HICL Infrastructure Regulatory News (HICL)

HICL Infrastructure Company Limited

16 November 2011

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

The Directors of HICL Infrastructure Company Limited announce the results for the six months ended 30 September 2011.

Highlights

Results on an Investment basis

Net Asset Values

Results on a Consolidated IFRS basis

Graham Picken, Chairman of the Board, said:

"The Board is pleased with the performance of the Company in the last six months, and the continued demand for the Company's stock. The interim dividend declared is in line with our target to achieve a 7.0p dividend per share by March 2013.

Whilst there has been close scrutiny of PFI projects in the UK for their value-for-money, it is our belief that the Government wishes to continue to access private sector capital and expertise in order to deliver public infrastructure. We and the Investment Adviser are working hard to assist our clients wishing to achieve operational savings, as proposed under the UK HM Treasury guidance issued in July.

The company issued 35.2m shares in the six month period (with a further 10m in early October), and the recently announced acquisitions totalling £19.0m now mean the Company can issue further shares to manage the share price premium. The Group's revolving debt facility remains available for further acquisitions. The Investment Adviser is currently assessing a healthy and sizeable pipeline of new investment opportunities, some of which involve negotiations at an advanced stage. As in previous years, when a material portion of the debt facility is employed to acquire new investments, the Company will consider undertaking a formal equity fundraising in order to pay down the facility."

Contacts for the Investment Adviser on behalf of the Board:

InfraRed Capital Partners Limited: +44 (0) 20 7484 1800

Tony Roper

Keith Pickard

Sandra Lowe

Contacts for M: Communications: +44 (0) 20 7920 2330

Edward Orlebar

Andrew Benbow

Contacts for Collins Stewart Europe Limited: +44 (0) 20 7523 8000

Dominic Waters

Neil Brierley

Will Barnett

David Yovichic

Copies of this announcement can be found on the Company's website, www.hicl.com. The Interim Report for the six months ended 30 September 2011 will be posted to shareholders in November, and an electronic version will be available from the Company's website at that time.

Chairman's Statement

Introduction

On behalf of the Board, I am once again pleased to report a successful six months for the Company in the period to 30 September 2011. The portfolio is performing in line with expectations, we have made further acquisitions and raised further equity capital.

Despite the global economic and financial challenges, the Company's share price has maintained a modest premium to net asset value per share. This reflects investor confidence in the yield and quality of the underpinning low risk infrastructure assets that make up the Group's portfolio of investments.

Financial Results and Performance

Financial results

Consistent with previous practice, the Company has prepared pro-forma accounts on an Investment basis (treating all 43 holdings as investments). Profit before tax on an Investment basis was £30.7m (2010: £23.4m) and earnings per share on an Investment basis were 5.0p (2010: 4.9p per share). This increase is attributable to the contribution made by new investments, as well as the solid performance of the existing portfolio, supported by the annual inflation rate for the Retail Price Index exceeding the Directors' valuation assumption of 2.75 per cent.

Cash received from the portfolio by way of distributions, capital repayments and fees was £29.2m (2010: £21.8m). After Group costs, net cash generated of £24.9m adequately covers the distributions paid in the six month period.

On a consolidated IFRS basis, the profit before tax was £64.3m (2010: £38.3m). Profit before tax has benefited from significant gains on finance receivables caused by a 0.9% reduction in UK long term gilt rates over the six months to September which has only partly been off-set by adverse interest rate swap mark to market movements.

The Company has issued a total of 35.2m new shares in the six month period from tap issues, raising £40.5m before costs to fund the Group's future equity commitments. A further 10m shares were issued and commenced trading on 3 October 2011.

Total fees accruing to InfraRed Capital Partners Limited (the Investment Adviser) amounted to £4.7m in the six months, made up of its 1.1% per annum management fee (1.5% pa assets in construction), 1.0% fee on acquisitions made, and £0.1m advisory fees. The Investment Adviser does not receive any fees from the investment project companies in the portfolio, and hence all fees from these companies are for the benefit of the Group.

The total expense ratio for the Group on an Investment basis in the six month period was 1.27% (being the Group's operational expenses excluding acquisition costs, divided by the Group's net assets on an Investment basis). This compares with 1.20% for the year to 31 March 2011.

Portfolio Performance

The Group's portfolio continues to perform well, and as at 30 September 2011 consisted of 43 PFI/PPP/P3 projects.

On the Bradford BSF Schools project, construction work was finished in the period and the schools are now operational. The Group had three projects under construction at 30 September 2011. Since the period end construction work has completed on the Northwest Anthony Henday Road in Canada. Pontefract and Pinderfields Hospitals is expected to complete imminently. The majority of the construction work on the M80 DBFO Road in Scotland has been completed, with the remaining work due to be finished in the next six months.

The Investment Adviser's team has been proactively engaged across the whole portfolio in dialogue with our public sector clients and partners seeking ways to increase efficiencies and find savings.

Valuation

As in previous periods, the Investment Adviser has prepared a fair market valuation for each investment in the portfolio as at 30 September 2011. 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. The valuation uses key assumptions which are derived from a review of recent comparable market transactions in order to arrive at a fair market value.

The Directors have satisfied themselves with the methodology used, the economic assumptions, and the discount rates applied. The Directors have again taken independent third party advice on the valuation carried out by the Investment Adviser.

The Directors have approved the valuation of £719.3m for the portfolio of 43 investments as at 30 September 2011. On the M80 Motorway DBFO and Northwest Anthony Henday Road P3 projects there were combined outstanding investment commitments of £46.0m at 30 September 2011, which have reduced to £28.9m following completion of construction on the Northwest Anthony Henday Road.

The valuation of £719.3m compares with £673.1m as at 31 March 2011 and £563.3m as at 30 September 2010. An analysis of the growth in the valuation is detailed in the Investment Adviser's Report.

On an Investment basis the NAV per share is 114.8p at 30 September 2011 (31 March 2011: 113.1p). The Investment basis NAV per share after the interim distribution at 30 September 2011 was 111.5p; an increase of 1.8p over the comparable figure at 31 March 2011.

The resulting NAV per share on an IFRS basis 30 September 2011 is 116.7p (31 March 2011: 110.4p).

Acquisitions

The Group has made six new investments and acquired three incremental stakes in existing projects in the six month period, for a total consideration of £70.4m. In April 2011, the Kemble Water junior loan was repaid. Further details are included in the Investment Adviser's Report.

Since the period end the Group has acquired a new PFI investment in Sheffield Hospital, and acquired an additional stake in the Blackburn Hospital project, for total consideration of £19.0m.

Distributions

The Board declared on 10 November 2011 an interim distribution of 3.35p per share for the year to 31 March 2012 (2010: 3.275p), based on the Interim Results for the six months to 30 September 2011. This represents growth of 2.3 per cent. on the interim dividend for the previous financial year.

A scrip dividend alternative is being offered to shareholders and a circular will be sent to shareholders on 26 November 2011 to explain this alternative. Shareholders must decide by 12 December 2011 whether they wish to take up the offer of the scrip dividend (either in part or in full). The distribution (or scrip dividend) will be paid to those shareholders on the register as at 18 November 2011, and will be settled at the end of December 2011.

Risks and uncertainties

The six month period has seen further scrutiny of PFI in the UK and the development of new initiatives. Two UK government select committees produced reports looking at the performance of PFI projects and how the PFI model might be improved for new procurement initiatives.

HM Treasury guidance on managing PFI contracts was updated and re-issued in July following the pilot reviews (in which the Investment Adviser was involved). A new voluntary code on information disclosure and variation protocols is expected later this year.

Notwithstanding some critical media comment following these reviews, the UK Government is committed to its £200bn infrastructure plan and speeches by ministers have reinforced the need for private sector investment. The Board believes and expects that current and future contracts will be honoured.

The Board believes that the principal risks and uncertainties have not changed since the publication of the Company's Annual Report for the year to 31 March 2011 (available on the website) and the last Company Prospectus (November 2010 - available on the website).

The Group's policy for managing foreign exchange risk is being updated to recognise in part the increased cost of debt in the current environment. The net effect on the Group will be to provide more yield certainty but with a small measure of NAV sensitivity to forex movements. Further detail on foreign exchange risk is included in the Financial Results.

Outlook

The strategy of focusing on low risk PFI/PPP/P3 projects, with good counterparties providing essential services to public sector clients, has enabled the Company to perform in line with expectations. Our established investment proposition, simple and transparent fee structure (with no hidden fees), good share liquidity and low total expense ratio are clearly valued by investors. The positive statements by the UK Government on the need for private sector investment in infrastructure underscore the importance of maintaining confidence in our sector.

The demand for the Company's stock has encouraged the Company to issue new shares and to look to grow the portfolio through further acquisitions. The Investment Adviser has initiated discussions to renew the Group's revolving debt facility so that we always have sufficient fire power to make investments when attractive opportunities arise.

There is a healthy pipeline of new investment opportunities, both single investments and portfolios, which are being evaluated. Good progress is being made and the Board is confident that further acquisitions will soon be announced.

Graham Picken

Chairman

15 November 2011

Investment Adviser's Report

Market Developments

Whilst there are fewer new projects being tendered in the UK this year, as at March 2011 61 projects were still in procurement (source: HM Treasury website). The Group does not participate in the public procurement phase of PFI/PPP/P3 projects but makes investments at the operational stage or, selectively, late in construction. A new school building initiative has been announced which will require funding. New models for PFI funding of future infrastructure procurement in the UK are being considered by Government.

The secondary market for PFI/PPP/P3 assets remains active, with a steady flow of assets onto the market, comprising both individual assets and portfolios marketed by contractors and financial institutions.

The return levels from PFI/PPP/P3 assets continue to stimulate the launch of new listed and unlisted funds in our sector. However, in the last six months, pricing for such assets has largely been unaffected. Investment demand has been matched by the supply of assets for sale.

Current Investment Priorities

Our main focus for new investments remains PFI/PPP/P3 concessions, most likely to be operational, although we will consider projects still under construction.

Of possible secondary interest, but only selectively, are:

§ Operational renewable energy projects such as wind farms, solar parks or hydro-electric schemes, where there are suitable contractual structures in place which enable the Group to secure long term income streams, comparable in nature to those in PFI/PPP/P3 projects.

§ Regulated utilities, albeit most investment opportunities in this sector are too large for the Group.

§ Debt funding of infrastructure projects, where and when attractively priced and appropriately structured.

In addition to the UK, which remains our core market, we continue to seek new assets in Canada, Australia and certain countries in northern Europe where there are developed pipelines of investment opportunities and stable fiscal positions.

Portfolio Update

Current performance

The Group's strategy remains to maximise value from the portfolio by active asset management. In this context, our key driver is to provide the operational services to satisfy or exceed the contractual requirements. From successful service delivery, we build strong relationships with our clients and supply chain. We believe these relationships, fostered by our asset management team, assist all stakeholders in identifying and developing cost efficiencies and savings, an area of great importance to our public clients, whose budgets are under growing pressure.

The Group's portfolio continues to perform as expected with good cash generation. Higher inflation is increasing both revenues and costs where indexed. This is offset in part by low deposit rates. The focus for the team has been on working with our public sector clients to seek cost efficiencies, through the implementation of the guidelines published by HM Treasury in July 2011. This has been successful with a number of savings being identified and implemented. We expect this work to continue.

Acquisitions in the period increased the Group's portfolio to 43 infrastructure investments as at 30 September 2011. The Kemble Water junior loan was repaid at par in April, and the Group acquired four PFI schools projects and 2 health projects in the period. Since the period end, the Group has acquired a further health project increasing the overall size of the Group's portfolio to 44 as at 15 November 2011.

Construction of the Bradford schools is complete, and the schools are now in use. Construction was completed on the Northwest Anthony Henday Road in Canada on 1 November 2011. Completion on Pontefract and Pinderfields Hospitals is expected imminently. The M80 DBFO Road project is materially complete in terms of construction, with the remaining works due to be finished in the next six months.

Acquisitions

As noted in the Chairman's Statement, the Group made six new investments and three incremental acquisitions in the six months for an aggregate consideration of £70.4m.

In May 2011, the Group announced the acquisition of three school PFI projects from subsidiaries of Kier Group plc and Dexia SA for a consideration of £17.2m. The interests acquired are 75% of the equity and loan note interests in both Norwich and Oldham Schools and 37.5% of the equity and loan note interests in Sheffield Schools. All three projects are operational and are now jointly owned with Kajima, who are providing the day-to-day project company management. Services are provided by Kier Facilities Services Limited.

In May 2011, the Group acquired a 75% interest in the Brentwood Community Hospital project from Kajima for £4.6m, and this investment is being managed with the three schools mentioned above.

In June 2011, the Group acquired a 100% interest in the South Ayrshire Schools PPP Project for £15.8m. The project involves the operation of three new primary schools, two new secondary schools and a new performing arts annex at an existing secondary school.

Also in June 2011, the Group acquired a 50% interest in the Pontefract and Pinderfields Hospitals PFI Project together with three incremental stakes in existing investments. These three additional stakes were in the Oxford John Radcliffe Hospital and Queen Alexandra Hospital, Portsmouth, together with a small stake in the Medium Support Helicopter Aircrew Training Facility. Total consideration was £32.8m.

In April 2011, the £30.0m Kemble Water junior loan was repaid at par and the proceeds of the repayment were used on the new investments made in May and June.

Since the period end, the Group has acquired a 75% interest in the Sir Robert Hadfield Wing PFI project ("Sheffield Hospital") from Kajima Partnerships Limited. Sheffield Hospital is a 32 year concession to design, build, finance and maintain a 168 bed after-care facility at the Northern General Hospital in Sheffield. The project reached Financial Close in December 2004 and construction was completed in March 2007. Hard FM services are undertaken by Dalkia Utilities Services Limited. Kajima is responsible for management of the project.

The Group has also completed the acquisition of an incremental 50% equity and loan note interest in the Blackburn Hospital PFI project, taking its total equity and loan note interests in the project to 100%.

Valuation and Discount Rates

We are responsible for carrying out the fair market valuation of the Group's investments which we present 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 Association's valuation guidelines where appropriate to comply with IAS 39, 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 (further details can be found in the November 2010 C Share prospectus, available from the Company's website).

The Directors' Valuation of the portfolio as at 30 September 2011 is £719.3m (including £46.0m of future investment obligations). This portfolio valuation compares to £673.1m as at 31 March 2011 (up 6.9%). A reconciliation between the valuation at 30 September 2011 and that shown in the financial statements is given in Note 1 to the unaudited consolidated proforma financial statements, the principal difference being the £46.0m of equity commitments on the M80 motorway DBFO and Northwest Anthony Henday P3.

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

Netting out acquisitions in the period of £70.4m, the redemption of £30.0m, and investment receipts of £29.2m, the growth over the rebased value of £684.3m was 5.1%. This increase is driven by the return of £38.7m from the portfolio, which includes the benefit of actual inflation being above the 2.75% valuation assumption and contributions from new investments.

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. We exercise our judgment in assessing the expected future cash flows from each investment based on the detailed concession life financial models produced by each Project Company.

Discount rates

The discount rates used for valuing each PFI/PPP/P3 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 and opportunities associated with the project earnings (e.g. predictability and covenant of the concession income), all of which may be differentiated by project phase, and market participants appetite for these risks.

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

We use our judgement in arriving at the appropriate discount rate. This is based on our knowledge of the market, taking into account intelligence gained from bidding activities, discussions with financial advisers knowledgeable of our markets and publicly available information on relevant transactions.

An analysis of the movements in the weighted average risk free rate and risk premium for the PFI/PPP/P3 assets (excluding the Kemble Water Junior Loan) is shown below:

Government bonds have seen some volatility over the year driven by a combination of fiscal concerns and the effects of quantitative easing. This has not translated into volatile pricing of PFI/PPP/P3 assets as the market has tried to look through this near term volatility. As outlined in the Market commentary, the increased flow of PFI/PPP/P3 assets for sale has been broadly matched by increased demand for the assets with little impact on pricing or the discount rates used to value these assets.

An analysis of the movements in the weighted average discount rates analysed between operational and construction phase PFI/PPP/P3 projects is shown below:

The discount rate to reflect market pricing for an operational asset has been judged as 8.6% - unchanged from the prior year. The average discount rate applied to value construction assets has reduced by 0.2% reflecting a lower level of risk premium as these assets have now materially completed their construction phases.

An analysis of the weighted average discount rates for the PFI/PPP/P3 portfolio analysed by territory is shown below:

The risk premiums and discount rates applied to value the overseas assets are higher than those used for the UK PFI portfolio because they include a premium for the foreign exchange risk, less mature PFI/PPP/P3 markets and the nature and status of the underlying assets, which include a rail asset and an asset in construction.

Valuation Assumptions

Inflation Rate

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.

The portfolio valuation assumes UK inflation of 2.75% per annum for both RPI and RPIx, the same assumption as used at 31 March 2011.

Deposit Rate

Each PFI project in the portfolio has cash held in bank deposits, which is a requirement of their senior debt financing. As at 30 September 2011 cash deposits for the portfolio were earning interest at a rate of 0.9% per annum on average.

The portfolio valuation assumes UK deposit interest rates are 1% to March 2014 and 4.0% thereafter. This is lower than applied in the March 2011 valuation which assumed 1% deposit interest rates to March 2013 and 4.0% thereafter. This change has reduced the portfolio valuation by approximately £3.6m which accounts for the total reduction in portfolio value attributable to changes in economic assumptions.

Each of the project's interest costs is at a fixed rate, either through fixed rate bonds or bank debt, which is hedged with an interest rate swap. The project's sensitivity to interest rates relates to the cash deposits required as part of the project funding.

Tax Rate

The profits of each UK PFI project company are subject to UK corporation tax. In the March Budget the Coalition Government announced that corporation tax would reduce from 26% to 25% from April 2012 with an aspiration to reduce corporation tax further to 23% in 1% annual increments.

The UK corporation tax assumption for the portfolio valuation remains 26%, with no further step down, consistent with the approach at 31 March 2011.

Financing

The Company successfully issued 35.2m shares by way of tap issues in the six months raising £40.5m before costs. These net proceeds were used to fund new investments. As at 30 September 2011, the Group had net cash of £60.7m and outstanding future investment obligations on two projects totalling £46.0m. A further 10m shares were listed in early October raising £11.6m before costs.

The strategy is to use the Group's £200m revolving debt facility, which is committed through to December 2012, to fund new acquisitions, to provide letters of credit for future investment obligations, and to provide a prudent level of debt for the portfolio to improve the operational gearing. A process is underway to seek a replacement for this facility prior to the Company's financial year-end.

The PFI/PPP/P3 projects in the portfolio all have long term debt in place which does not need refinancing to meet their business plan. The weighted average PFI/PPP/P3 project concession length remaining is 23.7 years at 30 September 2011 and the weighted average debt tenor is 22.2 years.

Counterparty Exposures

All the PFI clients are public sector bodies. The Group has a broad diversified range of facilities management companies, with the acquisitions providing further diversification of the supply chain.

On a quarterly basis we review the portfolio's counterparty exposure to both the operational supply chain and the financial providers of bank deposit accounts and interest rate swaps. The review processes in the period have not identified any significant counterparty concerns for any of the portfolio's construction or facilities management contractors.

Financial Results

Accounting

At 30 September 2011, the Group had 14 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 of three from 31 March 2011. 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 its ability to make distributions, the results have been restated in proforma tables which follow the Financial Results. 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.

The proforma tables show all investments accounted for on an Investment basis, which are reconciled to the consolidated financial statements on a line by line basis.

Income and Costs

On an Investment basis, Profit before tax and valuation movements was £15.7m (2010: £9.0m) and increased due to contributions from acquisitions and reduced finance costs.

Fair value movements are a £15.0m profit (2010: £14.4m) which represents the increase in the portfolio valuation recognised in the income statement. The portfolio valuation benefited from a strong performance from the portfolio, supported by inflation above the valuation assumption. Further detail on the valuation movement is given in the Investment Adviser's Report.

 Earnings on an Investment basis were £30.7m, an increase of £7.3m compared to the comparative period, with earnings per share of 5.0p up 0.1p or 2.0% as compared to 2010. The increase in earnings reflects the positive contribution from acquisitions coupled with good performance from the portfolio.

On a consolidated IFRS basis, the earnings per share were 9.6p (2010: 7.2p). The results on a consolidated IFRS basis show a more significant improvement than on an Investment basis due to increased gains on finance receivables. Gains on finance receivables have increased due to a 0.9% fall in UK long term gilt rates in the period compared to 0.7% in the comparative period and higher finance receivables due to the acquisition of the three subsidiaries in the period.

Total income on a consolidated IFRS basis increased to £103.7m (2010: £87.8m) driven by the acquisition of the three subsidiaries in the period.

Interest was a net cost of £0.7m in the period (2010: £1.5m cost) reduced from the prior year due to lower levels of borrowing and interest rate swaps during the six month period.

Total fees accruing to InfraRed Capital Partners Limited (the Investment Adviser) totalled £4.7m (2010: £3.5m) in the six month period, comprising the 1.1% per annum management fee (1.5% for assets in construction), the 1.0% fee on the acquisitions made, and the £0.1m per annum advisory fee. The increase is a combination of the 1.0% acquisition fee on a larger volume of acquisitions and the management fee on a growing portfolio value.

There were no other contracts between the Group and the InfraRed group in the six month period.

Other expenses amounted to £0.4m (2010: £1.0m), reflecting a reduced level of unsuccessful bid costs.

The TER for the Group has improved year on year from economies of scale as acquisitions and subsequent capital raisings enable the Group's expenses to be spread over an enlarged capital base. Equity issuance in the period to September has been lower than in the year to March 2011, which has caused a slight increase from the March 2011 TER of 1.20%.

Balance Sheet

On an Investment basis, Investments at fair value were £673.3m (31 March 2011: £626.1m) net of £46.0m of future investment obligations on the M80 motorway DBFO and the Northwest Anthony Henday P3 projects. This is an increase of £47.2m or 7.5%. Further detail on the movement in Investments at fair value is given in the Investment Adviser's Report under Valuation.

Following the equity capital raisings in the six months the Group has a net cash position on an Investment basis of £60.7m (31 March 2011: £54.7m). An analysis of the movements in net cash is shown in the cashflow analysis below.

Other financial liabilities of £1.6m (31 March 2011: £2.3m) comprise the mark to market valuation of the Group's interest rate swaps and foreign currency hedging contracts.

On an Investment basis, NAV per share was 114.8p before the 3.35p distribution (31 March 2011: 113.1p).

On a consolidated IFRS basis, net assets have increased to £737.8m (31 March 2011: £657.0m) reflecting £42.4m from the issue of shares (net of costs) since March and £38.4m of retained profits following payment of the second interim dividend of 3.425p per share. NAV per share was 116.7p (31 March 2011: 110.4p).

Cashflow analysis

On an Investment basis the Group's net cash at 30 September 2011 was £60.7m (31 March 2011: £54.7m)

Cash inflows from the portfolio were £29.2m (2010: £21.8m). The growth in cash generation was driven by contributions from acquisitions combined with active cash management across the portfolio, which brought forward a number of distributions. For the full year, we expect cash generation to be in line with forecast.

Cost of investments of £71.9m (2010: £48.9m) represents the cash cost of the six new investments, three incremental acquisitions, £0.3m loan note subscriptions on the Helicopter Facility, coupled with associated acquisition costs of £1.2m.

The £1.0m (2010: £5.3m) movement in forex and hedging arises from strengthening of Sterling relative to the Euro and Canadian Dollar partly offset by the timing of the forward Euro and Canadian Dollar sales. The forward sales are to hedge the Group's forex exposure on the Dutch High Speed Rail Link and two Canadian assets.

Share capital was raised by the placing of 35.2m shares providing cash receipts in the six months of £40.1m (2010: £46.6m). A further 10m shares were admitted for listing in October, raising £11.6m.

Dividends paid were £18.1m (2010: £14.8m) for the six months being the payment of 3.425p per share in June 2011.

Dividend cash cover was 1.6 times (2010: 1.1 times) which compares operational cash flow of £24.9m (2010: £16.3m) with dividends attributable to operational assets. The dividend attributable to operational assets (86.5%) and construction assets (13.5%) was based on their respective share of the portfolio valuation during the period.

Gearing

The Group has a committed £200m five year revolving facility from Bank of Scotland plc ('BoS') expiring in December 2012. This facility is used to fund acquisitions and is on a recourse basis to the Group. The Company's Articles of Incorporation limit the Group's recourse debt to 50% of Adjusted Gross Asset Value of its investments and cash balances. As at 30 September 2011, the Group's only drawings under the facility were in respect of letters of credit.

To manage interest rate risk the Group has interest rate swaps to partially hedge the Group's debt facility.

On a consolidated IFRS basis, the Group had net debt of £1,039.3m at 30 September 2011 (31 March 2011: £532.8m). The increase in net debt is due to consolidation of the debt from the three subsidiaries acquired in the period.

Foreign Exchange risk

Foreign exchange risk from non-sterling assets has been managed on a balance sheet basis through the forward sale of Euros and Canadian Dollars and by debt drawings in Euros and Canadian Dollars under the BoS debt facility. This is to minimise the volatility in the Group's NAV from foreign exchange movements.

The Group proposes to adjust its foreign currency hedging strategy following the renewal of the Group's revolving debt facility, in part to reflect the increased cost of the debt facility. The change will result in increased hedging of investment income from overseas assets coupled with a reduced balance sheet hedge. The net effect of the changes is expected to give more yield certainty and a NAV / share sensitivity of up to 1.0p for a 10% forex movement.

See Note 2 to the condensed unaudited consolidated financial statements for the definition of revenue and capital items.

Notes to the unaudited consolidated proforma financial statements

for the six months ended 30 September 2011

1. Investments

The valuation of the Group's portfolio at 30 September 2011 reconciles to the condensed consolidated balance sheet as follows:

Portfolio valuation on an investment basis is represented by:

Investments per unaudited consolidated balance sheet on an IFRS basis is represented by:

Directors' statement of responsibilities

We confirm that to the best of our knowledge:

§ the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union; and

§ the Chairman's Statement and Investment Adviser's Report meets the requirements of an interim management report, and includes a fair review of the information required by:

a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board

G Picken

Chairman

15 November 2011

Independent review report to HICL Infrastructure Company Limited

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 30 September 2011 which comprise the Condensed Unaudited Consolidated Income Statement, Condensed Unaudited Consolidated Balance Sheet, Condensed Unaudited Consolidated Statement of Changes in Shareholders' Equity, Condensed Unaudited Consolidated Cash Flow Statement and the related notes. We have read the other information contained in the interim report including the proforma information and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The interim report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the DTR of the UK FSA.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the period ended 30 September 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the EU and the DTR of the UK FSA.

Mark R Thompson

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

20 New Street, St Peter Port

Guernsey GY1 4AN

15 November 2011

All results are derived from continuing operations. See Note 2 of Notes to the condensed unaudited consolidated financial statements for the definition of revenue and capital items. There is no other comprehensive income or expense apart from those disclosed above.