3i Infrastructure H1 2025 Earnings Report

3i Infrastructure EPS Results

• Actual EPS: GBX 18.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

3i Infrastructure Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

3i Infrastructure Announcement Details

• Quarter: H1 2025
• Date: 11/12/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, November 12, 2024
• Conference Call Time: 2:00AM ET

3i Infrastructure (LON:3IN) is a Jersey-incorporated, closed-ended investment company, an approved UK Investment Trust, listed on the London Stock Exchange and regulated by the Jersey Financial Services Commission. The Company's purpose is to deliver a long-term sustainable return to shareholders from investing in infrastructure. 3i Investments plc, a wholly-owned subsidiary of 3i Group plc, is authorised and regulated in the UK by the Financial Conduct Authority and acts as Investment Manager to 3i Infrastructure plc.

3i Infrastructure H1 2025 Earnings Call Transcript

Key Takeaways

• Achieved a 5.1% total return on opening NAV in H1, putting the company well on track toward its 8–10% annual target and boosting NAV per share to 374.7p.
• Realized Valoram at a 31% uplift and syndicated a stake in Future Biogas at a 15% uplift, underscoring strong demand from private market investors for high-quality infrastructure assets.
• Declared an interim dividend of 6.325p per share, up 6.3% year-on-year and representing half of the 12.65p full-year target, which is expected to be fully covered by income.
• SRL underperformed amid UK local authority budget constraints and deferred roadworks, leading to a valuation downgrade, management changes, and increased internal resource allocation.
• Maintained consistent execution of its core-plus infrastructure strategy, marking the seventh consecutive asset sale at a NAV premium averaging 37%, with £2.8 billion returned against £1 billion invested.

Presentation

[Company Representative at 3i Infrastructure]

Everybody, and thank you for joining us as we share our strong results for the first half of the year. The portfolio continues to perform well and ahead of expectations. Our largest assets, in particular, are seeing robust earnings momentum. You'll hear more about this from Bernardo. In the first half, we delivered a 5.1% total return on opening net asset value, exceeding our annual target range of 8%-10%. This performance has pushed our NAV per share up to 374.7 pence. Both the realization of Valorem at a 31% uplift to the September 2023 valuation for expected proceeds of EUR 309 million, as well as the partial syndication of Future Biogas at a 15% uplift to our March 2024 valuation, demonstrate the resilient demand from private market investors for our high-quality infrastructure investments. Scott will give more detail on these transactions later.

[Company Representative at 3i Infrastructure]

Today, we have announced an interim dividend of GBP 6.325 per share, half of our full-year target, and a 6.3% increase from last year. We are well on track to deliver the full-year dividend target of GBP 12.65 per share, and we expect it to be fully covered by income. James will speak more about dividends and liquidity. We have a unique and differentiated proposition in the listed infrastructure market, and we are confident that both our company and its portfolio are well positioned for continued growth. Thank you. Now I'll hand over to Scott.

[Scott Moseley, Managing Partner at 3i Infrastructure]

Thank you, Richard, and good morning. We are pleased to be presenting another strong set of results to you this morning. The key message we want you to take away is that of consistency. In market conditions, which have proven to be volatile in recent times, we are proud of having consistently delivered on the objectives that we have set out. We do what we say we're going to do. Our strategy is clearly defined and well proven. We've been successfully using it to invest in core-plus infrastructure for more than 10 years now. It isn't going to change anytime soon. We invest in businesses demonstrating high quality of earnings within growth markets. We work actively with our management teams to grow our businesses through CapEx that is incrementally accretive to our discount rates, providing continued fuel for future earnings and value growth.

[Scott Moseley, Managing Partner at 3i Infrastructure]

At the same time, we work closely with our management teams to work out the white space they may be able to move into over time. That may be through internationalization, for example, TCR, ESVAGT, GCX, and Tampnet, or moving into adjacent markets such as Joulz, Infinis, Ionisos, or increasing penetration in current markets, think Future Biogas, SRL, and DNS:NET. Once we've done those things, proven the quality of earnings, started the business on CapEx-led growth journeys, and defined the potential of the continued growth runway available, it may be time to think about selling. The buyers of our businesses are lower cost of equity infrastructure investors who are keen to continue the journey that we've defined and will pay us a premium for that opportunity. In this period, Valorem becomes the latest in a long line of investments that have followed this playbook.

[Scott Moseley, Managing Partner at 3i Infrastructure]

As you can see from the chart on the screen, it is the seventh consecutive investment that we have sold at a premium to NAV, and the average premium we have achieved has been 37% to the NAV before a sales process is launched. We have now returned GBP 2.8 billion through asset sales against a cost of GBP 1 billion, and that's a handsome premium for consistency. Valorem is one of three energy developers that we have in our portfolio, each following a consistent growth playbook. That playbook involves working with high-quality management teams to grow their installed asset bases with revenues backed by contracts whilst expanding their development pipeline. In doing so, we meaningfully grow high-quality earnings whilst establishing a clear route to further earnings expansion through a granular development pipeline.

[Scott Moseley, Managing Partner at 3i Infrastructure]

In Valorem's case, during our ownership, we grew the operational asset base to over 850 MW, a 5x increase. We grew earnings by 4x from EUR 26 million to EUR 108 million, and we increased the pipeline from 1.3 GW to 6.6 GW. Future Biogas is earlier in its journey than Valorem, but it shares plenty in common. We've owned the business for just over a year now, and in that short space of time, Future Biogas has acquired eight of the 11 anaerobic digestion plants that it previously only operated, while developing a strong pipeline of further opportunities, including building a new plant to contract for AstraZeneca. During the period, one of Europe's leading energy utilities, RWE, acquired 23% of our stake in Future Biogas at a 15% premium to our carrying valuation.

[Scott Moseley, Managing Partner at 3i Infrastructure]

RWE is well qualified to have an informed view around the value creation potential at Future Biogas. We are very pleased to welcome them on board. The proceeds from the sale of Valorem and the partial syndication of Future Biogas will be used to reduce outstanding balances on 3IN's RCF, consistent with the strategy that we have previously communicated. There is a third energy developer within our portfolio which is following a comparable playbook to the ones I've already described: Infinis. We've owned Infinis a little longer than Future Biogas, but we're just as excited by its prospects. You can see in this chart how, working with a top-quality management team, we've turned Infinis into a fast-growing renewable developer. Infinis now owns and operates over 100 MW of operational solar capacity and has developed a 1.4 GW solar and battery pipeline.

[Scott Moseley, Managing Partner at 3i Infrastructure]

You will note that during the period, Infinis has delivered positive EBITDA growth and is well positioned for further growth as we bring the pipeline into operations. I've previously spoken around the rationale for private markets investors favoring the kind of investments that 3IN makes, and in particular, from their perspective, the importance of investing in businesses that are demonstrating growth. We have a portfolio of businesses which are almost all enjoying strong growth tailwinds. Bernardo will go into further detail in a moment. Ahead of that, though, it's worth reiterating that the valuations we present to you are buy-and-hold valuations, typically run under DCF assumptions for the long term. These are absolutely appropriate as a buy-and-hold valuation methodology, using 3IN's weighted average discount rate as an approximate guide for its cost of capital.

[Scott Moseley, Managing Partner at 3i Infrastructure]

What is evident from our track record, though, is that for a number of our investments, there is a universe of investors with a lower cost of capital than 3IN, who may reach higher valuations when they apply their own exit assumptions on a shorter duration timescale. The amount of capital being raised amongst private market investors clearly indicates that this dynamic is not going to change for the foreseeable future. 3IN is well placed to benefit. So while we recognize that market conditions remain tough and that the 3IN share price is trading at a discount to NAV, we just continue to execute on those things within our control. We will keep doing what we say we are going to do, and we feel excited about the potential for further value creation within our portfolio companies. I'll now hand over to Bernardo.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

Thanks, Scott. Good morning, everyone. Scott spoke about how we have consistently delivered value over time and the importance of investing in our businesses to drive accretive EBITDA growth. That is particularly true for businesses that have platform value and are set against supportive megatrends. We are active managers of those platforms, and we work closely with our management teams to maximize value creation throughout our ownership. We invest in differentiated assets within subsectors that are backed by the long-term megatrends that we believe in. That gives us the opportunity to grow earnings, make accretive CapEx investments, and generate superior returns versus traditional infrastructure fund investments. And as you can see, earnings are growing: 14% in the period if we exclude those companies affected by normalizing energy prices and 10% across the portfolio as a whole.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

Our portfolio companies invested over GBP 400 million in growth CapEx on terms that will deliver accretive returns. And we work hard with management teams to bring governance and discipline into the deployment of that capital. As that CapEx flows through to revenue, it provides good visibility over continued earnings growth. This slide shows just how that growth is driving returns across the portfolio right now, and we believe our companies are ideally set as platforms able to continue generating growth and providing real embedded value in our portfolio. I'll give you some detail on the larger contributors to our half-year return, but first, an update on the companies to the left-hand side of the chart: SRL and DNS:NET, the outliers in terms of underperformance. SRL has performed behind our expectations in the first half of the year.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

It's operating in a challenging market with local authorities in the U.K. and the budget constraints, which is driving a reduction in the number of roadworks visible through the number of permits issued nationwide. We believe roadworks have been deferred rather than canceled, and the additional funding announced in the latest budget to repair our roads does give some reassurance to that belief. Nonetheless, we have reflected that negative outlook in our valuation, and we have introduced changes to the management team. We have also allocated more internal resources to this investment, and the new CEO has identified several new initiatives to drive growth in response to this more challenging backdrop. Scott gave you a detailed update on DNS:NET at the full-year results presentation, noting the significant challenges the business was facing and the stress we are seeing in that market, and that it's still the case.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

But we are starting to see signs of stabilization at DNS:NET. The time and the effort that we have invested in the company is starting to bear fruit. To recap, we have recruited a new management team that is now implementing a new business plan and focusing on restructuring the company's subcontracting arrangements to ensure its contractors are now appropriately incentivized to connect homes onto the network rather than just bulk-laying trunk fiber. And now we are starting to see some early momentum in the number of activated connected customers, increasing in line with our revised business plan and driving revenue growth. It's still early days, but we are pleased with the progress management is making. However, for prudence, we once again retain a flat valuation in recognition of the challenges experienced by the company to date.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

I'll now give you some highlights from some of the largest contributors in the first half. Tampnet had a good first half, well exceeding EBITDA growth targets, primarily due to the increased demand for bandwidth upgrades and favorable inflation-linked contracts in both the North Sea and the Gulf of Mexico. During the period, Tampnet secured its first fiber-backed contract in the Mexican deep-water side of the Gulf and is exploring several new opportunities outside the regions it currently serves. The company also continues to see increasing demand for its private network solution business and expects to have over 20 of these contracted by year-end. Looking further ahead, the company is involved in multiple discussions with various offshore carbon capture developments and exploring potential offshore wind connectivity solutions. TCR, our biggest investment by value, outperformed expectations during the period, delivering solid double-digit EBITDA growth.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

Demand for its rental product remained strong, driven by the post-COVID recovery of air traffic and the increasing rate of leasing adoption within TCR's markets. The company made good progress with the acquisition of KES from KLM and has since won new contracts at Schiphol Airport. Elsewhere, the company secured notable new contracts and is expanding its product range, its solutions offering. TCR continues to support the decarbonization of its customers' operations by investing in new electric ground support equipment, now accounting for 38% of its total motorized fleet. It is also continuing to gain traction on its pooling solutions at major airports worldwide. ESVAGT had a strong first half, driven by increasing vessel day rates and high levels of utilization and the growing contribution of its offshore wind business.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

The company currently operates nine service operation vessels supporting the offshore wind sector, with a further four currently under construction, each being built to service long-term charter agreements. The revenue contracted book has increased 50% since we acquired full control of the company only two and a half years ago. Looking ahead and despite the recent industry headwinds, the near-term pipeline for new SOVs remains strong. ESVAGT is currently shortlisted for several tenders and is expecting additional tenders to launch within the next 12 months. ESVAGT also closed a further EUR 200 million committed debt facility at attractive rates, providing additional capital to support its fast-growing offshore wind vessel pipeline. And finally, GCX. The company has a strong tailwind and benefits from the exponential increase in data traffic due to tech advances, AI, and the digitalization of the economy.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

Demand for GCX's bandwidth is driven by the ever-increased need for capacity in GCX's routes. It has made real progress in converting its sales pipeline into signed contracts and also increasing its recurring revenue base by favoring medium-term lease contracts over one-off capacity sales. GCX continues to explore a number of attractive network investment opportunities along the Europe to India and India to Singapore corridors, where barriers to entry are high and better pricing can be achieved than the more commoditized transatlantic routes. To conclude, we have a great team here at 3i with a high-performance culture. We are immensely proud of the track record that we have achieved to date. We also strongly believe that there is a lot more to come from our portfolio, and we are fully confident that we can unlock and deliver that latent growth potential. Thank you. I will now hand over to James.

[James Hatchley, Finance Director at 3i Infrastructure]

Thanks, Bernardo. Good morning, everyone. 3i Infrastructure is unique in the listed infrastructure sector. Scott and Bernardo have just explained key elements of that differentiation. We have a diversified portfolio across megatrends, underlying risk factors, asset types, and countries of operation. This is a carefully selected portfolio of growing businesses, not a collection of limited life concessions or projects. Our portfolio companies develop and invest in their asset bases, delivering earnings growth and sustainable value creation for our shareholders. We drive that value creation through our active asset management and engagement with our top-quality and incentivized portfolio company management teams. Our funding model is different too. I'm going to look at that in two parts. Firstly, funding the growth CapEx that Scott and Bernardo described. I'll turn to the 3i balance sheet, 3IN balance sheet strategy. We continue to see value-accretive CapEx opportunities within our current portfolio.

[James Hatchley, Finance Director at 3i Infrastructure]

Here's how we think about funding for that CapEx. Bernardo showed you this chart earlier. The virtuous circle where growth CapEx at returns accretive to our discount rates drives higher earnings and cash generation. In our announcement this morning, you will have seen that our weighted average discount rate remains at 11.3%. I'll come back to that in a few minutes. That growth CapEx can be largely funded by the portfolio companies themselves. They can use their own cash generation, and we balance reinvestment of this cash with distributions to 3IN. That balance is managed actively and on an ongoing basis. As well as generating cash, the increase in earnings increases debt capacity. We continue to be proactive in managing portfolio company leverage. There are limited refinancing requirements in the next three financial years. This is shown in more detail on this slide.

[James Hatchley, Finance Director at 3i Infrastructure]

Our portfolio company loan-to-value ratio is 32%, the same as at March. The weighted average cost of drawn long-term debt is 4.8%, and 92% of that debt is fixed rate or hedged. During this first half, we raised significant new committed facilities for ESVAGT and Joulz. These facilities can be drawn in due course to support these companies' accretive growth CapEx programs. When we think about leverage at the 3IN level, we have a disciplined balance sheet strategy. We aim to be symmetrical around zero cash over time. This slide shows the balances over the last seven year-ends and this half year. The average balance over this period is net debt of just GBP 23 million. We said that we would repay the drawings on the RCF through selective realizations of the right companies at the right time.

[James Hatchley, Finance Director at 3i Infrastructure]

The last bar reflects repayment of drawn amounts by the EUR 309 million of expected proceeds from the realization of Valorem. We're on track for that transaction to close in the second half of this financial year. We end with drawings of only 8% of portfolio value. That gives us a good level of liquidity, over GBP 500 million, as shown on this slide. Our focus for new investment remains through the portfolio. As I've said before, we don't have any long-term debt at 3IN level, and we expect the remaining drawings on the RCF to be repaid by selective realization of assets at the right time. Our net asset value is GBP 3.5 billion. This chart shows the progression in NAV for the period. Working from the left-hand side, you can see our opening NAV was GBP 3.3 billion, or GBP 3.56 per share.

[James Hatchley, Finance Director at 3i Infrastructure]

That's after paying the final dividend for last year. We delivered a capital return of GBP 122 million, reflecting the portfolio performance that Scott and Bernardo talked about, and most of the uplift from the realization of Valorem. We reflected a small discount to the expected proceeds in the Valorem valuation. Our largest portfolio companies, in particular, performed well, as Bernardo explained earlier. We made a small FX loss of GBP 8 million after hedging. Our hedging program continues to work effectively, insulating our NAV performance in what was a particularly volatile period in the currency markets. Total income added GBP 98 million. Together with non-income cash of GBP 5 million, we have GBP 103 million to support the dividend and costs of running the company. We expect our dividend target to be fully covered by net income for the full year.

[James Hatchley, Finance Director at 3i Infrastructure]

After we deduct costs of GBP 43 million, the NAV is GBP 3.5 billion, or GBP 3.75 per share. Richard announced the interim dividend of GBP 6.325 per share. That's half the target. That will be paid to shareholders on the 13th of January. We'll go ex-div on the 21st of November. Our approach to valuation hasn't changed, and we haven't changed our long-term assumptions for inflation and interest rates. As I've said before, our discount rates have been very stable, as shown on this slide. Our weighted average discount rate remains 11.3%, in line with the last year-end. We see a clear disconnect between public and private market valuations for infrastructure companies.

[James Hatchley, Finance Director at 3i Infrastructure]

The valuations achieved on the realization of Valorem and the syndication of a stake in Future Biogas are further evidence that the private market for high-quality core-plus infrastructure assets remains competitive and that our valuation marks remain appropriate. This is a portfolio fit for the market of today. This chart shows 3IN alongside all the other companies in the listed infrastructure sector, looking at the last 12 months of published data for NAV and dividends. 3IN stands out clearly from this crowd. That difference in outcome is because what we do is different from the rest of the sector. The composition of that return is different too. 3IN is a total return stock, with most of that return being capital gain, leading to ongoing growth in NAV.

[James Hatchley, Finance Director at 3i Infrastructure]

In fact, the NAV per share has grown every year for more than a decade, and our portfolio has almost quadrupled in size over the last 10 years. So, as Scott said at the start, our key message today is one of consistency. Again, we've done what we said we would do, and we're well placed to continue to deliver on our differentiated strategy. I'll now hand back to Scott for Q&A. Thank you.

[Scott Moseley, Managing Partner at 3i Infrastructure]

Thanks, James. If you have questions, I believe there's a mic. If you'd be kind enough to state your name and organization just for the webcast, that would be appreciated. Should we start with Colette?

[Scott Moseley, Managing Partner at 3i Infrastructure]

Hi, good morning. Colette from Deutsche Numis. Could you kindly give us your 3i Infrastructure debt position? Are you able to give us an idea of the aggregate capacity you have across the portfolio companies? I understand you perhaps don't want to give individual companies, but can you give us a sense for the capacity you have to fund the growth CapEx at your underlying companies?

[James Hatchley, Finance Director at 3i Infrastructure]

We don't disclose undrawn CapEx facilities.

[James Hatchley, Finance Director at 3i Infrastructure]

Could you?

[James Hatchley, Finance Director at 3i Infrastructure]

We can have a think about it, but we've obviously enhanced our disclosure in recent years, adding the loan-to-value ratios. As we've said before, we target investment-grade sort of quantum and quality of debt. Let's have a think about it, but as I highlighted, and actually Scott did as well, in fact, we have raised a significant facility in the first half for future growth.

[James Hatchley, Finance Director at 3i Infrastructure]

Just as a follow-on to that, in respect to those facilities, you talked about the attractive rates, etc. Could you give some color around what the banks are giving away at this point in terms of covenants, rates, and anything else that you think is of interest with regard to ESVAGT and Joulz in the facilities you've signed?

[James Hatchley, Finance Director at 3i Infrastructure]

So the cost of debt we give, the weighted average, is 4.8%. So that gives you a good feel of it. We're not disclosing individual costs of debt either for portfolio companies. It will vary by company. Investment grade is a target, and some of our larger companies who have sort of larger private placement programs are getting rates that we would consider to be attractive, for example, but it varies across the portfolio.

[Alex Wheeler, Analyst at RBC]

Thanks. It's Alex Wheeler, RBC. Three from me, please. Just firstly, on the growth CapEx, when you talk about growth and investment for portfolio companies, would bolt-on acquisitions be on top of this? And if so, how are you thinking about opportunities in that regard? And my second question is specifically on Infinis. I think in the slide you show an uptick in EBITDA into 2026. I just wanted to confirm whether that is purely based on the additional renewable capacity coming online. And if so, how are you thinking about the opportunity from flexible generation and what that might do for Infinis? And then my last one, on EBITDA growth, I wondered if you could give a range in terms of the portfolio, in terms of what the range is on the EBITDA growth of portfolio assets versus the 10% or 14% numbers that you disclose. Thank you.

[James Hatchley, Finance Director at 3i Infrastructure]

Thanks, Alex. It sounds like there's one for each of us in that menu. I'll start with the growth CapEx question. Look, I think a couple of things, and I think they relate a little bit to the questions Colette was asking previously as well. To the extent we were to see bolt-ons that were attractive for our portfolio companies, we would be keen to pursue them if they made sense and they were aligned with the strategy, but the way that we fund our portfolio companies, the valuations that we present are all sort of internally funded. There's no junior debt anywhere in the portfolio. It's probably worth reminding everyone, so we run conservative leverage positions deliberately. We feel like there's good capacity within our portfolio companies.

[James Hatchley, Finance Director at 3i Infrastructure]

The CapEx that we show you for the year-to-date, the GBP 400 million for the LTM, that comprises both organic and inorganic CapEx. As I say, I can't think of any of our portfolio company valuations where we have inorganic CapEx, M&A in the business plan. That's not to say we wouldn't pursue it if strategically it made sense. Do you want to do Infinis?

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

Infinis. Yeah, so the uptick in 2026 is primarily driven by the additional solar capacity coming online. The purpose of that slide was exactly to show that. If you recall, when we acquired Infinis, it was a landfill gas business, and therefore with a finite resource, which gave it sort of a wasting profile, which was very good because it was throwing off a lot of cash and helping the 3IN dividend cover. What we've always thought is that there was more value in that platform, that we could use the platform to develop other things in the U.K. energy sector. That's what we're so proud about, is that Infinis has done exactly that, has developed a very material pipeline of solar projects. Now we're seeing them coming online and actually offsetting that sort of slightly declining EBITDA profile with actual growth.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

So yes, it's a contributor, and we're very happy with that.

[Bernardo Sottomayor, Managing Partner at 3i Infrastructure]

Would you like to do the question around the range? There'll be a quick answer.

[James Hatchley, Finance Director at 3i Infrastructure]

So we're not disclosing a range. Clearly, we've disclosed an average. There are some above and some, I mean, SRL we've highlighted, which would be lower because of the market conditions. But I think we've also said that our larger portfolio companies are performing well, so you'd expect them to be at the top end of a range.

[James Hatchley, Finance Director at 3i Infrastructure]

Thanks, Alex.

Participants

Executives

• Bernardo Sottomayor, Managing Partner
• Company Representative
• Scott Moseley, Managing Partner
• James Hatchley, Finance Director

Analysts

• Analyst at Deutsche Numis
• Alex Wheeler, Analyst at RBC