International Public Partnership Ld Full Year -10-
March 26 2015 - 3:01AM
UK Regulatory
Australia 4.50% 4.50%
Europe 3.00% 3.00%
Canada 3.00% 3.00%
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Foreign Exchange GBP/AUD 2.03 2.01
GBP/CAD 1.84 1.78
GBP/EUR 1.23 1.16
=========================== =========== ===================== =====================
Tax Rate UK 20%(2) 20%(2)
Australia 30% 30%
Europe Various (no change) Various (no change)
Canada Various (no change) Various (no change)
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(1) The portfolio valuation assumes current deposit rates are
achieved until 31 December 2017 before adjusting to the long term
rates noted in the table above
(2) The corporation taxation rate will reduce 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 plus 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 of the Company's portfolio (81.9%) is comprised of
investments where the Company only holds the Risk Capital in the
underlying projects. The remaining portfolio (18.1%) is comprised
of investments where the Company holds both the Risk Capital and
the senior debt. In order to provide investors with a greater level
of transparency, the Company publishes both a Risk Capital weighted
average discount rate and a portfolio weighted average discount
rate across all investments including senior debt interests.
The current discount rates used by the Company are provided 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 across competitor investment portfolios or funds is
only meaningful if there is a comparable level of confidence in the
quality of forecast cash flows (and assumptions) the rates are
applied to; the risk and return characteristics of different
investment portfolios are understood; and the depth and quality of
asset management employed to manage risk and deliver expected
returns are identical across the compared portfolios.
Movement
31 December
2013 -
31 December 30 June 31 December 31 December
Metric 2014 2014 2013 2014
Weighted Average Government
Bond Rate (Nominal) - portfolio
basis - Risk Capital and
senior debt 2.79% 3.38% 3.46% (0.67%)
================================== ============ ======== ============ =============
Weighted Average Project
Premium over Government Bond
Rate - Risk Capital and senior
debt (Nominal) 4.69% 4.37% 4.26% 0.43%
================================== ============ ======== ============ =============
Weighted Average Discount
rate
- Portfolio basis - Risk
Capital and senior debt 7.48% 7.75% 7.72% (0.24%)
================================== ============ ======== ============ =============
Weighted Average Discount
rate
- Risk Capital only(1) 7.90% 8.21% 8.20% (0.30%)
================================== ============ ======== ============ =============
NAV per share 127.0p 124.8p 123.0p 4.0p
================================== ============ ======== ============ =============
(1) Risk Capital is equity and subordinated debt investments.
The change in the weighted average discount rate in the period
is principally due to substantial reductions in the average
government bond rates. However, this was partly offset by an
increase in the weighted average project premium which took into
account (i) an increase in the project premium reflecting
observable market based evidence which does not support the full
reduction in government bond yields, especially in Europe which has
seen some of the largest negative bond yield movements and (ii)
assets moving out of the construction or defects liability phase
and towards full operations.
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. The
Company considers, however, that investors may also find a
comparison with inflation adjusted government bond rates helpful.
This is the case due to the significant level of inflation linkage
inherent in the Company's anticipated cash flows.
Real (i.e. inflation adjusted) bond rates are included in the
table below. Using these real rates on a weighted average basis
leads to a 'real' portfolio rate of (0.05%) with the difference
between the 'real' and 'nominal' rates reflecting in theory the
implied rates of future expected inflation. In some countries this
is higher than those currently being assumed to calculate the
Company's estimate of NAV. This information is provided to enable
investors to make approximate comparisons of the projected return
of the Company with that available from government index linked
bonds. It should be noted that any such comparison can only be
estimated due in part to the fact that the Company's cash flows are
not fully linked to inflation and the Company's cash flows already
assume a core level of inflation as set out in the section headed
Macroeconomic Assumptions on page 22.
31 December 2014 31 December 2013 Movement (2013
-2014)
Country Nominal Real Nominal Real Nominal Real
UK 2.85% (0.36%) 3.34% 0.01% (0.49%) (0.37%)
==================== ========= ======== ========== ======= ======== ========
Australia 3.80% 1.41% 4.48% 1.91% (0.68%) (0.50%)
==================== ========= ======== ========== ======= ======== ========
Europe(1) 2.17% 0.25% 3.39% 1.32% (1.22%) (1.07%)
==================== ========= ======== ========== ======= ======== ========
Canada 2.56% 0.57% 3.03% 0.96% (0.47%) (0.39%)
==================== ========= ======== ========== ======= ======== ========
Portfolio weighted
average 2.79% (0.05%) 3.46% 0.53% (0.67%) (0.58%)
==================== ========= ======== ========== ======= ======== ========
(1) Includes Belgium, Germany, Ireland, and Italy. Note
estimates only for Belgium and Ireland as no index linked bonds
available.
Portfolio level assumptions underlying NAV calculation
The Company is aware that there are subtle differences in
approach to the valuation of portfolios of investments among
different infrastructure funds. 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 above) continue to be applicable
> That the contracts under which payments are made to the
Company and its subsidiaries remain on track and are not terminated
before their contractual expiry date
> That where deductions are suffered under such contracts
they are fully passed down to subcontractors
> That where possible lifecycle costs 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 an 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
four year forward looking projections
Sensitivities for key macroeconomic assumptions and discount
rates
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