International Public Partnership Ld Full Year -16-
March 26 2015 - 3:01AM
UK Regulatory
Whilst the Company has applied mitigation processes as
highlighted below it is unlikely that the techniques applied will
entirely eliminate the risk.
Risk Description Mitigation/Approach
Macro-economic Risks
==============================================================================================
Inflation Inflation may be higher or The Company monitors the effect
lower than expected. Investment of inflation on its portfolio
cash flows are positively through its twice yearly valuation
correlated to inflation therefore process and reports on this to
increases/decreases to inflation investors. The Company also provides
would impact positively or sensitivities to investors indicating
negatively on Company cash the projected impact on the Company's
flows. Negative inflation NAV of a number of alternative
(deflation) will reduce the inflation scenarios, offering
Company's cash flows in absolute investors an ability to anticipate
terms. the likely effects of some inflation
The Company's portfolio has scenarios on their investment.
been developed in anticipation
of continued inflation at
or above the levels used in
the Company'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. Some investments
have no inflation linkage
and some have a geared exposure
to inflation. The consequences
of higher or lower levels
of inflation than that assumed
by the Company will not be
uniform across its portfolio.
The Company is also exposed
to the risk of changes to
the manner in which inflation
is calculated by the relevant
authorities.
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Foreign The Company indirectly holds The Company uses forward foreign
Exchange part of its investments in exchange contracts to mitigate
Movements entities in jurisdictions the risk of short-term volatility
with currencies other than in foreign exchange on significant
Sterling but borrows corporate investment returns from overseas
level debt, reports its NAV investments. These may not be
and pays dividends in Sterling. fully effective and rely on the
Changes in the rates of foreign strength of the counterparties
currency exchange are outside to those contracts to be enforceable.
the control of the Company The Company monitors the effect
and may impact positively of foreign exchange on its portfolio
or negatively on Company cash through its twice yearly valuation
flows and valuation. process and reports this to investors.
The Company also provides sensitivities
to investors indicating the projected
impact on the Company's NAV of
a limited number of alternative
foreign exchange scenarios, offering
investors an ability to anticipate
the likely effects of some foreign
exchange scenarios on their investment.
=========== ====================================== =========================================
Risk Description Mitigation Approach
Macro-economic Risks continued
Interest Changes in market rates of interest In determining the discount
Rates can affect the Company in a rate used to value the Company's
variety of different ways: investments the Company generally
Valuation Discount Rate uses nominal interest rates.
The Company, in valuing its Where the Company's cash investment
investments, uses a discounted inflows are linked to inflation,
cash flow methodology. Changes higher interest rates can often
in market rates of interest be precipitated by higher inflation
(particularly government bond expectations, and therefore
rates) will directly impact any inflation linkage may partly
the discount rate used to value mitigate the effect of interest
the Company's future projected rate changes.
cash flows and thus its valuation.
Higher rates will have a negative
impact on valuation while lower
rates will have a positive impact.
======================================== ==========================================
Corporate Debt Facility In the event that the interest
The Company has a corporate rate increases then the Company
level debt facility that may has the option of repaying
be drawn from time to time. that facility at any time with
Interest is charged on a floating minimal notice, providing sufficient
rate basis, so higher than anticipated funds are available.
interest rates will increase
the cost of this facility potentially
adversely impacting on cash
flow and the Company's valuation.
======================================== ==========================================
Cash Holdings Interest rate risks cannot
The Company and underlying investment be fully mitigated against.
entities typically choose or In respect of deposit interest
can be required to hold various rates the Company monitors
cash balances, including contingency the effect of historical and
reserves for future costs (such projected interest rates on
as major lifecycle maintenance its portfolio through its twice
or debt service reserves). These yearly valuation process and
are generally held on interest reports this to investors.
bearing accounts and under the The Company also provides sensitivities
contractual terms applicable to investors indicating the
to certain investments which projected impact on the Company's
in many cases are projected NAV of a limited number of
to be held for the long term. alternative scenarios, offering
The Company assumes that it investors an ability to anticipate
will earn interest on such deposits the likely effects of some
over the long term. Changes deposit interest rate scenarios
in interest rates may mean that on their investment.
the actual interest receivable
by the Company is less than
projected. If the Company receives
less interest than it projects
this will impact cash flows
and NAV adversely.
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Taxation Change in Legislation The diversified jurisdictional
Changes in tax legislation across mix of the Company's investments
the multi-jurisdictions in which may provide some mitigation
the Company has investments to tax changes in any one jurisdiction.
can reduce returns impacting
on the Company's cash flow and
valuation.
======================================== ==========================================
Change in Tax Rates The Company believes it takes
Most recently the Company has a conservative approach to
benefited from reductions in tax planning. The Board monitors
the headline rates of UK corporation changes in tax legislation
tax positively impacting its and takes advice as appropriate
UK based investments, however from external, independent,
there is a risk that this could qualified advisors. Whilst
be reversed if there were a the Board and the Company\'s
change in government or policy. Investment Adviser seek to
Such changes may occur in all minimise the impact of adverse
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