TIDMINPP
RNS Number : 4116T
International Public Partnerships
25 March 2021
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
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IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH
AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR
TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT
CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
25 March 2021
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
('INPP', 'the Company')
FULL YEAR RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 2020
OPERATIONAL HIGHLIGHTS
-- The Company had a successful year in 2020 particularly
against the wider backdrop of the global Covid-19 pandemic
-- The overall resilience of the portfolio has supported a 2.5%
full-year dividend increase to 7.36 pence per share. The Company's
Board is pleased to reaffirm its dividend target for 2021 of 7.55
pence per share, and to provide new guidance for 2022 of 7.74 pence
per share [i]
-- Throughout the pandemic the Company has continued to deliver
long-term benefits for all its stakeholders by investing in and
responsibly managing 130 public and social infrastructure assets
which deliver essential public services internationally
-- The pandemic has, to date, had only a limited impact on the
overall financial and operational performance of the Company.
However, there continues to be uncertainty relating to specific
assets in the portfolio including Tideway and the Northern Diabolo
Rail Link ('Diabolo') which have, respectively, ongoing
construction activities and revenues that are indirectly linked to
usage
-- Whilst contractual mitigants exist on both these assets and
these risks are being actively managed by the Investment Adviser,
the Company has adopted a cautious approach to these risks which
has contributed to a 1.7% decrease in the NAV to GBP2.38 billion
(December 2019: GBP2.43 billion). This represents a NAV per share
decrease of 2.3% to 147.1 pence per share (December 2019: 150.6
pence per share)
-- The Company completed GBP30 million in new investments during
2020 and has an investment pipeline consisting of projects where it
is preferred bidder, or equivalent, of c.GBP220 million, including
its tenth UK offshore energy transmission project ('OFTO')
-- The Company's Investment Adviser submitted its inaugural PRI
transparency report, obtaining an A+ ranking for both the strategy
and governance, and the infrastructure modules. The Company draws
on the Sustainable Development Goals ('SDGs') to help drive
environmental and social progress across its investments and has
resolved to align its reporting with the recommendations of the
Task Force on Climate-related Financial Disclosures ('TCFD')
FINANCIAL HIGHLIGHTS [ii]
-- NAV per share of 147.1 pence per share (31 December 2019: 150.6 pence per share)
-- Full-year dividend increase of 2.5% to 7.36 pence per share
(31 December 2019: 7.18 pence per share) supported by strong 2020
cash dividend cover of 1.2x [iii]
-- IFRS profit before tax of GBP60.8 million (31 December 2019:
137.8 million). The decrease in valuation for the period overall as
a result of the uncertainty caused by Covid-19 contributed to the
reduction in profit before tax compared to previous years
-- The Company's underlying revenues continue to be underpinned
by strong inflation-linkage with a projected increase in return of
0.78% p.a. for a 1.00% p.a. increase in inflation (31 December
2019: 0.82% p.a.) [iv]
-- Despite wider equity market volatility, the Company's shares
maintained a continued low correlation to the FTSE All Share Index
of 0.38 over the five years to 31 December 2020 (31 December 2019:
0.19) [v]
-- The Company will target full-year dividends for 2021 and 2022
of 7.55 and 7.74 pence per share, respectively(i)
OPERATIONAL UPDATE
-- Thames Tideway Tunnel, UK ('Tideway') | SDG 6, 9 & 11:
clean water and sanitation, industry, innovation and infrastructure
and making sustainable cities and communities
The tunnelling of a new "super sewer" beneath the Thames reached
60% completion during 2020, despite delays to the project's
construction timetable as a result of the first UK national
lockdown in March 2020, where only essential and safety-critical
works were carried out, as well as ongoing distancing requirements.
With appropriate processes and procedures in place to protect the
health and safety of workers and the wider community, construction
activities progressed over the period and the final tunnel boring
machine was launched in January 2021. In August 2020, Tideway
indicated that Covid-19 will cause the project cost to increase
from GBP3.9 billion to GBP4.1 billion and the completion date to be
delayed from June 2024 to March 2025. Existing contractual and
regulatory safeguards will help mitigate the financial impact on
investors (the Company is a 16% shareholder in Tideway) and Tideway
is in discussions with Ofwat, its regulator, regarding a package of
further mitigations. The Company has adopted a cautious approach by
reflecting the latest cost and schedule information within the 31
December 2020 valuation, including a prudent assessment of the
further mitigations.
-- Diabolo, Belgium | SDG 11: Making sustainable cities and communities
The Company's investment in Diabolo, a rail infrastructure
investment which integrates Brussels Airport with Belgium's
national rail network, runs until 2047. The majority of revenues
from Diabolo are linked to passenger use of either the rail link
itself or the wider Belgian rail network, and as a result of the
impact of the Covid-19 pandemic on international travel and
national lockdowns in Belgium, passenger numbers were significantly
lower over the course of 2020. Following proactive discussions with
the project's lenders and the Belgian state railway since the onset
of the pandemic, and as announced in December 2020, INPP committed
GBP9.1 million in December 2020 to protect Diabolo's liquidity
position and ensure its debt covenants will continue to be met. A
further GBP12.6 million in contingent funding was committed to
support the project's future liquidity position and ensure
compliance with debt covenants, noting that any unutilised funding
will be cancelled. To inform the 2020 valuation of Diabolo, the
Company commissioned advice from a specialist independent technical
adviser to help forecast future passenger numbers as lockdown
restrictions ease and international travel resumes. The Company has
continued to take a cautious approach to near-term uncertainty by
assuming that no distributions will be made by Diabolo until
2023.
-- Gas distribution, UK | SDG 7 & 9: affordable and clean energy, and industry, innovation and infrastructure
The Company's investment in the UK's largest gas distribution
network which serves 11 million customers is the Company's largest
asset by investment fair value. Cadent's revenues have remained
largely unaffected by Covid-19, but an increase in costs from
delays to planned works and new working protocols to accommodate
social distancing is likely. Separately, Cadent's management team
has engaged intensively with the UK energy regulator, Ofgem, to
ensure the best possible outcome for Cadent's customers and
investors for the next five-year regulatory period due to start in
April 2021 ('RIIO-2'). Following Ofgem's final determination for
Cadent in respect of RIIO-2 in December 2020, Cadent has sought an
independent review by the Competition and Markets Authority ('CMA')
as it believes this approach will best serve Cadent's customers'
interests. Notwithstanding the appeal's outcome due later in 2021,
the Company has sought to reflect the final determination issued by
Ofgem in its revised cash flow forecasts for Cadent.
INVESTMENT ACTIVITY
During 2020, the Company completed GBP30 million of additional
investments across the education, transport, and digital sectors;
all of which help generate long-term, inflation-linked returns by
growing the Company's dividend and creating potential for capital
appreciation.
-- Digital infrastructure, UK | SDG 9: industry, innovation and infrastructure
The need to reduce the digital divide has become acutely
apparent during 2020, with the pandemic highlighting the importance
of reliable digital connectivity across the UK. Of the Company's
initial GBP45 million commitment to the National Digital
Infrastructure Fund ('NDIF'), GBP37.3 million has now been drawn,
following GBP9.5 million of additional investment during 2020 in
three of NDIF's existing investments. The Company made two partial
realisations in two alternative network providers, Community Fibre
and Airband; the valuations reflected a positive return on the
Company's initial investment.
-- Schools, UK | SDG 4 & 9: Quality education, and industry, innovation and infrastructure
The Company invested GBP11.4 million in additional stakes in
three Building Schools for Future ('BSF') projects in Essex,
Bradford and Lewisham, and Blackburn and Darwen, respectively.
These availability-based investments are expected to be accretive
to the Company's returns and provide education facilities to over
23,000 pupils.
-- Energy transmission, UK | SDG 7 & 13: Affordable and clean energy, and climate action
The Company was appointed as preferred bidder on the East Anglia
One OFTO in December 2020 and expects to invest up to GBP90 million
in what is the Company's tenth such appointment in the UK offshore
transmission sector. The East Anglia One offshore wind farm is
located c.50km off the coast of Suffolk and has an installed
capacity of 714MW providing enough green energy to power over
630,000 homes.
ASSET STEWARDSHIP AND RESPONSIBLE INVESTMENT
The Company's portfolio of investments continues to deliver
sustainable non-financial benefits for all stakeholders. The
Investment Adviser and its c.135 staff have continued to work with
public sector counterparties to maintain the delivery of essential
public services and ensure strong ongoing asset performance. The
Company has delivered, among other things:
-- Asset availability of 99.7% and 0.1% asset performance deductions;
-- The repurposing of certain social infrastructure assets,
including schools, blue light facilities and other public
buildings, to support the wider community where these locations
would otherwise have been vacant due to the Covid-19 pandemic;
and
-- Over 1,100 commissioned contract variations on the Company's
PPP projects, resulting in a combined value of over GBP26 million
of additional project work to be completed on behalf of the
commissioning body.
The Company's Board has established a dedicated ESG Committee to
enhance its approach to managing ESG risks and opportunities. It
has also resolved to align with TCFD framework to facilitate the
tracking of the Company's carbon footprint to support its
consideration and disclosure of transition and physical risks of
climate change. The Company is pleased to report its Investment
Adviser achieved an A+ in the UN-backed PRI 2020 assessment for
both the strategy and governance and the infrastructure modules in
its first year of participation.
OUTLOOK
Since the outbreak of the Covid-19 pandemic at the beginning of
2020, there has been broad recognition of governments'
responsibility to ensure resilience against future threats, as well
as of the pivotal role that infrastructure will play in supporting
a sustainable economic recovery.
While the full consequences of the pandemic and its long-term
effects, both economic and social, remain unclear, the Company
believes its business model and investment objectives continues to
offer a significant degree of protection for investors.
The Company will continue to play its part in helping societies
and communities meet the challenges presented by the pandemic, by
ensuring assets and businesses remain as available and resilient as
possible. The Company is confident in a positive outlook for
private sector investment into public infrastructure to support the
post-Covid-19 recovery.
Mike Gerrard, Chair of International Public Partnerships, said:
"The high-quality, diverse nature of the Company's investment
portfolio has proven resilient against the headwinds our market is
facing as a result of the Covid-19 pandemic. Thanks to the
dedication of our Investment Adviser in actively managing these
implications, the Company has again met its full-year dividend
target and I am pleased to declare two-year dividend guidance(i)
which reaffirms the confidence we have in the Company's ability to
generate long-term, inflation-linked returns to our
shareholders.
2020 has proven how critical public infrastructure is in
delivering essential services to our economies and local
communities, and our strong pipeline of investment opportunities
coupled with our market-leading asset management expertise means
the Company will be a net beneficiary of what I hope will be a
stronger, greener economic recovery."
S.
A copy of the results presentation can be downloaded from the
Company's website:
www.internationalpublicpartnerships.com
NOTES TO EDITORS
Amber Infrastructure FTI Consulting
Erica Sibree / Amy Edwards Ed Berry / Mitch Barltrop
+44 (0)20 7939 0558 / 0587 +44 (0) 20 3727 1046 / 1039
About International Public Partnerships ('INPP'):
INPP is a listed infrastructure investment company that invests
in global public infrastructure projects and businesses, which
meets societal and environmental needs, both now, and into the
future.
INPP is a responsible, long-term investor in 130 infrastructure
projects and businesses. The portfolio consists of utility and
transmission, transport, education, health, justice and digital
infrastructure projects and businesses, in the UK, Europe,
Australia and North America. INPP seeks to provide its shareholders
with both a long-term yield and capital growth.
Amber Infrastructure Group ('Amber') is the Investment Adviser
to INPP and consists of approximately 135 staff who are responsible
for the management of, advice on and origination of infrastructure
investments.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
Important Information
This announcement contains information that is inside
information for the purposes of the Market Abuse Regulation (EU)
No. 596/2014.
This announcement is an advertisement. It does not constitute a
prospectus relating to the Company and does not constitute, or form
part of, any offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for, any shares
in the Company in any jurisdiction nor shall it, or any part of it,
or the fact of its distribution, form the basis of, or be relied on
in connection with or act as any inducement to enter into, any
contract therefor.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These forward-looking statements speak only as at the
date of this announcement. The Company, Amber and Numis Securities
expressly disclaim any obligation or undertaking to update or
revise any forward-looking statements contained herein to reflect
actual results or any change in the assumptions, conditions or
circumstances on which any such statements are based unless
required to do so by the Financial Services and Markets Act 2000,
the Prospectus Rules of the Financial Conduct Authority or other
applicable laws, regulations or rules.
-------------------------------------------------------------
[i] There can be no assurance that these targets will be met or
that the Company will make any distributions at all. Whilst we
generally have good forward-visibility of cash flows generated by
the Company's investments, the current Covid-19 pandemic creates
additional uncertainty.
[ii] For the full year ended 31 December 2020 unless otherwise
stated.
[iii] Cash dividend payments to investors are paid from net
operating cash flow before non-recurring operating costs.
[iv] Projected increase in portfolio return for a 1.00% p.a.
increase in the inflation rate assumed in the current valuation
analysis for each asset in the portfolio.
[v] Correlation (R) from Bloomberg - five years to 31 December
2020.
International Public Partnerships Limited
Annual Report and Financial Statements for the year ended 31
December 2020
Registered number: 45241
www.internationalpublicpartnerships.com
Note: Page references in this announcement refer to the full
formatted Annual Financial Report for the period ended 31 December
2020 that can be found on the Company's website. Certain charts
cannot be reproduced for the RNS format and can also be seen in the
PDF version of this document available on the Company's
website.
OUR PURPOSE
Our purpose is to deliver long-term benefits for all
stakeholders by investing responsibly in public and social
infrastructure.
We aim to provide our investors with long-term, inflation-linked
returns, by growing our dividend and creating the potential for
capital appreciation.
We support all our stakeholders through responsible investment
and active asset management, which meet societal and environmental
requirements both now and into the future.
COMPANY FACTS
- London Stock Exchange trading code: INPP.L
- International Public Partnerships Limited registered number: 45241
- Member of the FTSE 250 and FTSE All-Share indices
- GBP2.8 billion market capitalisation at 31 December 2020
- 1,621 million shares in issue at 31 December 2020
- Eligible for ISA/PEPs and SIPPs
- Guernsey incorporated company
- International Public Partnerships ('the Company', 'INPP', the
'Group' (where including consolidated entities)) 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
RESPONSIBLE INVESTMENTS
The Company is committed to responsible investment. Its
Investment Adviser, Amber Infrastructure Limited ('Amber') is a
signatory of the UN-backed Principles for Responsible Investment
('PRI'). The Company also draws on the Sustainable Development
Goals ('SDGs') to help drive environmental and social progress
across its investments and has resolved to align with the
recommendations of the Task Force on Climate-related Financial
Disclosures ('TCFD').
COVER IMAGE:
Thames Tideway Tunned, UK. Photo credit: Tideway
FULL-YEAR FINANCIAL HIGHLIGHTS
DIVIDS
7.36p - 2020 full-year dividend per share(1)
7.55p - 2021 full-year dividend target per share(2)
7.74p - 2022 full-year dividend target per share(2)
2.5% - 2020 divident growth(2)
1.2x - Cash dividend covered(3)
NET ASSET VALUE ('NAV') (4)
GBP2.4bn - NAV at 31 December 2020 (4) (2019: GBP2.4bn)
147.1p - NAV per share at 31 December 2020(4) (2019: 150.6p)
1.7 % - Decrease in NAV
2.3% - Decrease in NAV per share
PORTFOLIO ACTIVITY
GBP30.0m - Cash investments made during 2020
REAL RETURNS
0.78% - Portfolio inflation-linkage at 31 December 2020(5)
(2019: 0.82%)
TOTAL SHAREHOLDER RETURN ('TSR')
230.6% - TSR since Initial Public Offering ('IPO')(6)
8.8%p.a. - Annualised TSR since IPO(6)
PROFIT
GBP60.8m - Profit before tax (2019: GBP137.8m)
1 The forecast date for payment of the dividend relating to the
six months to 31 December 2020 is 4 June 2021.
2 There can be no assurance that these targets will be met or that the Company will make any distributions at all. Whilst we generally have good forward-visibility of cash flows generated by the Company's investments, the current Covid-19 pandemic creates additional uncertainty.
3 Cash dividend payments to investors are paid from net
operating cash flow before capital activity as detailed on pages 27
to 28.
4 The methodology used to determine the NAV is described in detail on pages 30 to 35.
5 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.
6 Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
COMPANY OVERVIEW
CONSISTENT AND GROWING RETURNS
INPP Dividend Payments
[Diagram can be found in PDF version of this document on the
Company's website].
PREDICTABLE portfolio performance
P rojected Investment Receipts
[Diagram can be found in PDF version of this document on the
Company's website].
Note: This chart is not intended to provide any future profit
forecast. Cash flows shown are projections based on the current
individual asset financial models and may vary in the future. Only
investments committed as at 31 December 2020 are included.
LOW RISK AND DIVERSIFIED PORTFOLIO
Sector Breakdown Energy Transmission 22%
--------------------- ----
Transport 19%
--------------------- ----
Education 19%
--------------------- ----
Gas Distribution 17%
--------------------- ----
Waste Water 9%
--------------------- ----
Health 4%
--------------------- ----
Courts 3%
--------------------- ----
Military Housing 3%
--------------------- ----
Other 4%
130 investments in infrastructure assets and businesses across a variety
of sectors(1)
Geographic Split UK 73%
----------- ----
Australia 9%
----------- ----
Belgium 8%
----------- ----
Germany 4%
----------- ----
US 3%
----------- ----
Canada 2%
----------- ----
Ireland 1%
----------- ----
Italy <1%
Invested in selected global regions that meet INPP's specific risk
and return requirements
Investment Type Risk Capital(2) 89%
----------------- ----
Senior Debt 11%
Invested across the capital structure, taking into account appropriate
risk-return profiles
Asset Ownership
100% 50%
--------- ----
50%-100% 5%
--------- ----
<50% 45%
Preference to hold majority stakes
Mode of Acquisition/Asset Status
Construction 9%
------------------------- ----
Operational 91%
------------------------- ----
Early Stage Investor(3) 68%
------------------------- ----
Later Stage Investor(4) 32%
Early stage investment gives first mover advantage maximises
capital growth opportunities
Investment Life
<20 years 56%
------------- ----
20-30 years 16%
------------- ----
>30 years 28%
Weighted average portfolio life of 32 years(5)
1. The majority of assets and busineeses benefit from
availability-based revenues.
2. Risk Capital includes both asset and business level equity
and subordinated shareholder debt.
3. 'Early Stage Investor' - assets developed or originated by
the Investment Adviser or predecessor team in primary or early
phase investments.
4. 'Later stage investor' - assets acquired from a third party
investor in the secondary market.
5. Includes non-concession entities which have potentially a
perpetual life but assumed to have finite lives for this
illustration.
International Public Partnerships invests in high-quality
infrastructure projects and businesses that are sustainable over
the long-term
We have a long-standing relationship with Amber, the Company's
Investment Adviser
Amber has sourced and managed the Company's investments since
IPO in 2006
- Amber is a specialist international infrastructure investment
manager and one of the largest independent teams in the sector with
approximately 135 employees working internationally. It is a
leading investment originator, asset and fund manager with a strong
track record
- Amber applies an active asset management approach to the
underlying investments to support sustainable performance
- The Company has first right of refusal over qualifying
infrastructure assets identified by Amber and within the US, by
Amber's long-term investor, US Group, Hunt Companies LLC
('Hunt')
[Diagram can be found in PDF version of this document on the
Company's website].
OUR STRENGTHS
- Long-term alignment of interests between the Company, Amber and other key suppliers
- Amber has physical presence in all of the major countries in
which we invest, which provides local insights and
relationships
- A vertically integrated model with direct relationships with public sector authorities
- Experienced team in all aspects of infrastructure development, investment and management
- Active approach to investment stewardship which is the cornerstone of successful investment
- Consideration and integration of material Environmental,
Social and Governance ('ESG') risks and opportunities
- Active engagement with all key stakeholders
- Strong independent Board with a diversity of experience and strong corporate governance
STRATEGIC REPORT
BUSINESS MODEL - DELIVERING long-term benefits
OUR PURPOSE
Our purpose is to deliver long-term benefits for all
stakeholders by investing responsibly in public and social
infrastructure.
We aim to provide our investors with long-term, inflation-linked
returns, by growing our dividend and creating the potential for
capital appreciation.
We support all our stakeholders through responsible investment
and active asset management, which meet societal and environmental
requirements both now and into the future.
what we do
INVEST
We seek new investments through our extensive relationships,
knowledge and insights to:
- Enhance long-term, inflation-linked cash flows
- Provide opportunities to create long-term value and enhance returns
- Ensure ESG is core to the investment process
ASSESS
The Company operates a rigorous framework of governance,
incorporating a streamlined screening, diligence and execution
process. This includes substantive input from the Company's
Investment Adviser and, as appropriate, external advisers, with the
Company's Board providing robust challenge and scrutiny
OPTIMISE
Using the Investment Adviser's highly experienced in-house asset
management team, we seek to actively manage the Company's
investments, balancing risk and return, and using detailed research
and analysis to optimise the Company's financial and ESG
performance
DELIVER
Together with our Investment Adviser's active asset management
of our investments, we aim to deliver strong ongoing asset
performance for stakeholders and achieve target returns from the
portfolio for investors
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
- We seek a portfolio of investments with no or low exposure to
market demand risks and for which financial, macroeconomic,
regulatory, ESG and country risks are well understood and
manageable
- The Investment Adviser has a strong investment team that
originates unique opportunities in line with the Company's
investment strategy
- We continually monitor opportunities to enhance the Company's existing investments
ACTIVE ASSET MANAGEMENT
- The Investment Adviser has an in-house asset management team
dedicated to managing the Company's investments
- Where possible, through the Investment Adviser, we manage the
day-to-day activities of each of our investments internally
- We carry out extensive monitoring, for example, asset level
board and management meetings occur on a quarterly basis
- The Company works with public sector clients, partners and
service providers to ensure investments are being managed both
responsibly and efficiently to deliver the required outputs
- We focus on project stewardship across the portfolio and
recognise the broader value created from our investments
efficient financial management
- Efficient financial management of investment cash flows and working capital
- Maintaining cash covered dividends
- Ensuring cost-effective operations
CONTINUOUS risk management
- Robust risk analysis during investment origination ensures strong portfolio development
- Integrated risk management throughout the investment cycle to support strategic objectives
- Ongoing risk assessment and mitigation supports successful ongoing asset performance
INVESTMENT STEWARDSHIP
- Fully integrating ESG considerations across the investment lifecycle
- Setting robust ESG objectives to build resilience and drive
environmental and social progress
- Upholding high standards of business integrity and governance
VALUE CREATION
investor returns
Continuing to deliver consistent financial returns for investors
through dividend growth and inflation-linkage from underlying cash
flows and providing opportunities for capital appreciation
PUBLIC SECTOR AND OTHER CLIENTS
Providing responsible investment in infrastructure to support
the delivery of essential public services. Our ability to deliver
services and maintain relationships with our clients and other key
stakeholders is vital for the long-term prosperity of each
investment
communities
Delivering sustainable social infrastructure for the benefit of
local communities. The Company's investments provide vital public
assets for their communities, and seek to provide additional
benefits through deploying investment in local economies, job
creation and by using investments to help strengthen
communities
SUPPLIERS AND THEIR EMPLOYEES
The performance of our service providers, supply chain and their
employees is crucial for the long-term success of our investments.
The Company promotes a progressive approach to:
- Corporate social responsibility
- Healthy, inclusive workplaces
- Opportunities for professional development
- Staff engagement
STRATEGIC REPORT
OBJECTIVES AND PERFORMANCE
The value we provide to our investors is monitored using our
Investor Return Key Performance Indicators ('KPIs'). The delivery
of value to both investors and our wider stakeholders is achieved
by carefully monitoring our performance against related strategic
priorities
INVESTOR RETURNS Delivering long-term, - Target an annual - 2.5% Annual dividend
inflation-linked dividend increase increase achieved
returns to investors of 2.5% (2019: 2.6%)
- Target a long-term - 7.7% p.a. IRR achieved
total return in excess since IPO(1)
of 7.0% per annum (2019: 8.0%)
- Inflation-linked - 0.78% Inflation-linked
returns on a portfolio returns on a portfolio
basis basis
(2019: 0.82%)
------------------- --------------------------- ------------------------------ ------------------------------------
Value-focused Originate investments New investments meet 100% of the investments
portfolio with stable, at least three of made in 2020 met at least
development long-term cash six attributes: three of the six attributes
flows and potential 1. Stable, long-term (2019: 100%)
growth attributes, returns
whilst maintaining 2. Inflation-linked
a balanced portfolio investor cash flows
of assets 3. Early stage investor
4. Investment secured
through preferential
access
5. Other capital enhancement
attributes
6. Positive SDG contribution
------------------- --------------------------- -------------------------------- ----------------------------------
ACTIVE ASSET Managing strong - Strong ongoing - 88.4% Forecast
MANAGEMENT ongoing asset asset performance distributions
performance as demonstrated by: received for 2020(2)
(2019: 100%)
- 0.1% Asset performance
deductions achieved against
a target of <3%
(2019: 0.3%)
- 99.7% Asset availability
achieved against a target
of >98% during 2020
(2019: 99.7%)
- Managing under - 9.1% of portfolio investments
construction investment in construction during
delivery 2020
(2019: 9.2%)
------------------- --------------------------- -------------------------------- ----------------------------------
efficient Making efficient - Cash covered dividends - 1.2x Dividends fully
financial use of the Company's cash covered for 2020
management finances and - Competitive ongoing (2019: 1.3x)
working capital charges - 1.18% Ongoing charges
ratio for 2020
(2019: 1.10%)
------------------- --------------------------- -------------------------------- ----------------------------------
Strong Responsible Management of - Robust integration - A+ The Company's Investment
Investment material ESG of ESG into investment Adviser's score for the
factors lifecycle UN-backed PRI 2020 assessment
for both the Strategy
and Governance and the
Infrastructure modules(3)
------------------- --------------------------- -------------------------------- ----------------------------------
1 Calculated by reference to the November 2006 IPO issue price
of 100p and reflecting NAV appreciation plus dividends paid.
2 Measured by comparing forecast portfolio distributions against
actual portfolio distributions received. The variance in
performance compared to the prior period is largely attributable to
the deferral and/or reduction of the distributions made by Tideway,
Cadent, Angel Trains and Diabolo as a result of the uncertainty
caused by Covid-19.
3 In its first year of participation, the Company's Investment
Adviser achieved A+ in the UN-backed PRI 2020 assessment for both
the strategy and governance and the infrastructure modules.
CHAIR'S LETTER
Dear Shareholders,
In the Spring of 2020, many of us faced periods of significant
uncertainty as we dealt with the potential impacts of Covid-19 on
the health and safety of our families, colleagues and communities.
During the last 12 months, the well-being of the people who
deliver, manage and operate the Company's infrastructure assets,
and the communities they serve, has remained the foremost priority
of the Board. Whilst the experience gained during the last year
places all of us in a better position to plan for, and manage, the
risks arising from the pandemic, considerable uncertainty remains,
notwithstanding the mass vaccination programmes and other measures
currently under way in all the countries in which we invest.
However, one fact has become clear - namely, the central role that
national infrastructure has played in ensuring society's resilience
during these difficult times. It is against this backdrop that I
and my fellow Directors wish to acknowledge the exceptional efforts
made by the Company's Investment Adviser, our supply chain partners
and all our client and stakeholder organisations; all of whom have
worked tirelessly and in partnership throughout the year, to ensure
that the services and assets provided by the 130 infrastructure
projects and businesses within the Company's portfolio have
continued to perform.
Due to the Company's diverse portfolio, the nature of its
investments and our focus on strong asset stewardship, the Company
has a strong liquidity position and we have confidence in the
ongoing resilience and performance of the portfolio as a whole.
This is demonstrated through the Company's ability to meet its
full-year dividend target of 7.36 pence per share (2019: 7.18 pence
per share), representing an increase of 2.5% compared to the prior
year. The Board is also pleased to reaffirm its dividend target for
2021 of 7.55 pence per share and provide new guidance of 7.74 pence
per share for 2022(1) .
Notwithstanding the overall resilience of the portfolio, the
Company continues to take a cautious approach to the valuation of
specific risks identified within investments given the uncertainty
surrounding the implications of the Covid-19 pandemic. The approach
has contributed towards a 1.7% decrease in the NAV, from GBP2.43
billion as at 31 December 2019 to GBP2.38 billion as at 31 December
2020 and a NAV per share decrease of 2.3%, from 150.6 pence per
share as at 31 December 2019 to 147.1 pence per share as at 31
December 2020.
PORTFOLIO UPDATE AND ASSET STEWARDSHIP
The Company's active asset management approach has contributed
materially to the continuation of the portfolio's robust
performance. During the year, the Investment Adviser has worked
with its public sector counterparties to maintain public services
and has actively engaged with clients to ensure services are
operating in a safe environment. For example, throughout the
pandemic, the Company's Investment Adviser has worked closely with
a number of public authorities in helping adapt and repurpose
buildings such as school facilities. More details of these
initiatives can be found on pages 14 and 22.
Overall, the Company's portfolio of investments continues to
perform well for shareholders and wider stakeholders. The vast
majority of the Company's investments remained available and
performed in line with expectations over the course of 2020, and
for those investments whose performance is measured by
availability, during 2020, the availability of those assets was
99.7%. Overall, the portfolio has shown resilience during the
pandemic; however, as previously outlined, there are a few specific
areas where the Company's investments have incurred financial
consequences from the disruption caused by the pandemic. These
principally relate to: (i) Tideway, the Company's most significant
asset under construction (representing 9.1% of investment at fair
value); and (ii) where the Company is exposed to elements of
demand-based risk, the most substantial of which is the Northern
Diabolo Rail Link ('Diabolo') (representing 7.8% of investment at
fair value).
Another significant area of focus for the Investment Adviser
during the period was in relation to the routine regulatory
consultation that Cadent, a UK gas distribution business, is going
through with the industry regulator, Ofgem. Please see descriptions
of these investments on pages 22 to 26 and further information
below.
Tideway
Tideway is building a 25km 'super sewer' under the River Thames
to create a healthier environment for London. Over the course of
2020, construction activity was impacted as a result of the initial
lockdown that began in March 2020, whereby only essential works
were able to take place. However, subsequently, with the
appropriate processes and procedures in place to protect the health
and safety of workers and the wider community, construction
activities have continued across the Tideway construction sites.
Whilst progress has been impacted during the year, construction
works were over 60% complete as at 31 December 2020 and the final
tunnel boring machine was launched in January 2021.
Importantly, there are a number of contractual and regulatory
safeguards available to Tideway to help minimise the possible
financial impacts of cost increases and delays. These include
provisions to share additional costs between contractors, Tideway
investors (including the Company) and end-customers, up to a
threshold, beyond which they are borne by the UK Government.
Tideway remains in discussions with the UK water regulator, Ofwat,
on a package of measures that would mitigate the financial impact
of Covid-19 on Tideway's shareholders, of which the Company is one.
Progress is being made in these discussions and an agreement is
expected to be reached in due course. As previously reported,
Tideway published an operational update in August 2020 which
included its assessment that Covid-19 will have an estimated GBP233
million impact on cost, increasing the project cost from GBP3.9
billion to GBP4.1 billion, and a nine-month impact on schedule,
taking completion from June 2024 to March 2025. This has been
reflected within the Company's 31 December 2020 valuation of its
investment in Tideway, along with a prudent assessment of the
sharing of these additional costs with end-customers. Please see
more information on page 23.
Diabolo
Diabolo is a rail infrastructure investment which integrates
Brussels Airport with Belgium's national rail network. Whilst
Diabolo does not operate train services and part of its revenues
are paid on an availability basis, the majority of its revenues are
linked to passenger use of either the rail link itself or the wider
Belgian rail network. Passenger numbers were significantly lower
over the course of 2020 compared to previous years due to the
impact of Covid-19. As a consequence, and after proactive
discussions with the project's lenders and the Belgian state
railway since the onset of the pandemic, as announced in December
2020, GBP9.1 million was invested by the Company to support the
project's liquidity position and to ensure that its debt covenants
will continue to be met. A further GBP12.6 million contingent
funding commitment was made to protect the value of the Company's
investment. The operational performance of the investment remains
strong. The extent to which the contingent commitment is required
will depend upon the timing of the recovery in passenger numbers.
If the full GBP21.7 million is not required, unutilised commitments
will be cancelled. Please see more information on page 23.
For the purpose of the Company's 31 December 2020 valuation of
its investment in Diabolo, advice has been taken on the possible
evolution of passenger numbers from a specialist independent
technical adviser and the Company has prudently assumed that no
distributions will be made by Diabolo until 2023. Whilst the
Company continues to have confidence in Tideway and Diabolo, as
noted above, the revised valuations reflect the cautious approach
taken to the additional risks faced by these investments as a
result of Covid-19.
Cadent
Cadent is the UK's largest gas distribution network managing
more than 80,000 miles of pipes which transport gas to 11 million
customers. Cadent is also the Company's largest asset by investment
fair value. During the period, the Investment Adviser, along with
the Cadent management team and the Company's co-investors in
Cadent, have engaged with Ofgem and others as it seeks to ensure
the best possible outcome for both Cadent's customers and investors
in respect of the next five-year regulatory period which is due to
start in April 2021. The final determination was published by Ofgem
in December 2020 and after careful deliberation and consultation
with its shareholders (of which the Company is one), Cadent has
decided to seek an independent review of the final determination by
the Competition and Markets Authority ('CMA') as it believes this
approach will best serve its customers' interests. It is understood
that Cadent's approach is in line with the steps taken by other gas
distribution network owners. The CMA's initial findings are
expected to be announced later in 2021.
Notwithstanding the appeal noted above, the Company has sought
to reflect the final determination issued by Ofgem in December 2020
within its revised cash flow forecasts used for the purpose of
determining the year end valuation. In addition, whilst Cadent's
revenues were largely unaffected by Covid-19, there is a risk of an
increase in costs as a result of delays to planned works and new
working protocols that accommodate social distancing. This has also
been considered in the 31 December 2020 valuation.
We are pleased to report that Cadent continues to play a role in
supporting the UK Government's net-zero target for 2050 by
providing an important stabilising part of the generation mix as
the renewable sector and new technologies mature, and is
undertaking important research to demonstrate how the existing gas
networks can be used for lower carbon fuel distribution in the
future.
Asset stewardship
As long-term investors in infrastructure, we continue to monitor
and focus on the opportunities and challenges that a changing
world, from both a social and environmental perspective, have on
the Company's activities. As such, it is important that the success
of the Company's investments is assessed not only by financial
returns but also the long-term contribution to a sustainable and
prosperous society. Recognising this importance, the Company
continues to enhance its approach to measuring and reporting the
environmental and social outcomes of the investments it makes.
During the year, the Company was delighted to see that its
Investment Adviser achieved an A+ ranking, in its first year of
being a signatory to the UN-backed PRI, reflecting an assessment
for the strategy, governance and management of the Company's
infrastructure portfolio.
Please see more information on the Company's integrated approach
to ESG in the Responsible Investment section of this report.
INVESTMENT ACTIVITY
During 2020, the Company completed GBP30 million of additional
investments across the education, transport and digital sectors. We
consider transactional activity was affected adversely by the
pandemic as well as by competition amongst investors, in some cases
driving returns to levels that were not attractive to the
Company.
The Company acquired additional stakes in Essex Building Schools
for Future ('BSF') project in May 2020, Bradford and Lewisham BSF
project in August 2020 and Blackburn and Darwen BSF projects in
October 2020, investing GBP11.4 million in total. These investments
were accretive to the Company's returns and provide education
facilities to over 23,000 pupils.
In July 2017, the Company agreed to invest up to GBP45 million
in UK digital infrastructure alongside the UK Government, through
the National Digital Infrastructure Fund ('NDIF'). To date, GBP37.3
million of the Company's GBP45 million commitment has been drawn
for investment by NDIF. During 2020, as part of this original
commitment, the Company contributed GBP9.5 million to further
invest in three of NDIF's existing investments. In addition, NDIF
made two partial realisations of its initial investments in
Community Fibre Limited ('Community Fibre') and Airband Community
Internet Limited ('Airband'). These transactions delivered a
positive return on the Company's original investment in NDIF and
provide further funding to support the growth of Community Fibre in
delivering fibre connectivity across London and drive Airband's
objective of rolling-out full fibre broadband to rural communities
in the UK to help boost productivity, connect communities in the UK
and reduce the digital divide. Covid-19 has highlighted the
critical importance of having reliable digital connectivity and
there is increased support for the digital sector to deliver
high-quality digital infrastructure that will support communities
both socially and economically.
As referred to earlier in this letter, in December 2020 the
Company invested an additional GBP9.1 million in Diabolo and made a
contingent commitment of a further GBP12.6 million to the 100%
indirectly owned special purpose company that owns Diabolo. Please
see more information on page 17.
The Company was appointed as preferred bidder on the East Anglia
One Offshore Transmission project ('OFTO') in December 2020, which
is the Company's tenth such appointment in the UK offshore
transmission sector. The Company expects to invest up to GBP90
million into the East Anglia One OFTO. The East Anglia One offshore
wind farm is located c.50km off the coast of Suffolk and has an
installed capacity of 714MW providing enough green energy to power
over 630,000 homes, thereby increasing the number of homes that are
powered by the Company's OFTO portfolio to over two million. This
is in addition to the Company's near-term OFTO pipeline where it
has already been appointed preferred bidder on Rampion and Beatrice
OFTOs, representing additional investments of up to GBP105 million.
These OFTOs are expected to reach financial close during 2021.
CORPORATE GOVERNANCE
The Board values good corporate governance and complies with the
Association of Investment Companies ('AIC') Code of Corporate
Governance and the UK Corporate Governance Code, as set out on page
62. During the year, the Board undertook an externally-facilitated
evaluation of its own practices and the Management Engagement
Committee formally reviewed the performance of the Investment
Adviser and other key service providers to the Company. The review
concluded that the Board is "operating at a very good level".
Further details can be found on page 67.
The Board recognises the pivotal role of ESG within both
investment selection and ongoing performance of its portfolio and,
as such, determined that the Company's approach to ESG would be the
focus of its annual internal process review. The review was
assisted by a specialist consultant and has resulted in new
initiatives, including the formation of an Environmental, Social,
Governance Committee ('ESG Committee'). The Committee will focus
attention on this important subject and will look to continue
enhancing the Company's actions and disclosures in this space.
Please see more information on page 36.
As previously noted, two new Directors, Sally-Ann David and
Meriel Lenfestey, were appointed to the Board in January 2020 and
subsequently appointed to the Audit and Risk, the Management
Engagement and the Nomination and Remuneration Committees in March
2020. John Stares and John Whittle retired from the Board in March
2020 and May 2020, respectively. Claire Whittet assumed the role of
Senior Independent Director following John Whittle's
retirement.
During the year, the Company completed a formal tender of its
audit in line with best practice and continued audit quality. The
Board initiated a formal tender process in late 2019 with a
longlist of suitable audit firms approached. Following a
comprehensive assessment process, PwC were selected as the
preferred firm and will assume the role of the Company's auditor
for the 2021 financial year. A detailed transition plan has been
agreed, with all parties working closely to ensure a smooth and
effective auditor transition. More information is available on page
73.
Finally, the Audit and Risk Committee of the Board has been
monitoring the risks associated with the UK leaving the European
Union ('EU') since the result of the referendum in 2016. During the
year, the Investment Adviser maintained a position of heightened
readiness, with close communication with key contractors and
suppliers to assess any potential impacts arising from the end of
the transition period. Whilst we have not seen any significant
disruption to the Company as a direct result of the end of the
transition period at the end of 2020, the Company and the
Investment Adviser continue to maintain a watchful brief over any
future developments in the relationship between the EU and the UK
which may have the potential to impact the Company and its
investments. See the risk section of this report for further
information.
Further information on the Company's corporate governance
developments and operational reviews over the year can be found in
the Corporate Governance section of this report.
CURRENT ENVIRONMENT AND MARKET OUTLOOK
Since the outbreak of the pandemic at the beginning of 2020,
there has been a broad recognition that governments need to focus
on ensuring resilience against future threats, but also the pivotal
role that infrastructure will play in generating economic
recovery.
The UK published its first National Infrastructure Strategy
('NIS') in November 2020, in response to the UK's first ever
National Infrastructure Assessment, produced by the National
Infrastructure Commission in 2018. The NIS focuses on driving
recovery and rebuilding the economy and it recognises the
importance of infrastructure investment to achieve this, by
maintaining jobs and creating conditions for long-term sustainable
growth and decarbonising the economy to achieve net-zero emissions
by 2050. Whilst it is currently unclear what role the private
sector will have in this renewal of the UK's infrastructure, we
remain confident that the need for infrastructure investment will
prompt policy support and further clarity.
The EU echoes a similar sentiment recognising the role of
infrastructure in the transition to net-zero and maintaining and
upgrading existing infrastructure, as well as driving economic
recovery as a consequence of the Covid-19 pandemic. The EU's EUR1.8
trillion stimulus package comprises the EUR750 billion Next
Generation EU Recovery Fund, a large component of which is focused
on infrastructure. The emphasis of this package is on providing
funding and direction for pan-European infrastructure projects
targeting improved public transport, renewable energy generation,
transmission and supply, including infrastructure for hydrogen,
digital investments and supporting sustainable growth. The Company
expects that over time these initiatives will continue to stimulate
opportunities for private investment in infrastructure.
The Company will continue to play its part in helping societies
and communities meet the challenges presented by the pandemic, by
ensuring that its assets and businesses remain as available and
resilient as possible. There continues to be a positive outlook for
private sector investment into public infrastructure across the
geographies in which the Company invests, particularly in
supporting post-Covid-19 recovery. Notwithstanding the increased
demand for the types of assets in which the Company invests and
consequent pressure on pricing, the Company remains confident in
the ability of its Investment Adviser to continue to source and
develop high-quality, well-performing opportunities, across the
Company's target geographies, that deliver long-term, predictable
cash flows with strong inflation-linkage that meet the Company's
risk-return profile. The Company has identified a number of
opportunities across Europe and Australia in the energy, transport
and social infrastructure sectors as well as having a near-term
pipeline of c.GBP200 million in digital infrastructure, energy
transmission, transport and social infrastructure.
There are a range of risks stemming from Covid-19, the long-term
consequences of which are not yet known. Whilst the Company
believes that its business model continues to offer a significant
degree of protection to shareholders, it will continue to monitor
the evolving situation closely and, where possible, take action to
mitigate any adverse impacts on the portfolio. Please see more
information on page 48.
I and my fellow Directors would like to thank all those people
within our Investment Adviser, our supply chains and all our client
and stakeholder organisations, on your behalf, for their
exceptional contributions to the performance of the Company during
a difficult year.
Mike Gerrard
Chair
24 March 2021
1 There can be no assurance that these targets will be met or that the Company will make any distributions at all. Whilst we generally have good forward-visibility of cash flows generated by the Company's investments, the current Covid-19 pandemic creates additional uncertainty.
TOP 10 INVESTMENTS
The Company's top ten investments by fair value at 31 December
2020 are summarised below. A complete listing of the Company's
investments can be found on the Company's website (
www.internationalpublicpartnerships.com ).(1)
% holding % investment % investment
Status at at fair value fair value Primary
Name of 31 December 31 December 31 December 31 December SDG
Investment Location Sector 2020 2020 2020 2019 Supported
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Gas 7% Risk
Cadent UK distribution Operational Capital 16.5% 17.1% 9
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Cadent owns four of the UK's eight regional gas distribution
networks and in aggregate provides gas to approximately 11
million consumers.
-------------------------------------------------------------------------------------------------------- ------------
Under 16% Risk
Tideway UK Waste water Construction Capital 9.1% 9.2% 6
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Tideway relates to the design, build and operation of a 25km
'super sewer' under the River Thames.
-------------------------------------------------------------------------------------------------------- ------------
100% Risk
Diabolo Belgium Transport Operational Capital 7.8% 8.6% 11
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Diabolo integrates Brussels Airport with the national rail
network allowing passengers to access high-speed trains,
such as Amsterdam-Brussels-Paris and NS Hispeed (now NS International)
trains.
-------------------------------------------------------------------------------------------------------- ------------
Energy 100% Risk
Lincs OFTO UK transmission Operational Capital 7.6% 7.9% 7
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
The project connects the 270MW Lincs offshore wind farm,
located 8km off the east coast of England, to the National
Grid. The transmission assets comprise the onshore and offshore
substations and under-sea cables, 100km in length.
-------------------------------------------------------------------------------------------------------- ------------
100% Risk
Capital
Energy and 100%
Ormonde OFTO UK transmission Operational senior debt 5.0% 5.3% 7
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
The project connects 132kV Ormonde offshore wind farm, located
10km off the Cumbrian coast, to the National Grid. The transmission
assets comprise the onshore and offshore substations and
under-sea cables, 41km in length.
-------------------------------------------------------------------------------------------------------- ------------
Reliance 33% Risk
Rail Australia Transport Operational Capital 3.9% 3.7% 11
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Reliance Rail is responsible for financing, designing, delivering
and ongoing maintenance of 78 next-generation, electrified,
'Waratah' train sets serving Sydney in New South Wales, Australia.
-------------------------------------------------------------------------------------------------------- ------------
100% Risk
BeNEX Germany Transport Operational Capital 3.2% 3.5% 11
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
BeNEX is both a rolling stock leasing company and an investor
in train operating companies ('TOCs'), providing approximately
40 million train km of annual rail transport.
-------------------------------------------------------------------------------------------------------- ------------
5% Risk
Angel Trains UK Transport Operational Capital 3.1% 3.3% 11
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Angel Trains is a rolling stock leasing company asset base
comprising over 4,400 vehicles. Angel Trains has invested
over GBP5 billion in new rolling stock and refurbishment
since 1994, and is the second largest investor in the industry
after Network Rail.
-------------------------------------------------------------------------------------------------------- ------------
US Military Military 100% Risk
Housing(2) US housing Operational Capital 2.8% 2.7% 11
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
Two tranches of mezzanine debt underpinned by security over
seven operational Public-Private Partnerships ('PPP') military
housing projects, relating to a total of 19 operational military
bases in the US and comprising c.21,800 individual housing
units.
-------------------------------------------------------------------------------------------------------- ------------
100% Risk
Capital
Robin Rigg Energy and 100%
OFTO UK transmission Operational senior debt 2.4% 2.3% 7
------------- ----------- -------------- -------------- -------------- ------------- ------------- ------------
The project connects the 180MW Robin Rigg East and West offshore
wind farms, located 12km off the coast of Cumbria, to the
National Grid. The transmission assets comprise the onshore
and offshore substations and under-sea cables, 25km in length.
-------------------------------------------------------------------------------------------------------- ------------
1. Risk Capital includes both project level equity and subordinated shareholder debt.
2. Includes two tranches of mezzanine debt into US military housing.
More detail on significant movements in the Group's portfolio
for the year to 31 December 2020 can be found on pages 15 to 17 of
the Strategic Report.
STRATEGIC REPORT
CASE STUDY - EDUCATION INVESTMENTS
DIFFERENTIATION OF THE OPERATING MODEL
A key differentiator for the Company is the expertise that its
Investment Adviser, Amber, brings to its portfolio of investments,
across investment origination, fund and asset management, enabling
the Company to deliver the best value and sustainable outcomes for
its shareholders and its wider stakeholders. The Investment
Adviser's team of approximately 135 infrastructure professionals,
spread across three continents, including Europe, Australia and
North America, are focused on delivering and maintaining
high-quality portfolio performance. The Investment Adviser has a
demonstrable track record, with high standards of governance,
stewardship and relationship management across the Company's
investment portfolio.
education portfolio
The Company's education investments represent 19% (by investment
at fair value) of its portfolio and provides educational
development and facilities to over 195,000 pupils across Australia,
Canada, Germany and the UK.
There is considerable evidence linking a healthy physical
environment to student performance and learning(1) . Studies have
revealed that thermal, visual and acoustic factors and the effect
of colour have an impact on both students' and teachers' ability to
concentrate, contributing to students' success(2) . The Company
firmly believes that its approach to providing and maintaining its
school accommodation investments to the required standard will
ultimately support teachers in maximising their students'
potential.
This is evidenced by the Company's investment in Sedgefield
Community College, Durham, named The Sunday Times North East
Secondary School of the Decade by Parent Power in December 2020.
The college, which was developed as part of the former UK
government's BSF Programme, opened in January 2011 and has
exceptional facilities throughout, including diffused natural
daylight transmitted via rooflights and optimal thermal and
acoustic levels which all contribute towards creating a healthy
environment for students to learn. Other innovative features
include a 'living roof', which has been incorporated to support
local biodiversity and contribute to improving the college's
resilience to climate change by reducing storm water run-off
velocity and volumes and increasing the cooling effect during
hotter summers.
SUSTAINABLE MANAGEMENT
The Company views the development and maintenance of schools as
a key component of delivering SDG 4: 'Ensure inclusive and
equitable quality education and promote lifelong learning
opportunities for all'. In line with its ESG philosophy, the
Company believes all investments should be managed sustainably.
From an education investment perspective, this starts with the
design and construction of the buildings themselves. To ensure
sustainability is incorporated into schools' design and
construction, the Company draws on several sustainability
certifications, including Building Research Establishment
Environmental Assessment Method ('BREEAM') and Leadership in Energy
and Environmental Design ('LEED'). BREEAM and LEED are leading
sustainability assessment methods for master planning projects,
infrastructure and buildings(3) .
Of the UK school investments that have obtained sustainability
certifications, 80% have achieved 'Very Good' or higher against the
BREEAM certification. In addition, 100% of the Company's education
investments in Canada have achieved either 'Silver' or higher as
part of the LEED certification(4) .
The Company's Investment Adviser's approach to ESG continues
post-construction, whereby the Company ensures material
environmental and social issues are actively managed throughout the
operational life of the investment. Please refer to the Responsible
Investment section for more information about the Company's
approach to the sustainable management of the Company's education
investments.
Whilst the primary purpose of the investments is to provide
facilities for education, the Company recognises that the schools
have a much broader role in the local community. As one of its ESG
stewardship objectives, the Company, working alongside the school,
looks to make the local communities' assets available outside of
school hours where possible.
Whilst the Company's education investments have been impacted by
Covid-19 restrictions put in place during lockdowns, the Company
has worked hard to ensure that its education investments continue
to play an essential role in supporting their communities through
the pandemic. Where education investments have large spaces that
can safely be made available for use whilst the asset itself is
either closed or not fully occupied, the Company has sought to work
with its public sector partners to repurpose them. For example, the
Company's education investments in Blackburn have been used as hubs
for primary children; Elgin Academy has been used as a clinic for
newborns; Kent, St Aloysius and Somerset investments have been used
for the preparation of food hampers. To date, over 240,000 free
school meals have been provided to pupils and over 4,000 hampers
have been delivered to pupils who receive free school meals.
The Company is committed to supporting its public partners to
ensure value is realised for all stakeholders, both now and into
the future.
1 Clark, H (2002) Building Education: The Role of the Physical
Environment in Enhancing Teaching and Research. Issues in
Practice.
2 Weinstein, C.S. (1979) 'The physical environment of the
school: a review of the research'. Review of Educational Research
49, 4, 577-610.
3 https://www.breeam.com/.
4 https://www.usgbc.org/help/what-leed.
KEY STATISTICS ON THE COMPANY'S education investments
- >195,000 students
- 267 schools
- >83% BREEAM Very Good or Higher
- Primary SDG supported: SDG 4
STRATEGIC REPORT
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,
inflation-linked cash flows and/or to provide the opportunity for
higher capital growth. The Board regularly reviews the overall
composition of the portfolio to ensure it continues to remain
aligned with the Company's investment objectives.
Desirable key attributes for the portfolio include:
1. Long-term, stable returns
2. Inflation-linked investor cash flows
3. Early stage investor (e.g. the Company is an early stage
investor in a new opportunity developed by our Investment
Adviser)
4. Investment secured through preferential access (e.g. sourced
through pre-emptive rights or through the activities of our
Investment Adviser)
5. Other capital enhancement attributes (e.g. potential for
additional capital growth through 'de-risking' or the potential for
residual/terminal value growth)
6. Positive SDG contribution
Performance against strategic priority KPIs: 100% of investments
made in 2020 met at least three of the six attributes
Despite more challenging market conditions during the year to 31
December 2020, the Company invested GBP30 million (2019: GBP281.3
million). These opportunities were sourced by the Investment
Adviser through increasing its interest in existing investments.
This is a preferred route to market for the Company alongside
sourcing investments from project inception (e.g. early stage
developments in response to an initial government procurement
process) or as part of a larger consortium, building on the
Company's experience and credibility of participating in
multi-billion-pound regulated infrastructure transactions. These
origination approaches avoid bidding in the competitive secondary
market and offer compelling investment opportunities. Through
increasing its interest in existing assets, it provides the Company
with an opportunity to drive positive change in its investments and
focus on their long-term performance in line the Company's ESG
stewardship objectives.
Details of investment activity during 2020 are provided below.
Please refer to the key performance indicators on pages 6 to 7.
Further details for each of these transactions are provided
overleaf.
INVESTMENTS LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
MADE DURING STATUS DATE
2020
1 2 3 4 5 6
------------------------- ------- ------- ------- ------- ------- ------- ------------ ------------- -----------
BSF Essex UK ü ü ü ü Operational GBP6.7 26 May
Project million 2020
------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ------------- -----------
BSF Bradford UK ü ü ü ü Operational GBP3.6 10 August
and million 2020
Lewisham
Projects
------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ------------- -----------
BSF UK ü ü ü ü Operational GBP1.1 9 October
Blackburn million 2020
and Darwen
Projects
------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ------------- -----------
NDIF UK ü ü ü ü Operational GBP9.5 Various
million
------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ------------- -----------
Diabolo Belgium ü ü ü Operational GBP9.1 24
million(1,2) December
2020
------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ------------- -----------
GBP30.0
million
--------------------------------------------------------------------------------------------- ------------- -----------
1 GBP translated value of investment.
2 In addition, a contingent commitment of GBP12.6 million is available, if required.
INVESTMENTS MADE DURING THE PERIOD
ADDITIONAL INVESTMENTS IN BSF PROJECTS, UK
BSF is a former UK Government programme for the redevelopment of
secondary schools in the UK, which used a combination of design and
build contracts and private finance type arrangements.
During the course of 2020, the Company made further investments
into Essex BSF, Bradford and Lewisham BSF and Blackburn and Darwen
BSF which provide education facilities to over 23,000 pupils in
total.
In May 2020, the Company acquired an accretive interest in the
Essex BSF project, which provides education facilities to over
3,700 secondary school pupils across Essex. The transaction saw the
Company invest a further GBP6.7 million in two private finance
initiative ('PFI') project companies that own the project's four
schools and increased the Company's existing investment to 28% on
phase 1 and 100% on phase 2 of the project.
In August 2020, the Company acquired stakes in six PFI project
companies that own 14 UK schools. These schools provide education
facilities to over 17,000 pupils across Bradford and Lewisham. The
Company invested a further GBP3.6 million and as a result increased
its existing stake by 4% in each of the six underlying project
companies. Upon completion, the Company will hold a 54% investment
in three of the Lewisham BSF schemes and 45% in the fourth; as well
as increasing its share in the two Bradford schemes to 15.5% and
19% in the phase 1 and 2 schemes, respectively.
In October 2020, the Company acquired an additional interest in
Blackburn and Darwen BSF project, which provides education
facilities to approximately 2,500 pupils. The Company invested a
further GBP1.1 million to acquire stakes in two project companies
which own three schools. As a result, the Company now has 100%
ownership.
The Company views the development and maintenance of schools as
a key component of delivering SDG 4: 'Ensure inclusive and
equitable quality education and promote lifelong learning
opportunities for all'. For more information about the Company's
approach to the stewardship of these investments please see the
case study on pages 13 to 14.
Primary SDG supported: 4
DIGITAL INFRASTUCTURE), UK
In July 2017, the Company agreed to invest up to GBP45 million
into UK digital infrastructure alongside the UK Government through
NDIF, a vehicle focusing on investment in UK digital infrastructure
managed by the Investment Adviser. During the course of 2020, the
Company made further commitments across three of NDIF's existing
portfolio companies; NextGenAccess, Airband and toob, as part of
the Company's GBP45 million commitment. To date, GBP37.3 million of
the Company's GBP45 million commitment has been called.
In July 2020, NDIF agreed further funding by new investors in
Community Fibre as well as a part realisation by NDIF of its
investment in Community Fibre to Warburg Pincus LLC and Deutsche
Telekom Capital Partners. The proceeds realised will be retained by
NDIF for reinvestment. The transaction reflected a positive return
on NDIF's original investment and will support further growth for
Community Fibre. The Company invested in Community Fibre through
NDIF in 2018 to fund the roll-out of full fibre connectivity and in
July 2020, Community Fibre announced that it will accelerate the
availability of full fibre broadband to one million households
across London by 2023, thereby delivering critical infrastructure.
The Company's commitment to digital infrastructure will help to
transition the UK to full fibre at a time when reliance on digital
infrastructure has never been greater.
In November 2020, NDIF partnered with a new investor, Aberdeen
Standard Investments ('ASI'), in Airband alongside the existing
shareholders of the company. Airband is a provider of rural
connectivity services across the West of England, historically
through Fixed Wireless Access ('FWA'). Since 2018, the business has
moved towards Fibre to the Premises ('FTTP'), driven by UK
Government-led initiatives, including subsidies to promote
significant investment in fibre infrastructure in rural areas. The
business has a network footprint covering thousands of homes across
the West of England, and has secured significant contracts
underpinning a business plan that targets more than an additional
500,000 premises by 2025. The transaction involved a part
realisation by NDIF of its investment to ASI and reflected a
positive return on NDIF's original investment and supports further
growth for Airband. ASI acquired a majority stake in Airband, with
the existing shareholders, including NDIF, retaining minority
positions.
Covid-19 has amplified the necessity for communities and
businesses to be able to access reliable and efficient digital
connectivity. Over the next few decades, digital networks will be
the enabling infrastructure that helps drive economic growth and
productivity. By investing in digital infrastructure, the Company
is directly supporting SDG 9: 'Build resilient infrastructure,
promote inclusive and sustainable industrialisation and foster
innovation'.
Primary SDG supported: 9
diabolo, belgium
Diabolo is a rail infrastructure investment which integrates
Brussels Airport with Belgium's national rail network. As a result
of Covid-19, passenger numbers were significantly lower in 2020
compared to previous years; and with the reinstatement of a
national lockdown in Belgium at the end of October 2020, it became
clearer that without remedial action by the Company, a continuation
of lower than projected passenger numbers would have resulted in a
liquidity shortfall and a breach of certain formula-based debt
covenants in early 2021. Whilst Diabolo does not operate train
services, and part of its revenues are paid on an availability
basis, the larger part of its revenues, although paid by the public
authorities and not directly by passengers, are nonetheless linked
to the number of passengers who use either the rail link itself or
the wider Belgian rail network.
The Company's Investment Adviser had actively engaged in
discussions with the project's lenders and the Belgian state
railway since the onset of Covid-19 and in December 2020, the
Company agreed to provide an additional GBP9.1 million of funding
plus a contingent commitment of a further GBP12.6 million. While
Diabolo's operational performance remains strong, the additional
GBP9.1 million was invested by the Company to support Diabolo's
liquidity position, ensure debt covenants will continue to be met
and protect the value of the Company's investment.
The extent to which the additional investment will be required
will depend upon the recovery in passenger numbers. Given the level
of uncertainty in future passenger projections, the Company has
taken a prudent approach and allowed for up to GBP21.7 million in
total to be available should the project require it. If the
additional up to GBP12.6 million is not required, the unutilised
commitments will be cancelled.
Well-planned and coordinated transport infrastructure is
fundamental to the economic and social well-being of a community.
It is also becoming increasingly important in combatting climate
change and has been identified as a crucial part of net-zero carbon
strategies which are emerging internationally. By turning the
previous terminus into a through route and realigning services, the
proportion of passengers and workers travelling to and from the
airport using rail and other public transport has increased. By
investing in Diabolo, the Company is directly supporting SDG 11:
'Make cities and human settlements inclusive, safe, resilient and
sustainable'.
Primary SDG supported: 11
MARKET ENVIRONMENT IN 2020 AND FUTURE OPPORTUNITIES
UNITED KINGDOM
Following the outbreak of Covid-19 there has been increased
focus in the UK on ensuring resilience against future exogenous
threats, and the role that infrastructure plays in delivering this
and generating economic recovery by creating opportunities for
private sector investment.
In March 2020, the UK Government stated that the UK had
under-invested in infrastructure and expressed an intention to
commit GBP640 billion of capital investment to the sector, and in
June 2020 the UK Prime Minister outlined plans to rebuild Britain
and the economy across the UK with significant infrastructure
spending forecast in the immediate future.
In addition, in November 2020, the UK NIS was published in
response to the UK's first ever National Infrastructure Assessment,
produced by the National Infrastructure Commission. The NIS
reflects the Government's reform programme, Project Speed, which
was launched in Summer 2020 to review the infrastructure lifecycle
and identify where improvements can be made. It focuses on driving
recovery and rebuilding the economy, recognising the pivotal role
infrastructure will play to achieve this, both by maintaining jobs
in the short term, and creating the conditions for long-term
sustainable growth; decarbonising the economy and adapting to
climate change, acknowledging that infrastructure will be
fundamental in achieving net-zero by 2050. The strategy also
announced that new revenue support models will be developed and
references the expansion of the Regulated Asset Base ('RAB') model,
using the Company's Tideway investment as an example, whilst
reiterating that PFI and Private Finance 2 ('PF2') will not be
reintroduced as models of delivery.
The Government also announced the establishment of a new
National Infrastructure Bank ('NIB'), which will commence
operations in Spring 2021. The UK NIB will support both public and
private projects and should provide some further clarity on the
role of private sector capital as there is a broad recognition that
private capital will be required to meet the Government's net-zero
target and support economic recovery. The UK NIB will have an
initial GBP12 billion capitalisation, with the aim of funding GBP40
billion of projects across the UK. In addition, in the UK annual
Spending Review, the Government increased capital spending on major
projects to GBP100 billion with a focus on housing, digital
connectivity, delivering better roads, upgraded railways and cycle
ways.
The Company has a high-quality pipeline in the UK, including in
the energy transmission, social infrastructure and regulated
sectors, and we remain confident that the need for infrastructure
investment will continue to offer opportunities that meet the
Company's criteria. Please see more information on page 21.
Please refer to page 48 for more information on the UK's
withdrawal from the EU.
EUROPE
Overall investment into European infrastructure continues to be
supported by broader EU frameworks. The EU recognises the role of
infrastructure to transition to net-zero, maintain and upgrade
existing infrastructure, and help drive economic recovery as a
consequence of the Covid-19 pandemic.
The European Commission announced a EUR1.8 trillion stimulus
package, which comprises a EUR750 billion Next Generation EU
Recovery Fund. A large component of the Next Generation EU Recovery
Fund is focused on infrastructure to address the social and
economic impacts of Covid-19 and become more sustainable and
resilient. The emphasis of this package is on providing funding and
direction for pan-European infrastructure projects to contribute to
net-zero by 2050 and improved digital connectivity. Projects will
be focused on public transport, renewable energy projects,
including infrastructure for hydrogen, digital investments and
supporting sustainable growth. The Company expects that over time
these initiatives will continue to stimulate opportunities for
private investment in infrastructure.
As such, the Company anticipates there will be increasing
opportunities in infrastructure that will be critical for
facilitating a transition to net-zero, particularly in transport
and energy sectors across Europe, exhibiting investment criteria
that the Company will find attractive. In particular, the Company
is focusing on stable and well-structured Northern and Western
European economies which offer a steady flow of opportunities
across all traditional infrastructure sectors.
AUSTRALIA
Australia has a history of the private sector providing and
financing public infrastructure. It has a stable and transparent
legal and regulatory framework with active infrastructure financing
and investor markets. Most government counterparties involved with
public infrastructure procurement are rated AA+ or higher. There
also continues to be a need for private finance in order to deliver
all of the Government's objectives, especially in the current
climate.
Infrastructure Australia sets out its medium to long-term
aspirations for the country's infrastructure development in its
'Australian Infrastructure Plan'. Building on the 2019
infrastructure plan, the 2021 Australian Infrastructure Plan is
expected to establish the agenda for the next 15 years identifying
a pipeline across the transport, energy, waste, water,
telecommunications and social infrastructure sectors, as well as
including a planned response to Covid-19 in respect to
infrastructure. Generally, Australia has responded well to the
challenges presented by Covid-19 and the pandemic has accelerated
structural trends such as digitalisation, more local and regional
infrastructure use, as well as service innovations. However, like
other countries, lockdowns, social distancing and work-from-home
measures have impacted project delivery, created new trends and
reversed others. The way Australians use critical infrastructure is
expected to change as a result, including across the transport,
telecommunications, digital, energy, water, waste, and social
infrastructure sectors.
Infrastructure Australia has noted that infrastructure has
proved relatively resilient in light of the Covid-19 pandemic and
it has accelerated the development of infrastructure in certain
sectors, as noted above. It also noted a continuation of
infrastructure construction across major projects was a key source
of economic activity and employment during the pandemic. Other
changes noted since March 2020 include approximately 30% of the
total workforce working from home, with a third of those workers
wishing to remain remote. This accelerated trend has led to
widespread office vacancies, greater strain on the broadband
network, greater energy and water consumption in residential areas
and increased local activity, including local traffic congestion
and demand for greenspace. In a reversal to the earlier trend of
increasing public transport use, patronage in most cities fell to
10% to 30% of normal levels in the initial lockdown and settled at
a 'new norm' of 60% to 70% of pre-Covid-19 levels(1) . Importantly,
an acceleration of regionalisation has also occurred with
Australian households seizing the opportunity to move away from
dense, metro areas. Infrastructure Australia believes the longevity
of these changes is uncertain; however, the impacts are likely to
persist for some time as Australians continue to seek more
affordable housing outside of the inner metro areas. If this trend
continues, we could see reduced demand for urban transport and
increased pressure on broadband networks in regional centres.
Australian States are also continuing to develop smaller-scale
social infrastructure projects in health, social housing and
education sectors. In keeping with policy recommendations in the
Australian Infrastructure Plan, some States are also adopting
infrastructure procurement models that outsource operator services
to the private sector, as well as seeking private sector capital to
develop the asset.
The Company's view is positive about the prospects for further
investments in the region and it is reviewing opportunities in this
geography.
NORTH AMERICA
The US relies on a vast network of infrastructure, however as
demonstrated in its most recent report card on the condition of
America's infrastructure, the American Society of Civil Engineers
gave the US a D+ or 'poor' rating. It is estimated that there is a
funding gap of more than $2 trillion by 2025.
Whilst the US private infrastructure market is mature and large,
with over 650 infrastructure investments executed during 2020,
there have been issues at the federal level that have delayed the
enaction of legislation. The real opportunity in the US, however,
is not in the federal mandated 'mega' projects, but in sectors such
as transport including airports, ports, bridges and logistics where
much of the existing infrastructure ownership is in the hands of
local municipalities and other government-backed entities. The
state and local governments are increasingly using the P3
(Public-Private Partnerships) model and, in light of Covid-19, this
is likely to be used as a fiscal tool as part of the economic
recovery. Smaller cities and municipalities are seeking to monetise
assets including utility systems, real estate and civic
infrastructure.
President Biden has announced a 'Build Back Better Recovery
Plan' (the 'Plan') that will focus on infrastructure investment,
including building and repairing roads and bridges, ports,
airports, water systems, electric grids and broadband and it is
also expected that during 2021 the volume of capital spent on
infrastructure will increase. However, it is anticipated that the
Plan will have a clear climate-driven focus, including green
initiatives, such as Electric Vehicle ('EV') charging, updating
rail networks and working towards zero-emission public transport,
investing in green power and making buildings more energy efficient
and clean energy technologies, such as battery storage, emissions
technology, green hydrogen and advanced nuclear.
The opportunity to generate higher returns than generally seen
in the European markets and the ability to source projects through
collaborative procurement processes makes the US an attractive
geography on which to focus resource. However, the growing amount
of domestic capital pursuing projects in the US and the generally
lower commitment given by the public sector to follow through on
privately funded procurement create barriers to entry for many
European investors. The Investment Adviser actively monitors the
development of projects that fit the Company's investment
objectives.
Canada has a strong track record of infrastructure investment
and the Investing in Canada plan has a long-term aim to deliver
C$180 billion of infrastructure investment by 2028 to support
local, provincial and territorial projects over 12 years. In the
shorter-term Canada has launched a three-year C$10 billion
infrastructure plan to help the economy recover after the Covid-19
pandemic. The funds will come from the Canada Infrastructure Bank
which manages C$35 billion. It will focus on providing high-speed
internet connectivity for households and small businesses,
strengthening Canadian agriculture and accelerating towards a
low-carbon economy.
The ability for the private sector to participate in more North
American infrastructure projects provides the Company with a broad
variety of investment opportunities. The Company is well positioned
to capitalise on these developments through its Investment
Adviser's relationship with US group, Hunt Companies LLC.
1. https://www.infrastructureaustralia.gov.au/.
2. Preqin.
CURRENT PIPELINE
The Company's performance does not depend upon additional
investments to deliver current projected returns. Further
investment opportunities will be judged by their anticipated
contribution to overall portfolio returns relative to risk.
Selected commitments and future opportunities that may be
considered for investment in due course, as identified by the
Investment Adviser, are outlined below.
KNOWN/COMMITTED LOCATION ESTIMATED INVESTMENT(1) EXPECTED INVESTMENT INVESTMENT STATUS
OPPORTUNITIES PERIOD
------------------- --------- -------------------------- -------------------- ------------------------
Of the GBP45 million
commitment to NDIF,
c.GBP37.3 million
has been invested
Operational to 31 December
NDIF UK GBP7.7 million businesses 2020
------------------- --------- -------------------------- -------------------- ------------------------
Investment commitment
Offenbach Police made. Expected
Headquarters Germany GBP8.4 million(2) c.30 years to be funded mid-2021
------------------- --------- ------------------------ -------------------- ------------------------
An investment of
GBP9.1 million
has been made,
with a further
contingent commitment
Diabolo Belgium GBP12.6 million 26 years available, if required
------------------- --------- -------------------------- -------------------- ------------------------
Preferred bidder.
Investment expected
Rampion OFTO UK Up to GBP45 million c.20 years H2 2021
------------------- --------- -------------------------- -------------------- ------------------------
Preferred bidder.
Investment expected
Beatrice OFTO UK Up to GBP60 million c.23 years H1 2021
----------------- ----------- -------------------------- -------------------- ------------------------
Preferred bidder.
East Anglia Investment expected
One OFTO UK Up to GBP90 million c.21 years H2 2021
----------------- ----------- -------------------------- -------------------- ------------------------
1 Represents the current commitment or estimate of total future
investment commitment or preferred bidder positions that meet the
Company's investment criteria. There is no certainty that potential
opportunities will translate into actual investments for the
Company.
2 Project has reached financial close. Commitment to invest once
construction has completed, expected to be mid-2021.
The Company has a longer-term pipeline of investments and has
identified over 40 opportunities across the UK, Europe, North
America and Australia. Future areas of investment may include:
KEY AREAS SOCIAL REGULATED UTILITIES TRANSPORT OTHER ESSETNIAL
OF INFRASTRUCUTRE AND MOBILITY INFRASTRUCTURE
FOCUS
------------ ---------------- ------------------------------------ -------------------------------------------------- ---------------------------
Example
investments * Education * OFTOs * Government-backed transport including: * Digital connectivity
* Health * Distribution and transmission * Light rail * Energy management
* Justice * Direct procurement * Regional rail
------------ ---------------- ------------------------------------ -------------------------------------------------- ---------------------------
ACTIVE ASSET MANAGEMENT
The Company's Investment Adviser has a highly experienced,
well-resourced, dedicated team of approximately 40 asset managers,
as part of the wider pool of approximately 135 infrastructure
professionals across 11 offices. The Company's Investment Adviser
operates a full-service approach to infrastructure, and this
includes day-to-day asset management and oversight of the Company's
investments. This active asset management approach has been
fundamental to the Company's performance since IPO in 2006 and has
enabled the Company to build a reputation of delivering
transparent, responsible stewardship of public infrastructure
assets that support essential services. These skills have been
evidenced by the Company's strong performance during the current
unprecedented uncertainty caused by the Covid-19 pandemic.
OPERATIONAL PERFORMANCE
The Company's Investment Adviser adopts a hands-on approach to
monitoring asset performance utilising robust internal processes
and the expertise of its dedicated asset management team. The
Investment Adviser's involvement will vary depending on each
investment type, noting that each investment is actively managed to
optimise performance. During 2020, 88.4% of forecast investment
portfolio receipts were received (2019: 100.0%)(1) . The variance
in performance compared to the prior period is largely attributable
to the deferral and/or reduction of the distributions made by
Tideway, Cadent, Angel Trains and Diabolo as a result of the
uncertainty caused by Covid-19.
The Company has a weighted average investment life of 32 years
and actively monitors the relevant investments within the portfolio
to ensure that conditions for the hand back of investments are met
on completion of the project contract or at the end of the expected
investment holding period.
The health and safety of the clients, delivery partners,
employees and members of the public who come into contact with our
assets are of the utmost importance to the Company, and we accord
the highest priority to health and safety. While infrastructure
projects inherently involve health and safety risks from
construction through to operation, the Company's accident frequency
rate for occupational accidents that resulted in lost time was low
at 0.29 per 100,000 hours worked (as at 31 December 2020)(2) .
Health and safety data is reported and evaluated on a quarterly
basis, and includes hours worked, minor injuries, near misses,
critical incidents and the number of lost time injuries which
occurred as a result of work activities.
Performance against strategic priority KPIs:
88.4% Forecast distributions received(1)
0.3% Asset deductions achieved against target of <3%
99.7% Asset availability achieved against a target of
>98%
PPP PROJECTS
PPP projects account for 41% of the Company's portfolio (by
investment at fair value), and the Company's Investment Adviser has
extensive experience in this sector and has developed the majority
of the investments. Ensuring that the facilities are available for
their intended use, that areas are safe and secure, and that the
performance standards set out in the underlying agreements are
achieved are key deliverables for the Investment Adviser. The
Company's Investment Adviser works closely with its partners to
ensure these standards are met. For those investments whose
performance is measured by both availability and performance, for
2020, the availability of those assets was 99.7% (2019: 99.7%) and
across all projects there were performance deductions of 0.1%
(2019: 0.3%), both exceeding the Company's targets.
In addition, the Company's public sector clients commissioned
and funded over 1,100 contract variations during the period,
resulting in a combined value of over GBP26 million of additional
project work conducted on behalf of the commissioning body. The
completed changes during the period ranged from minor building
fabric alterations within education facilities, to the delivery of
transport facility upgrades. Seven benchmarking exercises were also
performed and agreed in our social accommodation projects, which
included reviewing facilities management services delivered on the
projects in order to assess value for money for the public
sector.
During the period, in response to Covid-19 and government
guidelines, certain schools, blue light facilities and other public
buildings were required to close for a period. However, a large
number remained open with no availability issues and in some cases
were able to be repurposed to help support the wider community. For
more information on these initiatives, please see page 14.
1 Measured by comparing forecast portfolio distributions against
actual portfolio distributions received.
2 This includes UK social accommodation (where the Investment
Adviser provides oversight of the management services), Cadent,
Tideway and all investments in Germany, Australia and Canada.
Diabolo
Diabolo is a rail infrastructure asset that integrates Brussels
Airport with Belgium's national rail network. Whilst Diabolo does
not operate train services and part of its revenues are paid on an
availability basis, the majority of its revenues are linked to
passenger use of either the rail link itself or the wider Belgian
rail network. As previously reported, as a consequence of Covid-19,
passenger numbers were significantly lower in 2020 compared to
previous years; and with the reinstatement of a national lockdown
in Belgium at the end of October 2020 it became clearer that,
without remedial action by the Company, a continuation of lower
than projected passenger numbers would have resulted in a liquidity
shortfall and a breach of certain formula-based debt covenants in
early 2021. The Company's Investment Adviser had proactively
engaged in discussions with the project lenders and the Belgian
state railway following the onset of Covid-19 and in December 2020,
the Company agreed to provide an additional GBP9.1 million of
funding plus a contingent commitment of a further GBP12.6 million.
While the project's operational performance remains strong the
additional GBP9.1 million was invested by the Company to support
the project's liquidity position, ensure its debt covenants will
continue to be met, and ultimately protect the value of the
Company's investment. To the extent the GBP12.6 million commitment
is not required it will be cancelled.
In addition to the measures taken above, the project benefits
from a contractual mechanism which permits an adjustment to the
passenger fee in the event that passenger numbers and returns fall
below a certain threshold. This mechanism operated successfully
earlier in the life of the project but, subsequently, the higher
than forecast passenger use during the period 2013 to 2019 resulted
in returns above the threshold at which this mechanism could be
invoked. The lower passenger numbers as a consequence of Covid-19
have not yet resulted in returns below the level at which the
mechanism would be invoked. However, the mechanism provides
important downside protection for the remaining c.26 years of the
concession should passenger numbers not evolve in line with current
expectations.
REGULATED INVESTMENTS
The Company invests in a number of regulated investments,
including OFTOs, Cadent and Tideway. The Company owns 100% of each
of its OFTO investments and whilst the Company does not hold
majority positions in Cadent or Tideway, the Company engages
through its Investment Adviser's board director positions and
membership of committees. The Company's Investment Adviser actively
works with respective boards to maintain alignment and focus on
strategic goals to drive financial and operational best practice
and ensure effective risk management.
OFTOs
The Company's OFTO investments are regulated by Ofgem but the
revenues are not linked to electricity production or price, instead
the OFTO is paid a pre-agreed, availability-based revenue stream
for the duration of the licence. The Company's OFTO investments
continue to be relatively unaffected by the Covid-19 pandemic and
have continued to remain available and meet performance
standards.
Tideway
Tideway is building a 25km 'super sewer' under the River Thames
to create a healthier environment for London. As a result of the UK
Government's guidance issues in March 2020 in response to the
continued spread of Covid-19, Tideway reduced construction
activities across its sites and continued only with essential and
safety-critical works. Following the easing of restrictions and
after a series of detailed safety reviews and the implementation of
measures to protect its workers and the wider community, Tideway
recommenced work on the majority of its construction sites in May
2020. As previously reported, Tideway published an operational
update in August 2020 which included its assessment that Covid-19
will have an estimated GBP233 million impact on cost, increasing
the project cost from GBP3.9 billion to GBP4.1 billion, and a
nine-month impact on schedule, taking completion from June 2024 to
March 2025.
In terms of contractual and regulatory safeguards, the Tideway
project documentation includes provisions to share additional costs
between contractors, Tideway investors (including the Company) and
end-customers, up to a threshold, beyond which they are borne by
the UK Government. Tideway has also indicated that it is in
discussions with Ofwat on a package of measures that would mitigate
the financial impact of Covid-19 on Tideway's shareholders, of
which the Company is one. These discussions are continuing, and an
agreement is expected to be reached in due course.
At the time of writing, the construction works were more than
60% complete and the final tunnel boring machine was launched in
January 2021.
Cadent
Cadent, which owns four of the UK's eight regional gas
distribution networks, is regulated by Ofgem under a regime with
similar principles as those applied by Ofwat to Tideway. Changes in
the regulatory regime have the potential to impact the returns of
Cadent. Ofgem released its RIIO-2 draft determination in July 2020
followed by the final determination in December 2020, which covers
the price control period from April 2021 to March 2026. The
Company's Investment Adviser, together with the Cadent management
team and the Company's co-investors in Cadent, have engaged with
Ofgem and others as it seeks to ensure the best possible outcome
for both Cadent's customers and investors in respect of the next
five-year regulatory period. After careful deliberation and
consultation with its shareholders, of which the Company is one,
Cadent has decided to seek an independent review of the final
determination by the CMA as it believes this approach will best
serve Cadent's customers. It is understood that Cadent's approach
is in line with the steps taken by other gas distribution network
owners. The CMA's initial findings are expected to be announced
later in 2021.
During the year to 31 December 2020, Cadent prioritised the
emergency response service for suspected gas leaks as well as its
programme of essential maintenance, working around the clock to
keep the public safe, warm and able to cook with gas. This was done
in accordance with the enabling framework set out by Ofgem, which
allowed network companies to defer lower priority works and
services without undue fear of regulatory enforcement or penalties.
Notwithstanding the disruption caused by Covid-19, Cadent
identified certain iron mains replacement projects which could be
completed despite the existence of social distancing requirements
and opportunistically completed these at a time when disruption to
local shops, businesses and road users was minimised. This work was
undertaken with safety being the number one priority.
OTHER OPERATING BUSINESSES
The Company invests in a number of operating businesses
including BeNEX, Angel Trains and digital infrastructure (via its
commitment to NDIF). With the exception of Angel Trains, the
Investment Adviser holds a board position on each of its operating
businesses and uses these positions to influence and strengthen
company policies and procedures, for example, enhancing ESG
credentials, a health and safety focus as well as protecting the
value and mitigating operational risk.
BeNEX
BeNEX generates revenues through the contractual leasing of its
rolling stock to TOCs as well as through its investments in TOCs
themselves. Only a minority of annual revenues (currently less than
20%) are linked to passenger numbers and therefore whilst Germany,
like many other countries, saw a significant reduction in the
number of people using public transport during 2020 as a result of
the pandemic, the impact on BeNEX has been limited. In addition,
BeNEX received compensation from the Federal Government and/or the
relevant Federal State for the vast majority of revenues lost as a
result of the disruption caused by Covid-19.
Angel Trains
The Company holds a minority shareholding in Angel Trains. Angel
Trains generates the majority of its revenues from the contractual
leasing of its rolling stock to TOCs and therefore its revenues
have been largely unaffected by Covid-19. Due to the uncertainty
faced during 2020, the board of Angel Trains, which includes
shareholder representatives, prudently decided to defer
distributions for the year.
Digital Infrastructure
The Company's Investment Adviser continues to actively monitor
the four businesses in which the Company is invested (via NDIF),
including Community Fibre, Airband, NextGenAccess and toob. Whilst
at the start of 2020 physical deployment was impacted by Covid-19
restrictions, there has been increased recognition that digital
infrastructure is becoming a more defensive asset class as the
critical nature of digital connectivity services has been amplified
by the current volume of people working from home. The expectation
is that this will continue post Covid-19, which highlights the need
for resilient digital infrastructure and the accelerated roll-out
of fibre.
COUNTERPARTY RISK
Counterparty risk exists to some extent across all investments,
however, the risk is particularly significant when considered in
relation to PPPs which have a long-term fixed-price contract with a
facilities management provider. Please see more information on
pages 52 to 53. The Company has a diverse exposure to service
providers across its portfolio and the Investment Adviser's asset
management team ensures counterparty risk is actively managed and
mitigated. The chart below illustrates the Company's service
providers (by investment fair value), highlighting the
diversification across the portfolio.
During 2020, the support services arm of Interserve Group
Limited, the company formed following the administration of
Interserve Plc, was acquired by Mitie Plc ('Mitie'). The Investment
Adviser, building on the experience gained following the
liquidation of Carillion Plc, was well placed to manage this
transition. The merger has not had a material impact on the
Company's exposure to Mitie; c.5% of the Company's portfolio (by
investment at fair value) has Mitie as a service provider.
Over the course of 2020, all the Company's facilities have
remained operational with no disruptions to service delivery. In
response to Covid-19, the Company's Investment Adviser has
continued to monitor each counterparty as normal, but it has
increased the frequency of its reviews to ensure that any issues as
a result of Covid-19 are identified as soon as possible.
INPP Service Providers
[Chart can be found within the PDF document of the report on the
Company website.]
The Investment Adviser takes a holistic approach to monitoring
counterparty risk. A key aspect of the Investment Adviser's risk
management activities is a focus on the early identification of
signs that a counterparty is encountering problems through regular
contract performance monitoring and internal performance
benchmarking of contracts, in-depth reviews of counterparty
financial and market data, information available in the trade press
and drawing upon the Investment Adviser's contacts in the industry
for other non-public information. Through contingency planning and
identifying any increased counterparty risk early, it allows for
corrective measures identified in the contingency plans to be taken
early, mitigating potential losses to the Company. Those measures
may include working more closely with the contractor to support it
in its efforts to improve contract performance or, ultimately, the
implementation of the full contingency plan designed to facilitate
the replacement of that contractor.
Ultimately the Company's desire is to see its service providers
succeed and to deliver a high-quality service; and the Investment
Adviser makes all efforts to ensure this is achieved. However,
where a subcontractor does fail, the Investment Adviser has the
necessary processes and procedures in place to mitigate and manage
the risk to the Company.
PROJECTS UNDER CONSTRUCTION
The Investment Adviser's asset management team has extensive
experience and possesses the key skillsets needed to successfully
deliver projects through construction and throughout the
operational phase. The Company has a strong track record of
delivering construction projects safely, on time, to budget and to
a high-quality by understanding the project environment and the
potential risks that may occur. The team works closely with the
contractors, technical advisers and management companies, where
applicable, throughout this stage in order to deliver the expected
project performance and create value for investors and communities.
As at 31 December 2020, two projects were under construction
representing 9.1% of the Company's portfolio.
Despite Covid-19, Tideway made good progress on the construction
of the tunnel and associated infrastructure during 2020. As
outlined above, as a result of the UK Government's guidance issued
in March 2020 in response to the continued spread of Covid-19,
construction activities across the Tideway project sites were
reduced. The number of workers onsite increased in May 2020 as
restrictions eased and after a series of detailed safety reviews
and the implementation of measures to protect Tideway's workers and
the wider community had taken place. Notwithstanding this, as a
result of the impact of Covid-19 on the project, in August 2020,
Tideway published an update which included an estimated GBP233
million impact on cost, increasing the project cost from GBP3.9
billion to GBP4.1 billion, and a nine-month impact on schedule,
taking completion to March 2025. The construction works are more
than 60% complete and the final tunnel boring machine was launched
in January 2021. Construction activity has continued steadily
throughout the lockdown that began at the start of 2021.
Construction works for Offenbach Police Headquarters continued
to proceed during 2020 to budget. The implementation and operation
preparations have progressed well in close coordination with the
client and the local authority. The Company's current expectation
is that the project will be delivered on schedule for mid-2021.
Performance against strategic priority KPIs:
9.1% of portfolio under construction
Projects under construction as at 31 December 2020 are set out
in the table below.
ASSET LOCATION CONSTRUCTION DEFECTS COMPLETION STATUS AT PERIOD % OF FAIR
COMPLETION DATE VALUE OF
DATE INVESEMENT
------------------ ---------- -------------- ------------------- ------------------ ------------
Behind original
Tideway UK 2025 2028 schedule(1) 9.1%
------------------ ---------- -------------- ------------------- ------------------ ------------
Offenbach Police
Headquarters Germany 2021 2025 On Schedule 0.0%(2)
------------------ ---------- -------------- ------------------- ------------------ ------------
1 As a result of Covid-19, the construction completion date has
been impacted and it is now scheduled for March 2025.
2 The Investment Fair Value of Offenbach Police Headquarters as
at 31 December 2020 was 0.02%. The Company will invest c.GBP8.4
million once the project has reached practical completion in
mid-2021.
EFFicient FINANCIAL MANAGEMENT
The Company aims to manage its finances efficiently, to provide
the financial flexibility to pursue new investment opportunities,
whilst minimising levels of unutilised cash holdings. Efficient
financial management is achieved through actively monitoring cash
held and generated from operations, ensuring cash covered dividends
and managed levels of corporate costs. This is supported by
appropriate hedging strategies and prudent use of the Company's
corporate debt facility ('CDF').
During the period, the Company achieved its objective to
generate dividends paid to investors through its operating cash
flows. Cash dividends paid in the year of GBP101.5 million (31
December 2019: GBP101.8 million), were 1.2 times (31 December 2019:
1.3 times) covered by the Company's net operating cash flows before
capital activity.
Corporate costs were effectively managed during the period and
ongoing charges were 1.18% for the year ended 31 December 2020 (31
December 2019: 1.10%). This ratio increased in the year due to the
timing impact of a decline in the NAV during 2020 and captures the
full year of fees for the substantial NAV growth during 2019.
Corporate costs include management fees of GBP26.4 million for the
year to 31 December 2020 (31 December 2019: GBP23.4 million).
Performance against strategic priority KPIs:
1.2x Dividends fully cash covered
1.18% Ongoing charges ratio
As outlined on page 85 of the financial statements, IFRS profit
before tax of GBP60.8 million was reported (31 December 2019:
GBP137.8 million). The reduction compared to the prior year was
principally reflective of the one-off fair value gains recognised
on the BeNEX transaction in the prior year, as well as the current
period decrease in valuation of the portfolio overall as a result
of additional uncertainty caused by Covid-19.
The Company's cash balance as at 31 December 2020 was GBP44.3
million, broadly comparable to the corresponding balance at 31
December 2019 of GBP45.6 million. Cash receipts from investments
decreased by GBP6.6 million in the year, to GBP153.0 million (31
December 2019: GBP159.6 million), reflecting some distributions
being deferred as a result of additional uncertainty caused by
Covid-19. Please refer to page 86 for more information. Other
corporate costs during the period were negligible (31 December
2019: GBP0.1 million). As detailed in note 10 of the financial
statements, as well as on page 15 of the Operating Review earlier
in this report, GBP30.0 million of new capital was invested during
the year, lower than the prior year (31 December 2019: GBP281.3
million). As a result, investment transaction costs paid in 2020
were lower than in the prior year at GBP0.8 million (31 December
2019: GBP3.7 million).
At 31 December 2020, the Company's CDF was GBP38.4 million cash
drawn (31 December 2019: GBP27.9 million cash drawn). Net financing
costs paid were GBP4.2 million, a small decrease compared to the
prior year (31 December 2019: GBP4.7 million) reflecting the lower
level of utilisation of the Company's CDF during the year. The
Company's CDF was due to expire in July 2021 but in March 2021 was
amended and now matures in March 2024. The facility has the same
overall GBP400 million capacity as the previous fully committed
arrangement but is structured to more efficiently support the
Company's near-term pipeline with GBP250 million on a fully
committed basis together with a flexible 'accordion' component
which will, subject to lender approval, allow for a future
extension by an additional GBP150 million. The banking group for
the existing facility has been retained. This includes National
Australia Bank, the Royal Bank of Scotland International, Sumitomo
Mitsui Banking Corporation and Barclays Bank.
SUMMARY OF CASH FLOWS
SUMMARY OF CONSOLIDATED CASH YEAR TO 31 DECEMEBER YEAR TO 31 DECEMEBER
FLOW 2020 2019
GBP MILLION GBP MILLION
------------------------------ --------------------- ---------------------
Opening cash balance 45.6 84.7
Cash from investments 153.0 159.6
Corporate costs (for ongoing
charges ratio) (28.3) (25.1)
Other corporate costs - (0.1)
Net financing costs (4.2) (4.7)
------------------------------ --------------------- ---------------------
Net operating cash flows
before capital activity(1) 120.5 129.7
------------------------------ --------------------- ---------------------
Cost of new investments (30.0) (281.3)
Investment transaction costs (0.8) (3.7)
Net movement of CDF 10.5 27.9
Proceeds of capital raisings
(net of costs) - 190.1
Dividends paid (101.5) (101.8)
Closing cash balance 44.3 45.6
------------------------------ --------------------- ---------------------
Cash dividend cover 1.2x 1.3x
------------------------------ --------------------- ---------------------
1 Net operating cash flows before capital activity as disclosed
above of c.GBP120.5 million (31 December 2019: c.GBP129.7 million)
include net repayments from Investments at Fair Value through
profit and loss of c.GBP39.5 million (31 December 2019: c.GBP40.2
million), and finance costs paid of c.GBP4.2 million (31 December
2019: c.GBP4.7 million) and exclude investment transaction costs of
c.GBP0.8 million (31 December 2019: c.GBP3.7 million) when compared
to net cash inflows from operations of c.GBP84.2 million (31
December 2019: c.GBP90.5 million) as disclosed in the statutory
cash flow statement on page 88 of the financial statements.
2 The decrease in cash dividends for the period was due to an
increase in scrip dividend uptake. Please see more information on
page 101.
CASH FLOWS ASSOCIATED WITH ONGOING CHARGES RATIO
CORPORATE COSTS YEAR TO 31 DECEMBER 2020 YEAR TO 31 DECEMBER
GBP MILLION 2019
GBP MILLION
--------------------- ------------------------- --------------------
Management fees (26.4) (23.4)
Audit fees (0.2) (0.3)
Directors' fees (0.4) (0.4)
Other running costs (1.3) (1.0)
Corporate costs (28.3) (25.1)
--------------------- ------------------------- --------------------
ONGOING CHARGES RATIO YEAR TO 31 DECEMBER 2020 YEAR TO 31 DECEMBER
GBP MILLION 2019
GBP MILLION
------------------------------- ------------------------- --------------------
Annualised Ongoing Charges(1) (28.3) (25.1)
Average NAV(2) 2,393.3 2,285.3
Ongoing Charges (1.18%) (1.10%)
------------------------------- ------------------------- --------------------
1 The Ongoing Charges ratio was prepared in accordance with the
AIC recommended methodology, noting this excludes non-recurring
costs.
2 Average of published NAVs for the relevant period.
INVESTOR RETURNS
DIVID GROWTH
The Company targets predictable and, where possible, growing
dividends. The Company forecasts to pay the second 3.68 pence per
share dividend in respect of the 12 months to 31 December 2020 in
June 2021. Once paid, this would bring the total dividends paid in
respect of 2020 in line with the previously announced target of
7.36 pence per share (2019: 7.18 pence per share).
As illustrated in the chart on page 2, the Company has delivered
a c.2.5% average annual dividend increase since IPO. The Company is
currently maintaining its previously announced dividend target of
7.55 pence per share in respect of 2021 and provides new guidance
of 7.74 pence per share for 2022(1) .
TOTAL SHAREHOLDER RETURN
The Company's annualised TSR2 since the IPO to 31 December 2020
was 8.8%. This compares to the annualised FTSE All-Share Index TSR
over the same period of 4.7%. The total return based on the NAV
appreciation plus dividends paid since the IPO to 31 December 2020
is 7.7%(2) on an annualised basis compared to the Company's
long-term target return of 7.0%(3) .
As shown in the share price performance graph below, the Company
has historically exhibited relatively low levels of correlation
with the market. Whilst the correlation during the 12-months to 31
December 2020 increased owing to the impacts of Covid-19 on
economies worldwide, we anticipate the correlation to return to
more normal levels over the longer term. For reference, the
correlation with the FTSE All-Share Index was 0.194 and 0.381 over
the five years to 31 December 2019 and 31 December 2020,
respectively.
Share Price Performance
[Diagram can be found in PDF version of this document on the
Company's website].
Inflation-linked cash flows
In an environment where investors are focused on achieving
long-term real rates of return on their investments, inflation
protection is an important consideration for the Company. At 31
December 2020, the majority of assets in the portfolio had some
degree of inflation-linkage and, in aggregate, the weighted average
return of the portfolio (before fund-level costs) would be expected
to increase by 0.78% per annum in response to a 1.00% per annum
increase in all of the assumed inflation rates(4) .
1 There can be no assurance that these targets will be met or
that the Company will make any distributions at all. Whilst we
generally have good forward-visibility of cash flows generated by
the Company's investments the current Covid-19 pandemic creates
additional uncertainty.
2 Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
3 Calculated by reference to the November 2006 IPO issue price
of 100p and reflecting NAV appreciation plus dividends paid.
4 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.
VALUATIONS
NAV
The NAV represents the fair value of the Company's investments
plus the value of other net assets or liabilities held within the
Group. The fair values of the Company's investments are determined
by the Board, with the benefit of advice from the Investment
Adviser, and are reviewed by the Company's auditor on a sample
basis. The Company reports a 1.7% decrease in NAV from GBP2,425.2
million at 31 December 2019 to GBP2,384.4 million at 31 December
2020. Over the same period, the NAV per share decreased by 2.3%
from 150.6 pence to 147.1 pence. The key drivers of the change in
NAV are described in more detail below.
NAV Movements (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
The movements seen in the chart above are explained further
below:
- The yields on the overwhelming majority of government bonds
used as part of the valuation process decreased during the period,
resulting in a net GBP105.4 million increase in the NAV;
- The net positive impact of the reduction in government bond
yields was offset in part by an increase in the investment risk
premia designed to ensure that (i) the valuations continue to
reflect recent market-based evidence of pricing for infrastructure
investments and (ii) any heightened or emerging risks owing to
Covid-19 are reflected within the valuation of relevant investments
(principally in relation to Diabolo). The net impact of these
adjustments was a reduction in the NAV of GBP101.7 million;
- In line with forward guidance provided previously, two cash
dividends of 3.59 pence and 3.68 pence per share were paid to the
Company's shareholders during the year in relation to the six-month
periods to 31 December 2019 and 30 June 2020 respectively,
totalling GBP101.5 million;
- Sterling weakened against all four currencies the Company is
exposed to, being the Euro, the Australian dollar, the US dollar,
and the Canadian dollar. Including the change in the value of the
forward foreign exchange contracts, the net positive impact on the
NAV was GBP19.6 million with the most significant impact seen on
the Company's Australian dollar-denominated investments;
- Cash deposit rate assumptions were prudently revised to
reflect lower interest rate expectations across all geographies in
which the Company is invested. Further detail of these changes can
be seen from the table on page 33 and in aggregate these had a
negative GBP24.9 million impact on the NAV;
- Amongst other things, the NAV Return of GBP62.3 million captures the impact of the following:
o Unwinding of the discount rates;
o Updated operating assumptions to reflect current expectations
of forecast cash flows. This includes (i) the cautious approach
that has been adopted with regard to the potential impact of
Covid-19 on Tideway, Diabolo and, to a lesser extent, Cadent and
BeNEX, and (ii) the updates to the forecast Cadent cash flows to
reflect the regulatory returns for the price control period
beginning in April 2021 (see page 9 for more information);
o Revised cash flows of the Company's investment in NDIF
reflecting uplifts in the underlying valuation of NDIF's assets
following recent transaction benchmarks, specifically on Airband
and Community Fibre;
o Actual distributions received above the forecast amount due to
active management of the Company's portfolio; and
o Changes in the Company's working capital position.
INVESTMENTS AT FAIR VALUE
The Investments at Fair Value represents the fair value of the
Company's investments without consideration of the other net assets
or liabilities held within the Group which are captured within the
NAV. The Company reports a 1.6% decrease in the Investments at Fair
Value from GBP2,382.6 million at 31 December 2019 to GBP2,345.4
million at 31 December 2020. The key drivers of the change in the
Investments at Fair Value are described in more detail below.
Investments at Fair Value Movements
[Diagram can be found in PDF version of this document on the
Company's website].
The movements seen in the chart above are explained further
below.
- An increase of GBP30.0 million owing to new investments made
during the period. Please refer to pages 15 to 17 for more
information;
- A decrease of GBP153.0 million due to distributions paid out
from the portfolio during the period;
- The Rebased Investments at Fair Value of GBP2,259.6 million is
presented in order to allow an assessment of the Portfolio Return
assuming that the investments and distributions occurred at the
start of the relevant period;
- The Portfolio Return of GBP83.7 million captures broadly the
same items as the NAV Return (set out in detail on page 30) with
the principal exception being the fund-level operating costs and
portfolio working capital movements;
- There was a net decrease in the discount rates used by the
Company to value its investments which had a positive GBP3.7
million impact on the Investments at Fair Value. Further
information on the component parts of the impact shown is provided
on page 31;
- Sterling weakened against all four currencies the Company is
exposed to, being the Euro, the Australian dollar, the US dollar
and the Canadian dollar. The net positive impact on Investments at
Fair Value was GBP23.3 million with the most significant impact
seen on the Company's Australian dollar-denominated investments;
and
- Cash deposit rate assumptions were prudently revised to
reflect the lower interest rate expectation across all geographies
in which the Company is invested. Further detail of these changes
can be seen from the table on page 33 and in aggregate these had a
negative GBP24.9 million impact on the Investments at Fair
Value.
PROJECTED CASH FLOWS
The Company's investments are generally expected to continue to
exhibit predictable cash flows, owing to the principally contracted
or regulated nature of the underlying 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 before
fund-level costs.
The majority of the forecast investment receipts are in the form
of dividends or interest and principal payments from subordinated
and senior debt investments. The Company's portfolio comprises both
investments with finite lives (determined by concession or licence
terms) and perpetual investments that may be held for a much longer
term. Over the term of investments with finite lives, the Company's
receipts from these investments effectively represent a return of
capital as well as income, and the fair value of such investments
is expected to reduce to zero over time.
Projected Investment Receipts
[Diagram can be found in PDF version of this document on the
Company's website].
Macroeconomic Assumptions
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis. Following a thorough market
assessment, it was resolved that certain adjustments should be made
to the deposit rates and foreign exchange rates used to value the
Company's overseas assets.
The key macroeconomic assumptions used as the basis for deriving
the Company's investment valuations are summarised overleaf, with
further details provided in note 9 of the financial statements.
MACROECONOMIC ASSUMPTIONS 31 DECEMBER 2020 31 DECEMBER 2019
--------------------------- ----------- ------------------------- -------------------------
Inflation Rates UK 2.75% RPI/2.00% 2.75% RPI/2.00%
CPIH CPIH
Australia 2.50% 2.50%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
US(1) N/A N/A
--------------------------- ----------- ------------------------- -------------------------
Long-term Deposit Rates(2) UK 1.00% 2.00%
Australia 2.00% 3.00%
Europe 0.50% 2.00%
Canada 1.50% 2.50%
US(1) N/A N/A
--------------------------- ----------- ------------------------- -------------------------
Foreign Exchange Rates(3) GBP/AUD 1.77 1.92
GBP/EUR 1.11 1.13
GBP/CAD 1.74 1.80
GBP/USD 1.37 1.37
--------------------------- ----------- ------------------------- -------------------------
Tax Rates(4) UK 19.00% 19.00%
Australia 30.00% 30.00%
Europe Various (12.50%-32.28%) Various (12.50%-32.28%)
Canada Various (23.00%-26.50%) Various (23.00%-26.50%)
US(1) N/A N/A
--------------------------- ----------- ------------------------- -------------------------
1 The Company's US investment is in the form of subordinated
debt and is therefore not directly impacted by inflation, deposit
and tax rate assumptions.
2 The portfolio valuation assumes actual current deposit rates
are maintained until 31 December 2022 before adjusting to the
long-term rates noted in the table above from 1 January 2023. The
31 December 2019 valuation assumed the long-term rates noted in the
table above would apply from 1 January 2022.
3 As of the 31 December 2020 valuation date, the Company revised
its approach to use FX spot rates to convert forecast cash flows
from overseas investments in sterling rather than the four-year
forward curve that was used previously. The impact of this change
was immaterial.
4 Tax rates reflect those substantively enacted as at the
valuation date or those that could reasonably be expected to be
substantively enacted shortly after the valuation date
Discount Rates
The discount rate used to value each investment comprises the
appropriate long-term government bond yield plus an
investment-specific risk premium which reflects the risks and
opportunities associated with that particular investment and is
designed to ensure that the resulting valuation reflects prevailing
market conditions.
The majority of the Company's portfolio (88.9%) comprises Risk
Capital investments, whilst the remaining portion (11.1%) comprises
senior debt investments. 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 - the latter of which captures the discount rates of all
investments including the senior debt interests.
The weighted average discount rates are presented in the table
below.
31 DECEMBER 31 DECEMBER
2020 2019 MOVEMENT
----------------------------- ------------ ------------ ---------
Weighted Average Government
Bond Yield - Portfolio 0.56% 0.98% (42bps)
----------------------------- ------------ ------------ ---------
Weighted Average Investment
Premium - Portfolio 6.41% 6.04% 37bps
----------------------------- ------------ ------------ ---------
Weighted Average Discount
rate - Portfolio 6.97% 7.02% (5bps)
----------------------------- ------------ ------------ ---------
Weighted Average Discount
rate - Risk Capital 7.52% 7.52% -
----------------------------- ------------ ------------ ---------
The Company is aware that there are differences in approach to
the valuation of investments among listed infrastructure funds
similar to the Company. In the Company's view, comparisons of
discount rates between different listed infrastructure funds are
only meaningful if there is a comparable level of confidence in the
quality of forecast cash flows (i.e. assumptions are homogenous);
the risk and return characteristics of different investment
portfolios are understood; and allowance is made for differences in
the quality of asset management employed to manage risk and deliver
returns. Any focus on average discount rates without an assessment
of these and other factors would be incomplete and could therefore
lead to misleading conclusions.
VALUATION SENSITIVITIES
This section indicates the sensitivity of the 31 December 2020
NAV per share of 147.1 pence to changes in key assumptions. Further
details can be found in note 9 of the financial statements. This
analysis is provided as an indication of the potential impact of
these assumptions on the NAV per share on the unlikely basis that
the changes occur uniformly across the portfolio. The movement in
each assumption could be higher or lower than presented. Further,
forecasting the impact of these assumptions on the NAV in isolation
cannot be relied on as an accurate guide to the future performance
of the Company as many other factors and variables will combine to
determine what actual future returns are available. These
sensitivities should therefore be used only for general guidance
and not as an accurate prediction of outcomes.
Estimated impact of changes in key assumptions on the 31
December 2020 NAV of 147.1 pence per Share
[Diagram can be found in PDF version of this document on the
Company's website].
DISCOUNT RATES
The chart above indicates the sensitivity of the NAV per share
to uniform changes to the discount rates applied to the forecast
cash flows from each individual investment.
INFLATION
The impact of inflation on the value of each investment depends
upon the extent to which the revenues and costs of that particular
investment are linked to an inflation index. On a portfolio basis,
there is a positive correlation to inflation with a 1.00% sustained
increase in the assumed inflation rates projected to generate a
0.78% increase in returns (31 December 2019: 0.82%). The returns
generated by the Company's UK investments are typically linked to
the Retail Price Index ('RPI'), whereas the Company's non-UK
investments are typically linked to the relevant Consumer Price
Index ('CPI') for that jurisdiction. Further to recent
announcements by the UK's energy and water regulators, the revenues
earned by Cadent and Tideway will be linked to the CPIH (CPI
including owner occupied housing costs) from 2021 and 2030,
respectively. The regulators have stated that this is not designed
to negatively impact companies but rather to reflect the perceived
shortcomings of the RPI (i.e. the regulators' intentions are for
the transition from RPI to CPIH to be valuation neutral). The
inflation sensitivities by geographical region are provided in note
9.5 of the financial statements.
FOREIGN EXCHANGE
The Company has a geographically diverse portfolio and forecast
cash flows from investments are subject to foreign exchange rate
risk in relation to Euros, Australian dollars, Canadian dollars and
US dollars. The Company seeks to mitigate the impact of foreign
exchange rate changes on near-term cash flows by entering into
forward contracts, but the Company does not hedge exposure to
foreign exchange rate risk on long-term cash flows. The impact of a
10% increase or decrease in these rates is provided for
illustration.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across
the portfolio is 1.05% per annum. While operating cash balances
tend to be low given the structured nature of the investments,
project finance structures typically include cash reserve accounts
to provide additional security to the lenders and therefore
variations to deposit rates may impact valuations. The impact of a
1.00% increase or decrease in these rates is provided for
illustration.
TAX RATES
Post-tax investment cash inflows are impacted by tax rates
across all relevant jurisdictions. The impact of a 1.00% increase
or decrease in these rates is provided for illustration. Other
potential tax changes are not covered by this scenario. In March
2021, the UK Government announced that the headline rate of
corporation tax will be increased from 19% to 25% with effect from
April 2023. This future tax rate increase has not been reflected
within the 31 December 2020 valuations owing to the timing of the
announcement (which occurred following the period end) but is
estimated to have a c.GBP30 million negative impact on the
Company's NAV once the increase is reflected in the forecast
investment cash flows.
LIFECYCLE SP
There is a process of renewal required to keep physical assets
fit for use and the proportion of total cost that represents this
'lifecycle spend' will depend on the nature of the asset.
PPPs will typically need to ensure that the assets are kept at
the standard required of them under agreements with relevant public
sector counterparties. To enhance the certainty around cash flows,
the majority of the Company's PPP investments, and all of the
Company's OFTO investments, are currently structured such that
lifecycle cost risk is taken by a subcontractor for a fixed price
(isolating equity investors from such downside risk). As a result,
the impact of changes to the forecast lifecycle costs for the
Company's PPP investments is relatively small.
The Company's investments in rolling stock leasing or operating
businesses, or businesses providing digital infrastructure, are
also distinct from PPPs which have fixed revenue streams from which
they need to pay lifecycle costs. These businesses will still
expect to incur lifecycle costs but will typically aim to recover
any changes in lifecycle costs through the prices they charge their
end-users.
Tideway and Cadent are treated differently due to the
protections offered by the regulatory regimes under which they
operate. Regulated assets have their revenues determined for a
known regulatory period and each settlement includes revenue
sufficient to allow the owner to undertake the efficient lifecycle
management of its assets due in that regulatory period. It is
common practice to employ reputable subcontractors to undertake
lifecycle work under contracts which include incentive and penalty
regimes aligned with the businesses' regulatory targets. This
approach ensures an alignment of interest and helps to mitigate the
risk of increased lifecycle costs falling on the equity investor.
Accordingly, no lifecycle sensitivity has been run in respect of
the Company's investments in Tideway and Cadent.
The impact of a 10% increase or decrease in the lifecycle costs
incurred by the Company's PPPs, OFTOs and operating businesses is
provided for illustration.
By order of the Board
Mike Gerrard John Le Poidevin
Chair Director
24 March 2021 24 March 2021
RESPONSIBLE INVESTMENT
RESPONSIBLE INVESTMENT
Fundamentally, the Company believes that the financial
performance of its investments is linked to environmental and
social success and as such, the Company considers all issues that
have the potential to impact the performance of its investments,
both now and in the future.
Consideration of ESG drivers is an essential part of how the
Company assesses the long-term viability of the investments that it
makes and its associated asset management strategies. ESG drivers
are non-financial factors that can influence and be influenced by
the Company's business activities and include issues such as
climate change, demographics, resources, technology and social
values.
ESG is important to the Company for the following key
reasons:
- ESG drivers present an opportunity for new markets and investments;
- Incorporating ESG into the Company's management processes
supports its high standards of financial rigour and requirements
for long-term financial performance;
- By investing in infrastructure and associated businesses, the
Company can meaningfully support sustainable development.
POLICY
The Company has adopted the ESG Policy(1) of its Investment
Adviser. It defines the objectives and approach to embedding ESG in
operations, investments, and the communities in which the Company's
investments operate. The Company is supportive of the 2030 Agenda
for Sustainable Development adopted by the UN Member States in
2015. Alongside the Investment Adviser's research into emerging ESG
trends and sustainable development, the Company draws on the SDGs
to help guide its approach to sustainability. More information on
the Investment Adviser's award-winning(2) approach to ESG can be
found in its 2020 Global Sustainability Report(3) .
GOVERNANCE
The Board has overall responsibility for ESG and ensuring it is
fully integrated into all aspects of the investment strategy. To
support it in this role, the Board has established a new ESG
Committee. The ESG Committee will provide a forum for mutual
discussion, support and challenge, with respect to ESG. This
includes the policies adopted by the Company in relation to both
investments and divestments and by its Investment Adviser regarding
its asset management activities and reporting on such matters to
the ESG Committee and Board.
The Investment Adviser is responsible for implementing its ESG
policies into the Company's portfolio on a day-to-day basis. This
includes the integration of ESG considerations through investment
origination and management of the Company's investments.
PRI
To benchmark the Investment Adviser's ESG integration
performance, the Investment Adviser became a signatory of the
UN-backed PRI in August 2019. In addition to integrating ESG into
core investment practices across the business, the Investment
Adviser participates in various PRI-led initiatives and working
groups such as the UN SDG Infrastructure Working Group. This
included contributing towards a set of practical guidelines that
have recently been published by the PRI(4) .
Reporting is compulsory for all PRI signatories. Upon joining
the PRI, signatories have a one-year period whereby the first
reporting cycle is voluntary. As previously reported, the Company's
Investment Adviser decided to forgo this grace period and, upon
submitting its first report, obtained an A+ ranking for both
responsible investment strategy and governance, and the
infrastructure module. The PRI assessment methodology(5) and the
Investment Advisers Transparency Report can be found on the PRI
website(6) .
1 https://www.amberinfrastructure.com
/media/2231/esg-policy_final.pdf. The policy was updated in
2020.
2 https://www.esginvesting.co.uk/awards/shortlistedfinalists2021/.
3
https://www.amberinfrastructure.com/media/2344/amber-2020-global-sustainability-report.pdf.
4
https://www.unpri.org/sustainable-development-goals/bridging-the-gap-how-infrastructure-investors-can-contribute-to-sdg-outcomes/6053.article.
5 https://www.unpri.org/report/about-reporting-and-assessment.
6 https://www.unpri.org/signatory-directory/amber-infrastructure-group/4757.article.
UN SUSTAINABLE DEVELOPMENT GOAL ALIGNMENT
The Investment Adviser, on behalf of the Company, has aligned
with the SDGs(1) . In addition to screening and managing material
ESG risks, both organisations have committed to advancing these
objectives. Infrastructure appears as both an explicit goal under
SDG 9 (industry, innovation and infrastructure) and as an implicit
means to support other SDGs, for example school buildings enabling
a quality education (SDG 4).
By investing in the 'right type' of infrastructure, the Company
believes its investments can significantly support the targets set
out by the SDGs. For each investment sector, the Company has
identified which SDGs its investments are positively supporting.
The core benefits to society are described under the Impact section
on the following pages.
Equally, the Company believes any investment must be managed in
a sustainable way. The Company has undertaken an exercise to
identify what ESG topics are material for each sector that need to
be actively managed. This is to ensure that any ESG risks are
managed, and opportunities for environmental and social progress
are maximised. Performance against these objectives is described
under Sustainable Management. The principal SDGs supported by the
Company's investments are set out below.
[Graphics can be found in PDF version of this document on the
Company's website].
1
https://www.un.org/sustainabledevelopment/sustainable-development-goals/
RESPONSIBLE INVESTMENT
IMPACT AND STEWARDSHIP
In line with the Company's commitment to the highest levels of
investment stewardship, it seeks to manage its portfolio
sustainably. The Company has introduced several minimum
requirements as part of the overall ESG governance framework that
go beyond meeting local regulations. Given the regions in which the
Company invests, this means that its investments are required to
meet high standards of environmental and social safeguarding.
The Company also seeks to go beyond compliance and has
established a series of bespoke ESG stewardship objectives to drive
sustainability within its approach to active investment management.
These objectives map out how the Company can manage investments
sustainably and include sector-specific environmental and social
policies. Areas of focus include energy, waste water, health and
safety, sustainable employment, diversity and inclusion.
ESG impact and stewardship objectives are divided into five
asset categories: social infrastructure, waste water, transport,
energy transmission and gas distribution. This allows the Company
to target and manage material ESG issues, which can vary
considerably across a diverse portfolio of investments. These
include all sectors listed in the sector breakdown in the Company
Overview section of this report.
Whilst the Company focuses on material issues for each sector,
there are several requirements and issues which are relevant across
the portfolio including health and safety, Covid-19 and climate
change.
HEALTH AND SAFETY
As noted elsewhere in this report, health and safety is a core
value for the Company. The health, safety and well-being
performance of the supply chain who are engaged on the projects and
within the operating businesses is measured by an Accident
Frequency Rate ('AFR') calculated by the number of occupational
accidents arisen during a period of twelve months per 100,000 hours
worked.
Data is reported and evaluated on a quarterly basis including
hours worked, minor injuries, near misses, critical incidents and
the number of lost time injuries which occurred as a result of work
activities. Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations ('RIDDOR') Dangerous Occurrence and
Specified Injuries are reported in accordance with Health and
Safety Executive guidance.
COVID-19
We have been successfully working with our Investment Adviser to
avoid disruptions caused by Covid-19. The well-being of the people
who deliver, manage and operate the Company's infrastructure
assets, and the communities they serve, has remained our priority
during the last 12 months. As always, we are focused on helping our
clients achieve their service requirements through disciplined
long-term investing.
CLIMATE CHANGE
Climate change presents both transitional and physical risks to
the Company's investments. As such, it continues to be a high
priority for the Company and we have resolved to align with the
recommendations of the TCFD. During 2020, the Company's Investment
Adviser commissioned an external third party to undertake a review
of the Company's current practices and make recommendations as to
how we can enhance our approach and disclosures in accordance with
the TCFD Guidelines. The Company is actively developing a carbon
footprint from across its investments to establish a baseline and
will be developing ways to enhance its consideration and disclosure
of transition and physical risks of climate change.
Climate change is considered alongside other ESG risks by the
Company's ESG Committee, Investment Committee and Audit and Risk
Committee.
[Graphics can be found in PDF version of this document on the
Company's website].
SOCIAL INFRASTRUCTURE
Incorporates the Company's investments in educational
facilities, hospitals, healthcare facilities, judicial and other
government buildings
impact
Education HEALTHCARE GOVERNMENT
267 Schools 3 Hospitals 5 Police Stations
>195,000 Pupils 37 Healthcare facilities 8 Judicial Buildings
>540,000 patients
treated annually
Social infrastructure forms the foundation of healthy and
resilient communities. This sector comprises the buildings that
house social services in a community, such as education and
healthcare facilities, and buildings related to justice, emergency
and civic services. These social-purpose structures underpin the
communities they support. In addition to providing essential
services, they also contribute to economic growth, employment and
social cohesion.
Covid-19 has emphasised how important this sector is and how
crucial equitable access is to a well-functioning society. Private
finance has an important role in supporting governments around the
world filling the social infrastructure investment gap.
By investing directly in social infrastructure, the Company is
supporting three SDGs: SDG 3 (good health and well-being), SDG 4
(quality education) and SDG 9 (industry, innovation and
infrastructure).
SUSTAINABLE MANAGEMENT(1)
ENVIRONMENT
92% Investments with an Environment Management System
94% Investments monitoring energy usage
31% Investments monitoring waste
88% Investments monitoring water
83% BREEAM 'Very Good' or higher(2)
During 2020, 92% of social infrastructure investments were
managed by facilities management companies with an Environmental
Management System, with no reportable environmental incidents.
The Company identified that 94% of social infrastructure
investments monitored their energy usage, with 66% having energy
saving targets. In addition, 33% of schools generated electricity
onsite using renewable sources. During Covid-19, efforts have been
made to maximise energy efficiency of buildings. For example, due
to the limited number of teaching staff and pupils, the heating
controls were optimised to ensure only occupied rooms were
heated.
During 2021, the Company will be focusing on initiatives to
improve the environmental performance of these investments, with a
focus on energy, greenhouse gas ('GHG') emissions and natural
resource use.
social
100% Investments with a health and safety policy and management
system
>4,00 Full-time employees
96% Investments with equality, diversity and inclusion policy
21,800 Additional community hours
Health and safety continues to be a core value for the Company
and its Investment Adviser, particularly as Covid-19 remains
prevalent in the countries in which the Company invests. All
investments must ensure that workers avoid or limit exposure to
Covid-19 as much as possible. The Company's Investment Adviser has
implemented and/or supported measures to facilitate this, including
rotating shifts, remote work, enhanced protections, training or
cleaning, adopting the occupational safety and health guidance, and
closing locations, where necessary.
The Company's Investment Adviser has been proactively engaging
with its public sector clients and supply chain to provide support,
where possible. This includes ensuring that investments remain open
where necessary, and in some cases are repurposed. Across the
portfolio, the Company has large spaces, such as sports halls, that
have been made available for broader use while the asset itself has
either been closed or not fully occupied. Please refer to the case
study on pages 13 to 14 for more detail.
1 Note: Metrics are estimates and include the Company's
investments in social infrastructure, schools, hospitals,
healthcare facilities, judicial and other government buildings
2 https://www.breeam.com/
[Relevant SDG graphics can be found in PDF version of this
document on the Company's website].
WASTE WATER
Encompasses the Company's investment in Tideway
impact
37 million Cubic metres of avoided sewage
25km Tunnel length
3 Acres New public space
The London Tideway Improvements projects, of which the Thames
Tideway Tunnel is the last component, will work to reduce the
number of discharges from over 50 to four or fewer in a typical
year. This will mean that up to 37 million cubic metres(1) of
untreated sewage will be collected before it enters the river,
cleaning up the river for future generations of Londoners. This
will bring a number of environmental benefits, such as allowing the
river to sustain a rich, diverse array of wildlife.
While the main benefit of the tunnel when built is to prevent
pollution and improve biodiversity in the tidal River Thames,
during the eight-year construction period, the project has been,
and continues to be, delivered in a sustainable way.
By investing directly in Tideway, the Company can directly
support three SDGs: SDG 6 (clean water and sanitation), SDG 9
(industry, innovation and infrastructure) and SDG 11 (sustainable
cities and communities).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
100% Investments with an Environment Management System
53 tCO(2) e Scope 2 GHG Emissions
101,810 tCO(2) e Scope 3 GHG Emissions
90% Beneficial re-use of excavated material
Tideway has a robust Environmental Management System in place to
deliver its planning requirements and legacy commitments. This
includes a variety of initiatives to minimise its impact on the
environment, including the innovative 'More by River strategy',
which has been developed to reduce the number of HGVs needed to
deliver the project.
The project's use of the river to transport materials over the
period has avoided carrying 2.4 million tonnes of material on
London's roads, bringing the total to 3.3 million tonnes
transported by river so far. This modal shift has avoided 400,000
HGV journeys, 10 million HGV road miles and 10,000 tonnes of CO(2)
e(2) . This year has seen the peak of river transport use for
Tideway whilst supporting the construction of three main tunnel
drives, shafts and connection tunnels.
Tideway continues to track emissions performance against its
anticipated construction carbon footprint of under 768,756 tonnes
of CO(2) e. Tideway's Scope 2 emissions were 53 tonnes of CO(2) e
and Scope 3 were 101,810 tonnes of CO(2) e for 2020.
social
100% Investments with a health and safety policy and management
system
2,470 Full-time employees
54% Female employees
Tideway's social performance metrics continue to meet the high
standards set by the business, despite the impact of Covid-19.
Tideway's science, technology, engineering and mathematics ('STEM')
education programme volunteering hours KPI doubled its target,
achieving 689 hours of volunteering delivered. In 2020, the focus
has been on delivering an impactful virtual education experience
for young people, one of the worst-affected groups by the pandemic,
particularly in terms of the labour market and mental health
outcomes.
Tideway has a strong focus on community fundraising and gave
emergency donations to South London Cares, The Drive Forward
Foundation and London Youth Rowing at the end of the business year
to support them with the impact of the Covid-19 crisis.
Through its More by River initiative, Tideway is actively
reducing the likelihood of causing a road traffic accident by
removing over 400,000 HGV movements to date. This modal shift has
avoided a projected 11 serious collisions resulting in
life-changing injuries, based on evidence obtained from previous
large infrastructure projects(2) .
1
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/471847/thames-tideway-tunnel-strategic-economic-case.pdf
2 https://www.tideway.london/media/3128/a0601_green-bond-report-2018_vis8.pdf
[Relevant SDG graphics can be found in PDF version of this
document on the Company's website].
TRANSPORT
Includes transport-related investments, such as rail PPPs and
other rail businesses
impact
>151 million Passenger journeys
5,100 Train units
>825 million Train km per annum
Well-planned and coordinated economic infrastructure is critical
to the economic and social well-being of a community. Public modes
of transport are an increasingly important way to combat climate
change and have been identified as a key part of net-zero carbon
strategies emerging internationally(1) .
In normal times, the Company's rail investments move c.230
million passengers annually (over 627,000 people daily). This is
roughly the equivalent to moving the entire population of Glasgow
city(2) every day. During 2020, as a result of Covid-19, this
reduced to c.150 million.
Although rail is already an existing low-carbon form of
transport, the Company recognises that there will be a growing
shift towards cleaner trains, and it will fully support investments
to make this transition.
By investing directly in sustainable transport, the Company can
support SDG 9 (industry, innovation and infrastructure) and SDG 11
(sustainable cities and communities).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
89% Composition of train fleet that are electric(3)
100% Investments with a sustainability/ESG policy
60% Investments with an Environment Management System
100% Investments monitoring energy
The Company identified that its rail investments provide an
opportunity for improvement in sustainable management. Since
acquiring 100% of BeNEX the Company's Investment Adviser has been
closely engaging with the BeNEX board on developing a strategic
approach and has been working with it to appoint a third party to
undertake a strategic review of its approach to sustainability. In
addition, 100% of the Company's investments now have an overarching
ESG or sustainability policy.
Reliance Rail received its 2020 GRESB Infrastructure(4)
Benchmark Report with a five-star rating and score of 94 out of a
possible 100. This score ranks Reliance Rail 12th out of 406 GRESB
Infrastructure assessments and first out of all rail companies.
The product management team within Angel Trains has developed a
decarbonisation road map which focuses on new propulsion
technologies that eliminate classic diesel propulsion or reduce its
impact in terms of emissions and fuel usage. In 2020, Angel Trains
invested in new Class 720 Aventra electric rolling stock for the
East Anglia region of the UK, which has helped increase the
percentage of electric trains under ownership of the Company from
64% to 69%.
social
100% Investments with a health and safety policy
>2,290 Full-time employees
100% Equality diversity and inclusion policy
Health and safety is a core value of the Company's investments
in rail, with 100% of investments holding a robust health and
safety policy and management system.
All of the Company's rail investments have taken measures to
make travel as safe as possible during the pandemic, enabling
communities to stay connected where it is safe to do so. As an
example, Gold Coast Light Rail has implemented the following
measures:
- Cashless services are operating to reduce cash handling
- Daily sanitising of all services and regular cleaning of hard
surfaces and customer touch points on board services and at
stations
- Running increased services to help maintain social distancing
- Transport signage promoting distancing where possible and
information and messaging adapted regularly based on health advice
and customer feedback.
1 https://www.theccc.org.uk/publication/net-zero-technical-report/
2
https://www.nrscotland.gov.uk/files/statistics/council-area-data-sheets/glasgow-city-council-profile.html
3 Calculated by prorating the valuations of the relevant
investments by value attributable to electric trains.
4 https://gresb.com/infrastructure-asset-assessment/.
[Relevant SDG graphics can be found in PDF version of this
document on the Company's website].
ENERGY TRANSMISSION
Encompasses the Company's OFTO investments
impact
1.5 GW Transmission capacity
1.3 Million Homes powered by renewable
energy
Offshore wind generation is a success story for the UK.
Long-term government support has underpinned innovation and
investment in the sector, helping to drive down costs while
contributing to decarbonisation of the economy.
In 2020, the UK Government announced its ten-point plan for a
Green Industrial Revolution(1) . The plan includes a target to
quadruple offshore wind power by 2030 to 40GW. With seven OFTO
investments and three at preferred bidder stage, the Company is
well placed to support the UK Government's net-zero ambitions.
The Company's OFTO investments have a transmission capacity of
1.5GW, which transmits the equivalent amount of energy to 1.3
million homes. The additional three OFTO projects, of which the
Company is preferred bidder, would transmit renewable electricity
to an additional 1.4 million homes.
By investing in OFTOs, the Company is directly supporting SDG 7
(affordable and clean energy) and SDG 13 (climate action).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
100% Investments with an Environment Management System
100% Investments monitoring energy
100% Investments monitoring waste
As part of ISO 14001 accredited Environmental Management
Systems, each investment monitors water, energy usage and
waste.
Across all the sites the OFTOs are mandated by environmental
legislation to record the quantity of fluorinated gases ('F-gases')
held within the equipment. This includes sulphur hexafluoride
('SF6'), which is used across the energy transmission sector. Any
leaks of SF6 are immediately identified by supervisory control and
data acquisition ('SCADA') systems. No leaks were identified during
the period.
The Company is pleased to report that during 2020, there were no
reportable environmental incidents.
social
100% Investments with a health and safety policy and management
system
12 Full-time employees
33% Female employees
All of the Company's OFTO investments are covered by a robust
ISO18001 health and safety system. Transmission Capital Services(2)
implements several training initiatives, with all staff receiving
ongoing training which is relevant to their role.
Since the outbreak of Covid-19, the Company's Investment Adviser
has positively engaged with Ofgem and is coordinating with OFTO
projects outside of the Company's portfolio to explore potential
shared resource pools in the event of failure response being
compromised by organisational resource constraints.
1
https://www.gov.uk/government/news/pm-outlines-his-ten-point-plan-for-a-green-industrial-revolution-for-250000-jobs
2 Transmission Capital Services are responsible for management of the OFTO.
[Relevant SDG graphics can be found in PDF version of this
document on the Company's website].
Gas distribution
Currently comprises the Company's investment in Cadent
impact
4.9 million GJ/day Maximum energy throughput
>11 million Homes and businesses connected
to gas
As the largest gas distribution network in the UK, Cadent
provides an essential service that transports gas to over 11
million homes, offices and businesses; reliably, efficiently and
securely.
The UK Government's ten-point plan(1) , clearly states the
integral role of hydrogen and Carbon Capture and Storage ('CCS') in
its net-zero strategy(2) . This echoes the strong recommendations
from the Committee on Climate Change, which advised the UK
Government on the importance of hydrogen and CCS in de-carbonising
heat(3) .
By investing in Cadent, the Company is directly supporting two
SDGs: SDG 7 (affordable and clean energy) and SDG 9 (industry,
innovation and infrastructure).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
35 Biomethane connections
20,044 tCO(2) e Scope 1 GHG Emissions
6,103 tCO(2) e Scope 2 GHG Emissions
51 tCO(2) e Scope 3 GHG Emissions
95% Waste diverted from landfill
The Company is encouraged that hydrogen and CCS have been
included in the UK Government's ten-point plan, as the Company sees
them as important components to the UK meeting its net-zero
commitments.
Cadent's current HyDeploy trial at Keele University is
demonstrating that the delivery of hydrogen into the home will make
a strong basis for hydrogen neighbourhoods envisaged in the
ten-point plan(4) . Equally, Cadent's HyNet North West project
could provide an ideal CCS/hydrogen cluster for the candidate town
to be 100% heated by hydrogen(5) .
As a business, the most significant impact Cadent has on the
environment is leakage from the networks it operates, excavation
waste, vehicle emissions and waste from direct activities. Cadent
has made progress against each of these, with 95% waste diverted
from landfill in 2020 (94% in 2019/2020).
social
100% Investments with a health and safety policy and management
system
>4,900 Full-time employees
18% Female representation on the board
With over 4,900 staff and 11 million customers to look after,
Cadent is taking steps, beyond business as usual, to help keep the
public safe and supporting the NHS during Covid-19. Key measures
include:
- Several of Cadent staff volunteered to use their pipe-laying
skills to install oxygen pipes at the Nightingale hospital in
Birmingham
- Cadent is encouraging its staff to help in any way they can
such as delivering groceries or supporting food banks
Cadent has continued to deliver the emergency response service
for suspected gas leaks as well as its programme of essential
maintenance in order to keep the public safe, warm and able to cook
with gas.
1
https://www.gov.uk/government/news/pm-outlines-his-ten-point-plan-for-a-green-industrial-revolution-for-250000-jobs
2
https://www.gov.uk/government/publications/the-ten-point-plan-for-a-green-industrial-revolution.
3
https://www.theccc.org.uk/wp-content/uploads/2018/11/Hydrogen-in-a-low-carbon-economy.pdf.
4 https://hydeploy.co.uk/.
5 https://hynet.co.uk/.
[Relevant SDG graphics can be found in PDF version of this
document on the Company's website].
STAKEHOLDER ENGAGEMENT
VALUE CREATION - HOW WE ENGAGE
The Company takes a proactive approach to identifying and
engaging with key stakeholders. It achieves this through a
combination of Board engagement and oversight and leveraging the
Investment Adviser's expertise and networks. The Company believes
robust stakeholder engagement is a critically important component
to delivering its purpose. It is for this reason that stakeholder
engagement is considered at a strategic level by the Board.
1. Investor RETURNS
Consistent and growing returns
We aim to provide our investors with long-term, inflation-linked
returns, by growing our dividend and creating the potential for
capital appreciation. Through engagement with our investors, we aim
to inform our strategic objectives and to ensure that their views
on topical issues are understood by the Company. This approach is
intended to maximise investor buy-in to current objectives and
performance whilst also helping shape future plans for the
portfolio.
The key mechanisms for the Company's engagement with investors
include:
- Regular and timely updates on performance, including through
the annual and half-yearly reporting cycle
- The Company's AGM
- Investor days
- One-to-one meetings or calls with the Board's Chair and other Directors
- One-to-one meetings or calls with representatives from the Company's Investment Adviser
- Other Group engagement with representatives from the Company's Investment Adviser
- The Company's website
During Covid-19, the Company's approach to engaging with its
investors has had to adapt. Instead of face-to-face meetings, the
Company and its Investment Adviser have hosted presentations and
meetings with investors over digital platforms to ensure they are
kept informed on the Company's activities.
2. PUBLIC SECTOR & OTHER CLIENTS
A TRUSTED PARTNER
Through our investments we aim to provide the public sector and
other customers with a highly reliable, robust service. Our ability
to deliver contracted services and maintain strong relationships
with our clients through our Investment Adviser is vital for the
long-term success of the business. Through close engagement with
our clients, we aim to meet high levels of satisfaction and quickly
respond to any potential issues and emerging challenges.
The key mechanisms for engagement with our clients include:
- Regular meetings (where possible in person and/or virtually)
between the Investment Adviser and public sector clients including
local authorities and regulators
- Active asset management, which provides monitoring of the
facilities management arrangements on compliance with maintenance
obligations
- Asset managers directly engaging with the client on a day-to day-basis
The Company's Investment Adviser has been proactively engaging
with the Company's public sector clients to provide them with
support during Covid-19, where possible. This includes ensuring
that investments remain open where necessary, and in some cases
repurposed.
3. COMMUNITIES
STRENGTHENING COMMUNITIES
We strive to make our investments an integral part of the
communities they serve. Engaged communities can play an important
role in successful delivery of new assets and their long-term
operations. As part of our approach to active asset management, the
Investment Adviser ensures critical services are delivered with a
focus on the end user, ensuring that the community is at the heart
of all that we do. This approach is intended to help our
communities thrive and create robust environments for our
investments to flourish.
The key mechanisms for community engagement include:
- Active asset management providing facilities for community use
- Local Education Partnership agreements
- Supporting community initiatives
Throughout the pandemic, the Company has been seeking to support
those who have been negatively impacted by Covid-19. The Company,
through its Investment Adviser, has been supportive of its supply
chain and engaging with the communities in which they and the
Company's investments operate.
4. KEY SUPPLIERS
AN ENGAGED SUPPLY CHAIN
Our ambition is to work with a high-quality, sustainable supply
chain with a focus on long-term value for our stakeholders. The
performance of our service providers, their employees, and
investment supply chain is crucial for the long-term success of our
business. The Company takes a progressive approach to engaging with
key suppliers. A key component of this is ensuring our Investment
Adviser is proactively maintaining an engaged supply chain for our
investments.
The examples of mechanisms for engagement with key suppliers
include:
- Annual Management Engagement Committee review
- Ad hoc engagement
- Quarterly Board meetings and reporting
- Investment Adviser managing investment supply chain
The Company's ambition is to work with a high-quality,
sustainable supply chain with a focus on long-term value for our
stakeholders. Our service providers, employees, and investment
supply chain's performance is crucial for the long-term success of
our business. Throughout the pandemic, the Board has ensured that
its direct supply chain's safety and well-being has been
appropriately managed and prioritised. This has been monitored
through pre-existing channels, such as quarterly Board
meetings.
CONTINUOUS RISK MANAGEMENT
CONTINUOUS RISK MANAGEMENT
The Board is ultimately responsible for risk management.
Delegation of oversight of the risk framework and management
process is provided to the Audit and Risk Committee. The risk
framework has been designed to manage, rather than eliminate, the
risk of failure to meet business objectives. No system of control
can provide absolute assurance against the incidence of risk,
misstatement or loss. Regard is given to the materiality of
relevant risks in designing systems of risk management and internal
control.
[Diagram can be found in PDF version of this document on the
Company's website].
risk management
Risk Framework and Management Process
The Company has in place a risk management framework. The Board
recognises the importance of identifying and actively monitoring
the risks facing the business. The framework involves an ongoing
process for identifying, evaluating and managing significant risks
faced by the Company. While responsibility for risk management
ultimately rests with the Board, the aim is for the risk management
framework to be embedded as part of the everyday operations and
culture of the Company and its key advisers.
The risk framework is applied holistically across the Company
and, to the extent possible, to the underlying investment portfolio
as illustrated in the Business Model on pages 4 to 5.
Direct communication between the Company, its Investment
Adviser, and the portfolio investment level asset manager, is a key
element in the effective management of risk through the investment
portfolio.
The Board continues to monitor the need for an internal audit
function, but due to the internal controls systems in place at the
Company's key service providers and the external controls process
reviews performed annually, it instead places reliance on those
control and assurance processes.
The risk framework is implemented through the following risk
control processes:
[Diagram can be found in PDF version of this document on the
Company's website].
Risk Identification
The Board, Audit and Risk Committee and the Risk Sub-Committee
identify risks with additional input from the Company's Investment
Adviser and the Administrator. The Board receives detailed
quarterly asset management reports highlighting performance and
potential risk issues on an investment-by-investment basis. The
Audit and Risk Committee also has an open dialogue with its
advisers to assist with assessment of significant risks, if any,
that might arise between reporting periods. A risk register is
reviewed and updated by the Board and Audit and Risk Committee on a
quarterly basis. An annual workshop with the Investment Adviser
considers emerging and changing risks.
Risk Assessment
Each identified risk is assessed in terms of probability of
occurrence, potential impact on financial performance and any
movements in the relative significance of each risk between
periods. A robust assessment of principal and emerging risks facing
the Company is performed. The assessments build on the wealth of
knowledge acquired by the Company and Investment Adviser through
both bidding and asset management phases, with risk assessments
carried out to quantify and assess risks. Where risks might impact
viability, these are assessed further and the Viability Statement
on page 58 contains more information of this review.
MITIGATION PLAN
For newly identified risks or existing risks with increased
likelihood or impact, the Audit and Risk Committee assists the
Company in developing an action plan to mitigate the risk, with
enhanced monitoring and reporting put in place.
RISK MONITORING, REPORTING AND REASSESSMENT
Risks are monitored and risk mitigation plans are reassessed by
the Audit and Risk Committee, where applicable, with input from any
relevant key service providers, and reported to the Board on a
quarterly basis. Annual external controls and process reviews help
ensure the robustness of control processes.
The Company is committed to continually monitoring its risk
management processes to ensure it remains effective in managing the
Company's risks. During the year the Company, with help from the
Investment Adviser, undertook an exercise to further improve its
risk management framework and processes. The exercise considered
the full risk management cycle, with a comprehensive assessment of
the process for identification, management and assessment of risks
within the portfolio, through to how these risks are then reported
in the Company's Annual Report. An improved framework for risk
identification and assessment was developed and implemented during
the year, in tandem with the Investment Adviser's revised risk
processes and controls. Methods of risk assessment were aligned and
improved across the portfolio, further strengthening the Company's
ability to monitor and manage risk.
As a result of this exercise, a new aggregated risk assessment
has been included in this Annual Report. This illustrative chart
presented on page 49 presents a summary assessment of all the
identified risks faced by the Company. Risks have been categorised
and presented under five different risk categories: macroeconomic,
political, portfolio operations, regulation and compliance, and
central operations. Each risk category is further explained below,
where it is also shown how the Company's principal risks sit within
these five risk categories. This improves on the previous approach
(which only indicated the impact from the Company's principal
risks) and provides stakeholders with a more complete and global
view of the Company's risk position.
Notwithstanding the very real challenges presented by the
ongoing Covid-19 pandemic, the principal risks affecting the
Company and its investment portfolio did not, in the view of the
Board, materially change during the year, in part due to the
typically long-term contractual and regulated nature of portfolio
investments. Changes in macroeconomic or external industry
environments or in global regulatory or tax environments can also
impact portfolio returns and these areas continue to be a key
feature of the risk review process. Further details of the
activities performed by the Audit and Risk Committee during the
year can be found on pages 71 to 74 of the Audit and Risk Committee
report.
developments in the year
UK REGULATORY REGIME ANNOUNCEMENTS (PRINCIPAL RISK 2)
Two of the Company's investments are subject to regulatory
regimes which are designed by the regulators to, amongst other
things, protect the interests of consumers whilst ensuring that
regulated companies are able to earn a reasonable return on their
capital. Changes in the regulatory regimes have the potential to
impact the returns of these regulated assets.
Tideway remains in discussions with the UK water regulator,
Ofwat, on a package of measures that would mitigate the financial
impact of Covid-19 on Tideway's shareholders, of which the Company
is one. Progress is being made in these discussions and an
agreement is expected to be reached in due course.
The Company believes its regulated asset valuations continue to
remain appropriate. In addition, investments in regulated assets
are considered very long-term, beyond any individual regulatory
cycle. Therefore, our long-term view of such assets takes into
account the robustness of yield as well as potential for increases
in the regulated asset base over time.
Counterparties and service providers (PRINCIPAL Risk 3)
Counterparty risk continues to be closely monitored following
issues affecting certain service providers to the Group in the last
three years as well as the challenges placed on those businesses by
the Covid-19 pandemic. The Investment Adviser, building on the
experience gained following the liquidation of Carillion Plc and
the administration of Interserve Plc, is well placed to respond to
any future events of a similar nature and has contingency plans in
place to allow for a smooth transition of contracts to an
alternative service provider. During 2020, the support services arm
of Interserve Group Limited, the company formed following the
administration of Interserve, was acquired by Mitie. The merger has
not had a material impact on the Company's exposure to Mitie and
following the merger in December 2020, Mitie represents c.5% of the
Company's portfolio (by Investment at Fair Value). Throughout this
period all facilities have remained operational with no disruptions
to service delivery. The Investment Adviser continues to monitor
the Group's counterparty exposures and contingency plans are
reviewed and updated where appropriate. Please see further
information on page 25.
In addition, notable developments in other risk areas including
emerging risks were considered during the year and to the date of
this report, including:
CLIMATE CHANGE
Climate change is a key emerging risk which could lead to more
frequent or severe weather events like flooding, fires, droughts
and storms. Investments may be subject to extreme weather and
changes in precipitation and temperature, all of which may result
in physical damage or a decrease in demand for infrastructure
assets located in the areas affected by these conditions. Should
the impact of climate change be material in nature or occur for
lengthy periods of time, the financial condition or results of
operations of the investments could be adversely affected. In
addition, changes in national, federal and state legislation and
regulation on climate change could result in increased capital
expenditures to improve the energy efficiency or reduce the carbon
footprint of the Company's investments. This transition could also
lead to certain fuels and business models becoming obsolete if
unable to adapt to emerging regulation and customer preference.
The Company takes climate change very seriously and continues to
devote attention to managing this emerging risk. Climate change
will be a key focus for the new ESG Committee, ensuring that the
Company continues to evolve its approach to considering both the
risks and opportunities it presents. During the year, the Company
commissioned a third party to work alongside its Investment Advisor
to assess alignment with the recommendations of the TCFD. In
addition, the Company has continued to update its investment
processes, further strengthening climate considerations within
investment screening and diligence, ensuring these are considered
from the earliest point in the investment cycle. Climate change
would most likely manifest itself through impact on physical assets
(risk 4) and changes in climate-related regulation (risk 9).
Further information on the Company's approach to responsible
investing can be found in the Responsible Investment section on
pages 36 to 44.
BREXIT
Throughout the Brexit process, the Audit and Risk Committee
sought to manage Brexit risk to the extent it might manifest at
both the Company and asset levels. In keeping with the approach
taken by the Audit and Risk Committee, the Investment Adviser
established a focused Brexit Risk Committee to identify, assess
and, where relevant, develop mitigating strategies for potential
Brexit risk arising across the Group. Focus during the year
continued to be given to areas which had the potential to impact
the Company, including any developments in the approach to
cross-border Alternative Investment Fund Managers Directive
('AIFMD') regulation and taxation of cross-border financing.
Regarding the portfolio, attention has also been given to managing
potential risks that may affect projects or businesses, and which
may consequently impact the valuation of the assets. Particular
areas of consideration at this level include, for example,
availability of staff, availability of financing and supply chain
considerations for key parts. Following the end of the transition
period, as a result of these assessments, we do not currently
believe there is a significant impact on the Company as a direct
result of Brexit. The Company continues to maintain a watchful
brief over any future developments in the relationship between the
EU and the UK, both in the near term as business adjusts and over
the longer term as UK and EU regulation may diverge over time.
COVID-19 CORONAVIRUS
The Covid-19 pandemic continues to affect all businesses across
the world in a variety of ways. The Company is reassured by the
operational performance of its portfolio to date. Short-term
impacts have been witnessed in certain assets with demand-based
risk, although operational performance of these assets has remained
strong.
The Company notes that there are a range of contingent risks
stemming from Covid-19. These include, but may not be limited to,
staff shortages and supply chain breakdowns and their consequences.
The Company continues to monitor and where possible take action to
avoid or mitigate any such impacts on its portfolio. The Company
notes that the overwhelming majority of its revenues come from
availability-based payments or regulated cash flows that generally
provide a range of protections against adverse scenarios.
Whilst the full consequences of the pandemic and its effects
over the long-term are not yet known, the Company believes that its
business model continues to offer a significant degree of
protection to shareholders. Please see more information on pages 50
to 51.
FURTHER INFORMATION
A description of broader risk factors relevant to investors is
disclosed in the latest Company prospectus available on the website
www.internationalpublicpartnerships.com .
RISKS ASSESSMENT
aggregate risk assessment
The Company's identified risks have been mapped to the five
different risk categories: political, portfolio operations,
macroeconomic, regulation and compliance, and central
operations.
[Diagram can be found in PDF version of this document on the
Company's website].
The chart summarises the overall level of risk facing the
Company, presenting a combined assessment which incorporates the
potential impact arising from not only the Company's principal
risks, but from all of Company's other identified risks as
well:
- Political risk incorporates risks arising from government policy and actions;
- Portfolio operations risk incorporates risks arising from
asset operations and ongoing investment performance;
- Macroeconomic risk incorporates risks arising in the wider
economy, including inflation and interest rates;
- Regulation and compliance risk incorporates risks arising from
new laws and regulations applicable to the Company and its
assets;
- Central operations risk incorporates risks arising from the management of the portfolio.
The relative impact assessed to be arising from each risk has
been combined to present a holistic position, giving stakeholders a
more complete picture of the Company's risk position. Those risks
of the Company which are assessed to be the principal risks are
separately identified, and further discussed below.
The following key is used in the table below to highlight the
Board's view on movement of risk exposures during the period:
RISK TYPE
INCREASE Risk exposure has increased in the period
DECREASE Risk exposure has reduced in the period
NO SIGNIFICANT No significant change in risk exposure since last
CHANGE reporting period
PRINCIPAL RISKS
This section provides a summary of the Board's assessment of the
Company's principal risks. This is not intended to highlight all
the potential risks to the business. There may be other risks that
are currently unknown or regarded as less material, which could
turn out to materially impact the performance of the Company, its
assets, capital resources and reputation. Where the Company has
applied mitigation processes, it is unlikely that the techniques
applied will fully mitigate the risk.
RISK DESCRIPTION MITIGATION
------------------ ------------------------------------ -----------------------------------
Political
---------------------------------------------------------------------------------------------
Political The businesses in which the Most of the Company's
Policy Company invests are subject existing investments benefit
to potential changes in policy from long-term service
and legal requirements. All and asset availability-based
investments have a public pricing contracts or regulatory
sector infrastructure service frameworks and the countries
aspect and are exposed to in which the Company operates
political scrutiny and the do not tend to have a
potential for adverse public tradition of penal retrospective
sector or political criticism. legislation. Governments
tend to be long-term supporters
of infrastructure and
similar investment and
recognise the risk of
deterring future investment
in the event that penal
or disproportionate steps
are taken in respect of
existing contractual engagements.
------------------------------------ -----------------------------------
1
------------------------------------ -----------------------------------
NO SIGNIFICANT
CHANGE
Change in political policy Current global policy
Political policy and financing practice continues to
decisions may adversely impact support the use of private
either on existing investments, sector capital to finance
or on the Company's ability public infrastructure,
to source new investments, despite challenge from
at attractive prices or at some political parties,
all. This may impact the Company's particularly in the UK,
reputation. around the role of the
A certain degree of reputational private sector in the
risk exists in this area as provision of such services.
policy decisions adversely
impacting the Company have The Company seeks to maintain
the potential to be made as strong and positive relationships
a direct or indirect result with its public sector
of reputational developments clients where possible.
seen across the wider sector. It also has an active
relationship with other
external stakeholders
including investors.
Termination of contracts The Company engages with
Often contracts between public its public sector clients
sector bodies and the Company's in developing cost-saving
investment entities contain initiatives and seeks
rights for the public sector to act as a 'good partner'
to terminate contracts in including by focusing
certain situations. While on the ESG aspects of
the contracts typically provide its investments. None
for some compensation in such of the Company's investments
cases, this may be less than have been identified,
required to sustain the Company's by any government audit
valuation, causing loss of or public sector report,
value. There have been instances as poor value for money
of contracts being voluntarily or not in the public interest.
terminated in the UK (although The Investment Adviser
not affecting the Company). is a signatory to the
Code of Conduct for Operational
PFI/PPP contracts in the
UK. The voluntary Code
of Conduct sets out the
basis on which public
and private sector partners
agree to work together
to make savings in operational
PPP contracts.
Compensation on termination
clauses within such contracts
serve to partially mitigate
the risk of voluntary
termination. Furthermore,
in the current financial
climate where voluntary
termination leads to a
requirement to pay compensation,
such compensation is likely,
in many cases to represent
an unattractive immediate
call on the public finances
for the public sector.
Nationalisation The Company believes significant
With uncertain political compensation would be
policy pressures arising following required in order to enact
Brexit in the UK and the Covid-19 this policy legitimately
pandemic more globally, the within existing contractual
risk of nationalisation remains arrangements. Therefore,
over the medium-term. we maintain the view that
the Company is defensively
positioned in this regard.
------------------ ------------------------------------ -----------------------------------
Asset Performance Construction
For the Company's assets under
construction, there is an element
of construction risk that takes
the form of cost overruns or
delays that could impact on
investment returns. Of particular
note at this time there are
implications of Covid-19 on
the construction industry and
potential consequential impacts
on the Company.
2
INCREASE Contractual mechanisms
Operational allow for significant
risks increased pass-down of construction
in the year cost overrun and delay
with potential risk to subcontractors
disruption and/or consumers, subject
to the operation to credit risk (see below).
and performance The Company's investment
of assets in Tideway benefits from
arising from a government support mechanism
Covid-19. which ultimately backstops
investors' downside risk
in the event of a major
construction cost overrun.
Operational performance
Assets in the portfolio have The Board reviews the
revenues which are based on performance of each investment
the availability of the asset, on a quarterly basis and
as well as revenues not solely historically has seen
dependent on availability but consistently high levels
also have linkage to other of asset availability.
factors including demand risk For regulated assets,
being subject to regulatory the regulatory regimes
frameworks. under which the assets
The entitlement of the Company's operate provide a level
PPP and OFTO investments to of protection of cash
receive revenues is generally flows for these assets.
dependent on underlying physical Contractual mechanisms
assets remaining available and underlying regulatory
for use and continuing to meet frameworks also allow
certain performance standards. for significant pass-down
Failure to maintain assets of unavailability and
available for use or operating performance risk to subcontractors
in accordance with pre-determined in many cases, subject
performance standards may result to credit risk (see below).
in a reduction in the income In addition, investments
that the Company has projected in regulated assets are
to receive. considered very long-term
Two of the Company's investments by the Company, beyond
are subject to regulatory regimes any individual regulatory
which are designed by the regulators cycle. This long-term
to, among other things, protect view of such assets takes
the interests of consumers into account the robustness
whilst ensuring that regulated of yield as well as the
companies are able to earn potential for increases
a reasonable return on their in the regulated asset
capital. Changes in the regulatory base over time.
regimes have the potential In order to manage the
to impact the returns of the implications of Covid-19,
Company's two regulated assets. the Company through its
Covid-19 may affect services Investment Adviser, has
provision as well as impact sight of detailed business
the facilities management industry. continuity plans of its
Certain assets within the portfolio counterparties designed
have demand risk based on the to manage services in
usage of the underlying infrastructure. adverse circumstances.
In addition, the Company
has the ability to pass
down certain costs to
the service providers
and can potentially rely
on business interruption
cover where available.
Certain demand-based assets
have contractual arrangements
to adjust pricing in the
event of a substantial
decrease in usage.
Residual value assumptions
are based on prevailing
market expectations and
where possible recent
market evidence. The nature
of the Company's assets
should provide some mitigation
to the risk of a reduction
in demand for the assets
at the end of the expected
investment holding period.
------------------- ----------------------------------------- ------------------------------------
Termination In the event of
In serious cases where significant
the terms of the and continuing
underlying unavailability
contract with the public across the Company's
sector are breached due portfolio,
to default or force the Company is able
majeure to
then that contract can terminate the
usually be terminated Investment
without Advisory Agreement.
compensation. Failure to This
receive the amount of serves to reinforce
revenue alignment
projected or termination of interest between
of a contract will have the
a consequential impact Company and the
on the Company's cash Investment
flow Adviser.
and value. The risk of
A number of investments termination
in the portfolio assume of contracts as a
residual values which result
are of political policy
expected to be received is
from the assets on addressed above.
completion
of the project contract
or at the end of the
expected
investment holding
period.
Amounts which are
realised
may be different from
current
assumptions.
------------------------- ----------------------
The Company's The Company has a
Counterparty Risk investments broad
are dependent on the range of suppliers
performance and
of a series of believes that
counterparties supplier
to contracts including counterparty risk is
public sector bodies, diversified
consortium across its
partners, construction investments.
contractors, facilities All contracts include
management and the provision of a
maintenance security
contractors, asset and package from
investment managers counterparties
(including to mitigate the
the Investment Adviser), impact
banks and lending of supplier failure.
institutions In
and others. Failure by addition, generally
one or more of these payments
counterparties are made in arrears
to perform their to
obligations service providers
fully or as anticipated giving
could adversely affect the Company some
the performance of protection
affected against failures in
investments. There may performance.
be disruption or delay Covid-19 can
to the services provided potentially
to investments, or lead to a greater
replacement pressure
counterparties (where on the facilities
they management
can be obtained) may sector, however
only various
be obtained at a greater government
cost. These risks would announcements
negatively impact the to support businesses
Company's through the pandemic
cash flows and are
valuation. encouraging and
Over recent years there should
has been particular help mitigate the
pressure risk
on construction and of counterparty
facilities defaults.
management firms The credit quality of
operating supplier
across the sector, counterparties
particularly is reviewed as part
within the UK. Please of
refer the Company's due
to examples on pages 25 diligence
to 26. at the time of making
its investments and
for
key suppliers on a
regular
basis.
Most of the services
provided
to the Company's
investments
are reasonably well
established
with a number of
competing
providers. Therefore,
there are
expectations
that there will be a
pool
of potential
replacement
supplier
counterparties
in the event that a
service
counterparty fails,
albeit
not necessarily at
the
same cost.
The Company closely
monitors
the risk of adverse
developments
occurring in relation
to its significant
counterparties,
and develops
contingency
plans as appropriate
to
ensure risk of
counterparty
failure is minimised.
Information regarding
relevant counterparty
risk developments
during
the year can be found
on page 47.
------------------------- ----------------------
3
------------------------- -------------------
NO SIGNIFICANT
CHANGE
Where borrowings exist The credit risk of
in respect of the such
Company's swap counterparties
investments, interest is
rates considered at the
are generally fixed time
through of entering into
the use of interest rate these
swaps. The Company is arrangements and is
therefore regularly
exposed if the reviewed. However,
counterparties there
of these swaps were to is a risk of credit
default or the swaps deterioration
otherwise which could impact
become ineffective. affected
investments. The
Company
continues to aim to
use
reputed financial
institutions
with good credit
ratings.
------------------------------------------------- ------------------------- ----------------------
The Company indirectly The Company's
Physical Asset invests in physical investments
Risk assets benefit from regular
4 used by the public and risk
NO SIGNIFICANT thus is exposed to reviews and external
CHANGE possible insurance
risks, both reputational advice which is
and legal, in the event intended
of damage or destruction to ensure that those
to such assets and their assets
users, including loss of continue to benefit
life, personal injury from
and insurance cover that
property damage. While is
the assets the Company standard for such
invests in benefit from assets.
insurance policies, During the year, the
these Company
may not be effective in commissioned a third
all cases. party
to work alongside its
Climate change Investment Adviser to
Investments may be assess alignment with
subject the recommendations
to extreme weather and of
changes in precipitation TCFD. The Company has
and temperature, all of continued to update
which may result in its
physical investment processes,
damage to assets. further strengthening
climate
considerations
within investment
screening
and diligence,
ensuring
these are considered
from
the earliest point in
the investment cycle.
------------------------------------------------ ------------------------- ----------------------
Contract Risk The performance of the Such contracts have
5 Company's investments is been
NO SIGNIFICANT dependent on the complex entered into, usually
CHANGE set of contractual only after extensive
arrangements negotiations
specific to each and with the benefit
investment of
continuing to operate as external legal
intended. The Company is advice.
exposed to the risk that A legal review of
such contracts do not contract
operate documentation is
as intended, are undertaken
incomplete, as part of the
contain unanticipated Company's
liabilities, due diligence at the
are subject to time
interpretation of making new
contrary to its investments.
expectations See Political Policy
or otherwise fail to risk
provide for further
the protection or commentary
recourse on contractual risk
anticipated. of
voluntary
termination.
------------------------------------------------ ------------------------- ----------------------
MACROECONOMIC
------------------------------------------------------------------------------------------------
Inflation Inflation may be higher The Company uses a
6 or lower than expected. long-term
NO SIGNIFICANT The net cash flows from view of inflation
CHANGE the Company's investment within
portfolio are positively its forecasts,
correlated to inflation. benchmarked
Should actual inflation where possible to
turn out to be higher or independent
lower than the rates assumed analysis. It also
by the Company at the relevant provides
valuation date, this would sensitivities to
be expected to impact positively investors
or negatively, respectively, indicating the
on the Company's projected projected
cash flows. impact on the
The level of inflation-linkage Company's
across the investments held NAV of a number of
by the Company varies and alternative
is not consistent. The consequences inflation
of higher or lower levels scenarios,
of inflation than that assumed offering
by the Company will not investors an
be uniform across its portfolio. ability to
The Company is also exposed anticipate the
to the risk of changes to likely
the manner in which inflation effects
is calculated by the relevant alternative
authorities. inflation
scenarios may have
on
their investment.
The Company
monitors the
effect of
inflation on
its portfolio
through
its biannual
valuation
process.
---------------------------- --------------------------------------------- -------------------
Foreign Exchange A portion of the Company's The Company uses
Movements investment portfolio has forward
7 cash flows which are denominated foreign exchange
NO SIGNIFICANT in currencies other than contracts
CHANGE sterling, but the Company to mitigate the
borrows corporate level risk of
debt, reports its NAV and short-term
pays dividends in sterling. volatility
Changes in the rates of in foreign
foreign currency exchange exchange rates
are outside the Company's on the sterling
control and may impact positively value
or negatively on cash flows of cash flows from
and valuation. overseas
investments. These
may
not be fully
effective
and rely on the
strength
of the
counterparties
to those contracts
to
be enforceable.
The Company
monitors the
effect of foreign
exchange
on its portfolio
through
its biannual
valuation
process and
reports this
to investors. The
Company
also provides
sensitivities
to investors
indicating
the projected
impact on
the NAV of a
limited number
of alternative
foreign
exchange
scenarios,
offering
investors the
ability
to anticipate the
likely
effects of some
foreign
exchange scenarios
on
their investment.
The
Company continues
to be
mindful of the
potential
for exchange rate
volatility
in light of
international
economic and
political
change. The
Company notes
that a devaluation
of
sterling against
the relevant
currencies would
typically
have a positive
impact
on the NAV. The
opposite
would be true for
an increase
in the value of
sterling.
---------------------------- --------------------------------------------- -------------------
Interest Rates Changes in market rates of interest can affect
8 the Company in a variety of different ways:
INCREASE
------------------------------------------------------------------
The Company is Valuation discount rate
monitoring the The Company, in valuing In determining
potential impacts its investments, uses a the discount
of the move away discounted cash flow methodology. rates used to
from London Inter-Bank Changes in market rates value its
Offered Rate ('LIBOR'). of interest (particularly investments, the
government bond yields) Company
may directly impact the generally uses
discount rate used to value nominal
the Company's future projected government bond
cash flows and thus its yields
valuation. Higher rates to which specific
will have a negative impact investment
on valuation while lower risk premia are
rates will have a positive added
impact. to determine the
overall
discount rates.
The investment
risk premia may
provide
a buffer against
rising
bond yields
assuming market
demand for
investment
is sustained.
Higher interest
rates can often
be precipitated
by higher
inflation
expectations,
and therefore any
inflation-linkage
(discussed above)
may
partly mitigate
the effect
of interest rate
changes.
--------------------------------------------- -------------------
Corporate Debt Facility
The Company has a CDF that In the event that
may be drawn from time-to-time. the
Interest is charged on a interest rate
floating rate basis, so increases,
higher than anticipated the Company has
interest rates will increase the option
the cost of this facility of repaying its
adversely impacting on cash CDF at
flow and the Company's valuation. any time with
minimal
notice, providing
sufficient
funds are
available. The
CDF was renewed in
March
2021 for a further
three
years to March
2024. The
maximum facility
is GBP400
million (including
the
GBP150 million
'accordion')
compared to a
current
investment
portfolio
valuation
of c.GBP2.4
billion.
---------------------------- --------------------------------------------- -------------------
Underlying portfolio considerations
Changes in interest rates As presented in
have potential impacts on the the sensitivity
portfolio at underlying investee analysis,
entity level. Portfolio entities variations in
typically choose or can be cash deposit rates
required to hold various cash have
balances, including contingency little impact on
reserves for future costs (such the Company's
as major lifecycle maintenance NAV. Due to the
or debt service reserves). spread
These are generally held on of cash holdings
interest-bearing accounts and within
under the contractual terms ring-fenced
applicable to certain investments Special Purpose
which in many cases are projected Vehicle ('SPV')
to be held for the long-term. structures
The Company assumes that it and relatively
will earn interest on such smaller
deposits over the long-term. balances in the
Changes in interest rates may SPVs,
mean that the actual interest it is not
receivable by the Company is economically
different to that projected. feasible to hedge
If the Company receives less against
interest than it projects this adverse deposit
will impact cash flows and rate movements.
NAV adversely. Certain assets The Company
within the portfolio contain monitors the
refinancing assumptions. Increases effect of
in lending rates available historical and
to these projects would have projected interest
the potential to increase their rates
cost of financing and therefore on its portfolio
impact the overall returns through
from these assets. its biannual
valuation
process and
reports this
to investors. It
also
provides
sensitivities
to investors
indicating
the projected
impact on
the Company's NAV
of a
limited number of
alternative
scenarios,
offering investors
the ability to
anticipate
the likely effects
of
some deposit
interest
rate scenarios on
their
investment.
The risk of
adverse movements
in debt interest
rates
for unhedged debt
within
regulated entities
is
limited through
protections
provided by the
regulatory
regime.
----------------------------------------------------------------- -------------------
The Company is monitoring the The third-party
potential impacts of the move loans
away from LIBOR. A number of at investee entity
the portfolio assets contain level
references to LIBOR within are typically
the project contracts. fully hedged.
It is expected
that both
the loan and the
swaps
will switch to the
new
risk-free rate at
the
same time and
therefore
the protection
against
fluctuations in
the new
risk free rate
will be
mitigated as has
been
the case with
LIBOR denominated
loan. The Company
is currently
running a pilot
project
to convert a LIBOR
loan
to a Sterling
Overnight
Index Average
('SONIA')
loan. The outcome
from
the pilot project
will
help shape
Company's strategy
to managing the
conversions
to the new
risk-free rate.
----------------------------------------------------------------- -------------------
REGULATION AND COMPLIANCE
Law and Regulation Change in law or
regulation
Changes in law or
regulation
may increase costs of
operating and
maintaining
facilities or impose
other costs or
obligations
that indirectly
adversely
affect the Company's
cash flow from its
investments
and/or valuation of
them.
-------------------------
9
-------------------------
NO SIGNIFICANT
CHANGE
Some investments
maintain
a reserve or
contingency
designed to meet a
change
in law costs
and/or have
a mechanism to
allow some
change in law
costs (typically
building
maintenance
related)
to be passed back
to the
public sector. The
possibility
remains for there
to be
changes in law or
regulation
(including, for
example,
in relation to
climate
change or as a
result of
Brexit) that have
the potential
to impact costs or
obligations
of the Company or
portfolio
projects, which
may not
be fully capable
of mitigation.
------------------------------------------------ ------------------------- -------------------
Tax and Accounting Change in tax rates
Rates of tax, both in
the UK and overseas
jurisdictions
in which the Company
operates, may increase
in the future if
government
policy were to change.
-------------------------
10
-------------------------
NO SIGNIFICANT
CHANGE
The Company
typically
incorporates
changes in
tax rates within
its forecast
cash flows and NAV
once
substantively
enacted,
or where there is
a reasonable
expectation of
substantial
enactment shortly
after
the valuation
date.
------------------------- -------------------
Change in tax
legislation The diversified
Changes in tax jurisdictional
legislation mix of the
across the multiple Company's
jurisdictions investments
in which the Company may provide some
has investments can mitigation
reduce to tax changes in
returns impacting on any one
the Company's future jurisdiction.
cash flow returns and The Company
hence valuation believes it
(calculated takes a cautious
on a discounted cash approach
flow basis). to tax planning.
The OECD's Action Plan The Board
on Base Erosion and monitors changes
Profit in tax
Shifting ('BEPS'), legislation and
published takes advice
in 2013, seeks to as appropriate
address from external,
perceived flaws in independent,
international qualified
tax rules. It sets out advisers. While
15 actions to counter the Board
BEPS in a comprehensive and the Company's
and coordinated way. Investment
Countries in which the Adviser seek to
Company invests have minimise
been assessing their the impact of
compliance or otherwise adverse changes
with this guidance. in tax
requirements, its
ability to do so
is naturally
limited.
The Company's
Investment
Adviser continues
to monitor
developments
relating to
tax reform across
the jurisdictions
in which the
Company has
operations. Future
legislation
in response to the
OECD
proposals, or
changes in
approach to
existing
legislation
as a consequence
of market
practice or
updated guidance,
continue to have
the potential
to negatively
impact the
Company.
------------------------------------------------ ------------------------- -------------------
Accounting
The Company and its A portion of the
portfolio of investments Company's
and holding entities income is
form an international received in the
group structure. The form of
Group uses long-term shareholder debt
cash flow forecasts from interest income
its portfolio as part i.e. from
of its valuation pre-tax cash
process. flows and
These cash flow not constrained
forecasts by distributable
are dependent upon profits tests.
distribution However,
profiles/cash tax changes in
profiles accounting
and therefore can standards
fluctuate or challenges to
because of future accounting
changes judgements can
in accounting standards, potentially
or challenges to have an impact on
accounting distributable
judgements. Therefore, profits or
future changes to post-tax cash
accounting flows.
standards, or changes
in interpretation and
application of existing
standards, have the
potential
to impact the
distributable
profits of entities in
the portfolio and so
the cash flows available
to the Group and overall
portfolio valuation.
------------------------------------------------ ------------------------- -------------------
CENTRAL OPERATIONS
------------------------------------------------------------------------------------------------
The Company's The financial
Financial Forecasts projections models used
depend on the use of to generate
11 financial models to financial
NO SIGNIFICANT calculate its future forecasts
CHANGE projected investment are generally
returns. These are subject to model
in turn dependent on audit by external
the outputs from other professional
financial model service firms,
forecasts which is a
at the underlying process designed
investment to identify
entity level. There errors. The
may be errors in any comparison of
of these financial past actual
models, including performance of
calculation, investments
input, logic, and output against past
errors. Once corrected, projected
such errors may lead performance also
to a revision in gives confidence
projected in financial
cash flows and thus models where
impact valuation. actual performance
The financial forecasts has closely
of certain operating matched projected
infrastructure performance.
businesses However, there can
can have more be no assurance
variability that forecasts
than contracted will be realised,
concessions particularly in
given the wider range relation to
of variables that apply operational
and are therefore infrastructure
inherently businesses where
more difficult to more variables
forecast apply.
accurately. Investments in
regulated
businesses
are considered
very long-term,
beyond the much
shorter regulatory
cycles. Valuations
of such
businesses should
take into
account robustness
of yield
and potential for
increases
in regulated asset
base over
time.
------------------------- -------------------
Sensitivities
The Company publishes Sensitivities are
information relating produced
to its portfolio for the
including information of
projections of how relevant
portfolio performance stakeholders and
and valuation might are accompanied
be impacted by changes by disclaimers and
in various factors guidance
e.g. interest rates, explaining that
inflation, deposit limited reliance
rates, etc. The can be placed upon
sensitivity them.
analysis and projections
are not forecasts and
actual performance
is likely to differ
(possibly significantly)
from that projection
as in practice the
impact of changes to
such factors will be
unlikely to apply evenly
across the portfolio
or in isolation from
other factors.
------------------------------------------------ ------------------------- -------------------
VIABILITY STATEMENT
In accordance with provision 31 of the 2018 revision of the UK
Code of Corporate Governance, we have considered the Company's
viability as summarised below. Due to the long-term and/or
contractual nature of our investments, we have a significant level
of confidence over the endurance and longevity of our business;
however, it is difficult to assess the regulatory, tax and
political environment on a long-term basis. Whilst we consider the
valuation of investment cash flows for the purposes of the NAV over
a considerably longer period than five years, we view five years as
an appropriate timeframe for assessing the Company's viability
given these inherent uncertainties.
The viability assessment process is embedded within the
Company's annual risk review cycle and involves the following:
1 An Audit and Risk Committee review and assessment of the risks
facing the Company. A summary of the review process is detailed on
pages 73 to 74;
2 Identification of those principal risks that are deemed more
likely to occur and have a potential impact on the Company's
viability over the viability period. This exercise has included
consideration of: a persistent low inflation rate environment
(noting that a high rate environment would typically be positive
for the Company's investment cash flows giving linkage of revenues
to inflation across many investments); large currency fluctuations
impacting on receipts from overseas investments; and the impact
from the loss of income from investments (whether due to key
subcontractor default, a result of the impacts of Covid-19, or
other assets underperformance). We note that a number of risks
identified during the risk review process in step one above may
have implications for the Company's valuation but may be considered
insignificant from a five-year viability perspective;
3 Quantification analysis of the potential impact of those
principal risks occurring in isolation and under plausible combined
sensitivity scenarios over the viability period;
4 Assessment of potential mitigation strategies to mitigate the
potential impact of principal risks over the viability period. This
exercise has considered the potential to liquidate investments
and/or refinance investments if necessary.
The viability assessment is approved by the Board. Following the
assessment, the Board has a reasonable expectation that the Company
will be able to continue in operation and meet all of its
liabilities as they fall due up to March 2026. This assessment is
based on the following assumptions which are not within the
Company's control:
- No significant changes to government policy, tax, laws and
regulations affecting the Company or its investments other than the
impacts already factored into future cash flows as part of the 31
December 2020 NAV valuation; and
- Continued availability of sufficient capital and market
liquidity to allow for refinancing/repayment of any short-term
recourse debt facility obligations as they become due, including in
relation to the Company's debt facility which following renewal in
March 2021 remains available to March 2024.
By order of the Board
Mike Gerrard John Le Poidevin
Chair Director
24 March 2021 24 March 2021
CORPORATE GOVERANCE
SUMMARY OF INVESTMENT POLICY
OVERVIEW
The Company invests in public or social infrastructure assets
and related businesses located in the UK, Australia, Europe, North
America and other parts of the world where the risk profile meets
the Company's risk and return requirements.
The Company has a long-term view and invests in operational and
construction phase assets for the life of the asset or concession,
or under a licence issued by a regulator unless there is a
strategic rationale for earlier realisation. The Company seeks to
enhance the capital value and the income derived from its
investments to optimise returns for its investors. The Investment
Policy is summarised below and available in full at
www.internationalpublicpartnerships.com.
INVESTMENT parameters
Maintaining the performance of the existing portfolio is the
Company's key focus. However, it will also seek attractive
opportunities to expand its portfolio, including:
- Investments with characteristics similar to the existing portfolio;
- Investments in other assets or concessions or regulated
businesses having a public or social infrastructure character with
either availability, property rental or user paid payment
mechanisms or appropriate regulatory frameworks;
- Investments in infrastructure assets or concessions
characterised by high barriers to entry and expected to generate an
attractive total rate of return over the life of the
investment;
- Divestments where an investment is no longer aligned with the
Company's investment objectives or where circumstances offer an
opportunity to enhance the value of the portfolio.
PORTFOLIO COMPOSITION
The Company will, over the long-term, maintain a spread of
investments both geographically and across industry sectors in
order to achieve a broad balance of risk in the Company's
portfolio. It does not expect to invest in non-OECD countries,
unless it can get comfortable with the risk-return profile.
Asset allocation will depend on the maturity of the local
infrastructure investment market, wider market conditions and the
judgement of the Investment Adviser and the Board on the
suitability of the investment from a risk and return perspective.
The Company Overview on pages 2 to 3 has details of the current
composition of the investment portfolio.
INVESTMENT RESTRICTIONS
The Company's Investment Policy restricts it from making any
investment of more than 20% of the total assets in any one
investment in order to limit the risk of any one investment to the
overall portfolio.
As a London Stock Exchange listed company, the Company is also
subject to certain restrictions pursuant to the UKLA Listing
Rules.
MANAGING CONFLICTS OF INTEREST
Further investments will continue to be sourced by the
Investment Adviser, Amber Fund Management Limited. Some of these
investments will have been originated and developed by, and in
certain cases may be acquired from, members of the Amber
Infrastructure group.
The Company has established detailed procedures to deal with
conflicts of interest that may arise and manage conduct in respect
of any such acquisition. The Corporate Governance Report sets out
more details on the conflicts management process.
Financial management
The Company may also make prudent use of leverage to enhance
returns to investors, to finance the acquisition of investments in
the short-term and to satisfy working capital requirements.
Under the Company's Articles, outstanding borrowings at the
Company level, including any financial guarantees to support
subscription obligations in relation to investments, are limited to
50% of the Gross Asset Value ('GAV') of the Company's investments
and cash balances. The Company has the ability to borrow in
aggregate up to 66% of such GAV on a short-term basis (i.e. less
than 365 days) if considered appropriate. Details of the Company's
corporate debt facility can be found on page 27.
Changes to investment policy
Material changes to the Investment Policy summarised in this
section may only be made by ordinary resolution of the shareholders
in accordance with the UK Listing Rules.
CORPORATE GOVERANCE
BOARD OF DIRECTORS
The table below details all directors of the Company at the date
of this report.
Mike Gerrard John Le Claire Julia Bond(1) Sally-Ann Meriel Giles Frost
Board Chair, Poidevin(1) Whittet(1) Chair, Nomination David Lenfestey
Chair, Chair, Audit Chair, and Remuneration Chair, Date of
Investment and Risk Management Committee; Risk Date of Appointment:
Committee Committee Engagement Chair, ESG Sub-Committee Appointment: 2 August
Committee; Committee (with effect 10 January 2006
Date of Date of Senior (with effect from 23 2020
Appointment: Appointment: Independent from 22 March March 2021)
4 September 1 January Director 2021); Chair,
2018 2016 (with effect Risk Date of
from 28 May Sub-Committee Appointment:
2020) (until 22 10 January
March 2021) 2020
Date of
Appointment: Date of
10 September Appointment:
2012 1 September
2017
----------------- ---------------- ----------------- ------------------ ----------------- ---------------- -----------------
A resident A resident A resident A resident A resident A resident A resident
in the UK, of Guernsey, of Guernsey, in the UK, of Guernsey, of Guernsey, in the
Mike has John has Claire has Julia has Sally-Ann Meriel has UK, Giles
over 30 over 25 over 40 years' 27 years' has over 27 years is a founder
years of years of experience experience 34 years of multi-sector of Amber
financial business in the banking of capital of experience business Infrastructure
and management experience. industry markets in in experience. and has
experience John is with Bank the financial infrastructure With a worked
in global a Fellow of Scotland, sector and projects background in the
infrastructure of the Bank of Bermuda held senior in the energy in infrastructure
investment. Institute and Rothschild positions sector, human-centred investments
He has held of Chartered and Co Bank within Credit including design for sector
a number Accountants International, Suisse, including international technology, for over
of senior in England where she Head of One offshore she brings 20 years.
positions, and Wales was latterly Bank Delivery transmission a strategic Giles is
including and a former managing and Global systems end-user chair and
as an assistant partner director Head of Sovereign and the focus and a director
director of BDO LLP, and co-Head Wealth funds challenges a broad set of Amber
of Morgan where he until May activity. of the energy of experiences Infrastructure
Grenfell held a number 2016 when transition. encompassing Group Holdings
plc, a director of leadership she became Having held many sectors Ltd, the
of HM Treasury roles, a non-executive senior positions and scales ultimate
Taskforce, including director. within the of organisation holding
deputy CEO Head of She is also power utility ranging from company
and later Consumer a non-executive arena, Sally-Ann her own of the
CEO of Markets, director is currently start-ups Investment
Partnerships where he of a number the Chief through global Adviser
UK plc and, developed of listed Operating corporations to the
most recently, an extensive and private Officer and Company
a managing breadth equity of Guernsey governmental and various
director of experience investment Electricity programmes. of its
of Thames and knowledge companies Ltd. She subsidiaries.
Water Utilities across the none of which is a Chartered
Limited. real estate, is a trading Engineer
Mike has leisure company. and Chartered
a breadth and retail Claire is Director.
of experience sectors a member
across a in the UK of the Chartered
range of and overseas. Institute
economic John is of Bankers
and social a non-executive in Scotland,
infrastructure director the Chartered
sectors on several Insurance
and has plc boards Institute
been involved and chairs and the
in some a number Institute
of the largest of audit of Directors
infrastructure committees. and is a
projects Chartered
in the UK. Banker and
He is a holds the
Fellow of Institute
the Institution of Directors
of Civil Diploma in
Engineers. Company
Direction.
----------------- ---------------- ----------------- ------------------ ----------------- ---------------- -----------------
LISTED COMPANY AND OTHER RELEVANT
DIRECTORSHIPS
-------------------------------------------------------- ----------------------------------------------------------------------
Mike Gerrard John Le Claire Julia Bond(1) Sally-Ann Meriel Giles Frost
Poidevin(1) Whittet(1) David Lenfestey
--------------- ---------------- ----------------- ------------------ ----------------- ---------------- -----------------
Mike holds Episode BH Macro European Guernsey Bluefield Giles is
no other Inc. Ltd Assets Electricity Solar Income also a
listed BH Macro Eurocastle Trust ('EAT') Ltd Fund Limited director
company Ltd Investment Channel Meriel of a number
positions Ltd Julia is Islands sits on of the
but holds Riverstone Vice Chair Electricity a number Company's
several Energy of the Grid of other subsidiary
non-executive Ltd Royal Academy commercial and investment
positions TwentyFour of Dance Sally-Ann boards holding
within Select is also including entities
boards Monthly NED of a director Gemserv, and of
and committees Income Foreign, for several Jersey other entities
that oversee Fund Ltd Commonwealth charities Telecom, in which
the Third Point & Development Aurigny the Company
development Offshore Office Air Services has an
and delivery Investors and Strategic and is investment.
of Ltd Command a committee He does
infrastructure member not receive
investments for the directors'
in the Guernsey fees from
UK and Institute such roles
Europe. of Directors. for the
Company.
--------------- ---------------- ----------------- ------------------ ----------------- ---------------- -----------------
1 All of the independent directors are members of all Committees
with the exception of Mr Gerrard, who is not a member of the Audit
and Risk Committee. Mr Frost is a non-independent director. Mr
Stares and Mr Whittle retired from the Company's Board on 31 March
2020 and 27 May 2020, respectively.
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE REPORT
Introduction
The Board of Directors is committed to high standards of
corporate governance and has put in place a framework for corporate
governance which it believes is appropriate for an investment
company that is a constituent of the FTSE 250 All-Share Index.
The Board is responsible to shareholders for the overall
direction and oversight of the Company, for agreeing its strategy,
monitoring its financial performance, and setting and monitoring
its risk appetite.
This section describes how the Company is governed. It explains
how the Board is organised and operates, including the roles and
composition of each of its Committees, and provides details on its
Board members and how they are remunerated. As an investment
company, the Company has no employees and relies on the advice and
expertise of its key suppliers, notably its Investment Adviser,
Amber Fund Management Limited ('Amber'). This section therefore
also explains the nature of the Company's relationship with the
Investment Adviser, and how this is managed, including the
remuneration of the Investment Adviser.
Compliance with Corporate Governance Codes AND REGULATIONS
The Company has a Premium Listing on the London Stock Exchange
and, in common with other companies listed on the Exchange, is
required to confirm its compliance with (or explain departures
from) the UK Corporate Governance Code (the 'UK Code'). This
requirement applies regardless of where a company is incorporated.
A revised UK Code was issued in July 2018, which applies to
accounting periods beginning on or after 1 January 2019 and
therefore applies to the Company for the financial year ended 31
December 2020.
The Company is a member of the AIC. The Financial Reporting
Council acknowledges that the AIC Corporate Governance Code issued
in February 2019 (the 'AIC Code') can assist externally managed
companies in meeting their obligations under the UK Code in areas
that are of specific relevance to investment companies. This also
applied to accounting periods beginning on or after 1 January
2019.
The Guernsey Financial Services Commission has also confirmed
that companies that report against the UK Code or AIC Code are
deemed to meet the Guernsey Code of Corporate Governance.
The AIC Code is available from the AIC website
(www.theaic.co.uk). The UK Code is available from the Financial
Reporting Council website (www.frc.co.uk).
The Company has complied throughout the year with all the
provisions of the AIC Code and as such also meets the requirements
of the UK Code. However, as an investment company, most of the
Company's day-to-day responsibilities are delegated to third
parties. The Company does not have any executive directors. The UK
Code's two separate principles of setting out the responsibilities
of the chief executive and disclosing the remuneration of executive
directors (Principles G and Q of the UK Code) are therefore not
applicable.
Although the Company is registered in Guernsey, in accordance
with the guidance set out in the AIC code, this Annual Report
contains a description of how the Directors have considered matters
set out in Section 172 of the UK Companies Act 2006 in relation to
stakeholder engagement. See page 44 for more information.
During the year, the Company was subject to EU Regulation
(2017/653) ('the Regulation') which deemed it to be a packaged
retail and insurance-based investment product ('PRIIPs'). In
accordance with the requirements of the Regulation, the Company
published and updated its standardised three-page Key Information
Document ('KID') on 10 September 2020. The KID is available on the
Company's website,
www.internationalpublicpartnerships.com/investors,
Board and Committees
The Board sets the strategy for the Company and makes decisions
on changes to the portfolio (including approval of acquisitions,
disposals and valuations). Through Committees, and the use of
external independent advisers, it manages risk and governance of
the Company. The Board has a majority of independent directors -
currently six of the seven directors are independent.
Board of Directors
The Board of Directors currently consists of seven non-executive
directors, whose biographies, on pages 60 to 61, demonstrate a
breadth of investment and business experience. This follows the
retirement of Mr Stares and Mr Whittle, who retired from the Board
on 31 March 2020 and 27 May 2020, respectively.
The Board consists solely of non-executive directors and, for
the period of this report, was chaired by Mr Gerrard, who was
responsible for leadership of the Board and ensuring its
effectiveness in all aspects of its role. The Board considered that
Mr Gerrard was independent upon appointment and remained
independent throughout his term of service for the purposes of the
AIC Code. Following Mr Whittle's retirement, Ms Whittet assumed the
role of Senior Independent Director. She is an alternative point of
contact for shareholders and leads in matters where it is
inappropriate for the Board Chair to do so.
For the purposes of the AIC Code, Mr Frost is not treated as
being an independent director, due to his relationship with the
Company's Investment Adviser. In accordance with the AIC Code, all
other non-executive directors are independent of the Company's
Investment Adviser.
Board Tenure and Re-election
Directors do not have service contracts. Directors are appointed
under letters of appointment, copies of which are available at the
registered office of the Company. All directors offer themselves
for re-election on an annual basis. The Board considers its
composition and succession planning on an ongoing basis.
In accordance with the AIC Code, when and if any director has
been in office (or on re-election would at the end of that term of
office have been in office) for more than nine years, the Company
will consider further whether there is a risk that such a director
might reasonably be deemed to have lost independence through such
long service.
Mr Whittle had been a Board member since August 2009 and retired
from the Board at the 2020 AGM. In addition, Mr Stares was a Board
member from August 2013 and retired from the Board on 31 March
2020. On 10 January 2020, the Board appointed Ms David and Ms
Lenfestey as part of its ongoing succession programme.
Directors' Duties and Responsibilities
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
- Statutory obligations and public disclosure;
- Approval of the Company's mandate, objectives and strategy;
- Strategic matters and financial reporting;
- Board composition and accountability to shareholders;
- Overall risk assessment and management, including reporting,
compliance, monitoring, governance and control;
- Other matters having material effects on the Company.
These reserved powers of the Board have been adopted by the
Directors to demonstrate clearly the importance with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions.
The Board monitors the Company's share price and NAV and
regularly considers ways in which shareholder value may be
enhanced. These may include implementing marketing and investor
relations activities, appropriate management of share price
premium/discount and the relative positioning and performance of
the Company to its competitors. The Board is also responsible for
safeguarding the assets of the Company and for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Individual directors may, at the expense of the Company, seek
independent professional advice on any matter that concerns them in
the furtherance of their duties. The Company maintains appropriate
Directors' and Officers' liability insurance in respect of legal
action against its directors on an ongoing basis and the Company
has maintained appropriate cover throughout the period.
All new directors receive introductory support and education
about the infrastructure sector, and the Company, from the
Investment Adviser upon joining the Board and, in consultation with
the Board Chair, all directors are entitled to receive other
relevant ongoing training as necessary.
Board Diversity
The Board is committed to maintaining the appropriate balance of
skills, gender, knowledge and experience among its members to
ensure strong leadership of the Company. When appointing Board
members, its priority will always be based on merit, but will be
influenced by the strong desire to maintain Board diversity. The
Board currently has four female directors making the gender balance
57% female and 43% male. In addition, post-year end, the Company
was listed as one of the FTSE 250's 'Top 10 Best Performers' for
gender diversity in the Hampton-Alexander Report 2020.
Board Remuneration
The Nomination and Remuneration Committee considers matters
relating to the Directors' remuneration, taking into account
benchmark information (including fees paid to directors of
comparable companies, although such a review does not necessarily
result in any changes to the fees paid) and based upon the amount
of work performed by the Board members. During the latter half of
2020, the Nomination and Remuneration Committee recommended that,
having considered the Investment Company Non-Executive Directors'
Fees Review 2020 report published by Trust Associates, and in line
with the recommendations made by Trust Associates in their
evaluation of Board remuneration undertaken in 2018, that Board
remuneration continues to be increased annually in line with
inflation. The Board accepted this recommendation. Board
remuneration will continue to be reviewed regularly to ensure that
it remains appropriate to the business of the Company and remains
in line with the market.
As a result, the Board resolved to increase Board remuneration
with effect from 1 January 2020 as outlined in the table below.
2021 FEE P.A. 2020 FEE P.A.
POSITION GBP GBP
Board Chair 87,600 86,800
Audit and Risk Committee Chair 59,800 59,200
Director (Independent and Non-Independent) 46,400 45,900
Senior Independent Director(1) 2,000 2,000
Risk Sub-Committee Chair(1) 2,000 2,000
Management Engagement Committee
Chair(1) 2,000 2,000
Nomination & Remuneration Committee
Chair(1) 2,000 2,000
ESG Committee Chair(1,2) 2,000 N/A
------------------------------------------- ------------- -------------
1 These are additional fees payable to directors chairing a committee.
2 The ESG Committee was formed on 22 March 2021.
All fees payable to the Directors should reflect the time spent
by the Directors on the Company's affairs and the responsibilities
borne by the Directors and be sufficient to attract, retain and
motivate directors of a quality required to run the Company
successfully. The Chair of the Board is paid a higher fee in
recognition of additional responsibilities, as are the Chairs of
the Audit and Risk Committee, the Risk Sub-Committee, the
Management Engagement Committee, the Nomination and Remuneration
Committee, ESG Committee, as well as the Senior Independent
Director.
There are no long-term incentive schemes provided by the Company
and no performance fees, or bonuses paid to directors. Any changes
to directors' aggregate remuneration are considered at the AGM of
the Company.
2020 FEES 2019 FEES
DIRECTOR GBP GBP
-------------------- --------- ---------
Mike Gerrard 86,800 85,000
John Le Poidevin 59,200 58,000
Claire Whittet 49,080 47,000
Julia Bond 49,900 48,666
Sally-Ann David(1) 44,765 N/A
Meriel Lenfestey(1) 44,765 N/A
John Stares(2) 11,475 45,333
John Whittle(3) 19,476 47,000
Giles Frost(4) 45,900 45,000
-------------------- --------- ---------
1 Ms David and Ms Lenfestey were appointed to the Board on 10 January 2020.
2 Mr Stares retired from the Board on 31 March 2020.
3 Mr Whittle retired from the Board on 27 May 2020.
4 The emoluments for Mr Frost are paid to his employer Amber
Infrastructure Limited, a related company of the Company's
Investment Adviser.
Mr Frost is also a director of a number of other companies in
which the Company directly or indirectly has an investment,
although he does not control or receive remuneration in relation to
these entities.
In addition to the director fees above, Mr Whittle served as a
director to four Luxembourg subsidiary entities of International
Public Partnerships and was entitled to fees of GBP3,000 per entity
for the year ended 2020.
Directors' Interests
Directors, who held office at 31 December 2020, had the
following interests in the shares of the Company:
31 DECEMBER 2020 31 DECEMBER 2019
DIRECTOR NUMBER OF ORDINARY SHARES(1) NUMBER OF ORDINARY SHARES(1)
-------------------- ----------------------------- -----------------------------
Mike Gerrard 159,181 136,851
John Le Poidevin 130,350 130,350
Claire Whittet(2) 74,594 71,134
Julia Bond 48,372 43,014
Meriel Lenfestey(3) 9,979 N/A
Giles Frost(4) 944,109 917,833
-------------------- ----------------------------- -----------------------------
1 All shares are beneficially held.
2 Holds shares through a Retirement Annuity Trust Scheme jointly with Ms Whittet's spouse.
3 Ms Lenfestey was appointed to the Board on 10 January 2020.
4 Holds some shares through a personal investment company.
There have been no changes to the holdings of existing directors
between 31 December 2020 and the date of this report.
Committees of the Board
[Diagram can be found in PDF version of this document on the
Company's website].
The Board has established five Committees consisting of the
independent non-executive directors. The responsibilities of these
Committees are described below. Terms of reference for each
committee have been approved by the Board and are available on the
Company's website ( www.internationalpublicpartnerships.com).
Audit and Risk Committee
The Audit and Risk Committee is comprised of the full Board,
with the exception of Mr Gerrard as Board Chair and Mr Frost as the
Non-Independent Director. However, Mr Gerrard and Mr Frost
routinely attend meetings of the Audit and Risk Committee as
observers.
Mr Le Poidevin is the current Chair of the Audit and Risk
Committee and during 2020, Ms Bond was Chair of the Risk
Sub-Committee. In March 2021, Ms David was appointed Chair of the
Risk Sub-Committee.
The duties of the Audit and Risk Committee in discharging its
responsibilities are outlined in the Audit and Risk Committee
Report.
In respect of its risk management function, the Audit and Risk
Committee, through the separately convened Risk Sub-Committee, is
also responsible for reviewing the Company's risk management
function and framework, in relation to the Investment Policy of the
Company including the acquisition and disposal of assets, the
valuation of assets and ensuring that the risk management function
of the Investment Adviser, Administrator and other third-party
service providers are adequate and to seek assurance of the
same.
The Audit and Risk Committee formally reviews the Company's
overall approach to risk management on an annual basis and its risk
register on at least a quarterly basis. Topics considered during
the year can be found in the Audit and Risk Committee Report on
pages 71 to 74. The Committee is satisfied that the key risks that
could impact the Company and its investments were effectively
mitigated and reported upon and were broadly in line with those of
the Company's relevant industry peers.
Investment Committee
The Investment Committee is comprised of the full Board, with
the exception of Mr Frost as the Non-Independent Director, and is
chaired by Mr Gerrard, as Chair of the Company.
The Committee considers proposals relating to the acquisition
and disposal of investments and, if thought fit, approves those
proposals. Details of the transactions completed during the period
are outlined on pages 15 to 17 of this Annual Report.
Management Engagement Committee
The Management Engagement Committee is comprised of the full
Board, with the exception of Mr Frost as the Non-Independent
Director; it is chaired by Ms Whittet. The duties of the Management
Engagement Committee in discharging its responsibilities are
outlined in the diagram on page 66.
The Management Engagement Committee carries out its review of
the Company's advisers through consideration of objective and
subjective criteria and through a review of the terms and
conditions of the advisers' appointments; with the aim of
evaluating performance, identifying any weaknesses and ensuring
value for money for the Company's shareholders.
During the year, the Management Engagement Committee formally
reviewed the performance of the Investment Adviser and other key
service providers to the Company and no material weaknesses were
identified. Overall, the Committee confirmed its satisfaction with
the services and advice received
Nomination and Remuneration Committee
The Nomination and Remuneration Committee is comprised of the
full Board, with the exception of Mr Frost as the Non-Independent
Director; it is chaired by Ms Bond.
The Committee is formally charged by the Board to consider the
structure, size, remuneration and composition of the Board. It also
oversees the appointment and reappointment of directors, taking
into account the expertise of the candidates and their independence
(see pages 66 to 67 for more detail on the Committee).
In accordance with the Corporate Governance Code required for
listed companies of the premium segment of London Stock Exchange,
the Company undertakes an externally facilitated evaluation every
three years. Utilising the services of independent corporate
governance consultant Condign Board Consulting Limited, the
Nomination and Remuneration Committee undertook an external review
of the performance of the Board and its Committees during 2020. No
significant issues were reported as a result of this review, but
recommendations were presented for the Board's consideration,
including rotating board committees more frequently and forming an
ESG Committee. The review concluded that the Board is "operating at
a very good level".
ESG COMMITTEE
As noted on page 10 the ESG Committee was formed on 22 March
2021, is comprised of the full Board and is chaired by Ms Bond.
The ESG Committee will meet at least twice a year and will
support the Board in managing the Company's ESG performance and
provide a forum for mutual discussion and challenge on ESG policies
with respect to investments and divestments.
Board and Committee Meeting Attendance
The full Board meets at least four times per year and in
addition there is regular additional contact between the Board, the
Investment Adviser, the Administrator and the Company Secretary.
The agenda and supporting papers are distributed in advance of
quarterly Board and Committee meetings to allow time for
appropriate review and to facilitate full discussion at the
meetings.
The table below lists Directors' attendance at Board and
Committee meetings during the year. In addition, during the year,
one ad hoc Board meeting and seven Board Committee meetings1 took
place to finalise matters that had been approved in principle at
full meetings of the Board.
MANAGEMENT NOMINATION
QUARTERLY AUDIT AND INVESTMENT ENGAGEMENT AND REMUNERATION
DIRECTORS BOARD RISK COMMITTEE COMMITTEE COMMITTEE COMMITTEE
--------------------- ---------- ---------------- ----------- ------------ ------------------
Maximum number 4 6 6 2 1
--------------------- ---------- ---------------- ----------- ------------ ------------------
Mike Gerrard 4 N/A 5 2 1
John Le Poidevin 4 6 6 2 1
Claire Whittet 4 6 5 2 1
Julia Bond 4 6 5 2 1
Sally-Ann David(2) 4 5 6 2 1
Meriel Lenfestey(2) 3 3 6 1 0
John Stares(3) 1 2 N/A N/A N/A
John Whittle(4) 1 3 N/A N/A N/A
Giles Frost(5) 3 N/A N/A N/A N/A
--------------------- ---------- ---------------- ----------- ------------ ------------------
1. Board Committee meetings are formed of any two or more
members of the Board and do not require full attendance. All
members of the Board are appraised of the matters to be discussed
at the Committee meeting and have the opportunity to raise
questions to the Board Chair, Investment Adviser or other advisers,
as required.
2. Ms David and Ms Lenfestey were appointed as members of all of
the Board Committees with effect from 23 March 2020.
3. Mr Stares retired from the Board and its Committees on 31 March 2020.
4. Mr Whittle retired from the Board and its Committees on 27 May 2020.
5. Mr Frost is not a member of the Audit and Risk Committee,
Management Engagement Committee, Nomination and Remuneration
Committee or the Investment Committee. While Mr Frost attended the
majority of ad-hoc Board and Committee meetings, as these meetings
considered recommendations from the Investment Adviser, his
presence does not count towards the quorum so has been excluded
from this tally.
The Board has reviewed the composition, structure and diversity
of the Board, succession planning, the independence of the
Directors and whether each of the Directors has sufficient time
available to discharge their duties effectively. The Board confirms
that it believes it has an appropriate mix of skills and
backgrounds, that a majority of directors should be considered as
independent in accordance with the provisions of the AIC Code and
that all Directors have the time available to discharge their
duties effectively.
Notwithstanding that a number of the independent directors sit
on the boards of other listed companies, the Board noted that these
individuals are exclusively non-executive directors and that listed
investment companies generally require less day-to-day
responsibility and time commitment than trading companies.
Furthermore, the Board noted that attendance of all Board and
Committee meetings during the year is high by all Directors and
that each Director has always shown the time commitment necessary
to fully and effectively discharge their duties as a director.
Accordingly, the Board recommends that shareholders vote in
favour of the re-election of all Directors at the forthcoming AGM.
Please refer to page 64 outlining the Board's approach to diversity
and re-election.
Relationship with Administrator and Company Secretary
Ocorian Administration (Guernsey) Limited ('Ocorian') (formerly
Estera International Fund Managers (Guernsey) Limited) acts as
Administrator and Company Secretary and is responsible to the Board
under the terms of the Administration Agreement. Noting that final
responsibility lies with the Board, the Administrator ensures
compliance with Guernsey Company Law, London Stock Exchange listing
requirements, the regulatory requirements of the Guernsey Financial
Services Commission, anti-money laundering regulations and
observation of the Reserved Powers of the Board and in this respect
the Board receives detailed quarterly reports. In July 2019 it was
announced that Estera International Fund Managers (Guernsey)
Limited would join Ocorian. This completed on 10 February 2020 and
a formal name change took place on 6 April 2020. The Directors have
access to the advice and services of the Company Secretary, who is
responsible to the Board for ensuring that Board procedures are
followed and that it adheres to applicable legislation, rules and
regulations as referred to above.
Relationship with the Investment Adviser
The Directors are responsible for the overall management and
direction of the affairs of the Company. Under the Investment
Advisory Agreement ('IAA'), Amber Fund Management Limited (a member
of the Amber Infrastructure Group Holdings Limited group of
companies) acts as Investment Adviser to the Company to review and
monitor current investments and to advise the Company in relation
to strategic management of the investment portfolio.
Contractual arrangements and fees
The IAA allows for the provision of investment advisory and
certain other financial services to the Board. In return, the
Investment Adviser receives fees based on the GAV and composition
of the investment portfolio as well as a contribution to expenses.
The annual base fees are detailed in note 17 to the financial
statements and calculated at the following rates:
- 1.2% for that part of the portfolio that bears construction
risk (i.e. the asset has not fully completed all construction
stages including any relevant defects period and achieved
certification by the relevant counterparty and senior lender)
- For fully operational assets:
o 1.2% for the first GBP750 million of the GAV of the
portfolio
o 1.0% for that part of the portfolio that exceeds GBP750
million in GAV but is less than GBP1.5 billion
o 0.9% for that part of the portfolio that exceeds GBP1.5
billion in GAV
In addition, the GAV excludes uncommitted cash from capital
raisings.
The Company has a long-standing relationship with the Investment
Adviser and the Board believes that the continuation of this
relationship, on a long-term basis, is in the Company's best
interest. The current IAA was renegotiated in 2013 and has a
10-year fixed term with a five-year notice period. The Board
considers that, given the long-term nature of the Company's
investments, its responsibility for the detailed day-to-day
delivery of management services and relationships with public
sector clients, it is important that it benefits from the
continuity of service provided by a long-term advisory partner. To
ensure that shareholder interests are protected, termination
provisions have been put in place to ensure that, in the event of
poor investment performance, the Company has the flexibility to
remove the Investment Adviser.
The Investment Adviser is also entitled to receive an asset
origination fee of 1.5% of the value of new investments acquired by
the Company. It should be noted that, generally, the Investment
Adviser bears the risk of abortive transaction origination costs
and that this fee has been waived or reduced by agreement in the
past where it has been deemed appropriate to do so for the
transaction in question.
Cash receipts from capital raisings and tap issuances are not
included in the GAV for the purposes of the calculation of base
fees until such receipts are invested for the first time.
investment approval process
As outlined above, the Investment Committee, comprised of
independent directors of the Company, make decisions with respect
to new investments or divestments after reviewing recommendations
made by the Company's Investment Adviser. The Investment Adviser
has a detailed set of procedures and approval processes in relation
to the recommendation it makes to the Board.
It is expected that further investments will be sourced by the
Investment Adviser. It is likely that some of these investments
will have been originated and developed by, and in certain cases
may be acquired from, other members of the Investment Adviser's
group. Where that is the case, the conflicts management process
summarised overleaf is followed.
Managing Conflicts of Interest
The Company has established detailed procedures to deal with
conflicts of interest that may arise on investments acquired from
the Investment Adviser's group and manage conduct in respect of any
such acquisitions. The Company's Board has a majority of
independent members and a Chair who is independent of the
Investment Adviser. Each Director is required to inform the Board
of any potential or actual conflicts of interest prior to Board
discussions.
The potential conflicts of interest that may arise include when
an Amber entity is an existing investor in the target entity while
an associated company, AFML, acts on the 'buyside' as Investment
Adviser to the Company. The Investment Advisory Agreement contains
procedures with the intention of ensuring that the terms on which
the vendors of such assets dispose of their assets are fair and
reasonable to the vendors; and on the 'buyside' the Company as
Investment Adviser must be satisfied as to the appropriateness of
the terms for and the price of the acquisition. For more detail on
the features of this procedures please refer to the Company's
latest prospectus available on the website:
www.internationalpublicpartnerships.com.
The acquisition of all assets, including those from any
associate of the Investment Adviser is considered and approved in
advance by the Investment Committee. In considering any such
acquisition, the Investment Committee will, as it deems necessary,
review and ask questions of the Buyside Committee of the Investment
Adviser and the Group's other advisers and the acquisition will be
approved by the Committee on the basis of this advice. The purpose
of these procedures is to ensure that the terms upon which any
investment is acquired from a member of the Amber group is on an
arm's length basis.
Risk Management and Internal Controls
The Board is responsible for overall risk management with
delegation provided to the Audit and Risk Committee. The system of
risk management and internal control has been designed to manage,
rather than eliminate, the risk of failure to meet the business
objectives. Regard is given to the materiality of relevant risks
and therefore the system of internal control cannot provide
absolute assurance against material misstatement or loss.
This process is outlined in further detail in the Risk Report
found on pages 45 to 58.
Relations with Shareholders
The Board places great importance on communication with
shareholders and encourages shareholders to share their views. It
has responsibility for communication with the investor base and is
directly involved in major communications and announcements. The
Board receives regular reports on the views of shareholders and the
Board Chair and other Directors, including the Senior Independent
Directors are happy to make themselves available to meet
shareholders as required.
Despite the challenges presented by Covid-19 the Investment
Adviser, on behalf of the Company, has maintained an active
investor engagement programme. During the year the Company's
Results Presentations, and day-to-day investor relations activities
moved online with limited impact on the overall programme. During
2020, the Investment Adviser and members of the Board held formal
meetings with over 100 shareholders in addition to more informal
interaction, including other forms of correspondence. The Company
also maintained an active programme of sell-side engagement and the
Board is also informed on a regular basis of all relevant market
commentary on the Company by the Investment Adviser, Administrator
and the Company's Broker.
The AGM of the Company usually provides a forum for shareholders
to meet and discuss issues with the Directors and with the
Investment Adviser of the Company. As a result of Covid-19, the
Company encouraged shareholders to submit proxy forms in respect of
the AGM and to appoint the chair of the meeting as their proxy and
vote on the shareholders' behalf as they would not be permitted to
attend in person due to Covid-19 restrictions. It is the Board's
policy to publish the results of the voting at the AGM via the
Regulatory News Service ('RNS') at the completion of the
meeting.
To promote a clear understanding of the Company, its objectives
and financial results, the Board aims to ensure that information
relating to the Company is disclosed in a timely manner. The
Company's website (www.internationalpublicpartnerships.com) enables
investors to easily find publicly disclosed documents including
Annual Reports and RNS announcements, together with additional
background information on its assets and corporate practice.
Investors can register to receive notifications (via email) of RNS
announcements that the Company issues. The Board encourages
investors to utilise this useful online resource.
Any shareholder issues of concern, including on corporate
governance or strategy, can be addressed in writing to the Company
at its registered office address (see back cover).
AUDIT AND RISK COMMITTEE REPORT
The Audit and Risk Committee (the 'Committee' for the purposes
of this report) is an essential part of the Company's governance
framework. The Board has delegated oversight of the Company's
financial reporting, internal controls, compliance and external
audit to the Committee. The terms of reference for the Committee,
together with details of the standard business considered by the
Committee, have been approved by the Board and are available on the
Company's website ( www.internationalpublicpartnerships.com).
The Committee is chaired by Mr Le Poidevin. Ms Bond assumed lead
responsibility for risk within the Risk Sub-Committee during 2020
and in March 2021, Ms David was appointed Chair of the Risk
Sub-Committee. An overview of the Committee's work during the year
and details of how the Committee has discharged its duties are set
out below.
Committee Meetings
The Committee meetings during the year were attended by the
Investment Adviser and Administrator by invitation. A
representative of the Company's external auditor, Ernst & Young
LLP ('EY'), also attended those meetings where the annual audit
cycle, the Annual Report and financial statements and the
half-yearly financial report were considered.
All Committee members are considered to be appropriately
experienced to fulfil their role, having significant, recent and
relevant financial experience in line with the Corporate Governance
Code. Biographies of the Committee members can be found on pages 60
to 61.
Committee Agenda
The Committee's agenda during the year included:
- Review of the Company's risk profile, specific risks and
mitigation practices, with a special focus on emerging risks
including climate change;
- Review of the effectiveness of the Company's systems of internal control;
- Review of the regulatory environment within which the Company operates;
- Review of the Annual Report and financial statements and
half-yearly financial report and matters raised by management and
the external auditors (including significant financial reporting
judgements and estimates therein);
- Review of the appropriateness of the Company's accounting policies;
- Consideration and challenging of the draft valuation of the
Company's investments prepared by the Investment Adviser and
recommendations made to the Board on the appropriateness of the
portfolio valuation;
- Review of the effectiveness, objectivity and independence of
the external auditors, and the terms of engagement, cost
effectiveness and the scope of the audit;
- Completing a formal tender of the Company's audit;
- Approving the external auditor's plan for the current year end; and
- Review of the policy on the provision of non-audit services by the external auditor.
Key activities considered during the year
The Committee undertook the following activities in discharging
its responsibilities during the year:
Financial Reporting
The Committee reviewed the Company's Annual Report and financial
statements, the half-yearly financial report and interim management
reports prior to approval by the Board and advised the Board with
respect to meeting the Company's financial reporting obligations.
The Committee reviewed the Company's accounting policies and
practices, including approval of critical accounting policies;
consideration of the appropriateness of significant judgements and
estimates; and advising the Board as to its views on whether the
Annual Report and financial statements, taken as a whole, was fair,
balanced and understandable.
The Committee considered the most significant accounting
judgement exercised in preparing the financial statements to be the
basis for determining the fair value of the Company's investments,
as detailed overleaf.
Fair Value of Investments
The Company's investments are typically in unlisted securities,
including shares and debt, hence market prices for such investments
are not typically readily available. Instead, the Company uses a
discounted cash flow methodology and benchmarks to market
comparables to derive the Directors' valuation of investments.
Valuations are prepared by the Investment Adviser and the
methodology requires a series of judgements to be made, as
explained in note 11 to the financial statements. The valuation
process and methodology were discussed with the Investment Adviser
regularly during the year and with the auditor as part of the year
end audit planning and interim review processes. The Committee
challenged the Investment Adviser on the year end Fair Value of
Investments as part of its consideration of the audited
statements.
During the year, the Committee reviewed the Investment Adviser's
quarterly valuation reports, reports on the performance of the
underlying assets and the Investment Adviser's assessment of
macroeconomic assumptions. Minor changes were made in the year to
the approach taken in applying foreign exchange rates when
converting non-GBP cash flows as part of the valuation process,
with immaterial overall impact. The Investment Adviser confirmed
that, other than these changes, the valuation methodology has been
applied consistently with prior years. The Committee also reviewed
and challenged the valuation assumptions (reasonableness of
underlying cash flows, discount rates, interest rates, foreign
exchange rates, inflation rates and tax rates).
The external auditor explained the results of its review of the
valuations, including its assessment of management's underlying
cash flow projections and assumptions; macroeconomic assumptions;
and discount rate methodology and output. The auditor confirmed no
material adjustments were proposed.
The Committee concluded that a consistent valuation methodology
has been applied throughout the year and any forecast assumptions
applied were appropriate.
R evenue Recognition
The Committee has considered the risk of inappropriate
accounting recognition of revenue to be a relatively low risk given
the nature of the Company's activities.
Internal controls over financial reporting
The Committee satisfied itself that the system of internal
control and compliance over financial reporting was effective,
through consideration of regular reports from the Investment
Adviser, the Administrator and external third-party advisers.
The Committee also considered the adequacy of resources,
qualifications and experience of staff in the finance function and
had direct access to and independent discussions with the external
auditor throughout the year.
Fair, Balanced and Understandable
The Committee seeks to establish arrangements to ensure fair,
balanced and understandable reporting. The Committee engaged in
extensive dialogue with management throughout the year and
considered the interim and annual financial statements as well as
quarterly updates and reports prepared by management of the
Investment Adviser. Following review of the Company's 2020 Annual
Report and financial statements, the Committee advised the Board
that, in its opinion, the Annual Report and financial statements,
taken as a whole, is fair, balanced and understandable and provides
the information necessary to assess the Company's performance,
operating model and strategy.
EXTERNAL AUDITOR
The Committee recommended to the Board the scope and terms of
engagement of the external auditor. The Committee considered
auditor objectivity and independence, audit tenure, audit tendering
and auditor effectiveness, as detailed below.
Objectivity and independence
In assessing the objectivity of the auditor, the Committee
considered the terms under which the external auditor may be
appointed to perform non-audit services, mindful of the ethical
standards for auditors and auditor independence. Work expected to
be completed by an external auditor included formal reporting for
shareholders, regulatory assurance reports and assurance work in
connection with new investments.
Under the Company's policy for non-audit services, there is a
specific list of services for which the external auditor cannot be
engaged, as the Committee considers that the provision of such
services would impact its independence. Potential services to be
provided by the external auditor with an expected value of up to
GBP50,000, and which are not prohibited by the policy, must be
pre-approved by the Chair of the Committee; any services above this
value require pre-approval by the full Audit and Risk Committee.
Non-audit fees represented 2.6% of total audit fees during the
period under review, relating only to the half-yearly review. EY
undertook its standard independence and objectivity procedures in
relation to non-audit engagements and confirmed compliance with
these to the Committee. Further details on the amounts of non-audit
fees paid to EY are set out in note 7 to the financial statements.
These were reported to us and were not considered to be a
significant risk impacting the objectivity and independence of EY
as external auditor.
Review of auditor effectiveness
As part of our annual review of the objectivity and
effectiveness of the audit, the Committee conducted an in-depth
review in 2020 of the auditor's performance and the Committee was
satisfied in this regard. This was facilitated through the
completion of a questionnaire by relevant stakeholders (including
members of the Committee and senior members of the Investment
Adviser's finance team), review and challenge of the audit plan for
consistency with the Company's financial statement risks, and
review of the audit findings report. In accordance with the
relevant Corporate Governance Code principles, the Committee will
continue to review the effectiveness of the external auditor in
line with best practice.
Review of auditor's remuneration
The Committee carried out a review of the proposed audit fees
for 2020. Whilst the audit fee for the Group (including
unconsolidated subsidiaries) increased compared to the prior year,
the Committee considers that the audit fees for the current year
present good value for money for the Company's shareholders.
Audit tendering and tenure
The Committee annually considers the reappointment of the
external auditor, including rotation of the audit partner. The
external auditor is required to rotate the audit partner
responsible for the Group audit every five years and the year to 31
December 2020 was the fifth year for the current lead audit
partner.
During the year to 31 December 2020, the Company completed a
formal tender of its audit in line with best practice and continued
audit quality. The Board initiated a formal tender process in late
2019 with a longlist of suitable audit firms approached. Following
an initial dialogue and screening process, shortlisted firms were
formally invited to tender for the audit of the Company. Formal
tender proposals from participating firms and meetings with the
Board of Directors took place during the year 2020. The key
criteria considered by the Audit Committee in reaching its tender
decision included those of audit quality, infrastructure audit and
valuation experience, audit approach, potential for added value,
and fees. Following a comprehensive assessment process, PwC was
selected as the preferred firm and, following approval at the AGM,
will assume the role of the Company's auditor for financial periods
beginning 2021. A detailed transition plan has been agreed, with
all parties working closely to ensure an efficient and effective
auditor transition.
RISK MANAGEMENT
During the year, the Committee continued to ensure that the
Company's risk management framework and processes remained
effective in managing the Company's risks. Areas of note for the
year are discussed below. A review of significant developments
relating to the Company's risks arising in the year can be found in
the Risk Management section of this report, starting on page
45.
Risk process review
During the year the Company, with help from the Investment
Adviser, undertook an exercise to further improve its risk
management framework and processes. Further details of the exercise
can be found in the Risk Management section of this report on page
47.
Viability assessment
The Committee carried out a robust assessment of the principal
risks facing the Company with a view to identify risks which may
impact the Company's viability. Detailed stress tests, including an
impact assessment on the Company's forecasted cash flows, showed
significant resilience in the Company's ability to remain viable.
The results of the risk assessment process are detailed in the
Viability Statement on page 53.
ESG external controls review
During the year an independent external review of the Company's
ESG framework was completed. The review outcomes were positive and
provided recommendations for the Company to further enhance its
market-leading approach. Further details of the review and the
Company's approach to responsible investment can be found on pages
36 to 44.
Climate Change
The Committee continued to strengthen the Company's approach to
managing climate change risk. During the year, continued
improvements were made to embed climate change further in the
reporting and risk management process. In addition, the Company
formed an ESG Committee. Further details can be found in the
Responsible Investment section from page 36, and in the review of
principal and emerging risks, from page 48.
UK withdrawal from the EU
Potential risks which may arise for the Company as a result of
the UK's withdrawal from the EU continued to be monitored. Whilst
particular attention was given to potential impacts arising from a
no-deal scenario during 2020, attention is now focused on any
potential longer-term change in risks resulting from changes in the
relationship between the UK and the EU going forward.
Regulatory and Tax Environment
The Committee received regular reports from the Administrator
and Investment Adviser on regulation and regulatory developments.
The Company continues to maintain compliance with the requirements
of the Common Reporting Standard, the Retail distribution of
unregulated collective investment schemes (regulation which the
Company remains excluded from), the UK Criminal Finance Act 2017,
AIFMD, The Foreign Account Tax Compliance Act ('FATCA'), and UK
Packaged Retail and Insurance-based Investment Products (EU Exit)
Regulations 2019 as amended ('UK PRIIPs').
Focus for 2021
Alongside an obvious continued focus on the impacts to the
Company of the Covid-19 pandemic and additional to its continued
attention to regular and routine matters, this year the Committee
will work to ensure an efficient transition in auditor, as well as
continuing to monitor any political, tax and regulatory
developments in its applicable geographies.
John Le Poidevin
Chair, Audit and Risk Committee
24 March 2021
DIRECTORS' REPORT
Introduction
The Directors present their Annual Report on the performance of
the Company and Group for the year ended 31 December 2020.
Principal Activity
The Company is a limited liability, Guernsey-incorporated and
domiciled, authorised closed-ended investment company under
Companies (Guernsey) Law, 2008. The Company's shares have a premium
listing on the Official List of the UK Listing Authority and are
traded on the main market of the London Stock Exchange.
The Chair's Letter and Strategic Report contain a review of the
business during the year. A Corporate Governance Report is provided
on pages 62 to 70.
Directors' Indemnities
The Company has made qualifying third-party indemnity provisions
for the benefit of its Directors, which were made during the period
and remain in force at the date of this report.
Substantial Shareholdings
As at 31 December 2020, the Company had been notified, in
accordance with Chapter 5 of the Disclosure and Transparency Rules,
of the following interests in 5% or more of the Company's Ordinary
Shares to which voting rights are attached:
NO. OF ORDINARY
NAME OF HOLDER % ISSUED CAPITAL SHARES DATE NOTIFIED
------------------------------ ----------------- ---------------- --------------
Investec Wealth & Investment
Ltd 13.00% 209,481,679 16 June 2020
------------------------------ ----------------- ---------------- --------------
Quilter plc 5.48% 88,296,288 15 June 2020
There have been no additional notices between 31 December 2020
and the date of this report.
Directors' Authority to Buy Back Shares and Treasury Shares
The Company did not purchase any shares for treasury or
cancellation during the year.
The current authority of the Company to make market purchases of
up to 14.99% of the issued Ordinary Share Capital expires on 26 May
2021. The Company will seek to renew such authority at the AGM to
take place on 27 May 2021. Any buy back of Ordinary Shares will be
made subject to Guernsey law and within any guidelines established
from time-to-time by the Board and the making and timing of any buy
backs will be at the absolute discretion of the Board.
Purchases of Ordinary Shares will only be made through the
market at prices below the prevailing NAV of the Ordinary Shares
(as last calculated) where the Directors believe such purchases
will enhance shareholder value. Such purchases will also only be
made in accordance with the Listing Rules of the UK Listing
Authority, which provide that the price to be paid must not be more
than 5% above the average of the middle market quotations for the
Ordinary Shares for the five business days before the shares are
purchased (unless previously advised to shareholders). No such
shares were bought back by the Company during the prior year. Up to
10% of the Company's shares may be held as treasury shares.
Going Concern
The Company and Group's business activities, together with the
factors likely to affect the Company's future development,
performance and position, are set out in the Strategic Report on
pages 4 to 58. The financial position, cash flows, liquidity
position and borrowing of the Company and Group are described in
the financial statements on page 89.
The Directors have considered significant areas of possible
financial risk, and comprehensive financial forecasts have been
prepared and submitted to the Board for review. The Directors have,
based on the information contained in these forecasts and the
assessment of the committed banking facilities in place, formed a
judgement, at the time of approving the financial statements, that
the Company (and consolidated subsidiaries) have adequate resources
to continue in operational existence for the 15-month going concern
assessment review period.
After consideration, the Directors are satisfied that it is
appropriate to adopt the going concern basis in preparing the
financial statements.
Director Declaration
Each person who is a Director at the date of approval of this
Annual Report confirms that:
So far as the Director is aware, there is no relevant audit
information of which the Company's external auditor is unaware.
Each Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information. This confirmation is given
and should be interpreted in accordance with the provisions of
Section 249 of the Companies (Guernsey) Law, 2008.
Mike Gerrard John Le Poidevin
Chair Director
24 March 2021 24 March 2021
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing financial statements
for each year which give a true and fair view, in accordance with
applicable Guernsey law and International Financial Reporting
Standards ('IFRS') as adopted by the EU, of the state of affairs of
the Company and its consolidated subsidiaries (the 'Group') and of
the profit or loss of the Group for that year. In preparing those
financial statements, the Directors are required to:
- Select suitable accounting policies and then apply them consistently;
- Make judgements and estimates that are reasonable;
- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- Prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Group and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud, error and non-compliance with law and
regulations.
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the
auditor does not involve considerations of these matters and,
accordingly, the auditor accepts no responsibility for any change
that may have occurred to the financial statements since they were
initially presented on the website. Legislation in Guernsey
governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions.
Responsibility Statement of the Directors' in respect of the
Consolidated Annual Report and Financial Statements
The Directors each confirm to the best of their knowledge
that:
- The consolidated financial statements, prepared in accordance
with IFRS as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and net return of Group;
and
- The Annual Report and financial statements includes a fair
review of the development and performance of the business and the
position of the Group, together with a description of the principal
risks and uncertainties faced.
Directors' Statement under the UK Corporate Governance Code
The Board, as advised by the Audit and Risk Committee, has
considered the Annual Report and financial statements and, taken as
a whole, consider it to be fair, balanced and understandable and
that it provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
By order of the Board
Mike Gerrard John Le Poidevin
Chair Director
24 March 2021 24 March 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF INTERNATIONAL PUBLIC
PARTNERSHIPS LIMITED
Opinion
We have audited the financial statements of International Public
Partnerships Limited (the 'Company') and its subsidiaries (the
Group") for the year ended 31 December 2020 which comprise
Consolidated statement of comprehensive income, Consolidated
balance sheet, Consolidated statement of changes in equity,
Consolidated cash flow statement and the related notes 1 to 21,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards as adopted by the European Union.
In our opinion, the financial statements:
- Give a true and fair view of the state of the group's affairs
as at 31 December 2020 and of its profit for the year then
ended;
- Have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union;
and
- Have been properly prepared in accordance with the
requirements of The Companies (Guernsey) Law, 2008.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements, including the UK FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors' assessment of the group's ability to
continue to adopt the going concern basis of accounting
included:
- In conjunction with our walkthrough of the group's financial
close process, we confirmed our understanding of management's going
concern assessment process and also engaged with management early
to ensure all key factors were considered in their assessment;
- We obtained management's going concern assessment, including
the cash forecast and covenant calculation for the going concern
period which covers a period to 30 June 2022 from the date of
signing this audit opinion. The group has modelled a number of
adverse scenarios in their cash forecasts and covenant calculations
in order to incorporate unexpected changes to the forecasted
liquidity of the Group;
- We reviewed minutes of board meetings with a view to
identifying any matters which may impact the going concern
assessment;
- We have tested the factors and assumptions included in each
modelled scenario for the cash forecast and covenant calculation
and where applicable we have also tested the impact of Covid-19
included in each forecasted scenario. We evaluated the
appropriateness of management's stress test scenarios and their
impact on the liquidity position. We considered the appropriateness
of the methods used to calculate the cash forecasts and covenant
calculations and determined through inspection and testing of the
methodology and calculations that the methods utilised were
appropriately sophisticated to be able to make an assessment for
the entity. We observed that the majority of investment receipts
are expected to exhibit predictable cash flows which are in the
form of dividends, interest or principal payments from equity,
subordinated and senior debt investments. We challenged management
on the appropriateness of the key assumptions and considered their
reasonableness in the context of other supporting evidence gained
from our audit work including back testing the historical accuracy
of management's cash flow forecasts. We reviewed corporate level
cash flows including management's ability to access future
financing which included the utilisation of the corporate debt
facility renewed in March 2021;
- We considered the mitigating factors included in the cash
forecasts and covenant calculations that are within the control of
the Group. This includes review of the group's non-operating cash
outflows and evaluating the group's ability to control these
outflows as mitigating actions if required. We also verified
renewed corporate debt facility available to the Group;
- We have reviewed managements reverse stress testing in order
to identify what factors would lead to the group utilising all
liquidity or breaching the financial covenant during the going
concern period. We performed our own scenario analysis using a
number of alternative assumptions to assess the reasonableness of
management's assessment;
- We reviewed the Group's going concern disclosures included in
the annual report in order to assess that the disclosures were
appropriate and in conformity with the reporting standards.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group's ability to continue as a going concern for a period to 30
June 2022 from when the financial statements are authorised for
issue.
In relation to the Group's reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors' statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Group's ability to continue as a going concern.
Overview of our audit approach
Audit scope - We performed an audit of International Public
Partnerships Limited and the consolidated service
entities ('the Group'), for the year ended 31 December
2020.
------------------ ---------------------------------------------------------
Key audit matters - Misstatement or manipulation of investment fair
value
- Income recognition
------------------ ---------------------------------------------------------
Materiality - Overall group materiality of GBP23.8 million
(2019: GBP24.3 million) which represents 1% (2019:
1%) of Equity.
------------------ ---------------------------------------------------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Group. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the
organisation of the Group and effectiveness of controls and changes
in the business environment when assessing the level of work to be
performed.
The Group has determined that it is an investment entity under
the requirements of IFRS10 amendments for Investment Entities (IFRS
10 amendments) and therefore only consolidates service entities as
explained in note 1 of the financial statements.
All audit work performed for the purposes of the audit was
undertaken by the Group audit team.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Misstatement or manipulation of investment fair value
GBP2,345 million (2019: 2,383 million)
Investments comprise a portfolio of assets measured at
fair value through profit or loss and that are classified
as Level 3 within the fair value hierarchy. The fair value
of these illiquid investments are determined using valuation
techniques and the details of the valuation process and
key sensitivities are provided in note 11 of the financial
statements and are discussed in the strategic report -
"operating review" and "continuous risk management" sections.
The investments 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, the relevant long-term government
bond yields, specific investment risks, discount rate used
by other infrastructure funds and data from primary and
secondary markets is considered.
The valuation involves significant judgment and estimation
uncertainty which includes the risk of an inappropriate
valuation model being applied, the risk of manipulation
or error in both the assumptions applied and the amount
and timing of expected cash flows.
----------------- -----------------------------------------------------------------------
Our response We obtained an understanding of the process and controls
to the surrounding investment valuation by performing our walkthrough
risk procedures and evaluating the implementation and design
effectiveness of controls.
Test of Controls: We have tested the effectiveness of
key controls in operation over investment acquisitions,
valuation, forecasting cashflows and distributions and
placed reliance on control over these processes.
Verification of existence and ownership of Investments:
We have tested, on a sample basis, the existence and ownership
of investments to ensure the group is entitled to distributions
from the investments.
Macroeconomic Input Assumptions: We engaged our EY Valuation
specialists to review the macro assumptions (inflation,
deposit and foreign exchange) used in the financial models
by comparing these to market data. The tax rate assumption
was reviewed by the audit team in conjunction with the
EY Tax specialist.
Based upon our risk assessment of the investment portfolio,
we selected a sample of investments that cover specific
risks identified. The following procedures were performed:
Application of Macroeconomic Inputs: We tested that the
macroeconomic inputs (inflation rates, foreign exchange
rates, deposit rates and tax rates) reviewed by our EY
Valuation and Tax specialists were applied consistently
and accurately in the selected models.
Discount Rates: We engaged our EY Valuation specialists
to conclude if the discount rate determined by management
sit within the reasonable range based on the risk profile
inherent in the underlying cash flows of the selected investments.
Model integrity: We reviewed management controls including
management's use of third party audits of the initial model
and analysis of yields. We engaged our EY Valuation specialists
to test the changes to the logical operation on the selected
models. We have compared the model used to determine the
year end valuation to the most recent model that was audited
or was reviewed as a part of previous audit work.
Model inputs: We agreed a sample of contractual cashflows
to contractual agreements and actual cashflows. We engaged
EY Valuation specialists to assess the assumptions used
to determine the underlying variable cash flows which require
significant judgement. Their assessment was based on a
combination of market data and experience of valuing other
similar investments.
For an extended sample, we tested that the macro-economic
inputs (inflation rates, foreign exchange rates, deposit
rates and tax rates) reviewed by our EY Valuation specialists
were applied consistently and accurately to the models.
We performed the following procedures across the whole
portfolio:
- With the assistance of EY Valuation specialists, we
reviewed the changes in discount rate of the assets in
the Group's portfolio by analysing the components of the
discount rate build up approach adopted by management.
Any material movements in the components were discussed/challenged
and explanations obtained were corroborated with appropriate
evidence. In addition, based on our risk categorisation
of assets within the Group portfolio we checked if the
discount rate for those assets sits within the EY Valuation
specialists discount rate range. For any outliers, explanations
obtained from management were corroborated with appropriate
evidence.
- We have performed a detailed analytical review based
on year on year movement on each investment and validating
significant variances from expectation.
- We tested the historical accuracy of forecasting by
comparing the historical forecast distributions from the
projects to the actual distributions.
- We discussed and reviewed managements assessment of
the impact of Covid-19 on the fair value of the investments.
Acquisitions : We tested all acquisitions during the year,
reviewing the key transaction documents, including share
purchase agreements and agreeing the consideration paid
to bank statements. There were no disposals during the
year.
Market Review : We engaged EY Valuation specialists to
review reasonableness of variable forecast cashflows and
provide benchmarking information on macro assumptions (i.e.
inflation rates, deposit rate and fx rate) applied to the
forecast cashflows.
Disclosures : We reviewed the adequacy of the disclosures
made in the financial statements
----------------- ---------------------------------------------------------------------
Key Observations We confirmed that there were no material matters arising
communicated from our audit work that we needed to bring to the attention
to the of the Audit and Risk Committee.
Audit and We confirmed that the valuation of the investments is fairly
Risk Committee stated and was in line with IFRSs as adopted by the European
Union.
----------------- ---------------------------------------------------------------------
Risk Income recognition
Income primarily comprises of the dividend and interest
income stream (i.e. distributions) generated by the investments
held in underlying consolidated subsidiaries.
Management may seek to overstate income as a result of
seeking to report the desired level of return to investors.
----------------- ---------------------------------------------------------------------
Our response We have updated our understanding of the processes adopted
to the by the Board and management in respect of income recognition
risk including our understanding of the systems and controls
implemented;
We compared the actual distributions received in 2020 to
the forecast made at the end of 2019 to test the completeness
of distributions. In addition, we also check all bank statements
during the year to ensure any dividends and interest received
have been recognised;
We have agreed a sample of dividend and interest receipts
to documentation from underlying project entities and recalculated
the interest amounts; and
We have performed cut off testing by reviewing post year
end bank statements to conclude that the income receipts
are recorded in the correct period.
----------------- ---------------------------------------------------------------------
Key Observations We confirmed that there were no material matters arising
communicated from our audit work that we needed to bring to the attention
to the of the Audit and Risk Committee.
Audit and
Risk Committee
----------------- ---------------------------------------------------------------------
In the prior year, our auditor's report included a key audit
matter in relation to going concern including the potential impact
of Covid-19 which has been removed in the current year. Given the
impact of Covid-19 on the group in the current period, the overall
allocation of resources and direction of the audit team's efforts
in relation to this matter results in this no longer meeting the
definition of a key audit matter.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group to be GBP23.8 million
(2019: GBP24.3 million), which is 1% (2019: 1%) of equity. We
believe that total equity provides us with an appropriate basis for
audit materiality as net asset value is a key published performance
measure and is a key metric used by management in assessing and
reporting on the overall performance of the Group.
During the course of our audit, we reassessed initial
materiality and noted that total equity had decreased from GBP2,409
million at 30 June 2020 to GBP2,384 million as at 31 December 2020
mainly due to reduction in investment fair value. This resulted in
a lower materiality of GBP23.8 million compared to GBP24.1 million
that was originally determined at the audit planning stage.
Given the importance of Interest income, Dividend income and
Related party fees to the users of the financial statements; we
also apply a lower materiality of GBP4.4 million (2019: GBP4.7
million) to audit these balances. This lower materiality is based
on 5% of profit before tax excluding the gains/loss relating to
revaluation of investments.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the group's overall control environment, our
judgement was that performance materiality was 75% (2019: 75%) of
our planning materiality, namely GBP17.8 million (2019: GBP18.2
million). We have set performance materiality at this percentage
based on our understanding of the group, including the past history
of misstatements, our ability to assess the likelihood of
misstatements and the effectiveness of the internal control
environment.
Audit work relating to Interest income, Dividend income and
Related party fees is based on 75% of the lower materiality
described above - GBP3.3 million (2019: GBP3.5 million).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit and Risk Committee that we would report
to them all uncorrected audit differences in excess of GBP1.2
million (2019: GBP1.2 million), which is set at 5% of planning
materiality, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
OTHER INFORMATION
The other information comprises the information included in the
annual report set out on pages 1 to 77 other than the financial
statements and our auditor's report thereon. The directors are
responsible for the other information contained within the annual
report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters in
relation to which The Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
- proper accounting records have not been kept by the Company; or
- the financial statements are not in agreement with the
Company's accounting records and returns; or
- we have not received all the information and explanations we require for our audit.
COPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the group's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
- Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 75;
- Directors' explanation as to its assessment of the group's
prospects, the period this assessment covers and why the period is
appropriate set out on page 58;
- Directors' statement on fair, balanced and understandable set out on page 79;
- Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on page
72;
- The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 46; and
- The section describing the work of the Audit and Risk committee set out on page 71.
responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out on page 77, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Group and management.
Our approach was as follows:
- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the group and determined that the
most significant are those that relate to reporting framework
(IFRS), Companies (Guernsey) Law, 2008, Listing rules of UK Listing
Authority and the relevant tax compliance regulations in the
jurisdictions in which the group operates. In addition, we
concluded that there are certain significant laws and regulations
that may have an effect on the determination of the amounts and
disclosures in the financial statements and those are laws and
regulations relating to health and safety, employee matters,
environmental, and bribery and corruption practices and regulations
relating to data protection.
- We understood how the group is complying with these frameworks
by making enquiries of management and those responsible for legal
and compliance procedures. We corroborated our enquiries through
our review of Board minutes, compliance reports, papers provided to
the Audit and Risk Committee and attendance at meetings of Audit
Committee, correspondence received from regulatory bodies as well
as consideration of the results of our audit procedures across the
group to either corroborate or provide contrary evidence;
- We assessed the susceptibility of the Group's financial
statements to material misstatement, including how fraud might
occur by enquiring with management within various parts of the
business and those charged with governance to understand where they
considered there was susceptibility to fraud, assessing any
whistleblowing incidences for those with a potential financial
reporting impact. We considered the controls that the group has
established to address risks identified, or that otherwise prevent,
deter and detect fraud; and how senior management monitors those
controls. Where this risk was considered to be higher, we performed
audit procedures to address each identified fraud risk. These
procedures included those on investment fair value and income
recognition detailed above in Key audit matters section. We
considered the risk of fraud through management override and, in
response, we incorporated data analytics across journal entries.
These procedures were designed to provide reasonable assurance that
the financial statements were free from fraud or error;
- Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations
identified above. Our procedures included the review of board
minutes, management reporting to the Audit Committee, enquiries of
management and those responsible for legal and compliance
procedures, review of the regulatory correspondence from regulatory
bodies during the year and journal entry testing with a focus on
journals meeting our defined risk criteria based on our
understanding of the business.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities . This description
forms part of our auditor's report.
USE OF OUR REPORT
This report is made solely to the company's members, as a body,
in accordance with Section 262 of The Companies (Guernsey) Law
2008. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Richard Le Tissier
for and on behalf of Ernst & Young LLP,
Guernsey, Channel Islands
24 March 2021
Notes:
1. The maintenance and integrity of the International Public Partnerships Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in the Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdiction.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARED 31 DECEMBER 2020
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 s GBP'000
Notes s
---------------------------------------- ----- ---------------- ------------
Interest income 4 81,204 76,405
Dividend income 4 42,822 48,181
Net change in investments at Fair Value
through profit or loss 4 (27,731) 44,132
----------------------------------------- ----- ---------------- ------------
Total investment income 96,295 168,718
Other operating (expense) / income 5 (3,326) 4,797
========================================= ===== ================ ============
Total income 92,969 173,515
Management costs 17 (25,888) (24,537)
Administrative costs (1,825) (1,568)
Transaction costs 6, 17 (286) (4,221)
Directors' fees (416) (386)
----------------------------------------- ----- ---------------- ------------
Total expenses (28,415) (30,712)
----------------------------------------- ----- ---------------- ------------
Profit before finance costs and tax 64,554 142,803
Finance costs 8 (3,797) (5,053)
----------------------------------------- ----- ---------------- ------------
Profit before tax 60,757 137,750
Tax (charge) / credit 9 (44) 418
----------------------------------------- ----- ---------------- ------------
Profit for the year 60,713 138,168
----------------------------------------- ----- ---------------- ------------
Earnings per share
From continuing operations
Basic and diluted (pence) 10 3.76 9.17
----------------------------------------- ----- ---------------- ------------
All results are from continuing operations in the year.
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
year (2019: nil). The profit for the year represents the Total
Comprehensive Income for the year.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARED 31 DECEMBER 2020
Share capital
and share Other distributable Retained
Notes premium reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
s s s s
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2019 1,753,840 182,481 488,918 2,425,239
---------------------------- ------ -------------- -------------------- ---------- ----------
Total comprehensive income - - 60,713 60,713
Issue of Ordinary Shares 15 15,742 - - 15,742
Issue costs applied to 15 - - - -
new shares
Dividends in the year 15 - - (117,258) (117,258)
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2020 1,769,582 182,481 432,373 2,384,436
---------------------------- ------ -------------- -------------------- ---------- ----------
YEARED 31 DECEMBER 2019
SHARE CAPITAL
and share OTHER DISTRIBUTABLE RETAINED
NOTES premium RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2018 1,560,243 182,481 456,023 2,198,747
---------------------------- ------ -------------- -------------------- ---------- ----------
Total comprehensive income - - 138,168 138,168
Issue of Ordinary shares 15 195,553 - - 195,553
Issue costs applied to
new shares 15 (1,956) - - (1,956)
Dividends in the year 15 - - (105,273) (105,273)
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2019 1,753,840 182,481 488,918 2,425,239
---------------------------- ------ -------------- -------------------- ---------- ----------
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2020
31 December 31 December
2020 2019
GBP'000 GBP'000
Notes s s
---------------------------------- ------ ----------- -----------
Non-current assets
Investments at Fair Value through
profit or loss 11 2,345,433 2,382,645
---------------------------------- ------ ----------- -----------
Total non-current assets 2,345,433 2,382,645
================================== ====== =========== ===========
Current assets
Other financial assets 11, 13 42,188 31,150
Cash and cash equivalents 11 44,263 45,610
Derivative financial instruments 11 268 4,161
Total current assets 86,719 80,921
================================== ====== =========== ===========
Total assets 2,432,152 2,463,566
---------------------------------- ------ ----------- -----------
Current liabilities
Trade and other payables 11, 14 9,316 10,471
Bank loans 8, 11 38,400 -
---------------------------------- ------ ----------- -----------
Total current liabilities 47,716 10,471
---------------------------------- ------ ----------- -----------
Non-current liabilities
---------------------------------- ------ ----------- -----------
Bank loans 8, 11 - 27,856
---------------------------------- ------ ----------- -----------
Total non-current liabilities - 27,856
---------------------------------- ------ ----------- -----------
Total liabilities 47,716 38,327
Net assets 2,384,436 2,425,239
---------------------------------- ------ ----------- -----------
Equity
Share capital and share premium 15 1,769,582 1,753,840
Other distributable reserve 15 182,481 182,481
Retained earnings 15 432,373 488,918
---------------------------------- ------ ----------- -----------
Equity attributable to equity
holders of the parent 2,384,436 2,425,239
---------------------------------- ------ ----------- -----------
Net assets per share (pence per
share) 16 147.1 150.6
---------------------------------- ------ ----------- -----------
The financial statements were approved by the Board of Directors
on 24 March 2021.
They were signed on its
behalf by:
Mike Gerrard John Le Poidevin
Chair Director
24 March 2021 24 March 2021
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
Notes s s
------------------------------------------------- ------ ------------- -------------
Profit before tax in the Consolidated Statement
of Comprehensive Income(1) 60,757 137,750
Adjusted for:
Loss / (gain) on investments at fair value
through profit or loss 4 27,731 (44,132)
Finance costs(2) 8 3,797 5,053
Fair value movement on derivative financial 5,
instruments 11 3,894 (4,468)
Working capital adjustments
(Increase) in receivables (13,349) (6,929)
(Decrease) / increase in payables (1,155) 2,105
Income tax received (3) 2,533 1,071
Net cash inflow from operations (4) 84,208 90,450
------------------------------------------------- ------ ------------- -------------
Investing activities
Acquisition of Investments at Fair Value
through profit or loss 12 (29,984) (281,286)
Net repayments from Investments at Fair
Value through profit or loss 39,464 40,241
Net cash inflow / (outflow) from investing
activities 9,480 (241,045)
------------------------------------------------- ------ ------------- -------------
Financing activities
Proceeds from issue of shares net of issue
costs - 190,115
Dividends paid 15 (101,516) (101,791)
Finance costs paid(2) (4,170) (4,699)
Loan drawdowns(2) 29,544 218,300
Loan repayments(2) (19,000) (190,444)
------------------------------------------------- ------ ------------- -------------
Net cash (outflow) / inflow from financing
activities (95,142) 111,481
------------------------------------------------- ------ ------------- -------------
Net decrease in cash and cash equivalents (1,454) (39,114)
Cash and cash equivalents at beginning
of year 45,610 84,718
Foreign exchange gain on cash and cash
equivalents 107 6
Cash and cash equivalents at end of year 44,263 45,610
------------------------------------------------- ------ ------------- -------------
1 Includes interest received of GBP66.7 million (December 2019:
GBP69.8 million) and dividends received of GBP42.8 million
(December 2019: GBP48.2 million).
2 These are cash flows and non-cash flows for financing
liabilities in accordance with IAS 7, 44A-E.
3 Cash flows received from unconsolidated subsidiary entities in
respect of surrender of tax losses.
4 Net cash flows from operations above are reconciled to net
operating cash flows before capital activity as shown in the
Strategic Report on pages 27 to 28.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
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 4 to 5.
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.
Basis of Preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), adopted by
the EU, interpretations issued by the International Financial
Reporting Interpretations Committee, applicable legal and
regulatory requirements of Guernsey, and the Listing Rules of the
UK Listing Authority. These financial statements follow the
historical cost basis, except for financial assets held at fair
value through profit or loss and derivatives that have been
measured at fair value. The principal accounting policies adopted
are set out in relevant notes to the financial statements.
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 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 IFRS 9 Financial
Instruments.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in Objectives and Performance. The financial position
of the Group, its cash flows, liquidity position and borrowing are
described in the Operating Review. The section Continuous Risk
Management and Note 11 of the financial statements also include the
Company's objectives, policies and processes for managing risk to
protect stakeholder value; its financial risk management
objectives; and its exposures to market risk including, inflation,
interest credit and liquidity risk. As set out in the Directors'
Report, the Directors have reviewed cash flow forecasts prepared by
management for the period to 30 June 2022. In making this
assessment, the Directors have considered a wide range of
information relating to present and future conditions, including
future projections of profitability and cash flows, the liquidity
available to the Group and current and expected financial
commitments. The Directors also reviewed the analysis prepared by
the Investment Adviser which modelled a number of adverse
scenarios. The assumptions used to model these scenarios included a
fall in the income from investments and considered the impact of
Covid-19 on the Company's operations and project companies.
Alongside these scenarios, reverse stress testing was carried out
indicating that the Company had a high tolerance to substantial
reductions in investment income.
In arriving at their conclusion that the Group has adequate
financial resources, the Directors were mindful that the Group had
unrestricted cash of GBP44.3 million as at 31 December 2020. The
Company continues to fully cover operating costs and distributions
from underlying cash flows from investments. As explained in the
Strategic Report on page 22, the Company has invested in some
infrastructure projects that are exposed to demand-based risk or
construction risk that are impacted by Covid-19 however the
Company's investments are generally expected to continue to exhibit
predictable cash flows, owing to the principally contracted or
regulated nature of the underlying cash flows and have limited
exposure to economic growth. The Company has access to a corporate
debt facility. The Company's GBP400 million facility was due to
expire in July 2021, and as such in March 2021 was renewed to March
2024 on revised terms. The facility has the same overall GBP400
million capacity as the previous fully committed arrangement, and
will comprise a GBP250 million facility and a flexible 'accordion'
component which, subject to lender consent, allows for a future
extension by an additional GBP150 million. In addition, a GBP20
million 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 in all scenarios. The Group's
project-level financing is non-recourse to the Company. The Group's
funding obligation in the going concern period is up to GBP46.8m,
which can be met by drawing down on the corporate debt facility.
Based on those forecasts and an assessment of the Group's committed
banking facilities, it has been considered appropriate to prepare
the financial statements of the Group on a going concern basis.
Accounting Policies
The same accounting policies, presentation and methods of
computation are followed in this set of financial statements as
applied in the previous financial year. The new and revised IFRS
and interpretations becoming effective in the period have had no
material impact on the accounting policies of the Group. Note 20
sets out a comprehensive listing of all new standards applicable
from 1 January 2020
2. Significant Judgements and Estimates
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
11.
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating
decision makers of the Group, the Group has identified four
reportable segments based on the geographical risk associated with
the jurisdictions in which it 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 UK, Europe (excl. UK), North America
and Australia.
Year ended 31 December 2020
---------- -----------------------------------------------------------------
UK Europe (EXCL. North America Australia Total
GBP'000s UK) GBP'000s GBP'000s GBP'000s
GBP'000s
------------------------ ---------- ----------------------- -------------- ---------- ----------
Segmental results
Dividend and interest
income 95,371 7,723 8,494 12,438 124,026
Fair value gain on
investments (20,364) (24,777) 1,021 16,389 (27,731)
------------------------ ---------- ----------------------- -------------- ---------- ----------
Total investment income 75,007 (17,054) 9,515 28,827 96,295
------------------------ ---------- ----------------------- -------------- ---------- ----------
Reporting segment
profit (1) 42,768 (18,569) 9,582 26,932 60,713
------------------------ ---------- ----------------------- -------------- ---------- ----------
Segmental financial
position
Investments at Fair
Value 1,729,191 295,824 104,963 215,455 2,345,433
Current assets 86,719 - - - 86,719
------------------------ ---------- ----------------------- -------------- ---------- ----------
Total assets 1,815,910 295,824 104,963 215,455 2,432,152
Total liabilities (47,716) - - - (47,716)
------------------------ ---------- ----------------------- -------------- ---------- ----------
Net assets 1,768,194 295,824 104,963 215,455 2,384,436
------------------------ ---------- ----------------------- -------------- ---------- ----------
Year ended 31 December 2019
---------- -----------------------------------------------------------------
Europe (EXCL.
UK UK) North America Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------- ---------- ----------------------- -------------- ---------- ------------
Segmental results
Dividend and interest
income 94,707 7,674 8,795 13,410 124,586
Fair value gain on
investments 26,442 11,324 2,102 4,264 44,132
------------------------- ---------- ----------------------- -------------- ---------- ------------
Total investment income 121,149 18,998 10,897 17,674 168,718
------------------------- ---------- ----------------------- -------------- ---------- ------------
Reporting segment
profit (1) 85,803 22,242 11,429 18,694 138,168
------------------------- ---------- ----------------------- -------------- ---------- ------------
Segmental financial
position
Investments at Fair
Value 1,755,755 321,337 105,001 200,552 2,382,645
Current assets 80,921 - - - 80,921
------------------------- ---------- ----------------------- -------------- ---------- ------------
Total assets 1,836,676 321,337 105,001 200,552 2,463,566
Total liabilities (38,327) - - - (38,327)
------------------------- ---------- ----------------------- -------------- ---------- ------------
Net assets 1,798,349 321,337 105,001 200,552 2,425,239
------------------------- ---------- ----------------------- -------------- ---------- ------------
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
GBP26.7 million (2019: GBP20.7 million).
4. Investment Income
Accounting Policy
Interest income
Interest income is recognised when it is probable that the
economic benefits will flow to the Group and the amount of income
can be measured reliably. Interest income is accrued on a
time-apportioned basis and is recognised gross of withholding tax,
if any.
Dividend income
Dividend income is recognised gross of withholding tax on the
date the right to receive payment is established. This is the date
when the Directors of the underlying project entity approve the
payment of a dividend.
Net change in investments at fair value through profit or
loss
Net change in investments at fair value through profit or loss
includes all realised and unrealised fair value changes (including
foreign exchange movements) other than interest and dividend income
recognised separately.
Year ended Year ended
31 December 31 December
2020 2019
GBP'000s GBP'000s
------------------------------------------------ ------------ ------------
Interest income
Interest on investments 81,202 76,405
Interest on bank deposits 2 -
------------------------------------------------ ------------ ------------
Total interest income 81,204 76,405
Dividend income 42,822 48,181
------------------------------------------------ ------------ ------------
Net change in Investments at Fair Value through
profit or loss (27,731) 44,132
------------------------------------------------ ------------ ------------
Total investment income 96,295 168,718
------------------------------------------------ ------------ ------------
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) / Income
Year ended Year ended
31 December 31 December
2020 2019
GBP'000s GBP'000s
--------------------------------------------- ------------ ------------
Fair value (loss) / gain on foreign exchange
contracts (3,894) 4,468
Other gains on foreign exchange movements 550 329
---------------------------------------------- ------------ --------------
Other income 18 -
---------------------------------------------- ------------ --------------
Total other operating (expense) / income (3,326) 4,797
---------------------------------------------- ------------ --------------
6. Transaction Costs
Year ended
31 December Year ended
2020 31 December
GBP'000 2019
s GBP'000 s
-------------------------- ------------ ------------
Investment advisory costs 286 4,221
Total transaction costs 286 4,221
-------------------------- ------------ ------------
Details of total transaction costs paid to the Investment
Adviser are provided in note 17.
7. Auditor's Remuneration
Year ended
31 December Year ended
2020 31 December
GBP'000 2019
s GBP'000 s
--------------------------------------------------------------- ------------ ------------
Fees payable to the Group 's auditor for the
audit of the Group 's financial statements 485 304
Fees payable to the Group 's auditor and their
associates for other services to the Group
* The audit of the Group 's consolidated subsidiaries 49 46
* The audit of the Group 's unconsolidated subsidiaries 121 111
--------------------------------------------------------------- ------------ ------------
Total audit fees 655 461
--------------------------------------------------------------- ------------ ------------
Other fees
* Interim review 17 11
* Other services - 24
--------------------------------------------------------------- ------------ ------------
Total non-audit fees 17 35
--------------------------------------------------------------- ------------ ------------
8. Finance Costs
Accounting Policy
Interest bearing loans and overdrafts are initially recorded as
the proceeds received net of any directly attributable issue costs.
Subsequent measurement is at amortised cost, with borrowing costs
recognised in the Consolidated Statement of Comprehensive Income in
the period in which they are incurred, using the effective interest
rate method. Arrangement fees are amortised over the term of the
corporate debt facility.
Finance costs for the year were GBP3.8 million (2019: GBP5.1
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. The
drawdowns in the period were in the form of cash drawdowns used to
partially fund investments. As at December 2020 the facility was
GBP38.4 million cash drawn (December 2019: GBP27.9 cash drawn). The
uncommitted balance of the facility which was not cash drawn or
notionally drawn via letters of credit, was GBP361.6 million
(December 2019: GBP371.5 million).
The interest rate margin on the corporate debt facility in the
year was 165 basis points over LIBOR. The facility was due to
expire in July 2021, and the facility was renewed following the
year end in March 2021. The facility has the same overall GBP400
million capacity as the previous fully committed arrangement, and
will comprise a GBP250 million facility and a flexible 'accordion'
component which, subject to lender consent, allows for a future
extension by an additional GBP150 million. The loan facility
matures in March 2024 and is secured over the assets of the
Group.
9. Tax
Accounting Policy
Current tax is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income as it excludes items of income or
expense that are taxable or deductible in past or future years and
it further excludes items that are never taxable or deductible. The
Group's asset/liability for current tax is calculated using tax
rates that have been enacted or substantively enacted at the
balance sheet date. The current tax charge/credit in the
Consolidated Statement of Comprehensive Income is recognised net of
receivables recognised for losses surrendered to unconsolidated
subsidiary entities.
Under the current system of taxation in Guernsey, the Company
itself is exempt from paying taxes on income, profits or capital
gains. Dividend income and interest income received by the Group
may be subject to withholding tax imposed in the country of origin
of such income.
Year ended Year ended
31 December 2020 31 December
GBP'000 s 2019
GBP'000 s
----------------------------------------- ----------------- ------------
Current tax:
UK corporation tax credit - current year - (521)
UK corporation tax - prior year - 23
Other overseas tax - current year 75 106
Other overseas tax - prior year (31) (26)
----------------------------------------- ----------------- ------------
Tax charge / (credit) for the year 44 (418)
----------------------------------------- ----------------- ------------
Reconciliation of effective tax rate: Year ended
31 December
Year ended 2019
31 December 2020 GBP'000
GBP'000 s s
================================================ ================== =============
Profit before tax 60,757 137,750
================================================ ================== =============
Exempt tax status in Guernsey - -
Application of overseas tax rates 75 106
Group tax losses surrendered to unconsolidated
investee entities - (521)
Adjustments to previous year's assessment (31) (3)
================================================ ================== =============
Tax charge / (credit) for the year 44 (418)
================================================ ================== =============
The income tax charge / (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.
To provide an indication of the tax paid across the wider
portfolio, total forecasted corporation tax payable by the Group's
underlying investments is in excess of GBP1 billion (December 2019:
GBP1 billion) over their full concession lives.
10. Earnings Per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Year ended Year ended
31 December 31 December
2020 2019
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 60,713 138,168
-------------------------------------------------- ------------- -------------
Number Number
-------------------------------------------------- ------------- -------------
Weighted average number of Ordinary Shares for
the purposes of basic and diluted earnings per
share 1,613,799,526 1,506,701,793
-------------------------------------------------- ------------- -------------
Basic and diluted (pence) 3.76 9.17
-------------------------------------------------- ------------- -------------
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.
11. 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 IFRS 9 Financial Instruments. Financial liabilities
are derecognised when the obligation is discharged, cancelled or
expired. Specific financial asset and liability accounting policies
are provided below.
11.1 Financial assets
31 December 31 December
2020 2019
GBP'000s GBP'000s
-------------------------------------------------- ----------- -----------
Investments at fair value through profit and loss 2,345,433 2,382,645
Financial assets
Other financial assets 42,188 31,150
Cash and cash equivalents 44,263 45,610
Derivative financial instruments
Foreign exchange contracts 268 4,161
Total financial assets 2,432,152 2,463,566
-------------------------------------------------- ----------- -----------
Accounting Policy
The Group classifies its financial assets as at fair value
through profit or loss or as financial assets at amortised cost.
The classification depends on the purpose for which the financial
assets were acquired, with investments in unconsolidated
subsidiaries (other than those providing investment-related
services) being at fair value through profit or loss as required by
IFRS 10.
Investments at Fair Value through profit or loss
Investments in underlying unconsolidated subsidiaries and other
non-controlled investments are held in a portfolio, the business
model of which is to manage them on a fair value basis. The Group's
policy is to fair value both the equity and debt investments in
underlying assets together. All transaction costs relating to the
acquisition of new investments are recognised directly in profit or
loss. Subsequent to initial recognition, equity and debt
investments are measured at fair value with changes in fair value
recognised within total investment income in the Consolidated
Statement of Comprehensive Income.
Other financial assets
Trade and other receivables that meet the contracted cash flow
test as solely payments of principal and interest and which are
held in a business model to receive these contractual cash flows
are classified as other financial assets. Financial assets with
maturities less than 12 months are included in current assets,
financial assets with maturities greater than 12 months after the
balance sheet date are classified as non-current assets.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Derivative Financial Instruments
Derivatives are classified as financial assets and liabilities
at fair value through profit or loss, held for trading. Derivatives
are recognised initially, and are subsequently remeasured, at fair
value. Derivatives are shown as assets when their fair value is
positive or as liabilities when their fair value is negative. Fair
value movements on derivative financial instruments held for
trading are recognised in the Consolidated Statement of
Comprehensive Income.
Impairment of Financial Assets
Financial assets, other than those classified at fair value
through profit or loss are assessed for indicators of impairment at
each balance sheet date using a simplified approach to calculate
any expected credit losses. There is no material impairment at the
balance sheet date.
11.2 Financial liabilities
31 December 31 December
2020 2019
GBP'000s GBP'000s
---------------------------------------- ----------- -----------
Financial liabilities at amortised cost
Trade and other payables 9,316 10,471
Bank loans 38,400 27,856
Total financial liabilities 47,716 38,327
---------------------------------------- ----------- -----------
Accounting Policy
Trade and other payables
Financial liabilities, other than those specifically accounted
for under a separate policy, are stated based on the amounts which
are considered to be payable in respect of goods or services
received up to the financial reporting date. The carrying value of
other liabilities is considered to approximate their fair value
11.3 Financial risk management
The Group's objective in managing risk is the protection of
stakeholder 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
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 Board of
Directors is ultimately responsible for the overall risk management
of the Group, with delegation of oversight and activities
(including identifying and controlling risks) provided to the Audit
and Risk Committee and the Group's Investment Adviser. The Group's
risk management framework and approach is set out within the
Strategic Report (pages 45 to 47). 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
11.4.
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, are fixed rate loans or the risk of adverse
movement in interest rates is limited through protections provided
by the regulatory regime. For example, 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. However, particularly
in Australia, refinancing risk exists in a number of such
investments. 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.
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:
31 December 31 December
2020 2019
GBP'000s GBP'000s
------------------------------------------------- ----------- -----------
Cash
Euro 414 2,951
Canadian dollar 675 654
Australian dollar 68 1,623
US dollar 517 664
------------------------------------------------- ----------- -----------
1,674 5,892
Current receivables
Euro receivables 126 124
US dollar receivables 989 539
------------------------------------------------- ----------- -----------
1,115 663
Investments at Fair Value through profit or loss
Euro 295,824 321,337
Canadian dollar 39,391 39,911
Australian dollar 215,455 200,552
US dollar 65,572 65,090
------------------------------------------------- ----------- -----------
616,242 626,890
------------------------------------------------- ----------- -----------
Total 619,031 633,445
------------------------------------------------- ----------- -----------
Sensitivity analysis showing the impact of variations of the
above risks on the fair value of investments is shown in section
11.5.
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 public-private partnerships and similar concessions (which are
entered into with government, quasi government, other public,
equivalent low risk bodies), or in regulated businesses that
inherently exhibit low levels of credit risk. 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. In addition, the underlying investee entities
contract with third-party construction and facilities managements
contractors. The Group seeks to mitigate this risk through using a
diverse range of sub-contractors and through at least quarterly
review of the credit position of major contractors.
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. Cash
flow forecasts assume full availability of underlying
infrastructure to the relevant public sector body or end-user.
Failure to maintain assets available for use or operating in
accordance with pre-determined performance standards or licence
conditions may lead to a reduction (wholly or partially) in 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. The
terms of public-private partnership contractual mechanisms also
allow for significant pass-down of unavailability and performance
risk to sub-contractors. Regulated asset regimes allow for the pass
through of efficiently incurred costs to the purchaser.
11.4 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 31 December 2020, the Group's only derivative financial
instruments were currency forward contracts amounting to an asset
of GBP0.3 million (December 2019: asset of GBP4.2 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). Valuations
based on observable inputs include financial instruments such as
swaps and forward contracts which are valued using market standard
pricing techniques where all the inputs to the market standard
pricing models are observable.
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 31 December 2020, the fair value of
financial instruments classified within Level 3 totalled GBP2,345.4
million (December 2019: GBP2,382.6 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
quarterly(1) basis by the Investment Adviser. The valuation is
reviewed by the senior members of the Investment Adviser, and
reviewed and approved by 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 the full-term of each underlying
investment are generated by detailed investment specific financial
models. These models forecast the dividend, shareholder loan
interest payments, capital repayments and senior debt repayments
(where applicable) expected from the underlying investments. 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 estimations
(see also pages 27 to 28 of the strategic report). The significant
unobservable inputs and assumptions used in projecting the Group's
net future cash flows are shown overleaf.
1 Indicative valuations are calculated in respect of each at 31
March and 30 September.
Europe
31 December 2020 UK (Excl. UK) North America Australia
------------------------- ------------ -------------- ------------------ ----------
Inflation 2.75% RPI, 2.00% 2.00% 2.50%
2.00% CPIH
Long-term tax 19.00% 12.50%-32.28% 23.00% -26.50%(1) 30.00%
Foreign exchange rates N/A 1.11 1.37-1.74 1.77
Long-term deposit rates 1.00% 0.50% 1.50% 2.00%
------------------------- ------------ -------------- ------------------ ----------
Europe
31 December 2019 UK (Excl. UK) North America Australia
------------------------- ------------ -------------- ------------------ ----------
Inflation 2.75% RPI, 2.00% 2.00% 2.50%
2.00% CPIH
Long-term tax 19.00% 12.50%-32.28% 23.00% -26.50%(1) 30.00%
Foreign exchange rates N/A 1.13 1.37-1.80 1.92
Long-term deposit rates 2.00% 2.00% 2.50% 3.00%
------------------------- ------------ -------------- ------------------ ----------
1 Related to investments in Canada.
Discount rate
The discount rate used in the valuation of each investment is
the aggregate of the following:
- Yield on a government bond with a remaining term equivalent to
(or as close as possible to) the investment being valued, issued by
the national government for the location of the relevant investment
('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.
Over the period, the weighted average government bond yield
decreased by 0.42%. The weighted average investment risk premium
increased by 0.37% , reflecting observable market-based evidence.
Further details are provided within the Strategic Report on pages
33 to 34.
31 December 2020 31 December
Valuation Assumptions 2019 Movement
----------------------------- ----------------- ------------ ---------
Weighted Average Government
Bond Yield 0.56% 0.98% (0.42%)
Weighted Average Investment
Risk Premium 6.41% 6.04% 0.37%
----------------------------- ----------------- ------------ ---------
Weighted Average Discount
Rate 6.97% 7.02% (0.05%)
----------------------------- ----------------- ------------ ---------
Weighted Average Discount
Rate on Risk Capital(1) 7.52% 7.52% -
----------------------------- ----------------- ------------ ---------
1 Weighted average discount rate on Risk Capital only (equity and subordinated debt).
31 December 31 December
Reconciliation of Level 3 fair value 2020 2019
measurements of financial assets GBP'000 s GBP'000 s
----------------------------------------- ------------- -------------
Balance at 1 January 2,382,645 2,097,468
Additional investments during the year 29,984 281,286
Net repayments during the year (39,465) (40,241)
Net change in Investments at Fair Value
through profit or loss (27,731) 44,132
----------------------------------------- ------------- -------------
Balance at 31 December 2,345,433 2,382,645
----------------------------------------- ------------- -------------
11.5 Sensitivity analysis
The valuation requires management to make certain assumptions in
relation to unobservable inputs to the model. There are no straight
forward inter-relationships between the unobservable inputs. A
sensitivity analysis for reasonably possible alternative
assumptions is provided below:
Weighted average Change in Change in
rate in base fair value fair value
Significant assumptions case valuations Sensitivity of investment Sensitivity of investment
31 December 2020 factor GBP'000s factor GBP'000s
------------------------ ------------------- ----------- -------------- ----------- --------------
Discount rate 6.97% +1.00% (224,463) -1.00% 272,586
------------------------ ------------------- ----------- -------------- ----------- --------------
Inflation rate
(overall) 2.40% +1.00% 259,082 -1.00% (213,162)
UK (CPI / RPI) 2.00% / 2.75% +1.00% 207,854 -1.00% (167,786)
Europe 2.00% +1.00% 39,622 -1.00% (34,525)
North America 2.00% +1.00% 916 -1.00% (1,525)
Australia 2.50% +1.00% 10,682 -1.00% (9,309)
------------------------ ------------------- ----------- -------------- ----------- --------------
FX rate N/A +10.00% 62,014 -10.00% (62,007)
------------------------ ------------------- ----------- -------------- ----------- --------------
Tax rate 21.66% +1.00% (20,082) -1.00% 18,937
------------------------ ------------------- ----------- -------------- ----------- --------------
Deposit rate 1.05% +1.00% 23,369 -1.00% (23,225)
------------------------ ------------------- ----------- -------------- ----------- --------------
Weighted average Change in Change in
rate in base fair value fair value
Significant assumptions case valuations Sensitivity of investment Sensitivity of investment
31 December 2019 factor GBP'000s factor GBP'000s
------------------------ ------------------- ----------- -------------- ----------- --------------
Discount rate 7.02% +1.00% (221,830) -1.00% 266,321
------------------------ ------------------- ----------- -------------- ----------- --------------
Inflation rate
(overall) 2.26% +1.00% 247,568 -1.00% (204,613)
UK 2.47% +1.00% 198,445 -1.00% (160,506)
Europe 2.00% +1.00% 39,398 -1.00% (33,825)
North America 2.00% +1.00% 1,037 -1.00% (899)
Australia 2.50% +1.00% 8,700 -1.00% (9,384)
------------------------ ------------------- ----------- -------------- ----------- --------------
FX rate N/A +10.00% 63,017 -10.00% (63,017)
------------------------ ------------------- ----------- -------------- ----------- --------------
Tax rate 18.31% +1.00% (20,668) -1.00% 19,729
------------------------ ------------------- ----------- -------------- ----------- --------------
Deposit rate 1.81% +1.00% 23,642 -1.00% (20,778)
------------------------ ------------------- ----------- -------------- ----------- --------------
12. Investments
2020
Consideration % Ownership
Date of investment Description GBP'000's post investment
-------------------- --------------------------------------- -------------- -----------------
The Group made further investments
as part of its commitment to the
January - December National Digital Infrastructure
2020 Fund, UK 9,489 45.00%
The Group made a follow on investment
into the Essex 1 and 2 Building
Schools for the Future projects,
May 2020 UK 6,655 28% - 100%
The Group made a series of follow
on investments into the Bradford
Phases 1 & 2, and Lewisham Phases
1 to 4 Building Schools for the 15.5% -
August 2020 Future projects, UK 3,636 54%
The Group made a follow on investment
into the Blackburn 1 and 2 Building
Schools for the Future projects,
October 2020 UK 1,136 100%
The Group made a follow on investment
into the Diabolo Rail Link Project,
December 2020 Belgium 9,068 100%
Total capital spend on investments during the
year 29,984
------------------------------------------------------------- -------------- -----------------
2019
Consideration % Ownership
Date of investment Description GBP'000's post investment
-------------------- --------------------------------------------- -------------- -----------------
The Group made a follow on investment
into the Luton Building Schools
January 2019 for the Future project, UK 211 50.00%
The Group made further investments
as part of its commitment to the
March - December National Digital Infrastructure
2019 Fund, UK 12,805 45.00%
The Group made investments into
April - October the Midlands Batch Priority Schools
2019 Building Project (Batch 4), UK 12,291 100.00%
The Group made a follow on investment
into the Wolverhampton Building
Schools for the Future projects
June 2019 1 & 2, UK 1,800 100.00%
The Group, as part of a consortium,
made further investments into the
Cadent gas distribution network,
June 2019 UK 153,240 7.25%
The Group acquired an additional
June 2019 interest in BeNEX, Germany 29,397 100%
The Group invested additional amounts
as part of its refinancing and restructure
September 2019 of its OFTOs portfolio 71,542 100%
Total capital spend on investments during the
year 281,286
------------------------------------------------------------------- -------------- -----------------
13. other FINANCIAL ASSETS
31 December 31 December
2020 2019
GBP '000's GBP'000's
------------------------------ ------------ -------------
Accrued interest receivable 40,769 27,273
Other debtors 1,419 3,877
------------------------------ ------------ -------------
Total other financial assets 42,188 31,150
------------------------------ ------------ -------------
Other debtors included GBP1.1 million (December 2019: GBP3.7
million) of receivables from unconsolidated subsidiary entities for
surrender of Group tax losses
14. Trade and Other Payables
31 December 31 December
2020 2019
GBP '000 s GBP'000
s
-------------------------------- ------------ -------------
Accrued management fee 7,790 8,285
Other creditors and accruals 1,526 2,186
-------------------------------- ------------ -------------
Total trade and other payables 9,316 10,471
-------------------------------- ------------ -------------
15. Share Capital and Reserves
31 December 31 December
2020 2019
shares shares
Share capital GBP'000 s GBP'000 s
---------------------------------------- ----------- -----------
In issue at 1 January 1,610,795 1,484,329
Issued for cash - 124,248
Issued as a scrip dividend alternative 10,158 2,218
----------------------------------------- ----------- -----------
In issue at 31 December - fully paid 1,620,953 1,610,795
----------------------------------------- ----------- -----------
31 December
31 December 2019
2020 GBP'000
GBP'000 s s
----------------------------------------- ----------- -----------
Balance at 1 January 1,753,840 1,560,243
------------------------------------------ ----------- -----------
Issued for cash (excluding issue costs) - 192,071
Issued as a scrip dividend alternative 15,742 3,482
------------------------------------------ ----------- -----------
Total share capital issued in the year 15,742 195,553
------------------------------------------ ----------- -----------
Costs on issue of Ordinary Shares - (1,956)
------------------------------------------ ----------- -----------
Balance at 31 December 1,769,582 1,753,840
------------------------------------------ ----------- -----------
At present, the Company has one class of Ordinary Shares with a
par value of 0.01 pence which carry no right to fixed income.
On 19 June 2020, 4,162,764 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
2019.
On 13 November 2020, 5,994,652 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 30 June
2020.
31 December
31 December 2019
2020 GBP'000
Other distributable RESERVE GBP'000 s s
---------------------------- ----------- -----------
Balance at 1 January 182,481 182,481
Movement in the year - -
---------------------------- ----------- -----------
Balance at 31 December 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.
31 December 31 December
2020 2019
Retained earnings GBP'000 s GBP'000 s
------------------------ ----------- -----------
Balance at 1 January 488,918 456,023
Net profit for the year 60,713 138,168
Dividends paid(1) (117,258) (105,273)
------------------------ ----------- -----------
Balance at 31 December 432,373 488,918
------------------------ ----------- -----------
1 Includes scrip element of GBP15.7 million in 2020 (December 2019: GBP3.5 million).
Dividends
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 2020.
The Board has approved interim dividends as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 s GBP'000 s
------------------------------------------------------ ------------ ------------
Amounts recognised as distributions to equity
holders for the year ended 31 December 2020 117,258(1) 105,273
Declared
Interim dividend for the period 1 January to 30
June 2020 was 3.68 pence per share (2019: 3.59
pence per share) 59,430 53,321
Interim dividend for the period 1 July to 31 December
2020 was 3.68 pence per share(2) (2019: 3.59 pence
per share) 59,651 57,828
------------------------------------------------------ ------------ ------------
1 Includes the 2019 interim dividend for the period 1 July to 31 December 2019.
2 The dividend for the period 1 July to 31 December 2020 was
approved by the Board on [24] March 2021 and therefore has not been
included as a liability in the balance sheet for the year ended 31
December 2020.
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 ongoing expenses and dividend
payments. The Group's investment policy is set out in the Corporate
Governance Report on page 59.
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.
16. Net Assets per Share
31 December
31 December 2019
2020 GBP'000
GBP'000 s s
---------------------------------------------- ------------- -------------
Net assets attributable to equity holders of
the parent 2,384,436 2,425,239
----------------------------------------------- ------------- -------------
Number Number
---------------------------------------------- ------------- -------------
Number of shares
Ordinary Shares outstanding at the end of the
year 1,620,952,892 1,610,795,476
----------------------------------------------- ------------- -------------
Net assets per share (pence per share) 147.1 150.6
----------------------------------------------- ------------- -------------
17. 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.
AFML and International Public Partnerships GP Limited are
subsidiary companies 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 of GBP45,900 (2019: GBP45,000) 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 year that were related
party transactions are set out in the table below:
Amounts owing to
Related party expense related parties in
in the Income Statement the Balance Sheet
---------------------------- ----------------------------
For the For the
year ended year ended At At
31 December 31 December 31 December 31 December
2020 2019 2020 2019
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------------- ------------- ------------- ------------- -------------
International Public Partnerships
GP Limited 25,888 24,537 7,790 8,285
Amber Fund Management Limited(1) 286 4,221 17 533
----------------------------------- ------------- ------------- ------------- -------------
Total 26,174 28,758 7,807 8,818
----------------------------------- ------------- ------------- ------------- -------------
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 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
10 years from the date of the IAA.
As at 31 December 2020, Amber Infrastructure held 8,002,379
(December 2019: 8,002,379) shares in the Company. The shares held
by the Investment Adviser in the Company helps further strengthen
the alignment of interests between the two parties.
Transactions with Directors
Shares acquired by Directors in the year are disclosed
below:
Number of New Ordinary Shares
------------------ --------------------------------
YEARED 31 YEARED 31
Director DECEMBER 2020 DECEMBER 2019
------------------ --------------- ---------------
Mike Gerrard 22,330 81,112
------------------ --------------- ---------------
Julia Bond 5,358 28,994
------------------ --------------- ---------------
John Le Poidevin - 32,467
------------------ --------------- ---------------
Claire Whittet 3,460 1,532
------------------ --------------- ---------------
Meriel Lenfestey 9,979 -
------------------ --------------- ---------------
Giles Frost 26,276 24,036
Total purchased 67,403 168,141
------------------ --------------- ---------------
Remuneration paid to the Non-Executive Directors is disclosed on
page 64.
18. Contingent Liabilities and commitments
As at 31 December 2020 the Group has committed funding of up to
c.GBP46.8 million (December 2019: GBP43.5 million), which includes
committed investment amounts as noted in the Strategic Report on
page 21 and a deferred commitment of GBP18.2 million for BeNEX
(December 2019: GBP17.8) which is due to be settled from future
returns generated by BeNEX.
There were no contingent liabilities at the date of this
report.
19. Events after THE Balance Sheet Date
In March 2021, the UK announced an increase in the headline rate
of corporation tax to 25%, to take effect from April 2023. It is
estimated the impact of the rate increase is a c.GBP30 million
reduction to the net asset valuation as at December 2020. This
future tax rate increase has not been reflected within the 31
December 2020 valuations owing to the timing of the announcement,
which occurred following the period end.
The Company's GBP400 million CDF was due to expire in July 2021,
and following the year end has been renewed to March 2024. The
facility has the same overall GBP400 million capacity as the
previous fully committed arrangement, and will comprise a GBP250
million facility and a flexible 'accordion' component which,
subject to lender consent, allows for a future extension by an
additional GBP150 million.
20. Other Mandatory Disclosures
New Standards that the Group has applied from 1 January 2020
Standards and amendments to standards applicable to the Group
that became effective during the period are listed below. These
have no material impact on the reported performance or financial
statements of the Group.
- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7 (1 January 2020)
Standards Issued but not yet Effective
Standards issued but not yet effective up to the date of
issuance of the Group's financial statements are listed below. This
listing is of standards and interpretations issued, which the Group
reasonably expects to be applicable at a future date. The Group
intends to adopt these standards when they become effective,
however does not currently anticipate the standards to have a
significant impact on the Group's financial statements. Current
assumptions regarding the impact of future standards will remain
under consideration in light of interpretation notes as and when
they are issued.
- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (1 January 2021);
- IFRS 17 Insurance Contracts (1 January 2023).
From 1 January 2021, the Company will report under UK adopted
IFRS, following the end of the Implementation Period between the EU
and the UK. This change is not expected to have any immediate
impact on the Company's accounting policies or reporting in its
financial statements.
U nconsolidated s ubsidiaries
A list of the significant investments in unconsolidated
subsidiaries, including the name, country of incorporation as at 31
December 2020 and proportion of ownership is shown below:
Place of incorporation Proportion
(or registration) of ownership
Name and operation interest %
----------------------------------------------- ----------------------- -------------
Abingdon Limited Partnership UK 100
Aggregator PLC UK 100
Access Justice Durham Limited Canada 100
AKS Betriebs GmbH & Co. KG Germany 98
BBPP Alberta Schools Limited Canada 100
Blackburn with Darwen Phase 1 Limited UK 100
Blackburn with Darwen Phase 2 Limited UK 100
BPSL No. 2 Limited Partnership UK 100
Building Schools for the Future Investments
LLP UK 100
Calderdale Schools Partnership UK 100
CHP Unit Trust Australia 100
Derby City BSF Limited UK 90
Derbyshire Courts Limited Partnership UK 100
Derbyshire Schools UK 100
Derbyshire Schools Phase Two Partnership UK 100
Essex Schools Limited UK 100
Future Ealing Phase 1 Limited UK 80
4 Futures Phase 1 Limited UK 90
4 Futures Phase 2 Limited UK 90
Hertfordshire Schools Building Partnership
Phase 1 Limited UK 100
H&W Courts Limited Partnership UK 100
INPP Infrastructure Germany GmbH & Co.
KG Germany 100
Inspire Partnership Limited Partnership UK 100
IPP CCC Limited Partnership Ireland 100
Inspiredspaces Durham (Project Co 1) Limited UK 91
Kent PFI (Project Co 1) Limited UK 58
Inspiredspaces Nottingham (Project Co
1) Limited UK 82
Inspiredspaces Nottingham (Project Co
2) Limited UK 82
Inspiredspaces STaG (Project Co 1) Limited UK 90.1
Inspiredspaces STaG (Project Co 2) Limited UK 90.1
Inspiredspaces Wolverhampton (Project
Co 1) Limited UK 100
Inspiredspaces Wolverhampton (Project
Co 2) Limited UK 100
Transform Islington (Phase 1) Limited UK 90
Transform Islington (Phase 2) Limited UK 90
IPP (Moray Schools) Holdings Limited UK 100
LCV Project Trust Australia 100
Lewisham Schools for the Future SPV Limited UK 54
Lewisham Schools for the Future SPV Limited UK 54
Lewisham Schools for the Future SPV Limited UK 54
Maesteg School Partnership UK 100
Norfolk Limited Partnership UK 100
Northampton Schools Limited Partnership UK 100
Northern Diabolo N.V. Belgium 100
Oldham BSF Limited UK 99
PSBP Midlands Limited UK 92.5
Pinnacle Healthcare (OAHS) Trust Australia 100
Plot B Partnership UK 100
St Thomas More School Partnership UK 100
PPP Solutions (Long Bay) Partnership Australia 100
PPP Solutions (Showgrounds) Trust Australia 100
Strathclyde Limited Partnership UK 100
TH Schools Limited Partnership UK 100
TC Robin Rigg OFTO Limited UK 100
TC Barrow OFTO Limited UK 100
TC Gunfleet Sands OFTO Limited UK 100
TC Ormonde OFTO Limited UK 100
TC Lincs OFTO Limited UK 100
TC Westermost Rough OFTO Limited UK 100
TC Dudgeon OFTO PLC UK 100
=============================================== ======================= =============
The entities listed above in aggregate represent 58.1% (December
2019: 58.4%) of investments at fair value through profit or loss.
The remaining fair value is driven from joint ventures, associate
interests and minority stakes held by the Group.
C onsolidated s ubsidiaries
The principal subsidiary undertakings of the Company, all of
which have been included in these consolidated financial statements
are as follows:
Place of incorporation Proportion of
(or registration) ownership
Name and operation interest %
------------------------------------------ ----------------------- -------------
International Public Partnerships Limited
Partnership UK 100
International Public Partnerships Lux
1 Sarl Luxembourg 100
International Public Partnerships Lux
2 Sarl Luxembourg 100
IPP Bond Limited UK 100
IPP Investments Limited Partnership UK 100
------------------------------------------ ----------------------- -------------
21. Investments
The Group holds 130 investments across energy transmission,
education, transport, health, courts, wastewater, police, military
housing and other sectors. The table overleaf sets out the Group's
investments that are recorded at fair value through profit or
loss.
Per cent.
Status at Risk Capital
31 December Owned by the INvestment
Investment Name Country 2020 Group(1) end
------------------------------------ ---------- ------------- -------------- --------------
UK
UK PPP Assets
Calderdale Schools UK Operational 100.0 April 2030
Derbyshire Schools Phase
Two UK Operational 100.0 February 2032
December
Northamptonshire Schools UK Operational 100.0 2037
Derbyshire Courts UK Operational 100.0 August 2028
Derbyshire Schools Phase
One UK Operational 100.0 April 2029
North Wales Police HQ UK Operational 100.0 December 2028
St Thomas More Schools UK Operational 100.0 April 2028
Tower Hamlets Schools UK Operational 100.0 August 2027
Norfolk Police HQ UK Operational 100.0 December 2036
Strathclyde Police Training September
Centre UK Operational 100.0(2) 2026
Hereford & Worcester Courts UK Operational 100.0(2) September
2025
Abingdon Police Station UK Operational 100.0 April 2030
Bootle Government Offices UK Operational 100.0 June 2025
Maesteg Schools UK Operational 100.0 July 2033
Moray Schools UK Operational 100.0 February
2042
Liverpool Library UK Operational 100.0 November
2037
Priority Schools Building Aggregator
Programme
Batch 1 - Schools in North UK Operational 0.0(2) August 2040
East England
Batch 2 - Schools in Hertfordshire,
Luton and Reading UK Operational 0.0(2) November 2040
Batch 3 - Schools in North UK Operational 0.0(2) August 2041
West of England
Batch 4 - Schools in the UK Operational 92.5(2) December
Midlands Region 2041
Batch 5 - Schools in Yorkshire UK Operational 0.0(2) September
2041
OFTOs
Robin Rigg OFTO UK Operational 100.0(2) March 2031
Gunfleet Sands OFTO UK Operational 100.0(2) July 2031
Barrow OFTO UK Operational 100.0(2) March 2030
Ormonde OFTO UK Operational 100.0(2) July 2032
Lincs OFTO UK Operational 100.0 November
2034
Westermost Rough OFTO UK Operational 100.0 February 2036
Dudgeon OFTO UK Operational 100.0 November 2038
Building Schools for the
Future Portfolio
Minority Shareholdings
in 22
Building Schools for the
Future Projects UK Operational Various Various
Blackburn with Darwen Phase UK Operational 100.0 September
One 2036
Blackburn with Darwen Phase UK Operational 100.0 September
Two 2039
Derby City UK Operational 90.0 August 2037
Durham Schools UK Operational 91.0 January 2036
Ealing Schools Phase One UK Operational 80.0 March 2038
Essex Phase Two UK Operational 100.0 December 2036
Halton Place UK Operational 45.0 March 2038
Hertfordshire Schools Phase UK Operational 100.0 August 2037
One
Islington Phase One UK Operational 90.0 August 2034
Islington Phase Two UK Operational 90.0 March 2039
Lewisham Phase 1 UK Operational 54.0 December 2034
Lewisham Phase 2 UK Operational 54.0 August 2037
Lewisham Phase 3 UK Operational 54.0 August 2037
Oldham Schools UK Operational 99.0 August 2037
Tameside Schools One UK Operational 46.0 August 2036
Tameside Schools Two UK Operational 46.0 August 2037
Nottingham Schools One UK Operational 82.0 August 2034
Nottingham Schools Two UK Operational 82.0 August 2038
South Tyneside and Gateshead UK Operational 90.1 October 2034
Schools One
South Tyneside and Gateshead UK Operational 90.1 September
Schools Two 2036
Southwark Phase One UK Operational 90.0 January 2036
Southwark Phase Two UK Operational 90.0 December
2036
Wolverhampton Schools Phase UK Operational 100.0 September
One 2037
Wolverhampton Schools Phase UK Operational 100.0 August 2040
Two
Kent Schools UK Operational 58.0 August 2035
NHS LIFT Portfolio
Beckenham Hospital UK Operational 49.8 December
2033
Garland Road Health Centre UK Operational 49.8 December
2031
Alexandra Avenue Primary
Care Centre, Monks Park
Health Centre (two projects) UK Operational 49.8 June 2031
Gem Centre Bentley Bridge,
Phoenix Centre December
(two projects) UK Operational 49.8 2030
Sudbury Health Centre UK Operational 49.8 November
2032
Mt Vernon UK Operational 49.8 December
2033
Lakeside UK Operational 49.8 November
2032
Fishponds Primary Care
Centre, Hampton House Health
Centre (two projects) UK Operational 33.4 January 2031
Shirehampton Primary Care
Centre, Whitchurch Primary
Care Centre (two projects) UK Operational 33.4 May 2032
Blackbird Leys Health Centre,
East Oxford Care Centre
(two projects) UK Operational 33.4 May 2031
Brierley Hill UK Operational 34.3 April 2035
Ridge Hill Learning Disabilities
Centre, Stourbridge Health
& Social Care Centre
(two projects) UK Operational 34.3 October 2031
Harrow NRC (three projects) UK Operational 49.8 June 2034
Goscote Palliative Care UK Operational 49.8 November
Centre 2035
South Bristol Community UK Operational 33.4 February
Hospital 2042
East London LIFT Project UK Operational 30.0 October 2030
One (four projects)
East London LIFT Project UK Operational 30.0 April 2033
Two (three projects)
East London LIFT Project
Three
(Newby Place) UK Operational 30.0 May 2037
East London LIFT Project UK Operational 30.0 August 2036
Four (two projects)
Other UK
Angel Trains UK Operational 4.8 December
2038
Tideway UK Construction 15.99 March 2150
Cadent UK Operational 7.25 June 2069
National Digital Infrastructure UK Operational 45.0 July 2027
Fund
Australia
Royal Melbourne Showgrounds Australia Operational 100.0 August 2031
Long Bay Forensic & Prisons Australia Operational 100.0 July 2034
Hospital Project
Reliance Rail Australia Operational 33.0 February
2044
Royal Children's Hospital Australia Operational 100.0 December
2036
Orange Hospital Australia Operational 100.0 December
2035
NSW Schools Australia Operational 25.0 December
2035
Gold Coast Rapid Transport Australia Operational 30.0 May 2029
Victoria Schools Two Australia Operational 100.0 December
2042
North America
Alberta Schools Canada Operational 100.0 June 2040
Durham Courts Canada Operational 100.0 November
2039
U.S. Military Housing U.S. Operational 0.0(2) October 2052
Europe (ex UK)
Diabolo Rail Link Belgium Operational 100.0 June 2047
Dublin Courts Ireland Operational 100.0 February
2035
BeNEX Germany Operational 100.0 December
2037
Federal German Ministry
of Education and Research
Headquarters Germany Operational 98.0 July 2041
Pforzheim Schools Germany Operational 98.0 September
2039
Offenbach Police Centre Germany Construction 45.0 June 2050
Brescia Hospital Italy Operational 37.0 November
2021
1 Risk Capital includes project level equity and/or subordinated shareholder debt
2 Investment contains senior or mezzanine debt in addition to
any Risk Capital ownership shown
KEY CONTACTS
Investment Adviser Auditor Corporate Brokers
Amber Fund Management Ernst & Young LLP Numis Securities Limited
Limited Royal Chambers The London Stock Exchange
3 More London Riverside St Julian's Avenue Building
London St Peter Port 10 Paternoster Square
SE1 2AQ Guernsey London
Channel Island EC4M 7LT
GY1 4AF
Registered Office Legal Adviser Public Relations
PO Box 286 Carey Olsen FTI Consulting
Floor 2, Trafalgar Court PO Box 98, Carey House 200 Aldersgate
Les Banques Les Banques Aldersgate Street
Guernsey Guernsey London
Channel Islands Channel Islands EC1A 4HD
GY1 4LY GY1 4BZ
Administrator and Company
Secretary Corporate Banker
Ocorian Administration Royal Bank of Scotland
(Guernsey) Limited International
PO Box 286 1 Glategny Esplanade
Floor 2, Trafalgar Court St Peter Port
Les Banques Guernsey
Guernsey Channel Islands
Channel Islands GY1 4BQ
GY1 4LY
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