TIDMINPP
RNS Number : 2271X
International Public Partnership Ld
27 August 2015
27 August 2015
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015
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 2015.
Financial Highlights (as at 30 June 2015 unless otherwise
stated)
-- Continued Net Asset Value ('NAV') growth of 1.5% to
GBP1,077.7 million (31 December 2014: GBP1,062.1 million) with NAV
per share increasing 1.3% to 128.6 pence (31 December 2014: 127.0
pence)(1)
-- Half year 2015 fully covered cash dividend of 3.225 pence per
share declared (30 June 2014: 3.15 pence per share)(2)
-- Minimum target dividend for 2015 financial year of 6.45 pence
per share and 2016 of 6.65 pence per share, an average annual
increase of c.2.5%(3)
-- IFRS profit before tax of GBP38.4 million (30 June 2014: GBP35.9 million)
-- Total Shareholder Return since listing in 2006 of 104.4%,
compared to 52.2% on the FTSE All Share over that same
period(4)
-- Successful renegotiation of the Company's corporate debt
facility from GBP175 million to GBP300 million with substantially
reduced margins and fees charged
Rupert Dorey, Chairman of International Public Partnerships
Limited, commented: "I am pleased to announce an excellent set of
results for the Company which delivers another period of earnings
growth for our shareholders."
"The upward trend in secondary market pricing continues to
demonstrate the value of assets currently held in the Company's
portfolio, which now numbers 118 across a variety of sectors. With
the support of the Investment Adviser, we have grown our leading
position in the offshore transmission sector over the period.
"The Company's ability to position itself as an early stage
investor and gain accretive returns from low-risk,
government-backed construction assets has also been further
demonstrated by our licence to own and finance the Thames Tideway
Tunnel, as a leading member of the Bazalgette Consortium. Forming
part of one of the largest UK infrastructure projects is an
important milestone for the Company and is a clear sign of the
confidence in our prospects to grow the Company's portfolio and
continue to deliver risk adjusted returns for our
shareholders."
Portfolio Performance
-- Total of GBP42.7 million of additional investments made
during the half year, including GBP40.8 million across the
Company's existing portfolio of education assets
-- Portfolio return of GBP63.4 million represents a 6.1%
increase in the value of investments (equivalent to a 12.6%
increase on an annualised compounded basis), driven by revaluation
of a number of holdings to reflect current market pricing
-- Over GBP2.9 million of additional works commissioned by
public sector clients at the existing project level demonstrating
ability and commitment to deliver additional capital value from the
portfolio
-- Period activity underlined by significant UK pipeline
investments including being named preferred bidder on the
Westermost Rough OFTO, the Company's sixth investment in the
sector
-- A further GBP219.9 million committed since 30 June 2015, including:
o Further c.GBP9.9 million investment committed through the
Priority Schools Buildings Programme "aggregator" funding
vehicle
o Up to GBP210 million investment in the Thames Tideway Tunnel
project
Outlook
-- Outlook for the global infrastructure sector remains
dominated by very strong levels of demand for the types of assets
in which the Company already invests, demonstrated particularly by
the recent revaluation of Angel Trains
-- Strategic focus remains on sourcing off-market primary
investment through the Investment Adviser, with self-originated
assets currently comprising 89% of the Company's portfolio (as at
30 June 2015)
-- Recently-awarded preferred bids will serve to significantly
augment the robustness of the Company's index-linked cashflows
ENDS.
Notes
1. See Annual Report and Financial Statements for the twelve
months ended 31 December 2014 for further details on NAV
methodology.
2. The expected date for payment of the half year dividend is 12 October 2015.
3. Future profit projections 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.
INPP will be holding an analyst and investor conference call at
09.30am on the day of announcement (27 August 2015). Please note
that there will be no presentation in person.
Investors and analysts wishing to join the conference call
should dial +44 (0)20 3427 1904 and use the confirmation code
5978195.
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 118 social and
transport infrastructure projects, including schools, hospitals,
courts, police headquarters, transport, 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 typically 25-40 year concessions.
Amber Fund Management Limited is the Investment Advisor to INPP
and consists of over 80 dedicated staff who manage, advise on and
originate projects for INPP.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
International Public Partnerships Limited
Half-yearly Financial Report for the six months ended 30 June
2015
Registered number: 45241
www.internationalpublicpartnerships.com
Note: Page references in this announcement refer to the full
formatted Half-yearly Financial Report for the six months ended 30
June 2015 that can be found on the Company's website. Certain
charts cannot be reproduced for the RNS format and can also be seen
in the PDF version of this document available on the Company's
website.
Highlights
Net Asset Value
* Net Asset Value ('NAV')(1) per share of 128.6 pence
as at 30 June 2015 (127.0 pence - 31 December 2014)
* NAV of GBP1,077.7 million as at 30 June 2015, up
GBP15.6 million (GBP1,062.1 million - 31 December
2014)
Shareholder Returns
* 2015 half year fully covered cash dividend(2) of
3.225 pence per share(3) (3.15 pence per share - 30
June 2014)
* Two year forward looking fully covered minimum cash
dividend target(4) for the years ended 31 December
2015 and 2016 of 6.45 and 6.65 pence per share
respectively - maintaining a long term average
increase of c.2.5% per annum
* Significant degree of long term inflation linkage
within the portfolio - 0.85% per annum projected
increase in return for a 1% increase over anticipated
average portfolio inflation(5)
* Total Shareholder Return since listing in 2006 to 30
June 2015 of 104.4%(6) compared to 52.2% on the FTSE
All Share over that same period or on an annualised
basis 8.6% compared to 5.0% (respectively)
Earnings
* Profit before tax of GBP38.4 million for the six
months ended 30 June 2015 (GBP35.9 million - 30 June
2014)
Highlights
* GBP42.7 million of additional investments made during
the year and a further GBP219.9 million committed
since 30 June 2015
* Strong pipeline of investment opportunities emerging
including Westermost Rough OFTO and Thames Tideway
Tunnel, one of the UK's largest Infrastructure
projects
* Majority owned investments represent 78.9% of
portfolio providing high level of asset control
* Underlying investments with external debt(7)
represent 82% of the investment portfolio, 18% of the
Company's assets have no external debt(8)
* Successful renegotiation of the Company's corporate
debt facility from GBP175 million to GBP300 million
with substantially reduced margins and a reduction in
fees charged
* Continued progress made on US opportunities through
relationship with Hunt - more opportunities likely to
surface in future
1 The methodology used to determine investment fair value incorporated
within the Net Asset Value is described on page 12-16.
2 Cash dividend payments to investors are paid from investment
cash flows (after taking into account financing costs).
3 Half year 2015 dividend is expected to be paid in October 2015.
4 Future profit projection and dividends cannot be guaranteed.
Projections are based on the current estimates and may vary in
the future.
5 See pages 16 and 17 for information relating to the Company's
use of sensitivity analysis.
6 Source: Bloomberg. Share price plus dividends assumed to be reinvested.
7 Represent investments in equity and/or subordinated debt in underlying
projects ('Risk Capital').
8 Represent investments in Risk Capital and senior debt in underlying
projects
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Company Overview - About the Company
International Public Partnerships Limited (the 'Company'), in
accordance with it Investment Policy, invests in equity,
subordinated/mezzanine debt and senior loans made to entities
owning or operating infrastructure concessions, assets or related
businesses.
Investments include 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 a variety of
infrastructure projects, to date it has primarily invested in
entities holding physical infrastructure and associated services
which are regulated or procured under Public Private Partnerships
('PPP')/Private Finance Initiative ('PFI') arrangements and similar
processes.
Features of International Public Partnerships Limited and its
investment portfolio are:
Portfolio
> Geographically diversified with a portfolio across seven countries in a variety of sectors
> A focus on yielding operational investments but with some
'in construction' with prospects for future capital
appreciation
> A significant degree of inflation linkage to investment
returns - a 1% per annum increase in the anticipated rate of
inflation across the while portfolio would over the medium term
imply a 0.85% per annum increase in return across the portfolio
> The Investment Adviser 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 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 based on asset availability, not
demand, usage or other non-controllable variables
> A significant portion of the portfolio is investment in
projects with 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
> 8-9% per annum target internal rate of return set at the
time of initial public offering in 2006
Governance
> Experienced independent leadership and strong corporate governance
> Long-term alignment of interest with the Investment Adviser 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
> GBP1,138 million market capitalisation as at 30 June 2015 (31 December 2014: GBP1,132 million)
> 838.0 million shares in issue as at 30 June 2015 (31 December 2014: 836.2 million shares)
> 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 advisers to their clients
Investment Adviser Fees
> Competitive fee structure
> For 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
> 1.2% per annum of GAV of investments bearing construction risk
> 1.5% asset origination fee of the value of new investments
to cover acquisition due diligence reflecting bid risk and primary
market asset development
> Investment Adviser bears the risk of abortive transaction origination costs
> No incentive or performance fees
> Further details can be found in the Company's 2014 Annual Report on pages 15 and 16
Key Portfolio Facts as at 30 June 2015
Sector Breakdown
Energy transmission 32%
--------------------- ----
Education 24%
--------------------- ----
Transport 21%
--------------------- ----
Health 8%
--------------------- ----
Courts 7%
--------------------- ----
Police Authority 4%
--------------------- ----
Custodial 1%
--------------------- ----
Other 3%
116 investments in infrastructure projects(1) across a variety
of sectors.
Geographical Split
UK 71%
----------- ----
Belgium 12%
----------- ----
Australia 8%
----------- ----
Germany 4%
----------- ----
Canada 3%
----------- ----
Ireland 1%
----------- ----
Italy <1%
Invested in selected jurisdictions which meant the Company's
risk and return requirements.
Mode of Acquisition/Asset Status
Construction 3%
--------------------- ----
Operational 97%
--------------------- ----
Primary Investor(2) 89%
--------------------- ----
Later Stage
Investor(3) 11%
Early stage investor to maximise capital growth
opportunities.
Investment Type
Risk capital only(4) 82%
--------------------------- ----
Company owns Risk Capital
and Senior Debt 18%
Invested across the capital structure taking into account
appropriate risks to returns.
Project Ownership
100% 74%
--------- ----
50%-100% 5%
--------- ----
<50% 21%
Preference to hold majority stakes.
Concession Length
<20 years 48%
--------------- ----
20 - 30 years 36%
--------------- ----
>30 years 16%
Weighted average portfolio life of 21 years
1 Fair value of investments at 30 June 2015. Unless otherwise
stated the Company and its subsidiaries hold investments in equity,
subordinated debt and senior loans made to entities owning or
operating infrastructure concession, assets or related
businesses.
2 Primary stage investor - asset developed or originated by the
Investment Adviser or predecessor team.
3 Later stage investor - asset acquired in the secondary market.
4 Risk Capital' - includes both project level equity and subordinated debt.
Company Overview - Top Ten Investments
Name of Project Location Sector Status % Holding % Investment Fair
at at 30 Jun Value
30 Jun 2015
2015
30 Jun 31 Dec 2014
2015
Lincs Offshore Lincolnshire, Energy 100% Risk
Transmission England Transmission Operational Capital(1) 15.5% 16.3%
================= =================== =============== ============= ============== ================ ============
100% Risk
Capital(1)
Ormonde Offshore Cumbria, Energy and 100%
Transmission England Transmission Operational senior debt 12.2% 12.5%
================= =================== =============== ============= ============== ================ ============
Diabolo Rail Brussels, 100% Risk
Link(2) Belgium Transport Operational Capital(1) 12.0% 13.8%
================= =================== =============== ============= ============== ================ ============
Various, 4.8% Risk
Angel Trains(2) United Kingdom Transport Operational Capital(1) 5.4% 1.9%
================= =================== =============== ============= ============== ================ ============
Royal Children's Victoria, 100% Risk
Hospital Australia Health Operational Capital(1) 3.8% 4.5%
================= =================== =============== ============= ============== ================ ============
100% Risk
Hereford & Capital(1)
Worcester Worcestershire, and 100%
Courts England Courts Operational senior debt 3.1% 3.2%
================= =================== =============== ============= ============== ================ ============
Various, 49% Risk
BeNEX Rail Germany Transport Operational Capital(1) 3.0% 3.5%
================= =================== =============== ============= ============== ================ ============
Northampton Northamptonshire, 100% Risk
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Schools England Education Operational Capital(1) 2.9% 3.2%
================= =================== =============== ============= ============== ================ ============
Alberta, 100% Risk
Alberta Schools Canada Education Operational Capital(1) 2.4% 2.7%
================= =================== =============== ============= ============== ================ ============
100% Risk
Strathclyde Capital(1)
Police Training Strathclyde, Police and 100%
Centre Scotland Authority Operational senior debt 2.2% 2.3%
================= =================== =============== ============= ============== ================ ============
1 Risk Capital includes both project level equity and
subordinated shareholder debt.
2 Northern Diabolo project revenues are dependent on
availability but also include an element of linkage to passenger
numbers. Angel Trains generates revenues through leases to train
operating companies with elements of direct government guarantees
through Section 54 undertakings. All other investments receive
entirely availability based revenues.
Further information about each of the investments in the
Company's portfolio is available on the Company's website.
Significant movements in the Company's portfolio for the period
ended 30 June 2015 can be found on pages 19 and 20 of this
Report.
Chairman's Letter
Dear Shareholders,
It gives me great pleasure to report to you that your Company
has continued to perform well over the six month period to 30 June
2015, delivering continued dividend growth together with strong
underlying operational asset performance. Over GBP40 million of new
investment was made during the period, with the Company's near term
pipeline being extremely full - the Company was named preferred
bidder on its sixth offshore transmission project and, following
the period end, was awarded preferred bidder status on one of the
largest infrastructure projects in the UK, Thames Tideway
Tunnel.
Dividend Growth
Cash flow over the first six months of 2015 continued to be
strong enabling the Board to declare a dividend of 3.225 pence per
share for the six months to 30 June 2015. This is c.2.5% growth on
the previous period and in accordance with our previously published
targets.
Given this strong performance we remain confident in achieving
our target dividend of 6.45 pence per share for the 2015 financial
year and 6.65 pence per share for the 2016 financial year. As in
previous periods, we expect that these dividends will be at least
fully covered by cash flows from investments.
Investment Activity and Market Conditions
We continue to see very strong levels of demand from competitors
in the sectors in which we invest. Our differentiated focus
continues to be on new investments where government agencies are
seeking investors as part of a new procurement process and where we
can bring expertise as an early stage investor or where we have
existing projects and can utilise pre-emptive positions to access
additional investment opportunities off-market. We remain very
cautious of auction-based processes for operational assets where
price is the only differentiating factor and where competition
continues to be intense.
During the period the Company made a substantial positive
revision to its valuation of Angel Trains, our fourth largest
asset. This investment has generated a total return of 3.6 times
since acquisition in 2008. The revaluation followed the sale by
other shareholders of their interests which in turn provided
tangible evidence of the uplift in value of the asset as a result
of the robust outlook for demand for services in that sector.
Investments of GBP42.7 million were made during the period
across three projects - comprising three batches of funding to
support the UK government's Priority Schools Building Programme
('PSBP') totalling GBP26.5 million and follow-on investments in the
Lewisham Building Schools for the Future project (GBP14.3 million)
and Liverpool Library project (GBP1.9 million).
Following the period end the Company made a further GBP9.9
million commitment to the fourth batch of funding under 'PSBP'.
This month the Company, as part of a consortium, also reached
financial close on the Thames Tideway Tunnel project in central
London investing GBP210 million. The GBP4.2 billion project is one
of the most significant pieces of infrastructure being built at the
current time in the UK. The Company and its Investment Adviser are
pleased to have acted as leading members of the consortium selected
to provide financing to the project. This project has an
anticipated 120 year life once operational and will contribute to a
significant increase in the average duration of the Company's
portfolio as well as to augment, significantly, the robustness of
the company's index linked cashflows.
The Company was granted preferred bidder status on its sixth
offshore transmission ('OFTO') asset, Westermost Rough. This
investment is currently expected to close towards the end of the
current financial year or in early 2016 and further underlines our
sector leading position in this field.
During the period the Company also made good progress on
developing its pipeline of investments.
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 Highlights and Performance
The performance of the underlying assets within the Company's
portfolio continues to be very strong. During the period we have
focused on delivering our expected returns; worked closely with
public sector clients; and managed the build-out of those assets
that are 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.
During the period the Company successfully revised the terms of
its corporate debt facility, increasing the facility from GBP175
million to GBP300 million.
The existing facility which was due to expire in December 2016
has been extended and will now become due for renewal in May 2018.
The increase to GBP300 million will support the strong pipeline of
new projects over the next 12 months, particularly greenfield
projects whereby bids are required to be fully underwritten at the
time of submission. The increased facility will provide the Company
with the flexibility to invest in appropriate opportunities rather
than serving as long-term, structural leverage. Further details of
the renewal can be found on page 21.
Corporate Governance and Regulation
As part of its commitment to maintaining an active dialogue with
investors, the Board was pleased to meet with a number of investors
and sell-side analysts in May, at an Investor Briefing in London.
The briefing provided attendees with an overview of current market
conditions, case studies on the Company's approach to investment
and asset management, current pipeline opportunities and gave
investors the opportunity to meet members of the Board and
Investment Adviser.
Post my announcement to retire as Chairman at the 2018 Annual
General Meeting, the Board is actively considering succession plans
and further Board appointments to complement the Company's future
development. We intend to provide shareholders with updates
regarding our intentions in this regard as our plans firm over the
course of the next year.
The Board continues to monitor and, where appropriate, implement
changes in best practice governance and regulation. A number of
enhancements, reported on within the 2014 Annual Report, have been
made and bedded in during the period.
As part of the Audit and Risk Committee's ongoing monitoring of
existing and emerging risks affecting the Company, it has
highlighted potential changes to international tax guidance which
may have a negative effect on the Company and the sector as a
whole.
As outlined in the 2014 Annual Report, the Board is closely
tracking the current OECD/G20 led initiative aimed to provide
guidance for the promotion of alignment of certain tax rules with
the focus on preventing 'tax base erosion and profit shifting'
('BEPS'). During the period, the Company participated in an
industry-wide response to the guidance including supporting an
infrastructure sector carve-out from the specific rules targeted at
capping the level of tax deductible interest charges. The proposals
remain uncertain at this stage, but could have a negative impact on
the Company. At the current time we have not yet seen any
noticeable impact on valuations.
Investment Adviser
In March, the Company agreed to the Hunt Companies ('Hunt'), a
privately owned US group with comparable activities to those of the
Amber group of Companies, becoming a 50% shareholder in the holding
company of the Company's Investment Adviser, Amber Fund Management
Limited ('Amber'). The pre-existing director and management
shareholders of Amber continues to hold the remaining shares. The
transaction was approved by the Financial Conduct Authority on 29
April 2015.
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As previously noted, the transaction offers the potential to
expand the activities of both the Investment Adviser and the
Company into the United States which is widely seen as one of the
largest growth markets for infrastructure investment in the
developed world. Members of the Amber team have already begun
working with their Hunt colleagues on potential investment
opportunities in the United States and we are very encouraged that
good progress has already been made on the Company's behalf to
access investments in this market.
As part of this transaction, the Company has been granted a
right of 'first look', on similar terms to the right it already
enjoys with Amber, to such of Hunt's activities in public
infrastructure projects in the United States which meet the
Company's investment criteria.
The terms of the transaction between Amber and Hunt prohibit any
sale of Amber shares by either Hunt or Amber's management for a
minimum term of four years and there will be no significant changes
to key management personnel within Amber or the way in which the
Investment Adviser and the Company interact.
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 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 GBP30 million as at the date of this report and GBP38
million of undrawn banking facilities. Forecasts indicate
continuing full compliance with associated banking covenants.
Further details can be found on page 21.
Outlook
Overall, the Company remains positive about its prospects, both
in terms of the performance of its existing investments and the
opportunity to add high quality investments to the portfolio during
2015. With respect to the latter, the Company is always selective
to ensure an appropriate risk and return balance within the overall
portfolio.
The Company's focus continues to be on investments originated
directly from the public sector rather than via the secondary
market, where competition remains intense. These 'self originated'
assets comprise 89% of the portfolio.
As discussed earlier, the Investment Adviser continues to
identify a significant number of new potential investments for the
Company. In light of upcoming opportunities the Board is
considering fundraising options.
This provides further grounds for optimism as to the future.
More 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 the
year.
Rupert Dorey
26 August 2015
Chairman
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
2015 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 Indicator Six months to 30 June
2015 Performance
Investor Returns
Deliver sustainable
long-term returns
to shareholders
* Maintain and enhance distributions to shareholders * Achieved targeted fully covered cash dividend of
* Focus on providing shareholders with predictable, and 3.225 pence/share, maintaining a long term average
where possible growing dividends growth of c.2.5%
* Obtain significant inflation-linkage in revenues * Increase or sustain degree to which portfolio * Significant degree of inflation linkage within the
revenues are linked to inflation portfolio - a 1% increase in the anticipated rate of
inflation across the whole portfolio would imply a
0.85% increase in return across the portfolio (31
December 2014: 0.85%p.a.)
* Deliver capital value enhancement where possible * Total shareholder return * Achieved. The total shareholder return since IPO is
104.4% (December 2014: 98.5%)
* NAV of GBP1,077.7 million (December 2014: GBP1,062.1
* NAV and NAV pence/share million) and NAV per share of 128.6 pence/share
(December 2014: 127.0 pence / share), an increase of
1.3%
Active Asset Management
1 Focus on delivery
of anticipated
returns from existing
investments * Availability for all controlled investments at 98% or * Achieved
above
* Actively manage investments to ensure that they meet
financial and other targets
* Returns from investments in line with expectations * Met net revenue generation and dividend goals
2 Maintain high levels
of public sector * Performance deductions below 3% for all projects * Achieved
satisfaction and
asset performance
3 Deliver additional
capital value from * Number of change requests from existing contracts * More than 402 variation requests over the 6 month
existing assets period to 30 June 2015, representing over GBP2.9
through management million of additional capital investment at the
of construction project level
risk and delivery
of operational
improvements to * Management of investments in the course of
meet client requirements construction projects in line with overall delivery * A number of new projects under construction taken on
timetable during the period
Strategic Priorities Key Performance Indicator Six months to 30 June
2015 Performance
Value-focused Portfolio Development
4 Through relationships
with co-shareholders * Value enhancing follow-on investments made * Additional investment totalling GBP16.2 million in
and pre-emptive two follow-on investments, increasing stakes held up
rights, where applicable, to, in the case of Liverpool Library, 100%
increase individual
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investment holdings
to 100% where beneficial
5 Make additional
acquisitions where * Value of additional investments acquired * All investments in the period were acquired outside
they can be acquired secondary market auction processes
on or off market
at prospective returns
that are beneficial
in risk/return terms
6 Enhance prospects
for capital growth * Number of investments in construction * Aggregator funding provided to in-construction
by investing in projects that are part of the Priority Schools
construction phase Building Programme
assets where available
7 Identify complementary
investment sectors * Value of investments in complimentary investment * Continued to progress a preferred bidder opportunity
within the Company's sectors and bid for further opportunities within the offshore
investment policy transmission sector. The preferred bidder position is
offering better expected to reach commercial close later in 2015
returns with a similar
risk profile
* Post period end, the Company (as part of a
consortium) was selected preferred bidder on Thames
Tideway Tunnel project
* Continue to invest in the Aggregator Priority Schools
Building Programme scheme
* All programmes offer access to primary investor
returns for similar or lower risk
8 Take advantage of
infrastructure opportunities * Number of new opportunities in international markets * Continued to progress pipeline of international
internationally opportunities - currently 29% of portfolio is
where investments invested in jurisdictions outside the UK
have an appropriate
risk profile and
contractual structures
are reliably enforceable
to enhance diversification
9 Undertake continuing
review of portfolio * Improvement of risk/return, inflation linkage, return, * Maintained prospective portfolio inflation linkage(1)
composition to ensure diversification characteristics
suitable blend of
risk/return, inflation * Increased exposure to low risk investments through
linkage, yield versus the 'Aggregator' funding platform
capital characteristics,
level of diversification
and opportunistic
enhancements
(1) See pages 16 and 17 for information relating to the
Company's use of sensitivity analysis.
Strategic Key Performance Indicator Six months to 30 June 2015
Priorities Performance
Efficient Financial Management
10 Provide
efficient * Dividends paid to investors covered by cash flows * Dividends paid to investors 1.3 times covered by net
management from investments cash flows from investments(1)
of cash
holdings
and debt * New investments made from available cash (after * All investments in the period made from free cash
facilities payment of dividend) in priority to use of corporate where available, and then when appropriate by
available debt utilising the corporate debt facility and letters of
for credit, whilst maintaining appropriate working
investment capital buffers
and * Competitive cash deposit rates
appropriate
hedging * Benchmarked market cash rates and reallocated based
policies * Use of appropriate hedging strategies on risk/return profile
* Foreign exchange forward contracts in place during
the period
(1) Cash dividends to shareholders are paid from net cash flows
from investments (including financing costs before one off
costs).
Performance against Key Objectives during the period - Investor Returns
Profits and distributions
Profit before tax for the six months to 30 June 2015 was GBP38.4
million (30 June 2014: GBP35.9 million) with earnings per share of
4.71 pence (30 June 2014: 4.85 pence).
Income from portfolio investments in the period was GBP47.0
million (30 June 2014: GBP44.5 million) including fair value
movements, dividends and interest. These returns were partially
offset by operating expenses (including finance costs) of GBP9.5
million (30 June 2014: GBP7.9 million), of which GBP0.6 million (30
June 2014: GBP0.4 million) was non-recurring.
These results allowed the Company to deliver the fully-covered
dividend of 3.225 pence per share for the six months to 30 June
2015 (30 June 2014: 3.15 pence per share), an increase of c.2.5%
over the corresponding period last year, in line with previously
published targets.
Total Shareholder Return
The Company reported a Total Shareholder Return (share price
growth plus reinvested distributions) for investors of 104.4%
(compounded annual growth rate, 'CAGR', of 8.6% per annum) for the
period since the initial public offer of the Company in November
2006 to 30 June 2015. This compares to a total return on the FTSE
All-Share index over the same period of 52.2% (CAGR of 5.0% per
annum)(1) .
The Company has continued to exhibit relatively low levels of
volatility compared to the market, as evidenced by the graph below
which plots the Company's share price since IPO against the price
performance of the major FTSE indices and the Company's NAV.
[Chart can be found in PDF version of this document on the
Company's website]..
1 Bloomberg - share price appreciation plus income.
Net Asset Valuation
The Company delivered a 1.5% increase in NAV to GBP1,077.7
million at 30 June 2015 up from GBP1,062.1 million at 31 December
2014. This represented an increase of 1.3% of NAV per share to
128.6 pence per share from 127.0 pence per share at 31 December
2014.
The NAV is derived from a discounted cash flow calculation to
determine the fair value of investments together with the value of
cash and other net assets held within the Company's consolidated
group. The key drivers of the change to the NAV between 31 December
2014 and 30 June 2015 are highlighted in the graph and described in
more detail below.
[Chart can be found in PDF version of this document on the
Company's website]..
1. Represents movements in the forward foreign exchange curves
used to forecast non-Sterling project distributions.
2. The NAV return represents, amongst other things, (i)
variances in both realised and projected project cash flows, (ii)
the unwinding of the discount factor applied to those future
projected project cash flows and (iii) other changes in the
Company's net assets.
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
During the period, government bond yields, on a 6 month trailing
average basis, substantially decreased in all countries in which
the Company holds investments, resulting in a substantial positive
impact on the NAV (GBP67.3 million uplift). The change in 6 month
average government bond yields partly reflects an adjustment the
Company has made to its valuation methodology whereby the remaining
maturity of a government bond used in a project's discount rate is
matched as closely as possible to the remaining underlying project
life rather than using a standard (typically 20 year) bond for all
projects regardless of their life. The portfolio also modestly
benefitted from a reduction in discount rate risk premia as assets
moved out of the construction or defects liability phase and
towards full operations (GBP0.8 million uplift). However, these
increases were significantly offset by an increase in the project
risk premium (GBP54.0 million negative impact) reflecting
observable market based evidence which does not support the full
reduction in government bond yields. Of note, government bond
yields on a spot basis have risen during the period in all
countries the Company holds investments in except for Belgium and
Canada which have seen a small decrease.
In addition, the Company experienced a weakening of all
non-Sterling currencies in terms of spot rates and 4 year forward
curves in which it holds investments outside the UK (Belgium,
Ireland, Italy, Canada, Australia) which had a GBP23.9 million
negative impact on the NAV. The largest impact came from the
Company's Euro denominated investments (GBP16.5 million negative
impact) where the Euro weakened to a greater extent than the
Australian Dollar and Canadian Dollar and due to the proportionally
greater exposure of the Company to Euro-denominated investments.
The negative impact of the Australian Dollar was GBP5.2 million and
the Canadian Dollar was GBP2.2 million.
Cash distributions of GBP23.8 million were made during the
period and represent the cash elements of the dividend paid to INPP
shareholders.
The NAV Return of GBP49.2 million captures the following:
> Unwinding of the discount factor - the movement of the
valuation date and the corresponding realisation of distributions
received
> Optimisation of cash flows - actual distributions received
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 the
underlying investments earlier than forecast and optimising relief
for Group tax losses
> Value generated through revaluation of assets within the
portfolio - notably the uplift in value of Angel Trains during the
period (see commentary under 'Portfolio Performance and Return'
below)
> Updated project forecasts - refinement of project model
assumptions to reflect current expectations of future cash flows,
including the change in macroeconomic assumptions outlined further
in the 'Macroeconomic Assumptions' section below
> Movements in the Company's working capital position
Portfolio Valuation
Forecast future cash flows
The Company's investments are expected to exhibit (and
historically have exhibited) relatively predictable 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).
[Chart can be found in PDF version of this document on the
Company's website]..
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. The value of projects the Company
has lifecycle exposure to is 4.4% of the portfolio
> 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 Adviser, and presented for approval by the
Directors. The Directors' valuation of the portfolio, Investments
at Fair Value, as at 30 June 2015 was GBP1,085.0 million, an
increase of 5.0% since 31 December 2014.
[Chart can be found in PDF version of this document on the
Company's website]..
The portfolio return of GBP63.4 million represents a 6.1%
increase in the value of investments (12.6% 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 utilisation of group tax loss relief
> 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)
> Uplift from a revaluation of existing investments to
reflect current market pricing, notably the Angel Trains investment
where a significant uplift in valuation occurred during the period
as stakes in the company were sold by other shareholders and this
market-based evidence was incorporated within the portfolio
valuation
> Updating and refinement of project model assumptions to
reflect current expectations of future cash flows
> Increase in forecast tax outflows in light of potential
legislative changes to international tax
In addition there was:
> A net decrease in discount rates across jurisdictions in
which the Company invests leading to a GBP14.0 million increase in
portfolio value
> A reduction of GBP6.3 million following a change in long
term UK deposit rates and short term European inflation
assumptions
> A reduction of GBP23.9 million due to a significant
strengthening of sterling spot rates and 4 year forward curve
against all three currencies the Company has exposure to
The remaining movements relate to investments of GBP42.7 million
and project distributions of GBP37.8 million.
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. During the period two adjustments were made to the
Company's macroeconomic assumptions. Firstly the European inflation
rate was reduced to 1.00% until 2017, reverting to the longer term
2.00% assumption thereafter. This reflects ongoing suppressed
levels of inflation experienced across the European jurisdictions
in which the Company invests. The second adjustment made during the
period was a reduction in the long term deposit rate used for
valuing UK assets by 0.5% from 3.50% to 3.00%, again reflecting
lower government bond yields which are anticipated to be more
permanent in nature. The Company notes the proposed reductions in
UK corporation tax rates from 20% to 19% in 2017 and from 19% to
18% in 2020. These reductions were proposed by the Chancellor of
the Exchequer in the Summer Budget and are included
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
within the Summer Finance Bill 2015. The Company's policy is to
capture changes in corporation tax rates once enacted into law,
which is expected to take place before the end of the year and
should have a positive impact on NAV.
Across the portfolio the weighted average inflation assumption
as at 30 June 2015 was 2.57% (31 December 2014: 2.55%) and the
weighted average long term deposit rate assumption was 3.12% (31
December 2014: 3.47%).
Macroeconomic assumptions 30 June 2015 31 December 30 June 2014
2014
Inflation UK 2.75% 2.75% 2.75%
Australia 2.50% 2.50% 2.50%
Europe 1.00% until 2.00% 2.00%
2017; 2.00%
thereafter
2.00%
Canada 2.00% 2.00%
Long Term Deposit UK 3.00% 3.50% 3.50%
Rates(1)
Australia 4.50% 4.50% 4.50%
Europe 3.00% 3.00% 3.00%
Canada 3.00% 3.00% 3.00%
Foreign exchange GBP/AUD 2.15 2.03 1.92
GBP/EUR 1.33 1.23 1.17
GBP/CAD 1.95 1.84 1.82
Tax Rate UK 20%(2) 20%(2) 20%(2)
Australia 30% 30% 30%
Europe Various (no Various (no Various (no
Canada change) change) change)
Various (no Various (no Various (no
change) change) change)
1 The portfolio valuation assumes deposit rates as currently
received to 31 December 2017 and then as stated thereafter.
2 The corporation taxation rates are only updated once they have
been enacted.
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 of the Company's portfolio (82%) is invested in
projects with pure 'Risk Capital' (equity and subordinated debt) in
the underlying investments. The remainder (18%) is invested in
projects containing senior or mezzanine debt in the underlying
investments. 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, therefore 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 Movement
30 June 31 December 30 June 31 December 2014
2015 2014 2014 to
30 June 2015
Weighted Average Government
Bond Rate (Nominal) - portfolio
basis - Risk Capital and
senior debt 2.12% 2.79% 3.38% (0.67%)
Weighted Average Project
Premium over Government Bond
Rate - Risk Capital and senior
debt (Nominal) 5.17% 4.69% 4.37% 0.48%
Weighted Average Discount
Rate
- Portfolio basis - Risk
Capital and senior debt 7.29% 7.48% 7.75% (0.19%)
Weighted Average Discount
rate
- Risk Capital only(1) 7.83% 7.90% 8.21% (0.07%)
NAV per share 128.6p 127.0p 124.8p 1.6p
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.
During the period the methodology used to determine the relevant
government bond rate was adjusted whereby the government bonds are
now selected on the basis that the bond's remaining life should
match the remaining life of the project as closely as possible.
Previously, one bond was selected per country and this change of
approach results in the government bond yield varying between
projects located in the same country and aids in producing a more
precise valuation.
In all cases, a six month average of the government bond yield
is used. This is to reduce the impact of short term market
sentiment based volatility which can inappropriately skew bond
yields.
Movement
30 June 31 December 30 June (31 December
2015 2014 2014 2014 to
Country 30 June 15)
UK 2.21% 2.85% 3.36% (0.64%)
Australia 3.17% 3.80% 4.54% (0.63%)
Canada 2.14% 2.56% 2.91% (0.42%)
Belgium 1.47% 2.36% 3.17% (0.89%)
Germany 0.89% 1.64% 2.34% (0.75%)
Ireland 1.47% 2.05% 3.15% (0.58%)
Italy 1.09% 3.36% 4.10% (2.27%)
==================== ========== ============== ========== ==============
Portfolio weighted
average 2.12% 2.79% 3.38% (0.67%)
==================== ========== ============== ========== ==============
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.
[Chart can be found in PDF version of this document on the
Company's website]
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 2015 NAV per share by 13.0 pence. Should the
underlying project discount rates increase by 1% the NAV per share
would decrease by 11.1 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 2015 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 0.85% 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 10.6 pence increase to the NAV
per share, conversely, if the rates were to decrease by 1% there
would be a 9.2 pence decrease to the NAV per share.
Foreign exchange
The Company has a geographically diverse portfolio and therefore
non-Sterling 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 4.6 pence increase in the 30 June 2015 NAV per
share while a 10% reduction in the exchange rates would result in a
3.8 pence decrease in NAV per share.
Deposit rates
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The long-term weighted average future deposit rate across the
portfolio is 3.12% 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 1.7 pence increase in the
30 June 2015 NAV per share and a 1% decrease in deposit rates would
lead to a 1.5 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 0.9 pence decrease in the 30 June 2015
NAV per share while a 1% reduction in the tax rates would result in
a 1.0 pence increase in NAV per share.
Project lifecycle
A project's lifecycle is the process of renewal required to keep
the physical asset available for use and at the standard required
of it under the agreement with the occupying public sector body.
The proportion of total cost that is lifecycle will depend on the
nature of the asset. In order to enhance the certainty around cash
flows, around 95.6% 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 0.5 pence reduction in 30 June 2015
NAV per share. A 10% decrease in lifecycle costs would lead to a
0.4 pence increase in NAV per share.
Cash flow movements in the period
Summary of consolidated cash Six months Six months Year to 31
flow to 30 June to 30 June December 2014
2015 2014 GBP million
GBP million GBP million
Opening cash balance 29.4 80.6 80.6
Cash from investments 37.8 35.5 64.0
Operating costs (recurring) (6.8) (6.1) (12.2)
Net financing costs (1.1) (0.6) (1.9)
================================= ============= ============= ===============
Net cash flows from investments
before one off costs 29.9 28.8 49.9
================================= ============= ============= ===============
One-off costs (1.5) (2.3) (5.0)
================================= ============= ============= ===============
Net cash flows from investments
after one off costs 28.4 26.5 44.9
================================= ============= ============= ===============
Cost of new investments (42.7) (20.1) (188.2)
Net drawdown on corporate
debt facility 25.0 - 16.3
Proceeds of capital raisings
(net of costs) - - 94.2
Disposal proceeds - - 22.3
Distributions paid (23.8) (20.2) (40.7)
================================= ============= ============= ===============
Net cash at period end 16.3 66.8 29.4
================================= ============= ============= ===============
The Company's net cash at 30 June 2015 was GBP16.3 million (31
December 2014: GBP29.4 million), a decrease of GBP13.1 million
reflecting new investments made in the period as well as dividends
paid, offset by net cash inflows from investments and drawdowns on
the corporate debt facility.
Cash inflow from the Company's investment portfolio was GBP37.8
million (30 June 2014: GBP35.5 million). The increased cash flow
was mainly due to the timing of the receipt of distributions from
underlying investments.
Recurring operating costs have increased from GBP6.1 million (30
June 2014) to GBP6.8 million, in line with the increase in the
Company's NAV, as detailed in the 'ongoing charges' table below.
One-off operating costs of GBP1.5 million (30 June 2014: GBP2.3
million) mainly represent one off transaction costs for new
investments and costs associated with refinancing the corporate
debt facility in the period.
Dividends paid in the period of GBP23.8 million (30 June 2014:
GBP20.2 million) were in respect of the six month period ended 31
December 2014.
Corporate expenses and ongoing charges
A breakdown of corporate operating costs paid is provided
below:
Six months to Six months to Year to
30 June 2015 30 June 2014 31 December
GBP million GBP million 2014
Corporate Expenses GBP million
Management fees (6.2) (5.6) (11.1)
==================== ============== ============== =============
Audit fees (0.1) (0.1) (0.1)
==================== ============== ============== =============
Directors fees (0.1) (0.1) (0.2)
==================== ============== ============== =============
Other running
costs (0.4) (0.3) (0.8)
==================== ============== ============== =============
Operating costs
(ongoing) (6.8) (6.1) (12.2)
==================== ============== ============== =============
The increase in management fees paid to the Investment Adviser
is in line with the growth in managed investments and the growth of
the Company's portfolio.
Six months to Six months to Year to
30 June 2015 30 June 2014 31 December
GBP million GBP million 2014
Ongoing Charges GBP million
Annualised Ongoing
Charges (13.7) (12.2) (12.2)
======================== ============== ============== =============
Average NAV(1) 1,069.9 943.7 983.5
======================== ============== ============== =============
Ongoing Charges(2) (1.28%) (1.29%) (1.24%)
======================== ============== ============== =============
1 Average of published NAVs for the relevant period.
2 The Ongoing Charges ratio was prepared in accordance with the
Association of Investment Companies' ('AIC') recommended
methodology, noting this excludes non-recurring costs.
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 35 to 38 in the 31 December 2014 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. In particular, actions that may be taken in light of the
OECD's Action plan on Base Erosion and Profit Shifting ('BEPS') may
lead to fundamental changes to international tax structures and may
have knock on consequences for domestic standards as well.
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 116 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.
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The Investment Adviser, 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 is to ensure that the project is
meeting all targets required under the contract and that the public
sector client is satisfied 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 Diabolo received the
European Rail award for "Best European integration" and during the
period, the German Federal Minister of Environment Barbara
Hendricks presented the Federal German Ministry of Education and
Research project in Berlin with the "Award for sustainable
construction."
Deliver additional capital value from existing assets
During the first six months of 2015 our public sector clients
commissioned in excess of 402 variations resulting in over GBP2.9
million of additional works at the project level. All variations
were overseen by the Investment Adviser 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 the Investment
Adviser worked with the procuring authority to ensure its
successful delivery of the Northampton Grouped Schools PFI Wave 2
Project. This entailed the extensions at 10 primary schools and a
new primary school. These works were completed in the first half of
2015 creating some 2400 new school places for Northamptonshire.
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 2015 as sustained operational
performance is demonstrated. All construction currently within the
portfolio has been completed with defects periods completing in
2015 and early 2016.
Projects under construction as at 30 June 2015 are set out in
the table below. Further details are provided in 'Value-focused
portfolio development' section below.
Asset Location Construction Completion Defects Status % of Fair
Date Completion Value of
Year Investment
Building Schools Various. Latest
for the Future portfolio UK August 2015 2016 On schedule 0.2%
Priority School Building
Aggregator Programme Various, Latest
- Batches 1-3 UK August 2017 2018 On schedule 2.4%
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 2015
financial year (summarised in the table below). These projects
acquired were all self-originated, having either been sourced by
the Investment Adviser 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 date
Six months to 30 June 2015
Priority School North East, Acquisition Under construction GBP7.9 million 10 March
Building Aggregator UK 2015
Programme - Batch
1
Priority School Hertfordshire, Acquisition Under construction GBP10.2 million 19 March
Building Aggregator Luton and 2015
Programme - Batch Reading,
2 UK
Priority School North West, Acquisition Under construction GBP8.4 million 25 March
Building Aggregator UK 2015
Programme - Batch
3
Building Schools Lewisham, Acquisition Operational GBP14.3 million 17 April
for the Future UK 2015
Liverpool Central Liverpool, Acquisition Operational GBP1.9 million 30 June
Library UK 2015
Period from 1 July 2015
Priority School Midlands, Acquisition Under construction GBP9.9 million 13 August
Building Aggregator UK 2015
Programme - Batch
4
Thames Tideway London, Acquisition Under construction Up to GBP210 24 August
Tunnel UK million 2015
Priority Schools Building Programme 'Aggregator'
During the six months to 30 June 2015 the Amber Consortium of
which the Company is part, reached financial close on c.GBP26.5
million of funding in relation to three of the five batches of
schools being delivered through the Priority Schools Building
Programme ('PSBP').
These projects use an innovative financing model based upon the
establishment of a funding vehicle known as the 'Aggregator'. One
of the key features of the Aggregator is the ability to warehouse
loans and thereby aggregate total financing requirements across all
five schools batches. The Aggregator is financed by a Consortium
including the Company with Aviva Investors and the European
Investment Bank providing senior debt.
Following the 30 June 2015 balance date, the Company committed a
further GBP9.9 million to the fourth batch of the Aggregator
scheme. The Company expects to provide up to an additional c.GBP11
million funding to the remaining batch. Financial close of this
final batch is expected before the end of 2015.
Additional investment in Lewisham Building Schools for the
Future ('BSF') project
During the period, the Company acquired an additional 40%
investment in the Lewisham BSF project, increasing the Company's
overall exposure to between 41% and 50% in the underlying BSF
assets.
The Company invested GBP14.3 million for the additional 40%
interest from Babcock Project Investments Limited. The Lewisham
project comprises BSF schools located in the South East London
borough, including Sedgehill and Conisborough Schools; Trinity
School; Deptford Green School; and, Bonus Pastor, Pendergast and
Drum Beat Schools.
Additional investment in Liverpool Central Library project
In June the Company acquired an additional 19.9% investment for
c.GBP1.9 million in the Liverpool Central Library Project from
Shepherd Construction. The acquisition increased the Company's
overall exposure from 80.1% to 100%.
The Liverpool Central Library is one of the flagship legacy
projects for the Liverpool City Council, as part of the Liverpool
European Capital of Culture programme in 2008. The Company, through
its investment adviser Amber Infrastructure, acted as Lead Sponsor
and Manager for the GBP50 million project to refurbish three
existing historic library buildings which included the demolition
and construction of a new main library and archive complex. The
Library reached construction completion in January 2013 and opened
to the public in May that year.
Awarded Preferred Bidder on Westermost Rough offshore
transmission project
During the period, Transmission Capital Partners, the consortium
comprising INPP, Amber Infrastructure and Transmission Investment
were appointed as preferred bidder for the long-term licence and
operation of a further offshore transmission project.
The scheme, comprising the transmission cable connection to
Westermost Rough Offshore Wind Farm represents the sixth such
project that Transmission Capital Partners has been appointed to,
as preferred bidder. The Company expects to invest around c.GBP30
million upon financial close, estimated in the fourth quarter of
2015 or early 2016.
Thames Tideway Tunnel project
In August, the Company announced that a consortium of which it
is a member had reached financial close on the Thames Tideway
Tunnel ('Tideway') licence. The Company will invest up to GBP210
million and now has a 16% stake in the project, its largest
investment to date, with the remaining Risk Capital being funded by
the consortium partners.
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Tideway is one of the most significant UK infrastructure
investment opportunities. Up to 39 million tonnes of untreated
sewage are currently discharged into London's waterways every year
and the project will significantly reduce this.
The Tideway is a new part of the sewer network which will carry
sewage and storm water discharges from the broader London sewerage
system. The Tideway will be a 7.2m diameter 25km sewer tunnel
running up to 65 metres below the Thames and will effectively
replace the Thames as a "sewer of last resort". The Tideway project
has a design life of 120 years and is expected to provide yield to
its investors for the whole of this period.
The Company's commitment to Tideway has been secured through the
issue of a letter of credit under the Company's corporate debt
facility. The Company's investment will be funded as the project's
milestones are met with the final injection expected in early
2018.
Construction of the estimated GBP4.2billion project (2011
prices) will be under three main contracts. The construction
Preferred Bidders were announced in February 2015, with BMB JV
(Joint Venture of BAM Nuttall Ltd, Morgan Sindall Plc and Balfour
Beatty Group Limited) selected for the West contract, FLO JV (Joint
Venture of Ferrovial Agroman UK Ltd, Laing O'Rourke Construction)
for the Central contract and CVB JV (Joint Venture of Costain,
Vinci Construction Grands Projets and Bachy Soletanche) for the
East contract. Construction is expected to commence in 2016 and
reach completion by 2023 followed by a 120 year operational
life.
During construction, the Tideway project will benefit from a
bespoke regulatory framework that will allow it to start generating
revenue when construction begins. Once fully operational, Ofwat
will regulate the Tideway project in line with other water and
sewerage company's regulatory cycles.
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 2015. This compares to 1.3 times 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 either directly or through the use of
letters of credit to support forecast investment commitments or 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 noted in the Chairman's Letter, in May the Company
successfully revised the terms of its corporate debt facility,
increasing the facility from GBP175 million to GBP300 million. The
overall cost of the facility was substantially reduced through an
improvement in the margins and a reduction in fees charged. The
margins on drawn amounts of the main facility will reduce from 225
bps over Libor to 175 bps over Libor. In addition, the facility can
be used to provide letters of credit, providing the Company with
flexibility, particularly around investments made during the
construction phase of projects. At the date of this report, GBP82.2
million of the corporate debt facility was drawn, GBP179.6 million
was issued as letters of credit and GBP38.2 million remained
undrawn or unutilised.
Outlook
Current Market Environment and Future Opportunities
Overall the Company continues to have a 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.
The Company's focus continues to be on investments originated
directly from the public sector rather than via the secondary
market, where competition remains intense. These 'self originated'
assets comprise 89% of the portfolio.
Currently, the Investment Adviser has identified a significant
investment pipeline for the Company. In addition to these potential
investments the Company and its Investment Adviser have a larger
number of transactions under review, which are at an earlier stage
of development.
Current Pipeline
Overall, the Company remains positive about its prospects, both
in terms of the performance of its existing investments and the
opportunity to add high quality investments to the portfolio during
2015.
In addition to the anticipated commitment to Tideway, Westermost
Rough OFTO and the Priority Schools Building Programme Aggregator
projects the Investment Adviser 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 Adviser (or associates) include:
> Continued activities in the area of UK offshore transmission
> Enhanced access to US P3 opportunities, particularly
through the relationship with Amber/Hunt
> Other UK and European primary investment opportunities (for
instance in the healthcare and judicial sectors)
> Acquisition of additional investments in projects where the
Company already has an investment. Typically these will arise under
pre-emption and similar rights
> The growing range of opportunities in Northern Europe and
Australia and New Zealand which conform to the existing risk
profile within the Company's portfolio
> 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 Adviser 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
Opportunity Length
Thames Tideway UK Up to additional 120 years The Company is part
Tunnel GBP180 million(1) of the Bazalgette
consortium awarded
licence to own and
finance project. Investment
in phases until early
2018
OFTOs - Westermost UK GBP30 million(2) 20 years Preferred bidder on
Rough, Humber one and shortlisted
Gateway on another for third
tender round OFTOs
Priority Schools UK Up to GBP11 25 years Consortium including
Building Aggregator million(2) the Company named
Programme preferred bidder
Education Australia Up to GBP18 c. 25 years One of two shortlisted
million(2)
Judicial Australia c. GBP15million(2) 25 years One of two shortlisted
Police Centre Germany c. EUR8 million(2) 32.5 years Preferred Bidder awarded
in July 2015
HUB framework UK GBP35 million(2) 20 years HUB framework for
various social community
projects in Scotland.
Preferred bidder status
for both short and
longer-term projects.
P3 Investment US c.GBP30 million(2) 40 years Bidding on opportunity
sourced through Hunt
Medium-term opportunities
Judicial Belgium, Germany, c.GBP190 c. 25 years The Company has the
Netherlands million(3) benefit of short,
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medium and long-term
development opportunities
as well as pre-emption
opportunities in respect
of a number of projects
within the existing
portfolio
Transmission UK GBP400 million(3) 20 years Bidding two third
tranche OFTOs within
successful consortium
The above represents potential opportunities currently under
review by the Investment Adviser (and its associates) including
current bids, preferred bidder opportunities and estimated value of
opportunities to acquire additional investments including under
pre-emption/first refusal rights. There is no certainty these will
translate to actual investment opportunities for the Company. The
value referenced in relation to the pre-emption opportunities
represents the estimated potential investment value which reflects
the current estimate of the total likely acquisition value at the
time. In relation to the remaining medium term opportunities, the
figure represents the current estimated gross 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 This project has reached financial close and the Company is
committed to invest up to GBP180 million in addition to the GBP30
million invested in August 2015.
2 Represents current estimated total future investment commitment by the Company.
3 Represents the estimated current unaudited capital value of
the project and includes both debt and equity.
Rupert Dorey John Whittle
26 August 2015 26 August 2015
Chairman Director
Board of Directors
Background and Experience
Rupert Dorey Giles Frost Claire Whittet John Whittle John Stares
(Chairman)
Aged 55 and Aged 52, resident Aged 60 and Aged 60, John Aged 64 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 holds for 23 years
in credit related Giles qualified more recently, non-executive as a management
products. as a solicitor Managing Director positions on consultant
Rupert's expertise and partner and Co-Head a number of with Accenture
was principally in the law of Rothschild other boards where he held
in the areas firm Wilde Bank International and chairs a wide variety
of debt distribution, Sapte (now Ltd and Director the NED committee of leadership
origination Dentons). of Rothschild of the Guernsey roles.
and trading, Giles is a Bank (CI) Ltd. Investment He currently
where he held Director of Claire was Fund Association. holds non-executive
a number of Amber Infrastructure previously John was previously positions on
senior positions Group Holdings with Bank of Finance Director the boards
at CSFB, including Limited, the Scotland and of Close Fund of several
Fixed income ultimate holding was latterly Services, a other companies.
Credit product company of Global Head large independent John is a Fellow
coordinator the Investment of Private fund administrator. of the Institute
for European Adviser to Client Credit Prior to moving of Chartered
offices and the Company at Bank of to Guernsey, Accounts in
head of UK and various Bermuda. John was at England and
Credit and of its subsidiaries. Claire is a Price Waterhouse Wales, a member
Rates Sales. Non-Executive in London before of the Worshipful
Since 2005 Director on embarking on Company of
Rupert has a number of a career in Management
been a Non-Executive other funds, business services, Consultants
Director for is a member predominantly and a Freeman
a number of of the Chartered telecoms of the City
Hedge Funds, Institute of of London.
Private Equity Bankers in
& Infrastructure Scotland, a
Funds. member of the
Rupert is a Chartered Insurance
member of the Institute,
Institute of a Chartered
Directors.. Banker, a member
of the Institute
of Directors
and holds the
Institute of
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
26 August 2015 26 August 2015
Chairman Director
Independent Review Report to International Public Partnerships
Limited
Introduction
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August 27, 2015 02:03 ET (06:03 GMT)
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 2015 which comprises the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Equity, the Condensed
Consolidated Statement of Financial Position, 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 2015 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
26 August 2015
Condensed Consolidated Statement of Comprehensive Income
(unaudited)
Six months ended 30 June 2015
Six months Six months
ended ended
30 June 30 June
2015 2014
Notes GBP'000s GBP'000s
Interest income 4 20,707 15,330
Dividend income 4 9,595 14,175
Net change in fair value of investments
at fair value through profit or loss 4 16,649 13,847
Realised gain on disposal of investments 4 - 1,161
Total investment income 46,951 44,513
Other operating income/(expense) 5 980 (742)
========================================= ========= === ================= ============
Total income 47,931 43,771
Management costs 6, 17 (6,485) (5,628)
Administrative expenses (552) (523)
Transaction costs 7 (644) (314)
Directors' fees (115) (133)
Total expenses (7,796) (6,598)
Profit before finance costs and tax 40,135 37,173
Finance costs 8 (1,730) (1,258)
Profit before tax 38,405 35,915
Tax credit 9 1,011 986
========================================= ========= === ================= ============
Profit for the period 39,416 36,901
========================================= ========= === ================= ============
_____
Earnings per share
From continuing operations
Basic and diluted (pence) 10 4.71 4.85
========================================= ========= ======== ============ ============
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 2014: 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 2015
Other
distributable Retained
Share capital reserve earnings Total
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2014 625,289 182,481 254,298 1,062,068
Total comprehensive income - - 39,416 39,416
Issue of Ordinary Shares 2,521 - - 2,521
Distributions in the period - - (26,338) (26,338)
Balance at 30 June 2015 627,810 182,481 267,376 1,077,667
============================== ============== ================== ============ =============
Other
distributable Retained
Share capital 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
============================== ============== ================== ============ ============
Condensed Consolidated Balance Sheet (unaudited)
As at 30 June 2015
30 June 31 December
2015 2014
Notes GBP'000s GBP'000s
Non-current assets
Investments at fair value through
profit or loss 11 1,084,972 1,032,941
================================== ============= ================= =============
Total non-current assets 1,084,972 1,032,941
================================== ============= ================= =============
Current assets
Trade and other receivables 11,13 22,002 19,529
Cash and cash equivalents 11 16,289 29,391
Derivative financial instruments 11 3,016 2,948
Total current assets 41,307 51,868
================================== ============= ================= =============
Total assets 1,126,279 1,084,809
================================== ============= ================= =============
Current liabilities
Trade and other payables 11,14 7,305 6,414
================================== ============= ================= =============
Total current liabilities 7,305 6,414
Non-current liabilities
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Bank loans 8,11 41,307 16,327
================================== ============= ================= =============
Total non-current liabilities 41,307 16,327
================================== ============= ================= =============
Total liabilities 48,612 22,741
================================== ============= ================= =============
Net assets 1,077,667 1,062,068
================================== ============= ================= =============
Equity
Share capital 15 627,810 625,289
Other distributable reserve 15 182,481 182,481
Retained earnings 15 267,376 254,298
================================== ============= ================= =============
Equity attributable to equity
holders of the parent 1,077,667 1,062,068
================================== ============= ================= =============
Net assets per share (pence per
share) 16 128.6 127.0
================================== ============= ================= =============
The Half-yearly Financial Report was approved by the Board of
Directors on 26 August 2015.
They were signed on its behalf by:
Rupert Dorey John Whittle
26 August 2015 26 August 2015
Chairman Director
Condensed Consolidated Cash Flow Statement (unaudited)
Six months ended 30 June 2015
Six months
ended 30 Six months
June ended 30
2015 June 2014
Notes GBP'000s GBP'000s
Profit from operations 39,416 36,901
Adjusted for:
Unrealised exchange loss 112 325
Gain on investments at fair value through
profit or loss 4 (16,649) (13,847)
Finance costs 8 1,730 1,258
Net income tax credit 9 (1,011) (986)
Fair value movement on derivative financial
instruments 5 (68) 415
Realised gain on disposal of investments 4 - (1,161)
Working capital adjustments
(Increase)/Decrease in receivables (1,304) 1,288
(Decrease)/Increase in payables (112) 1,049
22,114 25,242
Income tax received(1) - 422
=================================================== ====== ============ ============
Net cash inflow from operations 22,114 25,664
=================================================== ====== ============ ============
Investing activities
Acquisition of investments at fair value
through profit or loss (42,695) (20,117)
Net repayments from investments at fair
value through profit or loss 7,313 3,433
=================================================== ====== ============ ============
Net cash outflow from investing activities (35,382) (16,684)
=================================================== ====== ============ ============
Financing activities
Dividends paid (23,817) (20,199)
Loan drawdowns 24,980 -
Finance costs paid (727) (2,663)
Net cash inflow/(outflow) from financing
activities 436 (22,862)
=================================================== ====== ============ ============
Net decrease in cash and cash equivalents (12,832) (13,882)
Cash and cash equivalents at beginning
of period 29,391 80,609
Exchange (loss)/gain on cash and cash equivalents (270) 95
=================================================== ====== ============ ============
Cash and cash equivalents at end of period(2) 16,289 66,822
=================================================== ====== ============ ============
(1) Group tax losses surrendered to unconsolidated investment
entities.
(2) Includes restricted cash of GBPnil (June 2014: GBP23.1
million) committed for investment purposes.
Notes to the Condensed set of Financial Statements
(unaudited)
Six months ended 30 June 2015
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 inside backcover. The nature of the Group's
operations and its principal activities are set out in pages 2 to
4.
These financial statements are presented in pounds Sterling as
this is the currency of the primary economic environment in which
the Group ('Parent and consolidated subsidiary entities') 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 2014
included in this Half-yearly Financial Report is derived from the
31 December 2014 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
2014, 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 2014. 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 2014, the Directors determined that International
Public Partnerships Limited is an investment entity as defined by
IFRS 10 on the basis that:
a) it obtains funds from one or more investor(s) for the purpose
of providing those investor(s) with investment management
services;
b) it commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
c) it measures and evaluates the performance of substantially
all of its investments on a fair value basis.
Accordingly, these condensed consolidated financial statements
consolidate only those subsidiaries that provide services relevant
to its investment activities, such as management services,
strategic advice and financial support to its investees.
Subsidiaries that do not provide investment-related services are
required to be measured at fair value through profit or loss in
accordance with IAS 39 Financial Instruments: Recognition and
Measurement.
Going concern
The Directors have reviewed 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 GBP16.3 million2 as at 30 June 2015. In May
2015, the Company's corporate debt facility was renewed to GBP300
million (December 2014: GBP175 million) of which GBP48.2 million2
is uncommitted (as at 30 June 2015) and available for investment in
new and existing projects until May 20181. 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 cash flows from investments.
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August 27, 2015 02:03 ET (06:03 GMT)
1 At 30 June 2015, GBP41.3 million of the corporate debt
facility was drawn, GBP210.5 million was issued as letters of
credit and GBP48.2 million remained undrawn or unutilised.
2 As of the date of this report GBP82.2 million of our corporate
debt facility was drawn, GBP179.6 million was issued as letters of
credit and GBP38.2 million remained undrawn.
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 2015. 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 2015 and are satisfied with the resulting
conclusion.
Fair valuation of investments at fair value through profit or
loss
Fair values are determined using the income approach which
discounts the expected cash flows at a rate appropriate to the risk
profile of each asset. In determining the discount rate and
relevant long-term government bond yields, tax risks, 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, 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), North America and Australia.
Six months ended 30 June 2015
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 23,761 3,345 869 2,327 30,302
Fair value gain/(loss)
on investments 40,049 (16,282) (1,354) (5,764) 16,649
Total investment
income 63,810 (12,937) (485) (3,437) 46,951
Reporting segment
profit/(loss) (1) 55,963 (13,206) (360) (2,981) 39,416
======================== ==========
As at 30 June 2015
Europe Non
UK UK North America(2) Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Segmental financial
position
Investments at fair
value 767,779 194,409 37,131 85,653 1,084,972
Current assets 41,307 - - - 41,307
======================== ========== =========== ================= ========== ==============
Total assets 809,086 194,409 37,131 85,653 1,126,279
Total liabilities (48,612) - - - (48,612)
======================== ========== =========== ================= ==============
Net assets 760,474 194,409 37,131 85,653 1,077,667
========== ==============
1 Reporting segment results are stated net of operational costs
including management fees.
2 North American segment currently relates entirely to projects
in Canada.
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(1) 18,619 8,610 288 9,384 36,901
============================ ==========
As at 30 June 2014
Europe Non
UK UK North America(2) Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
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
========== ==============
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 GBP9.8
million (June 2014: GBP12.1 million). Segmental profits in the UK
have increased in the period in part due to a revised valuation of
Angel Trains in line with market activity. Segmental losses in
Europe, North America and Australia are mainly driven by adverse
foreign exchange conditions and lower than expected inflation.
4. Investment Income
Six months
Six months ended ended
30 June 30 June
2015 2014
GBP'000s GBP'000s
Interest income
Interest on investments 20,689 15,014
Interest on bank deposits 18 316
================================================= ================ ==========
Total interest income 20,707 15,330
================================================= ================ ==========
Dividend income 9,595 14,175
Net change in fair value of financial assets
at fair value through profit or loss 16,649 13,847
ReRealised gain on disposal of investments - 1,161
Total investment income 46,951 44,513
================================================= ================ ==========
All dividend income and interest income has resulted from
transactions with unconsolidated subsidiary entities. Gains on
investments at fair value through profit or loss also relate to
investments in unconsolidated subsidiaries.
In the six months ended 30 June 2014, International Public
Partnerships Limited agreed to divest its minority investments in a
number of BSF projects resulting in a realised gain of GBP1.16
million. No disposals were carried out in the six months ended 30
June 2015.
5. Other Operating Income/(Expense)
Six months
Six months ended ended
30 June 30 June
2015 2014
GBP'000s GBP'000s
Fair value gain/(loss) on foreign exchange
contracts 68 (415)
Gain/(loss) on foreign exchange movements 912 (327)
=========================================== ================ ==========
Total other income/(expense) 980 (742)
=========================================== ================ ==========
6. Management Costs
Six months
Six months ended ended
30 June 30 June
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2015 2014
GBP'000s GBP'000s
Base fee (note 17) 6,485 5,628
6,485 5,628
=================== ================ ==========
7. Transaction Costs
Six months
Six months ended ended
30 June 30 June
2015 2014
GBP'000s GBP'000s
Investment advisory costs 640 297
Legal and professional costs 4 17
========================================== ================ ============
644 314
========================================== ================ ============
Details of investment advisory costs paid are provided in note
17.
8. Finance Costs
Six months
Six months ended ended
30 June 30 June
2015 2014
GBP'000s GBP'000s
Commitment fees and other charges 1,350 823
Issue cost amortisation 380 435
================================== ================ ==========
Total finance costs 1,730 1,258
================================== ================ ==========
In May 2015, the Group renewed the corporate debt facility with
the existing providers, Royal Bank of Scotland and National
Australia Bank Limited and increased the facility from GBP175
million to GBP300 million. As at 30 June 2015, the undrawn balance
on the corporate debt facility was GBP48.2 million. The drawdowns
in the period were in the form of cash drawdowns and issuance of
letters of credit. Cash drawdowns were used to partially fund the
cash invested in the period and the letter of credit drawdowns were
used to back the Group's commitment to a future pipeline of cash
investments.
The interest rate margin on the corporate debt facility is 175
basis points over Libor. The loan facility matures in May 2018 and
is secured over the assets of the Group.
9. Tax
Six months Six months
ended ended
30 June 30 June
2015 2014
GBP'000s GBP'000s
Current tax:
UK corporation tax - current year (1,081) (1,135)
Overseas tax - current year 70 149
Tax credit for the period (1,011) (986)
================================== ========== ==========
Reconciliation of effective tax rate
Six months ended Six months
30 June ended
2015 30 June
GBP'000s 2014
GBP'000s
Profit before tax 38,405 35,915
================================================ ================= ===========
Expected tax on profit at Guernsey corporation - -
rate - 0% (2014: 0%)
Application of overseas tax rates 70 149
Group tax losses surrendered to unconsolidated
investment entities (1,081) (1,135)
Tax credit for the period (1,011) (986)
================================================ ================= ===========
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. In accordance with the IFRS 10 investment entity
amendments, underlying investment entity tax is not consolidated
within these financial statements. Total forecasted corporation tax
payable by the Group's underlying investments is GBP759 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:
Six months Six months
ended ended
30 June 30 June
2015 2014
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 39,416 36,901
============================================== ============================================================ ===========
Number Number
============================================== ============================================================ ===========
Number of shares
Weighted average number of Ordinary Shares for
the purposes
of basic and diluted earnings per share 836,373,591 760,877,969
Basic and diluted (pence) 4.71 4.85
=============================================== ============================================================ ===========
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
30 June 31 December
2015 2014
GBP'000s GBP'000s
===================================================== ========= ===========
Investments at fair value through profit and loss(1) 1,084,972 1,032,941
Financial asset loans and receivables
Trade and other receivables 22,002 19,529
Cash and cash equivalents 16,289 29,391
Derivative financial instruments
Currency swaps 3,016 2,948
Total financial assets 1,126,279 1,084,809
===================================================== ========= ===========
1 Includes fair value of investments in associates amounting to
GBP1.7 million (Dec 2014: GBP1.7 million).
11.2 Financial liabilities
30 June 31 December
2015 2014
GBP'000s GBP'000s
================================================= ========= =============
Financial liabilities
Bank loans 41,307 16,327
Trade and other payables 7,305 6,414
Total financial liabilities 48,612 22,741
================================================= ========= =============
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 Adviser is
responsible for identifying and controlling risks. The Board of
Directors supervises the Investment Adviser and is ultimately
responsible for the overall risk management of the Group.
The Group's risk management framework and approach is set out
within the Strategic Report in the 31 December 2014 annual
financial statements.
Market Risk
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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 Group's portfolio of investments has been developed in
anticipation of continued inflation at or above the levels used in
the Group's valuation assumptions over the long term. 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 Group varies and is not consistent.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows from underlying
investments therefore impacting the value of investments at fair
value through profit or loss. The Group has limited exposure to
interest rate risk as the underlying borrowings within the 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. Interest income on bank
deposits held at underlying investment level is included within the
fair value of investment. Sensitivity analysis showing the impact
of variations in the interest income deposit rate on fair value of
investment is shown in section 11.5.
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 31 December
2015 2014
GBP'000s GBP'000s
Cash
Euro 1,542 2,263
Canadian Dollar 1,125 824
Australian Dollar 1,260 1
================================================= ========= ===========
3,927 3,088
Current receivables
Euro receivables 348 407
================================================= ========= ===========
348 407
Investments at fair value through profit or loss
Euro 194,409 210,962
Canadian Dollar 37,131 38,858
Australian Dollar 85,653 93,050
================================================= ========= ===========
317,193 342,870
================================================= ========= ===========
Total 321,468 346,365
================================================= ========= ===========
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. 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. Ultimate responsibility for liquidity risk
management rests with the Board of Directors.
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
2015, the Group's level 2 financial instruments include currency
forward contracts amounting to an asset of GBP3.0 million (December
2014: asset of GBP2.9 million).
Financial instruments classified as level 2 have been valued
using models whose inputs are observable in an active market (spot
exchange rates, yield curves, interest rate curves). Valuations
based on observable inputs include financial instruments such as
swaps and forward contracts which are valued using market standard
pricing techniques where all the inputs to the market standard
pricing models are observable.
Level 3:
This category consists of investments in equity and loan
instruments in underlying unconsolidated subsidiary entities which
are classified at fair value through profit or loss. At 30 June
2015, fair value of financial instruments classified as level 3
totalled GBP1,085.0 million (December 2014: GBP1,032.9
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 Company. The valuation of unlisted equity and debt investments
is performed on a quarterly basis by the Investment Adviser and
reviewed by the senior members of the Investment Adviser. The
valuations are also subject to quality assurance procedures
performed by the Investment Adviser. The Investment Adviser
verifies the major inputs applied in the latest valuation by
agreeing the information in the valuation computation to relevant
project financial models and market information. In addition, the
accuracy of the computation is tested. The latest valuation is also
compared with the valuations in the preceding semi-annual and
annual reporting periods. The senior members of the Investment
Adviser consider the appropriateness of the valuation methods and
inputs. On a quarterly basis, after the checks above have been
performed the Investment Adviser presents the valuation results to
the Audit and Risk Committee. This includes a discussion of the
major assumptions used in the valuations, with an emphasis on the
more significant investments. Any changes in valuation methods and
assumptions are discussed and agreed with the Company'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 Company or Investment Adviser
and adjusted where appropriate.
Projected net future cash flows
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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
======================== ================ ======================== ======================= ===================
1% until 2017;
Inflation 2.75% 2% thereafter 2.00% 2.50%
Long-term tax rates(1) 20.00% 12.50% - 39.99% 25.00% - 26.50% 30.00%
Foreign exchange rates n/a 1.33 1.95 2.15
Long-term deposit
rates 3.50% 3.00% 3.00% 4.50%
======================== ================ ======================== ======================= ===================
1 Corporation tax rates are only updated once they have been
enacted.
Discount rate
The discount rate used for valuation of each investment is the
aggregate of the following:
> the 6 month average yield on a government bond with a
remaining maturity matched as closely to the remaining life of the
project as possible, 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 0.67%. This was offset by a 0.48% 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 2015 31 December Movement
2014
============================= ============= ============ =========
Weighted Average Government
Bond Rate 2.12% 2.79% (0.67%)
Weighted Average Project
Premium 5.17% 4.69% 0.48%
============================= ============= ============ =========
Weighted Average Discount
Rate 7.29% 7.48% (0.19%)
============================= ============= ============ =========
Weighted Average Discount
Rate(1) 7.83% 7.90% (0.07%)
============================= ============= ============ =========
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
2015
GBP'000s
Balance at 1 January 2015 1,032,941
Additional investments during the period 42,695
Net repayments during the period (7,313)
Total gains in comprehensive income 16,649
========================================== =============
Balance at 30 June 2015 1,084,972
========================================== =============
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:
Weighted average Fair value Fair value
rate applied impact impact
in base case of +change of +change
Significant assumptions valuations Sensitivity factor GBP'000 GBP'000
========================== ==================== ============================== ================ =============
Discount rate 7.29% +/- 1.0% (93,104) 108,650
========================== ==================== ============================== ================ =============
Inflation rate (overall) 2.57% +/- 1.0% 88,416 (77,156)
========================== ==================== ============================== ================ =============
UK (RPI) 2.75% +/- 1.0% 40,700 (38,151)
Europe (CPI) 2.00% +/- 1.0% 35,350 (29,085)
North America (CPI) 2.00% +/- 1.0% 1,193 (1,047)
Australia (CPI) 2.50% +/- 1.0% 11,173 (8,873)
========================== ==================== ============================== ================ =============
FX rate n/a +/- 10% 38,666 (31,638)
Tax rate 22.95% +/- 1.0% (7,216) 7,994
Deposit rate 3.12% +/- 1.0% 13,976 (12,913)
========================== ==================== ============================== ================ =============
12. Investment Acquisitions
Consideration Investment
Date of acquisition Description GBP'000s post acquisition
===================== ========================================== ============== ==================
The Group invested three batches of
funding in Aggregator Vehicle PLC
which in turn funds the UK government's
25 March 2015 Priority Schools Building Programme. 26,504 100%
The Group made follow on investments
in four Lewisham Building Schools
17 April 2015 for the Future projects. 14,286 41-50%
The Group made a follow on investment
in the Inspire Partnership Liverpool
30 June 2015 Library project. 1,905 100%
42,695
================================================================= ============== ==================
13. Trade and Other Receivables
30 June 31 December
2015 2014
GBP'000s GBP'000s
Accrued interest receivable 15,148 13,045
Other debtors 6,854 6,484
============================= ============= ===============
22,002 19,529
============================= ============= ===============
Other debtors includes GBP5.0 million (December 2014: GBP4.9
million) of receivables from unconsolidated subsidiary entities for
surrender of Group tax losses.
14. Trade and Other Payables
30 June 31 December
2015 2014
GBP'000s GBP'000s
Accrued management fee 6,485 5,980
Other creditors and accruals 820 434
============================== ============= ===============
7,305 6,414
============================== ============= ===============
15. Share Capital and Reserves
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Share capital
30 June 31 December
2015 2014
shares shares
'000s '000s
In issue 1 January 836,159 760,642
Issued for cash - 70,370
Issued as a scrip dividend alternative 1,847 5,147
Closing shares in issue - fully paid 838,006 836,159
================================================== ========= ===========
30 June 31 December
2015 2014
GBP'000s GBP'000s
Opening balance 1 January 625,289 524,393
================================================== ========= ===========
Issued for cash (excluding issue costs) - 95,000
Issued as a scrip dividend alternative 2,521 6,688
Total share capital issued in the period 2,521 101,688
================================================== ========= ===========
Costs on issue of Ordinary Shares - (792)
================================================== ========= ===========
Closing balance 627,810 625,289
================================================== ========= ===========
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
reserve account as at 30 June 2015 is GBP182.5 million (December
2014: GBP182.5 million).
Retained earnings
30 June 31 December
2015 2014
GBP'000s GBP'000s
Opening balance 254,298 228,517
Net profit for the period 39,416 73,211
Dividends paid (26,338) (47,430)
========================== ========= ===========
Closing balance 267,376 254,298
========================== ========= ===========
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 2015.
The Board approved an interim distribution of 3.225 pence per
share (6 months to June 2014: 3.15 pence 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 a going concern while
providing improved returns to shareholders through the management
of the debt and equity balances. The capital structure consists of
the Group's corporate 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 Adviser reviews the capital structure on
at least a semi-annual basis. As part of this review, the
Investment Adviser considers the cost of capital and the risks
associated with each class of capital.
16. Net Assets per Share
30 June 31 December
2015 2014
GBP'000s GBP'000s
Net assets attributable to equity holders of
the Parent 1,077,667 1,062,068
=============================================== ============= ==============
Number Number
============================================== ============= ==============
Number of shares
Ordinary shares outstanding at the end of the
period 838,005,726 836,159,373
=============================================== ============= ==============
Net assets per share (pence per share) 128.6 127.0
=============================================== ============= ==============
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 Adviser, Amber Fund
Management Limited ('AFML').
Under the Investment Advisory Agreement ('IAA'), AFML was
appointed to provide investment advisory services to the Group
including advising the Group as to the strategic management of its
portfolio of investments.
AFML is a subsidiary company of Amber Infrastructure Group
Holdings Limited ('Amber Group'), in which Mr G Frost is a Director
and also a shareholder.
Mr G Frost is also a Director of International Public
Partnerships Limited (the 'Company'); International Public
Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the
Company); and the majority of other companies in which the Group
indirectly has an investment. The transactions with the Amber Group
are considered related party transactions under IAS 24 'Related
Party Disclosures'.
The Director's fees for Mr G Frost's directorship of the Company
are paid to his employer, Amber Infrastructure Limited.
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
six months six months At
to 30 June to 30 June 30 June At 31 December
2015 2014 2015 2014
GBP'000s GBP'000s GBP'000s GBP'000s
International Public Partnerships
GP Limited 6,485 5,628 6,485 5,980
Amber Fund Management Limited
(1) 640 297 29 -
=================================== =============== =============== ============== ==================
Total 7,125 5,925 6,514 5,980
=================================== =============== =============== ============== ==================
1 Represents amounts paid to related parties to acquire or make
investments or advisory fees associated with investments which are
subsequently recorded in the balance sheet.
Investment advisory fee / profit share payable during the period
is 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
Investment advisory fees in connection with new acquisitions are
charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group's
assets are available for use for certain periods and the Investment
Adviser fails to implement a remediation plan agreed with the
Group. The IAA may also be terminated by either party giving to the
other five years notice of termination, expiring at any time after
ten years from the date of the IAA.
As at 30 June 2015, Amber Infrastructure held 8,002,379 (June
2014: 8,002,379) shares in the company. The shares held by the
Investment Adviser in the Company helps further strengthen the
alignment of interests between the two parties.
Transactions with Directors
John Whittle acquired an additional 928 shares in the six month
period ended 30 June 2015. None of the other Directors acquired any
additional shares in the Company during the period.
18. Contingencies and Commitments
As at 30 June 2015 the Group has committed investments supported
by letters of credit amounting to GBP210 million which were drawn
on the Group's corporate debt facility.
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