3i Infrastructure H2 Earnings Call Highlights

Key Points

• 3i Infrastructure reported an 8.5% total return for the year, within its 8% to 10% target range, while net asset value rose to 405.2 pence per share and the dividend was fully covered by net income. The board also plans a 6.3% dividend increase to 14.3 pence per share next year.
• The biggest event was the sale of TCR, 3i’s largest-ever exit, which is expected to generate about EUR 1.1 billion in proceeds and produced a 20% internal rate of return. Those proceeds should repay the revolving credit facility and leave the company with strong pro forma net cash after the Lefdal investment.
• Performance was mixed across the portfolio, with DNS:NET written down to zero after financing for its fiber rollout dried up, but several holdings such as Infinis, Tampnet, FLAG, Future Biogas and Oystercatcher delivered strong results. 3i also added a new growth theme investment in Lefdal Mine Datacenter, a fully contracted Norwegian data center with expansion potential.

3i Infrastructure LON: 3IN said it delivered an 8.5% total return for the year, within its medium-term target range of 8% to 10%, after what executives described as an unusually active period for portfolio transactions.

Chair Richard said the company’s net asset value at the end of March was 405.2 pence per share, representing another year of growth despite a challenging market backdrop. He said the dividend for the year of 13.45 pence per share was fully covered by net income, and the company is targeting a dividend of 14.3 pence per share for the next year, an increase of 6.3%.

Richard, who joined as chair in 2016, highlighted the company’s long-term track record, saying NAV per share had increased every year over the past decade at 13% per annum. He also confirmed a planned chair transition, with Andrew Sykes set to join the board in July as chair designate and take over as chair in January next year.

TCR Sale Drives Liquidity Shift

Bernardo said the sale of TCR was the largest exit the company has ever made and the largest full exit in 3i’s history. The expected proceeds to 3i Infrastructure are around EUR 1.1 billion, with enterprise value at completion expected to be around EUR 2.7 billion. He said the estimated proceeds were 50% above TCR’s valuation at the start of the year.

Bernardo said 3i Infrastructure first invested in TCR in 2016 and helped scale the business through bolt-on acquisitions, geographic expansion and expansion into additional equipment categories. He said the company also navigated the disruption faced by aviation customers during COVID-19.

The investment generated an annual internal rate of return of 20%, according to Bernardo. He said 3i Infrastructure made 4.6 times its money on the original 2016 investment and 2.2 times its money on the 2022 buyout of DWS’s stake, for a blended money multiple of 3.6 times.

James said proceeds from the TCR sale are expected to repay the revolving credit facility in full, with an anticipated summer cash inflow of GBP 994 million. After the agreed investment in Lefdal Mine Datacenter, he said the company expects to have pro forma net cash of around GBP 200 million.

DNS:NET Written Down to Zero

The company’s results were weighed down by the write-down of DNS:NET, a German fiber-to-the-home investment. Bernardo said DNS:NET had been a difficult investment for several years, and that 3i Infrastructure had taken steps including bringing in a new management team, recalibrating the business plan and focusing on connecting homes to the network.

However, he said sentiment in the lending market for German fiber changed after Deutsche Glasfaser, the largest German alternative network operator, announced restructuring talks. Bernardo said 3i Infrastructure was unable to raise additional debt commitments for DNS:NET, cutting off funding for the business plan and the route to equity value.

“We recognized that financing reality quickly, remained disciplined in our approach to capital allocation, and took the difficult decision not to continue equity funding the rollout of the network,” Bernardo said.

Despite the write-down, Bernardo said the portfolio still delivered the company’s target return, supported by double-digit returns from Tampnet, Infinis, FLAG, Joulz, Oystercatcher and Future Biogas.

New Data Center Investment Adds Digital Exposure

Bernardo described the investment in Lefdal Mine Datacenter as an expansion into a new sector within the digitalization theme. The facility is an underground data center campus on the west coast of Norway, developed within a repurposed mine and supported by low-cost hydroelectric power and fjord-based cooling.

He said the facility has 80 megawatts of current data center capacity, which is fully contracted to customers on an availability basis, with an average remaining contract length of more than 10 years. Lefdal has applied to increase capacity to 200 megawatts, which Bernardo said would more than double current capacity and allow development of another level of the mine.

In response to analyst questions, Bernardo said the existing 80 megawatts are developed across one of the mine’s six levels, while the expansion to 200 megawatts would involve building out another level with power, cooling and fiber connectivity. He said approval for the power upgrade could come over the next one to three years, though capacity may be added in stages.

Portfolio Companies Report Mixed Performance

Bernardo said several portfolio companies made progress during the year:

• Joulz received EUR 107 million to fund two international bolt-on acquisitions, carving out divisions from Centrica and Engie. Bernardo said the acquisitions expand Joulz into Belgium and Italy and add heat capabilities, increasing EBITDA by 70% from day one.
• ESVAGT increased its operational wind service operation vessel fleet from nine to 12 vessels, although returns were held back by delayed new-build vessel deliveries.
• Infinis had a strong year, driven by higher-than-forecast exported power from captured methane. The company brought 20 megawatts of solar and battery projects online and has a further 280 megawatts under construction.
• Tampnet exceeded revenue and EBITDA targets, supported by offshore activity in the Gulf of Mexico and demand for bandwidth upgrades.
• FLAG benefited from strong demand for subsea fiber capacity linked to hyperscaler demand, AI-driven workloads and cloud infrastructure growth.
• Ionisos performed slightly behind expectations, although revenue grew 7% year over year. Bernardo cited delays at a new French X-ray site and a German plant expansion.
• Future Biogas outperformed, helped by higher exported gas volumes and yields, and added the Burton Agnes anaerobic digestion plant in Yorkshire.
• SRL performed behind expectations due to slower activity from local authorities and the telecom sector, competitive pressure on rental rates and higher U.K. labor costs.
• Oystercatcher delivered a 23% return, supported by record revenues, higher storage rates, longer contract tenors and increased ancillary revenues.

Debt Profile and Outlook

James said 3i Infrastructure’s net asset value was GBP 3.7 billion at year-end, up from GBP 3.5 billion at the start of the period after paying the prior year’s final dividend. The company reported a capital return of GBP 127 million, income of GBP 218 million and a foreign exchange gain of GBP 29 million after hedging.

He said the weighted average discount rate was 11.1%, with TCR valued at a 2.5% discount to expected proceeds while regulatory approvals are obtained, and DNS:NET valued at zero. James also said the company refinanced three portfolio companies during the year and has no significant refinancing requirements in the next three financial years. Average loan-to-value across portfolio company debt was 34%, and the average cost of debt remained 4.8%.

Looking ahead, Bernardo said the new financial year had started well, citing progress on refinancing Tampnet, early returns from FLAG’s investment in the Echo Cable system and new commercial opportunities at Joulz following its bolt-on acquisitions. He said the company’s transformed liquidity position gives it flexibility over future investments and divestments.

About 3i Infrastructure LON: 3IN

3i Infrastructure plc 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.

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