TIDMBBGI
RNS Number : 4755I
BBGI SICAV S.A.
31 August 2016
31 August 2016
BBGI SICAV S.A.
('BBGI' or the 'Company')
Interim Results for six months ended 30 June 2016
This announcement contains inside information.
COMPANY OVERVIEW
BBGI SICAV S.A.
BBGI SICAV S.A. ("BBGI", or the "Company" or, together with its
consolidated subsidiaries, the "Group") is an investment company
incorporated in Luxembourg. The Company was admitted to the London
Stock Exchange ("LSE") in December 2011. BBGI invests in Private
Finance Initiative ("PFI") / Public Private Partnership ("PPP")
infrastructure assets. BBGI's portfolio currently consists of 39
PFI / PPP infrastructure assets diversified by geography and sector
across availability-based road projects and a range of social
infrastructure projects in the UK, Continental Europe, Canada,
Australia and the USA. The Company is the only internally managed
London listed PPP Investment Company.
The Company is incorporated in Luxembourg in the form of a
public limited company (société anonyme) with variable share
capital (société d'investissement à capital variable, or "SICAV")
and regulated by the Commission de Surveillance du Secteur
Financier ("CSSF") under Part II of the Luxembourg Law of 17
December 2010 on undertakings for collective investments with an
indefinite life. The Company was admitted to the official list of
the UK Listing Authority (premium listing, closed-ended investment
fund) and to trading on the main market of the London Stock
Exchange on 21 December 2011.
BBGI AT A GLANCE
-- Global, geographically diversified portfolio of 39
high-quality availability-based PPP/PFI infrastructure assets with
strong yield characteristics, contracted government-backed revenue
streams, inflation-linked returns and long-term contracts
-- 96% of the assets by value are operational assets with a
focus on availability-based roads and bridges and social
infrastructure
-- 40% of the assets by value are located in the UK, 27% in
Canada, 20% in Australia, 9% in Continental Europe and 4% in the
United States
-- 39% of assets by value are availability-based roads and
bridges and the remainder social infrastructure assets principally
schools, hospitals and prisons
-- Stable cash flows with inflation protection characteristics
-- Potential value upside from active management of the portfolio
-- A revised dividend target of 6.25 pence per share for the year to 31 December 2016(1)
-- 7%-8% target IRR on IPO issue price
-- Internally managed fund with an experienced PPP/PFI in-house management team
-- Strong governance model and alignment of interests between
the management team and shareholders. In addition to a base
remuneration the management team is remunerated by long and
short-term incentive plans that prioritise total shareholder
returns and net asset value per share growth, and is not
compensated based on assets under management.
-- The ordinary shares are eligible for inclusion in PEPs and
ISAs (subject to applicable subscription limits), provided that
they have been acquired by purchase in the market. The ordinary
shares are also permissible assets for SIPPs.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
For the six months ended 30 June 2016
-- Total shareholder return since listing in December 2011 to 30
June 2016 of 73.79%(2) equating to a compound annual growth rate
('CAGR') of 13.00%.
-- An increase in Net Asset Value "NAV" on an investment basis
("Investment Basis NAV") to GBP521.78 million as at 30 June 2016
(GBP479.84 million as at 31 December 2015).
-- Investment Basis NAV per share of 120.8 pence as at 30 June
2016 (111.5 pence - 31 December 2015), which represents an increase
of 8.31%.
-- 2015 final dividend of 3.00 pence per share paid on 29 June
2016, resulting in a total dividend payment of 6.00 pence per share
for the year ended 31 December 2015, which was in line with
target.
-- The Board is pleased to announce that it has increased its
2016 dividend target from 6.00 pence per share to 6.25 pence per
share which represents an increase of 4.16%. A 2016 interim
dividend of 3.125 pence per share has been declared today and will
be paid on 26 October 2016.
-- An annualised Ongoing Charge Ratio of 0.97% (0.96% at 31
December 2015), which we believe continues to be the lowest in the
UK listed infrastructure sector.
-- Portfolio performance and cash receipts were ahead of the
business plan and underlying financial models.
-- International Financial Reporting Standards "IFRS" NAV of
GBP517.9 million as at 30 June 2016 (GBP482.4 million - 31 December
2015).
-- Net profit under IFRS of GBP46.1 million for the period ended
30 June 2016 (GBP16.3 million - 30 June 2015).
-- At 30 June 2016 the Group had a total cash balance of GBP28.3
million and total borrowings outstanding of GBP45.2 million
equating to a net debt position of GBP16.9 million. The Company
increased the total commitment under the corporate credit facility
from GBP80 million to GBP110 million with effect from 3 May 2016.
The Company retains the ability, by utilising the accordion
provision, to increase further the total commitment under the
facility to GBP180 million.
-- Weighted average discount rate of 7.77% at 30 June 2016
compared with 7.86% at 31 December 2015.
-- In March, BBGI completed the previously announced acquisition
of 100% of the equity and subordinated debt interests in the
Belfast Metropolitan College ("BMC") project in Northern Ireland.
The combined acquisition cost for both the BMC project and the
North West Regional College project, which concluded in December
2015, was GBP11.7 million.
-- Demand for PPP infrastructure assets remains strong with
demand exceeding supply in most markets. This trend has impacted
valuations favourably, but has also made it challenging to secure
additional secondary investment opportunities which are
accretive.
-- The Company has an attractive pipeline of primary investment
opportunities in new PPP developments in the UK, Canada and the US.
Primary opportunities continue to be relatively attractive as there
are greater barriers to entry for new market entrants and BBGI can
benefit from its development credentials and portfolio.
CHAIRMAN'S STATEMENT
Dear Shareholder,
I am pleased to introduce this report on the performance of your
Company in the half year to 30 June 2016.
The financial numbers for 30 June 2016 have been heavily
influenced by the market reaction to the UK referendum on 'Brexit'.
The resultant weakening of Sterling, the Company's reporting
currency, has improved the Sterling valuation of the c.60% of our
assets which are held in Canada, Australia, the USA and Continental
Europe and demonstrates the benefit of having a portfolio which is
diversified by both geography and currency. However 'Brexit' has
raised many uncertainties and questions. Management has set out its
early views on these in the Business Review section of this report.
Clearly your Board will monitor events carefully with a view to
ensuring that BBGI is as well placed as possible.
The underlying performance in the 6 months was robust with a
slight reduction in estimated discount rates and management actions
improving valuations across the portfolio. Our cash flows remained
strong and ahead of our model, giving us the confidence to raise
the interim dividend to 3.125 pence per share; the first step
toward a current year target of 6.25 pence per share.
The secondary market for infrastructure assets remains fierce
with demand far outstripping supply. Prices have therefore remained
high and we have not found any secondary assets in the half year
which provide additional value for shareholders. We continue to see
potential value in the primary market, however, and reports of our
involvement in a number of bidding consortia are set out in the
Management Report.
The Company is showing a net debt position of approximately 3.2%
of the NAV at 30 June 2016 but our current facilities give us
sufficient scope for further expansion. Strategically, however, we
do not intend to have structural leverage and therefore expect to
raise further equity capital at an appropriate time. We anticipate
that the Luxembourg parliament will pass legislation this year
which will enable us to raise new capital at a premium of more than
5% to Net Asset Value (which is the current legal limit). Given the
premium at which our shares trade we consider it in shareholder's
interests to await this legislation and benefit from the change to
the Articles passed at the EGM in April of this year.
The world economic environment remains volatile and the
additional complication of the UK's withdrawal from the European
Union will undoubtedly cause markets to be wary. Your Company's
strong cash flows, long term contracts with sound counter-parties
and geographic and currency diversity underpin its ability to
continue to pay dividends and offer you a greater degree of
certainty. We believe that this proposition will continue to be
attractive to investors.
David Richardson
Chairman
BBGI SICAV S.A.
30 August 2016
INVESTMENT PORTFOLIO
Portfolio Summary
Equity Equity
Stake Stake
Availability Roads Education
E18 Motorway, (Norway) 100.00% Bedford Schools, (UK) 100.00%
Golden Ears Bridge, 100.00% Belfast Metropolitan 100.00%
(Canada) College, (UK)
Clackmannanshire Schools, 100.00%
(UK)
Kicking Horse Canyon,
(Canada) 50.00% Cologne Schools, (Germany) 50.00%
Cologne-Rodenkirchen
M1 Westlink, (UK) 100.00% School, (Germany) 50.00%
M80 Motorway, (UK) 50.00% Coventry Schools, (UK) 100.00%
Mersey Gateway Bridge, East Down Colleges,
(UK) 37.50% (UK) 66.67%
North Commuter Parkway,
(Canada) 50.00%
North East Stoney Frankfurt Schools,
Trail, (Canada) 100.00% (Germany) 50.00%
Northwest Anthony
Henday Drive, (Canada) 50.00% Kent Schools, (UK) 50.00%
Ohio River Bridges/East
End Crossing, (US) 33.33% Lagan College, (UK) 100.00%
Lisburn College, (UK) 100.00%
North West Regional
College, (UK) 100.00%
Scottish Borders Schools,
Healthcare (UK) 100.00%
Barking & Havering
Clinics, (UK) 60.00% Tor Bank School, (UK) 100.00%
North London Estates
Partnerships, (UK)(3) 53.33%
Gloucester Royal Hospital, 50.00% Justice
(UK)
Kelowna & Vernon Hospitals,
(Canada) 50.00% Burg Prison, (Germany) 90.00%
Northern Territory
Liverpool & Sefton Secure Facilities,
Clinics (LIFT), (UK)(4) 53.33% (Australia) 100.00%
Mersey Care Mental
Health Hospital, (UK)(5) 76.20% Victoria Prisons, (Australia) 100.00%
Royal Women's Hospital, Avon & Somerset Police
(Australia) 100.00% Headquarters, (UK) 64.93%
Women's College Hospital,
(Canada) 100.00%
Other
Fürst Wrede Military
Base, (Germany) 50.00%
Stoke-on-Trent & Staffordshire
Fire and Rescue Service,
(UK) 85.00%
Unna Administrative
Centre, (Germany)(6) 44.10%
============================= ======== =============================== =========
As at 30 June 2016, BBGI's assets consisted of interests in 39
high-quality, availability-based, PPP/PFI infrastructure assets.
The assets, in the roads and bridges, healthcare, education,
justice and other services sectors, are located in Australia,
Canada, Continental Europe, the UK and the US. 96% of the assets by
value are operational; 0% are in early-stage construction(7) , 4%
are in late-stage construction and expected to become operational
in December 2016.
BBGI has equity and subordinated debt subscription obligations
in Mersey Gateway Bridge ("MGB") and equity subscription
obligations in North Commuter Parkway ("NCP"), collectively
amounting to approximately GBP24 million. The subscription
obligations are due for payment upon the scheduled construction
completion of the respective projects. Assuming, for pro-forma
purposes only, that the equity and/or subordinated debt
subscription obligations for MGB and for NCP were paid down at 30
June 2016, the portfolio split would be 93% operational; 3%
early-stage construction and 4% late-stage construction.
The concessions to project entities in the portfolio are granted
predominantly by a variety of public sector clients or entities
which are government backed. All project entities in the portfolio
are located in countries which are highly rated (Aa1/AA for the UK;
Aaa/AAA for Australia, Canada, Germany and Norway; Aaa/AA+ for the
US) by Moody's, and by Standard & Poor's, respectively.
PORTFOLIO BREAKDOWN at 30 JUNE 2016
Overview of the portfolio as at 30 June 2016 is shown in the
tables below:
Geography 30 June 2016
-------------------- -------------
UK 40%
Canada 27%
Australia 20%
Continental Europe 9%
USA 4%
-------------------- -------------
Total 100%
-------------------- -------------
Global portfolio with 39 assets; all located in AAA and AA rated
countries
Sector 30 June 2016
------------------- -------------
Roads and Bridges 39%
Justice 21%
Health 22%
Education 16%
Other 2%
------------------- -------------
Total 100%
------------------- -------------
Diversified sector exposure with a bias towards availability
roads and bridges
Concession length 30 June 2016
---------------------- -------------
> 25 years 40%
> 20 years and <= 25
years 25%
> 10 years and <= 20
years 35%
---------------------- -------------
Total 100%
---------------------- -------------
Weighted average concession life is 23.0 years and weighted
average debt life is 18.6 years
Top 5 projects 30 June 2016
-------------------------- -------------
Golden Ears Bridge 13%
Northern Territory 11%
Victoria Prisons 6%
M80 Motorway 6%
Women's College Hospital 6%
Other projects 58%
-------------------------- -------------
Total 100%
-------------------------- -------------
Well-diversified portfolio with no major single asset
exposure
Project status 30 June 2016
-------------------------- -------------
Operational 96%
Late-stage construction 4%
Early-stage construction 0%
-------------------------- -------------
Total 100%
-------------------------- -------------
Modest construction exposure provides opportunity for NAV growth
as projects become operational. Early-stage construction assets are
scheduled to become operational in 2017 and 2018. The late-stage
construction asset is scheduled to become operational in December
2016
Pro-forma project status 30 June 2016
-------------------------- -------------
Operational 93%
Late-stage construction 4%
Early-stage construction 3%
-------------------------- -------------
Total 100%
-------------------------- -------------
Revised project status calculation assuming, for pro-forma
purposes only, that the equity and/or subordinated debt
subscription obligations on the Mersey Gateway Bridge and North
Commuter Parkway projects have been paid down at 30 June 2016.
These subscriptions will be paid down upon construction completion
and are backed by letters of credit during construction
Project stake 30 June 2016
------------------ -------------
>= 75% 66%
>= 50% and < 75% 31%
< 50% 3%
------------------ -------------
Total 100%
------------------ -------------
97% of portfolio owned 50% or more
Revenue type 30 June 2016
-------------- -------------
Availability 100%
-------------- -------------
Total 100%
-------------- -------------
100% availability-based income; no demand risk
REPORT OF THE MANAGEMENT BOARD
BUSINESS REVIEW
We are pleased to report another successful six months for the
Company in the period to 30 June 2016. The Company's portfolio of
investments has performed well in the first half of the year, with
cash flows ahead of the business plan. During the period the
investment portfolio has enjoyed a significant up-lift in valuation
driven primarily by the weakening of Sterling against all major
currencies in the wake of the Brexit referendum and also as a
result of continued active management, disciplined cost control and
the continued strong market demand for PPP infrastructure
assets.
In light of this favourable portfolio performance the Board is
pleased to announce that it has resolved to increase its 2016
dividend target from 6.00 pence per share to 6.25 pence per share
which represents an increase of 4.16%. As a result an interim
dividend of 3.125 pence per share will be paid on 26 October
2016.
Key Performance Indicators ("KPIs")
31 Dec 31 31 30 June Target
13 Dec Dec 16
14 15
-------------------------- ----------- ----------- ------------- ---------- ------------------
Dividends declared 5.50 5.76 6.00 3.125 Declared:
for the year / half pence pence pence pence 2013: 5.50
year per per per per pence
share share share share 2014: 5.76
interim pence
dividend 2015: 6.00
pence
Target:
2016: 6.25
pence per
-------------------------- ----------- ----------- ------------- ---------- ------------------
Investment Basis GBP449.25m GBP465.29m GBP479.84m GBP Stable growth
NAV 521.78m
-------------------------- ----------- ----------- ------------- ---------- ------------------
Stable and
Growth in Investment consistent
Basis NAV per share NAV per share
in reporting period 2.04% 3.49% 2.05% 8.31% growth
-------------------------- ----------- ----------- ------------- ---------- ------------------
Total Shareholder
return in year / 7% to 8%
year to date on the GBP1
(share price plus IPO issue
dividends per share) 15.7% 10.79% 8.69% 13.00% price
-------------------------- ----------- ----------- ------------- ---------- ------------------
Total Shareholder 7% to 8%
return since listing per annum
in December 2011(8) on the GBP1
(share price plus IPO issue
dividends per share) 29.0% 41.25% 53.53% 73.79% price
-------------------------- ----------- ----------- ------------- ---------- ------------------
Seek to minimise
Ongoing Charges ongoing charge
Percentage 1.11% 0.98% 0.96% 0.97%(9) over time
-------------------------- ----------- ----------- ------------- ---------- ------------------
To reflect
the risk
associated
with the
Weighted average underlying
discount rate 8.39% 8.21% 7.86% 7.77% investments
-------------------------- ----------- ----------- ------------- ---------- ------------------
Weighted average 24.6 24.2 23.7 23.0 Maintain
PPP/PFI concession years years years years / renew the
life longevity
of the portfolio
-------------------------- ----------- ----------- ------------- ---------- ------------------
Weighted average 23.2 21.3 19.2 18.6 Maintain
portfolio debt maturity years years years years long-term
financing
of the portfolio
-------------------------- ----------- ----------- ------------- ---------- ------------------
Five largest investments
as a percentage Maintain
of the portfolio portfolio
by value 51% 40% 41% 42% diversification
-------------------------- ----------- ----------- ------------- ---------- ------------------
Largest investment 17% 13% 12% 13% To be less
as a percentage (Golden (Golden (Northern (Golden than 20%
of the portfolio Ears Ears Territory Ears at time of
by value Bridge) Bridge) Secure Bridge) acquisition
Facilities)
-------------------------- ----------- ----------- ------------- ---------- ------------------
Inflation correlation Not Not Approx. Approx. To maintain
of the portfolio reported reported 0.50% 0.45% a strong
(+/- 1%) correlation
-------------------------- ----------- ----------- ------------- ---------- ------------------
Investment Performance
During a period of heightened volatility in the UK equity
market, driven largely by investor uncertainty stemming from the UK
Brexit referendum, the Company's shares showed low volatility and
low correlation to the broader FTSE All-Share Index and maintained
a strong premium to NAV, reinforcing the hypothesis that investors
tend to view UK listed infrastructure investment companies as a
safe haven asset during times of prolonged economic uncertainty and
volatility.
A key benefit of the BBGI portfolio is the high-quality cash
flows that are derived from long-term government-backed contracts.
As a result, the portfolio performance is largely uncorrelated with
the many wider economic factors that may cause market volatility in
other sectors.
The share price closed at GBP1.43 on 30 June 2016, which
represents a total shareholder return since listing on 21 December
2011 to 30 June 2016 of 73.79%, equating to a CAGR of 13.00% since
IPO.
The shares traded strongly throughout the six-month period in a
range from GBP1.29 to GBP1.43, and closed on 30 June 2016 at a
premium to NAV of 18.38%. The Investment Basis NAV per share at 30
June 2016 was 120.8 pence.
Dividends
A final dividend for 2015 was announced on 30 April 2016 and was
paid on 29 June 2016. Together with the 2015 interim dividend,
which was paid in October 2015, the total dividend for the year
ended 31 December 2015 amounted to 6.00 pence per share.
The Board has today declared a 2016 interim dividend of 3.125
pence per share which is in line with its increased target of 6.25
pence per share, to be paid on 26 October 2016.
Foreign Exchange
During the period ended 30 June 2016 we witnessed a significant
weakening of Sterling against all of the major currencies to which
BBGI is exposed. This weakening was largely driven by UK market
uncertainty in the lead up to the Brexit referendum, culminating in
a significant drop off in Sterling in the wake of the referendum
result. With approximately 60% of the portfolio, by value,
denominated in currencies other than Sterling, BBGI is well
positioned to benefit from this currency depreciation. The increase
in portfolio value resulting from foreign exchange gain during the
period ended 30 June 2016 was approximately GBP37.7 million or
7.47% of the 31 December 2015 portfolio value.
Hedging
The Company is exposed to foreign exchange movements on future
portfolio distributions denominated in Australian dollars (AUD),
Canadian dollars (CAD), Euros (EUR), Norwegian kroner (NOK) and US
dollars (USD). A review of hedging strategy is carried out on an
annual basis. While the Company tries to mitigate the impacts of
foreign currency movements on the NAV by hedging a portion of the
expected distributions coming from the portfolio over the next four
years, it would not be economical to fully immunise the portfolio
against any NAV changes due to foreign exchange movements.
At 30 June 2016, 60% of the portfolio by value has cash flows
denominated in currencies other than Sterling. The Management Board
has implemented a policy of using forward contracts to hedge a
portion of its anticipated foreign currency cash flows. The Company
seeks to provide protection for Sterling dividends that it targets
to pay on the ordinary shares over the next four years, in order to
reduce the risk of currency fluctuations and the volatility of
returns that may result from such currency exposure.
In March 2016, the Company, in accordance with its hedging
policy, entered into a number of forward currency contracts in
order to partially hedge the impact of currency fluctuations on
portfolio distributions over the hedged period. The hedges were
rolled for a period of four years. Moreover in July, post the
balance sheet date, the Company entered into a number of additional
currency forwards, again in accordance with its hedging policy.
This has enabled BBGI to lock in at favourable exchange rates when
compared to the closing rates used for the 31 December 2015
valuation.
The Company does not currently hedge the future Euro cash flows,
as it currently forecasts that these cash flows will continue to be
used to cover the Group's running costs which are largely Euro
denominated, thereby creating a natural hedge.
Acquisitions
In March, BBGI completed the previously announced acquisition of
100% of the equity and subordinated debt interests in the Belfast
Metropolitan College ("BMC") project in Northern Ireland. The
combined acquisition cost for both the BMC project and the North
West Regional College project ("NWRC"), which concluded in December
2015, was GBP11.7 million.
Financing
At 30 June 2016 the Group had a consolidated cash balance of
GBP28.29 million with GBP45.22 million drawn under the credit
facility, representing a net debt position after borrowings of
GBP16.93 million or 3.2% of NAV.
Credit facility
The Company has a multi-currency Revolving Credit Facility
("RCF") with ING Bank and KfW IPEX-Bank, and in May 2016 utilised
part of the accordion tranche provision, a commitment increase
mechanism within the RCF, to increase the total commitment from
GBP80 million to GBP110 million. The Company retains the ability,
by utilising the accordion provision, to increase further the total
commitment under the facility to GBP180 million. No commitment fees
are paid on the unutilised segment of the accordion tranche.
The facility is used primarily to fund acquisitions and to
provide letters of credit for investment obligations. The intention
is to repay the facility from time to time through equity
fundraisings. The Company does not use structural gearing. The term
of the facility is three years, expiring in January 2018. The
borrowing margin is 185 bps over LIBOR. At 30 June 2016 the Company
had utilised GBP69.59 million of the GBP110 million facility, of
which GBP24.37 million has been used to cover letters of
credit.
Tap issue
The Company has the ability to raise new equity by allotting up
to 10% of its issued share capital in order to finance further
acquisitions.
At the Company's EGM in April 2016, the shareholders voted
unanimously in favour of amending the Company's articles in order
to remove the NAV +5% premium limitation imposed when setting the
price of secondary issuances of the same class of shares. This
amendment is now subject to the enactment of a new Bill into
Luxembourg law. This Bill is currently going through the Luxembourg
Parliamentary legislative process and the current expectation is
that it should be enacted into law in H2 2016.
Project Financing
In April 2016, BBGI successfully closed the GBP45 million
refinancing on the Stoke & Staffordshire Fire Stations ("SSFR")
project realising an attractive margin reduction of 115 bps. This
refinancing was carried out on an opportunistic basis with the
original loan not due to mature until 2035 further demonstrating
BBGI's ability to create shareholder value by active asset
management.
Management was pleased with the outcome given that it was
concluded in a market where margins were beginning to rise and, as
a consequence, quite a number of refinancings were put on hold or
abandoned.
The refinancing of Northern Territory Secure Facilities ("NTSF")
for a further 5 years concluded subsequent to the balance sheet
date, on 21 July 2016. The refinancing resulted in a loss compared
to our financial model. This loss was mainly due to the unexpected
swap close out costs attributable to one lender who was no longer
active in the Australian market and as a result executed their swap
termination rights under the loan agreement. The valuation of NTSF
at 30 June 2016 has taken into account the new contracted margins
and associated costs on the refinancing.
Apart from NTSF and the Royal Women's Hospital ("RWH") in
Australia, the individual PPP/PFI projects in the BBGI portfolio
all have long-term amortising debt in place which does not need to
be refinanced. The RWH has one tranche of debt which needs to be
refinanced between 2017 and 2021.
Women's College Hospital ("WCH") in Canada has long-term
amortising debt in place, but it is expected that this will be
refinanced sometime before July 2019 when there is an increase in
the lending margin and a cash sweep in favour of the lenders, both
of which act as an incentive to refinancing.
Management will actively seek to refinance projects on an
opportunistic basis when there is a possibility that it will result
in an uplift in the project value.
As at 30 June 2016, the weighted average PPP project concession
length remaining was 23.0 years and the weighted average portfolio
debt maturity was 18.6 years. Debt financing at the project entity
level is structured in a way that does not provide any recourse to
the Company.
Internally Managed
The Company is internally managed and as a result there are no
fees payable to an external manager (i.e. no fund manager fees, no
performance fees, no acquisition fees, etc.) The Ongoing Charge
percentage, being a figure which shows the drag on performance
caused by operational expenses, is expected to continue to decrease
as the portfolio increases in size due to economies of scale i.e.
the growth in the average net assets is expected to outpace the
growth in the cost of administering those assets thereby resulting
in a reduction in the ongoing charge percentage. The annualised
Ongoing Charge for the year ending 31 December 2016 is expected to
be 0.97%.
Market Developments
A key theme among investors remains the search for high quality
income, particularly from asset classes uncorrelated to general
equity market volatility. This has made PPP infrastructure a very
desirable asset class in all the regions where BBGI is active.
In the current market environment, yields on many asset classes
such as gilts, government bonds and cash deposits remain at or
close to historically low levels. There is very strong demand from
both established and new investors to the sector, bidding
aggressively for PPP assets because of the attractive risk adjusted
returns they generate. Demand for infrastructure investments
continues to exceed supply and is resulting in continued upward
pressure on pricing. While this continues to be positive for BBGI's
portfolio valuation, it does make it more challenging to source
accretive transactions in the secondary market.
North America
Canada
The Canadian market continues to deliver an impressive and
transparent pipeline of primary development opportunities within a
strongly supportive political environment. It also contains an
emerging secondary market and there is a large range of project
sizes.
In the 18 months to 30 June 2016, 25 primary PPP transactions
closed with a transaction value in excess of CAD 15 billion. The
five most active regions of the country were Ontario, Saskatchewan,
Alberta, British Columbia and Quebec with a number of future
projects announced or planned in a variety of sectors. BBGI has
seven Canadian projects and has been active during the period in
pursuing primary development opportunities in this market. BBGI is
in advanced discussions with consortia for a number of PPP projects
in the Canadian market.
In addition to its robust primary market, Canada also benefits
from an emerging secondary market. The Canadian secondary market is
expected to see some activity in 2016 as a number of projects
developed over the last couple of years come into operation. Many
of the projects which were developed over the last 3-5 years had
prohibitions on re-sales until after construction completion. It is
expected that the equity interest in some of these projects may
soon start to trade as these prohibitions lapse. While our strong
presence in Canada will ensure we have good exposure to the
potential deal flow, we will keep our pricing discipline and be
selective in the opportunities we pursue.
The US
The US is one of the largest infrastructure markets globally in
terms of potential, with a substantial requirement for private
investment. It is estimated that USD 3.6 trillion in infrastructure
spending will be required in the US by 2020.
The scale of this infrastructure investment requires the
government to look to the private sector to play an increasingly
important role in delivering its critical projects. In response,
most jurisdictions have now introduced specific legislation to
enable PPP investment, with a primary focus on the transport
sector.
Despite its promise, in the last 18 months only 5 primary
development PPP projects reached financial close with an aggregate
value of slightly in excess of USD 2.4 billion. We are however
cautiously optimistic that future infrastructure spending may
exceed recent levels, especially given that increased
infrastructure investment has been a key tenet of both the
Republicans and Democrats election platforms.
BBGI's investment in the Ohio River Bridges ("ORB") PPP project
gives it a very important beachhead in the evolving US market. To
date this is one of a handful of availability-based transport
projects to be delivered in the US using PPP. The Company is
hopeful that the knowledge and exposure gained from the ORB
transaction will help position the Company favourably for more
opportunities in this developing but important market.
Continental Europe
2015 was a reasonable year for the European PPP market, and 2016
is shaping up to be a better year. During 2015 the aggregate value
of PPP transactions which reached financial close in the European
market totaled EUR 15.6 billion. 49 PPP transactions closed,
including five large transactions (i.e. transactions in excess of
EUR 500 million).
The UK was the most active market in terms of deals closed (see
below). In second place was Turkey, which currently lies outside
the scope of our credit criteria for investment, followed by
Germany and France (five deals each) and the Netherlands (four
deals). Ten countries closed at least two deals and 12 countries
closed at least one PPP transaction in 2015.
In Europe, the transportation sector remained by far the largest
in terms of value and represented more that 60% of the transactions
closed. Education is the second most active sector followed by
health care.
Germany and the Netherlands are two of the more promising PPP
markets in Europe with new road projects planned under the PPP
model. BBGI currently has six concessions in Germany and is excited
about the potential prospects offered by this market. We believe
that synergies from our existing assets in Germany, and our German
and Dutch language skills, will help us grow in both Germany and
the Netherlands.
Another promising PPP market where BBGI is well positioned to
participate in an attractive deal flow is Norway. The Norwegian
government has committed to the delivery of up to eight major road
PPPs. The government has so far procured only three highway
projects as PPPs of which BBGI is the sole owner of the E18
Motorway.
There are other markets within Europe that are showing promise
and may provide potential investment opportunities. BBGI will
continue to monitor these markets and consider opportunities on a
selective basis. BBGI will focus on clearly defined infrastructure
market segments at the lower end of the risk spectrum.
Australia & New Zealand
With a mature and continuing PPP market, Australian PPP deal
flow has remained consistent. The need for significant private
investment in the nation's infrastructure is anticipated to result
in the emergence of a variety of innovative funding and financing
models.
In the PPP pipeline, there are rail and light rail projects that
are due for tender. Sydney Metro Northwest and Southwest are set to
receive funds from the electricity networks' sale and the
Parramatta Light Rail is scheduled to announce its preferred route
by the end of this year. Prison and social housing projects are
also in the pipeline.
BBGI was excited to have completed one of only two secondary PPP
asset purchases in the Australian market in 2015 and as a result
has enjoyed good access to potential deal flow.
Another promising market is New Zealand. The central government
has plans to invest more than NZD 110 billion, equivalent to over
GBP 58 billion, into infrastructure over the next 10 years.
United Kingdom
The UK remained the most active market in Europe by number of
projects, with a total of 15 transactions closed in 2015 (compared
to 24 in 2014). The UK was also the second-largest market in Europe
with a total deal value of over GBP 1.7 billion.
Negative media coverage and anti-private finance opinions
reduced enthusiasm for private finance, thus making the near term
pipeline less attractive. However, innovative and adaptive PPP
models in Scotland, combined with pre-referendum announcements
regarding a renewed focus on infrastructure investment, were
expected to result in improvements in the current UK market
conditions over time and as such provided grounds for optimism.
The UK, post the Brexit referendum, is now however embarking on
what could be a prolonged period of political and economic
uncertainty. It is still too early to assess with certainty the
impact of this vote on the future of UK PPP infrastructure
investment. Although unclear it is unlikely, at least in the short
term, that the Brexit decision will have a major impact on those
projects which are currently underway as one would expect those to
be stable enough to continue through to completion.
Market Opportunities
BBGI's investment policy is to invest in infrastructure projects
that have predominantly been developed under PPP or similar
procurement models. BBGI makes investments mainly at the
operational phase but also looks at construction stage assets.
As a global investor in PPP projects, BBGI benefits from
diversification and is not overly exposed to the activity in any
one PPP market. The Company continues to look proactively for
further acquisitions and development opportunities in North
America, Australia/New Zealand, the UK and Continental Europe,
which meet its investment criteria and its stated return
objectives.
The investment climate for PPP assets that meet the Company's
acquisition strategy continues to be very competitive but we
believe value accretive opportunities are still available in the
current market, albeit not at the same frequency as in past
periods.
Secondary Investment Activity
The Management Board believes the secondary market continues to
be imbalanced, with significantly more investment capital targeted
towards the particular market segment than attractive investment
opportunities, which impacts pricing and valuation.
In this competitive environment, vendors are requiring
prospective purchasers to price in potential life-cycle savings,
aggressive tax structures, portfolio efficiencies and other upsides
that may not be realised.
BBGI has selectively participated in some auction processes, but
has been unsuccessful, as we have not been prepared to pay the same
elevated prices as some others.
Instead, we have chosen to focus on opportunities where we
believe we have a strategic advantage and can achieve more
attractive pricing. These opportunities include the following
situations:
-- Acquiring stakes from co-shareholders where our knowledge of
the asset allows us to transact quickly and efficiently;
-- Pursuing off-market transactions where vendors may wish to avoid a formal auction process;
-- Acquiring stakes where we can achieve certain operational efficiencies; and
-- Pursuing transactions where speed and execution certainty are of paramount importance.
In this competitive landscape, we believe the benefits of our
internal management structure will become more and more apparent.
As BBGI has no external manager, there are no fees paid based on
the size of the portfolio and no acquisition fees and, as a result,
we will not be persuaded to grow unless the growth is beneficial to
shareholders. The motivation of the Management Board is directly
aligned with that of the shareholders. We will not pursue growth
for growth's sake and will not be encouraged to make wayward
investment decisions due to the allure of increased management fees
or acquisition fees. We will remain disciplined and will make
acquisitions on a selective and opportunistic basis. BBGI considers
this alignment of interests an important differentiating
factor.
While the Management Board expects the market for secondary
infrastructure assets to remain competitive and the upward pressure
on pricing to continue, we are cautiously optimistic there will
still be attractive opportunities for growth, albeit less frequent
and harder to find.
Primary Investment Activity - bidding on new PPP projects
As our portfolio grows, we will continue to add construction
exposure when appropriate. As a number of senior members of our
team have experience managing PPP bids and seeing assets through
the construction phase, we believe some exposure (less than 25%)
can be attractive. We see this as an opportunity to increase the
NAV over time and will continue to ensure that the dividend target
is not compromised.
We are continuing to actively build our pipeline of development
opportunities (primary investments) to replace those projects that
have become operational.
Primary investment activities involve sourcing and originating,
bidding for and winning new infrastructure development projects,
typically as part of a consortium for PPP projects. Often these
primary PPP bids are led by construction companies that are keen to
secure the opportunity to construct the asset, but may be keen to
have a partner like BBGI for a number of reasons:
-- consortia are attracted to BBGI because of our extensive
project credentials that can assist with the shortlisting
process;
-- 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;
-- BBGI's cost of capital is often lower than construction
companies, so involving BBGI can make the bid more competitive;
-- BBGI is a long term investor which is attractive to government counter parties; and
-- BBGI is considered a reliable source of liquidity should a
construction partner decide to sell in the future.
The first half of 2016 has been a busy period for the Company in
terms of primary development activity and BBGI has joined various
consortia formed to pursue major transport infrastructure projects
in North America and Europe:
Gordie Howe International Bridge: BBGI is a member of one of
three consortia which were short-listed in Q1 2016 to develop
proposals for the Gordie Howe International Bridge with an expected
cost in excess of CAD 2 billion, a high profile project which will
connect Michigan and Ontario and will be paid for by the Canadian
federal government. Our team is awaiting the issuance of the RFP
document and the start of the formal procurement process.
Massey Tunnel Replacement Project: BBGI is a member of a
consortium to pre-qualify for the CAD 2.5 billion project in
Vancouver, Canada which involves the decommissioning of an existing
tunnel project as well as the construction of a new cable stay
bridge and associated road works. The procurement process is
expected to start in H2 2016.
Norwegian Pipeline: BBGI is a member of a consortium to
pre-qualify for an upcoming pipeline of PPP projects in Norway. The
first project is the RV 3/RV 25 Ommangsvollen-Grundset (Central
Norway) which is expected to start the procurement process in H2
2016. The transaction size is expected to be approximately GBP 360
million.
Silvertown Tunnel: BBGI is member of a consortium to pre-qualify
for the PPP tunnel project in the East of London with an expected
size of approximately GBP 800 million. The procurement process is
expected to start in H2 2016.
Fargo Moorehead Flood diversion project: BBGI is a member of a
consortium to pre-qualify for the approximately USD 800 million
Fargo Moorhead flood diversion PPP opportunity in North Dakota,
USA. The procurement process is expected to start in H2 2016.
In addition, BBGI is in advanced discussions on other transport
projects and also supporting consortia to pursue social
infrastructure projects in Canada.
These primary investment opportunities are considered attractive
to the Management Board because they are typically well priced on a
risk adjusted basis. Nevertheless, each opportunity will be subject
to detailed due diligence on a case-by-case basis. Further
information on construction risk can be obtained from the Company's
prospectus which is available on the Company's website.
Although there is no certainty that BBGI and its consortium
partners will be finally selected on any of the above mentioned
projects the pipeline is attractive and we aim to continue to
develop it further.
Risks and Uncertainties
The principal risks faced by the Company, and the controls and
strategies used to mitigate those risks, have not materially
changed since those set out in detail in the 31 December 2015
annual report and in the Company's latest prospectus dated 26
November 2013. These risks are expected to remain relevant to the
Company for the next six months of its financial year.
Foreign Exchange
Foreign exchange exposure, although an inherent risk of holding
a global portfolio of assets, continues to be closely monitored by
the Management Board. Various stress tests have been carried out to
assess the Company's ability to pay its target dividend under a
range of scenarios. Refer to the Valuation Section of this report
for further detail and the outcome of these tests.
Macroeconomic assumptions
The Management Board uses certain macroeconomic assumptions when
forecasting future cash flows as part of the portfolio valuation
exercise. The Management Board appreciates that such assumptions,
although reviewed by our third party valuer, and based on sound
methodologies and latest available market data, are estimates and
as such are not necessarily representative of future economic
outcomes. As a result, the Management Board carries out sensitivity
analysis on these assumptions in order to assess the impact on the
NAV.
Base Erosion Profit Shifting ("BEPS")
The Company continues to monitor the OECD's BEPS project and any
potential impact it may have on the sector.
In May 2016 HM Treasury published a consultation paper on the
tax deductibility of corporate interest expense. The key takeaways
from this paper, from the Company's perspective, are the
following:
-- A recognition that the restrictions on deductibility of
interest should not impede the provision of private finance for
public benefit infrastructure in the UK where there is no material
risk of BEPS;
-- A proposal for a GBP2 million de minimis allowance;
-- The inclusion of finance debtor income under the service
concession arrangement when computing the net tax-interest
expense.
Should the above materialise then it is the belief of Management
that the impact of BEPS 4 (deductibility of corporate interest
expense) should not have a material negative effect on the Group's
cash flows generated in the UK. BBGI understands that, despite the
Brexit vote, the UK remains committed to the BEPS initiative.
The advice received to date from other jurisdictions is that,
although under review, it is unlikely that BEPS, specifically BEPS
4, should result in a material adverse effect on the Company's cash
flows if implemented. BBGI further understands that not all
governments will implement the OECD recommendations in the same way
with some believing that their existing rules continue to be an
effective means to limit the scope for BEPS. Others may take
advantage of grandfathering provisions or the potential for
exemptions for projects with a public benefit.
BBGI will continue to monitor this initiative very closely
across the various jurisdictions in which it is invested.
Brexit
The referendum on the UK's membership of the EU on 23 June 2016
saw a majority vote in favour of leaving the Union, with the
results leading to volatility and uncertainty both politically and
in currency and financial markets. While it is still very early
days in what will likely be a lengthy process, we have attempted to
address the impact Brexit may have on BBGI's prospects going
forward. We have elected to use a Q&A format to outline the
views of the Management Team:
-- What are the biggest and most immediate impacts of Brexit on
BBGI? The decline of Sterling following the Brexit decision has
provided a short term increase in BBGI's NAV. As 60% of BBGI's
portfolio is outside of the U.K., the depreciation of Sterling has
positively impacted BBGI as the foreign assets are now worth more
in Sterling terms.
-- What is the long term impact? While the short term
significant NAV increase is easy to measure, long term effects are
harder to predict. Many experts are expecting Sterling to remain
weak relative to other currencies and some are predicting higher
inflation in the UK, both conditions which are positive for BBGI's
portfolio.
-- Has BBGI changed its currency hedging policy in light of
Brexit? BBGI has not changed its currency hedging policy and will
continue to hedge its expected distributions over a four year
rolling hedge basis. Hedges were rolled in March and July 2016,
both times at favourable rates when compared to the closing rate of
the previous reporting period of 31 December 2015.
-- Are there any immediate impacts to UK listing rules
applicable to BBGI resulting from Brexit? The result of the
referendum has no immediate impact on the rules which currently
apply to the sector. The FCA has set out its position explicitly:
"Much financial regulation currently applicable in the UK derives
from EU legislation. This regulation will remain applicable until
any changes are made, which will be a matter for Government and
Parliament."
-- Does BBGI believe that Brexit will impact the Company's
ability to raise capital in the equity market? The Management does
not expect that Brexit and the resulting market volatility will
prevent it from raising capital in the near term. In these
uncertain times we believe that infrastructure will continue to be
viewed as a safe haven asset with markets remaining open for high
quality infrastructure offerings. Moreover BBGI expect the recent
reduction in interest rates by the Bank of England to further fuel
this demand for quality infrastructure offerings.
-- Does BBGI see Brexit as an opportunity for a potential PPP
investment stimulus to the UK economy? Theresa May's apparent
backing of UK-Treasury-backed bonds for infrastructure could
indicate an increase in the scope of the Treasury's GBP 40 billion
UK guarantee scheme. May, who officially succeeded David Cameron on
13 July, had earlier highlighted Infrastructure in her campaign. In
a speech announcing her bid to become Conservative leader on 11
July, May advocated "more Treasury-backed bonds for new
infrastructure projects". We will wait and see what unfolds.
-- Is the UK credit rating decrease expected to have any
implications for BBGI? We are not expecting the credit rating
down-grade to have a material impact on the BBGI portfolio. We
benefit from having a diversified portfolio with exposure to
various credit worthy governments including Australia, Canada, the
U.S., Norway, Germany as well as the UK.
-- Does BBGI believe Brexit will affect its "passport" rights?
As BBGI is Luxembourg-based, it will retain its AIFMD benefits and
no change is expected. It is not yet clear (and will not be for
some time) how European Investment Companies (like BBGI) raising
capital in the UK will be impacted by Brexit, however it is likely
that the UK will continue to remain broadly open to allowing
overseas companies to market themselves in the UK.
Counterparty Exposure (Facility Management)
Management continually reviews the potential concentration risk
in respect of facility management contractors. Management has not
identified any significant exposure risk and therefore remains
comfortable with the current contract allocation.
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-month basis as at 30 June and 31 December each year. An
independent third party reviews the valuation.
The valuation is determined using the discounted cash flow
methodology. The cash flows forecasted to be received by the
Company or its subsidiaries, generated by each of the underlying
assets and adjusted as appropriate to reflect the risk and
opportunities, are discounted using project specific discount
rates. The valuation methodology is the same one used for the
valuation of the portfolio in previous reporting periods.
The Company uses the following macroeconomic assumptions for the
cash flows:
Macroeconomic
assumptions
End of period 2016 2017-2019 2020 onwards
------------------- --------------- --------------- ---------------
UK
Indexation (%)
(1) 1.75 2.75 2.75
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Corporate
Tax (%) 20.0 19.0 18.0
Canada
Indexation (%) 1.00/1.35 2.00/2.35 2.00/2.35
(1,2)
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Corporate 27.0/26.0/26.5 27.0/26.0/26.5 27.0/26.0/26.5
Tax (%) (3)
GBP/CAD as at
30 June 2016
(4) 1.735 1.735 1.735
Australia
Indexation (%)
(1,5) 1.50 2.50 2.50
Deposit Interest 3.50/4.50 3.50/4.50 3.50/4.50
Rate (%) (1,6)
SPC Corporate
Tax (%) 30.0 30.0 30.0
GBP/AUD as at
30 June 2016
(4) 1.800 1.800 1.800
Germany
Indexation (%)
(1) 1.00 2.00 2.00
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Corporate
Tax (%) (7) 15.8 15.8 15.8
GBP/EUR as at
30 June 2016
(4) 1.206 1.206 1.206
Norway
Indexation (%)
(1,8) 1.94 2.94 2.94
Deposit Interest
Rate (%) (1) 1.8 1.8 3.5
SPC Corporate
Tax (%) 25.0 25.0 25.0
GBP/NOK as at
30 June 2016
(4) 11.234 11.234 11.234
USA
Indexation (%)
(1) 1.50 2.50 2.50
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Federal
Tax (%) 35.0 35.0 35.0
GBP/USD as at
30 June 2016
(4) 1.339 1.339 1.339
(1) Due to the current economic environment, the indexation
rates used for the 6 months to 31 December 2016 have been reduced
compared to those
rates reported in the June 2015 interim report. This reduced
rate is applicable for those projects where the documentation does
not prescribe the
actual published rate, if available, to be used for the next 12
months from the date of the index being published. In addition, the
long term deposit
rate has been decreased by 50bps and the transition deposit rate
period has been considered for a longer period, with an impact on
NAV of GBP(9.6)
million.
(2) All Canadian projects have a long-term 2.0% indexation
factor with the exception of North East Stoney Trail and Northwest
Anthony Henday Drive
which have a slightly different indexation factor derived from a
basket of regional labour, CPI and commodity indices.
(3) Tax rate is 27% in Alberta and Saskatchewan, 26% in British
Columbia and 26.5% in Ontario.
(4) As published on www.oanda.com.
(5) Long-term Consumer Price Index 2.50%/Long term Labour Price
Index 3.50%.
(6) Cash on Debt Service Reserve Accounts and Maintenance
Service Reserve Accounts can be invested on a six-month basis.
Other funds are deposited
on a shorter term.
(7) Including Solidarity charge, excluding Trade tax which
varies between communities.
(8) Indexation of revenue based on basket of four specific
indices.
Other key inputs and assumptions include:
-- Any deductions or abatements during the operations period are
passed down to subcontractors.
-- Cash flows to and from the Company's subsidiaries and the
portfolio investments are received at the times anticipated.
-- Where the operating costs of the Company or its portfolio of
investments are fixed by contract such contracts are performed, and
where such costs are not fixed, they are in line with the
budget.
-- The contracts under which payments are made to the Company
and its subsidiaries remain on track and are not terminated before
their contractual expiry date.
Over the six-month period from 31 December 2015 to 30 June 2016,
the Company's Investment Basis NAV increased from GBP479.84 million
to GBP521.78 million. The increase in NAV per share from 111.5
pence to 120.8 pence or 8.31% is primarily a result of the key
drivers listed below.
Investment Basis NAV movement GBP million
31 December 2015 to 30 June
2016
------------------------------------------------ -----------------------
Net Asset Value at 31 December
2015 479.8
------------------------------------------------ -----------------------
Add back: other net liabilities
at 31 December 2015 (1) 25.0
------------------------------------------------ -----------------------
Portfolio value at 31 December
2015 504.8
------------------------------------------------ -----------------------
Change in foreign exchange 37.7
------------------------------------------------ -----------------------
Change in market discount
rate 3.0
------------------------------------------------ -----------------------
Change in macroeconomic assumptions
(2) (9.1)
------------------------------------------------ -----------------------
Acquisitions/follow-on investments 9.5
------------------------------------------------ -----------------------
Distributions from projects
(3) (29.7)
------------------------------------------------ -----------------------
Rebased opening value at 01
January 2016 516.2
------------------------------------------------ -----------------------
Construction completion change
in discount rate (4) 1.1
------------------------------------------------ -----------------------
Unwinding of discount and
value enhancements 23.1
------------------------------------------------ -----------------------
Portfolio value at 30 June
2016 540.4
------------------------------------------------ -----------------------
Other net liabilities at 30
June 2016 (1) (18.6)
------------------------------------------------ -----------------------
Net asset value at 30 June
2016 521.8
------------------------------------------------ -----------------------
(1) These figures represent the assets and liabilities of the
Group's consolidated subsidiaries; they exclude the project
investments and include, amongst other items, the Group's
consolidated cash balances and borrowings. The closing cash balance
is net of the 2015 final dividend which was paid on 29 June
2016.
(2) Net impact of the lower deposit rate assumption (refer to
macroeconomic assumptions) and the positive impact of the lower
Norwegian tax rate.
(3) While distributions from projects reduce the portfolio
value, they do not have an impact on the Company's NAV. The
reduction in the portfolio value (investments at fair value through
profit or loss) is offset by the receipt of cash (cash and cash
equivalents) at the consolidated group level. The increase in cash
results in a decrease in other net liabilities.
(4) The uplift resulting from the transition of Women's College
Hospital (Canada) from ramp-up phase towards the stable operational
phase.
Key drivers for NAV growth
Growth based on rebased valuation
BBGI benefits from a comparatively young portfolio with an
average concession life of 23.0 years, including some projects
under construction.
During the period ended 30 June 2016 the Company recognised
GBP23.1 million from the "unwinding of discounts" and value
enhancements. As the Company moves closer to forecast project
distribution dates, the time value of those cash flows increases on
a net present value basis as a result of the "unwinding of
discount". The portfolio value growth from the unwinding of
discount during the period was approximately GBP19.6 million or
4.07% on a NAV per share basis.
The difference, GBP3.5 million, or 0.73% on a NAV per share
basis, above the anticipated growth from unwinding of discount,
represents a value enhancement which is made up of the net effect
of value enhancements across the portfolio through active
management, which include amongst others:
-- Renewal of management service agreement for Australian assets on more favourable terms;
-- Lower costs achieved on some projects;
-- Earlier than forecasted extraction of cash;
-- Additional income on variation orders;
-- A more favourable tax status on 2 assets;
-- The net result of the gain on the refinancing of the
Staffordshire Fire and Rescue Service project and the loss realised
on the refinancing of the Northern Territory Secure Facilities
project.
The net effect of inflation, against modelled assumptions, on
the portfolio value has been negative.
Discount rates and sensitivity
The discount rates used for individual assets range between
7.45% and 10.50%. The value weighted average rate is approximately
7.77% (7.86% at 31 December 2015). This methodology calculates the
weighted average based on the value of each project in proportion
to the total portfolio value, i.e. based on the net present value
of their respective future cash flows.
An alternative methodology to calculate the weighted average
discount rate would be to calculate the weightings based on the
nominal future cash flows for each project. Based on that
calculation the rate is 7.94% (8.02% at 31 December 2015).
The decrease in the average discount rate also reflects the
continuing trend of ongoing competitive pressure on secondary
market prices. More investment capital, both in the listed and
unlisted infrastructure secondary market, is pursuing a limited
number of PPP/PFI assets. Additionally, where auctions are used,
these are typically very competitive.
The discount rates used for individual project entities are
based on BBGI's knowledge of the market, discussions with advisors
and publicly available information on relevant transactions.
We have differentiated the asset classes with respect to
discount rates. For stable operational projects such as typical
schools and hospitals we have applied discount rates at the lower
end of the range mentioned above. Further adjustments have been
applied to acute hospitals in the UK where a risk premium of 50bps
has been introduced. This reflects the special situation in the UK
where public health clients are under cost pressure and are
actively looking for savings. This has resulted in some large
deductions on UK acute hospitals and consequently distribution lock
ups. BBGI has to date not been affected and the only acute hospital
in the BBGI portfolio is the Gloucester Royal Hospital. BBGI also
applied a modest risk premium for complex prison projects to
reflect the higher complexity of such projects and also applied a
risk premium on a limited number of projects to reflect the
individual situation.
The following table shows the sensitivity of the Net Asset Value
to a change in the discount rate.
Discount Rate Sensitivity(1) Change in Net Asset
Value
30 June 2016
---------------------------------------- --------------------
Increase by 1% to 8.77% GBP(49.6) million,
i.e. (9.5)%
---------------------------------------- --------------------
Decrease by 1% to 6.77% GBP57.9 million,
i.e. 11.1%
---------------------------------------- --------------------
(1) Based on the average discount rate of 7.77%
Foreign exchange and sensitivity
BBGI values its portfolio of assets by discounting anticipated
future cash flows. The present value 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. Although the closing rate is the correct conversion
rate to use, it is not necessarily representative of future
exchange rates as it reflects a specific point in time.
Other than the four year contracted hedge rates, the Company has
used the following exchange rates to value the portfolio.
F/X rates F/X rates
as of 31 December as of 30 June
2015 2016
-------------------- ------------------- ---------------
GBP/AUD 2.028 1.800
-------------------- ------------------- ---------------
GBP/CAD 2.053 1.735
-------------------- ------------------- ---------------
GBP/EUR 1.357 1.206
-------------------- ------------------- ---------------
GBP/NOK 13.042 11.234
-------------------- ------------------- ---------------
GBP/USD 1.480 1.339
-------------------- ------------------- ---------------
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
distributions 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
the period ended 30 June 2016 the depreciation of Sterling against
the AUD, CAD, EUR, NOK and USD accounted for an increase in the
portfolio value of GBP37.7 million. Despite this significant gain
in the reporting period BBGI still has an accumulated foreign
exchange loss of GBP6.9 million (1.32% NAV per share) since listing
in December 2011.
The following table shows the sensitivity of the NAV to a change
in foreign exchange rates.
Foreign Exchange Sensitivity Change in Net Asset
Value
30 June 2016
---------------------------------------- --------------------
Increase by 10%(1) GBP(25.6) million,
i.e. (4.9)%
---------------------------------------- --------------------
Decrease by 10%(1) GBP31.3 million,
i.e. 6.0%
---------------------------------------- --------------------
(1) Sensitivity in comparison to the foreign exchange rates at
30 June 2016 and taking into account the hedges in place, derived
by applying a 10%
increase or decrease to the rate GBP/foreign currency.
Inflation sensitivity
The project cash flows are positively correlated with inflation
(e.g. RPI or CPI). The table below demonstrates the effect of a
change in inflation rates compared to the macroeconomic assumptions
in the table above.
Inflation Sensitivity Change in Net Asset
Value
30 June 2016
--------------------------------- --------------------
Inflation + 1%(1) GBP29.7 million,
i.e. 5.7%
--------------------------------- --------------------
Inflation - 1%(1) GBP(28.2)million,
i.e. (5.4)%
--------------------------------- --------------------
(1) Compared to the assumptions as set out in the revised
macroeconomic assumptions above.
Due to the current low inflationary environment BBGI continues
to undertake additional inflationary scenario analysis in order to
further stress test its ability to pay dividends at the increased
dividend target of 6.25 pence per share at the end of each
reporting period.
Deposit rate sensitivity
The project cash flows are positively correlated with the
deposit rates. The table below demonstrates the effect of a change
in long term deposit rates compared to the macroeconomic
assumptions above.
Deposit Rate Sensitivity Change in Net Asset
Value
30 June 2016
------------------------------------ --------------------
Long term deposit rate GBP12.0 million,
+ 1%(1) i.e. 2.3%
------------------------------------ --------------------
Long term deposit rate GBP(11.9) million,
- 1%(1) i.e.(2.3)%
------------------------------------ --------------------
(1) Sensitivity in comparison to the assumptions as set out in
the macroeconomic assumptions above.
Lifecycle costs sensitivity
Of the 39 projects in the portfolio, 13 project companies retain
the lifecycle obligations. The remaining 26 projects have this
obligation passed down to the sub-contractor. Lifecycle costs are
periodically reviewed by Management. The table below demonstrates
the impact of a change in lifecycle costs.
Lifecycle costs Sensitivity Change in Net Asset
Value
30 June 2016
--------------------------------------- --------------------
Increase by 10%(1) GBP(11.9) million,
i.e. (2.3)%
--------------------------------------- --------------------
Decrease by 10%(1) GBP11.9 million,
i.e. 2.3%
--------------------------------------- --------------------
(1) Sensitivity applied to the 13 projects retaining the
lifecycle obligation, i.e. the obligation is not passed down to the
sub-contractor. These projects
represent 47% of the total portfolio value as at 30 June
2016.
The Management and Supervisory Boards have approved the NAV
calculation on an Investment Basis as at 30 June 2016.
FINANCIAL RESULTS
Basis of Accounting
The Company has prepared its financial statements under IFRS. In
accordance with IFRS 10, IFRS 12 and IAS 27, the Company (an
Investment Entity) does not consolidate certain subsidiaries, in a
similar manner to the Company's pro forma investment basis data
which continue to be included in this section of the Report of the
Management Board. As a result the Company does not consolidate on a
line by line basis its investments in PPP assets that are
subsidiaries, but instead recognises them as investments at fair
value through profit or loss.
Income and Costs
Pro forma Income Statement
Six months to Six months to
30 Jun 16 30 Jun 15
GBP million GBP million
-------------------------- -------------- --------------
Fair value movements(1) 56.5 20.1
Other income (losses)(2) (6.8) 1.3
-------------------------- -------------- --------------
Total profit before
corporate costs 49.7 21.4
Corporate costs
(excluding income
tax)(3) (3.7) (3.7)
Foreign exchange
gains/(losses)(4) 0.5 (1.0)
-------------------------- -------------- --------------
Net earnings before
taxes 46.5 16.7
Income tax (0.4) (0.4)
--------------
Net Earnings 46.1 16.3
Basic earnings per
share (pence) 10.66 3.83
-------------------------- -------------- --------------
(1) Fair value movements include the GBP37.7 million
positive effect of foreign exchange movements
on the portfolio value.
(2) Other losses represents both realised and
unrealised loss on foreign exchange derivatives
amounting to approx. GBP6.8 million.
(3) Includes non-recoverable VAT. Refer to the
Corporate cost analysis below for further details
on the composition.
(4) Relates to foreign exchange gains/ (losses)
on cash and working capital in the period.
Group Level Corporate Cost Analysis
The table below is prepared on an accrual basis.
Six months to Six months to
30 Jun 16 30 Jun 15
Corporate costs GBP million GBP million
--------------------------------------------------------- -------------------- -------------------
Interest expense and other finance cost 1.1 0.9
Staff costs(1) 1.5 1.5
Fees to non-executive directors 0.1 0.1
Professional fees 0.3 0.3
Office and administration 0.5 0.5
Acquisition-related costs(2) 0.1 0.3
Taxes (including non-recoverable VAT) 0.5 0.5
--------------------------------------------------------- -------------------- -------------------
Corporate costs 4.1 4.1
--------------------------------------------------------- -------------------- -------------------
(1) The Company is an internally managed AIF with no fees payable to external managers.
(2) The acquisition-related costs are made up of due diligence, legal and other costs directly
related to the acquisitions made during the period to date. The figure includes unsuccessful
bid costs of approximately GBP0.08 million in the period.
Ongoing Charges
The "Ongoing Charges" ratio was prepared in accordance with the
AIC-recommended methodology. The ratio represents the annualised
reduction in shareholder returns as a result of recurring
operational expenses incurred in managing BBGI.
The Company is internally managed and as such is not subject to
performance fees or acquisition-related fees.
Annualised 2015
2016
Ongoing charges GBP million GBP million
----------------------------- ------------ ------------
Ongoing charges 4.9 4.5
Average undiluted net asset
value 509.6 471.8
----------------------------- ------------ ------------
Ongoing charges (%) 0.97% 0.96%
----------------------------- ------------ ------------
The ongoing charges ratio was calculated using the AIC
methodology and excludes all non-recurring costs, i.e. costs of
acquisition/disposal of investments, financing charges and
gains/losses arising from investments. The ongoing charges includes
an accrual for the Short-Term Incentive Plan ("STIP")/bonuses and
the Long-Term Incentive Plan ("LTIP"). BBGI uses some or all of its
Euro denominated distributions from the Groups portfolio of assets
to cover a significant portion of the Group's running costs which
are largely euro denominated, thereby creating a form of natural
hedge.
Balance Sheet
Pro forma Balance Sheet
30 Jun 16 31 Dec 15
------------------------------------- -------------------------------------
Investment Consolidated Investment Consolidated
Basis Adjust IFRS Basis Adjust IFRS
GBP GBP GBP GBP
million million GBP million million million GBP million
------------------------- ----------- --------- ------------- ----------- --------- -------------
Investments at
fair value 540.4 - 540.4 504.8 - 504.8
Adjustments to
investments - 1.4 1.4 - 0.3 0.3
Other assets
and liabilities
(net) (3.1) 0.4 (2.7) (3.4) 0.3 (3.1)
Net cash/(borrowings) (15.5) (0.7) (16.2) (21.6) 0.3 (21.3)
Fair value of
derivative financial
instruments(1) - (5.0) (5.0) - 1.7 1.7
----------- --------- ------------- -----------
Net assets attributable
to ordinary shares 521.8 (3.9) 517.9 479.8 2.6 482.4
------------------------- ----------- --------- ------------- ----------- --------- -------------
(1) Under IFRS, the forward currency contracts are presented at
fair value.
Summary Net Corporate Cash Flow
The table below summarises the cash received by the consolidated
Group holding companies from the underlying investments net of the
cash outflows for the Group level corporate costs. During the
period ended 30 June 2016 the Company received, on a consolidated
IFRS basis, GBP29.3 million of distributions from its portfolio of
investments which was ahead of business plan and the underlying
financial models. These distributions were recorded as dividends,
interest payments, capital and subordinated debt principal
repayments.
Period ended Period ended
30 June 30 June
2016 2015
GBP million GBP million
----------------------------------- -------------- --------------
Distributions from investments(1) 29.3 19.4
Net cash outflow from operating
activities before finance
costs(2) (3.0) (3.0)
Cash outflow from finance
costs (net) (0.9) (0.5)
----------------------------------- -------------- --------------
Net cash flow 25.4 15.9
----------------------------------- -------------- --------------
(1) Portfolio performance and cash receipts were ahead of the
business plan and underlying financial models.
(2) Cash outflow resulting from all consolidated Group level
corporate costs paid in the period ending 30 June 2016.
MANAGEMENT BOARD RESPONSIBILITIES STATEMENT
The Management Board of the Company is responsible for preparing
this half-yearly financial report in accordance with applicable law
and regulations. The Management Board confirms that to the best of
its knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union; and
-- The Chairman's Statement and the Report of the Management
Board meet the requirements of an interim management report and
include a fair review of the information required by:
o DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events during the first six months and
description of the principal risks and uncertainties for the
remaining six months of the year; and
o DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Luxembourg, 30 August 2016
Signatures
Duncan Ball, Co-CEO Frank Schramm, Co-CEO Michael Denny, CFO
To the Shareholders of
BBGI SICAV S.A.
6E, route de Trèves
L-2633 Senningerberg
Report of the Réviseur d'Entreprises agréé
on the review of the condensed consolidated interim financial
information
Introduction
We have reviewed the accompanying condensed consolidated interim
statement of financial position of BBGI SICAV S.A. ("the Company")
as at 30 June 2016, the condensed consolidated interim income
statement, the condensed consolidated interim statements of
comprehensive income, of changes in equity and of cash flows for
the six month period then ended, and notes to the condensed
consolidated interim financial information ("the condensed
consolidated interim financial information"). Management is
responsible for the preparation and presentation of this condensed
consolidated interim financial information in accordance with IAS
34, "Interim Financial Reporting" as adopted by the EU. Our
responsibility is to express a conclusion on this condensed
consolidated interim financial information based on our review.
Scope of Review
We conducted our review in accordance with the International
Standard on Review
Engagements 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" as adopted, for
Luxembourg, by the Institut des Réviseurs d'Entreprises. A review
of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying condensed consolidated
interim financial information as at 30 June 2016 is not prepared,
in all material respects, in accordance with IAS 34, "Interim
Financial Reporting" as adopted by the EU.
Luxembourg, 30 August 2016 KPMG Luxembourg
Société coopérative
Cabinet de révision agréé
Frauke Oddone
Condensed Consolidated interim Income statement
(UNAUDITED)
-----------------------------------------------------------------
Six months Six months
ended ended
Note 30 June 2016 30 June 2015
In thousands of Pounds
Sterling
---------------------------- ----- ------------- -------------
Continuing operations
Income from investments
at fair value through
profit or loss 7 56,513 20,145
Other operating income 6 472 1,259
Operating income 56,985 21,404
---------------------------- ----- ------------- -------------
Administration expenses 4 (2,520) (2,449)
Other operating expenses 5 (6,915) (1,339)
---------------------------- ----- ------------- -------------
Operating expenses (9,435) (3,788)
---------------------------- ----- ------------- -------------
Results from operating
activities 47,550 17,616
---------------------------- ----- ------------- -------------
Finance cost 11 (1,053) (888)
Finance income 8 7
Net finance result (1,045) (881)
---------------------------- ----- ------------- -------------
Profit before tax 46,505 16,735
Tax expense 8 (425) (414)
---------------------------- ----- ------------- -------------
Profit from continuing
operations 46,080 16,321
---------------------------- ----- ------------- -------------
Profit from continuing
operations attributable
to
owners of the Company 46,080 16,321
---------------------------- ----- ------------- -------------
Earnings per share
Basic earnings per share
(pence) 10 10.66 3.83
Diluted earnings per
share (pence) 10 10.66 3.83
---------------------------- ----- ------------- -------------
The accompanying notes form an integral part of the condensed
consolidated interim financial statements.
Condensed Consolidated interim statement of comprehensive
income (UNAUDITED)
------------------------------------------------------------------
Six months Six months
ended ended
Note 30 June 2016 30 June 2015
In thousands of Pounds
Sterling
-------------------------- ------- -------------- -------------
Profit for the period 46,080 16,321
Other comprehensive
income for the period - -
-------------------------- ------- -------------- -------------
Total comprehensive
income for the period
attributable to the
owners of the Company 46,080 16,321
----------------------------------- -------------- -------------
The accompanying notes form an integral part of the condensed
consolidated interim financial statements.
Condensed consolidated interim statement of financial
position (UNAudited)
-------------------------------------------------------------------
Note 30 June 2016 31 December
2015
In thousands of Pounds (Audited)
Sterling
------------------------------ ----- ------------- -------------
Assets
Property plant and equipment 63 62
Investments at fair
value through profit
or loss 7 540,429 504,776
Derivative financial
instruments 13 - 1,688
Non-current assets 540,492 506,526
------------------------------ ----- ------------- -------------
Trade and other receivables 15 1,571 391
Other current assets 78 41
Cash and cash equivalents 28,286 23,243
Current assets 29,935 23,675
------------------------------ ----- ------------- -------------
Total assets 570,427 530,201
------------------------------ ----- ------------- -------------
Equity
Share capital 9 442,504 440,259
Additional paid-in capital 15 201 98
Translation reserves 9 (597) (597)
Retained earnings 75,778 42,610
------------------------------ ----- ------------- -------------
Equity attributable
to owners of the Company 517,886 482,370
------------------------------ ----- ------------- -------------
Liabilities
Loans and borrowings 11 44,523 44,504
Derivative financial
instruments 13 2,785 -
Non-current liabilities 47,308 44,504
------------------------------ ----- ------------- -------------
Loans and borrowings 11 45 57
Trade payables 67 97
Derivative financial
instruments 13 2,189 -
Other payables 12 2,546 2,884
Tax liabilities 8 386 289
------------------------------ ----- ------------- -------------
Current liabilities 5,233 3,327
------------------------------ ----- ------------- -------------
Total liabilities 52,541 47,831
------------------------------ ----- ------------- -------------
Total equity and liabilities 570,427 530,201
------------------------------ ----- ------------- -------------
Net asset value attributable
to the owners of the
Company 9 517,886 482,370
Net asset value per
ordinary share (pence) 9 119.86 112.08
------------------------------ ----- ------------- -------------
The accompanying notes form an integral part of the condensed
consolidated interim financial statements.
Condensed Consolidated interim statement of
changes in equity (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
Additional
Share Paid-in Translation Retained Total
capital Capital reserves earnings equity
In thousands of Pounds Note
Sterling
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Balance at 1 January
2016 (Audited) 9 440,259 98 (597) 42,610 482,370
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Total comprehensive income
for the six months ended
30 June 2016
Profit for the period - - - 46,080 46,080
---------------------------
Total comprehensive income
for the period - - - 46,080 46,080
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Transactions with owners
of
the Company, recognised
directly in equity
Cash dividend 9 - - - (10,667) (10,667)
Scrip dividend 9 2,245 - - (2,245) -
Share-based payment 15 - 103 - - 103
Balance at 30 June 2016 442,504 201 (597) 75,778 517,886
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Additional
Share Paid-in Translation Retained Total
capital Capital reserves earnings equity
In thousands of Pounds Note
Sterling
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Balance at 1 January 2015
(Audited) 9 434,818 - (597) 32,115 466,336
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Total comprehensive income
for the six months ended
30 June 2015
Profit for the period - - - 16,321 16,321
---------------------------
Total comprehensive income
for the period - - - 16,321 16,321
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
Transactions with owners
of
the Company, recognised
directly in equity
Dividends 9 - - - (12,266) (12,266)
Balance at 30 June 2015 9 434,818 - (597) 36,170 470,391
--------------------------- ----- ------------------ ----------- -------------- ----------- ------------
The accompanying notes form an integral part of the condensed
consolidated interim financial statements.
condensed consolidated interim statement of cash
flows (UNAUDITED)
--------------------------------------------------------------------------
Six months Six months
ended ended
30 June 2016 30 June 2015
In thousands of Pounds Note
Sterling
------------------------------------- ----- ------------- -------------
Cash flows from operating
activities
Profit for the period 46,080 16,321
Adjustments for:
Depreciation 12 10
Net finance cost (income) 1,045 881
Income from investments
at fair value through profit
or loss 7 (56,513) (20,145)
Change in fair value of
derivative financial instruments 5 6,767 (1,155)
Share-based compensation 15 103 -
Income tax expense 425 414
Foreign currency exchange
loss/(gain) 6 (472) 1,056
------------------------------------- ----- ------------- -------------
(2,553) (2,618)
Changes in:
- Trade and other receivables (81) 158
- Other assets (37) (10)
- Trade and other payables (521) 155
------------------------------------- ----- ------------- -------------
Cash generated from operating
activities (3,192) (2,315)
Finance cost paid (866) (532)
Interest received 8 7
Realised gain (loss) on
derivative financial instruments 13 (105) 185
Taxes paid (328) (343)
Net cash flows from operating
activities (4,483) (2,998)
------------------------------------- ----- ------------- -------------
Cash flows from investing
activities
Acquisition of/additional
investments in investments
at fair value
through profit or loss 7 (9,525) (7,748)
Distributions received
from investments at fair
value
through profit or loss 7 29,286 15,553
Acquisition of other equipment (13) (14)
Net cash flows from investing
activities 19,748 7,791
------------------------------------- ----- ------------- -------------
Cash flows from financing
activities
Proceeds from issuance
of loans and borrowings 11 - 32,562
Loan issuance cost 11 (180) (1,255)
Dividends paid 9 (10,667) -
Dividend payment sent to
depositary 9 - (9,143)
Net cash flows from financing
activities (10,847) 22,164
------------------------------------- ----- ------------- -------------
Net increase (decrease)
in cash and cash equivalents 4,418 26,957
Impact of foreign currency
exchange gain/(loss) on
cash and cash
equivalents 625 (1,347)
Cash and cash equivalents
at 1 January 23,243 25,264
Cash and cash equivalents
at 30 June 28,286 50,874
------------------------------------- ----- ------------- -------------
The accompanying notes form an integral part of the condensed
consolidated interim financial statements.
1. Reporting entity
BBGI SICAV S.A. ("BBGI", or the "Company" or, together with its
consolidated subsidiaries, the "Group") is an investment company
incorporated in Luxembourg in the form of a public limited company
(société anonyme) with variable share capital (société
d'investissement à capital variable, or "SICAV") and regulated by
the Commission de Surveillance du Secteur Financier ("CSSF") under
Part II of the Luxembourg Law of 17 December 2010 on undertakings
for collective investments with an indefinite life. The Company
qualifies as an alternative investment fund within the meaning of
Article 1 (39) of the law of 12 July 2013 on alternative investment
fund managers ("2013 Law") implementing Directive 2011/61/EU of the
European Parliament and of the Council of 8 June 2011 on
Alternative Investment Fund Managers and amending Directives
2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and
(EU) No 1095/2010 and is authorised as an internal alternative
investment fund manager in accordance with Chapter 2 of the 2013
Law. The Company was admitted to the official list of the UK
Listing Authority (premium listing, closed-ended investment fund)
and to trading on the main market of the London Stock Exchange on
21 December 2011.
The Company's registered office is EBBC, 6E, route de Trèves,
L-2633 Senningerberg, Luxembourg.
The Company is a closed-ended investment company that invests
principally in a diversified portfolio of Public Private
Partnership ("PPP")/ Private Finance Initiative ("PFI")
infrastructure or similar assets. The Company has limited
investment in projects that are under construction.
As at 30 June 2016, the Group employed 16 staff (30 June 2015:
15 staff).
Reporting period
The Company's reporting period runs from 1 January to 31
December each year. The Company's condensed consolidated interim
statement of financial position, condensed consolidated interim
income statement, condensed consolidated interim statement of
comprehensive income and condensed consolidated interim statement
of cash flows include comparative figures as at 31 December 2015 or
for the six months ended 30 June 2015.
The amounts presented as 'non-current' in the condensed
consolidated interim statement of financial position are those
expected to be settled after more than one year. The amounts
presented as 'current' are those expected to be settled within one
year.
These condensed consolidated interim financial statements were
approved by the Management Board on 29 August 2016, and by the
Supervisory Board on 30 August 2016.
2. Basis of preparation
Statement of compliance
The condensed consolidated interim financial statements of the
Company have been prepared in accordance with IAS 34 Interim
Financial Reporting in accordance with International Financial
Reporting Standards ("IFRS"), as adopted by the European Union, and
do not include all information required for full annual financial
statements.
All items presented in the condensed consolidated interim income
statement and condensed consolidated interim statement of
comprehensive income respectively, are considered 'capital' in
nature.
Changes in accounting policy
The accounting policies, measurement and valuation principles
applied by the Group in these condensed consolidated interim
financial statements are the same as those applied by the Group in
its annual consolidated financial statements as of and for the year
ended 31 December 2015.
Basis of measurement
These condensed consolidated interim financial statements have
been prepared on the historical cost basis, except for derivative
financial instruments and investments at fair value through profit
or loss ("FVPL investments") which are reflected at fair value.
Functional and presentation currency
These condensed consolidated interim financial statements are
presented in Sterling, the Company's functional currency.
Use of estimates and judgments
The preparation of condensed consolidated interim financial
statements in conformity with IFRS requires the Management Board to
make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
In the process of applying the Group's accounting policies, the
Management Board has made the following judgments that have the
most significant effect on the amounts recognised in the condensed
consolidated interim financial statements.
The Company as an Investment entity
The Management Board has assessed that the Company is an
Investment Entity in accordance with the provisions of IFRS 10. The
Company meets the following criteria to qualify as an Investment
Entity:
a) Obtains funds from one or more investors for the purpose of
providing those investors with investment management services:
The Group is internally managed with management focused solely
on managing those funds received from its shareholders in order to
maximise investment income/returns.
b) Commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both:
The investment objectives of the Company are to:
- Provide investors with secure and highly predictable long-term
cash flows with the intention of maximising the capital value over
the long term.
- Target a dividend of 6.25 pence per share per annum. The
Company will aim to increase this
distribution progressively over the longer term.
- Target an IRR in the region of 7% to 8% on the GBP1 IPO issue
price of its ordinary shares, to be achieved over the longer term
via active management to enhance the value of existing
investments.
The above-mentioned objectives support the fact that the main
business purpose of the Company is to seek to maximise investment
income for the benefit of its shareholders.
c) Measures and evaluates performance of substantially all of
its investments on a fair value basis:
The investment policy of the Company is to invest in equity,
subordinated debt or similar interests issued in respect of
infrastructure projects that have been developed predominantly
under the PPP/PFI or similar procurement models. Each of these
PPP/PFI projects is valued at fair value. The valuation is carried
out on a six-monthly basis as at 30 June and 31 December each
year.
Based on the Management Board's assessment, the Company also
meets the typical characteristics of an Investment Entity as
follows:
a) it has more than one investment - as at 30 June 2016, the
Company has 39 PPP/PFI investments;
b) it has more than one investor - the Company is listed on the
London Stock Exchange with its shares held by a broad pool of
investors;
c) it has investors that are not related parties of the entity -
other than those shares held by the Supervisory Board and
Management Board directors, and certain other employees, all
remaining shares in issue (more than 99%) are held by non-related
parties of the Company; and
d) it has ownership interests in the form of equity or similar
interests - the Group holds interests in PPP/PFI projects in the
form of equity interests, subordinated debt and similar
instruments.
Fair valuation of financial assets and financial liabilities
The Group accounts for its investments in PPP/PFI entities
("SPC" or "Project Entities") as FVPL investments.
The valuation is determined using the discounted cash flow
methodology. The cash flows forecasted to be received by the
Company or its consolidated subsidiaries, generated by each of the
underlying assets, and adjusted as appropriate to reflect the risk
and opportunities, have been discounted using project specific
discount rates. The valuation methodology is the same one used in
previous reporting periods. The assumptions used in the valuation
methodology are included in detail in Note 13 to the condensed
consolidated interim financial statements.
The fair value of other financial assets and liabilities, other
than current assets and liabilities, is determined by discounting
future cash flows at an appropriate discount rate and with
reference to recent market transactions, where appropriate. Further
information on assumptions and estimation uncertainties are
disclosed in Note 13.
Fair values are categorised into different levels in a fair
value hierarchy based on the inputs in the valuation methodology,
as follows:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities.
-- Level 2: inputs other than quoted prices included in Level 1,
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data ("unobservable inputs").
If the inputs to measure fair value of an asset or a liability
fall into different levels of the fair value hierarchy, then the
fair value measurement is categorised in its entirety at the same
level of the fair value hierarchy as the lowest level input that is
significant to the entire measurement.
The Group recognises transfers between levels of fair value
hierarchy at the end of the reporting period in which the change
has occurred.
Going concern basis of accounting
The Management Board has examined significant areas of possible
financial risk including cash and cash requirements. It has not
identified any material uncertainties which would cast significant
doubt on the Company's ability to continue as a going concern for a
period of not less than 12 months from the date of approval of the
condensed consolidated interim financial statements. The Management
Board has satisfied itself that the Company has adequate resources
to continue in operational existence for the foreseeable future.
After due consideration, the Management Board believes it is
appropriate to adopt the going concern basis of accounting in
preparing the condensed consolidated interim financial
statements.
3. Segment reporting
IFRS 8 - Operating Segments adopts a 'through the eyes of the
management' approach to an entity's reporting of information
relating to its operating segments, and also requires an entity to
report financial and descriptive information about its reportable
segments.
Based on a review of information provided to the Management
Board, the Group has identified five reportable segments based on
the geographical concentration risk. The main factor used to
identify the Group's reportable segments is the geographical
location of the projects. The Management Board has concluded that
the Group's reportable segments are: (1) UK; (2) Continental
Europe; (3) Australia; (4) North America; and (5) Holding
Activities. These reportable segments are the basis on which the
Group reports information to the Management Board.
Segment information for the six months ended 30 June 2016 is
presented below:
Continental North Holding Total
-----------------------
UK Europe Australia America Activities Group
In thousands
of Pounds Sterling
----------------------- ----------- -------------- -------------- ------------ ------------- --------
Income from FVPL
investments 6,679 6,669 12,115 31,050 - 56,513
Administration
expenses - - - - (2,520) (2,520)
Other operating
expense - (net) - - - - (6,443) (6,443)
----------------------- ------------ ------------- --------
Results from
operating activities 6,679 6,669 12,115 31,050 (8,963) 47,550
----------------------- ----------- -------------- -------------- ------------ ------------- --------
Finance cost - - - - (1,053) (1,053)
Finance income - - - - 8 8
Tax expense - - - - (425) (425)
----------------------- ----------- -------------- -------------- ------------ ------------- --------
Profit or loss
from continuing
operations 6,679 6,669 12,115 31,050 (10,433) 46,080
----------------------- ----------- -------------- -------------- ------------ ------------- --------
Segment information for the six months ended 30 June 2015 is
presented below:
Continental North Holding Total
-----------------------
UK Europe Australia America Activities Group
In thousands
of Pounds Sterling
----------------------- ----------- --------------- --------------- ------------- -------------- --------
Income from FVPL
investments 17,727 (1,963) 3,534 847 - 20,145
Administration
expenses - - - - (2,449) (2,449)
Other operating
expense - (net) - - - - (80) (80)
----------------------- ----------- --------------- --------------- ------------- -------------- --------
Results from
operating activities 17,727 (1,963) 3,534 847 (2,529) 17,616
----------------------- ----------- --------------- --------------- ------------- -------------- --------
Finance cost - - - - (888) (888)
Finance income - - - - 7 7
Tax expense - - - - (414) (414)
----------------------- ----------- --------------- --------------- ------------- -------------- --------
Profit or loss
from continuing
operations 17,727 (1,963) 3,534 847 (3,824) 16,321
----------------------- ----------- --------------- --------------- ------------- -------------- --------
The losses incurred in Continental Europe over the period to 30
June 2015 were for the most part due to adverse foreign exchange
movements.
Segment information as at 30 June 2016 is presented below:
Continental North Holding Total
-------------------
UK Europe Australia America Activities Group
In thousands of
Pounds Sterling
------------------- -------------- ------------ ------------- ------------- ------------ --------------
Assets
FVPL investments 214,095 47,621 108,513 170,200 - 540,429
Other non-current
assets - - - - 63 63
Current assets - - - - 29,935 29,935
------------------- -------------- ------------ ------------- ------------- ------------ --------------
Total assets 214,095 47,621 108,513 170,200 29,998 570,427
------------------- -------------- ------------ ------------- ------------- ------------ --------------
Liabilities
Non-current - - - - 47,308 47,308
Current - - - - 5,233 5,233
------------------- -------------- ------------ ------------- ------------- ------------ --------------
Total liabilities - - - - 52,541 52,541
------------------- -------------- ------------ ------------- ------------- ------------ --------------
Segment information as at 31 December 2015 is presented
below:
Continental North Holding Total
-------------------
UK Europe Australia America Activities Group
In thousands of
Pounds Sterling
------------------- ------------- ------------- --------------- ------------ ------------- ----------
Assets
FVPL investments 207,272 149,463 103,349 44,692 - 504,776
Other non-current
assets - - - - 1,750 1,750
Current assets - - - - 23,675 23,675
------------------- ------------- ------------- --------------- ------------ ------------- ----------
Total assets 207,272 149,463 103,349 44,692 25,425 530,201
------------------- ------------- ------------- --------------- ------------ ------------- ----------
Liabilities
Non-current - - - - 44,504 44,504
Current - - - - 3,327 3,327
------------------- ------------- ------------- --------------- ------------ ------------- ----------
Total liabilities - - - - 47,831 47,831
------------------- ------------- ------------- --------------- ------------ ------------- ----------
The Holding Activities of the Group include the activities of
the Group which are not specifically related to a certain project
or region but to those companies which provide services to the
Group. The total current assets classified under Holding Activities
mainly represent cash and cash equivalents.
Transactions between reportable segments are conducted at arm's
length and are accounted for in a similar way to the basis of
accounting used for third parties. The accounting methods used for
all the segments are similar and comparable with those of the
Company.
4. Administration expenses
Six months Six months
ended ended
30 June 2016 30 June 2015
In thousands of Pounds
Sterling
------------------------ ------------- ----------------------------------
Personnel expenses 1,549 1,484
Legal and professional
fees 320 291
Other expenses 651 674
------------------------ ------------- ----------------------------------
2,520 2,449
------------------------ ------------- ----------------------------------
The Group has engaged certain third parties to provide legal,
depositary, custodian, audit, tax and other services to the Group.
The expenses incurred in relation to such services are treated as
administration expenses.
The legal and professional fees include audit, audit related and
non-audit related fees charged by the Group's external auditor as
follows:
Six months Six months
ended ended
30 June 2016 30 June 2015
In thousands of Pounds
Sterling
------------------------ ------------- -------------
Audit fees 79 73
Audit related fees - -
Non-audit related fees - 15
------------------------ ------------- -------------
79 88
------------------------ ------------- -------------
5. Other operating expenses
Six months Six months
ended ended
30 June 2016 30 June 2015
In thousands of Pounds
Sterling
--------------------------- ------------- -------------
Net loss on derivative
financial instruments
(see Note 13) 6,767 -
Acquisition-related costs 148 283
Foreign currency exchange
loss - 1,056
--------------------------- ------------- -------------
6,915 1,339
--------------------------- ------------- -------------
6. Other operating income
Six months Six months
ended ended
30 June 2016 30 June 2015
In thousands of Pounds
Sterling
--------------------------- ------------- -------------
Foreign currency exchange
gain 472 -
Net gain on derivative
financial instruments
(see Note 13) - 1,155
Other income - 104
472 1,259
--------------------------- ------------- -------------
7. FVPL investments
The movements of FVPL investments are as follows:
30 June 2016 31 December
2015
In thousands of Pounds
Sterling
------------------------------ ------------- ------------
Balance at 1 January 504,776 454,940
Acquisitions of/additional
investment in FVPL
investments 9,525 41,610
Income from FVPL investments 56,513 42,014
Distributions received (29,286) (33,788)
Reclassification to other (1,099) -
receivables
540,429 504,776
------------------------------ ------------- ------------
The impact of unrealised foreign exchange gains or losses on the
income from FVPL investments for the year ended 30 June 2016
amounted to GBP37.7 million gain (year ended 31 December 2015:
GBP24.1 million loss).
Distributions from FVPL Investments are received after financial
models have been tested for compliance with certain ratios and, if
applicable, have been provided to lenders.
As at 30 June 2016 and 31 December 2015, loan and interest
receivable from unconsolidated subsidiaries is embedded within the
FVPL Investments.
The valuation of FVPL Investments considers all cash flows
related to individual projects.
Interest income, dividend income, project-related directors' fee
income and other income, recorded under the accruals basis at the
level of the consolidated subsidiaries for the period ended 30 June
2016, amounted to GBP30,869,000 (31 December 2015: GBP33,228,000).
The associated cash flows from these items were taken into account
when valuing the projects.
In March 2016, BBGI completed the previously announced
acquisition of 100% of the equity and subordinated debt interests
in the Belfast Metropolitan College project in Northern
Ireland.
8. Taxes
A significant portion of the profit before tax results from fair
valuation of FVPL investments. The net income of the unconsolidated
subsidiaries is taxed in their respective jurisdictions. As a
consequence of the adoption of IFRS 10, the Company is classified
as an Investment Entity (see Note 2), meaning the tax expenses, tax
assets and/or liabilities of the unconsolidated subsidiaries are
not presented separately within these consolidated financial
statements. Therefore, the consolidated tax expense, tax assets
and/or liabilities, if any, does not include those of the Project
Entities. The cash flows associated with tax expense, assets and/or
liabilities of the Project Entities are reflected within the fair
value calculation of the FVPL investments.
The Company pays an annual subscription tax of 0.05% of its
total net assets. For the period ended 30 June 2016 BBGI SICAV S.A.
incurred a subscription tax expense of GBP121,000 (30 June 2015:
GBP115,000). The Company as a SICAV is not subject to taxes on
capital gains or income. All other consolidated companies are
subject to taxation at the applicable rate in their respective
jurisdictions.
There are no unrecognised taxable temporary differences. The
Group did not recognise any deferred tax asset on tax losses
carried forward.
9. Capital and reserves
Share capital
Changes in the Company's share capital are as follows:
30 June 2015 31 December
2015
In thousands of Pounds
Sterling
------------------------- ------------- ------------
Share capital as at 1
January 440,259 434,818
Share capital issued
through scrip dividend 2,245 5,441
------------------------- ------------- ------------
442,504 440,259
------------------------- ------------- ------------
The changes in the number of ordinary shares of no par value
issued by the Company are as follows:
30 June 2015 31 December
2015
In thousands of shares
------------------------ ------------- ------------
In issue at beginning
of the period/year 430,393 425,917
Shares issued through
scrip dividend 1,699 4,476
------------------------ ------------- ------------
432,092 430,393
------------------------ ------------- ------------
All shares rank equally with regard to the Company's residual
assets. The holders of ordinary shares are entitled to receive
dividends as declared from time to time, and are entitled to one
vote per share at general meetings of the Company.
Translation reserve
Foreign currency differences are recognised in other
comprehensive income, and presented in the foreign currency
translation reserve in equity except for exchange differences from
intragroup monetary items which are reflected in the profit and
loss. The translation reserve comprises foreign currency
differences arising from the translation of the financial
statements of foreign operations.
Dividends
The final 2015 dividend declared by the Company during the six
months ended 30 June 2016 is as follows:
Six months
ended
30 June 2016
In thousands of Pounds Sterling except
as otherwise stated
--------------------------------------------- --------------
Final dividend of 3.00 pence per qualifying
ordinary share - for the year ended
31 December 2015 12,912
--------------------------------------------- --------------
The 31 December 2015 final dividend was paid in June 2016. The
value of the scrip election was GBP2,245,000, with the remaining
amount of GBP10,667,000 paid in cash to those investors that did
not elect for the scrip.
The final dividend declared by the Company during the six months
ended 30 June 2015 is as follows:
Six months
ended
30 June 2015
In thousands of Pounds Sterling except
as otherwise stated
--------------------------------------------- --------------
Final dividend of 2.88 pence per qualifying
ordinary share - for the year ended
31 December 2014 12,266
12,266
--------------------------------------------- --------------
The 31 December 2014 final dividend was paid in July 2015. The
value of the scrip election during July 2015 amounted to
GBP2,790,000, with the remaining amount of GBP9,476,000 paid in
cash to those investors that did not elect for the scrip.
Net Asset Value
The consolidated net asset value and net asset value per share
as at 30 June 2016, 31 December 2015 and 31 December 2014 are as
follows:
30 June 31 December 31 December
2016 2015 2014
In thousands of Pounds
Sterling/pence
------------------------------ -------- ------------ ------------
Net asset value attributable
to the owners of the
Company 517,886 482,370 466,336
Net asset value per
ordinary share (pence) 119.86 112.08 109.49
------------------------------ -------- ------------ ------------
10. Earnings per share
The basic and diluted earnings per share are calculated by
dividing the profit attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding.
Six months Six months
ended ended
30 June 30 June 2015
2016
In thousands of Pounds
Sterling/shares
------------------------------ ----------- --------------------
Profit attributable to
ordinary shareholders 46,080 16,321
Weighted average number
of ordinary shares in issue 432,092 425,917
------------------------------ ----------- --------------------
Basic and diluted earnings
per share (in pence) 10.66 3.83
------------------------------ ----------- --------------------
The weighted average number of shares outstanding for the
purpose of computation of earnings per share is computed as
follows:
Six months Six months
ended ended
30 June 2016 30 June 2015
In thousands of shares
-------------------------------- ------------- -------------
Shares outstanding as at
1 January 430,393 425,917
Effect of scrip dividends
issued 1,699 -
-------------------------------- ------------- -------------
Weighted average - outstanding
shares 432,092 425,917
-------------------------------- ------------- -------------
The denominator for the purposes of calculating both basic and
diluted earnings per share is the same because the Company has not
issued any share options or other instruments that would cause
dilution.
11. Loans and borrowings
The Company has a three-year revolving credit facility from ING
Bank and KfW IPEX-Bank ("RCF"). In April 2016, the Company utilised
the accordion tranche provision, a commitment increase mechanism
within the RCF, to increase the total commitment from GBP80 million
to GBP110 million with effect from May 2016. The Company retains
the ability, by utilising the accordion provision, to increase
further the total commitment under the facility to GBP180 million.
No commitment fees are paid on the unutilised segment of the
accordion tranche. The term of the facility is three years expiring
in January 2018. The borrowing margin is 185 basis points over
LIBOR.
As at 30 June 2016 and 31 December 2015, the Company had
utilised GBP69.6 million of the GBP110 million RCF (31 December
2015: GBP80 million RCF), of which GBP24.4 million was being used
to cover letters of credit.
The interest payable under the RCF as at 30 June 2016 amounted
to GBP45,000 (31 December 2015: GBP57,000).
The unamortised debt issuance cost related to the RCF amounted
to GBP698,000 as at 30 June 2016 (31 December 2015: GBP718,000).
The unamortised debt issuance cost is netted against the amount
withdrawn from the RCF.
The total finance cost incurred in relation to the RCF for the
six months ended 30 June 2016 amounted to GBP1,053,000 (30 June
2015: GBP888,000). The total finance cost for the six months ended
30 June 2016 includes the amortisation of the debt issue cost of
GBP199,000 (30 June 2015: 297,000).
Pledges and collaterals
As at 30 June 2016 and 31 December 2015 the Group has pledged
all the current and future assets held within the consolidated
subsidiaries.
12. Other payables
Other payables are composed of the following:
30 June 2016 31 December
2015
In thousands of Pounds
Sterling
------------------------ ------------- ------------
Accruals 2,493 2,822
Others 53 62
2,546 2,884
------------------------ ------------- ------------
As of 30 June 2016 and 31 December 2015 the accruals include
additional project acquisition provisions of GBP677,000.
13. Fair value measurements
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the condensed consolidated
interim statement of financial position are as follows:
30 June 2016
------------------------------------------------
Fair
value
through Loans Other Total
profit and financial carrying Fair
or
loss receivables liabilities amount value
In thousands of Pounds
Sterling
----------------------------- --------- ------------ ------------ --------- ---------
Assets
FVPL investments 540,429 - - 540,429 540,429
Trade and other receivables - 1,571 1,571 1,571
Cash and cash equivalents 28,286 - - 28,286 28,286
568,715 1,571 - 570,286 570,286
----------------------------- --------- ------------ ------------ --------- ---------
Liabilities
Loans and borrowings - - 44,568 44,568 45,266
Derivative financial
instruments 4,974 - - 4,974 4,974
Trade payables - - 67 67 67
Other payables - - 2,546 2,546 2,546
----------------------------- --------- ------------ ------------ --------- ---------
4,974 - 47,181 52,155 52,853
----------------------------- --------- ------------ ------------ --------- ---------
31 December 2015
----------------------------------------------------------------
Fair
value
through Loans Other Total
profit and financial carrying Fair
or
loss receivables liabilities amount value
In thousands of Pounds
Sterling
----------------------------- --------------- ------------------ ---------------- --------- --------
Assets
FVPL investments 504,776 - - 504,776 504,776
Trade and other receivables - 391 - 391 391
Cash and cash equivalents 23,243 - - 23,243 23,243
Derivative financial
instruments 1,688 - - 1,688 1,688
529,707 391 - 530,098 530,098
----------------------------- --------------- ------------------ ---------------- --------- --------
Liabilities
Loans and borrowings - - 44,561 44,561 45,279
Trade payables - - 97 97 97
Other payables - - 2,884 2,884 2,884
----------------------------- --------------- ------------------ ---------------- --------- --------
- - 47,542 47,542 48,260
----------------------------- --------------- ------------------ ---------------- --------- --------
FVPL investments
The valuation of FVPL investments is carried out on a six
monthly basis as at 30 June and 31 December each year. An
independent third-party valuer reviews this portfolio
valuation.
During the valuation process, the Group uses certain
macroeconomic assumptions for the cash flows as shown below:
Macroeconomic
assumptions
End of period 2016 2017-2019 2020 onwards
------------------- --------------- --------------- ---------------
UK
Indexation (%)
(1) 1.75 2.75 2.75
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Corporate
Tax (%) 20.0 19.0 18.0
Canada
Indexation (%) 1.00/1.35 2.00/2.35 2.00/2.35
(1,2)
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Corporate 27.0/26.0/26.5 27.0/26.0/26.5 27.0/26.0/26.5
Tax (%) (3)
GBP/CAD as at
30 June 2016
(4) 1.735 1.735 1.735
Australia
Indexation (%)
(1,5) 1.50 2.50 2.50
Deposit Interest 3.50/4.50 3.50/4.50 3.50/4.50
Rate (%) (1,6)
SPC Corporate
Tax (%) 30.0 30.0 30.0
GBP/AUD as at
30 June 2016
(4) 1.800 1.800 1.800
Germany
Indexation (%)
(1) 1.00 2.00 2.00
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Corporate
Tax (%) (7) 15.8 15.8 15.8
GBP/EUR as at
30 June 2016
(4) 1.206 1.206 1.206
Norway
Indexation (%)
(1,8) 1.94 2.94 2.94
Deposit Interest
Rate (%) (1) 1.8 1.8 3.5
SPC Corporate
Tax (%) 25.0 25.0 25.0
GBP/NOK as at
30 June 2016
(4) 11.234 11.234 11.234
USA
Indexation (%)
(1) 1.50 2.50 2.50
Deposit Interest
Rate (%) (1) 1.0 1.0 2.5
SPC Federal
Tax (%) 35.0 35.0 35.0
GBP/USD as at
30 June 2016
(4) 1.339 1.339 1.339
(1) Due to the current economic environment, the indexation
rates used for the 6 months to 31 December 2016 have been reduced
compared to those
rates reported in the June 2015 interim report. This reduced
rate is applicable for those projects where the documentation does
not prescribe the
actual published rate, if available, to be used for the next 12
months from the date of the index being published. In addition, the
long term deposit
rate has been decreased by 50bps and the transition deposit rate
period has been considered for a longer period, with an impact on
NAV of GBP(9.6)
million.
(2) All Canadian projects have a long-term 2.0% indexation
factor with the exception of North East Stoney Trail and Northwest
Anthony Henday Drive
which have a slightly different indexation factor derived from a
basket of regional labour, CPI and commodity indices.
(3) Tax rate is 27% in Alberta and Saskatchewan, 26% in British
Columbia and 26.5% in Ontario.
(4) As published on www.oanda.com.
(5) Long-term Consumer Price Index 2.50%/Long term Labour Price
Index 3.50%.
(6) Cash on Debt Service Reserve Accounts and Maintenance
Service Reserve Accounts can be invested on a six-month basis.
Other funds are deposited
on a shorter term.
(7) Including Solidarity charge, excluding Trade tax which
varies between communities.
(8) Indexation of revenue based on basket of four specific
indices.
Other key inputs and assumptions include:
-- Any deductions or abatements during the operations period are
passed down to subcontractors.
-- Cash flows to and from the Company's subsidiaries and the
portfolio investments are received at the times anticipated.
-- Where the operating costs of the Company or its portfolio of
investments are fixed by contract such contracts are performed, and
where such costs are not fixed, they are in line with the
budget.
-- The contracts under which payments are made to the Company
and its subsidiaries remain on track and are not terminated before
their contractual expiry date.
Discount rate sensitivity
The discount rates used for individual assets range between
7.45% and 10.50%. The value weighted average rate is approximately
7.77% (7.86% at 31 December 2015). This methodology calculates the
weighted average based on the value of each project in proportion
to the total portfolio value, i.e. based on the net present value
of their respective future cash flows.
An alternative methodology to calculate the weighted average
discount rate would be to calculate the weightings based on the
nominal future cash flows for each project. Based on that
calculation the rate is 7.94% (8.02% at 31 December 2015).
The decrease in the average discount rate also reflects the
continuing trend of ongoing competitive pressure on secondary
market prices. More investment capital, both in the listed and
unlisted infrastructure secondary market, is pursuing a limited
number of PPP/PFI assets. Additionally, where auctions are used,
these are typically very competitive.
The discount rates used for individual project entities are
based on BBGI's knowledge of the market, discussions with advisors
and publicly available information on relevant transactions.
The following table shows the sensitivity of the FVPL
investments to a change in the discount rate:
Increase by Decrease by
1% to 8.77% 1% to 6.77%
Profit Profit
Equity or loss Equity or loss
Effects in thousands
of Pounds Sterling
---------------------- --------- --------- ------- ---------
30 June 2016 (49,575) (49,575) 57,853 57,853
31 December 2015 (45,547) (45,547) 53,244 53,244
---------------------- --------- --------- ------- ---------
Foreign exchange rate sensitivity
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
distributions 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
the period ended 30 June 2016 the depreciation of Sterling against
the AUD, CAD, EUR, NOK and USD accounted for an increase in the
portfolio value of GBP37.7 million.
The following table shows the sensitivity of the FVPL
investments due to a change in foreign exchange rates compared to
the macroeconomic assumptions above:
Increase by Decrease by
10% 10%
Profit Profit
Equity or loss Equity or loss
Effects in thousands
of Pounds Sterling
---------------------- --------- --------- ------- ---------
30 June 2016 (25,622) (25,622) 31,315 31,315
31 December 2015 (23,144) (23,144) 28,286 28,286
---------------------- --------- --------- ------- ---------
Sensitivity in comparison to the foreign exchange rates at 30
June 2016 and taking into account the hedges in place, derived by
applying a 10%
increase or decrease to the rate GBP/foreign currency.
Inflation sensitivity
The project cash flows are correlated with inflation (e.g. RPI
or CPI). The table below demonstrates the effect of a change in
inflation rates compared to the macroeconomic assumptions
above:
+1% -1%
Profit Profit
Equity or loss Equity or loss
Effects in thousands
of Pounds Sterling
---------------------- ------- --------- --------- ---------
30 June 2016 29,727 29,727 (28,161) (28,161)
31 December 2015 29,301 29,301 (25,077) (25,077)
---------------------- ------- --------- --------- ---------
Deposit rate sensitivity
The project cash flows are positively correlated with the
deposit rates. The table below demonstrates the effect of a change
in long term deposit rates compared to the macroeconomic
assumptions above:
+1% -1%
Profit Profit
Equity or loss Equity or loss
Effects in thousands
of Pounds Sterling
---------------------- ------- --------- --------- ---------
30 June 2016 11,969 11,969 (11,885) (11,885)
31 December 2015 11,779 11,779 (11,790) (11,790)
---------------------- ------- --------- --------- ---------
Lifecycle costs sensitivity
Of the 39 projects in the portfolio, 13 project companies retain
the lifecycle obligations. The remaining 26 projects have this
obligation passed down to the sub-contractor. The table below
demonstrates the impact of a change in lifecycle costs.
Increase by Decrease by
10% 10%
Profit Profit
Equity or loss Equity or loss
Effects in thousands
of Pounds Sterling
---------------------- --------- --------- ------- ---------
30 June 2016 (11,895) (11,895) 11,887 11,887
31 December 2015 (10,773) (10,773) 10,464 10,464
---------------------- --------- --------- ------- ---------
Sensitivity applied to the 13 projects retaining the lifecycle
obligation, i.e. the obligation is not passed down to the
sub-contractor. These projects represent 47% of the total portfolio
value as at 30 June 2016.
Derivative financial instruments
The fair value of derivative financial instruments ("foreign
exchange forwards") is calculated by discounting the difference
between future settlement amount due to the difference between the
contractual forward rate and the estimated forward exchange rates
at the maturity of the forward contract. The foreign exchange
forwards are fair valued periodically. The fair value of derivative
financial instruments as of 30 June 2016 amounted to GBP4,974,000 -
liability (31 December 2015: GBP1,688,000 - asset).
The unrealised loss on the valuation of foreign exchange
forwards for the six months ended 30 June 2016 amounted to
GBP6,662,000 (30 June 2015: GBP970,000 - gain). For the period
ended 30 June 2016 the realised loss from these derivative
financial instruments amounted to GBP105,000 (30 June 2015:
GBP185,000 - gain).
Other items
The carrying amounts of cash and cash equivalents, receivables
and payables that are payable within one year, or on demand, are
assumed to be their respective fair values.
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels have been defined
as follows:
Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities.
Level 2: inputs other than quoted prices included in Level 1,
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The following table shows the grouping of assets/(liabilities)
recognised at fair value under their respective levels as at 30
June 2016:
Level Level Level
1 2 3 Total
In thousands of Pounds
Sterling
------------------------ ------- -------- -------- --------
FVPL investment - - 540,429 540,429
Derivative financial
asset/(liability) - (4,974) - (4,974)
------------------------ ------- -------- -------- --------
The following table shows the grouping of assets/(liabilities)
recognised at fair value in different levels as at 31 December
2015:
Level Level Level
1 2 3 Total
In thousands of Pounds
Sterling
------------------------ ---------------------- --------------------- ------------------- --------
FVPL investment - - 504,776 504,776
Derivative financial
asset/(liability) - 1,688 - 1,688
------------------------ ---------------------- --------------------- ------------------- --------
The following table shows a reconciliation of the movements in
the fair value measurements in level 3 of the fair value
hierarchy:
30 June 2016 31 December
2015
In thousands of Pounds
Sterling
------------------------------ ------------- ------------
Balance at 1 January 504,776 454,940
Acquisitions of/additional
investment in FVPL
investments 9,525 41,610
Income from FVPL investments 56,513 42,014
Distributions received (29,286) (33,788)
Reclassification to other (1,099) -
receivables
540,429 504,776
------------------------------ ------------- ------------
The impact of unrealised foreign exchange gains or losses on the
FVPL investments for the period ended 30 June 2016, amounted to
GBP37.7 million gain (year ended 31 December 2015: GBP24.1 million
loss).
14. Subsidiaries acquired
As a result of its acquisition of certain projects during the
period, the Company has acquired the following legal entities which
are considered unconsolidated subsidiaries:
Place Effective
of Ownership Year
Project Incorporation Interest Acquired/Established
SPCs Name
------------------------ -------------- -------------- ----------- ---------------------
Belfast
Northwin (Intermediate) Metropolitan
(Belfast) Limited College UK 100% 2016
Belfast
Northwin (Belfast) Metropolitan
Limited College UK 100% 2016
Other than the above, no further subsidiaries were
acquired/established during the six months ended 30 June 2016.
15. Related parties and key contracts
All transactions with related parties were undertaken on an
arm's-length basis.
Supervisory Board fees
The members of the Supervisory Board of the Company were
entitled to a total of GBP70,000 in fees for the six months ended
30 June 2016 (30 June 2015: GBP70,000). There were no outstanding
amounts due as at 30 June 2016 and 31 December 2015.
Directors' shareholding in the Company
30 June 31 December
2016 2015
In thousands of shares
------------------------- -------- ------------
David Richardson 163 160
Colin Maltby 110 107
Frank Schramm 189 185
Duncan Ball 189 185
Michael Denny 38 38
689 675
------------------------- -------- ------------
Remuneration of the Management Board
Under the current remuneration program, all staff of BBGI
Management HoldCo are entitled to an annual base salary payable
monthly in arrears, which is reviewed annually by the Management
Board. The Management Board members are entitled to a fixed
remuneration under their contracts and are also entitled to
participate in a short-term incentive plan and a long-term
incentive plan. Compensation under their contracts is reviewed
annually by the Supervisory Board.
The total short-term and other long-term benefits recorded in
the consolidated income statement for key management personnel are
as follows:
30 June 30 June
2016 2015
In thousands of Pounds Sterling
--------------------------------- -------- --------
Short-term benefits 713 705
Share-based payment 103 -
Other long-term benefits 105 301
921 1,006
--------------------------------- -------- --------
Share-based compensation
On 18 December 2015 and on 28 August 2015 each of the members of
the Management Board received award letters ("2015 Award" and "2014
Award", respectively) under the Group's long-term incentive plan.
The awards are to be settled by BBGI Management Holdco S.à r.l. in
the Company's own shares. Of the awards granted, 50% vests by
reference to a performance measure based on the Company's Total
Shareholder Return ("TSR condition") over the Return Periods
(December 2015 to December 2018 for the 2015 Award, and December
2014 to December 2017 for the 2014 Award), and the remaining vests
by reference to a performance measure based on the increase in the
Company's Investment Basis Net Asset Value per share over the 36
months ending 31 December 2018 for the 2015 Award and 31 December
2017 for the 2014 Award, immediately following the Return Periods
("NAV condition").
The maximum number of shares which will vest in case of full
achievement of the performance conditions are 696,998 shares for
the 2015 Award and 725,498 shares for the 2014 Award.
The fair value of the equity instruments awarded to employees
was determined using a Monte Carlo model, the key parameters of
which are listed in the following table:
2015 Award 2014 Award
Share price at grant date GBP 1.28 GBP 1.21
Maturity 3.04 years 2.34 years
Target Dividends (2015 to GBP0.06
2018) -
Target dividends (2015 to -
2017) GBP 0.06
Volatility 10% 10%
Risk free rate 0.85 0.64
--------------------------- ---------- -----------
The expected volatility reflects the assumption that the
historical volatility over a period similar to the life of the plan
is indicative of future trends, which may not necessarily be the
actual outcome.
The fair value of the share-based payment amounted to GBP54,000
for the 2015 Award and GBP147,000 for the 2014 Award. The amount
recognised as an expense in relation to the share-based payment
during the period ended 30 June 2016 amounted to GBP103,000 (30
June 2015: nil). The amount recognised as additional paid-in
capital in the Group's consolidated balance sheet as of 30 June
2016 amounted to GBP201,000 (31 December 2015: GBP98,000).
Receivable component of FVPL Investments
As at 30 June 2016, the loan and interest receivable component
of FVPL investments, which is included in the FVPL investments,
amounted to GBP184,249,000 (31 December 2015: GBP171,994,000). The
fixed interest charged on the receivables ranges from 3.95% to
13.5% per annum. The receivables have expected repayment dates
ranging from 2017 to 2045.
Trade and other receivables
As at 30 June 2016, trade and other receivables include a
short-term receivable from a project amounting to GBP1,403,000 (31
December 2015: GBP304,000). The remaining amount pertains to
third-party receivables.
16. Subsequent events
There have been no significant subsequent events from 30 June
2016 to the date of approval of the condensed consolidated interim
financial statements which would impact the current amounts and
disclosures included herein.
Cautionary Statement
Certain sections of this report including the Company Overview,
the Chairman's Statement and the Report of the Management Board
(the "Review Section") have been prepared solely to provide
additional information to shareholders to assess the Group's
strategies and the potential for those strategies to succeed. These
should not be relied on by any other party or for any other
purpose.
The Review Section may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "forecasts", "projects", "expects", "intends",
"may", "will" or "should" or, in each case, their negative or other
variations or comparable terminology.
These forward-looking statements include matters that are not
historical facts. They appear in a number of places throughout this
document and include statements regarding the intentions, beliefs
or current expectations of the Directors concerning, amongst other
things, the investment objectives and investment policy, financing
strategies, investment performance, results of operations,
financial condition, liquidity, prospects, and distribution policy
of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance. The Company's actual investment performance, results
of operations, financial condition, liquidity, distribution policy
and the development of its financing strategies may differ
materially from the impression created by the forward-looking
statements contained in this document.
Subject to their legal and regulatory obligations, the Directors
expressly disclaim any obligations to update or revise any
forward-looking statement contained herein to reflect any change in
expectations with regard thereto or any change in events,
conditions or circumstances on which any statement is based.
In addition, the Review Section may include target figures for
future financial periods. Any such figures are targets only and are
not forecasts.
This interim report has been prepared for the Group as a whole
and therefore gives greater emphasis to those matters that are
significant to BBGI SICAV S.A. and its subsidiaries when viewed as
a whole.
(1) These are targets only and not profit forecasts. There can
be no assurance that these targets will be met.
(2) Based on share price at 30 June 2016 and after adding back
dividends paid or declared since listing.
(3) 53.33% equity and 60% sub debt
(4) 53.33% equity and 59.46% sub debt
(5) 76.20% equity and 80% sub debt
(6) Entitled to 100% of distributions
(7) This split only considers those projects where the equity
commitment has been paid down.
(8) Based on share price at 30 June 2016 and after adding back
dividends paid or declared since listing.
(9) The Ongoing Charge percentage shown for 30 June 2016 is
based on an annualised calculation.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SDMFWSFMSELA
(END) Dow Jones Newswires
August 31, 2016 02:00 ET (06:00 GMT)
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