26 March 2020

BBGI SICAV S.A.

('BBGI' or the 'Company')

Annual Results for financial year ended 31 December 2019

The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (Regulation 596/2014). Upon the publication of this Announcement via a Regulatory Information Service this inside information is now considered to be in the public domain.

COMPANY OVERVIEW

WHY INVEST IN BBGI

BBGI (the 'Company', and together with its subsidiaries, the 'Group') is a global infrastructure investment company helping to provide the responsible capital required to build and maintain the developed world's transport and social infrastructure. These are the infrastructure assets that citizens rely on every day to keep local economies moving, and as a long-term custodian, we partner with the public sector to help deliver and manage them. In doing so, we follow a low-risk, globally diversified and internally managed investment strategy to deliver long-term and predictable shareholder returns.

BBGI provides access to a diversified portfolio of infrastructure investments that generate long-term, predictable income and serve an inherent social purpose in supporting local communities. The healthy demand for responsible private sector finance for public infrastructure is underpinned by the widening infrastructure spending gap in the developed countries where BBGI invests.

In return for long-term investment into and active ownership of essential infrastructure assets such as roads, bridges, schools, healthcare and justice facilities procured using availability-style investment models, BBGI receives stable, predictable and contracted cash flows which are backed by government or government backed counterparties which secure these investments.

The predictability of these secured revenues allows BBGI to return to investors a stable and progressive income stream in the form of a semi-annual dividend. The Management Board follows a proven operating model of value-driven active asset management, prudent financial management and a selective acquisition strategy to preserve value, achieve portfolio growth and ensure Environmental, Social and Governance ('ESG') considerations are embedded in our investment processes. These operational pillars are fundamental to the Company's low-risk, globally diversified and internally managed investment strategy.

·      Low-risk:[i] fully committed to an availability-style investment platform with a focus on investing principally in lower risk road and bridge assets. This generates stable, predictable cash flows backed by secure, highly visible contracted public sector revenues. This is the Management Board's area of expertise, avoiding style drift by maintaining a disciplined approach to this strategy.

·      Globally diversified: the investment strategy is deployed in stable, well-established developed markets where governments and local authorities maintain support for availability-based models to finance public infrastructure. This provides focused exposure to highly-rated investment grade countries, across the UK, North America, Australia and Continental Europe.

YEAR IN NUMBERS

Financial highlights

·      Investment Basis NAV up 10.9 per cent to £858.6m as at 31 December 2019 (31 December 2018: £774.5 million)[iii]

·      NAV per Share up 2.0 per cent to 136.2pps as at 31 December 2019 (31 December 2018: 133.5pps)[iv]

·      Total Shareholder Return ('TSR') of 136.2 per cent since IPO[v]

·      Annual Total Shareholder Return of 11.3 per cent since IPO[vi]

·      2019 Dividend Distribution per Share of 7.00pps[vii]

·      2020 Target Dividend of 7.18pps

·      2021 Target Dividend of 7.33pps

·      Cash Dividend Cover[viii] of 1.30x

·      Ongoing Charges[ix] of 0.88 per cent (2018: 0.93 per cent)

Portfolio highlights

§ Globally diversified portfolio of 48 high-quality, availability-based infrastructure assets with strong portfolio performance and cash receipts ahead of business plan in the reporting period.

§ Consistently high level of asset availability at 99.7 per cent underpinned by maintaining positive relationships with all of the Company's stakeholders.

§ Several active management activities contributed to a significant £17.6 million of enhancements, equivalent to a 2.3 per cent increase in the Company's NAV.

§ A combined £62.9 million of new cash investments in selective follow-on acquisitions in availability-based road and bridge assets. 

§ Continued support for the Company's investment case demonstrated by an oversubscribed £75 million equity issue in June 2019.

§ As at 31 December 2019, the Group had a net cash position of £13.8 million on an Investment Basis, with a total cash balance of £34.8 million and total borrowings outstanding of £21.0[x] million.

§ Increasing number of availability-style assets in both existing and emerging asset classes creates an attractive global pipeline which appeals to the Company's core strengths and expertise.

§ As announced on 5 March 2020, a BBGI-led consortium was named as the preferred bidder to undertake the expansion and upgrading of Highway 104 between Sutherlands River and Antigonish, Nova Scotia, Canada.

§ In Q1 2020, the Company acquired a further 25 per cent stake in Stanton Territorial Hospital.

PORTFOLIO AT A GLANCE
 

Based on portfolio value at 31 December 2019

100 per cent availability-based revenue stream

Low-risk 100 per cent operational portfolio.

Geographically diversified in stable, developed countries.

Well-diversified sector exposure with large allocation to lower risk availability-based road & bridge assets[xi], and less than 1 per cent exposure to UK acute health.

Long investment life with 59 per cent of portfolio by value with a duration of greater than 20 years; weighted average life of 20.7 years. Average portfolio debt maturity of 18.0 years.

Well-diversified portfolio with no major single asset exposure.

82 per cent of assets by value in the portfolio are 50 per cent owned or more.

All assets located in countries with ratings between AA and AAA.

Projected portfolio cash flow

The cash flows are stable and long-term with their predictability enhanced by government or government-backed counterparties and their contracted nature. The index-linked provisions provide a positive inflation linkage of 0.5 per cent.

The investments made in 2019 contributed to both stable cash flows and the weighted average length of the portfolio. Based on current estimates, and if there were to be no further acquisitions, the existing portfolio is forecast to enter into the repayment phase in 2035, after which cash inflows from the portfolio will be paid to the Company's shareholders as capital

As at 31 December 2019, BBGI has a weighted average portfolio life of 20.7 years.

Our investments

As at 31 December 2019, BBGI's assets consisted of interests in 48 high-quality, availability-based, infrastructure assets in the transport, healthcare, education, justice and other services sectors.

Located in the UK, North America, Australia and Continental Europe, 100 per cent of the assets are operational.

CHAIRMAN'S STATEMENT

Dear shareholders,

I am delighted to report another year of robust long-term, predictable, stable income derived from our diversified global portfolio of infrastructure investments.

BBGI remains committed to its purpose of providing the responsible capital required to build and maintain some of the critical transport and social infrastructure essential to the countries in we operate. We operate for the benefit of all stakeholders including investors, employees, clients, partners, local communities and the environment. The prudent stewardship of these important assets has continued to deliver value for all our stakeholders and generated sustainable, long-term cash receipts ahead of expectations.

The importance of critical infrastructure has been highlighted in recent weeks with the emergence of the Covid-19 pandemic. BBGI is continuing to monitor this situation very closely with the Management Board remaining in active dialogue with all facilities managers and operators of our assets as part of the Company's close supervision of Covid-19's potential impact. The Company's revenues are 100 per cent availability-based and the portfolio is fully operational. As a result, cash flows are not subject to changes in potential asset demand or construction risk. The Company currently does not expect its financial performance to be materially affected. Further detail on Covid-19 and its potential impact on the business can be found in the Principal Risks section of this Annual Report.

Long-term shareholder returns

Our proven investment strategy of acquiring and managing low-risk, availability-style assets has supported a 10.9 per cent increase in NAV to £858.6 million and a 2.0 per cent increase in NAV per share during 2019. In turn, the Company has met our full-year dividend target of 7.0pps, an increase of 3.7 per cent compared to last year. 

This robust performance supports the Company's established progressive dividend policy and has delivered a Total Shareholder Return since IPO of 136.2 per cent, or 11.3 per cent on a compound annual basis.

With the long-term nature of the portfolio's government-contracted revenues, the Management Board maintains strong visibility of the cash flows the Company receives. Together with value-driven active management and prudent financial management, this performance provides us with confidence in reaffirming our progressive dividend policy with target dividends of 7.18pps and 7.33pps in 2020 and 2021 respectively.

Value-driven active management

The effectiveness of our operating model relies on high customer satisfaction from our public sector clients and the end-users of our assets.

This requires a deep commitment to active asset management of each one of our 48 assets located in the 7 developed economies in which we invest around the world. Accordingly, I am pleased to report another year of high asset availability of 99.7 per cent with no material lock-ups or default events reported. Any deductions over the period were either borne by third-party facility managers and road operators, or as part of planned lifecycle budgets.

The Management Board and asset management team's activities contributed to a significant £17.6 million of enhancements, equivalent to a 2.3 per cent increase in the NAV. Not only did the Company's active stakeholder engagement enhance shareholder value, but importantly it also improved the facilities which our clients use to provide vital public services.

Prudent financial management

The support from both existing and new investors in the Company was demonstrated by the over-subscription of a £75 million equity issue in June 2019. The proceeds from the capital raise were used to repay the drawn amount of the Revolving Credit Facility ('RCF'), and to allow the Company to execute further pipeline opportunities.

The Management Board continued to manage the Company's foreign exchange ('FX') exposure. The revised FX hedging strategy introduced in 2018 served to limit NAV sensitivity arising from the global diversification of the Company's portfolio. 

Selective acquisition strategy

The Management Board continued to pursue a selective acquisition strategy which favoured allocation to availability-based road and bridge assets.

Over the period, the Company acquired additional equity interests in Ohio River Bridges in the United States, the A1/A6 motorway and the Westland Town Hall in the Netherlands. The interests were acquired using a combination of a negotiated transaction, the use of pre-emption rights and put/call option arrangements. This allowed us to increase stakes in assets with which we are familiar; mobilising our relationships to achieve sound economies of scale without having to engage in highly competitive auction processes.

Corporate governance

The Company has maintained the lowest comparative ongoing charge[xii] for our shareholders at 0.88 per cent, compared to 0.93 per cent at 31 December 2018. Our established internal management structure with an alignment of interests between the management and our shareholders has consistently delivered good value for money.

A key focus for the Management Board over the period was the further strengthening of the Company's key control functions. The Company took a prudent approach to implementing further enhancements under a new Luxembourg regulatory requirement[xiii], and as a result introduced updates to our governance framework - more about which can be found in the Corporate Governance section of this Annual Report.

The content of this Annual Report is subject to the revised Association of Investment Companies' ('AIC') Code of Corporation Governance ('AIC Code') which was updated following the introduction and application of the Financial Reporting Council's ('FRC') Corporate Governance Code ('UK Code'). Disclosure concerning the Company's compliance with the AIC Code and, by reference, the UK Code can be found in the Corporate Governance section of this Annual Report.

In all the Company's markets, we continue to believe the type of responsible capital the Company provides meets key public policy objectives in delivering cost-effective, vital public services. We are much more than a private investor, with an outlook based upon our ambition to be a long-term custodian and partner to the public sector. Whilst not governed by UK Company Law and therefore not obliged to comply with Section 172 of The Companies Act, the Boards recognise the critical importance of wider stakeholder engagement and a strong social purpose. Please refer to the Responsible Investment section of this Annual Report for more detail on the Company's approach to its ESG responsibilities.

As announced in May 2019, the Supervisory Board appointed Sarah Whitney as an Independent Non-Executive Director and member of the Audit Committee. I am delighted to be joined on the Supervisory Board by Sarah. Consequently, the Company's Supervisory Board now has equal number of female and male members.

Outlook

The global outlook for infrastructure investment remains positive. There remains a healthy demand for responsible private sector finance for public infrastructure and in all the markets in which the Company invests the infrastructure spending gap is widening.

The Company will continue to assess diverse market opportunities to help benchmark price and risk but will maintain its selective acquisition strategy where we will focus our investment into assets which generate stable, predictable, availability-style cash flows and which meet the Company's responsible investment considerations as well as the restrictions contained within our Investment Policy. A breakdown of our pipeline opportunities can be found in the Market Trends and Pipeline section of this Annual Report.

This flow of new opportunities is principally generated by a wide array of industry relationships maintained by the Management Board, in which the Company is typically a well-regarded and often preferred investment partner for potential vendors. Please refer to the co-CEO Q&A of this Annual Report for more detail.

Accordingly, this provides me with confidence in the Company's prospects and I look forward to continuing our positive engagement with you, our shareholders.

Colin Maltby

STRATEGIC REPORT

CO-CEO Q&A

In an interview with BBGI's co-CEOs, Frank Schramm and Duncan Ball outline the key highlights for the Company during 2019, from portfolio and risk management to the market outlook for global infrastructure investment

What were your key areas of focus in 2019?

In some ways, our investment case is founded on the principle of 'boring is beautiful'. Consistent with previous periods, our priority continued to be asset management first, and portfolio growth second.

With 48 assets now under management, we have preserved and enhanced underlying asset value through active management, whilst taking a disciplined approach to new acquisitions. This is demonstrated by value enhancements during the reporting period which contributed £17.6 million or 2.3 per cent organic NAV growth in 2019. We talk more about that in the Valuation section of this Annual Report. A key component of our active approach is maintaining positive relationships with our stakeholders. This involves managing all our assets to deliver strong operational and financial performance via a true partnership approach with our clients.

We engage regularly with those responsible for operating the public services provided to local communities. This is to ensure we are not only fulfilling our contractual obligations but looking for opportunities to further enhance the value and operational effectiveness of our assets for those that use them.

We also use our extensive industry relationships to observe market trends and ultimately support the pipeline of investment opportunities by maintaining our extensive vendor network. For us, this is a relationship business. 

How has the portfolio performed?

We maintain strong visibility of future cash flows which helps make our future performance highly predictable.

Our proven investment strategy of investing in and managing a high-quality, globally-diversified portfolio of low-risk, availability-style infrastructure assets continues to bear fruit with the portfolio performing ahead of expectations.

The stock's fundamentals mean that relative to the equity markets, the Company maintains a low beta of 0.22 to the FTSE All-Share index on a 5-year basis[xiv].

The stability and predictability of the long-term returns our portfolio generates is increasingly attractive in a persistently low interest rate environment, and we think that is compelling in the current market.

What key changes did you make to the portfolio over the period?

The value in our operating model and the types of long-dated assets in which we invest is that change is not a prerequisite for success. Simply put, we will not change for the sake of it.

When we did acquire new interests - deploying a combined total of £62.9 million of new investment in 2019 - it was done on accretive terms by increasing our equity interest in some of our availability-based assets.

In doing so, we strengthened our global diversification by doubling our exposure in the United States and adding more exposure to the Netherlands.

Given our existing involvement with these projects, no additional management resources were needed to oversee the incremental investment, helping to contribute to BBGI's low ongoing charge.

In line with previous periods, we assessed many more assets than we acquired by declining opportunities that did not match our disciplined risk-return investment criteria.

How can you classify BBGI's investment strategy as 'responsible'?

Infrastructure assets are constructed and operate physically in and around the communities they serve. They have a real impact on the surrounding population and the environment. BBGI has an inherently positive social purpose and we consider ourselves stewards of critical infrastructure assets, whether these be schools, healthcare or transportation facilities. We are highly aware of our potential impact and we take our role very seriously.

We both take a leading role in ensuring ESG considerations are integrated across everything we do, and that all our staff and partners are motivated to do the same. Due diligence cannot end at the point of investment but must continue through the full life cycle of an asset. We ensure this ongoing ESG engagement persists through stewardship, monitoring, and reporting on our impact.

We talk more about our approach to responsible investment in the Responsible Investment section of the Annual Report.

How have you approached FX and subcontractor risk management?

Our approach to hedging foreign exchange ('FX') risk on anticipated cash flows has not changed, and in November 2019 we extended our balance sheet hedging for another year. As we announced in last year's report, our strategy of hedging a portion of the non-Sterling, non-Euro portfolio to reduce NAV sensitivity to approximately 3 per cent for a 10 per cent adverse FX movement is effective and continues to support our prudent financial management and reduces the volatility of the NAV.

We continued to engage with creditworthy counterparties and the regular stress-tests we conduct throughout the year ensure we re-appraise counterparty risk even if there is nothing to indicate material deterioration in service quality.

How is the political environment evolving in BBGI's key markets?

The value we, as a long-term custodian and partner to the public sector, provide for governments and local authorities in funding much-needed public infrastructure is universally supported in all the markets in which we operate.

The global diversification of our portfolio acts as a natural hedge to any localised political and market uncertainties. On a country level, the headline political risk emanating from the UK Labour Party's manifesto we saw in the UK over the course of the year has now dissipated as a result of the UK's General Election result in December 2019.

The accommodative policy environment is demonstrated time and time again in the strength of relationships we have with those who operate the roads, bridges, schools, healthcare facilities and correctional facilities we manage on behalf of our shareholders.

What is your outlook?

Although competition for the types of assets in which we invest is strong, the Company continues to provide a highly attractive financing solution for vendors looking to monetise their assets.

In addition to larger transaction values, we can also transact at a lower ticket size that many of our competitors cannot justify. For those vendors requiring liquidity for sub-£20 million assets, our nimble operating model combined with our specialist expertise allows us to execute quickly and effectively.

By staying within our circle of competence, we also continue to provide bespoke solutions for larger portfolios because of our sector expertise in the range of geographies where we do business.

This market and industry context is reinforced by positive macro-economic fundamentals underpinning interest in global infrastructure investment. The current low interest rate environment has driven investors to search harder for yield by increasing exposure to long-duration assets, and this has boosted infrastructure asset valuations. As a result, one key driver and effect of this is greater institutional allocation to the asset class, which is positive for the Company's outlook.

We are seeing new procurement models emerge, whether Public Private Partnership ('PPP')-style tenders like the Welsh A465 motorway mutual investment model ('MIM') or the increasing predictability of certain regulatory regimes, like the UK's offshore transmission sector ('OFTOs') and the direct procurement model for some water assets in the UK. As a Company committed to prudent investment into low-risk, availability-style assets, new models are expected to provide attractive future considerations as they mature to become more in line with what we look for in selective acquisitions.

INVESTMENT PROPOSITION & OPERATING MODEL

Investment proposition

BBGI is a global infrastructure investor with a prudent, low-risk investment strategy focused on delivering long-term, predictable shareholder returns.

The Company seeks to provide its shareholders with unique access to a global portfolio of high-quality infrastructure assets which generate stable, predictable cash flows over the life of government or government-backed contracts that typically extend to more than twenty years in length.

The predictability of these government-backed revenues enables BBGI to return to investors a sustainable and progressive income stream in the form of a semi-annual dividend.

The Company's investment policy dictates that no more than 25 per cent of the Company's portfolio value calculated at the time of investment will be derived from assets whose revenue streams are not public sector or government-backed (currently zero per cent). To ensure a spread of investment risk, any new acquisition will not have an acquisition value greater than 25 per cent of portfolio value of the Company immediately post-acquisition.

Avoiding style drift

As the competition to acquire availability-style assets at attractive valuations has intensified, the Company's Management Board has consciously worked to avoid 'style drift'. This refers to the practice of moving up the risk spectrum both to find investible assets and to make the targeted returns to investors.

The Management Board has made the conscious decision to avoid investing in infrastructure transactions where the revenue stream is demand-based, highly correlated to Gross Domestic Product ('GDP') or subject to uncertainty due to regulatory review periods. However, some emerging regulated asset subsectors are increasingly reaching a level of maturity whereby the regulatory regime provides long-term, secure, availability-style payments akin to the investment profile of more traditional PPPs - as is the case in the OFTO sector or Direct Procurement for Customers ('DPC').

While this disciplined approach may at times result in periods of lower portfolio growth, we believe the benefits of this continued specialisation and focus on a low-risk, availability-based investment model result in dependable and consistent income and returns with low volatility. By staying focused on the availability sector and by remaining within our sphere of expertise, we believe we offer a less complex business proposition, consequently there should be fewer surprises and the returns to our shareholders should remain predictable and consistent.

Strategic investment partnerships

To help avoid competitive pricing in the secondary market and leverage the Management Board's experience in procuring assets through off-market transactions, the Company continues to leverage strong relationships with leading construction companies to source a potential pipeline that supports a low-risk and globally diversified investment strategy.

Typically, these contractors have secured the mandate to design and build new assets but continue to look to divest financially after the construction period has finished - thereafter often maintaining facility management contracts through a long-term partnership. The Company is an attractive partner for a number of reasons:

·      We have extensive asset credentials and a strong track record that can assist with the shortlisting process for new projects.

·      Having a financial partner is a pre-requisite for some construction companies so they can avoid consolidating the Project Company debt onto the balance sheet of the parent company.

·      Our cost of capital is typically lower than construction companies, so involving BBGI can make the bid more competitive.

·      We are a long-term investor which is attractive to government and government-backed counterparties.

·      We are considered a reliable source of liquidity should a construction partner decide to sell in the future.

Operating model

The Management Board follows a proven operating model of value-driven active asset management, prudent financial management and a selective acquisition strategy to preserve value, achieve portfolio growth and ensure ESG considerations are embedded in our investment processes. These three operational pillars are fundamental to the Company's success.

We ensure stable operational performance through an active asset management approach, where we actively seek to identify and incorporate value enhancements over the lifetime of asset ownership.

In turn, this helps to reduce cost to our public sector clients and the asset's end-users, and enhance the operational efficiency of each asset. This approach allows the Company to generate a high level of asset availability, which supports high client satisfaction rates and underpins the strong social purpose of our entire portfolio.

Our prudent financial management is defined by focused cost management, which helps generate portfolio-wide savings and maintains the sustainability of the Company's portfolio performance.

By taking measured exposure to assets under construction and managing them through construction into operation, we de-risk assets and seek to increase shareholder value.

The portfolio's geographical diversification brings with it exposure to multiple currencies. We actively seek to manage geographical concentration and mitigate foreign exchange risk by balance sheet hedging through FX forward contracts, hedging of forecast portfolio distributions and borrowing in non-Sterling currencies. Furthermore, Euro-denominated running costs provide a natural hedge against the Euro-denominated portfolio distributions.

The Company's selective acquisition strategy ensures that the Management Board's focus remains within its area of expertise and that the strategic pillars defined by the Company's investment proposition are upheld.

We actively consider acquisitions that have inflation-protection characteristics to maintain the portfolio's inflation linkage.

Value-driven active asset management to deliver well maintained infrastructure for communities and end users:

We pursue a standardised approach across all investments in the portfolio to help derive operational and value enhancements and preserve value, including:

·      Identifying and delivering value enhancements to improve customer experience and financial performance.

·      Ensuring fulfilment of contractual and legal obligations, which additionally serves to maintain high availability levels and prevent deductions.

·      Strong client relationship management, including regular meetings, to uphold client satisfaction and monitor ESG performance.

·      Focused and active asset management including site visits to all significant assets annually and proactive management of issues.

·      Focused cost management and portfolio-wide cost-saving initiatives leveraging economies of scale (e.g. portfolio insurance and standardised management contracts for Project Companies).

·      Applying a high-quality corporate governance framework, as part of an enhanced ESG profile.

·      Identifying and continuing initiatives at the individual asset level to outperform base case (e.g. lifecycle reviews).

·      Measured exposure to construction risk to support NAV uplift by de-risking assets over the construction period.

Prudent financial management:

We maintain focus and attention to cash performance at the asset and portfolio level to drive efficiencies and generate portfolio optimisation, including:

·      Focused management at the asset level to ensure distributions are on time, and on or above budget.

·      The portfolio's geographical diversification brings with it exposure to multiple currencies. We actively seek to manage and mitigate foreign exchange risk through our hedging strategy.

·      Maintaining modest cash balances to limit cash drag.

·      Maintaining a low ongoing charge through an efficient internal management strategy.

·      Progressive future dividend growth underpinned by strong portfolio distributions.

Selective acquisition strategy:

We maintain strategic discipline in our acquisition strategy and portfolio composition to ensure we pursue growth that is accretive to shareholder value, not just for growth's sake, including:

·      Broad industry relationships in multiple geographies to pursue off-market opportunities.

·      Pre-emption rights to acquire co-shareholders' interests.

·      Global exposure to avoid geographical concentration.

·      Revolving corporate debt facility to support transaction execution and maintain prudent leverage.

·      Visible pipeline through a North American strategic partnership.

·      Maintain focus on the Management Board's core area of expertise.

RESPONSIBLE INVESTMENT

The infrastructure assets under the Company's custodianship have a direct impact on the daily lives of the people, communities and economies which they serve, as well as the surrounding environment. In providing vital public services, it is the Company's primary objective to ensure the infrastructure assets we own fulfil the inherent social purpose they serve - beyond generating shareholder returns.

BBGI believes that to successfully embed ESG factors into the Company's operating model, initiatives must be part of our corporate culture and not simply a reporting exercise. Accordingly, the Company pursues its business endeavours in a manner that integrates ESG factors, and as long-term investors, we believe that sustainable development and responsible investment practices are essential to value creation. As such, it is the Company's philosophy to:

·      Embed ESG in the investment review and decision-making process.

·      Ensure ESG objectives are integrated into management policies, conduct and practices which inform such decisions.

·      Seek appropriate disclosures on ESG issues by the entities in which the investments are made.

·      Promote adoption of ESG principles amongst co-shareholders.

·      Monitor and report on ESG initiatives.

Our stakeholders

The fundamental rationale for integrating ESG factors into the Company's investment philosophy is to ensure our actions generate positive outcomes for all stakeholders. Via consistent engagement with the Company's stakeholders, some of whom have been long-term partners to the Company since our IPO in 2011, we address their varying interests via a five-fold mission statement:

·     Shareholders: To be the preferred low-risk global infrastructure investment company

·     Users and communities: To support the lives of the people in the communities our assets serve by delivering a well maintained infrastructure

·     Public sector clients and related stakeholders: To deliver a high standard of asset stewardship by providing value for money to our public-sector clients, enabling them to provide robust, safe and secure public facilities and services 

·     Employees: To sustain BBGI as a diverse and inclusive place of work by having a clear vision; providing honest leadership, open communication, and promoting a collaborative meritocracy where performance is duly recognised and rewarded

·     Partners: To create a productive and fair working relationship through collaboration and shared values which puts high quality client service to the public sector as our mutual objective

ESG process and guiding principles

·      Due Diligence: Screening to determine compatibility with BBGI investment policy and values 

·      Stewardship: Work with all stakeholders to implement strategic and operational objectives

·      Monitoring: Monitor performance against internal targets

·      Reporting: Communicate results to stakeholders transparently

·     Our schools and educational facilities help change the lives of over 38,000 young people.

·     Our healthcare facilities treat over 1.8 million patients annually.

·    Our roads allow for safe travel and reduced journey times for more than 170 million travellers each year, in which timely movement of goods and people are critical for economic productivity.

·     Our assets create significant employment opportunities in the communities they serve.

·     Many of the assets we are designing, building and operating will be around for over a century thereby creating an environment for public services for both current and future generations. 

Transparency, reporting and measurement is vital for making progress and BBGI is committed to this process. As a signatory of the United Nations Principles for Responsible Investment ('UNPRI'), the Company anticipates its first disclosure period to be the 2020 financial year. We also keep under review other ESG reporting standards, to which the Company may commit in the future.

To effectively manage counterparty risk, it is the Company's responsibility to ensure compliance with BBGI's own investment philosophy is fulfilled by our partners. BBGI seeks to ensure that ESG factors are actively managed by having in place clear and comprehensive management disciplines and procedures, and that these are implemented throughout the life of the Company's involvement with all assets.

This includes actively working with third-party contractors (e.g. management services providers, facility maintenance providers and road operators) to ensure they adhere to BBGI's 'ESG Best Practices Guidance'. These principles are reviewed annually and amended where necessary.

· BBGI monitors the performance of initiatives in place for its assets through a proprietary 23-point ESG questionnaire. The consistency of the questionnaire aids BBGI's management with tracking progress and improvements in ESG performance for each asset.

·  Our staff are rewarded for achieving ESG goals and improvements. The performance of each asset is reviewed against BBGI's benchmarks to ensure compliance with the ESG Best Practices Guidance.

·  As part of our goal to be an industry leader in responsible infrastructure investment, we encourage each asset manager to consider and report against the UN's 17 Sustainable Development Goals.

Environmental and social impact in action

The Company is taking a responsible approach to the environment via the adoption of a series of procedures and working practices that support BBGI's vision to promote the conservation, protection and improvement of the physical and natural environments surrounding its assets.

This includes careful monitoring, local engagement and management, and involves enhancing the energy, water and waste efficiency of each asset, where possible.

The Company requires that its representatives working at its infrastructure assets strive to ensure that the asset companies develop and maintain positive relationships with the wider communities they serve. This includes promoting the community interests of the asset to the client organisation, to the client staff who use the asset facilities as well as to the wider stakeholders and users of the asset.

Several ESG initiatives took place across the portfolio during the year. A more comprehensive listing of activities is provided on the Company's website. We have selected a couple of highlights for inclusion in the annual report:

Road Projects: BBGI's has initiated a strict no idling policy for staff and subcontractors on the vast majority of its transportation projects in order to reduce greenhouse gases and to minimize the use of fossil fuels. On three projects, idling is closely monitored by using fleet tracking software. Weekly reports are distributed to all staff to show results and as a reminder to reduce \ eliminate idling. Hybrid vehicles have been added to the operator's fleet on one project and the benefits are currently being evaluated on three other projects.

On two of our projects, our operator has set the goal to reduce their overall carbon footprint by 30 per cent before 2030.

In most cases, our road projects' asphalt rehabilitation plans include the use of asphalt mixes that have as much as 15 per cent of recycled asphalt in them. Also, the rehabilitation plan for the granular bases allow the use of Reclaimed Asphalt Pavement - ('RAP'). Using this approach, the scheduled pavement rehabilitations will be done with virtually zero asphalt waste.

Across our road projects we continue to increase the use of calcium chloride, resulting in more efficient snow/ice removal and less use of salt. As well, on three of our road projects we implemented the use of Pless plows that utilize segmented blades providing the ability for the plow to better conform to the road surface. This results in removal of more snow in one pass, resulting in lower fuel usages and helps reduce the use of de-icing agents.

Liverpool & Sefton Clinics: Our project buildings at Liverpool & Sefton Clinics hosted over 70 community events which occurred after hours and saw over 10,000 individuals engaged in a variety of community events. The events included a variety of topics from health care, nutrition, mental health, entrepreneurial empowerment and other topics important to the community. The events also raised in funds for local charities.

Victoria Prisons: We committed to financially support the YMCA Bridge Project and YMCA ReBuilt programs for the next three years. Both programs provide support, training, mentoring and employment opportunities for young ex-offenders at risk of being trapped in a recurring cycle of crime and imprisonment. Being a sponsor of the YMCA Bridge Project, we provide practical support for disadvantaged young people who as part of this program now enjoy access to trusted mentors who can guide them through day-to-day challenges. Current Victorian Government figures state that approximately 45 per cent of all people exiting custody, reoffend within 6 months of re-entering the community. For those that come through the YMCA Bridge Project and its various programs this figure drops to 3 per cent.

North East Stoney Trail: We developed and implemented a full LED retrofit for the entire lighting system on the project. The combined annual CO2 reductions directly associated with the new lighting systems are estimated at 2,400 tonnes per year. Last year we did the same on North West Anthony Henday project and the CO2 reductions directly associated with the new lighting system are estimated to be 1,255 tonnes per year.

PORTFOLIO REVIEW

Portfolio summary

As at 31 December 2019, the Company holds interests in 48 high-quality, availability-based infrastructure assets in the transport, healthcare, justice, education and other[xv] sectors.

The portfolio carries no exposure to demand-based or regulatory risk assets, and benefits from well-diversified sector exposure. The Company has a 51 per cent[xvi] allocation to lower risk availability-based road and bridge assets, with limited exposure of less than 1 per cent to acute healthcare assets in the UK. 

All asset companies in the portfolio are in the stable, well-developed and highly-rated investment grade countries of Europe, North America and Australia. 

Portfolio breakdown[xvii]

^*In March 2020, the Company announced the acquisition of a further 25 per cent interest in the Stanton Territorial Hospital project.

^**In December 2019, the Company signed an agreement to acquire an additional legal interest in Unna Administrative Centre project. Effective 1 January 2020, the Company owns 90 per cent of the legal and 100 per cent of the economic interest in the Project Company.

For portfolio statistics, refer to the Portfolio at a Glance section of this Annual Report.

Operating model in action

Value-driven active asset management

A variety of active asset management initiatives during the period resulted in £17.6 million of operational and value-accretive enhancements, equating to a 2.3 per cent increase in NAV.

In the UK, we obtained portfolio cost savings through our standardised management contracts for project companies, and our portfolio insurance products. In North America, working with our partners, we were able to realise portfolio efficiencies for our standardised management contracts for Project Companies and cost savings by actively managing our lifecycle expenditures.

The assets we manage are active facilities, meaning we constantly work with our clients to identify efficiencies that benefit them, the end user, the Company's portfolio value and society at large. 

Following the opening of Stanton Territorial Hospital to patients in May 2019, all of the portfolio's assets are now fully operational. While the portfolio is now 100 per cent operational, the Company has a well demonstrated history of managing assets from greenfield procurement stage, through construction and into operation and will selectively look to responsibly add construction exposure as the opportunities become available.

As announced on 5 March 2020, the Nova Scotia provincial government named a BBGI-led consortium as the preferred bidder to undertake the expansion and upgrading of Highway 104 between Sutherlands River and Antigonish, Nova Scotia. Construction is scheduled to begin in spring of 2020, with an estimated completion date of the end of 2023.

Owing to the Management Board's value-driven active asset management, the availability level[xviii] of the Company's assets was recorded at approximately 99.7 per cent and deductions were either borne by third-party facility management companies and road operators or were part of planned lifecycle expenditures. There were no material lock-ups or events of default reported during the period. 

Prudent financial management

The Company has an RCF of £180 million in place which matures in 2022, with the possibility to increase the total size to £250 million by making use of an accordion provision. This enables the Company to be a trusted and repeat partner in its priority markets and supports the Management Board's ability to execute portfolio acquisitions in an efficient manner. 

The Company's hedging strategy aims to limit a 10 per cent adverse foreign exchange sensitivity to approximately 3 per cent of NAV movement. In November 2019, we extended balance sheet hedging for another year. During the year we also hedged 100 per cent of anticipated portfolio distributions on a four-year rolling basis (excluding EUR and GBP). This provides additional comfort as it shields the Company's forecasted dividend payment from adverse foreign exchange movements.

During the period, the Company raised gross proceeds of £75 million through an oversubscribed issue of new ordinary shares; the proceeds of which were used to repay existing debt and maintain a modest cash balance as part of our prudent management of the Company's balance sheet. Borrowings outstanding under the RCF at 31 December 2019 were £21 million and were repaid subsequent to the balance sheet date.

Selective acquisition strategy

The Company continued to pursue a selective acquisition strategy over the period, benefitting from the Management Board's ability to source attractive investment opportunities in a competitive marketplace.

The additions we made to the portfolio, which amounted to approximately £62.9 million in new cash investment, included the Company's follow-on acquisitions into two availability-based assets in the transport sector.

The assets were secured on accretive terms consistent with the Company's strategy and reinforced the Management Board's commitment to avoiding style drift.

New acquisitions over the period included:

·      A1/A6 Motorway (Netherlands): Part of the Schiphol-Amsterdam-Almere ('SAA') expansion, the A1/A6 motorways involve the reconstruction and widening of an 18km motorway including reversible lanes. The asset became operational in 2017 and the concession runs until 2042. In June 2019, the Company completed the acquisition of a further equity interest in the project, and then in August 2019, acquired the remaining interests from the original vendors, Boskalis and VolkerWessels. The Company now owns 37.1 per cent of the equity interest.

·      Ohio River Bridges (US): A 762 metre cable-stayed bridge over the Ohio River connects the States of Kentucky and Indiana. The asset became operational in 2016 and the concession runs until 2051. In May 2019, the Company completed the acquisition of a further 33.3 per cent equity interest in the Ohio River Bridges PPP Project and now owns 66.7 per cent of the equity in the project.

·      Westland Town Hall (Netherlands): a PPP asset consisting of a new approximately 11,000m² town hall for the municipality of Westland. The asset became operational in 2017 and the concession runs until 2042. In August 2019, the Company completed the acquisition of a further equity interest in the project, acquiring the remaining interests from original vendors, VolkerWessels. The Company now owns 100 per cent of the equity interest.

·      Stanton Territorial Hospital (Canada): In December 2019, the Company signed a sales and purchase agreement to acquire an additional 25 per cent interest in the project with completion occurring on Q1 2020.

As high-quality, stable, operational availability-style assets, these acquisitions further strengthened the global footprint of the Company's portfolio of investments in AAA/AA rated countries and increased our majority allocation to road and bridge assets where we continue to see attractive risk-adjusted returns.

Supply chain monitoring

The Management Board continually reviews the potential concentration risk of operational and maintenance ('O&M') contractors who provides counterparty services to the Company's assets. The table below illustrates the level of O&M contractor exposure as a percentage of portfolio value.[xix]

The Company benefits from a diversified contractor base and supply chain with no concentrated exposure, combined with a rigorous supply chain monitoring policy. We pay close attention to how subcontractors are performing on an ongoing basis and have risk mitigation procedures in place in case of any supply chain failure. Therefore, we believe we are well-positioned to handle any service quality issues arising from operational and maintenance contractors. Management have requested all facility managers ('FM') and O&M contractors to the review their Business Continuity Policies in light of the Covid-19 virus outbreak. At the time of publication there were no indications from any contractor that they would not be able to continue to deliver contracted services to their respective projects. 

Some historical corporate governance issues at one of the company's supply chain partners, SNC-Lavalin, became an area of public interest in early 2019, but this situation improved over the reporting period. In a court decision in December 2019, SNC-Lavalin Construction Inc (a subsidiary of its parent company) was found guilty on one count of fraud and was sentenced to pay a fine and to three years of probation. The Crown did not pursue the parent company, SNC-Lavalin Group Inc ('SNC'). The charge of bribery under the Corruption of Foreign Public Officials Act was dropped. In the Company's judgment, overall this is a positive outcome for SNC. Following the announcement, SNC's market capitalisation increased by approximately 30 per cent. Despite these issues, BBGI's experience as an investor in assets maintained by SNC is that performance and service quality provided by SNC has always been very strong.

Construction defects

The Company routinely monitors the quality of its assets to identify any construction defects early on and to implement the appropriate measures before they impact user accessibility and experience. A key component of our effective counterparty risk management approach is that the responsibility for, and cost of remediation falls to the relevant construction subcontractor on each asset, subject to statutory limitation periods.

Latent defects risk was mitigated over the period with 65 per cent of portfolio value covered by either limitation or warranty periods.

In the Interim Report, we disclosed one material construction defect that was identified on one project within the Company's portfolio. Commercial discussions are ongoing and the Company is pursuing the contractor responsible for these works with the objective that the necessary rectifications are implemented. A claim against the construction contractor was filed with the courts in H2 2019.

The project specific increase in the discount rate disclosed by the Company in its interim reporting in June 2019 and provisions made in relation to the defect remain materially unchanged (with the effect on NAV being less than 1 per cent).

Portfolio snapshot

Our five largest assets

1)   Golden Ears Bridge

·      Type: Availability-based

·      Status: Operational

·      Equity Holding (%) BBGI: 100%

·      Total Investment Volume (Debt & Equity): C$1.1 billion

·      Financial Close/Operational: March 2006 / June 2009

·      Concession Period: 32 years (post construction) ending in 2041

The project involves the design, build, financing, operation and maintenance of the Golden Ears Bridge in Vancouver which is a 1km, six-lane road that spans the Fraser River and connects Maple Ridge and Pitt Meadows to Langley and Surrey. The road opened in March 2009 and includes more than 3.5km of structures including ramps, viaducts, minor bridges and underpasses, and more than 13km of mainline roadway; a large part of which has been landscaped.

The project has brought close to C$1 billion in construction-related activity to the area, while commuters that use the bridge now save up to 40 minutes per peak-hour round-trip from Maple Ridge to Langley.

Over its tenure, BBGI has managed multiple subcontractors through the delivery of complex contracts and coordinated with all stakeholders, including local communities. The asset represented the largest private financing for a greenfield PPP in Canada at the time of its launch.

2)   Ohio River Bridges

·      Type: Availability-based

·      Status: Operational

·      Equity Holding (%) BBGI: 66.7%

·      Total Investment Volume: US$1.175 billion

·      Financial Close/Operational: March 2013/December 2016

·      Concession Period: 35 years (post construction) ending in 2051

One of the largest transportation assets ever undertaken in the US, this asset is at the cutting-edge of public partnerships currently in operation in the emerging US PPP market. It was the first US PPP transport deal not to use the Transportation Infrastructure Finance and Innovation Act (TIFIA) in its capital structure, demonstrating to other US states how even the most complex of transactions can be structured without reliance on federal funding. Instead, the scheme uses a private activity bond issue[xx] - the first of its kind for a US PPP highway availability-based asset.

It includes a 760m cable-stay bridge; a 500m long twin vehicular tunnel and 2.25km of associated 6-lane Interstate Highway, with more than 21 bridges and multiple roundabout style interchanges. The asset greatly improves connectivity, public safety and economic growth which benefits residents, business and visitors in the Southern Indiana region, particularly for those road users travelling to and from the state of Kentucky.

Despite the scale and complexity of the transaction, it reached commercial close just 10 months after final tender documents were issued.

BBGI acquired an additional 33.3 per cent equity interest in the project in May 2019 and now owns 66.6 per cent, making it the second largest investment in our portfolio.

3)   Northern Territory Secure Facilities

·      Type: Availability-based

·      Status: Operational

·      Equity Holding (%) BBGI: 100%

·      Total Investment Volume (Debt & Equity): A$620 million

·      Financial Close/Operational: October 2011/ November 2014

·      Concession Period: 30 years (post construction) ending in 2044

Located near Darwin, Northern Territory (the 'Territory'), the project involves the design, build, financing, operation and maintenance of three separate centres including: a 1,000-bed multi-classification male and female correctional centre, a 30-bed secure mental health and behavioural management centre (the first of its kind in the Territory), and a 48-bed supported accommodation and programme centre for community-based offenders.

The latter is designed to support the government's goals of enhanced rehabilitation, education and reduced reoffending rates in the Territory.

The asset is one of the largest social infrastructure projects in the Territory and is the largest PPP ever procured to date. BBGI acquired its initial 50 per cent interest in the asset while it was still in construction and subsequently acquired the remaining 50 per cent stake in July 2015.

4)   McGill University Health Centre ('MUHC')

·      Type: Availability-based

·      Status: Operational

·      Equity Holding (%) BBGI: 40%

·      Total Investment Volume: C$2.0 billion

·      Financial Close/Operational: July 2010 / October 2014

·      Concession Period: 34 years ending in 2044

The project involves the design, build, finance, operation and maintenance of MUHC's new Glenn campus. It comprises two hospitals, a cancer centre and a research institute in Montreal, for a total concession duration of 34 years.

MUHC is one of the most innovative academic health centres in North America and at 214,000m², it is the largest English-speaking hospital in Quebec. One integrated campus consolidates the Montreal Children's Hospital, the Royal Victoria Hospital and the Montreal Chest Institute, as well as the new Cedars Cancer Centre and the Research Institute of the MUHC. MUHC is the workplace of over 12,000 hospital staff, 1,356 physicians, dentists, pharmacists and 720 medical students.

5)   A1/A6 Motorway

·      Type: Availability-based

·      Status: Operational

·      Equity Holding (%) BBGI: 37.14%

·      Total Investment Volume: €727 million

·      Financial Close/Operational: February 2013 / July 2017

·      Concession Period: 25 years (post construction) ending in 2042

The A1/A6 project is the largest of the five sub-projects for the Dutch Road Directorate (Rijkswaterstaat) part of the upgrading of the road network linking Schiphol Airport via Amsterdam to Almere in the Netherlands (SAA program). The total length of the SAA link is c. 40 kilometres. The enlargement of the A1/A6 involves the reconstruction and widening of this section of the SAA motorway and the subsequent long-term maintenance thereof. The A1 and the A6 motorway sections were transformed into a road with 2x5 lanes and partly 4x2 lanes. In addition, reversible lanes have been built on the entire A1/A6 section, which involves two lanes changing direction twice a day. During morning rush hour it facilitates road traffic from the east into Amsterdam direction and the afternoon in the opposite direction.

The SAAone consortium built a total of 60 new engineering structures, including the cantilever bridge crossing the Amsterdam-Rhine Canal, the doubling of the Hollandse Brug bridge across the Gooimeer, a new railway bridge, and the new aqueduct near Muiden as the most eye-catching features. The aqueduct that takes the River Vecht across fourteen road lanes is the widest aqueduct structure in Europe. The 255m free span railway bridge with a height of 50m is a land mark structure visible from a wide distance and which won a prize for its architecture. After construction completion was achieved well in time in 2017, and SAAone is now responsible for maintaining the infrastructure for a 25-year period.

MARKET TRENDS & PIPELINE

Impact of coronavirus (Covid-19)

At the point of publication of this Annual Report, the Group believes its business continuity plans can withstand the anticipated operational disruption emanating from the spread of Covid-19.

The Group does not have any demand-based assets and the portfolio is 100 per cent operational. The Group does not expect its financial performance to be materially affected due to the reliance on 100 per cent availability-based revenues. However, the NAV is sensitive to changes in the macro-economic assumptions used as part of the portfolio valuation process.

As part of its analysis, the Management Board has considered the potential impact of a change in a number of the macro-economic assumptions used in the valuation process. By considering these potential scenarios, Management is well positioned to assess how the Group is likely to perform if affected by variables and events that are inherently outside of the control of the Boards and its risk management framework.

At the date of publication of this Annual Report, Management believe that the sensitives as disclosed in the Valuation section of this report and again in Note 18 of the consolidated financial statements continue to be reasonable after taking into account potential macro-economic changes which may occur as a result of Covid-19. However, there continues significant uncertainty around how this pandemic will evolve and therefore it is difficult to foresee all of the consequences or disruptions that may arise as a result. It remains therefore a priority for the Group to monitor and assess for potential consequences and disruption and seek to mitigate issues accordingly.

BBGI's Staff

The Company has initiated its business continuity plan ('BCP') with all staff working remotely until further notice and complying with all latest public health guidance. BBGI has senior staff located in jurisdictions where we invest which enables BBGI to lead and respond in real-time to any project level issues that may be encountered. The Management Board is confident that the BCP in place is robust and appropriate to ensure uninterrupted delivery of services by BBGI as an investment manager.

BBGI's Clients

All of BBGI's assets continue to be available for our clients, communities and end users.

Availability-based transportation assets make up 51 per cent of the portfolio by value. To date these assets have been unaffected by Covid-19.

The Company has 11 healthcare assets which account for 22% of the portfolio value. These assets are most immediately effected by Covid-19. To date facility management services continue to be provided.

The schools in our portfolio, representing 11 per cent by value, have either closed or operating the facilities at reduced capacity for children of those providing essential services in the Covid-19 effort. We expect the availability fee continued to be paid.

Liquidity and Credit Risk

As of 26 March 2020, post-period end, BBGI had no borrowings outstanding with approximately £179 million available under the committed revolving credit facility[xxi] which is committed until January 2022. The Company has no requirement to raise equity in the immediate future. All debt financing at the project level is issued on a non recourse basis. Only the Northern Territory Secure Facility project is subject to refinancing risk when a portion of the debt matures in 2025.

Supply Chain Exposure

The Management Board is in active dialogue with all facilities managers and operators of our assets. To date, no material service delivery issues have been identified and no disruptions reported. We will continue to rigorously monitor performance and supply chain exposure. BBGI has a diversified supply chain in place and geographically-diversified portfolio which helps mitigates this exposure. Furthermore, our supply chain partners have business continuity plans in place and to date performance continues to be strong.

Performance

As at the date of this report there is no evidence to suggest that operational or financial performance is materially affected and therefore we do not expect any material impact on our cash flows.

There is the potential that performance could be impacted by Covid-19. This would likely manifest itself as a reduction in availability of personnel responsible for managing, operating or maintaining assets, or supplies and spare parts. Should this happen then it would have the potential to lead to short-term reduction in asset performance thereby resulting in availability deductions. Deductions, if any, are expected to be passed down to subcontractors[xxii].

Outlook

While there is naturally significant uncertainty surrounding Covid-19, and all the consequences and potential disruptions are difficult to foresee, we believe our resilient business model withstand this challenging market environment over the long term. Further detail of risk mitigation can be found in the Principal Risks section of this Annual Report.

2020 and beyond

The Management Board believes that the geographic diversification offered by participation in key developed countries is a fundamental pillar of the Company's investment strategy. Our global portfolio provides a platform to access opportunities and build and maintain relationships with potential vendors to support the Company's selective acquisition strategy.

The levels of competition for the availability-style assets in which we invest vary between markets. In all BBGI's target markets, infrastructure under-investment persists, and public finance budget constraints necessitate the involvement of the private sector to deliver the finance and expertise required to build, maintain and operate much needed assets.

Investment activity in 2020 will involve sourcing and originating, bidding for and winning new operational availability-style investments, with consideration for measured exposure to construction assets to support future valuation uplift.

The pipeline for availability-style transactions remains generally strong within the Company's key markets. We anticipate these will come from a variety of sources, including:

·      A North American strategic partnership with SNC-Lavalin which has already resulted in the acquisition of five assets amounting to approximately C$191 million and provides the opportunity for five more assets with an expected value in excess of C$250 million;

·      Avoiding the competitive nature of public auctions by soliciting off-market transactions through BBGI's extensive network of market participants in Australia, Europe and North America;

·      Participating in primary investment opportunities and bidding on new availability-style assets as part of public sector procurement processes;

·      Acquiring accretive equity interests from co-shareholders in existing assets;

·      Participating selectively in competitive sale processes, not least to test pricing assumptions.

The Company will continue to source assets that fit the requirements of its low-risk and globally diversified investment strategy.

Canada

Canada has remained one of the world's most prolific PPP markets and is one of the most mature and stable of the Company's territories. A total of 285 assets across Canada are procured under the PPP model, with those already in operation or under construction valued at C$139.3 billion - including hospitals, courthouses, highways and bridges, and transit assets.

In 2020, there is a well-defined pipeline of availability-based transactions. With thirteen assets in Canada, BBGI is well-positioned to participate in an attractive primary pipeline and is considered a very credible purchaser for secondary assets.

The Company also benefits from its North American strategic partnership with SNC-Lavalin which covers five assets. The Company estimates that further investment opportunities in excess of C$250 million could result from the pipeline agreement over the next years; all of which will be assessed on a case-by-case basis.

Post-period end, the Nova Scotia provincial government named a BBGI-led consortium as the preferred bidder to undertake the expansion and upgrading of Highway 104 between Sutherlands River and Antigonish, Nova Scotia. Construction is scheduled to begin in spring of 2020, with an estimated completion date of the end of 2023.

The Canadian secondary market is expected to be active in 2020 as assets developed over the last several years come into operation and may come to market. In Q1 2020, the Company acquired a further 25 per cent stake in Stanton Territorial Hospital.

UK

The outcome of the December 2019 UK General Election resulted in a decisive parliamentary victory for the UK Conservative Party. The UK Labour Party's defeat ultimately means the threat of nationalising certain UK PPP assets and other regulated infrastructure assets is no longer a material concern for the sector or its investors.

Whilst Brexit has dominated Britain's political agenda in recent years, it is difficult to say how the UK's decision to leave the EU will affect private investment in infrastructure. The Conservative Government made the decision to abolish the PF2 model in October 2018, but private infrastructure investors like BBGI still have a significant role to play in managing existing investments procured under both PFI and PF2; all of which the UK Government has committed to honour.

Despite the UK market being less buoyant compared to levels seen ten years ago, procurements are expected to progress in Wales in 2020. This includes the £500 million A465 PPP for which BBGI is one of three short-listed consortiums; the Velindre Cancer Centre and the 21^st Century Schools Programme.

The UK Government has promised to use infrastructure spending as a means to kick-start the economy post-Brexit and seek to "level up" the regions within the UK. Although the Government has been vague on the form of the delivery model, we remain optimistic that there will continue to be a role for private capital, particularly where we demonstrate good value for money.

The Management Board notes that some other asset classes are demonstrating a risk-return profile that increasingly matches the Company's low-risk, availability-based investment strategy. The Offshore Transmission ('OFTOs') opportunities and the MIM in Wales are good examples of how there continues to be attractive investment opportunities in the UK which are very similar to PPPs and include a long-term availability income stream from creditworthy counterparties.

The UK market continues to be a source of secondary market transactions. However, the reduction in secondary market PPP deal flow reflects the slowdown in public sector procurement since 2010 and the large amount of secondary activity in previous years. While supply has decreased, there has been no corresponding decrease in demand. This has resulted in a trend of lower discount rates for stable, mature secondary assets since around 2010. 

The Company's appetite for the selective acquisition of high-quality availability-based assets has not diminished. We will continue to pursue primary, secondary and other availability style opportunities on a selective basis within the UK.

USA

2019 was a strong year for availability-style investments in the United States. More states than ever enacted PPP-enabling legislation. While many of these are transportation-related, funding shortfalls combined with the need for better infrastructure has caused legislators to take a hard look at PPPs.

However, the 2020 PPP market in the United States could be impacted by local and federal elections. These contests have the potential to delay procurement processes of large projects at the state level due to divisive political climates. The likelihood of a major infrastructure bill passing Congress in 2020 is also unlikely.

The US PPP market remains one of great potential, with nascent deal flow. We are currently tracking several transactions and are in active discussions regarding upcoming transportation and social infrastructure opportunities.

Going forward, we expect that the success of the Ohio River Bridges/East End Crossing asset, which opened on time and on budget, will create opportunities for BBGI. This asset is one of a limited number of high-profile availability-style transportation assets to have reached construction completion.

Continental Europe

Continental European infrastructure markets remain active with certain countries offering an attractive pipeline of new assets. We believe these markets are likely to provide attractive investment opportunities over the medium-term.

Scandinavia: The Scandinavian greenfield market looks set for a busy 2020, particularly in the transport sector. Both the €1 billion Sotra road PPP in Norway and the smaller Hailuoto causeway PPP in Finland are set to progress.

Netherlands: Over the past decade the Netherlands has built up a reputation for stable, predictable infrastructure deal flow. The country has mature and transparent procurement processes, and most projects have reached financial close within the expected timeframe. Following our recent investment in three assets in the Netherlands, we are actively investigating further investment opportunities in this market.

Belgium: BBGI is part of a consortium which successfully prequalified for the R4 Ghent project. The project is a 30-year availability-based PPP project involving the upgrade of the R4 West and East in Ghent to primary roads, removing intersections and creating new cycle highways. 

Belgium's €550 million schools PPP programme is one of the largest PPPs in the Benelux market at present. The Coalition Agreement 2019-2024 for the new Flemish Government mentions explicitly PPP initiatives for school buildings.

Germany: The expectation is that the road PPP scheme will continue. With six existing assets in Germany, strong credentials and German language skills on our Management Board, BBGI is well positioned to consider these upcoming opportunities.

Southern Europe: Countries including Spain, Italy, Portugal and Greece have PPP pipelines. While some of these programmes may be viewed as attractive in terms of their size and the availability-style nature of the assets, the credit rating of the counterparties and certain risk transfer expectations make these investment opportunities unattractive to the Company. Consequently, BBGI has not focused on these opportunities.

Australia

Australia's big build will roll into 2020. New South Wales and Victoria, the two biggest states, are each spending AUD$90 billion over four years on major projects. Two more arterial road PPPs - the Northern and South Eastern Roads Upgrades with a combined value of about AUD $2.2 billion - are set to reach financial close later in 2020. The AUD $79 billion North East Link ('NEL') motorway, is also expected to reach financial close later in 2020.

The AUD$50 billion Suburban Rail Loop is another major project which will be built in phases. The government has announced the first stage of that will be a dedicated line, which should allow for it to be procured as a PPP. Construction will not begin on the loop until 2022.

BBGI has three large operational assets in Australia and will continue to monitor the market. The Company is hopeful that some select opportunities may emerge in 2020. 

Pipeline assets:

Primary bidding opportunities:

OPERATING & FINANCIAL REVIEW

The Management Board is very pleased to present the Operating and Financial Review for the year ended 31 December 2019. 

Highlights and Key Performance Indicators

Please see Financial Highlights for a summary of the Year in Numbers for 2019. Certain key performance indicators ('KPIs') for the last four years are highlighted below:

Asset Management

Cash Performance

The Company's portfolio of 48 high quality, availability-based infrastructure investments continued to perform well during the year, with cash flows ahead of the expectations and the underlying financial models.

Construction exposure

The Company's investment policy is to invest principally in assets that are operational and that have completed construction. Accordingly, investment in assets that are under construction will be limited to 25 per cent of the portfolio value. The rationale for this approach is to be able to produce a stable dividend for our shareholders, while at the same time gaining some exposure to the potential NAV uplift that occurs when assets move from a successful construction stage to the operational stage. The Company has demonstrated in the past that it can manage such assets during the construction period and its successful transition into a stable operational asset.

The Management Board believes that the Company's ability to meet its dividend targets is not compromised by having some construction exposure. Further information on construction risk can be obtained from the Company's prospectus, which is available on the Company's website.

As at 31 December 2019, 100 per cent of the assets were operational. The Company is currently pursuing a number of primary investment opportunities which, if successful, will add some construction exposure over the course of 2020. As announced on 5 March 2020, BBGI together with its consortium partners, was named as the preferred bidder for a PPP motorway project in Canada that will twin Highway 104 between Sutherlands River and Antigonish in Nova Scotia. Financial close is expected in April 2020. In December 2019, the Company contracted with a co shareholder to acquire an additional 25 per cent interest in Stanton Territorial Hospital in Canada, a project that achieved construction completion in 2019. This acquisition completed in Q1 2020. Upon completion BBGI now owns a 50 per cent equity interest in the project.

Investment performance

Return track record

The Company's share price has performed well and has maintained a strong premium to NAV through the reporting period. This was against the backdrop of political and economic uncertainty resulting from the protracted Brexit process and also a UK general election where the Labour Party was seeking to nationalise PPP projects were they to form a Government. We continue to believe that a key benefit of the portfolio is the high-quality cash flows derived from long-term availability-based government or government-backed contracts. As a result, the portfolio performance is largely uncorrelated to the many wider economic factors that may cause market volatility in other sectors.

The share price closed the year at £1.665, an increase of 7.1 per cent in 2019 and representing a 22 per cent premium to the NAV per share at the year-end.

TSR in the calendar year 2019 was 11.8 per cent whilst TSR from IPO to 31 December 2019 was 136.2 per cent or 11.3 per cent on a compound annual basis.

The total accounting return[xxv] per share in the calendar year 2019 was 7.2 per cent, with a dividend yield of 4.1 per cent.

Against the FTSE All-Share, the Company has shown a low five-year correlation of 23 per cent and a beta of 0.22[xxvi].

Distribution policy

Distributions on the ordinary shares are planned to be paid twice a year, normally in respect of the six months to 30 June and the six months to 31 December.

Dividends

On 4 April 2019, the Company paid a second interim dividend of 3.375pps for the period 1 July 2018 to 31 December 2018. The 2019 interim dividend of 3.5pps was paid on 17 October 2019. In February 2020, subsequent to the year end, the Company declared a second interim dividend of 3.5pps in respect of the six-month period ended 31 December 2019; resulting in a total dividend of 7.00pps for the year ended 31 December 2019. As previously reported, the Company is targeting an increase in the 2020 dividend to 7.18pps, which represents a further increase of 2.6 per cent for the year and a progressive long-term dividend growth averaging 3.3 per cent since IPO. Furthermore the Company is targeting a dividend of 7.33pps for 2021.

- Average dividend increase of 3.3 per cent from 2012 to 2020

- FY 2020 target dividend of 7.18pps[xxvii], up 2.6 per cent

- FY 2021 target dividend of 7.33 pps²²

Investor communications

The Company places great importance on communication with its shareholders and welcomes their views. It is the intention of the Company to remain at the forefront of disclosure and transparency in its asset class, and therefore the Management Board and Supervisory Board regularly review the level and quality of the information that the Company makes public.

The Company formally reports twice a year through the Annual and Interim Reports and Financial Statements. Other current information on the Company is provided through the Company's website and through market announcements. At Shareholder General Meetings, each share is entitled to one vote; all votes validly cast at such meetings (including by proxy) are counted, and the Company announces the results on the day of the relevant meeting.

The Boards are keen to develop and maintain positive relationships with the Company's shareholders. As part of this process, immediately following release of the annual and interim results at the end of March and August each year, the co-CEOs present the Company's results to market analysts and subsequently conduct investor roadshows and offer shareholder visits to discuss the results, explain the ongoing strategy of the Company, and receive feedback.

Outside of these formal visits, feedback from investors is received via the Management Board and the Corporate Brokers and, together with the feedback from results meetings, this is reported to the Supervisory Board. Throughout the year under review, the co-CEOs have made themselves available to shareholders and key sector analysts, for discussion of key issues and expectations around Company performance. The co-CEOs intend to continue to be available to meet with shareholders periodically to facilitate an open two-way communication on the development of the Company. Shareholders may contact members of both the Management and Supervisory Boards at the registered office of the Company, the address for which can be found at the end of the Annual Report or on the Company's website at www.bb-gi.com.

While shareholder engagement is typically conducted by the Co-CEOs it should be noted that the Chairman also makes himself available throughout the year to understand the views of shareholders on governance and performance against the Company's investment objectives and investment policy. Given this level of engagement with shareholders, the Boards consider that they meet the requirements of AIC Code Principle 5D.

Share capital

The issued share capital of the Company is 630,213,226 ordinary shares of no par value. All of the ordinary shares issued rank pari passu. During the year ended 31 December 2019, the Company issued 50,208,075 shares.

Voting rights

There are no special voting rights, restrictions or other rights attached to any of the ordinary shares. There are no restrictions on the voting rights attaching to ordinary shares.

Discount management

Although the Company's shares have continuously traded at a premium since IPO, the Management Board will actively monitor any discount to the NAV per share at which the ordinary shares may trade in the future. The Management Board will report to the Supervisory Board on any such discount and propose actions to mitigate this.

Purchase of ordinary shares by the Company in the market

In order to assist in the narrowing of any discount to the NAV at which the ordinary shares may trade from time to time and/or to reduce discount volatility, the Company may, subject to shareholder approval:

§ make market purchases of up to 14.99 per cent annually of its issued ordinary shares; and

§ make tender offers for ordinary shares.

No shares have been bought back during the year ended 31 December 2019. The most recent authority to purchase ordinary shares which may be held in treasury or subsequently cancelled was granted to the Company on 30 April 2019. This authority expires on the date of the next Annual General Meeting ('AGM') to be held on 30 April 2020, at which point the Company will propose that its authority to buy back shares be renewed.

Continuation vote

The Company's Articles of Association ('Articles') require the Boards to offer a continuation vote to the Company's shareholders at the AGM to allow the Company to continue in its current form, with a further vote every two years. On 30 April 2019, at the Company's AGM, the shareholders voted unanimously for the continuation of the Company. In accordance with the Articles, a further continuation vote will be offered to shareholders at the AGM due to be held in 30 April 2021.

To ensure continuity of listing at the end of the Brexit transition period, the Company has notified the FCA under its Temporary Permissions Regime ('TPR'), of BBGI's intention to continue to market its fund into the UK. For further information on the TPR, refer to the Risk section of the Corporate Governance Report.

VALUATION

The Management Board is responsible for carrying out the fair market valuation of the Company's investments, which it then presents to the Supervisory Board. The valuation is carried out on a six-monthly basis as at 30 June and 31 December each year. The valuation is reviewed by an independent third-party professional. The valuation is determined using the discounted cash flow methodology. The cash flow forecasts, generated by each of the underlying assets, are received by the Company or its subsidiaries, adjusted as appropriate to reflect risks and opportunities, and discounted using asset-specific discount rates. The valuation methodology remains unchanged from previous reporting periods.

Portfolio movement 31 December 2018 to 31 December 2019

The Company's portfolio value at 31 December 2019 was £846.0 million (31 December 2018: £780.4 million), or an increase of 8.4 per cent.

¹These figures represent the assets and liabilities of the Group; after excluding the investments at fair value through profit or loss (Investments at FVPL). Refer to the Pro forma balance sheet in the Financial Results section of this Annual Report for further breakdown.

²Refer to the Portfolio Review section of this Annual Report for further details on the acquisitions during the year.

³While distributions from assets reduce the portfolio value, there is no impact on the Company's NAV as the effect of the reduction in the portfolio value (investments at fair value through profit or loss) is offset by the receipt of cash at the consolidated Group level. Distributions are shown net of withholding tax.

⁴The result from balance sheet hedging is recorded at the consolidated Group level and does not impact portfolio value. During the period, the Company recorded a gain of £2.1 million on balance sheet foreign exchange hedging contracts entered into in November 2018 with subsequent balance sheet hedges entered into in November 2019.

Key drivers for NAV growth

During the year, the Company recognised £73.5 million, or a 9.5 per cent increase in NAV, from the unwinding of discounts and value accretive enhancements. As the Company moves closer to forecast Investment at FVPL distribution dates, the time value of those cash flows increases on a net present value basis. The portfolio value growth from unwinding of discount during the year was approximately £55.9 million or a 7.2 per cent change in NAV.

The remaining £17.6 million, or a 2.3 per cent change in NAV, represents the net effect of value accretive enhancements across the portfolio through active management, which includes amongst others:

·      Enhanced operational performance through active asset management

·      Net effect of updated realised or projected Project Company costs, O&M, lifecycle, and insurance

·      Net valuation effect from adjusting risk premium reflected in specific asset discount rates (e.g. asset moving towards the stable operational phase)

The net effect of inflation, against the 31 December 2018 modelled macroeconomic assumptions (Assumptions), on the portfolio value has been positive, and is included in the value above.

Key Project Company and portfolio cash flow assumptions underlying NAV calculation include:

·      The discount rates and the Assumptions as set out below continue to be applicable.

·      The financial models for the Project Companies accurately reflect the terms of all agreements relating to the Project Companies and represent a fair and reasonable estimation of future cash flows accruing to the Project Companies.

·      Non-UK assets are valued in local currency and converted to Sterling at either the period-end exchange rates or the contract hedge rate. 

·      Cash flows from and to the Project Companies are received and paid at the times anticipated.

·      Where the operating costs of the Project Companies are fixed by contract, such contracts are performed, and where such costs are not fixed, they remain within the current budgets.

·      Where lifecycle costs/risks are borne by the Project Companies they remain in line with the current budgets.

·      Contractual payments to the Project Companies remain on track and are not terminated before their contractual expiry date.

·      Any deductions or abatements during the operations period of the Project Companies are fully passed down to subcontractors under contractual arrangements or are part of the planned (lifecycle) budgets.

·      Where the Project Companies own the residual property value in an asset, that the projected amount for this residual value is realised.

·      In cases where the Project Companies have contracts which are in the construction phase, they are either completed on time or any delay costs are borne by the construction contractors.

·      There are no tax or regulatory changes in the future which negatively impact cash flow forecasts.

In forming the above assessments, BBGI works with Project Company management teams, as well as using due diligence information from, or working with, suitably qualified third parties such as technical advisors, legal advisors and insurance advisors.

Macroeconomic assumptions

The Company uses the following Assumptions for the cash flows:

*CPI indexation only. Where projects are subject to a basket of indices, these non-CPI indices are not considered.

**80% of ORB indexation factor for revenue is contractual and is not tied to CPI.

***Individual tax rates vary among Canadian Provinces; the tax rate for Alberta is decreasing gradually from 12% to 8% by 2022.

****Individual local trade tax rates are considered additionally.

General market activity

The demand for infrastructure assets remained strong during 2019, evidenced by continued transactions at robust valuations.

Notable secondary transactions include:

·      A motorway PPP in Ireland and a motorway PPP in the Netherlands.

·      A portfolio of UK PFI social infrastructure assets which, according to  industry analyst reports, would equate to a c. 22 per cent uplift from the carrying valuation of the seller.

·      Iqaluit International Airport Improvement PPP in Canada.

·      Northeast Anthony Henday Ring Road PPP in Canada.

·      A portfolio of French PPP social infrastructure assets.

Market intelligence of these transactions suggests that discount rates in the secondary market remain very competitive and below 7 per cent. The Company has observed a further moderate downward trend in discount rates during the period. If current market trends continue, an additional reduction in discount rates may be considered for the next valuation.

Sensitivities  

Discount rates

The discount rates used for individual asset cash flows are based on BBGI's knowledge of the market, taking into account intelligence received from bidding activities, advisers and publicly available information on relevant transactions. Furthermore, the discount rates used as part of the portfolio valuation process are reviewed by an independent third-party valuation professional.

The discount rates used for individual assets range between 6.70 per cent and 9.00 per cent. The value weighted average rate is approximately 7.07 per cent (31 December 2018: 7.20 per cent) which represents a reduction of 13 bps from 31 December 2018 and management believe to be towards the conservative end of the range. This methodology calculates the weighted average based on the value of each asset in proportion to the total portfolio value, i.e. based on the net present value of their respective future cash flows.

We have differentiated the asset classes with respect to discount rates. For stable operational assets, such as typical schools, hospitals and road assets, we have applied discount rates at the lower end of the range mentioned above. Adjustments have been applied to acute hospitals in the UK where a risk premium of 50bps continues to be applied. This risk premium reflects the special situation in the UK where some public health clients are under cost pressure and are actively looking for savings. This drive for cost savings has resulted in some large deductions on UK acute hospitals and, consequently, distribution lock ups. To date, BBGI has not been affected. The only UK acute hospital in the portfolio is Gloucester Royal Hospital, which represents less than 1 per cent of the overall portfolio value, and there are no similar assets identified in the current pipeline.

BBGI continues to apply a modest risk premium for complex prison assets to reflect the higher complexity of such assets, and has also applied a risk premium to a limited number of other assets to reflect the individual situations.

The following table shows the sensitivity of the NAV to a change in the discount rate.

¹ Based on the weighted average discount rate of 7.07 per cent.

Macroeconomic sensitivities

The NAV is sensitive to changes in the macroeconomic assumptions used as part of the portfolio valuation process. The sensitivities are also shown in Note 18 to the consolidated financial statements.

Foreign exchange and sensitivity

BBGI values its portfolio of assets by discounting anticipated future cash flows. The present values of these cash flows are converted to Sterling at either the hedged rate, for a predetermined percentage of cash flows forecast to be received over the next four years, or at the closing rate for unhedged future cash flows.

A significant proportion of the Company's underlying investments are denominated in currencies other than Sterling. The Company maintains its accounts, prepares the valuation and pays dividends in Sterling.

Accordingly, fluctuations in exchange rates between Sterling and the relevant local currencies will affect the value of the Company's underlying investments. During 2019, the appreciation of Sterling against the Euro, Norwegian Krone, US Dollar and Australian Dollar, and the depreciation of Sterling against the Canadian Dollar accounted for a net decrease in the portfolio value of £6.2 million. This decrease was partially offset by a gain of £2.1 million from balance sheet hedging at the consolidated Group level and included in the other net liabilities at 31 December 2019. Since listing in December 2011, the net cumulative effect of foreign exchange movement on the portfolio value has been a decrease of £14.9 million or 1.7 per cent of NAV at 31 December 2019.

The table below shows those closing rates, which were used to convert unhedged future cash flows into the reporting currency at 31 December 2019.

Although the closing rate is the required conversion rate to use, it is not necessarily representative of future exchange rates as it reflects a specific point in time.

The Group uses forward currency swaps to (i) hedge 100 per cent of forecasted cash flows on a four-year rolling basis, and (ii) to implement balance sheet hedging in order to limit the decrease in the NAV to approximately 3 per cent for a 10 per cent adverse movement in foreign exchange rates. This is achieved by hedging a portion of the non-Sterling and non-Euro portfolio value[xxviii]. The benefit of the Company's hedging strategy can also be expressed as a theoretic or implicit portfolio allocation to Sterling exposure. In other words, on an unhedged basis the portfolio allocation to Sterling exposure would need to be approximately 70 per cent to obtain the same NAV sensitivity to a 10 per cent adverse change in foreign exchange rates as shown below.

The following table shows the sensitivity of the NAV to a change in foreign exchange rates:

¹ Sensitivity in comparison to the spot foreign exchange rates at 31 December 2019 and taking into account the contractual and natural hedges in place, derived by applying a 10 per cent increase or decrease to the Sterling/foreign currency rate.

Inflation sensitivity

The asset cash flows are positively correlated with inflation (e.g. RPI, CPI, or a basket of indices). Currently, there is an ongoing review by the UK Statistics Authority to align the RPI calculation methodology more closely with the CPIH methodology. In September 2019, the UK Chancellor of the Exchequer rejected scrapping the RPI outright; stating changes to the index could take place between 2025 and 2030. The Company is closely monitoring developments around potential changes to the RPI but any change is unlikely to have a material effect as the portfolio's UK exposure is 32 per cent. 

The table below demonstrates the effect on the NAV of a change in inflation rates compared to the Assumptions in the table above:

Deposit rate sensitivity

The asset cash flows are positively correlated with the deposit rates. The table below demonstrates the effect on the NAV of a change in deposit rates compared to the Assumptions above:

Lifecycle costs sensitivity

Of the 48 assets in the portfolio, 16 assets retain the lifecycle obligations. The remaining 32 assets have this obligation passed down to the subcontractor. The table below demonstrates the impact on the NAV of a change in lifecycle costs:

¹Sensitivity applied to the 16 assets in the portfolio which retain the lifecycle obligation, i.e. the obligation is not passed down to the subcontractor.

Corporate tax rate sensitivity

The profits of each portfolio company are subject to corporation tax in the country where the company is located. The table below demonstrates the effect on the NAV of a change in tax rates compared to the Assumptions outlined above:

In November 2019, the Conservative government in the UK announced a postponement of the UK Corporation Tax cut from 19 per cent to 17 per cent which was due in April 2020. Legislation was introduced in Finance Bill 2020 to amend the main rate of corporation tax to 19 per cent for the financial year 2020 and was substantively enacted on 17 March 2020. Whilst this postponement had not been made effective as of 31 December 2019, the Company recognises any change in the UK Corporate Tax rate will have an effect on the portfolio valuation. It is the Company's policy to value those tax rates that have been enacted into law at the reporting period date. Notwithstanding this, and to aid transparency, we have calculated that the postponement of this UK Corporation Tax cut would result in a £2.5 million, 0.3 per cent reduction in NAV.

Senior debt refinancing sensitivity

Assumptions are used where a refinancing of senior debt financing is required for an asset during the remaining asset concession term. There is a risk that such assumptions may not be achieved. The below table shows the effect of a +100bps adjustment to the forecasted margins. The base rate for senior debt is either fixed or a long-term interest swap is available with the effect that none of our assets is subject to changes in base rates.

¹The Northern Territory Secure Facility asset is the only remaining asset in the BBGI Portfolio with refinancing risk.

GDP sensitivity

The BBGI portfolio is not sensitive to GDP.

The principal risks faced by the Group and the mitigants in place are outlined in the Risk section of this Annual Report.

FINANCIAL RESULTS

The Consolidated Financial Statements of the Group for the year ended 31 December 2019 are in the Financial Statements section of this Annual Report.

BASIS OF ACCOUNTING

The Group has prepared its Consolidated Financial Statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. In accordance with IFRS, the Company qualifies as an Investment Entity and as such, does not consolidate its investments in subsidiaries that qualify as investments at fair value through profit or loss ('Investments at FVPL'). Certain subsidiaries that are not Investments at FVPL, but instead provide investment related services or activities that relate to the investment activities of the Group, are consolidated.

INCOME AND COSTS

During the year the Group recognised an FVPL income of £69.8 million (31 December 2018: £70.1 million). This FVPL income is made up of a combination of the positive effect of unwinding of discount, value enhancements and changes in market discount rates, with a partial offset resulting from effect of foreign exchange losses on the underlying Investments at FVPL during the year. A more detailed analysis of the movement in Investments at FVPL is outlined in the Valuation section of this Report.

The Group has implemented a policy of using forward currency swaps to hedge a portion of its anticipated foreign currency cash flows and uses twelve-month forward currency swaps to hedge part of the non-Sterling, non-Euro denominated portfolio values. Collectively, these cash flow and balance sheet hedges have resulted in an operating loss during the year amounting to £0.9 million (31 December 2018: £3.9 million gain) and is reflected in Other operating expenses in the table above.

During the year the Company acquired additional equity interests in Ohio River Bridges in the United States and the A1/A6 motorway in the Netherlands. The acquisition costs incurred during the year amounted to £1.1 million (31 December 2018: £1.1million) and includes unsuccessful bid costs amounting to £0.7 million (31 December 2018 £ 0.6 million).

The administration expenses and net finance result decreased to £10.5 million (31 December 2018: £11.7 million). The decrease was driven largely by a reduction year on year in the average borrowings outstanding under the RCF during the year. The Group Level Corporate Cost Analysis section below provides further details.

Profit from continuing operations for the year ended 31 December 2019 decreased by 8.8 per cent to £51.0 million (31 December 2018: £55.9 million).

Group Level Corporate Cost Analysis

The table below is prepared on an accruals basis.

Net finance costs for the year were £2.0 million (31 December 2018: £4.0 million). The Company used the proceeds from the June 2019 share issuance to repay outstanding borrowings resulting in a decrease in finance costs in the year. The £21.0 million of borrowings which remained outstanding at 31 December 2019, were repaid subsequent to the balance sheet date. The cash flow analysis section of this report provides further information regarding utilisation and repayments under the RCF during the year.

Refer to the Remuneration section of this report for further analysis of staff costs during the year.

Ongoing Charges

The Ongoing Charges percentage, presented in the table below, is prepared in accordance with the AIC recommended methodology[xxix]. The percentage represents the annualised reduction or drag on shareholder returns as a result of recurring operational expenses incurred in managing the Group's consolidated entities, and provides an indication of the level of recurring costs likely to be incurred in managing the Group in the future.

As the Group is internally managed, it is not subject to performance fees or acquisition-related fees which are typical in externally managed investment companies. The Ongoing Charges include an accrual for the Short-Term Incentive Plan ('STIP')/bonuses and the Long-Term Incentive Plan ('LTIP') and exclude all non-recurring costs such as the costs of acquisition, financing costs and gains/losses arising from assets.

For the year ended 31 December 2019, certain non-recurring costs were excluded from the Ongoing Charges, most notably acquisition-related advisory costs of £1.3 million (inclusive of VAT), taxation of £3.0 million and net finance costs of £2.0 million.

The table below provides a reconciliation of the Ongoing Charges and the Ongoing Charges Percentage to the administration expenses under IFRS.

Cash flows

The table below summarises the sources and uses of cash and cash equivalents for the Group.

¹ These distributions are shown gross of withholding tax. The associated withholding tax outflow is included in Net cash flows from operating activities.

The Group's portfolio of investments performed well during the period, with rebased cash flows[xxx] ahead of business plan. Distributions from Investments at FVPL, increased during the year by 16.2 per cent to £64.0 million.

Additional investments during the year were financed through a combination of RCF utilisation, Placing proceeds and reinvestment of distributions received from Investments at FVPL.

The Group borrowed under the RCF during the year to finance the acquisition of follow-on investments. The Company used the proceeds from the June 2019 share issuance to repay the borrowings outstanding. A further £21 million was drawn under the RCF in H2 and remained outstanding at 31 December 2019 and was repaid in full subsequent to the year end. Cash dividends paid during the year ended 31 December 2019 amounted to £40.8 million.

Refer to the Consolidated Statement of Cash Flows for further detail of cash flows during the year ended 31 December 2019.

For the year ended 31 December 2019, the Group has a cash dividend cover ratio[xxxi] of 1.30x (year ended 31 December 2018: 1.50x) and is calculated as follows:

The actual reduction in coverage year on year was due to a lower scrip dividend election in 2019. Management believe this to be a strong coverage ratio and a good proxy as to the ability of the Company to pay target dividends in future.

Balance Sheet

Pro forma Balance Sheet

¹ Represents the value of the Group's total assets less the value of its total liabilities under the Investment Basis. The Investment Basis NAV represents the residual interest of the shareholders in the Group, after all the liabilities of the Group, if any, have been settled.

As at 31 December 2019, the Group has 48 availability-based Investments at FVPL (31 December 2018: 48). The main drivers of the net movement in Investments at FVPL are:

·      + £62.9 million: from additional equity interests in Ohio River Bridges and the A1/A6 motorway.

·      + £69.8 million: from the net effect of unwinding of discount, value enhancements, changes in market discount rates, the impact of foreign exchange losses and revised macro-economic assumptions on portfolio value during the year.

·      - £64.0 million: due to cash distributed from the Investments at FVPL during the year.

The derivative financial asset adjustment of £1.4 million during 2019 reflects the fair value of forward currency swaps used to hedge future portfolio distributions. Under the Investment Basis NAV, the contracted forward rates are applied to hedged future distributions and therefore embedded in the Investments at FVPL.  The unhedged distributions are converted at the 31 December 2019 closing rate.

As at 31 December 2019, cash and cash equivalents amounted to £34.8 million (£10.4 million as at 31 December 2018).

A reconciliation of Net Debt (Cash) as compared to net borrowings under IFRS is as follows:

Three-year comparative of Investment Basis NAV

The Investment Basis NAV increased by 10.9 per cent to £858.6 million at 31 December 2019 (31 December 2018: £774.5 million). This equates to a growth in Investment Basis NAV per share of 2.0 per cent to 136.2p at 31 December 2018 (2018: 133.5p). The Investment Basis NAV per share is the Investment Basis NAV divided by the number of Company shares issued and outstanding. This information presents the residual claim of each Company shareholder to the net assets of the Group.

CORPORATE GOVERNANCE

Introduction

The Company is internally managed with a two-tier governance structure that comprises a Supervisory Board and a Management Board (together, the 'Boards'), with the responsibilities of each as indicated in this Report.

The Management Board's principal responsibility is the day-to-day management of the Company, including the discretionary investment management of the Company's assets and those of the rest of the Group. In carrying out the function of investment manager via the Management Board, the Company does not engage an external investment manager to provide such services.

The Management Board is otherwise responsible for the overall administration of the Company including the preparation of semi-annual valuations; statutory financial statements; management accounts and the business plan that defines the Company's active approach to asset management. Given its role as investment manager, the Management Board is the primary interface for investor relations, including engagement with the Supervisory Board on shareholders' behalf.

The Company is regulated by the CSSF under Part II of the amended Luxembourg law of 17 December 2010 on undertakings for collective investments and is subject to the Luxembourg amended law of 12 July 2013 on Alternative Investment Fund Managers ('AIFM Law') that implemented the EU Alternative Investment Funds Managers Directive ('AIFMD') into national legislation.

Governance and Regulatory Environment

As an internally managed investment company, having effective controls in place is paramount to securing the sound financial and operational performance of the Company's investments. Equally, the Company recognises the importance of effective engagement with its stakeholders, viewing it as a key part of its own long-term success and sustainability.

BBGI is a member of the AIC and as such reports against the AIC Code of Corporate Governance (the 'AIC Code').

Both the Management Board and the Supervisory Board of the Company have considered the Principles and Provisions of the AIC Code. The AIC Code addresses the Principles and Provisions set out in the UK Corporate Governance Code (the 'UK Code'), as well as setting out additional Provisions on issues that are of specific relevance to the Company.

The Boards consider that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the FRC, provides more relevant information to shareholders.

The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.

Whilst BBGI is a non-domiciled publicly listed entity on the UK London Stock Exchange, to whom the UK Companies Act 2006 (the 'CA2006') has limited application, the Company recognises the value that all its stakeholders bring to the business. As such, BBGI acknowledges the requirement for most UK publicly listed companies to make a s172(1) CA2006 statement. Consideration of BBGI's stakeholders, and details of how the Company adopts the spirit of those provisions, whilst not explicitly referenced, are encapsulated throughout this Annual Report. In particular and more generally, see further the Responsible Investment section.

For the most part, the Company has complied with the Principles and Provisions of the AIC Code and where it currently does not, we have explained why not. Those specific Provisions which the Company did not comply with are outlined below along with the section reference where the accompanying explanation for non-compliance can be found:

·      AIC Code Provision 10 (at least half the board excluding the chair, should be non-executive directors which the board considers to be independent): Management Board - General section;

·      AIC Provision 23 (All directors should be subject to annual re-election by the shareholders): Management Board - General section;

·      AIC Provision 22 & 37 (in relation to establishing separate Management Engagement, Nominations and Remuneration Committee): Committees of the Supervisory Board;

·      AIC Provision 29 (in relation to chair as a member of the Audit Committee): Audit Committee Report.

AIFM

During 2019, there have been no material changes in respect of Art. 20 Para. 2(d) of the AIFM Law that would warrant further disclosure to shareholders.

THE BOARD OF DIRECTORS as at 31 December 2019

This table sets out the expiry dates of the current terms of the directors' appointments. All appointments may be renewed in accordance with the provisions of the Company's Articles.

Supervisory Board

Biographies of Directors

Colin Maltby:

Independent Chairman of the Supervisory Board

Colin Maltby has been involved in the financial sector since 1975 when he joined NM Rothschild's international currency management department. Between 1980 and 1995, he held various roles at Kleinwort Benson Group plc, including as a Group Chief Executive at Kleinwort Benson Investment Management, as well as a Director of Kleinwort Benson Group plc.

From 1996 to 2000, Mr Maltby was Chief Investment Officer at Equitas Limited, and from 2000 to 2007, he worked for BP, as Chief Executive for BP Investment Management Limited and Head of Investments for BP plc. Since 2007, he has served as advisor to institutional investors and as an Independent Non-Executive Director of several listed companies. Mr Maltby was Senior Independent Director until 31 August 2018, when he became Chairman.

Mr Maltby holds MA and MSc degrees from Oxford University and has been a member of the Chartered Institute for Securities and Investment since its formation in 1992 and serves as a Non-Executive Director of a number of listed investment companies.

Howard Myles:

Senior Independent Director

Howard Myles began his career in stockbroking in 1971 as an equity salesman, before joining Touche Ross in 1975 where he qualified as a chartered accountant. In 1978, he joined W. Greenwell & Co in the corporate broking team, and in 1987 moved to SG Warburg Securities where he was involved in a wide range of commercial and industrial transactions, in addition to leading Warburg's corporate finance function for investment funds. Mr Myles worked for UBS Warburg until 2001 and was subsequently a partner in Ernst & Young LLP from 2001 to 2007, where he was responsible for the Investment Funds Corporate Advisory team.

Mr Myles was Chairman of the Audit Committee until 31 August 2018, when he became Senior Independent Director.

Mr Myles holds an MA from Oxford University. He is a Fellow of the Institute of Chartered Accountants, a Fellow of the Chartered Institute for Securities and Investment, and a Non-Executive Director of a number of listed investment companies.

Jutta af Rosenborg:

Independent Director and Chair of the Audit Committee

Jutta af Rosenborg has extensive experience in management and strategy derived from senior operational roles in a number of companies and vast experience with group finance and auditing, risk management, merger & acquisitions and streamlining of business processes.

Ms af Rosenborg served as the Chief Financial Officer, Executive Vice President of Finance and IT and Member of Board of Management at ALK-Abelló A/S until 2010. Prior to this, Ms af Rosenborg served at Chr. Hansen Holding A/S as its Vice President of Group Accounting from 2000 to 2003. From 1978 to 1992, she worked for the Audit Group at Deloitte.

Ms af Rosenborg was appointed to the Supervisory Board on 1 July 2018 and became Chair of the Audit Committee on 31 August 2018.

Ms af Rosenborg obtained a certificate in Business Administration from Copenhagen Business School in 1982, gained an MSc in Business Economics and Auditing from Copenhagen Business School in 1987 and qualified as a state authorised public accountant in 1992. Ms af Rosenborg serves as an Independent Non-Executive Director on a number of listed companies.

Sarah Whitney:

Independent Director

Ms Whitney has extensive experience in the real estate and finance sectors. She was a corporate finance partner at PricewaterhouseCoopers. She set-up and led the Government & Infrastructure Team at CB Richard Ellis, and was Managing Director of the Consulting & Research business at DTZ Holdings plc (now Cushman & Wakefield).

For the last 15 years, Ms Whitney's career has been focused on the provision of consultancy services to national and local governments, investors, and real estate companies on matters pertaining to real estate, economics, infrastructure and investment. Her early career was spent as an investment banker advising major corporates on M&A transactions.

Ms Whitney has a BSc in Economics & Politics from the University of Bristol and is a fellow of the Institute of Chartered Accountants of England and Wales. She is a Senior Visiting Fellow at the University of Cambridge. Ms Whitney serves as an Independent Non-Executive Director on a number of listed companies.

General

The Supervisory Board consists of four Independent Non-Executive Directors. Ms Sarah Whitney was appointed to the Supervisory Board on 1 May 2019.

In accordance with the Articles, all members of the Supervisory Board are elected for a period ending at the AGM of the Company in April each year, at which time they are required to retire. They may, if they so wish, offer themselves for re-election by shareholders. However, re-appointment is not automatic.

During the year, the Supervisory Board conducted its own internal performance evaluation, further details of which can be found below. The Supervisory Board believes that its members continue to have an appropriate combination of skills, experience and knowledge to enable them to fulfil their obligations.

The Supervisory Board members have a breadth and diversity of experience relevant to the Company, and the Company believes that any future changes to the composition of the Supervisory Board can be managed without undue disruption.

The Supervisory Board meets at least four times a year and between these formal meetings, there is regular contact with the Management Board and the Company's corporate brokers. The members of the Supervisory Board are informed of investment and financial controls, and other matters relevant to their remit, by the Management Board. Where necessary, both Supervisory and Management Board members also have access to independent professional advice at the expense of the Company.

The Supervisory Board considers items laid out in the Notices and Agendas of meetings which are formally circulated to its members in advance of the meeting as part of the board papers. At each meeting, members are required to advise of any potential or actual conflicts of interest prior to discussion.

Role and Responsibilities of the Supervisory Board

The primary role of the Supervisory Board is to supervise the activities of the Management Board. Notwithstanding this, the directors on both the Management Board and the Supervisory Board are accountable under the Listing Rules as the Listing Rules do not make a distinction between different types of directors. In particular, for such time as the Company's shares are listed on the Official List of the UK Listing Authority, the Supervisory Board and the Management Board act as one in approving any circular or corporate action where the Listing Rules require the recommendation of the board of directors of a publicly listed company (or where such recommendation is customarily given). Any responsibility applied to directors under the Listing Rules applies to all directors of the Company.

The main focus of Supervisory Board meetings is a review of investment performance and associated matters; including risk management, marketing/investor relations, gearing, general administration and compliance, peer group information and industry issues.

The Supervisory Board will continue to regularly consider the Company's strategy taking account of market conditions and feedback from the Management Board, the Company's joint corporate brokers and engagement with shareholders. The Company's investment strategy is considered regularly in conjunction with the Management Board.

In addition, the Supervisory Board is responsible for establishing and monitoring compliance with the Company's investment policy, providing general supervisory oversight to the operations of the Group as a whole; appointing the members of the Management Board, and supervising and monitoring the appointment and performance of the Company's third-party service providers (and those of its subsidiaries). In the case of these latter two roles, the Supervisory Board acts as Nominations Committee and Management Engagement Committee respectively, as described below under Committees of the Supervisory Board.

Each of the Supervisory Board members continues to be considered as independent, and the Supervisory Board is not aware of any circumstances which are likely to impair, or could appear to impair, the independence of any of the Supervisory Board members.

Annual performance evaluation

The Supervisory Board formally evaluates its performance, and that of its Chairman, and considers the term and independence of each member on an annual basis. The Supervisory Board considered the results of this evaluation process by way of questionnaire and agreed that the current composition of both the Supervisory Board and its Audit Committee reflected a suitable mix of skills, experience and knowledge; that each body was functioning effectively, and that the performance of each individual member continued to be effective. We believe the Supervisory Board's effectiveness is greatly enhanced the more diverse it is. Its members bring a varied range of skills and expertise to the benefit of the Company's stakeholders and we are proud that the Supervisory Board has an equal gender balance. The current Chairman's evaluation was also conducted by way of questionnaire, led by the Senior Independent Director, in accordance with Provision 14 of the AIC Code, and the results of which were subsequently discussed with the Chairman and the remaining members. The Chairman's evaluation concluded that he continued to be carrying out his role effectively.

As a FTSE 350 constituent, AIC Code Provision 26 requires that an externally facilitated evaluation of the Supervisory Board must be carried out at least every three years. In December 2019, the Company engaged BoardAlpha Ltd., a UK-based external evaluator, to perform an evaluation of the performance of the Supervisory Board; its committees, the chair and individual directors. The external evaluation is scheduled to conclude in Q1 2020 and further details will be provided in next year's Annual Report. As a FTSE 350 company, we are fully committed to undertaking externally facilitated reviews at least every three years in accordance with the AIC Code. There is no connection between the evaluator and the Company or any of its individual directors.

* From time to time there are unscheduled meetings of the Supervisory Board, most of which are called at short notice to approve documents previously discussed or of a technical nature. Due to the generally short notice given, not all members are always able to attend.

** Ms Whitney joined the Supervisory Board 1 May 2019 and attended all meetings held during her appointment.

*** Ms Whitney was additionally invited to attend as an observer a Board meeting held on the day of the Company's 2019 AGM.

Other listed company directorships

The members of the Supervisory Board held the following additional non-executive directorship mandates in publically quoted companies at 31 December 2019. Any mandates accepted subsequent to the balance sheet date are indicated below.

As part of the Supervisory Board's annual performance evaluation process it was concluded that throughout the reporting period each member had, and was expected to continue to have, sufficient capacity to carry out their duties properly with no one member being over-boarded by their current directorship mandates.

COMMITTEES OF THE SUPERVISORY BOARD

In accordance with provision 29 of the AIC Code and the Disclosure Guidance and Transparency Rules ('DTR') rule 7.1, the Supervisory Board has a formally constituted Audit Committee. The Audit Committee is the only formally constituted committee of the Supervisory Board.

Audit Committee

The Audit Committee operated throughout the year in accordance with the AIC Code. As indicated above, it does so within clearly defined terms of reference including all matters indicated by DTR 7.1 and the AIC Code. It comprises the four independent Non-Executive Directors who are also members of the Supervisory Board: Jutta af Rosenborg is Chair of the Committee, Sarah Whitney became a member of the Committee when she was appointed to the Supervisory Board in May 2019, and Colin Maltby and Howard Myles are the other members.

The Audit Committee is required to report its findings to the Supervisory Board, identifying any matters on which it considers that action or improvement is recommended. In the event of any conflict between the provisions of the AIC Code and the provisions of the law on the Audit Profession, the Company will comply with the provisions of the law on the Audit Profession and will disclose any such conflict.

The External Auditor is invited to attend those Audit Committee meetings at which the annual and interim financial statements are considered, and at other times if considered necessary by the Audit Committee.

The Audit Committee meets not less than three times per year, and at such other times as the Audit Committee Chair may require. Additional meetings may be requested by any other member of the Audit Committee, or the External Auditor, if deemed necessary. Other Directors and third parties may be invited by the Audit Committee to attend meetings as and when appropriate.

*Ms Whitney became a member of the Audit Committee in May 2019 and attended all meetings held during her period of appointment.

Further details on the Audit Committee and its work during the year can be found in the Audit Committee report.

The Committee Chair attends each AGM of the Company and is prepared to respond to any shareholder questions on the Committee's activities.

The Audit Committee terms of reference are available on the Company's website and can also be requested directly from the Company Secretary.

Other Committee functions

The Supervisory Board carries out the functions of the Nominations Committee, the Remuneration Committee and the Management Engagement Committee, including inter alia making recommendations in relation to the Group's remuneration programme and on proposed changes of the Group's senior personnel. There are therefore no terms of reference in relation to such Committees. When acting in the capacity as these individual Committees, the meetings are chaired by Mr Maltby, the Independent Chairman of the Supervisory Board.

The Supervisory Board considers its size to be such that it would be unnecessarily burdensome to establish separate nominations, remuneration and management engagement committees at no material benefit to the Company and its shareholders.

§ Remuneration Committee

Acting as Remuneration Committee, the Supervisory Board met 4 times during 2019 to review the levels and structure of the remuneration, compensation, and other benefits and entitlements of the Management Board of the Company. Further information in relation to both Executive and Non-Executive Directors remuneration can be found in the Remuneration section of this Report.

§ Nominations Committee

During the year, the Supervisory Board met 5 times as the Nominations Committee to consider the renewal of the appointments of the Management Board members (which appointments are renewable annually for one year only), the appointment of a new Supervisory Board member and to review the succession plans for both Boards.

The Nomination Committee oversaw the re-appointment of Cornforth Consulting Ltd., an external search consultancy firm who had previously assisted in facilitating the appointment of Ms af Rosenborg. With their knowledge of investment companies and an understanding of the Company's requirements, Cornforth Consulting Ltd were able to facilitate the appointment of Ms Whitney to the Supervisory Board in May 2019. Apart from this engagement there was no other connection between Cornforth Consulting Ltd and the Company or individual directors.

As stated under 'Management Board - Performance Evaluation and Reappointment', each member of the Management Board was reappointed for a further year. In respect of succession planning, the detailed plans developed for all senior positions were reviewed. These plans are regularly updated by the Management Board and reviewed with the Supervisory Board at least annually.

§ Management Engagement Committee

In its role as Management Engagement Committee, the Supervisory Board met on 4 occasions during the year under review to consider, together with the Management Board, the performance, effectiveness and appropriateness of the ongoing appointments of the Company's third-party service providers under Principle H of the AIC Code. During these meetings the Management Board provide feedback and key findings resulting from any onsite meetings with third party service providers as part of the Company's program of oversight of delegates and key service providers.

Re-election of Supervisory Board members

In accordance with the Articles, Supervisory Board members are elected for a period ending at the Company's next AGM, at which time they are eligible for reappointment. All members of the Supervisory Board have decided to offer themselves for re-election at the forthcoming AGM and, as a result of the successful performance evaluation, the Supervisory Board recommends the re-election of each.

Management Board

Biographies of Directors

Duncan Ball:

Co-CEO and member of the Management Board at BBGI

Duncan Ball has been co-CEO of BBGI from inception and was actively involved in the establishment and IPO listing of BBGI in 2011 and the subsequent growth from 19 assets at IPO to 48 assets currently.

Mr Ball has worked in the infrastructure sector, investment banking and advisory business for over 30 years. As co-CEO of BBGI, he is responsible for overall strategy and management of the Company. He is one of three members of the Management Board and sits on the Investment Committee. Additionally, he is a shareholder representative and holds directorships in key assets of BBGI.

Frank Schramm:

Co-CEO and member of the Management Board at BBGI

Frank Schramm has been co-CEO of BBGI from inception and was actively involved in the establishment and IPO listing of BBGI in 2011 and the subsequent growth from 19 assets at IPO to 48 assets currently.

Mr Schramm has worked in the infrastructure sector, investment banking and advisory business for over 24 years. As co-CEO of BBGI, he is responsible for overall strategy and management of the Company. He is one of three members of the Management Board and sits on the Investment Committee. Additionally, he is a shareholder representative and holds directorships in key assets of BBGI.

Michael Denny:

CFO and member of the Management Board at BBGI

Michael Denny has over 19 years' experience in corporate finance with a focus on the infrastructure and real estate sectors.

He joined BBGI in early 2012, shortly after the Company's IPO. As CFO of the Group, he is primarily responsible for all corporate financial matters including but not limited to group financial reporting, UK listing requirements, taxation, treasury management and regulatory compliance. Mr Denny is a member of the Management Board and sits on the Group's Investment Committee.

General

The Management Board comprises three members, each contractually engaged by BBGI Management HoldCo S.à r.l., a direct consolidated subsidiary of the Company. As a result, no member is deemed independent under AIC Code Provision 10. However, the Management Board's functions are overseen by the Supervisory Board which itself meets the independence criteria set out in Provision 10. Whilst this two-tier structure is not explicitly covered by the AIC Code, the Company considers that an independent Supervisory Board ensures the Company is compliant with AIC Code Provision 10. Under AIC Code Provision 3, it is the co-CEOs of the Management Board who primarily seek regular engagement with the Company's major shareholders in order to understand their views concerning significant matters. The Chair of the Supervisory Board is, however, always available to undertake such engagement at shareholders' request.

The Company's Articles require that the Management Board's members be elected on an annual basis by the Supervisory Board, and not by shareholders. As a result, this does not meet the requirements of AIC Code Provision 23, which requires that directors should be subject to election by shareholders. However, as the Management Board carries out the role of investment manager, the Supervisory Board deems it appropriate that it elects the members of the Management Board. The Articles also require that the members of the Supervisory Board themselves be subject to annual election by shareholders, who may also dismiss any such member. Accordingly, the Company considers that this procedure satisfies the requirements of AIC Code Provision 23.

Internal controls

The Management Board has established an ongoing process and system of robust internal controls designed to meet the particular needs of the Company in managing the risks to which it is exposed. This process included establishing procedures to manage risk, oversee the internal control framework, and determine the nature and extent of principle risks the Company is willing to take to achieve its long-term strategic objectives.  The policies and procedures are reviewed at least annually, together with continual, ongoing monitoring.

A circular from the CSSF, 18/698, (the 'Circular') governing the authorisation and organisation of investment fund companies based in Luxembourg was published in August 2018. In addition to confirming the existing obligations applicable to an AIFM, the Circular required investment management companies to comply with new provisions in relation to governance and administration, internal controls, anti-money laundering and terrorist financing, as well as key functions including delegated activities, marketing, internal administration, procedures and valuation.

The Circular also included the requirements in respect of the compliance and internal control functions of the Luxembourg investment management companies in one single document, which were previously covered by CSSF Circular 04/155 and IML Circular 98/143.

Following publication of the Circular, the Company engaged an external advisor to assist in undertaking a comprehensive analysis of existing governance and controls against the Circular requirements and to devise and implement a plan to be compliant with the Circular. We are confident that this process has further strengthened the Company's already robust governance framework and internal controls.

At each quarterly meeting, the Supervisory Board monitors the Company's investment performance against its stated objectives and reviews its activities to ensure that the Management Board is adhering to the investment policy and guidelines - including clearly defined investment criteria, returns targets and risk appetite. During these meetings, the Management Board reports in relation to Key Performance Indicators ('KPIs') on operating performance, cash projections, investment valuations and corporate governance matters.

The Company recognises that effective control systems can only seek to manage and mitigate the risks of failure to achieve business objectives. They cannot eliminate them. By their very nature, these procedures are not able to provide absolute assurance against material misstatement or loss.

Performance evaluation and reappointment

As stated above, the Management Board carries out the functions of the Company's investment manager, and its Directors are appointed by the Supervisory Board for a period of one year, which is renewable. Mr Ball and Mr Schramm were both originally appointed on 5 October 2011 at the time of the Company's IPO, with Mr Denny originally appointed to the Management Board on 30 April 2013.

Re-election of the Management Board members

The Supervisory Board evaluates the performance of the Management Board and its Directors annually to ensure that the Management Board and its individual members continue to operate effectively and efficiently, and that the continued appointment of the individual Directors is in the best interests of the Company and its shareholders. Satisfied with the evaluations carried out in 2019, the Supervisory Board resolved to renew Mr Denny's appointment for a further term of one year with effect from 30 April 2019, and those of Mr Ball and Mr Schramm for a further term of one year with effect from 5 October 2019.

Attendance at Management Board meetings during the financial year ended 31 December 2019

Delegated functions

Amongst other requirements, the Company is required under the AIFM Law to have dedicated Risk Management, Compliance, and Internal Audit functions; each of which is required to be both functionally and hierarchically separate from the functions of the operating units. Accordingly, the following third-party service providers, which are experts in their respective fields, have been appointed to these roles and were engaged during the year ended 31 December 2019:

§  Risk Management:      IQ EQ Fund Management (Luxembourg) SA[xxxii]

§  Compliance:               99 Advisory Luxembourg

§  Internal Audit:             Grant Thornton Vectis

Other key delegates and providers are noted below:

§  Custodian, Depositary, Paying Agent, Transfer Agent:      RBC Investor Services Bank S.A.

§  Depository (UK)[xxxiii]:                               Link Market Services Trustees (Nominees) Limited   

§  Information Technology:                         G.I.T.S. PSF

Notwithstanding each of the above functions, the Company's Management Board retains overall responsibility for the correct and effective operation of the delegated functions.

During 2019, in recognition of the Company's continued growth and as a result of a market-wide increase in regulatory oversight and complexity of compliance requirements, the decision was taken to internalise the Compliance and Risk Management functions. In October 2019, the Company hired a new full-time employee as Head of Risk and Compliance. Formal approval of this appointment was received from the regulator with effect from 10 January 2020, prior to which the functions had remained with the delegated providers. An orderly handover from both of the delegated functions to the new Head of Risk and Compliance began in Q4 2019 and concluded during the first quarter of 2020.

During the year, following an internal restructuring within the Grant Thornton Luxembourg ("GTL") group, there was a change of service provider for Internal Audit. The service provider remains part of the GTL group of companies, who have previously been providing BBGI with Internal Audit services through the Grant Thornton Advisory entity. There was no change of personnel and GTL would continue to provide its Internal Audit services to BBGI through Grant Thornton Vectis, which received its PSA (Professionel du Secteur des Assurances) licence from the Commissariat Aux Assurances prior to the restructure.

Board members and other interests

The members of the Management Board are also BBGI Management HoldCo S.à r.l. managers. Mr Ball and Mr Schramm both hold service contracts and Mr Denny holds a management contract in respect of BBGI Management HoldCo S.à r.l. Otherwise, no other member of the Group held service or management contracts during the year under review.

No loan has been granted to, nor any guarantee provided for the benefit of, any director by the Company.

Mr Maltby, Mr Myles, Ms af Rosenborg and Ms Whitney are all considered to be independent Board members as they: (i) have not been employees of the Company; (ii) have not had material business relationships with the Company; (iii) have not received performance-based remuneration from the Company; (iv) do not have family ties with any of the Company's advisers, directors or senior employees; (v) do not hold cross-directorships or have links with other directors through involvement on other companies; (vi) do not represent a significant shareholder; and (vii) have not served on the Board for more than nine years.

Board members' shareholdings

REMUNERATION 

Supervisory Board remuneration

The Supervisory Board members are the Company's Non-Executive Directors and are paid a fixed quarterly fee. In its capacity as the Remuneration Committee, the Supervisory Board consider the Non-Executive Directors' fees annually based on the advice and recommendations of the Management Board. No member of the Supervisory Board is entitled to vote on his or her own remuneration. Supervisory Board members are not entitled to any other fees, pension payments, incentive plans, performance-related payments or any other form of compensation; with the exception of ex gratia fees that are considered in the event of exceptional and substantial increase in the members' workload.

The Chairman of the Supervisory Board is entitled to a fixed annual fee of £65,000. The Senior Independent Director and the Chair of the Audit Committee are each entitled to a fixed annual fee of £50,000 and remaining Supervisory Board members are entitled to a fixed annual fee of £45,000.

The table below outlines the fees paid in Sterling to each of the Supervisory Board members in 2018 and 2019.

* In addition to the standard fees each director was entitled to ex gratia fees during 2019 in relation to the June 2019 equity issue.

Executive and staff remuneration

The Company believes that an appropriate remuneration programme for each executive and employee of the Group plays an important role in achieving the short and long-term business objectives that ultimately drive sustainable business success and alignment with long-term shareholder goals.

The Company has continued to comply with the main provisions of the AIC Code in respect of remuneration. In its capacity as the Company's Remuneration Committee, the Supervisory Board reviews the level and structure of annual remuneration to which the Management Board members and employees of the Group are entitled. Appropriate benchmarking with comparable listed companies is periodically undertaken with the intention of ensuring that the remuneration programme remains competitive. As part of this process, and in acknowledgement of the Company becoming an established constituent of the FTSE 250, the Remuneration Committee will engage an external consultant during H1 2020 to conduct a review of the current remuneration structure against those of other comparable FTSE 250 companies to ensure the remuneration packages of the Company's Management Board members and employees of the Group remain competitive.

Other than the LTIP payment mechanism - which is subject to shareholder approval - the Supervisory Board is responsible for setting the remuneration levels and targets of the Management Board.

Remuneration programme objectives

The objectives of the remuneration programme are to:

·      Attract and retain highly qualified executives and employees with a history of proven success.

·      Align the interests of the Group's Management Board and employees with shareholders' interests, the execution of the Company's investment policy and the fulfilment of the Company's investment objectives.

·      Support strategy and promote long-term sustainable success.

·      Establish performance goals that, if met, are expected to be accretive to long-term shareholder value.

·      Link compensation to performance goals and provide meaningful rewards for achieving these goals. This includes performance on ESG and health & safety factors

Under the programme, every employee of the Group receives an annual base salary payable monthly in arrears.

Management Board remuneration

Each member of the Management Board receives an annual base fee payable monthly in arrears and participates in a LTIP. In addition, each member participates in a STIP. No member of the Management Board receives an additional fee for acting as a member of the Management Board.

Both Mr Denny and Mr Schramm receive all cash entitlements under the remuneration programme in Euro. Mr Ball receives all cash entitlements in Canadian Dollars. Payments in currencies other than Sterling (the reporting currency of the Group) can result in both positive and negative foreign exchange movements. No Management Board member is involved in deciding their own remuneration outcome.

Executive contracts

BBGI Management HoldCo S.à r.l. has agreed separate service contracts with the co-CEOs, Mr Schramm and Mr Ball. These contracts are on identical terms and conditions, save for the currency of payment as noted above. The key features of the service contracts are as follows:

·      The Threshold, Target and Maximum levels of the STIP are set at 50 per cent, 100 per cent and 125 per cent of the total base fee paid in the year respectively.

·      The Threshold, Target and Maximum levels of the LTIP awards are set at 50 per cent, 100 per cent and 150 per cent of the base fee at the date of grant.

·      LTIPs granted will be settled in shares.

·      An expected shareholding of 150 per cent of the base fee was set, which could be attained over a five-year period commencing May 2014.

·      Malus clauses enabling unpaid bonuses to be withdrawn are included for both the STIP and LTIP.

Mr Denny's 2019 STIP performance objectives set a target payment of €135,000 up to a maximum of payment of 125 per cent of target. LTIPs awards issued to Mr Denny each have a maximum value at their respective award dates of €100,000.

Notice periods to and from the Company of 12 months apply in respect of Mr Ball and Mr Schramm with a period of 6 months applying to Mr Denny.

Fixed remuneration

The combined annual base fee received by the members of the Management Board during the year ended 31 December 2019 was £989,046 (2018: £965,855).

In addition to their base fees, both Mr Schramm and Mr Ball received a monthly car allowance during the year amounting to £27,696 (2018: £27,541) and a supplementary annual payment to provide pension, retirement or similar benefits equating to 15 per cent of their annual base fee.

Variable remuneration

Short-term incentive plan ('STIP')

The Supervisory Board, acting in its capacity as Remuneration Committee, is responsible for determining both whether the relevant financial and non-financial performance objectives have been satisfied and the level of award under the STIP for the relevant year. If agreed, awards will be paid after the accounts have been audited and approved at the Annual General Meeting of the Company.

During the year ended 31 December 2019, the total amount accrued in respect of the 2019 STIP amounted to £1,089,522 (2018: £897,663). Payments under the STIP are made in Canadian Dollars and Euro.

Long-term incentive plan ('LTIP')

During the year the total amount accrued against those LTIPs which have been awarded but had not vested was £561,330 (2018: £485,000).

As of 31 December 2019, the total amount accrued in respect of all LTIPs which have been awarded but have not vested amounted to £965,330 (2018: £837,000). Further details on the individual awards are set out below.

A key feature of these awards is that they will be settled entirely by way of Company shares and not in cash. All awards, which are to be settled by shares, fall under the scope of IFRS 2 'Share-Based Payments' and its specific requirements. The Company continues to engage EY to carry out the valuation of awards falling under the scope of IFRS 2 with the resulting valuation being used as the basis for the cost to be amortised over the return period. Refer to the Consolidated Financial Statements for further detail on share-based payments. The below table outlines the amount expensed during the year for each of the outstanding share-based LTIP awards.

The 2019 award was issued in December 2019. No expense was accrued for this particular award during the reporting period.

During the year ended 31 December 2019, the Company settled the 2015 award obligation by issuing the respective gross share entitlement to each member of the Management Board. In total the Company issued and allotted 696,998 shares by way of settlement.

As at the date of this Report, there are no amounts set aside, needing to be set aside or accrued by the Company to provide pension, retirement or similar benefits to any member of the Management Board.

Total basic and variable remuneration for the financial year

The total basic remuneration paid to all members of staff (including the Management Board members) during the year ended 31 December 2019 was £2.45 million (2018: £2.33 million). The total amount accrued for cash settled variable remuneration at 31 December 2019 was £1.45 million. The total variable remuneration paid in cash in 2019 relating to the financial year ended 31 December 2018 was £1.43 million.

Remuneration and AIFM law

In 2013, the European Securities and Markets Authority ('ESMA') published its final guidelines on sound remuneration policies under the AIFMD. These guidelines indicate that remuneration disclosures may be made on a 'proportional' basis and acknowledge that the application of proportionality may lead exceptionally to the 'disapplication' of some requirements provided this is reconcilable with the risk profile, risk appetite and strategy of the AIFM and the AIFs it manages. According to the Guidelines, the different risk profiles and characteristics among AIFMs justify a proportionate implementation of the remuneration principles and, where a company chooses to disapply requirements, it must be able to explain the rationale to a competent authority.

The Company's position

As part of the AIFM authorisation application, the Company obtained the following derogations from the CSSF, on proportionate grounds, from three of the remuneration policy principles: i) to pay a substantial part of the variable remuneration in shares; ii) the ex post incorporation of risk for variable remuneration ('malus' or 'clawback'); and iii) to establish a formally constituted Remuneration Committee. Accordingly, the Company has technically disapplied these three remuneration policy principles, but has applied the spirit of the rules. All LTIPS will be settled in Company shares. As mentioned above, the Supervisory Board acts as the Company's Remuneration Committee.

Board tenure and diversity

The Supervisory Board, in its capacity as the Nominations Committee, and the Management Board regularly reviewed the succession plans for the Company. As part of a structured succession plan, each of the original non-executive directors is planning to retire on a staggered basis and the Company is recruiting additional independent directors over a timeframe that enables the knowledge and experience built up over the preceding years to be both retained and enhanced.

The Boards of BBGI take into full consideration both the gender and ethnic diversity of their composition. They fully acknowledge the Hampton-Alexander Review on women on Boards and the Parker Review on Ethnic Diversity on Boards. Female representation on the Supervisory Board currently stands at 50 per cent, exceeding the aim of the Hampton-Alexander review of having at least one third representation of women on the Boards of FTSE 350 companies by the end of 2020. The Company recognises that the aims set by Hampton-Alexander should be considered to extend down to the Management Board, as well as direct reports to them. With a relatively low turnover and small number of staff across the Group, the Boards are mindful of the limited opportunities that exist to appoint more women and employees of more diverse nationality, race and ethnicity to senior roles within the Company. Since becoming a FTSE 350 constituent, 50 per cent of appointments at both Boards and direct reporting levels were female, and 25 per cent were from a non-white background. As at 31 December 2019, 14 different nationalities were represented by the Group's employee base of 21 people.

In recruiting new Directors, the Nominations Committee actively seek greater diversity by gender, ethnicity, nationality and other criteria, whilst remaining committed to selecting members on merit with relevant and complementary skills to help the Company maximise stakeholder value.

The Company will continue to make future appointments at all levels on the basis of the full merits of the individual candidates, and the strengths, skills and experience that they would bring to the composition and balance of the Boards or Company as a whole. The process of appointing any new Directors is led by the Independent Directors.

General Meetings

2019

The AGM on 30 April 2019 was the only shareholder meeting held during the year. The notice of this meeting (and associated documents) and the results of the meeting may be found in the Investor Relations section of the Company's website. Under AIC Code Provision 4, no resolution, no votes of 20 per cent or more were cast against the board recommendation for a resolution. 

2020

The next Company AGM will be held on Thursday 30 April 2020 at the registered office address. The Notice of Meeting, proposed Resolutions and Explanatory Notes, and the associated Proxy Form, will be circulated to shareholders to meet the regulatory deadlines. These will also be made available on the Company's website.

Substantial shareholdings

As at 31 December 2019, pursuant to DTR5 of the FCA's Disclosure Guidance and Transparency Rules, the Company had received notice of substantial interests (5 per cent or more) in the total voting rights of the Company as follows, in compliance with DTR 7.2.6R:

ADMINISTRATION

Incorporation and administration

The ordinary shares were created in accordance with Luxembourg law and conform to the regulations made thereunder, have all necessary statutory and other consents, and are duly authorised according to, and operate in conformity with, the Articles.

Articles of Association

The Articles were originally approved and formalised before a Luxembourg notary public on 24 November 2011. The Articles are filed with the Luxembourg Registre de Commerce et des Sociétés and are published in the Mémorial. The Articles may be amended in accordance with the rules set out in article 32 of the Articles.