Executive ('HSE') in Merseyside

• Ealing Schools, comprising one secondary school and three primary schools

• North Tyneside Schools, comprising one secondary school and three primary schools

• Wooldale Centre for Learning, comprising a secondary school with sixth form, public library, primary school and nursery

• Haverstock school, a new secondary school in London

• Darlington Schools, an Education Village and a primary school

All six projects were developed by KPL and built by Kajima Construction Europe, Kajima's construction arm, and are now fully operational. The facilities management providers are Honeywell Control Systems Ltd and Reliance Integrated Services Limited for HSE's headquarters, and MITIE PFI Ltd for the five schools. KPL will continue the day-to-day management of these projects and there is the opportunity for the Group to invest, through this joint venture, in other projects developed by KPL.

In December 2007 the Group acquired an additional 14.14% interest in the Home Office PFI project for £14.4 million. This transaction was sourced from the HSBC Group on a negotiated basis. The transaction was classified as a related party transaction under the Listing Rules, and subject to shareholder approval since HSFML was part of the same group as the seller, HSBC Infrastructure Limited. This has taken the Group's equity interest in the Home Office project to 80%.  

Investment Opportunities

Over the last year investor interest in the infrastructure market has continued to expand with a continuous flow of investment opportunities. We have been selective in the opportunities that we have pursued, with only those that meet the Company's investment criteria and have the right mix of yield and risk profile being fully evaluated. Assets which have been reviewed in detail have included PFI/PPP assets, regulated utilities and renewables in the UK and Europe, and toll roads in Australasia.

There will continue to be opportunities to acquire further PFI investments in the UK as sponsors continue to sell down their interests in projects and portfolios. In Europe and Canada, with the developing growth of PFI/PPP as a procurement method in selected countries, there are a growing number of projects now in construction which will become operational in due course. In the same way as in the UK, the sponsors of these projects will want, in due course, to sell their investments.

Outside of the PFI/PPP sub-sector, we believe new projects will carry on being created in addition to selective sales of infrastructure assets including a number of privatisations. Through our network of contacts, together with the HSBC global network, we expect to find suitable opportunities.

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 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, given the special nature of infrastructure investments.  

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 2008 is £437.9m.  This portfolio valuation compares to £342.0 million as at 31 March 2007 (up 28.0%) and £250.4 million at the time of launch.  This increase is a function of further investments, improved project performance from efficiencies and the market's changing view of PFI valuations. A reconciliation between this valuation 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 discount rates used for valuing the projects in the portfolio as at 31 March 2008 range from 7.0% to 12.0% and the weighted average is 7.5%. Excluding the Kemble Junior Holdco loan, this average is 7.4% and the range is from 7.0% to 7.8%.  

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 growth in the Directors' Valuation over the last 12 months is from £342.0m to £437.9m. Whilst the growth in the year was 28.0%, growth after allowing for the £81.1m investments made in the year and the £22.5m cash distributions received (this excludes the £1.5m of withholding tax received in the year relating to prior periods), was 9.3%. 

In deriving the valuation, the base discount rates have been increased since March 2007 reflecting, in our opinion, a slight reduction in market prices over the 6 months to 30 September 2007. In addition more conservative assumptions have also been adopted (via the discount rate applied) in relation to the financial restructuring potential, both as compared to the prior year and September position. The net result of both these items is an increase in the weighted average discount rate applied of 0.5% from 7.0% used at 31 March 2007. These factors have been more than offset in the valuation by improved project performance and the use of uniform economic assumptions for all UK projects, specifically assumptions on the long-term Retail Price Index of 2.75% pa and cash deposit rates of 5.0% p.a.

Financing 

In December 2007, the Group refinanced its debt facilities with a five year £200 million facility from Bank of Scotland plc. The £200 million multi-currency revolving credit facility replaced the Group's previous £135 million debt facilities with HSBC. The debt is on better terms than the previous facilities, with a margin of 0.85% over LIBOR on drawn amounts. 

Interest rates are partially hedged for the term 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.

On 23 April, the Company announced its intention to raise equity by way of a C Share Issue. This has raised £103.6m (before costs of £1.9m), and the proceeds on conversion are currently being used to pay down the Group's debt. The C Shares are expected to convert into Ordinary Shares in early June, and the Group will then have undrawn debt of approximately £160m available for further acquisitions.

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.

Presentation of results on investment basis

At the year end, the Company had four investments which it was deemed to control by virtue of having the power, directly or indirectly, to govern the financial and operating policies of those entities. Under International Financial Reporting Standards ('IFRS'), the results of these companies are required to be fully consolidated into the Group 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.

Accordingly, in order to provide shareholders with a better representation of the Group's net asset value, its capacity for investment and its ability to make distributions, the Investment Adviser has restated the Group's results in the proforma tables below. Investments are presented on a consistent fair value basis with movements in fair value recognised in the income statement. The table reconciles the results under the investment basis of accounting with those under IFRS basis by consolidating the subsidiary investments. The effect is to disclose the subsidiaries' results on a line by line basis in the income statement, balance sheet and cash flow.

Unaudited consolidated proforma income statements
for the year ended 31 March 2008
	Year ended 31 March 2008						Period from 11 January 2006 to 31 March 2007
	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	-	-	-	22.1	22.1		-	-	-	19.9	19.9
Gains on finance receivables	-	-	-	7.2	7.2		-	-	-	28.2	28.2
Gains on investments	25.5	5.9	31.4	(7.7)	23.7		14.4	53.1	67.5	(6.3)	61.2
Total income	25.5	5.9	31.4	21.6	53.0		14.4	53.1	67.5	41.8	109.3
Services costs	-	-	-	(15.9)	(15.9)		-	-	-	(18.0)	(18.0)
Administrative expenses	(6.4)	-	(6.4)	(0.6)	(7.0)		(4.4)	--	(4.4)	(0.7)	(5.1)
Profit before net finance costs and tax	19.1	5.9	25.0	5.1	30.1		10.0	53.1	63.1	23.1	86.2
Finance costs	(5.0)	(1.4)	(6.4)	(16.0)	(22.4)		(0.5)	-	(0.5)	(5.9)	(6.4)
Finance income	1.0	-	1.0	0.5	1.5		2.3	-	2.3	0.3	2.6
Profit/(loss) before tax	15.1	4.5	19.6	(10.4)	9.2		11.8	53.1	64.9	17.5	82.4
Income tax credit/(expense)	-	-	-	(0.9)	(0.9)		-	-	-	(6.9)	(6.9)
Profit for the period	15.1	4.5	19.6	(11.3)	8.3		11.8	53.1	64.9	10.6	75.5
Attributable to:
Equity holders of the parent	15.1	4.5	19.6	(12.8)	6.8		11.8	53.1	64.9	7.1	72.0
Minority interests	-	-	-	1.5	1.5		-	-	-	3.5	3.5
	15.1	4.5	19.6	(11.3)	8.3		11.8	53.1	64.9	10.6	75.5
Earnings per share - basic and diluted (pence)	6.0	1.8	7.8	(5.1)	2.7		4.7	21.3	26.0	2.8	28.8

Unaudited consolidated proforma balance sheet
as at 31 March 2008
	31 March 2008				31 March 2007
	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)	417.4	(32.7)	384.7		319.7	(25.8)	293.9
Finance receivables at fair value through profit or loss	-	170.4	170.4		-	176.2	176.2
Intangible assets	-	28.0	28.0		-	30.1	30.1
Deferred tax assets	-	8.0	8.0		-	9.8	9.8
Total non-current assets	417.4	173.7	591.1		319.7	190.3	510.0
Current assets
Trade and other receivables	2.9	6.2	9.1		3.0	5.0	8.0
Cash and cash equivalents	16.8	10.4	27.2		49.1	10.6	59.7
Total current assets	19.7	16.6	36.3		52.1	15.6	67.7
Total assets	437.1	190.3	627.4		371.8	205.9	577.7
Current liabilities
Bank overdraft	-	-	-		(0.4)	-	(0.4)
Trade and other payables	(5.5)	(15.6)	(21.1)		(2.4)	(17.4)	(19.8)
Loans and borrowings	-	(8.6)	(8.6)		(65.2)	(8.5)	(73.7)
Total current liabilities	(5.5)	(24.2)	(29.7)		(68.0)	(25.9)	(93.9)
Non-current liabilities
Loans and borrowings	(122.4)	(145.0)	(267.4)		-	(149.2)	(149.2)
Other financial liabilities (fair value of derivatives)	(1.4)	(10.0)	(11.4)		-	(5.3)	(5.3)
Deferred tax liabilities	-	(13.1)	(13.1)		-	(14.7)	(14.7)
Total non-current liabilities	(123.8)	(168.1)	(291.9)		-	(169.2)	(169.2)
Total liabilities	(129.3)	(192.3)	(321.6)		(68.0)	(195.1)	(263.1)
Net assets	307.8	(2.0)	305.8		303.8	10.8	314.6
Equity
Shareholders' equity	307.8	(5.6)	302.2		303.8	7.3	311.1
Minority interest	-	3.6	3.6		-	3.5	3.5
Total equity	307.8	(2.0)	305.8		303.8	10.8	314.6
Net assets per share  (pence)	123.1	(2.2)	120.9		121.5	2.9	124.4

Unaudited consolidated proforma cash flow
for the year ended 31 March 2008
	Year ended  31 March 2008				Period from 11 January 2006  to 31 March 2007
	Investment basis	Consolidation adjustments	Consolidated IFRS basis		Investment basis	Consolidation adjustments	Consolidated IFRS basis
	£million	£million	£million		£million	£million	£million
Cash flows from operating activities
Profit before tax	19.6	(10.4)	9.2		64.9	17.5	82.4
Adjustments for:
Gains on investments	(31.4)	7.7	(23.7)		(67.5)	6.3	(61.2)
Gains on finance receivables	-	(7.2)	(7.2)		-	(28.2)	(28.2)
Interest payable and similar charges	5.0	11.3	16.3		0.5	11.6	12.1
Changes in fair value of derivatives	1.4	4.6	6.0		-	(5.7)	(5.7)
Interest income	(1.0)	(0.5)	(1.5)		(2.3)	(0.3)	(2.6)
Amortisation of intangible assets	-	2.1	2.1		-	2.1	2.1
Operating cash flow before changes in working capital	(6.4)	7.7	1.3		(4.4)	3.3	(1.1)
Changes in working capital:
(Increase)/decrease in receivables	-	(0.6)	(0.6)		(0.1)	(3.2)	(3.3)
Increase in payables	0.5	1.2	1.7		2.4	0.2	2.6
Cash flow from operations	(5.9)	8.3	2.4		(2.1)	0.3	(1.8)
Interest received on bank deposits and finance receivables	1.1	0.5	1.6		2.3	9.3	11.6
Cash received from finance receivables	-	13.2	13.2		-	8.0	8.0
Interest paid	(4.5)	(10.4)	(14.9)		(0.5)	(11.4)	(11.9)
Corporation tax paid	-	(0.1)	(0.1)		-	(0.3)	(0.3)
Net cash from operating activities	(7.9)	11.5	3.6		(0.3)	5.9	5.6
Cash flows from investing activities
Purchases of investments	(82.0)	-	(82.0)		(271.0)	21.3	(249.7)
Interest received on investments	152	(0.8)	14.4		5.7	(0.6)	5.1
Dividends received	5.3	(0.7)	4.6		1.2	(0.3)	0.9
Fees and other operating income	0.6	-	0.6		1.1	-	1.1
Acquisition of subsidiaries net of cash acquired	-	-	-		-	(7.2)	(7.2)
Purchase of minority interests	-	-	-		-	(2.1)	(2.1)
Loanstock and equity repayments received	2.9	-	2.9		8.0	(0.7)	7.3
Net cash used in investing activities	(58.0)	(1.5)	(59.5)		(255.0)	10.4	(244.6)
Cash flows from financing activities
Proceeds from issue of share capital	-	-	-		246.1	-	246.1
Proceeds from issue of loans and borrowings	182.8	-	182.8		30.2	3.0	33.2
Repayment of loans and borrowings	(98.2)	(8.5)	(106.7)		-	(8.2)	(8.2)
Distributions paid to Company shareholders	(15.7)	-	(15.7)		(7.2)	-	(7.2)
Distributions paid to minorities	-	(1.4)	(1.4)		-	(0.8)	(0.8)
Net cash from financing activities	68.9	(9.9)	59.0		269.1	(6.0)	263.1
Net increase in cash and cash equivalents	3.0	0.1	3.1		13.8	10.3	24.1
Cash and cash equivalents at beginning of period	13.8	10.3	24.1		-	-	-
Cash and cash equivalents at end of period	16.8	10.4	27.2		13.8	10.3	24.1

Notes to the unaudited consolidated proforma financial statements 

for the year ended 31 March 2008

• Investments

The valuation of the Group's portfolio at 31 March 2008 reconciles to the consolidated balance sheet as follows:

	31 March 2008	31 March 2007
	£million	£million
Portfolio valuation	437.9	342.0
Less : undrawn loanstock commitments	(20.5)	(22.3)
Portfolio valuation on an investment basis	417.4	319.7
Less : equity and loanstock investments in operating subsidiaries eliminated on consolidation	(32.7)	(25.8)
Investments per audited consolidated balance sheet	384.7	293.9

Consolidated income statement (audited)
for the year ended 31 March 2008
		Year ended  31 March 2008				Period from 11 January 2006  to 31 March 2007
	Note	Revenue	Capital	Total		Revenue	Capital	Total
Services revenue		22.1	-	22.1		19.9	-	19.9
Gains/(losses) on finance receivables		8.0	(0.8)	7.2		9.0	19.2	28.2
Gains on investments	1	23.5	0.2	23.7		12.9	48.3	61.2
Total income		53.6	(0.6)	53.0		41.8	67.5	109.3
Services costs		(15.9)	-	(15.9)		(18.0)	-	(18.0)
Administrative expenses		(7.0)	-	(7.0)		(5.1)	-	(5.1)
Profit/(loss) before net finance costs and tax		30.7	(0.6)	30.1		18.7	67.5	86.2
Finance costs		(16.3)	(6.1)	(22.4)		(12.1)	5.7	(6.4)
Finance income		1.5	-	1.5		2.6	-	2.6
Profit/(loss) before tax		15.9	(6.7)	9.2		9.2	73.2	82.4
Income tax (expense)/credit		(6.6)	5.7	(0.9)		(1.9)	(5.0)	(6.9)
Profit/(loss) for the year/period		9.3	(1.0)	8.3		7.3	68.2	75.5
Attributable to:
Equity holders of the parent		7.4	(0.6)	6.8		9.1	62.9	72.0
Minority interests		1.9	(0.4)	1.5		(1.8)	5.3	3.5
		9.3	(1.0)	8.3		7.3	68.2	75.5
Earnings per share - basic and diluted (pence)				2.7				28.8

Consolidated balance sheet (audited)
as at 31 March 2008
		31 March 2008	31 March 2007
	Note	£million	£million
Non-current assets
Investments at fair value through profit or loss	2	384.7	293.9
Finance receivables at fair value through profit or loss		170.4	176.2
Intangible assets		28.0	30.1
Deferred tax assets		8.0	9.8
Total non-current assets		591.1	510.0
Current assets
Trade and other receivables		9.1	8.0
Cash and cash equivalents		27.2	59.7
Total current assets		36.3	67.7
Total assets		627.4	577.7
Current liabilities
Bank overdraft		-	(0.4)
Trade and other payables		(21.1)	(19.8)
Loans and borrowings		(8.6)	(73.7)
Total current liabilities		(29.7)	(93.9)
Non-current liabilities
Loans and borrowings		(267.4)	(149.2)
Other financial liabilities (fair value of derivatives)		(11.4)	(5.3)
Deferred tax liabilities		(13.1)	(14.7)
Total non-current liabilities		(291.9)	(169.2)
Total liabilities		(321.6)	(263.1)
Net assets		305.8	314.6
Equity
Ordinary share capital		-	-
Retained reserves		302.2	311.1
Total equity attributable to equity holders of the parent		302.2	311.1
Minority interests		3.6	3.5
Total equity		305.8	314.6
Net assets per share (pence)		120.9	124.4

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 2008, and signed on its behalf by:

J Hallam                       G Picken

Director                        Director

Consolidated statement of changes in shareholders' equity (audited)
for the year ended 31 March 2008
	Year ended 31 March 2008							Period 11 January 2006 to 31 March 2007
	Attributable to equity  holders of the parent				Minority interests	Total equity		Attributable to equity  holders of the parent						Minority interests		Total equity
	Share capital	Retained reserves	Total shareholders' equity					Share capital		Share  premium*	Retained reserves	Total shareholders' equity
	£million	£million	£million		£million	£million		£million		£million	£million	£million		£million		£million
Shareholders' equity at beginning of year/period as previously reported	25.0	286.1	311.1		3.5	314.6		-		-	-	-		-		-
Restatement	(25.0)	25.0	-		-	-		-		-	-	-		-		-
Shareholders' equity at beginning of year/period	-	311.1	311.1		3.5	314.6		-		-	-	-		-		-
Profit for the year/period	-	6.8	6.8		1.5	8.3		-		-	72.0	72.0		3.5		75.5
Surplus arising on purchase of minority interests	-	-	-		-	-		-		-	0.2	0.2		(0.5)		(0.3)
Total recognised income and expense for the period	-	6.8	6.8		1.5	8.3		-		-	72.2	72.2		3.0		75.2
Minority share of acquired businesses	-	-	-		-	-		-		-	-	-		1.3		1.3
Distributions paid to Company shareholders	-	(15.7)	(15.7)		-	(15.7)		-		-	(7.2)	(7.2)		-		(7.2)
Distributions paid to minorities	-	-	-		(1.4)	(1.4)		-		-	-	-		(0.8)		(0.8)
Ordinary shares issued	-	-	-		-	-		25.0		225.0	-	250.0		-		250.0
Costs of share issue	-	-	-		-	-		-		(3.9)	-	(3.9)		-		(3.9)
Transfer*	-	-	-		-	-		-		(221.1)	221.1	-		-		-
Shareholders' equity at 31 March	-	302.2	302.2		3.6	305.8		25.0		-	286.1	311.1		3.5		314.6
Restatement:
Correction of share capital	-	-	-		-	-		(25.0)		25.0	-	-		-		-
Transfer of share premium to retained earnings*	-	-	-		-	-				(25.0)	25.0	-		-		-
Shareholders' equity at 31 March as restated	-	302.2	302.2		3.6	305.8		-		-	311.1	311.1		3.5		314.6

* The share premium account was cancelled by Court order on 21 July 2006 and the balance of £246.1 million transferred to a new, distributable reserve which has been combined with retained earnings in these accounts.

Consolidated cash flow statement (audited)
for the year ended 31 March 2008
		Year ended 31 March 2008	Period 11 January 2006 to 31 March 2007
		£million	£million
Cash flows from operating activities
Profit before tax		9.2	82.4
Adjustments for:
Gains on investments		(23.7)	(61.2)
Gains on finance receivables		(7.2)	(28.2)
Interest payable and similar charges		16.3	12.1
Changes in fair value of derivatives		6.1	(5.7)
Interest income		(1.5)	(2.6)
Amortisation of intangible assets		2.1	2.1
Operating cash flow before changes in working capital		1.3	(1.1)
Changes in working capital:
Increase in receivables		(0.6)	(3.3)
Increase in payables		1.7	2.6
Cash flow from operations		2.4	(1.8)
Interest received on bank deposits and finance receivables		1.6	11.6
Cash received from finance receivables		13.2	8.0
Interest paid		(13.5)	(11.9)
Corporation tax paid		(0.1)	(0.3)
Net cash from operating activities		3.6	5.6
Cash flows from investing activities
Purchases of investments		(82.0)	(249.7)
Interest received on investments		14.4	5.1
Dividends received		4.6	0.9
Fees and other operating income		0.6	1.1
Acquisition of subsidiaries net of cash acquired		-	(7.2)
Purchase of minority interests		-	(2.1)
Loanstock and equity repayments received		2.9	7.3
Net cash used in investing activities		(59.5)	(244.6)
Cash flows from financing activities
Proceeds from issue of share capital		-	246.1
Proceeds from issue of loans and borrowings		182.8	33.2
Repayment of loans and borrowings		(106.7)	(8.2)
Distributions paid to Company shareholders		(15.7)	(7.2)
Distributions paid to minorities		(1.4)	(0.8)
Net cash from financing activities		59.0	263.1
Net increase in cash and cash equivalents		3.1	24.1
Cash and cash equivalents at beginning of year/period		24.1	-
Cash and cash equivalents at end of year/period		27.2	24.1

Notes to the consolidated financial statements

For the year ended 31 March 2008

• Gains on investments

	For the year ended 31 March 2008			For the period 11 January 2006 to 31 March 2007
	Revenue	Capital	Total	Revenue	Capital	Total
	£million	£million	£million	£million	£million	£million
Interest from investments	18.4	-	18.4	10.9	-	10.9
Dividend income from investments	4.6	-	4.6	0.9	-	0.9
Fees and other operating income	0.5	-	0.5	1.1	-	1.1
Gains on investments (Note 2)	-	0.2	0.2	-	48.3	48.3
	23.5	0.2	23.7	12.9	48.3	61.2

            Included within Gains on valuation is an unrealised exchange loss of £7.6 million on the Group's Euro

            borrowings (2007: £Nil).

2.    Investments at fair value through profit or loss

	31 March 2008	31 March 2007
	£million	£million
Opening balance	293.9	-
Acquisition of Initial Portfolio	-	170.6
Investment in the year/period	82.9	78.6
Accrued interest	11.4	4.7
Repayments in the year/period	(2.4)	(8.8)
Gain on valuation	1.4	49.8
Other movements	(2.5)	(1.0)
Carrying amount at year/period end	384.7	293.9
Gain on valuation as above	1.4	49.8
Less : transaction costs incurred	(1.2)	(1.5)
Gains on investments	0.2	48.3

            The Investment Adviser has carried out fair market valuations of the investments as at 31 March 2008. The

            valuation has been prepared based on a discounted cashflow methodology and adjusted in accordance with the

           European Venture Capital Association's Valuation Guidelines where appropriate, given the special nature of

           infrastructure investments. Discount rates applied range from 7% to 12.0% (average of 7.5%) (2007: 6.5% to 7.5%

           (average of 7.0%)).

              Details of investments in which the Consolidated Group held an interest were as follows:

	Percentage Holding
	31 March 2008			31 March 2007
Investments (project name)	Equity	Subordinated loanstock	Mezzanine debt	Equity	Subordinated loanstock	Mezzanine debt
Barnet Hospital	51.0%	99.0%	100.0%	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%	-	85.0%	100.0%	-
Cleveland and Durham Police Tactical Training Centre	50.0%	50.0%	-	-	-	-
Colchester Garrison	42.0%	42.0%	-	42.0%	42.0%	-
Darlington Schools	50.0%	50.0%	-	-	-	-
Defence Sixth Form College	45.0%	45.0%	-	45.0%	45.0%	-
Dutch high speed rail link	37.5%	37.5%	-	24.5%	50.0%	-
Ealing Schools	50.0%	50.0%	-	-	-	-
Fife Schools	40.0%	40.0%	100.0%	40.0%	40.0%	100.0%
Greater Manchester Police Authority	50.0%	50.0%	-	-	-	-
Haverstock School	50.0%	50.0%	-	-	-	-
Health & Safety Laboratory	80.0%	90.0%	-	80.0%	90.0%	-
Health and Safety Executive Mersey side Headquarters	50.0%	50.0%	-	-	-	-
Helicopter training facility	21.8%	21.8%	-	21.8%	21.8%	-
Home Office Headquarters	80.0%	100.0%	-	65.9%	81.5%	-
Kemble Water	-	-	3.6%	-	-	3.6%
Metropolitan Police Specialist Training Centre	50.0%	50.0%	-	-	-	-
North Tyneside Schools	50.0%	50.0%	-	-	-	-
South East London Police Stations	50.0%	50.0%	-	-	-	-
Sussex Custodial Centre	82.3%	82.3%	-	82.3%	82.3%	-
West Middlesex Hospital	95.0%	96.3%	-	95.0%	96.3%	-
Wooldale Centre for Learning	50.0%	50.0%	-	-	-	-

In October 2007 the Group's convertible loan notes in the Dutch High Speed rail link converted into shares, increasing the Group's equity interest to 37.5% (2007:24.5%).

Although the Consolidated Group has a greater than 50.0% shareholding in certain entities listed above, it is unable to govern the financial and operating policies of the entities by virtue of agreements with the other shareholders. Consequently, these investments are not treated as subsidiaries, and instead they are accounted for as financial assets at fair value through profit or loss.

 

END

 

 

FR SEWFAWSASEFI