TIDMINPP
RNS Number : 1711Q
International Public Partnership Ld
28 August 2014
28 August 2014
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014
Strong underlying portfolio performance drives revenue and
dividend growth
International Public Partnerships Limited (INPP), the listed
infrastructure investment company which invests internationally in
public infrastructure projects, today announces half year results
for the six months ended 30 June 2014.
Financial Highlights (as at 30 June 2014 unless otherwise
stated)
-- Robust Net Asset Value ('NAV') growth of 1.8% to GBP952.1
million (31 December 2013: GBP935.4 million) with NAV per share of
124.8 pence (31 December 2013: 123.0 pence)(1)
-- Half year 2014 fully covered cash dividend declared, up
c.2.5% to 3.15 pence per share (30 June 2013: 3.075 pence per
share)(2)
-- Target dividend for 2014 financial year of 6.30 pence per
share and 2015 of 6.45 pence per share, an increase of c.2.5%(3) in
each period
-- IFRS profit before tax of GBP35.9 million (30 June 2013: GBP29.8 million)
-- Total Shareholder Return since listing in 2006 of 91.1%,
compared to 48.3% on the FTSE All Share over that same
period(4)
Portfolio Performance
-- Continued positive performance of underlying assets,
generating 5.5% portfolio return during the six month period
-- Investments of GBP20.1 million made during the half year and
agreed divestments of GBP18.8 million in non-strategic assets
-- Strength of public sector relationships proven in the
Company's ability to create investment value from new primary
assets and increase holdings in existing portfolio
-- Increased majority owned assets to 81.5% (31 December 2013: 79.4%)
-- Significant inflation linkage within the portfolio (0.81%
p.a. projected increase in return for a 1% increase over
anticipated average inflation across portfolio )
-- Post period end activity:
- Further c.GBP70 million investment committed, including the
INPP consortium's selection as preferred bidder to fund five
batches of schools delivered through the Priority Schools Building
Programme
- Construction completion of two overseas construction projects
- Gold Coast Rapid Transit, Australia and the Federal German
Ministry of Education and Research headquarters
Outlook
-- Promising outlook underlined by significant pipeline of
investment opportunities in new infrastructure assets, particularly
in the education and offshore transmission assets
-- Company well placed to avoid highly competitive secondary
market acquisitions through its Investment Advisor's ability to
self-originate attractive, off-market primary investments
-- Ongoing support from investors and governments alike for
private investment in infrastructure
Rupert Dorey, Chairman of International Public Partnerships
Limited, commented: "I am delighted to announce another sound
financial performance during the half year period, driven by
underlying growth across the portfolio of over 100 assets.
"We have continued to provide investors with a healthy dividend,
taking our total shareholder return to 91.1% since the Company's
listing in 2006.
"The increasingly competitive market backdrop has further
underpinned the Investment Advisor's ability to source attractive
off-market investment opportunities and make selective non-core
disposals. The outlook for the sector continues to be positive and
we remain confident in the group's ability to capitalise on the
growth opportunities available."
Notes
1. See Half-yearly Financial Report for the six months ended 30
June 2014 for further details on NAV methodology
2. The forecast date for payment of the half year dividend is 24
October 2014
3. Future profit forecast and dividends cannot be guaranteed.
Projections are based on the current individual asset financial
models and may vary in the future.
4. Source: Bloomberg. Share price plus dividends assumed to be
reinvested.
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/1711Q_-2014-8-27.pdf
ENDS.
INPP will be holding an analyst and investor presentation and
conference call at 09.30am on the day.
Investors and analysts wishing to attend are asked to RSVP to
Mitch Barltrop at FTI Consulting on +44 (0)20 3717 1039 /
mitch.barltrop@fticonsulting.com. Investors and analysts wishing to
join the conference call should dial +44 (0)20 3427 1906 and use
the confirmation code 9226651.
A copy of the results presentation can be downloaded from the
Company's website:
www.internationalpublicpartnerships.com
Amber Infrastructure
Erica Sibree +44 (0)20 7939 0558
FTI Consulting +44 (0)20 3727 1046
Ed Berry +44 (0)7703 330 199
+44 (0)20 3727 1039
Mitch Barltrop +44 (0)7807 296 032
About International Public Partnerships:
International Public Partnerships (INPP) is a listed
infrastructure investment company which invests in global public
infrastructure projects developed under the public private
partnerships (PPP), private finance initiative (PFI), regulated
asset and other similar procurement methods.
Listed in 2006, INPP is a long-term investor in 115 social and
transport infrastructure projects, including schools, hospitals,
courts, police headquarters, transport and utility and transmission
projects in the U.K., Europe, Australia and Canada. INPP seeks to
provide its shareholders with both a long-term yield and capital
growth through investment across both construction and operational
phases of 25-40 year concessions.
Amber Fund Management Limited is the Investment Advisor to INPP
and consists of over 75 dedicated staff who manage, advise on and
originate projects for INPP.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
Highlights
Half Year Distribution Declared NAV Per Share
3.15p/share 124.8p/share
2014 Minimum Distribution Target Profit Before Tax
6.30p/share GBP35.9m
2015 Minimum Distribution Target Portfolio Return (Six month period)
6.45p/share 5.5%
Total Shareholder Return since
inception
91.1%
Net Asset Value Earnings
> Net Asset Value ('NAV')(1) per > Profit before tax of GBP35.9 million
share of 124.8 pence as at 30 June for the six months ended 30 June
2014 (123.0 pence - 31 December 2014 (GBP29.8 million - 30 June
2013) 2013)
> NAV of GBP952.1 million as at
30 June 2014 (GBP935.4 million
- 31 December 2013), up GBP16.7
million
> Return of 5.5% on portfolio of
underlying investments over six
months to 30 June 2014, or 11.3%
on an annualised basis (compounded)
Shareholder Returns Portfolio Development
> Fully covered cash dividend(2) > Increase in majority owned investments
of 3.15 pence per share(3) declared from 79.4% in December 2013 to 81.5%
for six months to 30 June 2014 > Unleveraged investments represent
> New two year forward looking 21.4% of the investment portfolio
fully covered minimum cash dividend > Leveraged (equity or subordinated
target for the years ended 31 December debt) investments represent 78.6%
2014 and 2015 of 6.30 and 6.45 of the investment portfolio
pence per share respectively - > GBP20.1 million of investment
a minimum average increase of c.2.5% made during the period
per annum > GBP18.8 million of divestments
> Significant degree of inflation agreed on non-strategic minority
linkage within the portfolio of assets during first half year
0.81% p.a. with a projected increase > Further c.GBP70 million investment
in return for a 1% increase over committed since 30 June 2014
anticipated average portfolio inflation > Continuing pipeline of UK and
> Total Shareholder Return since international investment opportunities
listing in November 2006 of 91.1%
compared to 48.3% on the FTSE All
Share over the same period(4)
(1) The methodology used to determine investment fair value is incorporated
within the Net Asset Value as described in detail in the Portfolio
Valuation section within the Financial and Operating Review
(2) Cash dividend payments to investors are paid from net operating
cash flow (including financing costs)
(3) The forecast date for payment of the half year dividend is 24
October 2014
(4) Source: Bloomberg. Share price plus dividends assumed to be reinvested
Company Overview - About the Company
International Public Partnerships Limited
International Public Partnerships Limited (the 'Company'), in
accordance with its Investment Policy, indirectly invests in
equity, subordinated/mezzanine debt and senior loans made to
entities owning or operating infrastructure concessions, assets or
related businesses.
Such investments have included schools, courts houses, health
facilities, police stations, and other public sector buildings,
rail operations, rolling stock leasing entities and offshore
electricity transmission asset owning entities. The Company's
investments are located in the UK, Europe, Australia and
Canada.
Whilst the Company is able to invest in fully price regulated
infrastructure and other forms of economic infrastructure projects,
to date it has primarily invested in entities holding physical
infrastructure and associated services procured under Private
Public Partnerships ('PPP')/Private Finance Initiative ('PFI') and
similar processes.
Key features of International Public Partnerships Limited and
its investment portfolio are:
Key Features
> Geographically diversified with a portfolio across eight countries in a variety of sectors
> A mix of yielding operational investments and investments
currently in construction with prospects for future capital
appreciation
> A significant degree of inflation linkage to investment
returns - 0.81% p.a. projected increase in return for a 1% increase
over anticipated average inflation across portfolio
> The Investment Advisor has historical success in
originating and developing investment opportunities in new sectors
with low risks relative to returns
> A high degree of management and control of underlying
investments to support sustained performance
> Access to a large pool of pre-emptive and other preferred
rights to increase investment in assets that have proven
performance within the existing portfolio
> Operational performance and income from underlying
investments is predominantly founded on asset availability, not
demand, usage or other non-controllable variables
> A significant portion (17%) of the portfolio is invested in
secured senior debt (where no other debt ranks in preference to the
Company's investment in the asset)
Shareholder Returns
> Strong track record of delivering consistent dividend growth and capital appreciation
> Share liquidity through listing and trading on the London Stock Exchange
> Total shareholder returns in line with the 8-9% p.a. target
set at the time of initial public offering in 2006
Governance
> Experienced leadership and independent corporate governance
> Long-term alignment of interest with the Investment Advisor and asset manager
Market Information
> FTSE listed since November 2006 with an initial market capitalisation of GBP300 million
> Member of the FTSE 250 and FTSE All Share indices
> GBP1,018 million market capitalisation as at 30 June 2014 (31 December 2013: GBP972.9 million)
> 763.2 million shares in issue as at 30 June 2014 (31 December 2013: 760.6 million)
> The Company's shares are eligible for ISA/PEPs and SIPPs transfers
> The Company's shares are excluded from the Financial
Conduct Authority restrictions which apply to non-mainstream
investment products and can therefore be recommended by independent
financial advisors to their clients
Investment Advisor fees
> Competitive fee structure
> 1.2% per annum of gross asset value ('GAV') of investments bearing construction risk
> For fully operational assets:
o 1.2% per annum of the GAV (excluding uncommitted cash from
capital raisings) up to GBP750 million
o 1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion
o 0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) exceeds GBP1.5 billion
> 1.5% asset origination fee of the value of new investments to cover acquisition due diligence
> No incentive or performance fees
>
Company Overview - Top Ten Investments
The Company's top ten largest investments are set out below.
Further information about each of these investments together with
other projects within the portfolio is available on the Company's
website.
Significant movements in the Company's portfolio for the period
ended 30 June 2014 can be found in Value Focused Portfolio
Development section within the Financial and Operating Review.
Name of Location Sector Status % Holding % Investment Fair
Project at at 30 Jun Value
30 Jun 2014
2014
30 Jun 2014 31 Dec
2013
Diabolo Brussels, 100%
Rail Link(1) Belgium Transport Operational risk capital(2) 15.50% 15.55%
================== =================== ============ =================== ================== ============ ========
100%
Ormonde risk capital(2)
Offshore Cumbria, and 100%
Transmission England Energy Operational senior debt 14.57% 14.90%
================== =================== ============ =================== ================== ============ ========
Phase 1
Operational;
Phase 2
Royal Children's Victoria, Under 100%
Hospital Australia Health Construction risk capital(2) 5.42% 5.18%
================== =================== ============ =================== ================== ============ ========
Various, 49% risk
BeNEX Rail Germany Transport Operational capital(2) 4.23% 4.18%
================== =================== ============ =================== ================== ============ ========
100% risk
Hereford capital(2)
& Worcester Worcestershire, and 100%
Courts England Courts Operational senior debt 3.92% 4.09%
================== =================== ============ =================== ================== ============ ========
Northampton Northamptonshire, 100% risk
Schools England Education Operational capital(2) 3.87% 3.91%
================== =================== ============ =================== ================== ============ ========
Alberta Alberta, 100% risk
Schools Canada Education Operational capital(2) 3.26% 3.45%
================== =================== ============ =================== ================== ============ ========
100% risk
Strathclyde capital(2)
Police Training Strathclyde, Police and 100%
Centre Scotland Authority Operational senior debt 2.87% 2.99%
================== =================== ============ =================== ================== ============ ========
Tower Hamlets 100% risk
Schools London, England Education Operational capital(2) 2.42% 2.46%
================== =================== ============ =================== ================== ============ ========
New South 100% risk
Orange Hospital Wales, Australia Health Operational capital(2) 2.34% 2.31%
================== =================== ============ =================== ================== ============ ========
(1) Northern Diabolo Project revenues are dependent on
availability but also include an element of linkage to passenger
numbers. All other investments receive entirely availability based
revenues
(2) Risk capital includes both project level equity and subordinated shareholder debt
Chairman's Letter
Dear Shareholders,
I am pleased to report to you that your Company has continued to
perform well over the six month period to 30 June 2014, delivering
continued dividend growth together with strong underlying
operational asset performance. While overall investment levels were
lower compared to previous periods, the Company's near term
pipeline remains very full, and a significant new investment is
expected during the remainder of 2014.
Dividend Growth
The first six months of 2014 saw continued strong cash flows
from the Company's assets. These robust returns allowed the Board
to declare the targeted dividend of 3.15 pence per share for the
six months to 30 June 2014, some c.2.5% growth on the previous
period in accordance with our previously published targets.
Given this strong performance we remain confident in achieving
our target dividend of 6.30 pence per share for the 2014 financial
year and 6.45 pence per share for the 2015 financial year. As in
previous periods, we expect that these dividends will be fully
covered by operating cash flows.
Investment Activity and Market Conditions
During the period the Company made good progress on its pipeline
of investments. Investments of GBP20.1 million were made across
four projects. In addition, the Company also disposed of minority
interests in several of its schools infrastructure projects, with
expected proceeds of GBP18.8 million, very substantially in excess
of the price paid for the same stakes on acquisition in August
2011.
Following the period end, in July and August, the Company
divested another small asset, a hospital project in France, for
GBP0.3 million.
The divestments were agreed as the Company had determined that
it had no realistic scope to increase its holdings in these
particular projects to majority controlling holdings or were
subscale and, based on the price offered, these opportunistic sales
were attractive for the Company.
While the Company does not expect to trade assets regularly,
preferring instead to retain the long-term income generation
potential of its holdings, pricing in the secondary market has
continued to be attractive to vendors. Such sales also validate the
increased popularity and attractions of the asset class in which
the Company is invested.
The market continues to be very strong in the sectors where we
operate. Obviously this is good news in terms of values for our
existing assets and where we seek to sell small, minority
positions. The strength of the market means however that we have
not seen value in the first half of 2014 in any major acquisitions
of mature infrastructure projects from third parties. We will
however continue to participate in this market where it makes sense
to do so, and our participation provides good comparative evidence
to validate the value of our own assets even if we choose not to
invest in the mature projects on offer. In the short to medium
term, we continue to believe that, special circumstances excepted,
there is likely to be better value found in investing in new rather
than pre-owned infrastructure investments.
The Company is on track to enter into a binding commitment into
an investment in the Lincs OFTO(1) later this year, likely to be
the largest commitment the Company has made to a single project,
OFTO assets exhibit all the key investment characteristics the
Company seeks including secure government-backed cash flows and
full inflation linkage and as such the Board believes that this is
an excellent addition to the portfolio. The Company intends to draw
on its existing cash resources and corporate debt facility to fund
the financial close of the transaction which is expected by the end
of the current financial year.
In July, following a number of months of intense development,
the Company was also announced as being part of the winning
consortium selected by the UK Education Funding Agency to provide
finance to five batches of new schools (comprising 46 individual
schools) being developed under the UK government's Priority Schools
Building Programme. The Company will provide finance to a new
innovative 'Aggregator' vehicle as part of a consortium which
included the European Investment Bank and Aviva Investors, which
has been mandated to provide finance for these new schools. The
estimated development value of the project is approximately GBP700
million, of which the Company expects to commit around 10%.
Both these opportunities illustrate the flow of attractive
project investment that continues to be available particularly for
those willing and able to participate as original investors rather
than rely on opportunities arising in auctions in the secondary
market. We are confident that these additional investments along
with the company's existing portfolio of assets will continue to
provide investors with attractive risk adjusted returns over the
long term.
Operational Performance
The operational performance of the Company's portfolio continues
to be very strong. During the period we have focused on delivering
our expected returns, managing our public sector customer
relationships and managing the build-out of assets in construction.
We consider that control over the operational performance of
investments is vital as strong asset-level relationships with
public sector clients are a key factor in both protecting our
reputation and safeguarding investment performance.
Testament to this is the completion of two construction projects
following the 30 June 2014 half year end. The Gold Coast Rapid
Transit project in Australia and the Federal German Ministry of
Education and Research ('BMBF'), in Berlin, Germany reached
construction completion in July and August (respectively). Both
projects have taken several years to come to fruition and were
managed from the bidding phase through to final construction
completion by the Company's Investment Advisor, Amber
Infrastructure, with the projects being delivered successfully. The
Company expects to be able to deliver capital appreciation from
these assets as they move through the initial operational phase
over the course of the next twelve months.
Corporate Governance
At the Company's Annual General Meeting, longstanding Board
member Keith Dorrian resigned from the Board. Once again, I would
like to thank Keith for his outstanding contribution to the Board,
having been a Board member since the Company's inception and, until
1 January this year, the Company's Chair. Following Keith's
resignation there are five Board members, four of whom are
independent directors. We believe this is currently an appropriate
level of resourcing and that the directors have a complementary mix
of skills and experience. Further biographical information is
provided in the Board of Directors section.
As part of its ongoing oversight of the Company's portfolio in
June the Board visited the Company's newest acquisition, the BMBF
facility in Berlin. It also met with the German-based members of
the Investment Advisor's team together with the construction
partner on that project, BAM Deutschland. In conjunction with the
Investment Advisor, the Board also took the opportunity to take a
step back from its usual tasks to spend time considering the
Company's broader strategic approach including its position within
the markets and future areas of focus for growth.
The Alternative Investment Fund Managers Directive which came
into effect on 22 July 2013 requires the Company, being a
self-managed Alternative Investment Fund ('AIF'), to follow the
specific registration and other regulatory requirements within each
EU member state in which it wishes to market new shares. In a small
number of countries this may require the Company to incur
additional regulatory compliance costs prior to marketing.
Changes to Presentation of Results and Report
At 31 December 2013, the Company early adopted new accounting
standards which require investment companies to present financial
statements on an investment basis. The financial statements for the
six months ended 30 June 2014 follow the same presentation and
reporting basis. We believe the new presentation assists investors
by enabling greater consistency between the presentation of the
financial statements and the key investment metrics used by
management and shareholders. Importantly these changes have no
impact on overall portfolio valuations.
The international accounting standards board is currently
consulting with the industry on further interpretation
clarifications to the relevant standards. It is currently unclear
whether the outcome from the consultation will have any significant
impact on the financial statements. Our hope is that the current
basis will continue to apply, for the reasons above, however, there
is a risk that less transparent reporting will be required. This
continues to be closely monitored by myself and fellow board
members.
Going concern
In our consideration of going concern we have reviewed
comprehensive cash flow forecasts prepared by management, which are
based on market data and past experience and believe, based on
those forecasts and an assessment of the Group's committed banking
facilities and the available headroom, that it is appropriate to
prepare the financial statements of the Group on the going concern
basis.
In arriving at our conclusion that the Group has adequate
financial resources, we were mindful that the Group had
unrestricted cash of GBP43.7 million as at 30 June 2014 and undrawn
banking facilities committed until December 2016 of GBP175.0
million although we note that the commitments to the Priority
School Building Programme and the Lincs OFTO will likely draw down
on these amounts during the second half of 2014. Forecasts indicate
continuing full compliance with associated banking covenants.
Outlook
The outlook for the remainder of 2014 is promising and we remain
confident in the Company's ability to generate increasing dividends
in line with published expectations. The Company's portfolio
continues to perform well and we are confident that there continues
to be a number of attractive infrastructure opportunities in the UK
and in the overseas jurisdictions in which it is active. This is
particularly, but not exclusively, the case where the Company has
the ability to be the primary investor in new infrastructure
assets, such as offshore transmission opportunities and schemes
like the Aggregator.
It should be noted that the Company's performance is not, in our
view, dependent upon making additional investments in order to
deliver its projected returns. We will therefore continue to be
selective in our acquisitions to ensure they bring real long term
benefits to the Company. Further details are provided within the
Outlook section of the Financial and Operating Review.
Finally, I thank all shareholders for their continued support
and look forward to continuing success in the remainder of
2014.
Rupert Dorey
27 August 2014
Chairman
[1] Offshore electricity transmission owner licensed entity.
Financial and Operating Review
Key Performance Indicators
The Company has identified ten priorities to assist it in
meeting its Key Objectives. In order to assess performance in
meeting these objectives the Company semi-annually reviews its
performance against the following key performance indicators
('KPIs'). Progress against these KPIs for the six months to 30 June
2014 is summarised below. Further details of each of these elements
are provided under the relevant headings in the sections that
follow:
Key Objectives Key Performance Six months to 30 June
Indicator 2014 Performance
Deliver sustainable > Maintain and > Achieved targeted
long-term returns enhance distributions fully covered cash dividend
to shareholders to shareholders of 3.15p/share, a c.2.5%
increase on first-half
> Focus on providing 2013 dividend
shareholders with
predictable, and
where possible
growing dividends
> Obtain significant > Increase or sustain > Significant degree
inflation-linkage degree to which of inflation linkage
in revenues portfolio revenues within the portfolio
are linked to inflation - 0.81% p.a. increase
in projected return
for a 1% increase over
anticipated portfolio
average inflation (31
Dec 2013: 0.81%p.a.)
> Deliver capital > Total shareholder > Achieved. The total
value enhancement return shareholder return since
where possible IPO is 91.1%
> NAV and NAV p/share
> NAV of GBP952.1 million
and NAV per share of
124.8 pence/share, an
increase of 1.5%
====================== ============================== ====================================
Strategic Priorities Key Performance Six months to 30 June
Indicator 2014 Performance
1 Focus on delivery
of anticipated
returns from existing > Availability > Achieved
investments for all controlled
investments at
> Actively manage 98% or above > Met net revenue generation
investments to and dividend goals
ensure that they > Returns from
meet financial investments in
and other targets line with expectations
======================= ============================ ==================================
2 Maintain high levels > Performance deductions > Achieved
of public sector below 3% for all
satisfaction and projects
asset performance
======================= ============================ ==================================
Strategic Priorities Key Performance Six months to 30 June
Indicator 2014 Performance
3 Deliver additional > Number of change > More than 400 variation
capital value from requests from existing requests representing
existing assets contracts over GBP13 million of
through management the additional capital
of construction investment at the project
risk and delivery level
of operational
improvements to > Continued build-out
meet client requirements > Management of of three construction
investments in projects, Royal Children's
the course of construction Hospital, Gold Coast
projects in line Rapid Transit in Australia
with overall delivery and Federal Ministry
timetable of Education Building
('BMBF') in Germany.
Post-period end, both
the Gold Coast and BMBF
projects reached construction
completion
> Working through defects
rectification period
Liverpool Library and
Moray Schools and various
Building Schools for
the Future projects
in the UK and Diabolo
Rail project in Belgium,
in line with expectations
4 Through relationships > Value enhancing > Additional investment
with co-shareholders follow-on investments totalling GBP10.5 million
and pre-emptive made in three separate transactions
rights, where applicable, within the Building
increase individual Schools for the Future
investment holdings portfolio where the
to 100% where beneficial company held pre-emptive
positions
=========================== =============================== ==================================
5 Make additional > Value of additional > All investments in
acquisitions where investments acquired the period were acquired
they can be acquired outside secondary market
on or off market auction processes
at prospective
returns that are
beneficial in risk/return
terms
=========================== =============================== ==================================
6 Enhance prospects > Number of investments > In January, acquired
for capital growth in construction a German ministry accommodation
by investing in PPP project, BMBF, part
construction phase way through the building's
assets where available construction phase
=========================== =============================== ==================================
7 Identify complementary > Value of investments > Continued to progress
investment sectors in complimentary a preferred bidder opportunity
within the Company's investment sectors and bid for further
investment policy opportunities within
offering better the offshore transmission
returns with a sector. The preferred
similar risk profile bidder position is expected
to reach commercial
close by October 2014
> Post period end, the
Company was selected
preferred bidder on
Priority School Building
'Aggregator' financing
Programme
> Both programs offer
access to primary investor
returns for similar
or lower risk
=========================== =============================== ==================================
Strategic Priorities Key Performance Six months to 30 June
Indicator 2014 Performance
8 Take advantage > Number of new > During the period
of infrastructure opportunities in continued to progress
opportunities internationally international markets pipeline of international
where investments opportunities and successfully
have an appropriate completed the BMBF
risk profile and investment in Germany
contractual structures
are reliably enforceable
to enhance diversification
=== =============================== ========================= ================================
9 Undertake continuing > Improvement of > Realisation of strategically
review of portfolio risk/return, inflation insignificant stakes
composition to linkage, return, for GBP18.8 million,
ensure suitable diversification values well in excess
blend of risk/return, characteristics of carrying value and
inflation linkage, reinvestment into higher
yield versus capital return assets with
characteristics, a similar risk profile
level of diversification > Following period
and opportunistic end, an additional
enhancements GBP0.3 million was
realised through the
sale of a subscale
asset, again for a
price that was a premium
to the Company's carrying
value
10 Provide efficient > Dividends paid > Dividends paid to
management of cash to investors covered investors 1.3 times
holdings and debt by operating cash covered by net operating
facilities available flow cash flow(1)
for investment
and appropriate > New investments > All investments in
hedging policies made from available the period made from
cash (after payment available cash funds
of dividend) in
priority to use > Benchmarked market
of corporate debt cash rates and re-allocated
based on risk/return
> Competitive cash profile
deposit rates
> GBP3.2 million of
foreign exchange forward
> Use of appropriate contracts in place
hedging strategies during the period
=== =============================== ========================= ================================
(1) Cash dividends to shareholders are paid from net operating
cash flow (including financing costs) before one off operating
costs.
Performance against Key Objectives during the period - Investor Returns
Profits and distributions
Profit before tax for the six months to 30 June 2014 was GBP35.9
million (30 June 2013 restated: GBP29.8 million) with earnings per
share of 4.85 pence (30 June 2013 restated: 4.20 pence).
Income from portfolio investments in the period was GBP44.5
million (30 June 2013 restated: GBP45.3 million) including fair
value movements, dividends and interest. These returns were offset
by operating expenses (including finance costs) of GBP7.9 million
(30 June 2013 restated: GBP17.7 million), of which GBP0.4 million
(30 June 2013 restated: GBP11.1 million) was non-recurring.
These results allowed the Company to deliver the fully-covered
dividend of 3.15 pence per share for the six months to 30 June 2014
(30 June 2013 restated: 3.075 pence per share), an increase of
c.2.5% over the corresponding period last year.
Total Shareholder Return
The Company's Total Shareholder Return (share price growth plus
reinvested distributions) for investors since the initial public
offer of the Company in November 2006 to 30 June 2014 has been
91.1% (compounded annual growth rate, 'CAGR', of 8.8% per annum),
compared to a total return on the FTSE All-Share index over the
same period of 48.3% (CAGR of 5.3% per annum)(1) . The Company has
exhibited relatively low levels of volatility compared to the
market.
Net Asset Valuation
The Company reports a 1.8% increase in NAV, up to GBP952.1
million at 30 June 2014 from GBP935.4 million at 31 December 2013.
This represents an increase of 1.5% of NAV per share to 124.8 pence
per share from 123.0 pence per share at 31 December 2013.
The build-up of NAV is derived from a discounted cash flow
calculation to determine the fair value of investments plus the
value of cash and other net assets held within the Company's
consolidated group.
During the period, movements in government bond rates in
jurisdictions where the Company is invested were mixed with UK and
Australian yield increases being slightly offset by a decrease in
Canadian and European rates. Overall, government bond yields
decreased slightly and had a marginally positive impact on the
NAV.
However, the broadly positive impact of the change in government
bond yields was offset by a net increase in discount rate risk
premia. This resulted from, on the one hand, a reduction in the
risk premium as assets moved out of the construction or defects
liability phase and towards full operations (positive effect on
NAV) and, on the other, risk adjustments to the Company's two
assets in Belgium and Ireland which netted out the effect of recent
government bond rate reductions in those countries pending
confirmation that these rates can be sustained (negative impact on
NAV).
In aggregate, foreign exchange movements had a marginal impact
on the NAV during the period (adding GBP0.4 million to NAV) as,
relative to Sterling, the strengthening Australian Dollar was
largely offset by weakening in the Canadian Dollar and Euro.
Cash distributions of GBP20.2 million during the period
represent the cash element of the dividend made to the Company's
shareholders.
Return from investments had a GBP36.5 million positive impact on
the NAV generated from underlying project returns partially offset
by fund level operating costs such as the management fee paid to
the Investment Advisor, transaction costs, other operating costs
and net working capital movement. The Portfolio Performance and
Return section below provides more detail on the composition of
returns from the underlying portfolio of projects.
Portfolio Valuation
Forecast future cash flows
The Company's investments are expected to exhibit (and
historically have exhibited) relatively predicable cash flows. As
the Company has a large degree of visibility over expected income
from its current investments the chart below sets out the Company's
expectation for the evolution of investment receipts from its
current portfolio (over the remaining life of current
investments).
The majority of the receipts over the life of the concessions
are investment income from the operational assets in the form of
dividends from equity investments or interest and principal
payments from senior and subordinated debt investments.
It is important for shareholders to note that the Company
generally invests in infrastructure entities with finite lives
(determined by concession or licence terms). As the remaining life
of each of the Company's investments reduces the Company's receipts
in respect of that investment will represent return of capital as
well as income. The line in the chart below illustrates how, in the
event that the Company never acquires any additional assets, nor
raises any additional capital and other things being equal, the NAV
of the Company would reduce to zero over time. It should however
equally be recognised that any future acquisitions (or disposals)
or changes to the projected cash flows of any investment (or the
assumptions upon which they are based) will change this projection
from time to time (although it can be expected to retain a similar
general amortising profile).
Portfolio level assumptions
The Company is aware that there are subtle differences in
approach to the valuation of portfolios of investments among
different infrastructure funds. To clarify the Company's position
in this regard its key cash flow inputs and broad valuation
principles include:
> That key macroeconomic variables (outlined in the section below) continue to be applicable
> That the contracts under which payments are made to the
Company or its investments and its subsidiaries remain on track and
are not terminated before their contractual expiry date
> That deductions suffered under such contracts are fully passed down to subcontractors
> That where possible lifecycle cost risks are not borne by
the Company but are passed down to a third party such as a
facilities management contractor
> That cash flows from and to the Company's subsidiaries and
the infrastructure asset owning entities in which it has invested
will be made and are received at the times anticipated
> That where assets are in construction they are either
completed on time or any costs of delay are borne by the
contractors not the Company
> That where the operating costs of the Company or the
infrastructure asset owning entities in which it has invested are
fixed by contract such contracts are performed, and where such
costs are not fixed, that they remain within projected budgets
> That where the Company or the infrastructure asset owning
entities in which it has invested owns the residual property value
in the asset that the projected amount for this value is
realised
> That where assets in which the Company invests are not GBP
assets that foreign exchange rates remain consistent with current
forward looking projections
Portfolio Performance and Return
The Company's investment portfolio is reviewed semi-annually by
the Investment Advisor, and presented for approval by the
Directors. The Directors' valuation of the portfolio, Investments
at Fair Value, as at 30 June 2014 was GBP856.2 million, an increase
of 1.4% since 31 December 2013 of GBP844.4 million.
The portfolio return of GBP44.5 million represents a 5.5%
increase in the value of investments (11.3% on an annualised
compounded basis) and can be attributed to:
> Distributions received over and above the forecast amount
due to active management of the Company's portfolio including
initiatives such as negotiating and optimising project cash flows
to ensure cash can be extracted from project vehicles earlier than
forecast and optimising group tax loss surrender
> Unwinding of the discount factor whereby the movement of
the valuation date has a positive impact on the portfolio as the
valuation date approaches the peak of forecast portfolio
distributions (currently forecast between 2028-2036)
> Value accretive divestments made during the period
> Updating and refinement of project model assumptions to
reflect current expectations of future cash flows
The remaining movement relates to investments of GBP20.1 million
less agreed divestments of GBP18.8 million, project distributions
of GBP34.5 million, an increase in discount rates and minor
revaluation following a change in foreign exchange assumptions.
Macroeconomic Assumptions
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis.
The key assumptions used as the basis for deriving the Company's
portfolio valuation are summarised in the following table and
further details are provided in note 11.4 in the financial
statements. Across the portfolio the weighted average inflation
assumption as at 30 June 2014 was 2.51% (31 December 2013: 2.52%)
and the weighted average deposit rate assumption was 3.47% (31
December 2013: 3.47%). There was therefore no impact in relation to
macro-economic assumptions on the valuation during the period.
Variable Basis 30 Jun 2014 31 Dec 2013 30 Jun 2013
Inflation UK (RPI) 2.75% 2.75% 2.5% average
across the
portfolio
Australia 2.50% 2.50%
(CPI)
Europe (CPI) 2.00% 2.00%
Canada (CPI) 2.00% 2.00%
================== ============== ============= ============= ================
Long Term Deposit UK 3.50% 3.50% 3.2% long-term
Rates(1) average future
deposit rate
across the
portfolio
Australia 4.50% 4.50%
Europe 3.00% 3.00%
Canada 3.00% 3.00%
================== ============== ============= ============= ================
Foreign exchange GBP/CAD 1.82 1.78 1.66
GBP/AUD 1.92 2.01 1.84
GBP/EUR 1.17 1.16 1.15
================== ============== ============= ============= ================
Tax Rate UK 20%(2) 20%(2) 23%
Australia 30% 30% 30%
Europe Various (no Various (no Various
change) change)
Canada Various (no Various (no Various
change) change)
================== ============== ============= ============= ================
(1) The portfolio valuation assumes deposit rates as currently
received to 2017 and then as stated thereafter
(2) The corporation taxation rate will reduce by 1% to 20% from
1 April 2015
Discount rates
The discount rate used for valuing each investment is based on
the appropriate long-term Government Bond rate and a risk premium.
The risk premium takes into account risks and opportunities
associated with each project (including location, phase of
operation/construction etc).
The majority (83%) of the Company's portfolio is invested in the
'risk capital' (equity and subordinated debt) of the underlying
investments. 17% of the portfolio is invested as senior debt where
the Company also holds the risk capital. The current discount rates
used by the Company are given in the table below. These rates need
to be considered against the assumptions and projections upon which
the Company's anticipated cash flows are based.
The average blended discount rates need to be interpreted with
care. In the Company's view they are relevant only in the context
of the cash flows (and cash flow assumptions) they are applied to
in calculating the fair value of investments. Comparison of
discount rates between investment portfolios or funds is only
meaningful if there is a comparable level of confidence in the
quality of forecast cash flows (and assumptions) rates are applied
to; the risk and return characteristics of different investment
portfolios are understood; and the depth and quality of asset
management employed to manage risk and deliver expected returns are
identical across the compared portfolios.
Metric 30 Jun 31 Dec 30 Jun Movement
2014 2013 2013 31 Dec 2013 -
30 Jun 2014
Weighted Average Government
Bond Rate (Nominal) - portfolio
basis - risk capital and
senior debt 3.38% 3.46% 3.02% (0.08%)
================================== ======= ======= ======= ===============
Weighted Average Project
Premium over Government Bond
Rate - risk capital and senior
debt (Nominal) 4.37% 4.26% 4.68% 0.11%
================================== ======= ======= ======= ===============
Weighted Average Discount
rate
- Portfolio basis - risk
capital and senior debt 7.75% 7.72% 7.70% 0.03%
================================== ======= ======= ======= ===============
Weighted Average Discount
rate
- risk capital only(1) 8.21% 8.20% 8.19% 0.01%
================================== ======= ======= ======= ===============
NAV per share 124.8p 123.0p 121.5p 1.8p
================================== ======= ======= ======= ===============
(1) Risk capital is equity and subordinated debt investments
Government bond rates
In the table above the Company has provided an analysis of the
weighted average government bond rate used in calculating the
discount rate. It should be noted that the nominal (i.e. non
inflation linked) bond rate has been used in this calculation.
30 Jun 2014 31 Dec 2013 30 Jun 2013 Movement
(31 Dec 2013
Country - 30 Jun 14)
UK 3.36% 3.34% 2.87% 0.02%
==================== ============ ============ ============ ==============
Australia 4.54% 4.48% 3.91% 0.06%
==================== ============ ============ ============ ==============
Canada 2.91% 3.03% 2.49% (0.12%)
==================== ============ ============ ============ ==============
Belgium 3.17% 3.50% 3.16% (0.33%)
==================== ============ ============ ============ ==============
Germany 2.34% 2.55% 2.21% (0.21%)
==================== ============ ============ ============ ==============
Ireland 3.15% 4.14% 4.35% (0.99%)
==================== ============ ============ ============ ==============
France 2.85% 3.08% 2.82% (0.23%)
==================== ============ ============ ============ ==============
Italy 4.10% 4.86% 4.95% (0.76%)
==================== ============ ============ ============ ==============
Portfolio weighted
average 3.38% 3.46% 3.06% (0.08%)
==================== ============ ============ ============ ==============
Sensitivities for key macroeconomic assumptions and discount
rates
The Company's NAV is based on the factors outlined above. The
Company has also provided sensitivity analysis showing an
indication of the impact on NAV per share from changes in
macroeconomic assumptions and discount rates, as set out below.
Further details can be found in note 11.5 in the financial
statements. This analysis is provided as an indication of the
likely impact of these variables on the NAV per share on the basis
that they apply uniformly across the portfolio whereas in practice
the impact is unlikely to be uniform. These sensitivities should be
used only for general guidance and not as accurate predictors of
outcomes.
Discount rates
The Company's approach to determining the discount rate is
described in detail above. Assuming all other things are equal, a
reduction of 1% to the underlying project discount rates would
increase the 30 June 2014 NAV per share by 11.5 pence. Should the
underlying project discount rates increase by 1% the NAV per share
would decrease by 9.9 pence.
Inflation
In an environment where investors are increasingly focused on
achieving real rates of return on their investments, inflation
protection is an important consideration for the Company. At 30
June 2014 the majority of assets in the portfolio had some degree
of inflation linkage and, in aggregate, the weighted average return
of the portfolio can be expected to increase by 0.81% for a 1%
inflation increase across the portfolio over currently assumed
rates.
Where actual inflation is higher or lower than the assumed
levels, it can be expected to impact on the Company's actual future
cash flow in a correspondingly positive or negative manner other
things being equal. If the underlying project inflation rates were
to increase by 1% there would be a 9.0 pence increase to the NAV
per share, conversely, if the rates were to decrease by 1% there
would be an 8.1 pence decrease to the NAV per share.
Foreign exchange
The company has a geographically diverse portfolio and therefore
non-GBP denominated investment returns and valuations are subject
to foreign exchange rate risk. Whilst the Company enters into
foreign exchange forward contracts to mitigate short-term
exposures, longer term changes are likely to impact portfolio
valuations. Should the assumed exchange rates increase by 10% this
would lead to a 4.9 pence increase in the NAV per share while a 10%
reduction in the exchange rates would result in a 4.0 pence
decrease in NAV per share.
Deposit rates
The long-term weighted average future deposit rate across the
portfolio is 3.47% per annum. While operating cash balances tend to
be low given the structured nature of the investments, project
finance structures typically include reserve accounts to mitigate
certain costs and therefore variations to deposit rates may impact
the portfolio. All else being equal, a 1% increase in the
underlying deposit rates would lead to a 1.9 pence increase in the
NAV per share and a 1% decrease in deposit rates would lead to a
1.9 pence reduction in the NAV per share.
Tax rates
The Company has a geographically diverse portfolio and therefore
post-tax investment cash inflows are impacted by tax rates across
all relevant jurisdictions. Should the assumed tax rates increase
by 1% this would lead to a 0.8 pence decrease in the NAV per share
while a 1% reduction in the tax rates would result in a 0.9 pence
increase in NAV per share.
Project Lifecycle
A project's lifecycle is the process of renewal required to keep
the physical asset fit for use and at the standard required of it
under the agreement with the occupying government body. The
proportion of total cost that is lifecycle will depend on the
nature of the asset. In order to enhance the certainty around cash
flows, around 94% of the Company's assets (by value) are 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 any changes to the Company's lifecycle
profile is relatively small. A 10% increase in lifecycle costs
would lead to a 0.3 pence reduction in NAV per share. A 10%
decrease in lifecycle costs would lead to a 0.4 pence increase in
NAV per share.
Future Tax Group Relief
Under UK tax group loss relief rules, losses within the UK group
companies can be, subject to UK tax law, offset against taxable
profits in other UK group companies (including project entities
formerly part of the UK group). This group tax loss relief can
reduce the overall tax charge across the portfolio and potentially
reduce taxable profits substantially below the levels currently
modelled by the Company. The Company has taken a conservative
approach to the valuation of future tax losses and, to date, has
not incorporated these into the NAV.
Cash flow movements in the period
Summary of consolidated Six months Six months Year to 31
cash flow to 30 Jun 2014 to 30 Jun 2013 Dec 2013
GBP million GBP million GBP million
Opening cash balance 80.6 65.8 65.8
Cash from investments 35.5 30.6 59.7
Operating costs (recurring) (6.1) (5.9) (11.7)
Net financing costs (0.6) (0.4) (0.5)
Net cash before one off
operating costs 28.8 24.3 47.5
=============================== ================ ================ =============
One-off operating costs (2.3) (0.1) (5.4)
=============================== ================ ================ =============
Net cash flow from operations 26.5 24.2 42.1
=============================== ================ ================ =============
Cost of new investments (20.1) (8.5) (36.5)
Proceeds of capital raisings
(net of costs) - 46.1 46.1
Distributions paid (20.2) (17.0) (36.9)
=============================== ================ ================ =============
Net cash at period end 66.8 110.6 80.6
=============================== ================ ================ =============
The Company's net cash at 30 June 2014 was GBP66.8 million (31
December 2013: GBP80.6 million), a decrease of GBP13.8 million
reflecting net cash flows from operations offset by new investments
and dividend payments.
Cash inflow from the Company's investment portfolio was GBP35.5
million (30 June 2013: GBP30.6 million). The increased cash flow
was mainly due to the timing of receipt of distributions from
underlying investments.
Recurring operating costs have increased from GBP5.9 million to
GBP6.1 million (30 June 2013), in line with the increase in the
Company's NAV although, as detailed in the 'ongoing charges' table
below, this was somewhat offset by a small reduction in other
running costs. One-off operating costs of GBP2.3 million (30 June
2013: GBP0.1 million) mainly represent new acquisition transaction
costs and costs associated with the refinancing of the corporate
debt facility in the period.
Dividends paid in the period of GBP20.2 million (30 June 2013:
GBP17.0 million) were in respect of the six month period ended 31
December 2013.
Corporate expenses and ongoing charges
A breakdown of corporate operating costs paid is provided
below:
Six months to 30 Jun Six months to 30 Year to 31
2014 Jun 2013(1) Dec 2013
Corporate Expenses GBP million GBP million GBP million
Management fees (5.6) (5.3) (10.6)
==================== ===================== ================= =============
Audit fees(1) (0.1) (0.1) (0.1)
==================== ===================== ================= =============
Directors fees (0.1) (0.1) (0.2)
==================== ===================== ================= =============
Other running
costs (0.3) (0.4) (0.8)
==================== ===================== ================= =============
Operating costs
(ongoing) (6.1) (5.9) (11.7)
==================== ===================== ================= =============
(1) The 30 June 2013 balance has been restated to reflect IFRS
10 consolidation expenses. Previously reported ongoing operating
charges for 30 June 2013 were GBP6.3 million.
The increase in management fees paid to the Investment Advisor
is in line with the growth in managed investments and the growth of
the Company's portfolio.
Six months to 30 Six months to 30 Year to 31 Dec
Jun 2014 Jun 2013(1) 2013
GBP million GBP million
Ongoing Charges GBP million
Annualised Ongoing
Charges(2) (12.2) (11.7) (11.7)
==================== ================= ================= ===============
Average NAV(3) 943.7 893.3 905.9
==================== ================= ================= ===============
Ongoing Charges (1.29%) (1.31%) (1.29%)
==================== ================= ================= ===============
(1) The June 2013 balance has been restated to conform to the
IFRS 10 grouping (the previously reported full consolidated ongoing
charges in June 2013 was GBP12.4 million)
(2) The Ongoing Charges ratio was prepared in accordance with
the Association of Investment Companies' ('AIC') recommended
methodology, noting this excludes non-recurring costs.
(3) Average of published NAVs for the relevant period
Principal Risks and Uncertainties
The Board seeks to mitigate and manage risks relating to the
Company through continual review, policy setting and enforcement of
contractual obligations. It also regularly monitors the investment
environment and the management of the Group's portfolio.
The principal risks facing the Company and their mitigation are
set out on pages 28 to 31 in the 31 December 2013 Annual Report and
Financial Statements and are detailed further in the Company's last
Prospectus (the Placing, Open Offer and Offer for Subscription
Prospectus published on 24 May 2012). These risks and uncertainties
are expected to remain relevant to the Company for the next six
months of its financial year and include (but are not limited
to):
> Inflation risk - Revenues and expenditures of project
entities with respect to infrastructure assets are generally
partially or wholly subject to indexation and an assumption is made
that inflation will increase at a long term rate. The Group's
ability to meet targets may be adversely or positively impacted by
inflation.
> Foreign exchange risk - The group has exposures to foreign
currencies and therefore exposure to exchange rate
fluctuations.
> Credit and counterparty risks - The risk that a
counterparty will default on its contractual obligations resulting
in financial loss to the Group.
> Liquidity risk - The ability to successfully access
suitable financial resources in the debt, equity and related
financial markets.
> Contract risk - the ability of counterparties to operate
contracts to the detriment of the Company and the risk of default
under contract whether by the Company, its subsidiaries or it or
their counterparties.
> Other external risks - Includes the political and
regulatory risks (including tax and accounting policies and
practices) associated with the Company and its projects and changes
in the competitive environment which may have an adverse impact on
the Group.
The Board considers and reviews the risks that the Company is
exposed to on a regular basis.
Performance against Strategic Priorities - Active Asset Management
Delivery of expected returns from the existing portfolio
During the period, investment cash flow from the Company's
portfolio of 115 investments has continued to perform in line with
the Company's forecasts. Ensuring that the Company's assets are
available for use and are performing in accordance with contractual
expectations is a critical task for the Company and its service
providers.
The Investment Advisor, on behalf of the Company, closely
monitors any availability and performance failures at a
subcontractor level and works with these service providers to
mitigate the risk of deductions. For example, all projects have a
dedicated Asset Manager whose task it is to ensure that the project
is meeting all targets required under the contract and that the
public sector client is happy with the standard of service being
achieved. Each month the Asset Managers review the performance and
availability deductions data from the facilities manager contractor
to identify any large or recurrent deductions. This not only
ensures that remedial action can be taken in a timely manner but
that the public sector client receives a high level of visibility
regarding the performance of the asset.
Maintain high levels of public sector satisfaction and asset
performance
All projects continue to perform to the required contractual
standards as demonstrated by the continued low level of payment
deductions. In addition projects such as Liverpool Central Library
have been recognised as outstanding examples of public
infrastructure with awards such as RIBA North West's Conservation
Award 2014 and Regional Award April 2014, RICS Best Tourism &
Leisure Project 2014, Best Community Benefit Project and Project of
the Year 2014.
Deliver additional capital value from existing assets
During the first six months of 2014 our public sector clients
commissioned in excess of 400 variations resulting in over GBP13
million of additional works at the project level. All variations
were overseen by the Investment Advisor as part of the day-to-day
asset management activities it undertakes in conjunction with the
project facilities manager and the public sector client. The
ability to deliver these variations demonstrates the value and
flexibility of PFI/PPP contracts to respond to the changing
requirements of public sector clients.
The day-to-day management of interfaces between the client,
investors and construction partners is also of importance in
relation to investments in the course of construction. For
instance, at the Northamptonshire schools project when the need was
identified for increased school places, the Investment Advisor
worked with the procuring authority throughout the process to
ensure its successful delivery. This included: the identification
of a suitable building contractor to deliver the works; working
with the facilities management contractor to identify the
associated cost of the new facilities management services; and,
liaison with the project's lawyers and other professionals to
engage with the senior lenders to gain consent to the delivery of
this major variation.
Valuation benefits from successful completion of the
construction and defects correction phases of these projects and
other construction projects recently completed are expected to
continue to be realised in 2014 and 2015 as sustained operational
performance is demonstrated. All construction currently within the
portfolio is due to be completed by December 2014 with defects
periods completed in 2015. In the first six months of the 2014
financial year the Company has increased its investments in
construction stage projects as set out in the 'Value Focused
Portfolio Development' section below.
Projects under construction as at 30 June 2014 are set out in
the table overleaf. As anticipated, post period end, two of these
projects, the Gold Coast Rapid Transit and the BMBF project reached
construction completion. Both projects are expected to continue to
add to the Company's operational cash flows in the second half of
the 2014 financial year and provide capital appreciation as the
projects progress through the defects liability period and the
discount rates associated with each project unwinds. Further
details are provided in 'Value-focused portfolio development'
section below.
Asset Location Construction Completion Defects Status % of Fair
Date Completion Value
Year of Investment
Phase 1 - September
2011 Phase 1 completed
2015
Royal Children's Phase 2 - December Phase 2 ahead
Hospital Australia 2014 2015 of schedule 5.4%
========================= =========== ========================= ============= =================== ===============
Gold Coast Rapid
Transit Australia July 2014(1) 2015 Completed 1.2%
========================= =========== ========================= ============= =================== ===============
Building Schools
for the Future Various. Latest
portfolio UK September 2014 2015 On schedule 0.3%(2)
========================= =========== ========================= ============= =================== ===============
Federal German Ministry
of Education and
Research ('BMBF') Germany August 2014 2015 Completed 1.2%
========================= =========== ========================= ============= =================== ===============
(1) Originally targeted construction completion in May 2014.
While final construction completion was slightly delayed, this did
not affect project returns as the construction contractor was
levied late completion damages
(2) Estimate based on the number of projects within the BSFI
portfolio that were still in construction at 30 June 2014
Performance against Strategic Priorities - Value focused portfolio
development
The Company has further developed its portfolio through a series
of acquisitions and divestments since the start of the 2014
financial year (summarised in the table below). These projects
acquired were all self-originated, having either been sourced by
the Investment Advisor i) from project inception (i.e. in response
to an initial government procurement process); or ii) by way of
further investment into the Company's existing assets. These
methods of procurement remain the Company's preferred route to
market as they necessarily avoid investment in the open secondary
market which, as we have noted before, remains very
competitive.
Asset Location Acquisition/ Operational Investment/ Acquisition/
Divestment Status realisation divestment
value date
Six months to 30 June 2014
===========================================================================================================
Federal German Berlin, Acquisition Under construction GBP9.6 million January
Ministry of Germany 2014
Education and
Research
===================== =============== ============= =================== ================ =============
Building Schools Kent, UK Acquisition Operational GBP7.2 million February
for the Future 2014
===================== =============== ============= =================== ================ =============
Building Schools Wolverhampton, Acquisition Under construction GBP0.5 million February
for the Future UK 2014
===================== =============== ============= =================== ================ =============
Building Schools Nottingham, Acquisition Operational GBP2.8 million June 2014
for the Future UK but still in
'defects period'
===================== =============== ============= =================== ================ =============
Building Schools Various, Divestment Operational GBP18.8 million February
for the Future UK 2014
===================== =============== ============= =================== ================ =============
Period from 1 July 2014
===========================================================================================================
Priority School Various, Selected To be constructed Up to GBP70 Appointed
Building Aggregator UK Bidder million July 2014
Programme
===================== =============== ============= =================== ================ =============
Amiens Hospital France Divestment Operational GBP0.3 million July 2014
PPP
===================== =============== ============= =================== ================ =============
During the six months to 30 June 2014 the Company invested
GBP20.1 million into four projects. In January, the Company
acquired a 98% equity interest and 100% of the subordinated debt in
a PPP project that will deliver the new headquarters of the Federal
German Ministry of Education and Research in Berlin ('BMBF'). The
Ministry provides funding for research projects and institutions
and sets general educational policy, including providing student
loans, in Germany.
The BMBF interests were acquired by an investment subsidiary of
the Company from an associate of the Investment Advisor for
approximately EUR11.9 million (GBP9.6 million). The acquisition
process was fully managed in accordance with the Company's policy
on dealing with conflicts of interest in such circumstances. This
process, which is documented further in the Company's 2013 Annual
Report, included the Company obtaining an independent valuation
which valued the asset at a price slightly higher than the price at
which it was acquired. This investment underlines the Company's
ability to access a developed pipeline of international investment
opportunities other than through a secondary market auction
process. Construction of the project was completed in August this
year.
The Company has also entered into a number of UK schools PFI
transactions with respect to Building Schools for the Future
('BSF') portfolio. Three investments were made in existing BSF
projects:
> The acquisition of 60% of Kier Project Investments' 80%
interest in the Kent BSF (UK PFI schools) project for GBP7.2
million, taking the Company's ownership in this project to 58%
> A follow-on investment of GBP0.5 million in the
Wolverhampton BSF (UK PFI schools) project where the Company had
the opportunity to invest on a minority basis. The project involves
the design, construction, financing and operation of two high
schools in the second phase of the Wolverhampton BSF programme
delivered using a PFI structure
> An additional GBP2.8 million investment in the second phase
of the Nottingham BSF from Carillion Private Finance, taking the
Company's interest from 10% to 82%
In addition, minority interests in the Hull, Leeds, Newcastle,
Rochdale, Sandwell and Leicester BSF projects were disposed, with
GBP18.8 million being realised. The divestments were agreed as the
Company had determined that it had no realistic scope to increase
its holdings in these particular projects to majority controlling
holdings and therefore considered that, based on the price offered;
a sale would be in the best interests for the Company. The proceeds
of sale are substantially in excess of the price paid for the same
stakes on acquisition in August 2011, offering a significant
premium to the Company.
Since the close of the 30 June 2014 reporting period, the
Company announced that it had been selected as the winning bidder
to fund the Priority School Building Programme, a centrally managed
UK government scheme designed to address schools most in need of
urgent repair. The funding programme, known as the 'Aggregator'
will see c.GBP700 million of investment directed into 46 schools
across five batches. The Company's commitment is approximately 10%
of the funding of each of these batches, with the residual funding
being provided by consortium partners the European Investment Bank
and Aviva. The investment will be made progressively over a twelve
month period, as each batch of schools reaches financial close.
In addition, since 30 June 2014, the Company divested a further
asset, the Amiens Hospital PPP project in France, realising a total
of GBP0.3 million. The sale achieved a price in excess of the
Company's valuation, and, consistent with the sales conducted in
January of this year, was opportunistic and allows the Company to
divest a non-strategic, subscale project, further streamlining the
portfolio.
The Company is also pleased to advise that it expects to reach
commercial close by October this year on its investment in the
Lincs OFTO project. The project links the 270MW Lincolnshire
windfarm via transmission cables to the National Grid via 100km of
subsea cables and other related infrastructure including
substations. The Company will take no exposure to electricity
production or price risk, rather is paid a pre-agreed revenue
stream over 20 years which is fully linked to UK inflation (RPI).
The acquisition of the OFTO is expected to reach financial
completion by the end of the current financial year at which time
full details on the Company's financial commitment will be
provided. The Company notes that the investment into the Lincs OFTO
will be sizable and will likely be the Company's largest single
portfolio investment.
Performance against Strategic Priorities - Efficient financial management
The Company achieved a cash dividend to investors that was 1.3
times covered by net operating cash flow for the six months ended
30 June 2014. This compares to 1.4 for the dividend paid during the
same period last year and is consistent with the Company's approach
of having dividends that are fully covered from operating cash
flow. The Company remains confident that it will be able to grow
dividends from operating cash flows in the future.
It remains the Company's policy not to have long-term corporate
level debt and it is anticipated that to the extent that the
corporate facility is drawn to fund acquisitions, this would be a
short-term arrangement and equity funding, by means of a capital
raising, would be sought to repay outstanding debt as soon as
practicable. As at the date of this report, the corporate debt
facility was undrawn.
Outlook
Current Market Environment and Future Opportunities
Overall the Company continues to have a very positive market
outlook. Government support for private sector investment in
infrastructure continues to feature as a high public priority.
Also, secondary market competition is currently at a very high
level, resulting in significant price inflation which augurs well
for the value of the Company's existing assets and the market
perception of infrastructure being a firmly established class of
investment asset
New investment opportunity volumes have remained low in the
period, driven by the Company having been very selective over
assets and being determined to progress the acquisition of assets
that it believes have a clear benefit to the portfolio. Such assets
take longer to develop and reach financial close, but the Company
is pleased to confirm its expectation of reaching financial close
of Lincs OFTO project and its selection as preferred bidder for the
next wave of financing of privately financed schools, later this
year.
Overall, the Company is confident that its approach will be
justified over time and that the Company continues to hold and
build a portfolio of the highest quality.
Current Pipeline
Overall, the Company remains very positive about its prospects,
both in terms of the performance of its existing investments and
the opportunity to add high quality investments to the portfolio
during 2014.
In addition to the anticipated commitment to the Lincs OFTO and
the Priority Schools Building Programme Aggregator projects the
Investment Advisor has a pipeline of other potential investment
opportunities that are at an earlier stage of development, which
subject to further review and other things being equal, will be
progressed as investment opportunities for the Company.
Key areas of current activity within the Company and/or its
Investment Advisor (or associates) include:
> Continued activities in the area of UK offshore transmission
> Other UK and European primary investment opportunities (for
instance in UK healthcare and Irish schools)
> Acquisition of additional investments in projects where the
Company already has an investment. Typically these will arise under
pre-emption and similar rights
> New developments in UK public policy with respect to the financing of PPP projects in the UK
> The growing range of opportunities in Ireland
> Further growth in social infrastructure projects in
Germany, Belgium, Australia and New Zealand which conform to the
existing risk profile within the Company's portfolio
> Opportunities arising in the UK health and social care
sphere where an active pipeline of small to medium sized
opportunities continues to exist
> Appropriately priced proposals from third parties seeking
to dispose of projects meeting the Company's investment criteria
which have synergies with the Company's existing portfolio
Selected specific current opportunities identified by the
Investment Advisor are outlined in the table below. Notwithstanding
the projects listed above, it should be noted that the Company's
performance is not dependent upon making additional investments in
order to deliver its projected returns. Further investment
opportunities will be judged by their anticipated contribution to
overall portfolio returns.
Project Location Estimated Expected Project Status
Investment/ Concession
Gross Capital Length
Value
OFTOs - Lincs UK GBP360 million(1) 20 years Consortium including
the Company named
preferred bidder
=========================== ======================== ================== ============== ===========================
Priority School UK Up to GBP70 20 years Consortium including
Building Aggregator million(2) the Company named
Programme preferred bidder
=========================== ======================== ================== ============== ===========================
Transportation UK c. GBP10 30 + years Consortium including
project million(2) the Company, additional
investment in existing
project
=========================== ======================== ================== ============== ===========================
Healthcare projects UK GBP14 million 25 years Community health project
in the UK. Preferred
bidder status.
=========================== ======================== ================== ============== ===========================
HUB framework UK GBP35 million 25 years HUB framework for
various social community
projects in Scotland.
Preferred bidder status
for both short and
longer-term projects.
=========================== ======================== ================== ============== ===========================
Medium-term opportunities
Judicial Belgium, Germany, GBP500 million c. 25 years The Company has the
Ireland, Netherlands, benefit of short,
Australia medium and long-term
development opportunities
Transportation Netherlands GBP600 million as well as pre-emption
opportunities in respect
Secondary market UK GBP300 million of a number of projects
(through pre-emption) within the existing
portfolio
Transmission UK GBP400 million 20 years Bidding two third
tranche OFTOs with
successful consortium
=========================== ======================== ================== ============== ===========================
The above represents opportunities currently under review by
Amber Infrastructure Group including current bids, preferred bidder
opportunities and estimated value of opportunities to acquire
additional investments under pre-emption/first refusal rights.
There is no certainty these will translate to investment
opportunities for the Company. Unless otherwise stated the values
referenced represent the current unaudited capital value of the
relevant project and therefore includes both debt and equity and is
not necessarily indicative of the eventual acquisition price for,
or the value of, any interest that may be acquired
1 Represents the current unaudited capital value of the project
and includes both debt and equity. The Company is likely to invest
between GBP150 million to GBP200 million into the project on
financial close.
2 Represents the Company's estimated investment value
Rupert Dorey John Whittle
27 August 2014 27 August 2014
Chairman Director
Board of Directors
Background and Experience
======================================================================================================================
Rupert Dorey Giles Frost Claire Whittet John Whittle John Stares
(Chairman)
Aged 54 and Aged 51, resident Aged 59 and Aged 59, John Aged 63 and
a resident in the United a resident is a resident a resident
of Guernsey, Kingdom, Giles of Guernsey, of Guernsey. of Guernsey
Rupert has is a founder Claire has John is a Chartered since 2001,
over 30 years and director over 35 years' Accountant John has 40
of experience of Amber and experience and holds the years business
in financial has worked in the banking Institute of experience.
markets, including in the infrastructure industry. Since Directors Diploma Before moving
17 years at investments 2003 Claire in Company to Guernsey
CSFB where sector for has been a Direction. John worked
he specialised over 20 years. Director and, John chairs for 23 years
in credit related Giles qualified more recently, the NED sub-committee as a management
products. as a solicitor Managing Director of the Guernsey consultant
Rupert's expertise and partner and Co-Head Investment with Accenture
was principally in the law of Rothschild Fund Association. where he held
in the areas firm Wilde Bank International John was previously a wide variety
of debt distribution, Sapte (now Ltd and Director Finance Director of leadership
origination Dentons). of Rothschild of Close Fund roles.
and trading, Giles is a Bank (CI) Ltd. Services, a John is a Fellow
where he held director of Claire was large independent of the Institute
a number of Amber Infrastructure previously fund administrator. of Chartered
senior positions Group Holdings with Bank of Prior to moving Accounts in
at CSFB, including Limited, the Scotland and to Guernsey, England and
Fixed income ultimate holding was latterly John was at Wales, a member
Credit product company of Global Head Price Waterhouse of the Worshipful
coordinator the Investment of Private in London before Company of
for European Advisor to Client Credit embarking on Management
offices and the Company at Bank of a career in Consultants
head of UK and various Bermuda. business services, and a Freeman
Credit and of its subsidiaries. Claire is a predominantly of the City
Rates Sales. member of the telecoms. of London.
Since 2005 Chartered Institute
Rupert has of Bankers
been a Non-Executive in Scotland,
Director for a member of
a number of the Chartered
Hedge Funds, Insurance Institute,
Private Equity a Chartered
& Infrastructure Banker, a member
Funds. of the Institute
Rupert is a of Directors
member of the and holds the
Institute of Institute of
Directors. Directors Diploma
in Company
Direction.
Date of Appointment
2 August 2006 2 August 2006 10 September 6 August 2009 28 August 2013
2012
----------------------- ----------------------- ---------------------- ----------------------- -------------------
Directors' Responsibilities Statement
The Directors are responsible for preparing the Half-yearly
Financial Report in accordance with applicable law and regulations.
The Directors confirm to the best of their knowledge:
a) The condensed set of financial statements have been prepared
in accordance with IAS 34 "Interim Financial Reporting";
b) The interim financial and operating review includes a fair
review of the information required by DTR 4.2.7R (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year); and
c) The interim financial and operating review includes a fair
review of the information required by DTR 4.2.8R (disclosure of
related parties' transactions and changes therein).
By order of the Board
Rupert Dorey John Whittle
27 August 2014 27 August 2014
Chairman Director
Independent Review Report to International Public Partnerships
Limited
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the Half-Yearly Financial Report for the
six months ended 30 June 2014 which comprises the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Equity, the Condensed
Consolidated Balance Sheet, the Condensed Consolidated Cash Flow
Statement and the related Notes 1 to 20. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the
Company are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2014 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey
27 August 2014
Condensed Consolidated Statement of Comprehensive Income
(unaudited)
Six months ended 30 June 2014
Restated
Six months Six months
ended 30 ended
June 30 June
2014 2013
Notes GBP'000s GBP'000s
Interest income 4 15,330 14,053
Dividend income 4 14,175 10,252
Net change in fair value of investments
at fair value through profit or loss 4 13,847 21,001
Realised gain on disposal of investments 4,5 1,161 -
Total investment income 44,513 45,306
Other operating (expense)/income 6 (742) 2,275
========================================= ===== === ================== ===========
Total income 43,771 47,581
Management costs 7 (5,628) (16,258)
Administrative expenses (523) (487)
Transaction costs 8 (314) (153)
Directors' fees (133) (116)
Total expenses (6,598) (17,014)
Profit before finance costs and tax 37,173 30,567
Finance costs (1,258) (721)
Profit before tax 35,915 29,846
Tax credit 9 986 1,372
========================================= ===== === ================== ===========
Profit for the period 36,901 31,218
========================================= ===== === ================== ===========
_____
Earnings per share
From continuing operations
Basic and diluted (pence) 10 4.85 4.20
========================================= ===== ======== ============= ===========
All results are from continuing operations in the period.
All income is attributable to the equity holders of the parent.
There are no non-controlling interests within the Consolidated
Group.
There are no other Comprehensive Income items in the current
period (June 2013: nil). The profit for the period approximates the
Total Comprehensive Income for the period.
Condensed Consolidated Statement of Changes in Equity
(unaudited)
Six months ended 30 June 2014
Other
Share capital distributable Retained
Ordinary reserve earnings Total
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2013 524,393 182,481 228,517 935,391
Total comprehensive income - - 36,901 36,901
Issue of Ordinary Shares 3,191 - - 3,191
Distributions in the period - - (23,390) (23,390)
Balance at 30 June 2014 527,584 182,481 242,028 952,093
============================= ============== ================== ============ ============
Other
Share capital distributable Retained
Ordinary reserve earnings Total
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2012 463,054 182,481 215,419 860,954
Total comprehensive income - - 31,218 31,218
Issue of Ordinary Shares 51,914 - - 51,914
Issue fees applied to
new shares (409) - - (409)
Distributions in the period - (22,375) (22,375)
Balance at 30 June 2013 514,559 182,481 224,262 921,302
============================= ============== ================== ============ ============
Condensed Consolidated Balance Sheet (unaudited)
As at 30 June 2014
30 June 31 December
2014 2013
Notes GBP'000s GBP'000s
Non-current assets
Investments at fair value through
profit or loss 11 856,159 844,382
================================== ===== ========= ===========
Total non-current assets 856,159 844,382
================================== ===== ========= ===========
Current assets
Trade and other receivables 11,13 31,644 13,020
Cash and cash equivalents 11 66,822 80,609
Derivative financial instruments 11 3,249 3,664
Investments at fair value through
profit or loss 5, 11 1,946 -
================================== ===== ========= ===========
Total current assets 103,661 97,293
================================== ===== ========= ===========
Total assets 959,820 941,675
================================== ===== ========= ===========
Current liabilities
Trade and other payables 11,14 7,727 6,284
================================== ===== ========= ===========
Total liabilities 7,727 6,284
================================== ===== ========= ===========
Net assets 952,093 935,391
================================== ===== ========= ===========
Equity
Share capital 15 527,584 524,393
Other distributable reserve 15 182,481 182,481
Retained earnings 15 242,028 228,517
================================== ===== ========= ===========
Equity attributable to equity
holders of the parent 952,093 935,391
================================== ===== ========= ===========
Net assets per share (pence per
share) 16 124.8 123.0
================================== ===== ========= ===========
The Half-yearly Financial Report was approved by the Board of
Directors on 27 August 2014.
They were signed on its behalf by:
Rupert Dorey John Whittle
27 August 2014 27 August 2014
Chairman Director
Condensed Consolidated Cash Flow Statement (unaudited)
Six months ended 30 June 2014
Six months Restated
ended 30 Six months
June ended 30
2014 June 2013
Notes GBP'000s GBP'000s
Profit from operations 36,901 31,218
Adjusted for:
Unrealised exchange loss/(gain) 325 (384)
Gain on investments at fair value through
profit or loss 4 (13,847) (21,001)
Finance costs 1,258 721
Net income tax credit 9 (986) (1,372)
Fair value movement on derivative financial
instruments 6 415 (1,825)
Realised gain on disposal of investments 4 (1,161) -
Working capital adjustments
Decrease/(Increase) in receivables 1,288 (2,773)
Increase in payables 1,049 10,438
25,242 15,022
Income tax received(2) 422 -
============================================= ====== ============ ============
Net cash inflow from operations 25,664 15,022
============================================= ====== ============ ============
Investing Activities
Acquisition of investments at fair value
through profit or loss (20,117) (8,495)
Net repayments from investments at fair
value through profit or loss 3,433 9,400
============================================= ====== ============ ============
Net cash (outflow)/inflow from investing
activities (16,684) 905
============================================= ====== ============ ============
Financing Activities
Proceeds from issue of shares net of issue
costs - 46,124
Dividends paid (20,199) (16,994)
Finance costs paid (2,663) (334)
Net cash (outflow)/inflow from financing
activities (22,862) 28,796
============================================= ====== ============ ============
Net (decrease)/increase in cash and cash
equivalents (13,882) 44,723
Cash and cash equivalents at beginning
of period 80,609 65,776
Exchange loss on cash and cash equivalents 95 155
============================================= ====== ============ ============
Cash and cash equivalents at end of period 66,822(1) 110,654
============================================= ====== ============ ============
(1) Includes restricted cash of GBP23.1 million committed for
investment.
(2) Group tax losses surrendered.
Notes to the Condensed set of Financial
Statements(unaudited)
Six months ended 30 June 2014
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 in the Contacts section. The nature of the Group's
operations and its principal activities are set out in the Company
Overview section.
These financial statements are presented in pounds Sterling as
this is the currency of the primary economic environment in which
the Company operates and represents the functional currency of the
Parent and all values are rounded to the nearest (GBP'000), except
when otherwise indicated.
The financial information for the year ended 31 December 2013
included in this Half-yearly Financial Report is derived from the
31 December 2013 Annual Report and Financial Statements and does
not constitute statutory accounts as defined in The Companies
(Guernsey) Law, 2008. The auditors reported on those accounts:
their report was unqualified, did not draw attention to any matters
by way of emphasis, and did not contain a statement under section
263 (2) and (3) of The Companies (Guernsey) Law, 2008.
Accounting Policies
The annual financial statements of International Public
Partnerships Limited are prepared in accordance with IFRS as
adopted by the European Union. The set of condensed consolidated
financial statements included in this Half-yearly Financial Report
has been prepared in accordance with International Accounting
Standard 34 - 'Interim Financial Reporting' as adopted by the
European Union and should be read in conjunction with the
consolidated financial statements for the year ended 31 December
2013, as they provide an update of previously reported
information.
The same accounting policies, presentation and methods of
computation are followed in this set of condensed financial
statements as applied in the Group's latest annual audited
financial statements for the year ended 31 December 2013. The new
and revised IFRS and interpretations becoming effective in the
period have had no impact on the accounting policies of the
Group.
As disclosed in the annual financial statements for the year
ended 31 December 2013, the Directors determined that International
Public Partnerships Limited is an investment entity as defined by
IFRS 10 and chose to adopt early the amendments to IFRS 10, IFRS 12
and IAS 27 ('Investment entities amendments'). The amendments
require an investment entity as defined by IFRS 10 to consolidate
only those subsidiaries that provide services relevant to its
investment activities, such as management services, strategic
advice and financial support to its investees. Subsidiaries that do
not provide investment-related services are required to be measured
at fair value through profit or loss in accordance with IAS 39
Financial Instruments: Recognition and Measurement. Comparative
information as at 30 June 2013 has been restated to reflect this.
The impact of the application of IFRS 10, IFRS 12 and IAS 27
'Investment entity amendments' on each of the line items in the 30
June 2013 condensed consolidated statement of comprehensive income
(unaudited) is summarised below:
Impact of
change in Restated
As at 30 June accounting 30 June
2013 policy 2013
Interest income 96,770 (82,717) 14,053
Dividend income - 10,252 10,252
Investments at fair value through
profit loss - 21,001 21,001
Revenue 92,039 (92,039) -
Cost of sales (74,988) 74,988 -
Share of results of joint ventures
and associates (2,116) 2,116 -
Other operating income 2,135 140 2,275
Other net gains 1,057 (1,057) -
Finance costs (74,687) 73,966 (721)
Operating expenses (31,720) 31,720 -
Management fees - (16,258) (16,258)
Transaction costs - (153) (153)
Director fees - (116) (116)
Administrative expenses (1,276) 789 (487)
Tax (1,566) 2,938 1,372
Minority interest 1,018 (1,018) -
Net income attributable to equity
holders of the parent 6,666 24,552 31,218
==================================== ============================== =============== ==============
Earnings per share 0.90 3.30 4.20
==================================== ============================== =============== ==============
Going concern
The Directors have reviewed comprehensive cash flow forecasts
prepared by management. Based on those forecasts and an assessment
of the Group's ('parent and consolidated subsidiary entities')
committed banking facilities, they have concluded that it is
appropriate to prepare the financial statements of the Group on a
going concern basis.
In arriving at their conclusion that the Group has adequate
financial resources, the Directors were mindful that the Group had
unrestricted cash of GBP43.7 million as at 30 June 2014. On 24
January 2014, the Company's corporate debt facility was renewed to
GBP175 million (Dec 2013: GBP100 million) which is available for
investment in new and existing projects and is committed until
December 2016. The new facility is forecast to continue in full
compliance with the associated banking covenants. The company also
continues to fully cover costs and distributions from underlying
operational investment cash flows pre new investment outflows.
2. Significant Judgments and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments,
the condensed consolidated financial statements incorporate the
financial statements of the Company and service entities controlled
by the Company up to 30 June 2014. Typically a service entity
provides management services, strategic advice and financial
support to investee entities. Judgment is therefore required in
assessing which entities meet these definitional requirements. The
Directors have reviewed and assessed the criteria applied in the
assessment of services entities based on the guidance in place as
at 30 June 2014 and are satisfied with the resulting conclusion.
Since 30 June 2014 the International Financial Reporting
Interpretations Council has proposed the International Accounting
Standards Board ('IASB') provide further clarity on the accounting
treatment for investment service entities. The IASB has issued an
exposure draft open for consultation, however, it is currently
unclear if following the consultation period there will be any
significant changes to the financial statements.
If future guidance or changes to IFRS 10 require investment
service entities (such as those currently consolidated) to instead
be accounted for at fair value this would have an impact on
disclosures in the Financial Statements and could result in less
transparency for investors. If this occurs, the Directors will
consider whether additional non-audited disclosures would be
beneficial (similar to the investment basis financial information
currently presented).
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 asset. In determining the discount rate and
relevant long-term government bond yields, specific risks and the
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 in International Public Partnerships Limited, the
Group has identified four reportable segments based on the
geographical risk within the Group. The factors used to identify
the Group's reportable segments are centered on the risk free rates
and the maturity of the Infrastructure sector (particularly
PFI/PPP) within each country. Further, foreign exchange and
political risk are identified, as these also determine where
resources are allocated. Management has concluded that the Group is
currently organised into four reportable segments being UK, Europe
(non UK), Australia and North America.
Six months ended 30 June 2014
Europe Non
UK UK North America(2) Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Segmental results
Dividend and interest
income 21,891 3,448 1,679 2,487 29,505
Fair value gain/(loss)
on investments 2,686 5,626 (1,362) 6,897 13,847
Realised gain on
disposal of investments 1,161 - - - 1,161
========================== ========== =========== ================= ========== ==============
Total investment
income 25,738 9,074 317 9,384 44,513
Reporting segment
profit/(loss) (1) 18,619 8,610 288 9,384 36,901
========================== ==========
Segmental financial
position
Investments at fair
value 519,999 200,707 39,727 95,726 856,159
Current assets 103,661 - - - 103,661
========================== ========== =========== ================= ========== ==============
Total assets 623,660 200,707 39,727 95,726 959,820
Total liabilities (7,727) - - - (7,727)
========================== ========== =========== ================= ==============
Net assets 615,933 200,707 39,727 95,726 952,093
========== ==============
Six months ended 30 June 2013 (Restated)
Europe Non
UK UK North America(2) Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Segmental results
Dividend and interest
income 18,701 2,520 439 2,645 24,305
Fair value gain/(loss)
on investments 13,265 11,253 1,492 (5,009) 21,001
======================== ========== =========== ================= ========== ==============
Total investment
income 31,966 13,773 1,931 (2,364) 45,306
Reporting segment
profit/(loss) (1) 15,875 14,408 1,591 (656) 31,218
======================== ==========
Segmental financial
position
Investments at fair
value 505,479 159,598 45,525 100,386 810,988
Current assets 127,292 - - - 127,292
======================== ========== =========== ================= ========== ==============
Total assets 632,771 159,598 45,525 100,386 938,280
Total liabilities (16,978) - - - (16,978)
======================== ========== =========== ================= ==============
Net assets 615,793 159,598 45,525 100,386 921,302
========== ==============
(1) Reporting segment results are stated net of operational
costs including management fees
(2) North American segment currently relates entirely to projects in Canada
Revenue from investee entities, representing more than 10% of
the Group's interest and dividend income approximates GBP12.1
million (June 2013: GBP10.37 million).
4. Investment Income
Restated
Six months ended Six months ended
30 June 30 June
2014 2013
GBP'000s GBP'000s
Interest income
Interest on investments 15,014 13,718
Interest on bank deposits 316 335
================================================= ================ ================
Total interest income 15,330 14,053
================================================= ================ ================
Dividend income 14,175 10,252
Net change in fair value of financial assets
at fair value through profit or loss 13,847 21,001
ReRealised gain on disposal of investments
(see note 5) 1,161 -
Total investment income 44,513 45,306
================================================= ================ ================
All dividend income and interest income has resulted from
transactions with unconsolidated subsidiary entities. Gains on
investments at fair value through profit or loss are also
recognised on investments in unconsolidated subsidiaries.
5. Gain on Disposal of Investments
In two separate transactions, International Public Partnerships
Limited agreed to divest its minority interests in the Hull, Leeds,
Newcastle, Rochdale and Sandwell BSF projects to the Dalmore
Capital Fund, and its minority interest in the Leicester BSF
project to Semperian Investments. As at 30 June 2014, the sales
process is complete on all projects other than Rochdale resulting
in INPP recognising a realized gain of GBP1.16 million. Sales
proceeds have been collected in an unconsolidated subsidiary entity
before 30 June 2014.
The sale of Rochdale is subject to completion of certain waivers
and is therefore recognised as a current asset at fair value
through profit or loss amounting to GBP1.9 million.
6. Other Operating (income)/expense
Restated
Six months ended Six months ended
30 June 30 June
2014 2013
GBP'000s GBP'000s
Fair value loss/(gain) on foreign exchange
contracts 415 (1,825)
Unrealised loss/(gain) on foreign exchange
movements 327 (450)
=========================================== ================ ================
Total other income 742 (2,275)
=========================================== ================ ================
7. Management Costs
Restated
Six months ended Six months ended
30 June 30 June
2014 2013
GBP'000s GBP'000s
Recurring
Base fee 5,628 5,374
Non recurring
Incentive fee - 10,884
============== ================ ================
5,628 16,258
============== ================ ================
Up to 30 June 2013, the Investment Advisor was entitled to an
additional incentive fee. The ability of the investment advisor to
earn future incentive fees was removed as part of the rebased
Investment Advisory Agreement approved by the Board on 29 August
2013, as detailed in note 17.
8. Transaction Costs
Restated
Six months
Six months ended ended
30 June 30 June
2014 2013
GBP'000s GBP'000s
Investment advisory costs 297 131
Legal and professional costs 17 22
============================= ================ ==========
314 153
============================= ================ ==========
Details of investment advisory costs paid are provided in note
17.
9. Tax
Restated
Six months Six months
ended ended
30 June 30 June
2014 2013
GBP'000s GBP'000s
Current tax:
UK corporation tax - current year (1,135) (1,417)
Overseas tax - current year 149 45
Tax credit for the period (986) (1,372)
================================== ========== ==========
Reconciliation of effective tax rate
Restated
Six months ended Six months
30 June ended
2014 30 June
GBP'000s 2013
GBP'000s
Profit before tax 35,915 29,846
================================================ ================= ===========
Expected tax on profit at Guernsey corporation - -
rate - 0% (2012: 0%)
Application of overseas tax rates 149 45
Group tax losses surrendered to unconsolidated
investment entities (1,135) (1,417)
Tax credit for the year (986) (1,372)
================================================ ================= ===========
The income tax credit above does not represent the full tax
position of the entire group as the investment returns received by
the Company are net of tax payable at the underlying investee
entity level. As a consequence of the adoption of IFRS 10
investment entity consolidation exemption, underlying investment
entity tax is not consolidated within these financial statements.
Total forecasted corporation tax payable by the Group's underlying
investments is GBP724 million over their full concession lives.
10. Earnings per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Restated
Six months Six months
ended ended
30 June June 30
2014 2013
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 36,901 31,218
====================================================== =========== ==============
Number Number
====================================================== =========== ==============
Number of shares
-----------
Weighted average number of Ordinary Shares for
the purposes of basic and diluted earnings per
share 760,877,969 743,276,556
Basic and diluted (pence) 4.85 4.20
=========================================================== =========== ===========
The denominator for the purposes of calculating both basic and
diluted earnings per share is the same, as the Company has not
issued any share options or other instruments that would cause
dilution.
11. Financial Instruments
Financial assets and financial liabilities are recognised when
contractual provisions of the instrument are entered into.
Financial assets are derecognised when the contractual rights to
the cash flows from the instrument expire or the asset is
transferred and the transfer qualifies for derecognition in
accordance with IAS 39 'Financial Instruments: Recognition and
Measurement'. Financial liabilities are derecognised when the
obligation is discharged, cancelled or expired.
11.1 Financial assets
31 Dec
30 June 2014 2013
GBP'000s GBP'000s
Non-current assets
Investments at fair value through profit and loss(1) 856,159 844,382
Current assets
Trade and other receivables 31,644 13,020
Cash and cash equivalents 66,822 80,609
Investments at fair value through profit and loss 1,946 -
Derivative financial instruments
Currency swaps 3,249 3,664
===================================================== ============ =========
Total financial assets 959,820 941,675
===================================================== ============ =========
(1) Includes fair value of investments in associates amounting
to GBP1.8 million (Dec 2013: GBP1.8 million).
11.2 Financial liabilities
30 June 2014 31 Dec 2013
GBP'000s GBP'000s
Financial liabilities
Trade and other payables 7,727 6,284
Total financial liabilities 7,727 6,284
================================================= ============ ===========
The carrying value of other liabilities is considered to
approximate their fair value.
11.3 Financial risk and management objectives
The Group's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Group's
activities, but it is managed through a process of ongoing
identification, measurement and monitoring, subject to risk limits
and other controls. The process of risk management is critical to
the Group's continuing profitability. The Group is exposed to
market risk (which includes currency risk, interest rate risk and
inflation risk), credit risk and liquidity risk arising from the
financial instruments it holds. The Group's Investment Advisor is
responsible for identifying and controlling risks. The Board of
Directors supervises the Investment Advisor and is ultimately
responsible for the overall risk management of the Group.
The Group's risk management framework and approach is set out
within the Strategic Report in the 31 December 2013 annual
financial statements.
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 losses are disclosed in the fair value hierarchy section
11.4.
The Company'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, investment performance may be impaired.
The level of inflation linkage across the investments held by the
Company 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 investee
entities are either hedged through interest rate swap arrangements
or are fixed rate loans. It is generally a requirement under a
PFI/PPP concession that any borrowings are matched to the life of
the concession. Hedging activities are aligned with the period of
the loan, which also mirrors the concession period and are highly
effective. The Group's corporate facility is unhedged on the basis
it is utilised as an investment bridging facility and 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.
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 carrying amounts of the Group's foreign
currency denominated monetary financial instruments at the
reporting date are set out in the table below:
30 June
2014 31 Dec 2013
GBP'000s GBP'000s
Cash
Euro 753 1,367
Canadian Dollar 702 489
Australian Dollar 1 1
================================================= ========= ===========
1,456 1,857
Investments at fair value through profit or loss
Euro 200,707 159,598
Canadian Dollar 39,727 45,525
Australian Dollar 95,726 100,386
================================================= ========= ===========
336,160 305,510
================================================= ========= ===========
Total 337,616 307,367
================================================= ========= ===========
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.
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 only with
creditworthy counterparties at the underlying entity level. PFI/PPP
concessions are entered into with government, quasi government, and
other public or equivalent low risk bodies.
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 redemption of capital
rights. Ultimate responsibility for liquidity risk management rests
with the Board of Directors. The Group manages liquidity risk by
maintaining adequate cash reserves, banking facilities and reserve
borrowing facilities and by continuously monitoring the forecast
and actual cash flows. Cash flow forecasts assume full availability
of underlying infrastructure to the public sector entities. Failure
to maintain assets available for use or operating in accordance
with pre-determined performance standards may entitle the public
sector to stop (wholly or partially) paying the income that the
Group has projected to receive.
The Directors review the underlying performance of each
investment on a quarterly basis, allowing asset performance to be
monitored. Contractual mechanisms also allow for significant
pass-down of unavailability and performance risk to
sub-contractors.
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, currency forward contracts and
investments at fair value through profit or loss. As at 30 June
2014, the Group's level 2 financial instruments include currency
forward contracts amounting to an asset of GBP3.2 million (Dec
2013: asset of GBP3.7 million) and investments at fair value
through profit or loss amounting to GBP1.9 million (Dec 2013:
GBPnil).
During the half year, the Company decided to dispose of
investments in two minority shareholdings and had agreed a
transaction value of GBP1.9 million with a condition precedent. The
transaction value represents an observable input to the valuation
and accordingly these holdings are now classified as level 2
investments. Transfers between levels of the fair value hierarchy,
are deemed to have occurred at the beginning of the reporting
period.
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 which
are classified at fair value through profit or loss. At 30 June
2014, fair value of financial instruments classified as level 3
totalled GBP856.2 million (Dec 2013: GBP844.4 million).
Financial instruments are classified as 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 of
the Group. The valuation of unlisted equity and debt investments is
performed on a quarterly basis by the Investment Advisor and
reviewed by the senior members of the Investment Advisor. The
valuations are also subject to quality assurance procedures
performed by the Investment Advisor. The Investment Advisor
verifies the major inputs applied in the latest valuation by
agreeing the information in the valuation computation to relevant
project financial models and market information. In addition, the
accuracy of the computation is tested. The latest valuation is also
compared with the valuations in the preceding semi-annual and
annual reporting periods. The senior members of the Investment
Advisor consider the appropriateness of the valuation methods and
inputs. On a quarterly basis, after the checks above have been
performed the Investment Advisor presents the valuation results to
the Audit and Risk Committee. This includes a discussion of the
major assumptions used in the valuations, with an emphasis on the
more significant investments. Any changes in valuation methods and
assumptions are discussed and agreed with the Group's Audit
Committee.
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 Advisor and
adjusted where appropriate.
Projected net future cash flows:
Cash flow forecasts for each underlying investment are generated
through detailed project specific financial models. Financial
models forecast the project related cash flows for the full term of
the underlying service concession. 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 estimation. These models also forecast the
dividend, shareholder loan interest payments, capital repayments
and senior debt repayments (where applicable) expected from the
underlying investments. Key macroeconomic inputs and assumptions
utilised in projecting the Group's net future cash flows
include:
Europe
UK Non UK North America Australia
========================= ================ ================= ======================= ===================
Inflation 2.75% 2.00% 2.00% 2.50%
12.50% -
Long-term tax 20.00% 34.00% 25.00% - 26.50% 30.00%
Foreign exchange rates N/A 1.17 1.82 1.92
Long-term deposit rates 3.50% 3.00% 3.00% 4.50%
========================= ================ ================= ======================= ===================
Discount rate:
The discount rate used for valuation of each investment is the
aggregate of the following:
> yield on government bonds with an average life equivalent
to the weighted average concession length of the Group, issued by
the national government for the location of the asset ('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;
> a further adjustment reflective of market based transaction
valuation evidence for similar assets.
Over the period, the weighted average government bond rate
decreased by 0.08%. This was offset by a 0.11% increase in the
weighted average project premium to reflect the transactions
observed in the market and the decrease in risk premia relating to
construction assets that are nearing or have reached
completion.
Valuation Methodology 30 June 2014 31 December Movement
2013
============================= ============= ============ =========
Weighted Average Government
Bond Rate 3.38% 3.46% (0.08%)
Weighted Average Project
Premium 4.37% 4.26% 0.11%
============================= ============= ============ =========
Weighted Average Discount
Rate 7.75% 7.72% 0.03%
============================= ============= ============ =========
Weighted Average Discount
Rate(1) 8.21% 8.20% 0.01%
============================= ============= ============ =========
(1) Weighted average discount rate on risk capital only (equity
and subordinated debt)
Reconciliation of Level 3 fair value measurements of financial
assets:
30 June 2014
GBP'000s
Balance at 1 January 2014 844,382
Additional investments during the period 20,117
Investments disposed of recognised as receivables (16,808)
Investments at fair value through profit or loss -
current portion (1,946)
Net repayments during the period (3,433)
Total gains in comprehensive income 13,847
==================================================== ================
Balance at 30 June 2014 856,159
==================================================== ================
11.5 Sensitivity analysis
The valuation requires management to make certain assumptions in
relation to unobservable inputs to the model, the significant
assumptions along with sensitivity analysis are provided below:
+ change - change
Weighted average in fair in fair
rate applied value of value of
in base case investment investment
Significant assumptions valuations Sensitivity factor GBP'000 GBP'000
========================== ==================== ============================== =============== ==============
Discount rate 7.77% +/- 1.0% (75,454) 88,141
========================== ==================== ============================== =============== ==============
Inflation rate (overall) 2.51% +/- 1.0% 68,734 (62,187)
========================== ==================== ============================== =============== ==============
UK (RPI) 2.75% +/- 1.0% 22,412 (20,339)
Europe (CPI) 2.00% +/- 1.0% 34,548 (28,243)
North America (CPI) 2.00% +/- 1.0% 1,326 (1,160)
Australia (CPI) 2.50% +/- 1.0% 10,448 (12,445)
========================== ==================== ============================== =============== ==============
FX rate n/a +/- 10% 37,366 (30,571)
Tax rate 23.98% +/- 1.0% (6,243) 6,929
Deposit rate 3.47% +/- 1.0% 14,138 (14,556)
========================== ==================== ============================== =============== ==============
12. Investment Acquisitions
Consideration Investment
Date of acquisition Description GBP'000s post acquisition
===================== =========================================== ============== ==================
The Group acquired an additional 48%
13 January interest in the Kent BSF education
2014 project. 7,200 58%
The Group acquired 10% of the share
15 January capital in Inspiredspaces Wolverhampton
2014 (Project Co 2) Ltd 453 10%
The Group acquired a controlling interest
in the new office building of the
27 January Federal German Ministry of Education
2014 and Research in Berlin (BMBF). 9,687 97%
The Group acquired an additional 72%
27 June 2014 interest in BSF Nottingham phase 2. 2,777 82%
20,117
================================================================== ============== ==================
The BMBF interests were acquired by an unconsolidated subsidiary
entity of the Company from an associate of the Investment Advisor
on 27 January 2014.
13. Trade and Other Receivables
30 June 2014 31 Dec 2013
'000s '000s
Accrued interest receivable 8,416 8,659
Other debtors 23,228 4,361
============================= ================ ===============
31,644 13,020
============================= ================ ===============
Other debtors include GBP16.8 million receivable from an
unconsolidated subsidiary entity upon disposal of an investment and
GBP3.4 million (Dec 2013: GBP3.7 million) of receivables from
unconsolidated subsidiary entities for surrender of Group tax
losses.
14. Trade and Other Payables
30 June 2014 31 Dec 2013
GBP '000s GBP '000s
Accrued management fee 5,628 5,446
Other creditors and accruals 2,099 838
============================== ================ ===============
7,727 6,284
============================== ================ ===============
15. Share Capital and Reserves
Share capital
30 June 31 December
2014 2013
shares shares
'000s '000s
In issue 1 January 760,642 711,582
Issued for cash - 37,258
Issued as a scrip dividend alternative 2,516 6,791
Issued to the Investment Advisor as an incentive
fee alternative - 5,011
Closing shares in issue - fully paid 763,158 760,642
====================================================== ========= ===========
30 June 31 December
2014 2013
GBP'000s GBP'000s
Opening balance 1 January 524,393 463,054
====================================================== ========= ===========
Issued for cash (excluding issue costs) - 46,495
Issued as a scrip dividend alternative 3,191 8,675
Issued to the Investment Advisor as an incentive
fee alternative - 6,584
Total share capital issued in the period 3,191 61,754
====================================================== ========= ===========
Costs on issue of Ordinary Shares - (415)
====================================================== ========= ===========
Closing balance 527,584 524,393
====================================================== ========= ===========
At present, the Company has one class of Ordinary Shares which
carry no right to fixed income.
Other distributable reserve
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 in order to provide a distributable reserve
to repurchase its shares if and when it is considered beneficial to
do so by the directors. Following court approval, the distributable
reserve account was created. The balance in the distributable and
reserve account as at 30 June 2014 is GBP182.5 million (Dec 2013:
GBP182.5 million).
Retained earnings
30 June 31 December
2014 2013
GBP'000s GBP'000s
Opening balance 228,517 215,419
Net profit for the period 36,901 58,634
Dividends paid (23,390) (45,536)
========================== ========= ===========
Closing balance 242,028 228,517
========================== ========= ===========
Distributions
The Board is satisfied that, in every respect, the solvency test
as required by the Companies (Guernsey) Law, 2008, was satisfied
for the proposed dividend and the dividend paid in respect of the
period ended 30 June 2014.
The Board approved an interim distribution of 3.15p per share (6
months to June 2013: 3.075p per share).
Capital risk management
The Group seeks to efficiently manage its financial resources to
seek to ensure that it is able to continue as 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 facility, cash and cash equivalents and
equity attributable to equity holders of the parent, comprising
issued capital, reserves and retained earnings. The Group aims to
deliver its objective by investing available cash and using
leverage whilst maintaining sufficient liquidity to meet on-going
expenses and dividend payments.
The Group's Investment Advisor reviews the capital structure on
a semi-annual basis. As part of this review, the Investment Advisor
considers the cost of capital and the risks associated with each
class of capital.
16. Net Assets per Share
30 June
2014 31 Dec 2013
GBP'000s GBP'000s
Net assets attributable to equity holders of
the parent 952,093 935,391
============================================== ============== ===========
Number Number
============================================== ============== ===========
Number of shares
Ordinary shares outstanding at the end of the
period 763,158,094 760,641,615
============================================== ============== ===========
Net assets per share(pence per share) 124.8 123.0
============================================== ============== ===========
17. Related Party Transactions
During the period, Group companies entered into certain
transactions with related parties that were not members of the
Group but were 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 Advisor, Amber Fund
Management Limited ('AFML').
Under the Investment Advisory Agreement ('IAA'), AFML was
appointed to provide investment advisory services to the Company
including advising the Company as to the strategic management of
its portfolio of investments.
AFML is a subsidiary company of Amber Infrastructure Group
Holdings Limited ('Amber Group'), in which Mr. G Frost is a
Director and also a substantial shareholder.
As 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
Company); and the majority of other companies in which the Company
indirectly has an investment. The transactions with the Amber Group
are considered related party transactions under IAS 24 'Related
Party Disclosures'.
The director's fees for Mr. G Frost's directorship of the
Company are paid to his employer, Amber Infrastructure Limited.
The amounts of the transactions in the period 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
6 months 6 months
to 30 June to 30 June At 30 June At 31 Dec
2014 2013 2014 2013
GBP'000s GBP'000s GBP'000s GBP'000s
Investment advisory fee/incentive
profit share 5,628 5,373 5,628 5,446
Incentive fee(2) - 10,885 - -
=================================== =============== =============== ================ =============
International Public Partnerships
GP Limited 5,628 16,258 5,628 5,446
Amber Fund Management Limited
(1) 314 153 - -
=================================== =============== =============== ================ =============
Total 5,942 16,411 5,628 5,446
=================================== =============== =============== ================ =============
(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
(2) 60% settled in shares as disclosed later in this note
On 24 January 2014 the Company, through an unconsolidated
subsidiary entity, acquired an interest in BMBF from an associate
of the Investment Advisor as disclosed in note 12.
Investment advisory and incentive fee arrangements
AFML, the Investment Advisor, is a related party of the Group.
The aggregate fees payable to AFML in its capacity as Investment
Advisor includes both base and incentive fees, however the amount
is reduced by any base or incentive profit share that has been paid
(or is due and payable) to International Public Partnerships GP
Limited. The amount paid to AFML for the six months ended 30 June
2014 was GBP314,233 (June 2013 - GBP152,719) and relates to
advisory fees on new acquisitions.
Investment advisory fees/incentive profit share payable during
the period are calculated as follows:
For existing construction assets
> 1.2% per annum of gross asset value of investments bearing construction risk
> For existing fully operational assets
> 1.2% per annum of the gross asset value ('GAV') excluding
uncommitted cash from capital raisings up to GBP750 million
> 1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion
> 0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) value exceeds GBP1.5 billion
> 1.5% asset origination fee of the value of new investments
Investment advisory fees in connection with new acquisitions are
charged at a rate of 1.5% of the value of new acquisitions.
Changes to investment advisory and incentive fee
arrangements
> Up to 30 June 2013, AFML was also entitled to an Incentive
Fee in respect of each Incentive Period equal to 20% of the excess
(if any) of the Ordinary Share Return over the Benchmark Return (as
defined in the IAA) in the Incentive Period, provided that the
Incentive Fee was only payable if and to the extent that the change
in the Ordinary Share Return Index in the relevant Incentive Period
was greater than the change in the Benchmark Return Index.
> The incentive fee was removed as part of the rebased IAA
which was approved by the board on 29 August 2013.
> At the same time:
o The Company and the Investment Advisor agreed that
retrospectively from 30 June 2013, the Base Fee payable to the
Investment Advisor would reduce to the levels as set out above,
which are currently in force.
o Provisions in relation to the termination of the Investment
Advisor in the IAA were amended to replace the existing mechanism
for early termination which was linked to the relative performance
of the Company's shares to UK gilts, with (i) new mechanism
allowing for early termination if less than 95% of the Company's
assets are available for use for certain periods and the Investment
Advisor fails to implement a remediation plan agreed with the
Company, and (ii) enhanced rights for the Company to monitor and
manage Amber in order to reflect certain changes to the Listing
Rules that were effective from 1 August 2013. 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 Investment Advisory Agreement.
Incentive fee payments - partly settled in shares
No incentive fees are payable since the change to the IAA
highlighted above. Details of Incentive fee payments that have been
part settled through issue of Ordinary Shares by the Company
historically are provided below:
% of fee paid Issue price
through issuance Number of per share
Paid of New Ordinary (pence)
Payable at Ordinary Shares Shares issued
================== ============= ================== =============== ============
31 December 2009 05 May 2010 40% 2,991,220 114.10
13 October
30 June 2013 2013 60% 5,011,159 131.39
This shareholding helps strengthen the alignment of interests
between the Company and the Investment Advisor. As at 30 June 2014,
Amber Infrastructure Limited still held these shares and received
dividends thereon.
Transactions with directors
John Whittle acquired an additional 931 shares in the 6 month
period ended 30 June 2014. None of the other Directors acquired
additional shares in the Company during the period.
18. Contingent Liabilities
There were no contingent liabilities at the date of this
report.
19. Events after Balance Sheet Date
Date Description
============= =========================================================
25 July 2014 The Group disposed of its investment in Medicaste Amiens
SAS for GBP0.3 million
============= =========================================================
20. Other Disclosures
Standards issued but not yet effective
Standards issued and 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 those standards when they become effective.
> IFRS 9 Financial Instruments: Classification and
Measurement (effective on or after 1 January 2018)
> IFRS 15 Revenue form Contracts with Customers (effective on or after 1 January 2017)
New standards that the Group has applied from 1 January 2014
Standards and amendments to standards that became effective
during the period are listed below. These have no impact on the
financial statements for the Group.
> IAS 32 Offsetting Financial Assets and Financial Liabilities (amendment)
> IAS 36 Recoverable Amount Disclosures for Non-Financial Assets (amendment)
> IAS 39 Novation of Derivatives and Continuation of Hedge Accounting (amendment)
> IFRIC 21 Levies
Unconsolidated subsidiaries
A list of the significant investments in unconsolidated
subsidiaries, including the name, country of incorporation as at 30
June 2014 and proportion of ownership is shown below:
Place of incorporation Proportion of
(or registration) ownership
Name and operation interest %
============================================ ======================= =============
Abingdon Limited Partnership UK 100
Access Justice Durham Limited Canada 100
AKS Betriebs GmbH & Co. KG Germany 98
BBPP Alberta Schools Limited Canada 100
BPSL No. 2 Limited Partnership UK 100
Building Schools for the Future Investments
LLP(1) UK 100
Calderdale Schools Partnership UK 100
CHP Unit Trust Australia 100
Derbyshire Courts Limited Partnership UK 100
Derbyshire Schools UK 100
Derbyshire Schools Phase Two Partnership UK 100
Federal German Ministry of Education
& Research Berlin Germany 97
H&W Courts Limited Partnership UK 100
INPP Infrastructure Germany GmbH & Co.
KG Germany 100
Inspire Partnership Limited Partnership UK 80
IPP CCC Limited Partnership Ireland 100
Inspiredspaces Durham (Project Co 1)
Limited UK 91
Inspiredspaces Nottingham (Project Co
1) Limited UK 82
Inspiredspaces Nottingham (Project Co
2) Limited UK 82
Inspiredspaces STaG (Project Co 1) Limited UK 87
Inspiredspaces STaG (Project Co 2) Limited UK 87
Inspiredspaces Wolverhampton (Project
Co 1) Limited UK 82
Inspiredspaces Kent (Project Co 1) Limited UK 58
IPP (Moray Schools) Holdings Limited UK 100
Maesteg School Partnership UK 100
Medicaste Amiens SAS France 95
Norfolk Limited Partnership UK 100
Northampton Schools Limited Partnership UK 100
Northern Diabolo N.V. Belgium 100
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
============================================ ======================= =============
(1) Holds direct and indirect investments in a portfolio of UK
schools PFI concession entities.
The entities listed above in aggregate represent 83.62% (2013:
78.68%) 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.
Consolidated subsidiaries
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
IPP Bond Limited UK 100
IPP Investments Limited Partnership UK 100
========================================== ======================= =============
Contacts
Investment Advisor Auditor Corporate Brokers
Amber Fund Management Ernst & Young LLP Numis Securities Limited
Limited Royal Chambers The London Stock Exchange
1(St) Floor St Julian's Avenue Building
Two London Bridge St Peter Port 10 Paternoster Square
London Guernsey London
SE1 9RA Channel Island EC4M 7LT
GY1 4AF
Registered Office Legal Advisor Public Relations
Heritage Hall Carey Olsen FTI Consulting
PO Box 225, Le Marchant PO Box 98, Carey House 200 Aldersgate
Street Les Banques Aldersgate Street
St Peter Port Guernsey London
Guernsey Channel Islands EC1A 4HD
Channel Islands GY1 4BZ
GY1 4HY
Administrator and Company Corporate Banker
Secretary
Heritage International Royal Bank of Scotland
Fund Managers Limited International
Heritage Hall 1 Glategny Esplanade
PO Box 225, Le Marchant St Peter Port
Street Guernsey
St Peter Port Channel Islands
Guernsey GY1 4BQ
Channel Islands
GY1 4HY
This information is provided by RNS
The company news service from the London Stock Exchange
END
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