TIDMINPP
RNS Number : 0453Q
International Public Partnership Ld
07 September 2017
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
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IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH
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TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT
CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
7 September 2017
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2017
-- Invested GBP323.8 million across energy distribution, waste
water and education sectors, either as primary or early-stage
investor, or as part of a large investor consortium, with further
commitments to invest in digital infrastructure and energy
distribution
-- Recent acquisitions have strongly bolstered inflation linkage
within the portfolio - a 0.83% p.a. projected increase in return
for a 1.00% p.a. increase over assumed inflation rates (0.78% p.a.
as at 31 December 2016)
-- Enhanced opportunities for capital growth with 11.7% of the
portfolio currently under construction
-- Successful completion of significantly oversubscribed equity
capital raising of GBP330 million used to fully repay the Company's
cash drawn portion of existing debt facility
-- Highly visible and balanced future pipeline in regulated and
other public infrastructure projects in developed OECD geographies,
including U.K., Europe, North America and Australia
FINANCIAL HIGHLIGHTS(1)
-- Net Asset Value ('NAV') growth of 21.8% to GBP2.0 billion (31 December 2016: GBP1.6 billion)
-- NAV per share growth of 1.8% to 144.7 pence (31 December 2016: 142.2 pence)
-- IFRS profit before tax of GBP57.1 million (30 June 2016: GBP109.6 million)
-- Average annual dividend increase of 2.5% to 3.41 pence per
share (30 June 2016: 3.325 pence per share); representing a 1.3x
cash dividend cover
-- Minimum target 2017 and 2018 full-year dividend of 6.82 and
7.00 pence per share, respectively2
-- Total Shareholder Return of 162.5% since inception in
November 2006, representing an average compound annual return of
9.5% per annum3
PORTFOLIO UPDATE
In the first six months of 2017, INPP continued to pursue its
long-term strategy of value-focused portfolio development, active
asset management and effective financial management in high
quality, predictable, long-duration infrastructure projects. This
activity included:
-- Expansion of regulated asset base
o GBP274.0 million investment for a 4.4% interest in Cadent
(formerly National Grid's gas distribution networks), as part of a
consortium acquisition which collectively acquired a 61% interest
in the company;
o GBP48.3 million follow-on investment in the Thames Tideway
Tunnel, leaving GBP30 million to be invested during the remainder
of 2017 (currently supported by a letter of credit).
-- Exercise of pre-emption rights over existing investments
o GBP1.5 million follow-on investment in Wolverhampton Building
Schools for the Future.
-- Maximisation of primary origination of emerging core infrastructure assets
o In July 2017, commitment of up to GBP45.0 million in UK fibre
optic broadband connections through the National Digital
Infrastructure Fund (NDIF) alongside HM Government and Amber
Infrastructure
Rupert Dorey, Chairman of International Public Partnerships
Limited, commented: "Following another strong period of operational
and financial performance with substantial levels of new
investment, I am pleased to report an interim dividend of 3.41
pence per share, bringing our total shareholder return to 162.5%
since 2006."
"We continue to capitalise on our Investment Adviser's
combination of primary origination capability, leading technical
expertise and strong industry relationships to allow the Company to
assess a wide variety of comparable investment opportunities, from
multi-million pound regulated infrastructure transactions to
emerging core infrastructure sectors like UK fibre optic
broadband."
"We continue to see upward pressure on valuations from current
market comparables which, if sustained, can be expected to filter
through to future NAV increases over time. We also note that our
NAV is calculated according to our published methodology, which for
instance, assumes a sum-of-the-parts valuation and does not account
for any value attributable to matters such as the size, scarcity
and diversification of our portfolio."
"The significant oversubscription of a further capital raising
reaffirms the broad confidence in this well-established strategy
and the Company's future prospects. Owing to this confidence and
the predictability of the Company's outlook, I am pleased to
provide shareholders with additional visibility in targeting a
full-year dividend distribution per share of 6.82p and 7.00p in
2017 and 2018, respectively."
OUTLOOK
Building on a strong track record in generating sustainable,
long-term and inflation-linked returns to shareholders, the Company
remains positive about its prospects regarding both the performance
of its existing investments and the opportunity to add high-quality
investments to the portfolio in the short-to-medium term. Based on
an established and highly disciplined investment mandate, this
includes:
-- Pursuing large-scale opportunities in UK regulated utility
assets including offshore transmission and exercising the Company's
commitment to acquire a share in conjunction with a consortium of
investors of an additional 14% stake in Cadent (subject to a put
and call option);
-- Assessing UK businesses and projects that own and build
digital fibre-based network assets and related infrastructure
through NDIF, a bespoke co-investment vehicle;
-- Leveraging the Investment Adviser's unique primary access to
the North American P3 market, following the investments in the US
military housing sector.
The market outlook for the Company remains positive as enhanced
capital investment into the asset class continues to rank highly on
government agendas globally as a key economic growth driver. The
nature of INPP's portfolio and the active approach to asset and
capital management undertaken continues to provide means to protect
the Company from any emerging political and macroeconomic
risks.
http://www.rns-pdf.londonstockexchange.com/rns/0453Q_-2017-9-6.pdf
S
INPP will be holding an analyst and investor presentation and
conference call at 9.30am on the day of announcement (7 September
2017).
For those investors and analysts wishing to join remotely, a
conference call facility will also be available by dialling +44
(0)330 336 9105 and using the confirmation code 9053092. The
analyst and investor presentation is not open to media or
third-party representatives of.
A copy of the results presentation can be downloaded from the
Company's website:
www.internationalpublicpartnerships.com
Enquiries:
Amber Infrastructure FTI Consulting
Erica Sibree Mitch Barltrop
+44 (0)20 7939 +44 (0)20 3727
0558 1039
About International Public Partnerships:
International Public Partnerships ('INPP') is a listed
infrastructure investment company which invests in global public
infrastructure projects developed under the public private
partnerships ('PPP'), private finance initiative ('PFI'), regulated
asset and other similar procurement methods.
Listed in 2006, INPP is a long-term investor in 127 social and
transport infrastructure projects, including schools, hospitals,
courts, police headquarters, transport and utility and transmission
projects in the UK, Europe, Australia and North America. INPP seeks
to provide its shareholders with both a long-term yield and capital
growth through investment across both construction and operational
phases typically of 25-40 year concessions.
Amber Infrastructure Group ('Amber') is the Investment Adviser
to INPP and has over 100 dedicated staff who manage, advise on and
originate projects for INPP.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
1. As at 30 June 2017 unless otherwise stated
2. These are targets only and not profit forecasts. There can be
no assurance that these targets will be met or that the Company
will many any distributions at all.
3. Since inception (November 2006). Source: Bloomberg. Share
price plus dividends assumed to be reinvested.
International Public Partnerships Limited
Interim Report and Financial Statements for the six months ended
30 June 2017
Registered number: 45241
www.internationalpublicpartnerships.com
CONTENTS
HIGHLIGHTS 02
COMPANY OVERVIEW 03
TOP 10 INVESTMENTS 05
CHAIRMAN'S LETTER 06
FINANCIAL AND OPERATING REVIEW
- BUSINESS MODEL 09
- PERFORMANCE AGAINST STRATEGIC PRIORITIES 11
- OPERATING REVIEW 13
- CURRENT MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES 15
BOARD OF DIRECTORS 29
DIRECTORS' RESPONSIBILITIES STATEMENT 31
INDEPENT REVIEW REPORT TO INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED 32
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 33
NOTES TO THE CONDENSED CONSOLIDATED SET OF FINANCIAL STATEMENTS (UNAUDITED) 37
CONTACTS 52
COMPANY FACTS
- London Stock Exchange trading code: INPP.L
- Member of the FTSE 250 and FTSE All Share indices
- GBP2.137 billion market capitalisation at 30 June 2017
- 1.350 billion shares in issue at 30 June 2017
- Eligible for ISA/PEPs and SIPPs
- The Company's shares are excluded from the Financial Conduct
Authority's ('FCA') restrictions, which apply to non-mainstream
investment products, and can be recommended by independent
financial advisers to their clients
COVER IMAGE:
- Mernda Park Primary School, Victorian Schools PPP Project, Australia
Highlights
We aim to provide our investors with sustainable, long-term and
inflation-linked returns.
We do this through growing dividends and by creating the
potential for capital appreciation.
Our approach is supported by robust investment cash flows.
DIVIDS
3.41p 1H 2017 distribution(1) per share
6.82p 2017 full-year distribution target(2) per share
7.00p 2018 full-year distribution target(2) per share
2.5% Average annual dividend increase(2)
1.3x Cash dividend covered(3)
NET ASSET VALUE ('NAV')
GBP2.0bn NAV at 30 June 2017(4) (31 Dec 2016: GBP1.6bn)
144.7p NAV per share at 30 June 2017(4) (31 Dec 2016: 142.2p)
21.8% Increase in NAV
1.8% Increase in NAV per share
PORTFOLIO ACTIVITY
GBP323.8m Investment during 1H 2017
TOTAL SHAREHOLDER RETURN ('TSR')
162.5% TSR since inception(5)
9.5% Compound annual growth in TSR since inception(5)
PROFIT
GBP57.1m Profit before tax (1H 2016: GBP109.6m)(6)
(1 The forecast date for payment of the dividend relating to the
half year ending 30 June 2017 is 9 November 2017.)
(2 Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.)
3 Cash dividend payments to investors are paid from net
operating cash flow (after taking into account financing costs) as
detailed on pages 18-19.
(4 The methodology used to determine investment fair value is
incorporated within the NAV as described in detail on pages
21-27.)
(5 Since inception November 2006. Source: Bloomberg. Share price
plus dividends assumed to be reinvested.)
(6 1H 2016 result included one-off valuation impact as a result
of the U.K. Referendum to leave the European Union.)
Company Overview
TRACK RECORD OF STABLE AND GROWING RETURNS TO INVESTORS
INPP Dividend Payments
[Chart can be found in PDF version of this document on the
Company's website.]
Compound annual growth rate in TSR of 9.5% p.a.(1)
Over a decade INPP has grown from GBP300m market capitalisation
to GBP2.1bn (June 2017)
Dividend growth has averaged 2.5% since inception(2)
High degree of inflation linkage
A WELL DIVERSIFIED PORTFOLIO
Sector Breakdown
Energy transmission 21%
--------------------- ----
Education 20%
--------------------- ----
Transport 17%
--------------------- ----
Gas Distribution 15%
--------------------- ----
Waste Water 10%
--------------------- ----
Health 5%
--------------------- ----
Courts 4%
--------------------- ----
Military
Housing 3%
--------------------- ----
Other 5%
127 investments in infrastructure projects across a variety of
sectors
Geographic Split
UK 75%
----------- ----
Belgium 10%
----------- ----
Australia 6%
----------- ----
US 3%
----------- ----
Germany 3%
----------- ----
Canada 2%
----------- ----
Ireland 1%
----------- ----
Italy <1%
Invested in selected global regions which meet the INPP's
specific risk and return requirements
Investment Type
Investments with
third party senior
debt 90%
--------------------- ----
Investments with
no third party
senior debt(1) 10%
Invested across the capital structure, taking into account
appropriate risks to returns
Mode of Acquisition/Asset Status
Construction 12%
-------------- ----
Operational 88%
-------------- ----
Early Stage
Investor(2) 88%
-------------- ----
Later Stage
Investor(3) 12%
Early stage investment gives first mover advantage and maximises
primary capital growth opportunities
Project Ownership
100% 49%
--------- ----
50%-100% 8%
--------- ----
<50% 43%
Preference to hold majority stakes
Investment Life
<20 years 40%
----------- ----
20 - 30
years 32%
----------- ----
>30 years 28%
Weighted average portfolio life of 36 years
(1) Since inception November 2006. Source Bloomberg. Share price
plus dividends assumed to be reinvested.
(2) Future dividends cannot be guaranteed. Projections based on
current estimates and may vary in the future.
(3) There are many factors that may influence the actual
achievement of long-term cash flows to the Company. These include
both internal as well as external factors and investors should not
treat the chart above as being more than an indicative profile and
not a projection, estimate or profit forecast. The actual achieved
profile will almost certainly be different and may be higher or
lower than indicated.
INPP Projected Cash Flow Profile and Relationship with the
Investment Advisor and its Group
[Chart can be found in PDF version of this document on the
Company's website.]
TOP 10 INVESTMENTS
INPP's top ten investments by fair value at 30 June 2017 are
summarised below. Further information about investments in the
Group's portfolio is available on the Group's website
(www.internationalpublicpartnerships.com).
NAME OF LOCATION SECTOR STATUS % HOLDING % INVESTMENT % INVESTMENT
INVESTMENT AT AT FAIR FAIR
30 JUNE 30 JUNE VALUE VALUE
2017 2017 30 JUNE 31 DECEMBER
2017 2016
Cadent(1) Various, Gas Distribution Operational 4% Risk 14.9% N/A
United Capital(2)
Kingdom
Thames London,
Tideway United Waste Under 16% Risk
Tunnel(1) Kingdom Water Construction Capital(2) 10.1% 9.1%
100%
Diabolo Brussels, Risk
Rail Link(1) Belgium Transport Operational Capital(2) 10.0% 11.5%
Lincolnshire, 100%
Lincs Offshore United Energy Risk
Transmission Kingdom Transmission Operational Capital(2) 9.7% 11.7%
100%
Risk
Capital(2)
Ormonde Cumbria, and 100%
Offshore United Energy senior
Transmission Kingdom Transmission Operational debt 7.0% 8.9%
Various,
United 5% Risk
Angel Trains(1) Kingdom Transport Operational Capital(2) 3.8% 4.5%
Various, 100%
U.S. Military United Military Risk
Housing(1,3) States Housing Operational Capital(2) 3.3% 4.0%
Royal 100%
Children's Victoria, Risk
Hospital(1) Australia Health Operational Capital(2) 2.4% 2.8%
Various, 49% Risk
BeNEX Rail(1) Germany Transport Operational Capital(2) 2.1% 2.5%
Northamptonshire, 100%
Northampton United Risk
Schools Kingdom Education Operational Capital(2) 1.7% 2.1%
1 These projects contain revenues that are not solely dependent
on availability but also include an element of linkage to other
factors such as passenger numbers, rolling stock releasing
assumptions, occupancy and/or have regulatory periodic reviews. All
other investments receive entirely availability based revenues.
2 Risk Capital includes both project level equity and subordinated shareholder debt.
3 Includes two tranches of investment into U.S. military housing.
Significant movements in the Group's portfolio for the half year
ended 30 June 2017 can be found on pages 13-14 of the Financial and
Operating Review.
Chairman's Letter
Dear Shareholders,
I am pleased to be able to report to you that INPP's performance
for the first half of the 2017 financial year has been strong, with
substantial levels of new investment during the period.
The infrastructure investment market remains buoyant, driven by
increasing numbers of investors seeking access to long-duration,
low-volatility, robust-yielding assets with inflation protection
and low correlation to the broader market. These dynamics, and with
the support of existing and new shareholders, allowed the Company
to undertake a GBP330 million capital raising during the period
which in turn contributed to an increase in INPP's market
capitalisation to over GBP2.1 billion at 30 June 2017, up from
GBP1.7 billion at the end of the previous year.
Over the period since the Company first listed in November 2006
we have generated a Total Shareholder Return of 162.5%. This is
equivalent to an average annual return of 9.5% and ahead of our
long-term target of 8%-9% returns1. We are positive about the
Company's ability to continue to deliver predictable returns in the
future, in line with our stated target.
GROWTH IN INVESTOR RETURNS
We are on track to meet our 2017 dividend target of 6.82 pence
per share, having announced a dividend of 3.41 pence per share for
the first six months to 30 June 2017, reflecting 2.6% growth on the
previous period (30 June 2016: 3.325 pence).
The Board is pleased to reaffirm its minimum dividend target for
2017 and guidance of 7.00 pence per share for 2018. We have good
forward visibility of investment cash flows and, given the
predictable nature of the Company's investments, we are confident
of our longer-term prospects to pay out a dividend linked to
long-term average inflation. By providing two-year forward
guidance, we hope to provide shareholders with additional
visibility(2) .
INVESTMENT ACTIVITY
During the period since 1 January 2017, GBP323.8 million was
invested across three investments.
Our largest investment in the first half of 2017 was GBP274.0
million for a share of a 61% stake in National Grid's U.K. gas
distribution network (now known as Cadent) alongside a consortium
of leading international investors. In addition, a further 14%
interest in the networks has been negotiated by the consortium with
National Grid and is subject to put and call options between
National Grid and the consortium. This investment highlights INPP's
and Amber's strong industry relationships and expertise and will
augment the Company's high-quality, long-duration, inflation-linked
returns.
We expect more regulated assets to come to the market, and as a
well-established investor in this space, INPP is well positioned to
capitalise on future opportunities.
As part of our commitment to make early stage investments that
enhance prospects for future value growth within the portfolio, in
July we agreed to invest up to GBP45 million into digital
infrastructure through a co-investment vehicle alongside HM
Government in the U.K. The vehicle will seek out investment
opportunities in businesses and projects that own and build digital
fibre-based network assets and related infrastructure which will
generate stable returns consistent with INPP's investment
mandate.
Further details on investments made during the period can be
found on pages 13-14.
CAPITAL RAISING AND CORPORATE CREDIT FACILITY
In May, the Company successfully raised GBP330 million of
capital (before costs) through a Placing, Open Offer and Offer for
Subscription ('the Issue'). The Issue attracted significant
interest from new and existing shareholders, with demand exceeding
by three times the original targeted capital raising of GBP250
million.
The proceeds of the Issue were used to fully repay the Company's
cash drawn portion of its existing debt facility. As at 6 September
2017 the Company has utilised GBP56.5 million of the credit
available under its GBP400 million revolving credit facility,
(taking into account its future investment obligations including
its investment commitments to the Thames Tideway Tunnel
project).
CHAIRMAN'S LETTER (CONTINUED)
PORTFOLIO PERFORMANCE
The Board believes that an active asset management approach
taken by the Company and Amber, is fundamental to INPP's long-term
performance. In this way we can ensure major activities such as
construction schemes or project variations are tracking to schedule
and budget and 'everyday' aspects of our projects are monitored, as
well as ensuring we maintain strong relationships with partners and
clients. Our focus continues to be ensuring that the existing
portfolio meets or exceeds its performance metrics. This approach,
together with the capital raising undertaken in May, supported
robust performance during the period, with underlying growth in NAV
increasing 21.8% to GBP2.0 billion by 30 June 2017.
We continue to see upward pressure on valuations from current
market comparables which, if sustained, we will expect to filter
through to future NAV increases over time. It is also to be
remembered that our NAV is calculated according to our published
methodology (which for instance assumes a sum-of-the-parts
valuation and does not account for any value attributable to
matters such as the size, scarcity and diversification of our
portfolio).
An important aspect of our ongoing asset management is health
and safety and we believe that our portfolio should conform to all
applicable safety requirements. Following the tragic events of the
Grenfell Tower fire in London in June, a review of the cladding
materials used in our buildings was undertaken to identify whether
any of the portfolio's buildings could be impacted by similar
issues. We are pleased to report that we have not identified any
issues with cladding or insulation used across the portfolio. In
addition it should be noted that the INPP portfolio has other
significant mitigating aspects in relation to fire safety,
generally our buildings have multiple escape routes; the vast
majority are not high rise; and, the vast majority are not
residential and as such are only occupied during the day.
CORPORATE GOVERNANCE
INPP continues to comply with the Association of Investment
Companies Code of Corporate Governance and the U.K. Corporate
Governance Code as set out in the Corporate Governance Section of
the 2016 Annual Report and financial statements.
I have also previously advised shareholders of my intention to
retire from the Chairmanship of the Company at the 2018 Annual
General Meeting. To ensure that there is continuity of Board
oversight and sufficient resource, the Board undertook a search for
an additional director, resulting in Ms Julia Bond being appointed
to the Board on 1 September 2017. Ms Bond has 27 years' experience
of capital markets in the financial sector and has held senior
positions within Credit Suisse including Head of One Bank Delivery.
After a successful career in financial services, Julia brings a
wealth of board experience in Investment Trusts, the public sector,
professional bodies as well as the voluntary sector. Julia's skills
and knowledge are complementary to the current Board and will allow
for an orderly process of Board succession in due course.
GOING CONCERN
We have reviewed comprehensive cash flow forecasts, which are
based on market data and past experience, and continue to believe,
based on those forecasts and an assessment of the Group's committed
banking facilities and available headroom, that it is appropriate
to prepare the financial statements of the Group on the going
concern basis.
In arriving at our conclusion that the Group has adequate
financial resources we were mindful that at the date of this report
the Group has unrestricted cash balances of GBP20.5 million and
undrawn banking facilities of GBP343.5 million. Forecasts indicate
continuing full compliance with associated banking covenants.
Further details can be found on pages 18-19.
OUTLOOK
The Company remains positive about its prospects, both in terms
of the performance of its existing investments and the opportunity
to add high quality investments to the portfolio in the
short-to-medium term.
The Investment Adviser remains confident of a significant
investment pipeline for the Company. In addition to its existing
commitments including Tideway, the Investment Adviser has a
pipeline of other potential investment opportunities that are at an
earlier stage of development and, subject to further review, may be
progressed as investment opportunities for the Company.
Key areas of current activity for the Company and/or its
Investment Adviser (or associates) include:
- A continued focus on large-scale opportunities in the UK
regulated asset sector including a further investment into Cadent
gas distribution network;
- Further activities in the area of UK offshore transmission;
- U.S. P3 and similar opportunities, particularly through the
relationship with Amber/Hunt;
- Other UK, European and Australian primary investment
opportunities (for instance in the education, healthcare and
digital infrastructure sectors);
- Acquisition of additional investments in projects where the
Company already has an investment. Typically, these will arise
under pre-emption and similar rights.
Rupert Dorey
Chairman
6 September 2017
1 Since inception. Source: Bloomberg. Share price plus dividends
assumed to be reinvested.
2 Future dividends cannot be guaranteed. Projections are based
on current estimates and many vary in the future.
FINANCIAL AND OPERATING REVIEW
BUSINESS MODEL - DELIVERING INVESTOR RETURNS
[Charts can be found in PDF version of this document on the
Company's website.]
FINANCIAL AND OPERATING REVIEW
PERFORMANCE AGAINST STRATEGIC PRIORITIES
INPP's strategy covers three interlinked areas of focus. This
three-pronged approach helps us to manage our assets and finances
throughout the investment cycle and also to identify new
opportunities that meet our investment objectives. We link Key
Performance Indicators to these Strategic Priorities and review our
performance against these KPIs twice a year. We also assess the
risks relating to each KPI (as identified in the Risk Management
section of the 2016 Annual Report and Financial Statements).
STRATEGIC PRIORITIES DESCRIPTION
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
INVEST IN ASSETS THAT
ENHANCE PORTFOLIO RETURNS * Make new primary/early stage investments that enhance
RELATIVE TO RISK AND prospects for future value growth
MAINTAIN A WELL-BALANCED
INVESTMENT PORTFOLIO
* Make additional acquisitions off-market or through
preferential access (e.g. sourced through pre-emption
rights or via Amber/Hunt)
* Manage portfolio composition with complementary
investments, in line with the Company's Investment
Policy and enhancing at least one of the following
aspects:
* Blend of risk to return
* Inflation linkage
* Cash flow profile
* Capital growth attributes (such as construction risk
and residual value growth potential)
ACTIVE ASSET MANAGMENT
ACTIVE AND EFFECTIVE
MANAGEMENT OF ASSETS * Focus on delivery of target returns from existing
investments
* Maintain high levels of public sector client
satisfaction and asset performance
* Deliver additional value from existing assets through
management of construction risk and delivery of
operational improvements to meet client requirements
* Enhance prospects for capital growth by investing in
construction phase assets where available
EFFECTIVE FINANCIAL MANAGEMENT
EFFECTIVE MANAGEMENT
OF COMPANY'S FINANCES * Provide efficient management of cash holdings and
debt facilities available for investment and
appropriate hedging policies
* Efficient management of INPP's overall finances, with
the intention to reduce ongoing charges where
possible
* Manage portfolio in a cost-efficient manner
KEY PERFORMANCE INDICATORS PERFORMANCE IN 1H 2017
* Value of new early stage investment * Continued investment into the Thames Tideway Tunnel
which is currently under construction
* Proportion of investments in construction * 11.8% of portfolio currently under construction
* Value of additional investments acquired off market * Acquisition of additional stake in the Wolverhampton
or through preferred access BSF project sourced through majority shareholder
pre-emptive position
* Improvement of risk/return, inflation linkage and * All assets acquired exhibited robust cash flow
diversification of cash flows, including geographical profiles
diversification
* Investment into Cadent and further investment into
Thames Tideway Tunnel complemented the capital
attributes of the portfolio
* Most investments are forecast to generate
inflation-linked cash flows. Overall portfolio
inflation linkage has increased to 0.83% for every
1.00% increase in the assumed inflation rates
(calculated by running a 'plus 1.00%' inflation
sensitivity for each investment and solving each
investment's discount rate to return the original
valuation. The inflation linkage is the increase in
the portfolio weighted average discount rate.)
* Availability for all controlled investments at 98% or * Achieved availability for investments at 98% or
above - returns from investments in line with greater in period
expectations
* Performance deductions below 3% for all projects
* Achieved performance reductions below 3% for all
projects in period
* Number of change requests from existing contracts
* Over 422 change requests undertaken
* Management of investments during the course of
construction projects in line with overall delivery
timetable * Majority of construction projects managed on time and
to budget. Costs of small project delays absorbed by
construction partners
* Number of investments in construction
* Six investments under construction
* Dividends paid to investors covered by operating cash * Cash dividends paid to investors 1.3 times covered by
flow net operating cash flow
* New investments made from available cash (after
payment of dividend) ahead of using corporate debt * All investments in the year to date funded through
excess cash in priority to the corporate debt
facility
* Competitive cash deposit rates
* Market tested cash deposit rates and reset where
* Use of appropriate hedging strategies possible
* GBP69.9 million of foreign exchange forward contracts
* Management of ongoing charges in place to mitigate short-term foreign exchange cash
flow volatility
* Ongoing charges 1.15%
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
New investments that meet the Company's Investment Policy are
made after assessing their risk and return profile relative to the
existing portfolio. In particular, we seek investments to
complement the existing portfolio through enhancing long-term,
predictable cash flows and/or to provide the opportunity for higher
capital growth. Desirable key attributes include:
1. Long-term, stable returns
2. Inflation-linked investor cash flows
3. Primary/early stage investor (e.g. the Company is an early
stage investor in a new asset developed by Amber)
4. Preferential access (e.g. sourced through pre-emptive rights or directly from Amber/Hunt)
5. Enhanced capital attributes (e.g. potential for additional
capital growth through construction "de-risking" or the potential
for residual / terminal value growth)
During the period to 30 June 2017, GBP323.8 million was invested
across three investments. Details of investments made and their key
attributes are provided below.
LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
STATUS DATE
------------------- ---------- ---------------------------- --------------- ------------- -----------------
------------------- ---------- ---- ---- ---- ---- ---- --------------- ------ ----- ---- -----------
1 2 3 4 5
------------------------------ ---- ---- ---- ---- ---- ----------------------- ----------- -----------
Thames Tideway U.K. X X X X Under construction GBP48.3 Various
Tunnel million
------------------- ---------- ---- ---- ---- ---- ---- ----------------------- ----------- -----------
Cadent (formerly U.K. X X X Operational GBP274.0 31 March
National Grid million 2017
Gas Distribution
Network)
------------------- ---------- ---- ---- ---- ---- ---- ----------------------- ----------- -----------
Wolverhampton U.K. X X X Operational GBP1.5 5 May 2017
Building Schools million
for the Future
------------------- ---------- ---- ---- ---- ---- ---- ----------------------- ----------- -----------
GBP323.8
million
------------------------------ ---- ---- ---- ---- ---- ----------------------- ----------- -----------
In addition, during the period, as part of a consortium, the
Company committed to acquire a share of an additional 14% stake in
Cadent subject to a put and call option. On 3 July 2017, the
Company also committed to investment up to c.GBP45.0 million
alongside HM Government into digital infrastructure in the U.K.
These projects were sourced by Amber, the Investment Adviser,
either from the start of the project (i.e. primary / early stage
developments in response to an initial government procurement
process); through increasing its interest in existing assets; or as
part of a larger consortium, building on the Company's experience
and credibility to participate in multi-billion pound regulated
infrastructure transactions.
CADENT
The Company is part of a consortium which includes other leading
UK and international institutional investors which acquired a 61%
interest in certain gas distribution networks (now known as Cadent)
formerly fully owned by National Grid plc. The Company invested
GBP274.0 million into the project for a 4.4% stake with the
remaining risk capital funded by consortium partners.
The investment comprises four networks, each covering a
geographic monopoly in the East and North West of England, North
London, and the West Midlands, respectively. The networks
distribute gas to approximately 50% of the country's connected
households through 130,000 km of gas pipeline. Cadent is made up of
well-established, predictable, and strong cash yielding businesses
whose characteristics are consistent with and complementary to the
other regulated and non-regulated assets in the Company's
portfolio.
Additional to the 61% interest acquired by the consortium, a
further 14% interest in the networks has also been negotiated with
National Grid and is subject to put and call options between
National Grid and the consortium. The consortium also has
pre-emption arrangements over the residual 25% investment that
National Grid would continue to hold after the exercise of either
option.
THAMES TIDEWAY TUNNEL
The Tideway investment relates to the design, build and
operation of a 25-kilometre 'super-sewer' under the River Thames in
London. The Company is part of a consortium committed to investing
GBP4.2 billion in developing this asset regulated by Ofwat. The
project is currently under construction.
Since 31 December 2016, the Company has invested a further
GBP48.3 million into the Tideway project leaving GBP30.0 million to
be invested during the remainder of 2017 (currently supported by a
letter of credit).
ADDITIONAL INVESTMENT IN WOLVERHAMPTON BUILDING SCHOOLS FOR THE
FUTURE
Building Schools for the Future ('BSF') is a U.K. Government
programme for the redevelopment of all secondary schools in the
U.K. financed using a combination of design and build contracts and
private finance initiative arrangements. The programme for new
developments was cancelled in July 2010. Since August 2011, INPP
has been increasing its minority stakes in the majority of these
projects.
The Company acquired an additional interest in the Wolverhampton
BSF project committing a further GBP1.5 million to acquire
Carillion Private Finance's 8% indirect investment in each of phase
I and phase II of the Wolverhampton BSF scheme. As a result, the
Company's existing 82% investment in the project grew to 90%.
DIGITAL INFRASTRUCTURE CO-INVESTMENT
In July 2017, the Company agreed to invest up to GBP45 million
into U.K. digital infrastructure alongside HM Government through a
bespoke co-investment vehicle. The vehicle will seek out investment
opportunities in businesses and projects that own and build digital
fibre-based network assets and related infrastructure which will
generate stable and lower returns consistent with INPP's investment
mandate.
Digital infrastructure is a potentially exciting new asset
class. Fibre broadband connections are likely to become essential
infrastructure assets in the future. This commitment offers an
early entry point for the Company into a sector with clear lineage
to the long-term, stable, inflation linked returns of our
utility-network assets.
Investments are expected to be made over the next four years and
the HM Government commitment is for a ten-year period. It is
intended that any investment opportunities within the fibre
broadband sector that meet INPP's investment mandate will be made
through the National Digital Infrastructure Fund structure.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
CURRENT MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES
The market outlook for the Company remains positive.
Infrastructure ranks highly on many Government agendas; this asset
class is a key economic driver to growth and delivering positive
social benefits. The global scale of the capital investment
ambition of governments is significant and we anticipate this will
generate more investment opportunities.
Political uncertainty and consequential economic risk present
potential market-wide challenges, which need to be analysed and
assessed as and when they materialise. The nature of INPP's
investment portfolio and the active approach we have adopted to
asset management both provide a firm foundation from which to react
to any emerging risks.
The Company remains focussed on nearer term investment
commitments including: 1) the completion of its investment into
Tideway; 2) the successful deployment of projects into our new
digital infrastructure co-investment vehicle; and, 3) the exercise
of our put-call option for a further investment into the Cadent gas
distribution network asset.
In addition, we continue to track and develop opportunities at
various stages of development in regulated utilities (including
offshore transmission), health, judicial, other accommodation and
transport projects.
All opportunities are appraised on a case-by-case basis and
pursued in a disciplined way. This ensures that INPP's strong
platform, carefully developed over the past ten years, continues to
be enhanced.
CURRENT PIPELINE
Selected opportunities identified by Amber are outlined below.
INPP's performance does not depend upon additional investments to
deliver projected returns. Further investment opportunities will be
judged by their anticipated contribution to overall portfolio
returns relative to risk.
CURRENT LOCATION ESTIMATED INVESTMENT EXPECTED INVESTMENT
INVESTMENTS OPPORTUNITY/PROJECT CONCESSION STATUS
OPPORTUNITIES CAPITAL COMMITMENT LENGTH
/SECTOR VALUE
Thames Tideway U.K. c.GBP30m investment 120 years The Company
Tunnel commitment remaining(1) is part of
the Bazalgette
consortium-awarded
a licence
to finance
and operate
the project.
Investment
is being made
in phases
until early
2018
Digital U.K. c.GBP45m(2) Various Commitment
to National
Digital Infrastructure
Fund, investment
opportunities
being reviewed
Cadent U.K. Commitment as Operational Subject to
part of a consortium business put and call
to acquire additional option expected
14% interest to be exercised
by 2019
Education Australia c.GBP70m(3) Various Opportunities
and U.K. through variations
to existing
PPP contracts
and through
Amber's wider
relationships
Health U.K. c.GBP10m(3) Various Currently
under construction
Police Germany c.GBP140m(3) 30 years One of two
bidders
Regulated U.K. c.GBP580m(3) Various OFTO and other
regulated
opportunities
at varying
stages
Transport Germany, c.4.4bn(3) Various Variety of
Australia larger-scale
projects.
INPP is typically
part of a
consortium
of investors.
Includes follow-on
opportunities
1 This project has reached financial close and the Company has
committed to further investments of up to c.GBP30 million. The
remaining value is supported by a letter of credit.
2 Represents the current estimated total future investment commitment by the Company.
3 Represents the estimated current unaudited capital value of
the project and includes both debt and equity.
The above includes potential opportunities currently under
review by the Investment Adviser including current bids, preferred
bidder opportunities and the estimated value of opportunities to
acquire additional investments including under pre-emption/first
refusal rights. There is no certainty that these will translate to
actual investment opportunities for the Company. The value
referenced in relation to the pre-emption opportunities represents
the estimated potential investment value which reflects the current
estimate of the total likely acquisition value at that time. In
relation to opportunities where the current estimated gross value
of the relevant project is given (which includes an estimate of
both debt and equity), the estimates provided are not necessarily
indicative of the eventual acquisition price for, or the value of,
any interest that may be acquired.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
ACTIVE ASSET MANAGEMENT
Ensuring that the Company's assets are available for use and are
performing in accordance with contractual expectations is critical
for INPP and its service providers. As the Investment Adviser
acting on behalf of INPP, Amber closely monitors relationships
between service providers and public sector clients. It is actively
involved in managing assets to ensure performance standards are
met, and works with public sector clients on variation projects as
they arise. Amber has the flexibility and experience to quickly
respond to the changing requirements of public sector clients.
OPERATIONAL PORTFOLIO DEVELOPMENT
During the half-year, INPP's public sector clients commissioned
over 422 variations under PPP resulting in over GBP6.4 million of
additional project work, with individual variations ranging in
value from GBP31 to over GBP1.2 million. These project variations
were overseen by Amber as part of its day-to-day asset management
activities, in conjunction with the project facilities manager and
each public sector client.
Across the portfolio, Amber works with its public sector
counterparties and private sector service partners to deliver the
operational facilities required to provide educational, custodial,
and health services. Following the tragic events at the Grenfell
Tower, where the cladding system appears to be a primary cause for
the spread of fire, Amber has carried out a review of INPP's
portfolio of assets. This review focussed on whether the INPP
facilities were clad and insulated in the same materials as the
Grenfell Tower. The findings of the review to date confirm that the
specific combination of cladding and insulation material used at
Grenfell Tower is not present on any of the assets managed on
behalf of INPP. The review also considered the height of
facilities, whether the facilities have more than one means of
escape, times of use of the facilities, and whether the facilities
had sprinklers.
PROJECTS UNDER CONSTRUCTION
Progress on the Thames Tideway Tunnel construction schedule is
ahead of the regulatory baseline plan; the main tunnel drive sites
in the West, Central and East sections of the tunnel have been
mobilised three to five months early with all six tunnel boring
machines on order from the manufacturer. The project team has
continued its innovative approach to health and safety and are
pleased to report no major injuries to date.
Construction work on the new Victorian Schools PPP project in
Australia is progressing in line with the contractual timetable.
The initial eight schools achieved construction completion in line
with expectations, at the end of 2016. Of the remaining seven new
buildings one has been completed on schedule and the final six are
expected to complete in line with expectations by 1 January
2018.
The seven kilometre Gold Coast Phase 2 light rail project
extension in Australia is progressing in line with programme with
completion expected late 2017/early 2018.
Batch 3 (North West) and Batch 4 (Midlands) of the Priority
School Building Aggregator Programme ('PSB') [experienced minor
delays but were completed in early September 2017.] As INPP is a
debt only provider (and not equity provider) to these PSB schemes,
the programme is largely determined by the supply chain, which
takes the risk for delivery. Given the nature of INPP's investment,
the delay on one batch will not have an impact on INPP's returns.
Batch 5 (Yorkshire) is on programme to complete in April 2018.
Projects under construction as at 30 June 2017 are set out in
the table below.
ASSET LOCATION CONSTRUCTION DEFECTS STATUS % OF
COMPLETION COMPLETION FAIR
DATE DATE VALUE
OF INVESTMENT
Thames Tideway
Tunnel U.K. 2024 2027 On Schedule 10.1%
Priority School Modest delays.
Building Aggregator No financial
Programme (Batches impact on
3-5) U.K. 2018 2019 Company 1.5%
Victorian Schools
PPP Project Australia 2018 2019 On Schedule 0.1%
Gold Coast Light
Rail Phase Two Australia 2018 2019 On Schedule 0.0%
EFFECTIVE FINANCIAL MANAGEMENT
The Company aims for effective financial management through a
strategy of minimising its unutilised cash holdings, while
maintaining the financial flexibility and ability to pursue its
growth targets. This is achieved through active monitoring of cash,
both held and generated from operations, appropriate hedging
strategies, and prudent use of the Company's corporate debt
facility ('CDF').
SUMMARY OF CASH FLOWS
SUMMARY OF CONSOLIDATED SIX MONTHS SIX MONTHS YEAR TO 31 DECEMEBER
CASH FLOW TO 3O JUNE TO 30 JUNE 2016
2017 2016 GBP MILLION
GBP MILLION GBP MILLION
Opening cash balance 71.0 72.4 72.4
Cash from investments 55.0 46.2 94.7
Operating costs (recurring) (10.3) (7.7) (16.1)
Net financing costs (2.3) (1.2) (2.3)
Net cash before non-recurring
operating costs 42.4 37.3 76.3
Non-recurring operating
costs (7.9) (1.0) (4.0)
Net operating cash
flows(1) 34.5 36.3 72.3
Cost of new investments (323.8) (56.2) (209.9)
Net repayment of corporate - 23.7 -
debt facility
Proceeds of capital
raisings (net of costs) 325.1 - 198.1
Distributions paid (33.8) (29.2) (61.9)
Funds advanced to
affiliated entities (1.4) (17.8) -
Net cash at period
end 71.6 29.2 71.0
Cash dividend cover 1.3x 1.3x 1.2x
1 Net operating cash flows as disclosed above (c.GBP34.5
million) include net repayments from investments at fair value
through profit and loss (c.GBP6.5 million), exchange gains and
losses on cash and cash equivalents (c.GBP0.1 million) and finance
costs paid (c.GBP2.3 million) which are not included in the net
cash inflows from operations (c.GBP30.4 million) as disclosed in
the cash flow statement on page 36 of the financial statements.
The Company's cash balance of GBP71.6 million at 30 June 2017
was consistent with the balance at 31 December 2016 of GBP71.0
million. Cash balances include GBP43.6 million of un-invested
proceeds from a share issuance in May 2017. These funds will be
used to finance the Company's committed investments during the six
months to 31 December 2017.
Cash receipts from investments were GBP55.0 million for the
six-month period, in comparison with GBP46.2 million for the
corresponding period in 2016. The increase reflects the continued
growth of the portfolio and recent investment activity. This
increase was partially offset by higher recurring operating costs
of GBP10.3 million (30 June 2016: GBP7.7 million), which include
management fees paid to the Investment Adviser, reflecting
continued growth in the value of the portfolio.
Higher net financing costs of GBP2.3 million compared with the
corresponding period in 2016 (30 June 2016: GBP1.2 million), were
due to cash amounts drawn on the corporate debt facility to fund
the investment in Cadent in March 2017 and marginally higher fees
in relation to the uncommitted portion of the facility following
the expansion of the facility in November 2016.
Non-recurring costs include transaction fees of c. GBP4.7
million in respect of investments made in the period. In addition,
during the period, management fee payments were aligned with the
contractual quarterly payment cycle rather than the previous
biannual payment practice. As a result, a GBP2.9 million fee
payment has been brought forward into the period to accommodate
this timing adjustment, which has been shown within non-recurring
operating costs. If this amount were included within recurring
operating costs at 30 June 2017 the Company would report a cash
dividend cover ratio of 1.2x.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
The Company funded its acquisitions during the period using the
proceeds from share capital issuances and through cash draw-downs
on its corporate debt facility. All drawn amounts were subsequently
repaid and there was therefore no overall movement in the cash
drawn balance of the facility. It is the Company's policy not to
have long-term corporate level debt - the facility is intended to
be drawn only as a short-term arrangement to fund acquisitions,
with equity funding by means of capital raising sought to repay
outstanding debt balances as soon as practicable where market
conditions allow.
Cash investments made in the six months to 30 June 2017
(detailed in note 11) totalled GBP323.8 million (30 June 2016:
GBP209.9 million), with further amounts also being committed for
future investment. Funds advanced to affiliated entities of GBP1.4
million was used to fund an investment in Gold Coast Light Rail 2
that closed immediately after the end of the period (30 June 2016:
GBP17.8 million to fund an investment in Thames Tideway Tunnel
shortly after the period end).
The cash dividend paid in the period of GBP33.8 million (30 June
2016: GBP29.2 million) was in respect of the six-month period ended
31 December 2016. INPP seeks to generate dividends paid to
investors through its operating cash flows and in all periods
presented above cash dividends were at least 1.2 times covered by
net cash flow from operations before non-recurring operating costs.
The Company remains confident of its ability to continue to grow
dividends going forward.
SUMMARY OF OPERATING COSTS AND ONGOING CHARGES
Operating Costs SIX MONTHS SIX MONTHS TO YEAR TO 31 DECEMEBER
TO 30 JUNE 30 JUNE 2016 2016
2017 GBP MILLION GBP MILLION
GBP MILLION
Management fees (9.2) (7.0) (14.4)
Audit fees (0.2) (0.2) (0.3)
Directors' fees (0.2) (0.1) (0.3)
Other running costs (0.7) (0.4) (1.1)
Operating costs (recurring) (10.3) (7.7) (16.1)
ONGOING CHARGES SIX MONTHS SIX MONTHS YEAR TO
TO 30 JUNE TO 30 JUNE 31 DECEMEBER
2017 2016 2016
GBP MILLION GBP MILLION GBP MILLION
Annualised Ongoing Charges(1) (20.6) (15.4) (16.1)
Average NAV(2) 1,778.4 1,330.8 1,421.8
Ongoing Charges (1.15%) (1.16%) (1.13%)
1 The Ongoing Charges ratio was prepared in accordance with the
Association of Investment Companies' ('AIC') recommended
methodology, noting this excludes non-recurring costs.
2 Average of published NAVs for the relevant period.
INVESTOR RETURNS
INPP continues to deliver strong performance against all
investor return benchmarks. The Company continues to deliver
consistent dividend growth, NAV growth, Total Shareholder Return
and inflation linkage from underlying cash flows.
DIVID GROWTH AND PERFORMANCE
INPP targets predictable and, where possible, growing dividends.
During the period, the Company's performance enabled it to declare
a dividend of 3.41 pence per share relating to the six months to 30
June 2017 (30 June 2016: 3.325 pence), in line with its forecasts
to pay 6.82 pence per share for the 12 months to 31 December 2017.
The Company has also indicated that it will target 7.00 pence per
share for the 2018 financial year. Since inception, the Company has
delivered a c.2.5% per annum average dividend increase. INPP's
dividend growth is illustrated in the chart on page 3. Profit
before tax was GBP57.1 million (30 June 2016: GBP109.6 million -
which included foreign exchange valuation impacts as a result of
the U.K. Referendum to leave the European Union) with Earnings per
Share of 4.89 pence (30 June 2016: 11.14 pence).
Returns from portfolio investments (investment income) in the
period were GBP75.1 million (30 June 2016: GBP124.5 million)
including fair value movements, dividends and interest. These
returns were partially offset by operating expenses (including
finance costs) of GBP18.0 million (30 June 2016: GBP10.7 million)
and a small amount of other operating expenses (June 2016 GBP4.3
million), as shown in the Condensed Consolidated Statement of
Comprehensive Income.
TOTAL SHAREHOLDER RETURN
INPP's Total Shareholder Return (share price growth plus
reinvested distributions) for investors since IPO in November 2006
to 30 June 2017 has been 162.5% (9.5% on an annualised basis). This
compares to a FTSE All-Share index total return over the same
period of 83.9% (5.9% on an annualised basis). INPP has exhibited
relatively low levels of volatility compared to the market, as
evidenced by the graph below showing the Company's share price
since IPO against the price performance of the major FTSE
indices.
INPP Share Price Performance
[Chart can be found in PDF version of this document on the
Company's website.]
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INFLATION LINKED CASH FLOWS
In an environment where investors are increasingly focused on
achieving long-term real rates of return on their investments,
inflation protection is an important consideration for the Company.
At 30 June 2017, the majority of assets in the portfolio had some
degree of inflation linkage and, in aggregate, the weighted NAV
return of the portfolio would be expected to increase by 0.83% per
annum in response to a 1.00% per annum inflation increase over
currently assumed rates across the entire portfolio1.
NET ASSET VALUATION AND NAV PER SHARE
The Company reported a 21.8% increase in NAV, up to GBP1,953.1
million at 30 June 2017 (31 December 2016: GBP1,603.7 million).
This represented an increase of 1.8% in the NAV per share,
increasing to 144.7 pence at 30 June 2017 (31 December 2016: 142.2
pence).
The NAV represents the fair value of the Company's investments
plus the value of cash and other net assets held within the
Company's consolidated group. The key drivers of the change to the
NAV between 31 December 2016 and 30 June 2017 are highlighted in
the graph that follows and are described in more detail below.
Net Asset Value Movements
[Chart can be found in PDF version of this document on the
Company's website.]
1 Represents movements in the forward rates used: to translate
forecast non-GBP investment receipts and the spot rates used to
translate non-GBP cash balances.
2 The NAV Return represents, amongst other things, (i) variances
in both realised and forecast investment cash flows, (ii) the
unwinding of the discount factor applied to those future investment
cash flows and (iii) changes in the Company's other net assets.
During the first half of 2017, approximately GBP325.1 million of
new capital was raised (taking into account issue costs). Proceeds
were used to repay the cash drawn balance of the corporate debt
facility and acquire new investments.
For the six months to 30 June 2017, government bond yields
increased in all countries in which INPP holds investments, with
the exception of the U.S. and Italy, resulting in a net negative
impact on the NAV. This was offset by a decrease in the project
premium applied, reflecting a lack of observable market-based
evidence to justify revaluing the Company's assets in line with the
increase in bond yields.
Over the period, Sterling continued to be volatile relative to
the currencies in which our investments are denominated - weakening
against the Euro and Australian dollar but strengthening against
the US and Canadian dollars. The net impact over the half-year to
30 June 2017 was a positive impact on NAV.
1 Calculated by running a 'plus 1.00%' inflation sensitivity for
each investment and solving each investments' discount rate to
return the original valuation. The inflation linkage is the
increase in the portfolio weighted average discount rate.
In the first half of 2017, a cash dividend was paid to INPP
shareholders totalling GBP33.8 million.
The NAV Return of GBP48.0 million captured the impact from the
following:
- Unwinding of the discount factor - the movement of the
valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received
above the forecast amount due to active management of the Company's
portfolio, including negotiating and optimising investment cash
flows to ensure cash can be extracted from the underlying
investments earlier than forecast and optimising utilisation of
Group tax loss relief
- Updated cash flow forecasts - updated operating assumptions to
reflect current expectations of future cash flows
- Movements in the Company's working capital position
INVESTMENT VALUATION
PROJECTED FUTURE CASH FLOWS
The Company's investments are expected to continue to exhibit
predictable cash flows. As the Company has a large degree of
visibility over the forecast cash flows of its current investments,
the chart below sets out the Company's forecast investment receipts
from its current portfolio.
The majority of the forecast investment receipts are in the form
of dividends or interest, and principal payments from senior and
subordinated debt investments.
The Company's portfolio comprises both investments with finite
lives (determined by concession or licence terms) and perpetual
investments (including, for example ownership interests in
regulated trading companies).
Over the life of concession-based investments, the Company's
receipts from these investments represent a return of capital as
well as income. The fair value of the Company's concession-based
investments is expected to reduce to zero over time.
INPP Projected Cash Flow
[Chart can be found in PDF version of this document on the
Company's website.]
Note: There are many factors that may influence the actual
achievement of long-term cash flows to the Company. These include
both internal as well as external factors and investors should not
treat the chart above as being more than an indicative profile and
not a projection, estimate or profit forecast. The actual achieved
profile will almost certainly be different and may be higher or
lower than indicated. No new investments other than those committed
as at 30 June 2017 have been included.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
PORTFOLIO PERFORMANCE AND RETURN
The valuation of the Company's investment portfolio is
determined by the Board, with the benefit of advice from the
Investment Adviser and is considered quarterly for approval by the
Company's Directors. Investments at fair value as at 30 June 2017
were GBP1,864.9 million, an increase of 23.1% since 31 December
2016 (GBP1,515.2 million).
Investments at Fair Value Movements
[Chart can be found in PDF version of this document on the
Company's website.]
1 The Portfolio Return represents, amongst other things, (i)
variances in both realised and forecast investment cash flows and
(ii) the unwinding of the discount factor applied to those future
investment cash flows.
2 Represents movements in the forward rates used to translate
forecast non-GBP investment receipts and the spot rates used to
translate non-GBP cash balances.
The Portfolio Return of GBP69.4 million represents a 3.9%
increase in the rebased Investments at Fair Value and can be
attributed to:
- Unwinding of the discount factor - the movement of the
valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received
above the forecast amount due to active management of the Company's
portfolio, including negotiating and optimising investment cash
flows to ensure cash can be extracted from the underlying
investments earlier than forecast and optimising utilisation of
Group tax loss relief
- Updated cash flow forecasts - updated operating assumptions to
reflect current expectations of future cash flows
In addition, there was:
- An increase of GBP323.8 million in the Investments held at
Fair Value owing to new investments that were made during the
period
- An increase of GBP1.4 million reflecting funds advanced to
facilitate the Gold Coast Light Rail investment immediately
following the balance sheet date
- A decrease of GBP55.0 million due to investment cash flows
that were paid out of the portfolio
- A net decrease in the discount rates across jurisdictions in
which the Company invests, leading to a GBP5.2 million increase in
the fair value of investments
- A net increase of GBP4.9 million due to foreign exchange rate
movements in all four currencies the Company has exposure to
MACROECONOMIC ASSUMPTIONS
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis and, following a thorough market
assessment during the period, certain adjustments have been made to
some of the assumptions used to derive the Company's portfolio
valuation.
The key assumptions used as the basis for deriving the Company's
portfolio valuation are summarised below with further details
provided in note 10. Across the portfolio, the weighted average
long-term inflation assumption as at 30 June 2017 was 2.61% (31
December 2016: 2.58%) and the weighted average deposit rate
assumption was 2.06% (31 December 2016: 2.07%). The Net Asset
Valuation Section above provides further details on the impact of
these assumptions on the valuation during the period.
VARIABLE BASIS 30 JUNE 2017 31 DECEMBER
2016
Inflation U.K. 2.75% 2.75%
Australia 2.50% 2.50%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
U.S.(2) N/A N/A
Long-term Deposit U.K. 2.00% 2.00%
Rates(1)
Australia 3.00% 3.00%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
U.S.(2) N/A N/A
Foreign Exchange GBP/AUD 1.81 1.86
GBP/CAD 1.74 1.71
GBP/EUR 1.09 1.12
GBP/USD 1.36 1.30
Tax Rate U.K. 17.00%-19.00% 17.00%-20.00%
Australia 30.00% 30.00%
Europe Various (12.50%-33.99%) Various (12.50%-33.99%)
Canada Various (26.50%-27.00%) Various (26.50%-27.00%)
U.S.(2) N/A N/A
1 The portfolio valuation assumes actual current deposit rates
are maintained until 31 December 2019 before adjusting to the
long-term rates noted in the table above.2 The Company's U.S
investments are in the form of subordinated debt and therefore not
directly impacted by inflation, deposit and tax rate
assumptions.
DISCOUNT RATES
The discount rate used to value each investment comprises the
appropriate long-term government bond yield plus an
investment-specific risk premium. The risk premiums take into
account the perceived risks and opportunities associated with each
investment.
The majority of the Company's portfolio (89.9%) is comprised of
investments where the Company only holds the Risk Capital in the
underlying investments. The remaining portfolio (10.1%) is
comprised of investments where the Company holds both the Risk
Capital and the senior debt or the senior debt has been fully
repaid. In order to provide investors with a greater level of
transparency, the Company publishes both a Risk Capital weighted
average discount rate and a portfolio-weighted average discount
rate, which captures the discount rates of all investments
including the senior debt interests.
The weighted average discount rates are presented in the table
below. These rates need to be considered against the assumptions
and projections upon which the Company's forecast cash flows are
based.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
METRIC 30 JUNE 31 DECEMBER 30 JUNE MOVEMENT
2017 2016 2016 31 DECEMBER
2016 -
30 JUNE
2017
Weighted Average Government
Bond Rate (Nominal)
- Risk Capital and senior
debt 1.74% 1.55% 2.00% 0.19%
Weighted Average Investment
Premium over Government
Bond Rate - Risk Capital
and senior debt (Nominal) 5.72% 5.82% 5.37% (0.10)%
Weighted Average Discount
rate - Risk Capital
and senior debt 7.46% 7.37% 7.37% 0.09%
Weighted Average Discount
rate - Risk Capital
only(1) 7.86% 7.90% 7.88% (0.04)%
Weighted Average Discount 5.92%-11.66% 6.02%-17.80% 5.91%-14.23%(2) (0.10)%-(6.14)%
Rate Range - Risk Capital
only(2)
NAV per share 144.7p 142.2p 138.2p 2.5p
1 Risk Capital includes both equity and subordinated debt investments.
2 The reduction in the upper end of the discount rate range from
17.80% to 11.66% between 31 December 2016 and 30 June 2017 reflects
the fact that the forecast cash flows used to value INPP's
investment in Bootle now assume that the Authority exercises its
option to end the concession in 2020. Bootle is a UK PFI project
representing less than 0.4% of INPP's 30 June 2017 NAV.
For accurate comparison to peer group valuations, these rates
need to be considered against the assumptions and projections upon
which a company's anticipated cash flows are based.
In the Company's view, comparisons of average discount rates
between competitor investment portfolios or funds are only
meaningful if there is a comparable level of confidence in the
quality of forecast cash flows (and assumptions) the rates are
applied to; the risk and return characteristics of different
investment portfolios are understood; and the depth and quality of
asset management employed to manage risk and deliver expected
returns are identical across the compared portfolios. As such,
assumptions are unlikely to be homogenous, and any focus on average
discount rates without an assessment of these and other factors
would be incomplete and could therefore derive misleading
conclusions. For transparency and to aid comparability, the
Company's approach to such cash flows is set out below.
PORTFOLIO LEVEL CASH FLOW ASSUMPTIONS UNDERLYING NAV
CALCULATION
The Company is aware that there are subtle differences in
approach to the valuation of portfolios of investments among
different infrastructure funds. INPP regards its key cash flow and
broad valuation assumptions and principles as:
- Key macroeconomic variables (outlined in the section above) continue to be applicable
- Concession contracts under which payments are made to the
Company and its subsidiaries remain on track and are not terminated
before their contractual expiry date
- Any deductions suffered under such contracts are fully passed down to subcontractors
- Lifecycle costs/risks are either not borne by the Company and
are passed down to a third party such as a facilities management
contractor or where borne by the Company are incurred per current
expectations
- Cash flows from and to the Company's subsidiaries and the
infrastructure asset-owning entities in which it has invested will
be made and are received at the times anticipated
- Where assets are in construction they are either completed on
time or any costs of delay are borne by the contractors not the
Company
- Where the operating costs of the Company or the infrastructure
asset-owning entities in which it has invested are fixed by
contracts, such contracts are performed, and where such costs are
not fixed, that they remain within projected budgets
- Where the Company or the infrastructure asset-owning entities
in which it has invested owns the residual property value in an
asset, that the projected amount for this value is realised
- Foreign exchange rates remain consistent with 30 June 2017
four-year forward rates (set out in the section above)
- Hedging only applies in relation to short-term forecast cash flows, not NAV valuation
- There are no tax or regulatory changes in the future which
negatively impact cash flow forecasts
- Perpetual investments are assumed to have a finite life and
therefore residual/terminal value
SENSITIVITIES FOR KEY MACROECONOMIC ASSUMPTIONS AND DISCOUNT
RATES
The Company's NAV is based on the factors outlined above. The
Company has also provided sensitivity analysis showing an
indication of the impact on NAV per share from changes in
macroeconomic assumptions and discount rates, as set out below.
Further details can be found in note 10. This analysis is provided
as an indication of the likely impact of these variables on the NAV
per share on the basis that they apply uniformly across the
portfolio whereas in practice the impact is unlikely to be uniform.
These sensitivities should be used only for general guidance and
not as accurate predictors of outcomes.
IMPACT OF CHANGES IN KEY MACROECONOMIC VARIABLES TO 30 JUNE 2017
NAV 144.7P PER SHARE
[Chart can be found in PDF version of this document on the
Company's website.]
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INFLATION
Forecasting the impact of possible future inflation/deflation on
projected returns and NAV in isolation cannot be relied on as an
accurate guide to the future performance of the Company as actual
inflation is unlikely to follow any of these scenarios exactly and
invariably, many other factors and variables will combine to
determine what actual future returns are available. The analysis
provided above should therefore be treated as being indicative only
and not as providing any form of profit or dividend forecast.
FOREIGN EXCHANGE
The Company has a geographically diverse portfolio and therefore
revenues are subject to foreign exchange rate risk. The impact of a
10% increase or decrease in these rates is provided for
illustration. The Company does not hedge exposure to foreign
exchange rate risk on long-term cash flows and therefore changes in
NAV are to be expected from changes in the foreign exchange forward
curve against Euros, Australian Dollars, Canadian Dollars and U.S.
Dollars.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across
the portfolio is 2.06% per annum. While operating cash balances
tend to be low given the structured nature of the investments,
project finance structures typically include reserve accounts to
mitigate certain costs and therefore variations to deposit rates
may impact the portfolio. The impact of a 1% increase or decrease
in these rates is provided for illustration.
TAX RATES
The Company has a geographically diverse portfolio and therefore
post-tax investment cash inflows are impacted by tax rates across
all relevant jurisdictions. The impact of a 1% increase or decrease
in these rates is provided for illustration. Other potential tax
changes are not covered by this scenario.
PROJECT LIFECYCLE SP
Over a project's lifecycle there is a process of renewal
required to keep the physical asset fit for use and at the standard
required of it under the agreement with the occupying public sector
body. The proportion of total cost that is lifecycle spend will
depend on the nature of the asset although typically the Company's
investors are insulated from downside risks associated with
lifecycle costs and, as can be seen in the chart of page 26, the
impact of any changes to the Company's lifecycle cost profile is
relatively small.
FUTURE GROUP TAX LOSS RELIEF
Under current U.K. group tax loss relief rules, losses within
the U.K. group companies can be, subject to U.K. tax law, offset
against taxable profits in other U.K. group companies (including
controlled project entities). This group tax loss relief can reduce
the overall tax charge across the portfolio and potentially reduce
taxable profits substantially below the levels currently modelled
by the Company. The Company has taken a conservative approach to
the valuation of future tax losses and, to date, has not
incorporated these into the NAV. Changes to U.K. tax loss relief
rules are expected to be enacted in the second half of 2017
(effective from April 2017), however, these are not expected to a
have a significant impact on the portfolio valuation.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the
Group through continual review, policy setting and enforcement of
contractual obligations. It also regularly monitors the investment
environment and the management of the Group's portfolio.
The Group's approach to risk is set out in the Risk Report of
the 31 December 2016 Annual Report and Financial Statements (pages
30-39), the Risk Report includes an overview of the principle risks
and their mitigation. Risk Factors are also detailed further in the
Company's last Prospectus (the Placing, Open Offer and Offer for
Subscription and Placing Programme Prospectus published on 12 April
2017). These risks and uncertainties are expected to remain
relevant to the Group for the next six months of its financial year
and include (but are not limited to):
- Inflation risk - Revenues and expenditures of project entities
with respect to infrastructure assets are generally partially or
wholly subject to indexation and an assumption is made that
inflation will increase at a long-term rate. The Group's ability to
meet targets may be adversely or positively impacted by
inflation
- Foreign exchange risk - The Group has exposures to foreign
currencies and therefore exposure to exchange rate fluctuations
- Credit and counterparty risks - The risk that a counterparty
will default on its contractual obligations resulting in financial
loss to the Group
- Liquidity risk - The ability to successfully access suitable
financial resources in the debt, equity and related financial
markets
- Contract risk - The ability of counterparties to operate
contracts to the detriment of the Group and the risk of default
under contract whether by the Group, its subsidiaries or it or
their counterparties
- Other external risks - Includes the political and regulatory
risks (including tax and accounting policies and practices)
associated with the Group and its projects; IT and cyber risks; and
changes in the competitive environment which may have an adverse
impact on the Group.
The Board considers and reviews the risks that the Group is
exposed to on a regular basis.
By order of the Board
Rupert Dorey John Whittle
Chairman Senior Independent Director
6 September 2017 6 September 2017
BOARD OF DIRECTORS
The table below details all Directors of the Company as at 30
June 2017. As discussed in the Chairman's Letter on page 7, Ms
Julia Bond was appointed to the Board on 1 September 2017.
BACKGROUND AND EXPERIENCE
Rupert John Whittle(1) John Le John Stares(1) Claire Giles Frost
Dorey(1) Senior Poidevin(1) Chairman, Whittet(1)
Chairman Independent Risk Sub-Committee Chairman,
Chairman, Director Chairman, Management
Investment Chairman, Nomination Engagement
Committee Audit and and Remuneration Committee
Risk Committee Committee
Aged 57 Aged 61, Aged 47, Aged 66 Aged 62 Aged 54
and a resident John is and a resident and a resident and a resident resident
of Guernsey, a resident of Guernsey, of Guernsey of Guernsey, in the
Rupert of Guernsey. John has since 2001, Claire United
has over John is over 25 John has has nearly Kingdom
30 years a Chartered years of over 40 40 years' and Giles
of experience Accountant business years' experience is a founder
in financial and holds experience. experience. in the and Director
markets, the Institute John is Before banking of Amber
including of Directors a Fellow moving industry. and has
17 years Diploma of the to Guernsey, In 2003, worked
at CSFB in Company Institute John worked Claire in the
where he Direction. of Chartered for 23 joined infrastructure
specialised John holds Accountants years as Rothschild investments
in credit-related non-executive in England a management Bank International sector
products. positions and Wales consultant Limited for over
Rupert's on a number and a former with Accenture as a director 20 years.
expertise of other partner where he and was Giles qualified
was principally boards. of BDO held a latterly, as a solicitor
in the John was LLP, where wide variety managing and partner
areas of previously as Head of leadership director in the
debt distribution, Finance of Consumer roles. and co-head law firm
origination Director Markets, He currently until May Wilde Sapte
and trading, of Close he developed holds 2016 when (now Dentons).
where he Fund Services, an extensive non-executive she became Giles is
held a a large breadth positions a non-executive a Director
number independent of experience on the director of Amber
of senior administrator. and knowledge boards of the Infrastructure
positions Prior to across of several bank. Claire Group Holdings
at CSFB, moving the leisure other companies. was previously Ltd, the
including to Guernsey, and retail John is with Bank ultimate
Fixed Income John was sectors a Fellow of Scotland holding
Credit at Price in the of the and was company
product Waterhouse U.K. and Institute then Global of the
coordinator in London overseas. of Chartered Head of Investment
for European before John is Accountants Private Adviser
offices embarking a non-executive in England Client to the
and head on a career director and Wales, Credit Company
of U.K. in business on several a member at Bank and various
Credit services, plc boards of the of Bermuda. of its
and Rates predominantly and chairs Worshipful Claire subsidiaries.
Sales. telecoms. a number Company is a non-executive
Since 2005 of Audit of Management Director
Rupert Committees. Consultants, of another
has been and a Freeman five listed
a non-executive of the funds,
director City of is a member
for a number London. of the
of Hedge Chartered
Funds, Institute
Private of Bankers
Equity in Scotland,
& Infrastructure a member
Funds. of the
He is a Chartered
member Insurance
of the Institute,
Institute a Chartered
of Directors. Banker,
a member
of the
Institute
of Directors
and holds
the Institute
of Directors
Diploma
in Company
Direction.
DATE OF APPOINTMENT
2 August 6 August 1 January 28 August 10 September 2 August
2006 2009 2016 2013 2012 2006
1 All of the Independent Directors are members of all
Committees.
1 All of the Independent Directors are members of all
Committees.
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS
Rupert John Whittle John Le John Stares Claire Giles Frost
Dorey Aberdeen Poidevin JT Group Whittet Giles is
AP Alternative Frontier BH Macro (Chairman) BH Macro also a
Assets Markets Ltd Terra Firma Ltd Director
LP, AAA Investment Safecharge (Guernsey-based Eurocastle of a number
Guernsey Company International entities) Investment of the
Ltd. Ltd Group Ltd Governor Ltd Company's
Cinven Globalworth Specialist of More Riverstone subsidiary
Capital Real Estate Investment House School Energy and investment
Management Investments Properties New Philanthropy Ltd holding
IV, V, Ltd Plc Capital Third Point entities
VI Ltd, GLI Finance Stride (Trustee) Offshore and of
Cinven Ltd Gaming Investors other entities
General India Capital plc Ltd in which
Partner Growth TwentyFour the Company
Ltd. Fund Ltd Select has an
NB Global Starwood Monthly investment.
Floating European Income He does
Rate Income Real Estate Fund Ltd not receive
Fund Ltd Finance Directors'
M&G General Ltd fees from
Partner Toro Ltd such roles
Inc, Episode for the
LLP & Episode Company.
Inc.
Partners
Group Global
Opportunities
Ltd
Tetragon
Financial
Group Ltd
/Tetragon
Financial
Group Master
Fund Ltd
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the half year
Financial Report in accordance with applicable law and regulations.
The Directors confirm to the best of their knowledge:
a) The condensed set of financial statements have been prepared
in accordance with IAS 34 'Interim Financial Reporting';
b) The interim financial and operating review includes a fair
review of the information required by DTR 4.2.7R (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year); and
c) The interim financial and operating review includes a fair
review of the information required by DTR 4.2.8R (disclosure of
related parties' transactions and changes therein).
By order of the Board
Rupert Dorey John Whittle
6 September 2017 6 September 2017
Chairman Director
INDEPENT REVIEW REPORT TO INTERNATIONAL PUBLIC PARTNERSHIPS
LIMITED
INTRODUCTION
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly Financial Report for the
six months ended 30 June 2017 which comprises the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Equity, the Condensed
Consolidated Balance Sheet, the Condensed Consolidated Cash Flow
Statement and the related Notes 1 to 18. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
DIRECTORS' RESPONSIBILITIES
The half-yearly Financial Report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly Financial Report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 1, the Annual Financial Statements of the
Company are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly Financial Report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the Half-yearly
Financial Report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly Financial Report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey
6 September 2017
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
SIX MONTHSED 30 JUNE 2017
Notes Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Interest income 4 33,752 26,041
Dividend income 4 10,294 4,832
Net change in investments
at fair value through profit
or loss 4 31,023 93,669
Total investment income 75,069 124,542
Other operating expense 5 (45) (4,264)
Total income 75,024 120,278
Management costs 16 (9,683) (7,439)
Administrative costs (851) (538)
6,
Transaction costs 16 (4,735) (844)
Directors' fees (157) (134)
Total expenses (15,426) (8,955)
Profit before finance costs
and tax 59,598 111,323
Finance costs 7 (2,526) (1,748)
Profit before tax 57,072 109,575
Tax credit 8 1,103 818
Profit for the period 58,175 110,393
Earnings per share
From continuing operations
Basic and diluted (pence) 9 4.89 11.14
All results are from continuing operations in the period.
All income is attributable to the equity holders of the parent.
There are no non-controlling interests within the Consolidated
Group.
There are no other Comprehensive Income items in the current
period (June 2016: nil). The profit for the period represents the
Total Comprehensive Income for the period.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
SIX MONTHSED 30 JUNE 2017
Notes Share Other Retained Total
Capital Distributable Earnings
Reserve
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2016 1,029,387 182,481 391,785 1,603,653
Total comprehensive
income - - 58,175 58,175
Issue of Ordinary
shares 14 333,657 - - 333,657
Issue costs applied
to new shares 14 (4,923) - - (4,923)
Distributions in
the period 14 - - (37,487) (37,487)
Balance at 30 June
2017 1,358,121 182,481 412,473 1,953,075
SIX MONTHSED 30 JUNE 2016
Share Other Retained Total
Capital Distributable Earnings
Reserve
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2015 825,362 182,481 282,359 1,290,202
Total comprehensive
income - - 110,393 110,393
Issue of Ordinary
shares 2,775 - - 2,775
Issue costs applied - - - -
to new shares
Distributions in
the period - - (31,948) (31,948)
Balance at 30 June
2016 828,137 182,481 360,804 1,371,422
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 30 JUNE 2017
Notes 30 June 31 December
2017 2016
GBP'000s GBP'000s
Non-current assets
Investments at fair value
through profit or loss 10 1,864,843 1,515,163
Total non-current assets 1,864,843 1,515,163
Current assets
Trade and other receivables 10,12 27,800 32,506
Cash and cash equivalents 10 71,628 70,981
Total current assets 99,428 103,487
Total assets 1,964,271 1,618,650
Current liabilities
Trade and other payables 10,13 7,888 10,370
Derivative financial
instruments 10 3,308 4,627
Total current liabilities 11,196 14,997
Total liabilities 11,196 14,997
Net assets 1,953,075 1,603,653
Equity
Share capital 14 1,358,121 1,029,387
Other distributable reserve 14 182,481 182,481
Retained earnings 14 412,473 391,785
Equity attributable to
equity holders of the
parent 1,953,075 1,603,653
Net assets per share
(pence per share) 15 144.7 142.2
The financial statements were approved by the Board of Directors
on 6 September 2017.
They were signed on its behalf by:
Rupert Dorey - John Whittle
Chairman - Director
6 September 2017
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
SIX MONTHSED 30 JUNE 2017
Notes Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Profit from operating activities
before tax 57,072 109,575
Adjusted for:
Gain on investments at fair value
through profit or loss 4 (31,023) (93,669)
Unrealised exchange gain (11) (596)
Finance costs 7 2,526 1,748
Fair value movement on derivative 5,
financial instruments 10 (1,319) 5,086
Working capital adjustments
Decrease / (increase) in receivables 3,072 (1,661)
(Decrease) / increase in payables (2,581) 263
27,736 20,746
Income tax received / (paid)(1) 2,632 (54)
Net cash flow from operations(2) 30,368 20,692
Investing activities
Acquisition of investments at
fair value through profit or
loss 11 (323,768) (56,162)
Funds advanced to affiliated
entities(3) (1,405) (17,849)
Net repayments from investments
at fair value through profit
or loss 6,516 16,393
Net cash flow from investing
activities (318,657) (57,618)
Financing activities
Proceeds from issue of shares 325,176 -
net of issue costs
Dividends paid 14 (33,829) (29,173)
Finance costs paid (2,343) (1,225)
Net loan repayments - 23,655
Net cash flow from financing
activities 289,004 (6,743)
Net increase / (decrease) in
cash and cash equivalents 715 (43,669)
Cash and cash equivalents at
beginning of period 70,981 72,391
Exchange (loss) / gain on cash
and cash equivalents (68) 453
Cash and cash equivalents at
end of period(4) 71,628 29,175
1 Cash flows received from unconsolidated subsidiary entities in
respect of surrender of tax losses.
2 Net cash flows from operations above are reconciled to
operating cash flows as shown in the Finance and Operating Review
on page 18.
3 Funds advanced to affiliated entities to facilitate an
investment immediately following the balance sheet date.
4 Includes restricted cash of GBP43.6 million (June 2016:
GBPnil) which can only be utilised for new investments.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHSED 30 JUNE 2017
1. BASIS OF PREPARATION
International Public Partnerships Limited is a closed ended
authorised investment company incorporated in Guernsey under the
Companies (Guernsey) Law, 2008. The address of the registered
office is given on the inside back cover. The nature of the Group's
('Parent and consolidated subsidiary entities') operations and its
principal activities are set out on pages 3 and 9 respectively.
These financial statements are presented in pounds Sterling as
this is the currency of the primary economic environment in which
the Group operates and represents the functional currency of the
Parent and all values are rounded to the nearest (GBP'000), except
where otherwise indicated.
The financial information for the year ended 31 December 2016
included in this Half-yearly Financial Report is derived from the
31 December 2016 Annual Report and Financial Statements and does
not constitute statutory accounts as defined in The Companies
(Guernsey) Law, 2008. The auditors reported on those accounts:
their report was unqualified, did not draw attention to any matters
by way of emphasis, and did not contain a statement under section
263 (2) and (3) of The Companies (Guernsey) Law, 2008.
ACCOUNTING POLICIES
The annual financial statements of International Public
Partnerships Limited are prepared in accordance with International
Financial Reporting Standards ('IFRS') as adopted by the European
Union. The set of condensed consolidated financial statements
included in this Half-yearly Financial Report have been prepared in
accordance with International Accounting Standard 34 - 'Interim
Financial Reporting' as adopted by the European Union and should be
read in conjunction with the consolidated financial statements for
the year ended 31 December 2016, as they provide an update of
previously reported information.
The same accounting policies, presentation and methods of
computation are followed in this set of condensed financial
statements as applied in the Group's latest annual audited
financial statements for the year ended 31 December 2016. The new
and revised IFRS and interpretations becoming effective in the
period have had no impact on the accounting policies of the
Group.
The Directors have determined that International Public
Partnerships Limited is an investment entity as defined by IFRS 10
on the basis that the Company:
a) obtains funds from one or more investor(s) for the purpose of
providing those investor(s) with investment management
services;
b) commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
c) measures and evaluates the performance of substantially all
of its investments on a fair value basis.
Accordingly, these condensed consolidated financial statements
consolidate only those subsidiaries that provide services relevant
to its investment activities, such as management services,
strategic advice and financial support to its investees, and that
are not themselves investment entities. Subsidiaries that do not
provide investment-related services are required to be measured at
fair value through profit or loss in accordance with IAS 39
Financial Instruments: Recognition and Measurement.
GOING CONCERN
The Directors have reviewed cash flow forecasts prepared by
management. Based on those forecasts and an assessment of the
Group's ('Parent and consolidated subsidiary entities') committed
banking facilities, they have concluded that it is appropriate to
prepare the financial statements of the Group on a going concern
basis.
In arriving at their conclusion that the Group has adequate
financial resources, the Directors were mindful that the Group had
unrestricted cash of GBP28.0 million as at 30 June 2017. Of the
Company's corporate debt facility of GBP400 million, GBP340.3
million was uncommitted as at 30 June 2017, and is available for
investment in new and existing projects until November 2019. In
addition, a portion of the facility can be utilised for working
capital purposes. The facility is forecast to continue in full
compliance with the associated banking covenants. The Company also
continues to fully cover operating costs and distributions from
underlying cash flows from investments.
2. Significant Judgements and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments,
the consolidated financial statements incorporate the financial
statements of the Company and service entities controlled by the
Company up to 30 June 2017, that themselves do not meet the
definition of an investment entity. Typically a service entity
provides management services, strategic advice and financial
support to investee entities. Judgement is therefore required in
assessing which entities meet these definitional requirements. The
Directors have reviewed and assessed the criteria applied in the
assessment of services entities based on the guidance in place as
at 30 June 2017 and are satisfied with the resulting
conclusion.
Fair valuation of investments at fair value through profit or
loss
Fair values are determined using the income approach which
discounts the expected cash flows at a rate appropriate to the risk
profile of each investment. In determining the discount rate,
relevant long-term government bond yields, specific investment
risks and evidence of recent transactions are considered. Details
of the valuation process and key sensitivities are provided in note
10.
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating
decision makers, the Group has identified four reportable segments
based on the geographical risk associated with the jurisdictions in
which the Group operates. The factors used to identify the Group's
reportable segments are centered on the risk free rates and the
maturity of the Infrastructure sector within each region. Further,
foreign exchange and political risk is identified, as these also
determine where resources are allocated. Management has concluded
that the Group is currently organised into four operating segments
being U.K., Europe (excl. U.K.), North America (incorporating U.S.
and Canada) and Australia.
Six months ended 30 June 2017
U.K. Europe North Australia Total
GBP'000s (Excl. America GBP'000s GBP'000s
U.K.) GBP'000s
GBP'000s
Segmental results
Dividend and
interest income 33,544 4,136 4,397 1,969 44,046
Fair value gain
on investments 11,460 13,466 126 5,971 31,023
Total investment
income 45,004 17,602 4,523 7,940 75,069
Reporting segment
profit(1) 28,156 17,802 4,388 7,829 58,175
Segmental financial
position
Investments at
fair value 1,402,692 260,731 100,583 100,837 1,864,843
Current assets 99,428 - - - 99,428
Total assets 1,502,120 260,731 100,583 100,837 1,964,271
Total liabilities (11,196) - - - (11,196)
Net assets 1,490,924 260,731 100,583 100,837 1,953,075
1 Reporting segment results are stated net of operational costs including management fees.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHSED 30 JUNE 2017
3. SEGMENTAL REPORTING (continued)
Six months ended 30 June 2016
U.K. Europe North Australia Total
GBP'000s (Excl. America GBP'000s GBP'000s
U.K.) GBP'000s
GBP'000s
Segmental results
Dividend and
interest income 22,191 3,396 3,053 2,233 30,873
Fair value gain
on investments 44,069 27,115 10,788 11,697 93,669
Total investment
income 66,260 30,511 13,841 13,930 124,542
Reporting segment
profit(1) 56,374 28,851 12,870 12,298 110,393
Segmental financial
position
Investments at
fair value 953,469 227,916 77,375 93,633 1,352,393
Current assets 54,428 - - - 54,428
Total assets 1,007,897 227,916 77,375 93,633 1,406,821
Total liabilities (35,399) - - - (35,399)
Net assets 972,498 227,916 77,375 93,633 1,371,422
1 Reporting segment results are stated net of operational costs including management fees.
Revenue from investments which individually represent more than
10% of the Group's interest and dividend income approximates GBP6.0
million (June 2016: GBP6.0 million).
4. Investment Income
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Interest income
Interest on investments 33,748 26,009
Interest on bank deposits 4 32
Total interest income 33,752 26,041
Dividend income 10,294 4,832
Net change in fair value of investments
at fair value through profit or
loss 31,023 93,669
Total investment income 75,069 124,542
Dividend and interest income includes that from transactions
with unconsolidated subsidiary entities. Changes in investments at
fair value through profit or loss are also recognised in relation
to the Group's investments in unconsolidated subsidiaries.
5. Other Operating Expense
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Fair value gain / (loss) on foreign
exchange contracts 1,319 (5,086)
Other (losses) / gains on foreign
exchange movements (1,364) 822
Total other operating expense (45) (4,264)
6. Transaction Costs
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Investment advisory costs 4,735 844
Total transaction costs 4,735 844
Details of total transaction costs paid are provided in note
16.
7. Finance Costs
Finance costs for the period were GBP2.5 million (June 2016:
GBP1.7 million). The Group has a corporate debt facility of GBP400
million provided by Royal Bank of Scotland, National Australia
Bank, Barclays Bank and Sumitomo Mitsui Banking Corporation
('SMBC'). The drawdowns in the period were in the form of cash
drawdowns and issuance of letters of credit. Cash drawdowns were
used to fund investments and the letter of credit drawdowns were
used to back the Group's commitment to specific future cash
investments.
Following an equity capital raise in May 2017, the outstanding
cash drawn balance on the facility was fully repaid. As at 30 June
2017, the facility was notionally drawn via letters of credit
supporting the Group's committed investments. The uncommitted
balance of the facility as at 30 June 2017 was GBP340.3 million
(June 2016: GBP116.9 million).
The interest rate margin on the corporate debt facility is 175
basis points over Libor. The loan facility matures in November 2019
and is secured over the assets of the Group.
8. Tax
Six months Six months
ended ended
30 June 2017 30 June
GBP'000s 2016
GBP'000s
Current tax:
U.K. corporation tax credit -
current period (1,316) (898)
Other overseas tax - current
period 213 80
Tax credit for the period (1,103) (818)
Reconciliation of effective tax rate
Six months Six months
ended ended
30 June 2017 30 June
GBP'000s 2016
GBP'000s
Profit before tax 57,072 109,575
Exempt tax status in Guernsey - -
Application of overseas tax rates 213 80
Group tax losses surrendered to
unconsolidated investee entities (1,316) (898)
Tax credit for the period (1,103) (818)
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHSED 30 JUNE 2017
8. tax (continued)
The income tax credit above does not represent the full tax
position of the entire group as the investment returns received by
the Company are net of tax payable at the underlying investee
entity level. As a consequence of the adoption of IFRS 10
investment entity consolidation exception, underlying investee
entity tax is not consolidated within these financial statements.
Total forecasted corporation tax payable by the Group's underlying
investments is in excess of GBP824 million over their full
concession lives.
9. Earnings Per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Earnings for the purposes of basic
and diluted earnings per share being
net profit attributable to equity
holders of the parent 58,175 110,393
Number Number
Weighted average number of Ordinary
shares for the purposes of basic and
diluted earnings per share 1,188,496,012 991,001,925
Basic and diluted (pence) 4.89 11.14
The denominator for the purposes of calculating both basic and
diluted earnings per share is the same as the Group has not issued
any share options or other instruments that would cause
dilution.
10. Financial Instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised when the contractual
rights to the cash flows from the instrument expire or the asset is
transferred and the transfer qualifies for derecognition in
accordance with IAS 39 'Financial Instruments: Recognition and
Measurement'. Financial liabilities are derecognised when the
obligation is discharged, cancelled or expired.
10.1 Financial assets
30 June 31 December
2017 2016
GBP'000s GBP'000s
Investments at fair value through profit
and loss(1) 1,864,843 1,515,163
Financial asset loans and receivables
Trade and other receivables 27,800 32,506
Cash and cash equivalents 71,628 70,981
Total financial assets 1,964,271 1,618,650
1 Includes fair value of investments in associates amounting to
GBP2.4 million (December 2016: GBP2.3 million). Movements in the
period represent additional fair value gains offset by net
repayments from investments.
10. FINANCIAL INSTRUMENTS (CONTINUED)
10.2 FINANCIAL LIABILITIES
30 June 31 December
2017 2016
GBP'000s GBP'000s
Financial liabilities at amortised
cost
Trade and other payables 7,888 10,370
Derivative financial instruments
Foreign exchange contracts 3,308 4,627
Total financial liabilities 11,196 14,997
10.3 FINANCIAL RISK MANAGEMENT
The Group's objective in managing risk is the protection of
shareholder value. Risk is inherent in the Group's activities and
is managed through a process of ongoing identification, measurement
and monitoring, subject to risk limits and other controls. The
process of risk management is critical to the Group's continuing
profitability. The Group is exposed to market risk (which includes
currency risk, interest rate risk and inflation risk), credit risk
and liquidity risk arising from the financial instruments it holds.
The Group's Investment Adviser is responsible for identifying and
controlling risks. The Board of Directors supervises the Investment
Adviser and is ultimately responsible for the overall risk
management of the Group.
The Group's risk management framework and approach is set out
within the Strategic Report of the Annual Report. The Board takes
into account market, credit and liquidity risks in forming the
Group's risk management strategy.
Market risk
Market risk is the risk that the fair value or future cash flows
of financial instruments will fluctuate due to changes in market
variables such as changes in inflation, foreign exchange rates and
interest rates.
Inflation risk
The majority of the Group's cash flows from underlying
investments are linked to inflation indices. Changes in inflation
rates can have a positive or negative impact on the Group's cash
flows from investments. The long-term inflation assumptions applied
in the Group's valuation of investments at fair value through
profit or loss are disclosed in the fair value hierarchy section
10.4.
The Group's portfolio of investments has been developed in
anticipation of continued inflation at or above the levels used in
the Group's valuation assumptions. Where inflation is at levels
below the assumed levels for a sustained period of time, investment
performance may be impaired. The level of inflation linkage across
the investments held by the Group varies and is not consistent.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows from underlying
investments therefore impacting the value of investments at fair
value through profit or loss. The Group has limited exposure to
interest rate risk as the underlying borrowings within the
unconsolidated investee entities are either hedged through interest
rate swap arrangements or are fixed rate loans. It is generally a
requirement under a PFI/PPP concession that any borrowings are
matched to the life of the concession. Hedging activities are
aligned with the period of the loan, which also mirrors the
concession period and are highly effective. For certain regulated
assets, the risk of adverse movements in interest rates is limited
through protections provided by the regulatory regime. The Group's
corporate debt facility is unhedged on the basis it is utilised as
an investment bridging facility and therefore drawn for a
relatively short period of time. Therefore, the Group is not
significantly exposed to cash flow risk due to changes in interest
rates over its variable rate borrowings.
Interest income on bank deposits held within underlying
investments is included within the fair value of investments.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHSED 30 JUNE 2017
10. FINANCIAL INSTRUMENTS (CONTINUED)
10.3 FINANCIAL RISK MANAGEMENT (CONTINUED)
Foreign currency risk
The Group undertakes certain transactions denominated in foreign
currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated
in a foreign currency other than the functional currency in which
they are measured. The Group uses forward foreign exchange
contracts to mitigate the risk of short-term volatility in foreign
exchange on significant investment returns from overseas
investments. The Group doesn't hedge its exposure to foreign
exchange in relation to foreign currency denominated investment
balances. The carrying amounts of the Group's foreign currency
denominated monetary financial instruments at the reporting date
are set out in the table below:
30 June 31 December
2017 2016
GBP'000s GBP'000s
Cash
Euro 1,003 791
Canadian Dollar 1,464 1,438
Australian Dollar 5 6
U.S. Dollar 5 3
2,477 2,238
Current receivables
Euro receivables 420 414
U.S. Dollar receivables 886 1,382
1,306 1,796
Investments at fair value through
profit or loss
Euro 260,731 247,388
Canadian Dollar 39,440 39,135
Australian Dollar 100,837 97,657
U.S. Dollar 61,143 61,586
462,151 445,766
Total 465,934 449,800
Sensitivity analysis showing the impact of variations of the
above risks on the fair value of investments is shown in section
10.5.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Group. The Group has adopted a policy of dealing with creditworthy
counterparties and reviewing this on a regular basis at the
underlying entity level. The majority of underlying investments are
in PFI/PPP and similar concessions which are entered into with
government, quasi government, other public or equivalent low risk
bodies. The maximum exposure of credit risk over financial assets
as a result of counterparty default is the carrying value of those
financial assets in the balance sheet.
Liquidity risk
Liquidity risk is defined as the risk that the Group would
encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or
another financial asset. The Group invests in relatively illiquid
investments (mainly non-listed equity and loans). As a closed-ended
investment vehicle there are no automatic capital redemption
rights. The Group manages liquidity risk by maintaining adequate
cash reserves, banking facilities and reserve borrowing facilities
and by continuously monitoring forecast and actual cash flows.
10. FINANCIAL INSTRUMENTS (CONTINUED)
10.3 FINANCIAL RISK MANAGEMENT (CONTINUED)
Cash flow forecasts assume full availability of underlying
infrastructure to the public sector entities. Failure to maintain
assets available for use or operating in accordance with
pre-determined performance standards may entitle the public sector
to stop (wholly or partially) paying which may impact the
investment income that the Group has projected to receive.
The Directors review the underlying performance of each
investment on a quarterly basis, allowing asset performance to be
monitored. Contractual mechanisms also allow for significant
pass-down of unavailability and performance risk to
sub-contractors.
10.4 FAIR VALUE HIERARCHY
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 - Quoted market prices in an active market (that are
unadjusted) for identical assets or liabilities
Level 2 - Valuation techniques (for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable)
Level 3 - Valuation techniques (for which the lowest level input
that is significant to the fair value measurement is
unobservable)
During the period there were no transfers between Level 2 and
Level 3 categories.
Level 1:
The Group has no financial instruments classified as level
1.
Level 2:
This category includes derivative financial instruments such as
interest rate swaps, RPI Swaps and currency forward contracts. As
at 30 June 2017, the Group's only derivative financial instruments
were currency forward contracts amounting to a liability of GBP3.3
million (December 2016: liability of GBP4.6 million).
Financial instruments classified as Level 2 have been valued
using models whose inputs are observable in an active market (spot
exchange rates, yield curves, interest rate curves).
Level 3:
This category consists of investments in equity and loan
instruments in underlying unconsolidated subsidiary entities and
other non-controlled investments which are classified at fair value
through profit or loss. At 30 June 2017, the fair value of
financial instruments classified within Level 3 totalled GBP1,864.8
million (December 2016: GBP1,515.2 million).
Financial instruments are classified within Level 3 if their
valuation incorporates significant inputs that are not based on
observable market data (unobservable inputs). A valuation input is
considered observable if it can be directly observed from
transactions in an active market, or if there is compelling
external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The
valuation of unlisted equity and debt investments is performed on a
quarterly1 basis by the Investment Adviser and reviewed by the
senior members of the Investment Adviser. The Investment Adviser
verifies the major inputs applied in the latest valuation by
agreeing the information in the valuation computation to relevant
project financial models and market information. In addition, the
accuracy of the computation is tested.
(1 Indicative valuations performed at 31 March and 30
September.)
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHSED 30 JUNE 2017
10. FINANCIAL INSTRUMENTS (CONTINUED)
10.4 FAIR VALUE HIERARCHY (CONTINUED)
Valuation process (continued)
The latest valuation is also compared with the valuations in the
preceding semi-annual and annual reporting periods. The senior
members of the Investment Adviser consider the appropriateness of
the valuation methods and inputs. On a quarterly basis, after the
checks above have been performed, the Investment Adviser presents
the valuation results to the Audit and Risk Committee. This
includes a discussion of the major assumptions used in the
valuations, with an emphasis on the more significant investments.
Any changes in valuation methods and assumptions are discussed and
agreed with the Group's Audit and Risk Committee for recommendation
to the Board.
In addition, any new investment acquisitions by the Group from
related parties are subject to an independent valuation provided to
the Board.
Valuation methodology
The valuation methodologies used are primarily based on
discounting the underlying investee entities' future projected net
cash flows at appropriate discount rates. Valuations are also
reviewed against recent market transactions for similar assets in
comparable markets observed by the Group or Investment Adviser and
adjusted where appropriate.
Cash flow forecasts for each underlying investment are generated
through detailed project specific financial models.
Financial models forecast the project related cash flows for the
full term of the investment. The cash flows included in the
forecasts used to determine fair value are typically fixed under
contracts however there are certain variable cash flows which are
based on management's estimation. These models also forecast the
dividend, shareholder loan interest payments, capital repayments
and senior debt repayments (where applicable) expected from the
underlying investments. Key macroeconomic inputs and assumptions
utilised in projecting the Group's net future cash flows
include:
U.K. Europe North America(1) Australia
(Excl.
U.K.)
Inflation 2.75% 2.00% 2.00% 2.50%
Long-term tax 17.00%-19.00% 12.50%-33.99% 26.50% -27.00% 30.00%
Foreign exchange
rates n/a 1.09 1.36-1.74 1.81
Long-term deposit
rates 2.00% 2.00% 2.00% 3.00%
(1 Foreign exchange rate assumptions for North America relate to
U.S and Canada. All other macroeconomic assumptions listed for
North America relate to Canada only.)
Discount rate
The discount rate used for valuation of each investment is the
aggregate of the following:
- Yield on government bonds with an average life equivalent to
(or as close as available to) the weighted average concession
length of the investments, issued by the national government for
the location of the relevant investments ('government bond
yield')
- A premium to reflect the inherent greater risk in investing in
infrastructure assets over government bonds
- A further premium to reflect the state of maturity of the
asset with a larger premium applied to immature assets and/or
assets in construction and/or to reflect any current asset specific
or operational issues. Typically this risk premium will reduce over
the life of any asset as an asset matures, its operating
performance becomes more established, and the risks associated with
its future cash flows decrease. However, the rate may increase in
relation to investments with unknown residual values at the end of
the relevant concession life as that date nears
- A further adjustment reflective of market-based transaction
valuation evidence for similar assets
10. FINANCIAL INSTRUMENTS (CONTINUED)
10.4 FAIR VALUE HIERARCHY (CONTINUED)
Discount rate (continued)
Over the period, the weighted average government bond yield
increased by 0.19%. This was partly offset by a 0.10% decrease in
the weighted average project premium reflecting observable market
based evidence.
Valuation assumptions 30 June 2017 31 December Movement
2016
Weighted Average Government
Bond Rate 1.74% 1.55% 0.19%
Weighted Average Project
Premium 5.72% 5.82% (0.10%)
Weighted Average Discount
Rate 7.46% 7.37% 0.09%
Weighted Average Discount
Rate on Risk Capital(1) 7.86% 7.90% (0.04%)
1 Weighted average discount rate on Risk Capital only (equity
and subordinated debt).
Reconciliation of Level 3 fair value measurements GBP'000s
of financial assets:
Balance at 1 January 2017 1,515,163
Additional investments during the period 323,768
Net repayments during the period (6,516)
Funds advanced to affiliated entities 1,405
Net change in fair value of investments
at fair value through profit or loss 31,023
Balance at 30 June 2017 1,864,843
10.5 SENSITIVITY ANALYSIS
The valuation requires management to make certain assumptions in
relation to unobservable inputs to the model, the significant
assumptions along with sensitivity analysis are provided below:
Significant Weighted Sensitivity Change Sensitivity Change
assumptions average factor in fair factor in fair
rate in value value
base case of investment of investment
valuations GBP'000s GBP'000s
Discount rate 7.46% +1.00% (190,333) -1.00% 229,325
Inflation
rate (overall) 2.61% +1.00% 214,724 -1.00% (181,023)
U.K. 2.75% +1.00% 160,818 -1.00% (134,944)
Europe 2.00% +1.00% 38,942 -1.00% (32,712)
North America 2.00% +1.00% 1,165 -1.00% (1,355)
Australia 2.50% +1.00% 13,799 -1.00% (12,012)
FX rate n/a +10.00% 48,362 -10.00% (48,368)
Tax rate 20.17% +1.00% (15,660) -1.00% 15,715
Deposit rate 2.06% +1.00% 22,577 -1.00% (18,410)
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHSED 30 JUNE 2017
11. INVESTMENTS
Date of Consideration % Ownership
investment Description GBP'000s post investment
============= ================================= ============== =================
The Group funded two further
March - tranches of investment in
June 2017 the Tideway project. 48,285 15.99%
The Group, as part of a
consortium, made an investment
31 March to acquire a share of 61%
2017 of Cadent. 273,947 4.40%
The Group made an investment
to acquire an additional
interest in the Wolverhampton
Building Schools for the
5 May 2017 Future project. 1,536 90.00%
============= ================================= ============== =================
Total capital spend on investments
during the period 323,768
================================================ ============== =================
12. TRADE AND OTHER RECEIVABLES
30 June 2017 31 December
GBP '000s 2016
GBP'000s
=================================== ============= =============
Accrued interest receivable 21,935 24,773
Other debtors 5,865 7,733
=================================== ============= =============
Total trade and other receivables 27,800 32,506
=================================== ============= =============
Other debtors included GBP4.7 million (December 2016: GBP6.2
million) of receivables from unconsolidated subsidiary entities for
the surrender of Group tax losses.
13. Trade and Other Payables
30 June 2017 31 December
GBP '000s 2016
GBP'000s
================================ ============= =============
Accrued management fee 6,315 8,668
Other creditors and accruals 1,573 1,702
================================ ============= =============
Total trade and other payables 7,888 10,370
================================ ============= =============
14. Share Capital and Reserves
30 June 31 December
2017 2016 Shares
Shares '000s
Share capital '000s
======================================== ========= =============
In issue 1 January 1,127,421 990,634
Issued for cash 220,000 132,792
Issued as a scrip dividend alternative 2,372 3,995
========================================= ========= =============
Closing balance 1,349,793 1,127,421
========================================= ========= =============
14. Share Capital and Reserves (continued)
30 June 31 December
2017 2016
Share capital GBP '000s GBP'000s
======================================== ========== ============
Opening balance 1,029,387 825,362
========================================= ========== ============
Issued for cash (excluding issue
costs) 330,000 200,000
Issued as a scrip dividend alternative 3,657 5,869
========================================= ========== ============
Total share capital issued in the
period 333,657 205,869
========================================= ========== ============
Costs on issue of Ordinary Shares (4,923) (1,844)
========================================= ========== ============
Closing balance 1,358,121 1,029,387
========================================= ========== ============
At present, the Company has one class of Ordinary Shares which
carry no right to fixed income.
On 11 May 2017, the Group raised an additional GBP330 million of
equity through a Placing, Open Offer and Offer for Subscription of
220,000,000 Ordinary Shares at an issue price per share of 150.0
pence.
On 7 June 2017, 2,372,322 new Ordinary fully paid shares were
issued as a scrip dividend alternative in lieu of cash for the
interim dividend in respect of the six months ended 31 December
2016.
30 June 31 December
2017 2016
Other distributable reserve GBP '000s GBP'000s
============================ ========== ============
Opening balance 182,481 182,481
Movement in the period - -
============================ ========== ============
Closing balance 182,481 182,481
============================ ========== ============
On 19 January 2007, the Company applied to the Royal Court of
Guernsey, following the initial placing of shares, to reduce its
share premium account. This was in order to provide a distributable
reserve to enable the Company to repurchase its shares if and when
the Board of Directors consider it beneficial to do so. Following
court approval, the distributable reserve account was created.
30 June 31 December
2017 2016
Retained earnings GBP '000s GBP'000s
========================== ========== ============
Opening balance 391,785 282,359
Net profit for the period 58,175 177,158
Dividends paid(1) (37,487) (67,732)
========================== ========== ============
Closing balance 412,473 391,785
========================== ========== ============
1 Includes scrip element of GBP3.7 million in 2017 (December 2016: GBP5.9 million).
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHSED 30 JUNE 2017
14. SHARE CAPITAL AND RESERVES (CONTINUED)
DISTRIBUTIONS
The Board is satisfied that, in every respect, the solvency test
as required by the Companies (Guernsey) Law, 2008, was satisfied
for the proposed dividend and the dividend paid in respect of the
year ended 31 December 2016. The Board has approved an interim
distribution of 3.41 pence per share (six months to June 2016:
3.325 pence per share).
CAPITAL RISK MANAGEMENT
The Group seeks to efficiently manage its financial resources to
ensure that it is able to continue as a going concern while
providing improved returns to shareholders through the management
of the debt and equity balances. The capital structure consists of
the Group's corporate debt facility and equity attributable to
equity holders of the parent, comprising issued capital, reserves
and retained earnings. The Group aims to deliver its objective by
investing available cash and using leverage whilst maintaining
sufficient liquidity to meet on-going expenses and dividend
payments.
The Group's Investment Adviser reviews the capital structure on
a semi-annual basis. As part of this review, the Investment Adviser
considers the cost of capital and the associated risks.
15. Net Assets per Share
30 June 31 December
2017 2016
GBP '000s GBP'000s
======================================= ============= =============
Net assets attributable to equity
holders of the parent 1,953,075 1,603,653
======================================== ============= =============
Number Number
======================================= ============= =============
Number of shares
Ordinary shares outstanding at the
end of the period 1,349,793,398 1,127,421,076
======================================== ============= =============
Net assets per share (pence per share) 144.7 142.2
======================================== ============= =============
16. Related Party Transactions
During the period, Group companies entered into certain
transactions with related parties that are not members of the Group
but are related parties by reason of being in the same group as
Amber Infrastructure Group Holdings Limited, which is the ultimate
holding company of the Investment Adviser, Amber Fund Management
Limited ('AFML'). Under the Investment Advisory Agreement ('IAA'),
AFML was appointed to provide investment advisory services to the
Group including advising the Group as to the strategic management
of its portfolio of investments.
16. RELATED PARTY TRANSACTIONS (CONTINUED)
AFML is a subsidiary company of Amber Infrastructure Group
Holdings Limited ('Amber Group'), in which Mr. G Frost is a
Director and also a substantial shareholder.
Mr. G Frost is also a Director of International Public
Partnerships Limited (the 'Company'); International Public
Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Group);
and the majority of other companies in which the Group indirectly
has an investment. The transactions with the Amber Group are
considered related party transactions under IAS 24 'Related Party
Disclosures'.
The Director's fees for Mr. G Frost's directorship of the
Company are paid to his employer, Amber Infrastructure Limited (a
member of the Amber Group).
The amounts of the transactions in the period that were related
party transactions are set out in the table below:
Amounts owing
Related party to related parties
expense in the in the Balance
Income Statement Sheet
==================== ========================
For the For the
six six
months months
to to At At
30 June 30 June 30 June 31 December
2017 2016 2017 2016
GBP'000s GBP'000s GBP'000s GBP'000s
========================== ========= ========= ========= =============
International Public
Partnerships GP Limited 9,683 7,439 6,315 8,668
Amber Fund Management
Limited(1) 4,735 844 409 311
========================== ========= ========= ========= =============
Total 14,418 8,283 6,724 8,979
========================== ========= ========= ========= =============
1 Represents amounts paid to related parties to acquire or make
investments or advisory fees associated with investments which are
subsequently recorded in the balance sheet.
INVESTMENT ADVISORY ARRANGEMENTS
Investment advisory fees / profit share payable during the
period are calculated as follows:
For existing construction assets:
-1.2% per annum of gross asset value of investments bearing
construction risk
For existing fully operational assets:
-1.2% per annum of the gross asset value ('GAV') excluding
uncommitted cash from capital raisings up to GBP750 million
-1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion
-0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) value exceeds GBP1.5 billion
Asset origination fees in connection with new acquisitions are
charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group's
assets are available for use for certain periods and the Investment
Adviser fails to implement a remediation plan agreed with the
Group. The IAA may also be terminated by either party giving to the
other five years notice of termination, expiring at any time after
ten years from the date of the IAA.
As at 30 June 2017, Amber Infrastructure held 8,002,379
(December 2016: 8,002,379) shares in the Company. The shares held
by the Investment Adviser's group in the Company helps further
strengthen the alignment of interests between the two parties.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
SIX MONTHS ENDED 30 JUNE 2017
16. RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions with directors
Shares acquired by Directors in the six month period ended 30
June 2017 are disclosed below:
Number of New
Director Ordinary Shares
================== =================
Rupert Dorey 129,000
Giles Frost 304,589
John Whittle 6,666
Claire Whittet 14,325
John Le Poidevin 32,000
================== =================
Total purchased 486,580
================== =================
During the period, Rupert Dorey also disposed of 129,000 shares
by way of a gift transfer for nil consideration.
17. CONTINGENT LIABILITIES AND COMMITMENTS
As at 30 June 2017, the Group had committed investments
supported by letter of credit amounting to GBP59.7 million which
were notionally drawn against the Group's corporate debt
facility.
At financial close of the Group's investment in Cadent in March
2017, INPP entered into an agreement as part of a consortium to
acquire a share of an additional 14% interest in Cadent, through a
put and call arrangement. This additional investment, subject to
the exercise of the option, is expected to reach financial close in
2019.
There were no contingent liabilities at the date of this
report.
18. EVENTS AFTER BALANCE SHEET DATE
In July 2017, the Group committed jointly with HM Government to
make an investment in digital infrastructure and particularly fibre
optic broadband connections. The INPP committed to invest up to
GBP45 million as part of the arrangement.
In the period since 30 June 2017, to the date of this report,
the Group invested amounts totalling c.GBP3.2 million into the Gold
Coast Light Rail - Phase 2 extension project, part of Group's
investment commitment to the project.
Contacts
Registered Office Investment Adviser Corporate Brokers
Heritage Hall Amber Fund Management Numis Securities
PO Box 225, Le Marchant Limited Limited
Street 3 More London The London Stock
St Peter Port Riverside Exchange Building
Guernsey London 10 Paternoster
Channel Islands SE1 2AQ Square
GY1 4HY London
EC4M 7LT
Administrator and
Company Secretary Legal Adviser Public Relations
Heritage International Carey Olsen FTI Consulting
Fund Managers Limited PO Box 98, Carey 200 Aldersgate
Heritage Hall House Aldersgate Street
PO Box 225, Le Marchant Les Banques London
Street Guernsey EC1A 4HD
St Peter Port Channel Islands
Guernsey GY1 4BZ
Channel Islands
GY1 4HY
Auditor Corporate Banker
Ernst & Young LLP Royal Bank of
Royal Chambers Scotland International
St Julian's Avenue 1 Glategny Esplanade
St Peter Port St Peter Port
Guernsey Guernsey
Channel Island Channel Islands
GY1 4AF GY1 4BQ
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GMGGLLVRGNZM
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