TIDMINPP
RNS Number : 1121T
International Public Partnership Ld
24 March 2016
24 March 2016
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
FULL YEAR RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER
2015
Record level of committed investments
International Public Partnerships Limited (INPP), the listed
infrastructure investment company which invests internationally in
public infrastructure projects, today announces full year results
for the twelve months ended 31 December 2015.
Financial Highlights (as at 31 December 2015 unless otherwise
stated)
-- Strong Net Asset Value ('NAV') growth of 21.5% to GBP1,290.2
million (31 December 2014: GBP1,062.1 million) with NAV per share
increasing 2.5% to 130.2 pence (31 December 2014: 127.0
pence)(1)
-- Full year 2015 fully covered cash dividend declared, up
c.2.5% to 6.45 pence per share (31 December 2014: 6.30 pence per
share)(2)
-- Minimum target dividend for 2016 financial year of 6.65 pence
per share and 2017 of 6.82 pence per share, an average increase of
c.2.5%(3) in each period
-- IFRS profit before tax of GBP79.9 million (31 December 2014: GBP71.2 million)
-- Significant degree of inflation linkage within the portfolio
with a 0.76% projected annual increase in return for a 1% increase
over anticipated portfolio inflation
-- Total Shareholder Return since listing in 2006 of 115.0%,
compared to 49.2% on the FTSE All Share over that same
period(4)
Portfolio Performance
-- Record GBP311.7 million of investment commitments made in a
series of landmark infrastructure assets, including the pathfinding
Thames Tideway Tunnel ('Tideway') and US Military Housing
project
-- Oversubscribed equity capital raising of GBP198 million
(before issue costs) from new and existing investors demonstrating
continued confidence in the Investment Adviser to originate
attractive pipeline
-- Majority ownership of investments for 72% of the overall portfolio
-- Underlying investments with external debt represent 84% of the investment portfolio
-- Post period end, GBP26.8m investment in its sixth UK offshore
transmission project, Westermost Rough
Outlook
-- In spite of persistent volatility in the global equity
markets, the Company remains well-placed to deliver steady,
predictable returns to its investors over the long-term
-- Continued confidence in the Investment Adviser to originate
and structure transactions so that shareholders can benefit from
early stage investments in the primary market
-- Commitment to proactive asset management will serve the
Company's best interests by enhancing value across the portfolio as
multiple assets move through their relative construction phase
(1) .See Annual Report and Financial Statements for the twelve
months ended 31 December 2015 for further details on NAV
methodology.
(2) .The forecast date for payment of the half year dividend is
June 2016.
(3) .Future profit forecast and dividends cannot be guaranteed.
Projections are based on the current individual asset financial
models and may vary in the future.
(4) Source: Bloomberg. Share price plus dividends assumed to be
reinvested.
Rupert Dorey, Chairman of International Public Partnerships
Limited, commented: "I am pleased to announce that 2015 was a
record year for the Company following the commitment of over GBP300
million in landmark UK and global infrastructure assets, helping to
deliver a fully covered cash dividend increase of 2.5% for the
ninth consecutive year."
"Entering the Company's tenth anniversary year, tailored primary
market origination of long-term, low-risk and stable investment
opportunities combined with unique exposure to the emerging North
American PPP market continue to be among the factors that
differentiate the Company in the sectors in which it invests. The
Company invested in one of the UK's largest infrastructure
projects, the GBP4.2 billion Tideway project, before making its
first investment in the United States. I'm confident in the
Company's future prospects given its continued robust performance
and in the Investment Adviser's judgement and ability to strengthen
the portfolio and its pipeline."
http://www.rns-pdf.londonstockexchange.com/rns/1121T_-2016-3-23.pdf
ENDS
INPP will be holding an analyst and investor presentation and
conference call at 09.30am on the day of announcement (24 March
2016).
Investors and analysts wishing to attend are asked to RSVP to
Mitch Barltrop at FTI Consulting on +44 (0)20 3727 1039 /
mitch.barltrop@fticonsulting.com. Investors and analysts wishing to
join the conference call should dial +44(0)20 3427 1908 and use the
confirmation code 2378324.
A copy of the results presentation can be downloaded from the
Company's website:
www.internationalpublicpartnerships.com
Amber Infrastructure +44 (0)20 7939
Erica Sibree 0558
+44 (0)20 3727
1046
+44 (0)7703 330
199
FTI Consulting
Ed Berry +44 (0)20 3727
1039
+44 (0)7807 296
Mitch Barltrop 032
About International Public Partnerships:
International Public Partnerships Limited (INPP) is a listed
infrastructure investment company which invests in global public
infrastructure projects developed under the public private
partnerships (PPP) and private finance initiative (PFI) procurement
methods.
Listed in 2006, INPP is a long-term investor in over 120 social
and transport infrastructure projects, including schools,
hospitals, courts, police headquarters, transport, renewable energy
and waste water projects in the U.K., Europe, Australia and North
America. INPP seeks to provide its shareholders with both a
long-term government-backed yield and capital growth through
investment across both construction and operational phases of
typically 20-40 year concessions.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
International Public Partnerships Limited
Annual Report and Financial Statements for the year ended 31
December 2015
Registered number: 45241
www.internationalpublicpartnerships.com
Note: Page references in this announcement refer to the full
formatted Annual Financial Report for the period ended 31 December
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.
Key Points
Net Asset Value
- Net Asset Value ('NAV')(1) per share of 130.2 pence as at 31
December 2015 (127.0 pence - 31 December 2014)
- NAV of GBP1,290.2 million as at 31 December 2015, up GBP228.1
million (GBP1,062.1 million - 31 December 2014)
Shareholder Returns
- 2015 fully covered cash dividend(2) of 6.45 pence per share(3) (6.30 pence per share - 2014)
- Two year forward looking fully covered cash dividend target
for the years ended 31 December 2016 and 2017 of 6.65 and 6.82
pence per share respectively - maintaining a long-term average
increase of c.2.5% per annum(4)
- Total Shareholder Return since listing in 2006 to 31 December
2015 of 115.0%(5) compared to 49.2% on the FTSE All Share over that
same period or 8.7% and 4.5% (respectively) on an annualised
basis
Earnings
- Profit before tax of GBP79.9 million for the year ended 31
December 2015 (GBP71.2 million - 31 December 2014)
Highlights
- GBP311.7 million of additional investment commitments made
during the year and a further GBP26.8 million since 31 December
2015
- GBP198 million (before issue costs) of new equity capital raised from shareholders
- Significant degree of inflation linkage within the portfolio -
0.76% per annum projected increase in return for a 1% increase over
anticipated average portfolio inflation(6)
- Majority ownership of investment for 72% of portfolio
- Underlying investments with external debt(7) represent 84% of the investment portfolio
- Underlying investments with no external debt(8) represent 16% of the investment portfolio
- Strong set of international and UK investment opportunities
-
(1) The methodology used to determine investment fair value is
incorporated within the Net Asset Value ('NAV') as described in
detail on pages 19 - 24.
(2) Cash dividend payments to investors are paid from net
operating cash flow (after taking into account financing
costs).
(3) The forecast date for payment of the full year dividend is May 2016.
(4) Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
(5) Source: Bloomberg. Share price plus dividends assumed to be reinvested.
(6) See pages 23 - 24 for information relating to the Company's use of sensitivity analysis.
(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.
Company Overview
International Public Partnerships Limited (the 'Company'), in
accordance with its Investment Policy, invests in equity,
subordinated/mezzanine debt and senior loans to entities owning or
operating infrastructure concessions, assets or related
businesses.
Investments include schools, courthouses, health facilities,
police stations, and other public sector buildings, rail
operations, rolling stock leasing entities, waste water and
offshore electricity transmission asset owning entities. The
Company's investments are located in the UK, Europe, Australia and
North America.
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
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') and similar public
procurement processes.
Features of International Public Partnerships Limited and its
investment portfolio are:
Portfolio
- Geographically diversified with a portfolio across eight countries in a variety of sectors
- A focus on yielding operational investments but with an
element 'in construction' offering 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 portfolio would imply a 0.76% per annum
increase in return across the portfolio
- The Investment Adviser has historical success in originating
and developing new 'primary market' 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 founded on asset availability, not demand, usage
or other non-controllable variables
- A significant portion (12.3%) of the portfolio is invested in
secured senior debt (where no other debt ranks in preference to the
Company's investment in the asset)
Shareholder Returns
- Strong track record of delivering consistent dividend growth and capital appreciation
- Total Shareholder Return since listing in 2006 to 31 December
2015 of 8.7% on an annualised basis
- Share liquidity through listing and trading on the London Stock Exchange
- Target internal rate of return equal to or greater than 8% per
annum 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
- Member of the FTSE 250 and FTSE All Share indices
- Listed since November 2006 with an initial market
capitalisation of GBP300 million and current market capitalisation
of GBP1.38 billion as at 31 December 2015 (2014: GBP1.13
billion)
- 990.6 million shares in issue as at 31 December 2015 (2014: 836.2 million)
- The Company's shares are eligible for ISA/PEPs and SIPPs transfers
- The Company's shares are excluded from the Financial Conduct
Authority restrictions which apply to non-mainstream investment
products and can therefore be recommended by independent financial
advisers to their clients
Investment Adviser Fees
- Competitive fee structure
- For investments bearing construction risk: 1.2% per annum of gross asset value ('GAV')
- For fully operational assets:
-- 1.2% per annum of the GAV (excluding uncommitted cash from
capital raisings) up to GBP750 million
-- 1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion
-- 0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) value exceeds GBP1.5 billion
- 1.5% asset origination fee of the value of new investments to
cover acquisition due diligence and more time/cost intensive
primary market new origination activities
- Investment Adviser bears the risk of abortive transaction origination costs
- No incentive or performance fees
(1) Source: Bloomberg. Share price plus dividends assumed to be reinvested.
Key Portfolio Facts
As at 31 December 2015
Sector Breakdown
Energy transmission 29%
--------------------- ----
Education 23%
--------------------- ----
Transport 20%
--------------------- ----
Health 7%
--------------------- ----
Courts 6%
--------------------- ----
Waste Water 5%
--------------------- ----
Police 4%
--------------------- ----
Military
Housing 3%
--------------------- ----
Other 3%
120 investments in infrastructure projects(1) across a variety
of sectors.
Geographical Split
UK 71%
----------- ----
Belgium 11%
----------- ----
Australia 7%
----------- ----
Germany 4%
----------- ----
Canada 3%
----------- ----
US 3%
----------- ----
Ireland 1%
----------- ----
Italy <1%
Invested in selected jurisdictions which meant the Company's
risk and return requirements.
Stage of Investment/Asset Status
Construction 8%
-------------- ----
Operational 92%
-------------- ----
Primary
Investor(2) 87%
-------------- ----
Later Stage
Investor(3) 13%
Primary/early stage investor(2) to maximise capital growth
opportunities.
Investment Type
Risk capital only 84%
--------------------- ----
Company owns Risk
Capital and Senior
Debt 16%
Invested across the capital structure taking into account
appropriate risks to returns.
Project Ownership
100% 68%
--------- ----
50%-100% 4%
--------- ----
<50% 28%
Preference to hold majority stakes.
Investment Life
<20 years 52%
----------- ----
20 - 30
years 24%
----------- ----
>30 years 24%
Weighted average portfolio life of 27 years(4)
(1) Information provided in charts above is based on 31 December
2015 portfolio investment fair value. Unless otherwise stated the
Company and its subsidiaries hold investments in equity,
subordinated debt and senior loans made to entities owning or
operating infrastructure concessions, assets or related businesses
most of which are investment subsidiaries.
(2) Early stage investor - asset developed or originated by the
Investment Adviser or predecessor team in the primary market as a
new investment opportunity.
(3) Later stage investor - asset acquired from a third party investor in the secondary market.
(4) Once the Company has fully invested in the Tideway project
the average investment life will, other things being equal, be c.40
years. Twenty-seven years represents the current weighted average
investment life based on the GBP58.9m invested in Tideway as at 31
December 2015.
Top Ten Investments
A complete listing of the Group's investments can be found in
note 22 of the financial statements and further information about
each of these investments is available on the Company's
website.
Significant movements in the Group's portfolio for the year
ended 31 December 2015 can be found on page 28 of the Strategic
Report.
Status % Investment % Investment
at % Holding Fair Fair
31 at Value Value
Name of December 31 December 31 December 31 December
Project Location Sector 2015 2015 2015 2014
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
100%
Lincs Offshore Lincolnshire, Energy Risk
Transmission England Transmission Operational Capital(1) 14.1% 16.3%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
100%
Diabolo Brussels, Risk
Rail Link(2) Belgium Transport Operational Capital(1) 11.4% 13.8%
================== ================== =============== =============== ============== ============= =============
100%
Risk
Capital(1)
Ormonde and 100%
Offshore Cumbria, Energy senior
Transmission England Transmission Operational debt 11.0% 12.5%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
Various,
United 5% Risk
Angel Trains(2) Kingdom Transport Operational Capital(1) 4.9% 1.9%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
Thames Tideway London, Waste Under 16% Risk 4.9% N/A
Tunnel(2) United Water Construction Capital(1)
Kingdom
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
100%
Royal Children's Victoria, Risk
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
Hospital Australia Health Operational Capital(1) 3.4% 4.5%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
Various, 49% Risk
BeNEX Rail Germany Transport Operational Capital(1) 2.9% 3.5%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
100%
Risk
Capital(1)
Hereford and 100%
& Worcester Worcestershire, senior
Courts England Courts Operational debt 2.7% 3.2%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
100%
Northampton Northamptonshire Risk
Schools England Education Operational Capital(1) 2.7% 3.2%
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
US Military Various, Military Operational 100% 2.7% N/A
Housing(2) United Housing Risk
States Capital(1)
------------------ ------------------ --------------- --------------- -------------- ------------- -------------
(1) Risk Capital includes both project level equity and
subordinated shareholder debt.
(2) These projects contain revenues which are not solely
dependent on availability but also include an element of linkage to
other factors such as passenger numbers, rolling stock releasing
assumptions, occupancy and/or are regulated assets. All other
investments receive entirely availability based revenues.
Chairman's Letter
Dear Shareholders,
2015 was a very successful year for the Company with record
levels of investment into a number of projects including Thames
Tideway Tunnel ('Tideway') in London. Through the period, your
Company continued to deliver strong underlying returns from the
portfolio.
The combination of portfolio growth and the subscription of new
capital saw the Company's market capitalisation reach nearly GBP1.4
billion at the close of the year, up from c.GBP1.1 billion at the
equivalent time last year.
Dividend Growth
The Company was once again able to deliver its dividend target,
which for 2015 was 6.45 pence per share or c.2.4% growth over that
in 2014, a rate of growth that has been delivered to investors
since the Company's inception nine years ago. Against the backdrop
of continuing market volatility, our ability to continue to deliver
steady, predictable but growing returns to investors remains our
prime objective.
The Board have once again published a minimum dividend target,
being 6.65 pence per share for 2016, and new guidance of 6.82 pence
per share for the 2017 dividend, an average increase of c.2.5% per
annum, to give additional clarity to shareholders of our future
intentions.(1)
(1) Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
Investment Activity and Capital Raising
The infrastructure assets in which the Company invests continue
to be highly sought after by UK and international investors alike,
resulting in continued strong demand for mature assets in the
infrastructure sectors in which we operate. Amidst this sustained
demand for infrastructure investment, we believe our ability to
originate and structure transactions so that the Company is an
early stage investor into the majority of its investments is a
major differentiating factor which creates real added value for our
shareholders. The majority of our new investments in 2015 were
opportunities originated by our Investment Adviser through direct
dialogue with public sector and regulatory procuring bodies or
through opportunities arising outside of auction processes.
While we will not ignore future auction-based opportunities this
self-origination strategy delivered a particularly successful year
in 2015 with commitments made to nine infrastructure investments
totalling over GBP311.7 million (2014: GBP188.2 million); the most
capital that the Company has committed in any twelve month period
to date. In addition, since the end of the period the Company has
invested GBP26.8 million in Westermost Rough offshore transmission
project, its sixth of these projects. The investment decisions on
all project opportunities are made by the Board and are closely
scrutinised for their appropriateness and their risk and return
profile.
Of special note during the year was the Company's investment
commitment into the Tideway project, the GBP4.2 billion, 25
kilometre 'super-sewer' to be built under the River Thames in
London. The Company's Investment Adviser had a significant role in
originating and developing this opportunity which allowed the
project to be structured in a way that suited the cash flow
profile, risk/return and longevity requirements of the Company. Of
particular attraction was the especially long term duration of cash
flows from the Tideway asset which can be expected to result in a
near doubling of the projected duration of the Company's cash
flows. This project is also anticipated to support the inflation
linkage within the portfolio (more information can be found in the
Case Study on page 27 of this Report). As at 31 December 2015
GBP58.9 million has been invested into the project.
In October 2015, the Company also made its first investment in
the United States, investing approximately US$48 million (GBP32
million) into an interest bearing subordinated debt instrument
underpinned by security over seven operational PPP military housing
projects. The opportunity was identified as a consequence of the
relationship between the Investment Adviser and its 50% shareholder
Hunt Companies Inc. ('Hunt'); a U.S. corporation specialising in
construction and management of infrastructure assets.
The capital required to fund the new investments came from a mix
of the Company's existing cash resources, its corporate debt
facility and the proceeds from share issuances in the period. In
May 2015, the Company revised the terms of its corporate debt
facility, increasing the facility from GBP175 million to GBP300
million on more favourable terms including securing a reduction in
the interest margin by 50 basis points to 175 basis points and
allowing for the option of letters of credit in support of future
capital commitments. The new facility will become due for renewal
in May 2018. Further details of the renewed facility can be found
on page 30.
Share issuances undertaken during the year included a GBP18
million tap issue and a major capital raising in November 2015
which was significantly oversubscribed and raised GBP180 million
from a mix of existing and new investors. This new capital was
immediately used to reduce the drawn balance of the Company's
revolving credit facility and to invest into committed investment
opportunities. We would like to thank all shareholders who
participated in the offer for their support and welcome all of our
new shareholders to the register.
Operational Highlights and Portfolio Performance
I am pleased to report that the portfolio has performed very
strongly during the period. While considerable attention has been
paid to new investments during the year, the cash flow and
valuation performance of the Company's existing portfolio has also
remained very robust. Net Asset Value growth was strong during the
period, increasing 21.5% to GBP1,290.2 million or 2.5% to 130.2
pence on a NAV per share basis.
The existing portfolio has continued to perform in line with
expectations with strong asset management of investments being
fundamental to the Company's overall long-term success. This
approach not only encompasses larger-scale project issues such as
ensuring that major construction schemes or project variations are
tracking to schedule and budget, but the effective management of
day-to-day relationships, such as ensuring that the head teachers
in our schools are satisfied with the facility services being
delivered and the terms of the concession contracts are being
fulfilled.
In addition, the Company's investment in Angel Trains has been
positively impacted in 2015 by recent market activity involving all
main rolling stock companies in the UK rail sector. The market
based evidence that these transactions produced resulted in the
Company making a substantial positive revision to its valuation of
Angel Trains, currently our fourth largest asset. As reported at
the Company's 2015 interim result this investment has, taking into
account its new carrying value, generated a total return of 3.6
times since acquisition in 2008.
Corporate Governance and Regulation
In December 2015 we were pleased to announce the appointment,
effective 1 January 2016, of John Le Poidevin as a non-Executive
Director to the Board. John brings broad financial experience to
the role. He is Audit Committee Chair for a number of listed
companies and serves as a non-executive director on several plc
boards. He was previously a partner of BDO LLP, where as Head of
Consumer Markets, he developed an extensive breadth of financial,
commercial and accounting experience.
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
The Board continues to monitor a number of possible changes to
the regulatory environment. Of particular note is the current OECD
coordinated effort to align certain international tax rules with
the aim of preventing tax 'base erosion and profit shifting'
('BEPs'). The OECD delivered its final recommendations in October
2015 in relation to a number of its areas of focus. It is now for
individual countries to decide the extent to which they implement
these recommendations into local legislation.
Of particular relevance to the infrastructure sector are
proposals rules aimed at limiting the tax deductibility of interest
charges on related and third party debt. We are encouraged by the
OECD's proposals that allow room for individual country authorities
to exempt third party debt in relation to public benefit entities
as well as proposing the potential for grandfathering of existing
transactions. However, the finer detail of how the proposals will
be implemented will be decided by individual countries and whilst
this is being considered the potential impact remains unknown. In
the UK, Her Majesty's Treasury has invited consultation on these
recommendations to which the Company and its Investment Adviser
have in conjunction with industry participants and forums submitted
responses. In last week's UK annual Budget, Her Majesty's Treasury
announced planned implementation of these proposals consistent with
the OECD guidance on interest deductibility. Further consultation
is expected in May 2016 with the intention to legislate in time for
1 April 2017. We will continue to work with our professional
advisers and engage with wider industry groups as well as the
relevant authorities throughout the consultation and implementation
stage with an aim to mitigate unintended consequences, where
possible. It should be noted though that until detailed rules are
finalised in each jurisdiction there will remain a degree of
uncertainty over any potential future impact on the Company.
The Board also notes the 'in-out' referendum in respect of UK EU
Membership on 23 June 2016. It is possible that there may be
market-related volatility (including but not limited to currency,
credit and stock markets) in the months preceding the referendum
due to uncertainty with respect to the outcome. The full impact of
UK exit is extremely difficult to forecast and we will continue to
monitor the outcome and potential impacts which are also outlined
in more detail in the Risk Report.
The Board has also considered the requirements imposed on the
Company under the Common Reporting Standard ('CRS'). The CRS calls
on jurisdictions to obtain information from their financial
institutions and automatically exchange that information with other
jurisdictions on an annual basis. It sets out the financial account
information to be exchanged, the financial institutions required to
report, the different types of accounts and taxpayers covered, as
well as common due diligence procedures to be followed by financial
institutions. The Company is working with its registrar, Capita, to
ensure that it is meeting its obligations.
In addition to its usual review of risks during the year the
Board has considered in more detail the cyber-risks that the
Company may face - an increasingly topical area of risk for many
businesses. The Board has also commissioned a review of the
Company's security protocols in this respect.
As of the date of this report, the Board is required to assess
the viability of the Company in light of potential material risks.
The Board is of the view that the Company is viable over the period
selected for viability assessment. The Viability Statement is
included in the Risk Report.
Outlook
Performance of the portfolio in the early stages of 2016 has
continued to be positive and we remain confident in the ability of
the Company and its Investment Adviser to continue to identify and
execute new investments in core markets to strengthen the Company's
portfolio further. This includes both infrastructure assets within
the primary PPP/PFI space and regulated infrastructure assets.
Where new investment opportunities do arise we will continue to
be selective in those acquisitions which we bring into the
portfolio to ensure that they bring long-term value to
shareholders. Further details are provided within the Outlook
section of the Strategic Report.
I thank all shareholders for their support of the Company in
2015 and look forward to continuing to serve them in 2016.
Rupert Dorey
23 March 2016
Chairman
Strategic Report
Investment policies and objectives
Investment Objectives
The Company seeks to provide shareholders with a predictable,
attractive and sustainable investment yield in addition to the
potential for capital appreciation of the investment portfolio.
The Company targets a minimum annual dividend growth of c.2.5%.
The target annual dividend per share for 2016 and 2017 is 6.65
pence and 6.82 pence respectively. The Company seeks to increase
this annually by a similar rate where sustainable to do so.
The Company also targets an internal rate of return ('IRR')
equal to or greater than 8% per annum on the Initial Public Offer
issue price of 100 pence per Ordinary Share to be achieved over the
long-term. The Directors seek to achieve this through asset
development, future acquisitions, active management and prudent use
of gearing. The 2015 Financial and Operating Performance Review
section provides further information relating to performance during
the year.
Investment Policy
The Company's investment policy is to invest directly or
indirectly in public or social infrastructure assets (usually via
entities which have been granted a concession to operate and manage
those assets) and related businesses located in the UK, Australia,
Europe, North America and, it is anticipated, in due course, in
other parts of the world where the risk profile meets the Company's
risk and return requirements.
The Company intends to continue to acquire operational and
construction phase assets and hold them for the long-term or life
of the asset (or concession), unless there is a strategic rationale
for earlier realisation. The Company will seek to enhance the
capital value and the income derived from its investments. The full
Investment Policy is available on the Company's website
www.internationalpublicpartnerships.com.
Investment parameters
The Company intends to acquire further investments within the
following parameters:
- investments with characteristics similar to the existing portfolio;
- investment in other assets or concessions having a public or
social infrastructure character and in respect of which:
-- availability based payments are or will become payable;
-- a property rental is or will become payable, or
-- user paid charges (or payments related to amount of use) are or will become payable;
- investments in infrastructure assets or concessions
characterised by high barriers to entry and expected to generate an
attractive total rate of return over the life of the
investment.
Portfolio composition
The Company may make investments in any location or jurisdiction
where the investment meets the parameters set out above, although
the Company does not currently expect to invest in projects in
non-OECD countries.
The Company will, over the long-term, maintain a spread of
investments both geographically and across industry sectors in
order to achieve a broad balance of risk in the Company's
portfolio.
The actual asset allocation will depend on the maturity of the
local infrastructure investment market, wider market conditions and
the judgement of the Investment Adviser and the Board as to the
suitability of the investment from a risk and return perspective.
Key Portfolio Facts on page 5 has details of the current
composition of the investment portfolio.
Investment restrictions
The Company's investment policy restricts it from making any
investment of more than 20% of the Company's total assets in any
one investment at that time.
This policy does not however oblige the Company to rebalance its
investment portfolio subsequently as a result of a change in the
Net Asset Value of any investment or the Company as a whole.
However, its purpose is to limit the risk of any one investment to
the overall portfolio.
The Company is also subject to certain restrictions pursuant to
the UKLA Listing rules, i.e. to invest and manage assets with a
view to spreading or otherwise managing investment risk in
accordance with the Investment Policy; to not conduct a trading
activity which is significant to the Group; to not hold more than
10% of its total assets in other listed closed-ended investment
funds. Currently the Company has no investment in any listed
closed-ended investment funds.
Managing conflicts of interest
It is expected that further investments will continue to be
sourced by the Investment Adviser, Amber Fund Management Limited.
It is likely that some of these investments will have been
originated and developed by, and in certain cases may be acquired
from, members of the Amber Infrastructure Group.
The Company has established detailed procedures to deal with
conflicts of interest that may arise and manage conduct in respect
of any such acquisition. The Company's Board is required, in
accordance with the UKLA Listing Rules, to have a majority of
independent members and a Chairman who is independent from the
Investment Adviser. The Operating Model section within this
Strategic Report sets out the operating model for the Company and
the Corporate Governance Report sets out more details on the
conflicts management process.
Financial management
The Company may hold derivative or other financial instruments
designed for efficient portfolio management or to hedge interest,
inflation or currency risks.
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Subject to the strategy approved by the Board, the Investment
Adviser manages such hedging activities for the purpose of
efficient portfolio management to enhance returns from the
portfolio. Hedges are not entered into for speculative purposes.
Further details on the Company's use of hedges are provided in the
financial statements in note 12.
The underlying entities into which the Company invests often are
leveraged. Any debt assumed by these vehicles is non-recourse to
the Company and variable interest rate debt is swapped to fixed
rates at that project's inception to ensure that the cost of the
debt is known over the life of the project concession.
The Company may make prudent use of leverage to enhance returns
to investors, to finance the acquisition of investments in the
short-term and to satisfy working capital requirements.
Under the Company's Articles, outstanding borrowings at the
Company level, including any financial guarantees to support
subscription obligations in relation to investments, are limited to
50% of the Gross Asset Value of the Company's investments and cash
balances. The Company has the ability to borrow in aggregate up to
66% of such Gross Asset Value on a short term basis (i.e. less than
365 days) if considered appropriate. As at the date of this report
the Company's corporate debt facility, which was increased to
GBP300 million in May 2015, was GBP169 million drawn via letters of
credit and the remaining undrawn (see page 30 for further
details).
The Company and Group may borrow in currencies other than GBP as
part of its currency hedging strategy.
Operating cash surpluses and funds pending investment are held
in cash, cash equivalents, near cash instruments, money market
instruments and money market funds and cash funds.
Changes to investment policy
Material changes to the investment policy summarised in this
section may only be made by ordinary resolution of the shareholders
in accordance with the UK Listing Rules
Strategic Report
Strategy
The Company's strategy, which is determined and reviewed by the
Board, covers three different but inter-linked areas of focus. In
combination, these areas of focus assist the Company to manage its
investments and finances throughout the investment cycle and, where
justified, identify new investment opportunities which meet its
investment objectives. The key objectives in each area are set out
below and Company's 2015 performance measured against these is
summarised on pages 16 - 17.
[Chart can be found in PDF version of this document on the
Company's website].
1. Active Asset Management
- Focus on delivery of anticipated returns from existing assets
- Maintain high levels of public sector satisfaction and asset performance
- Deliver additional capital value from existing assets through
management of construction risk and delivery of operational
improvements to meet client requirements
The delivery of returns anticipated to be received from the
Company's investments is fundamental to the Company's performance.
The Company takes an active approach to asset management,
encouraging the Investment Adviser and its associates to maximise
cash flow from its investments in ways that are consistent with
delivering high levels of service to the underlying assets' public
sector clients. These relationships and the Company's overall
approach are described in more detail in the Operating Model
section below. The success of the Company's policy of active asset
management can be seen through a combination of the Company's
record in receiving investment cash flows in line with projections
and the level of satisfaction that public sector clients have with
the facilities which they occupy.
2. Value Focussed Portfolio Development
- Through relationships with co-shareholders and pre-emptive
rights where applicable increase individual investment holdings to
100% where beneficial
- Make additional acquisitions where possible, ideally off
market, at prospective returns that are beneficial in risk/return
terms
- Enhance prospects for capital growth by investing as primary
investor and/or in construction phase assets where available
- Identify complementary investment sectors within the Company's
investment policy offering better returns with a similar risk
profile
- Take advantage of infrastructure opportunities internationally
where investments have an appropriate risk profile and contractual
structures are reliably enforceable to enhance diversification
- Undertake ongoing review of portfolio composition to ensure a
suitable blend of risk/return, inflation linkage, yield versus
capital characteristics, level of diversification and opportunistic
enhancements
The second aspect of the Company's strategy is to seek out
further attractive investments that can improve the overall quality
of projected returns from the Company's portfolio.
The Company works closely with its Investment Adviser to seek
out new opportunities which meet the Company's desired risk and
return profile. Historically this has included both 'primary'
investments where the Company (or its Investment Adviser) have
originated a new project and 'secondary' investments where an
existing investment is acquired from a third party.
The Company does not have a preference as to whether the
investments it acquires are characterised as senior debt,
subordinated debt or equity (or a combination of any of these).
What is relevant to the Company is the risk adjusted return
available to it from such investment.
The Company's preference is to own majority or 100% holdings in
its investments, where possible, in order to have full oversight
and control over underlying investment performance. The Company's
strategy during the year has therefore been to continue to make
incremental investments in existing projects where available and
beneficial to the overall risk/return profile of the Company.
The Company has also targeted, and expects to continue to
target, overseas markets where it has experience from existing
investments and client relationships, and where it and its
Investment Adviser have operational experience of the effectiveness
of contractual structures, to mitigate risks.
In recent times, the level of market competition for assets sold
through open auction processes has led the Company to focus its
strategy particularly on identifying niche, off-market, secondary
opportunities and continuing to develop its access to primary
market transactions. The Company continues to see such
opportunities offering attractive returns for the level of
risk.
The Company considers that it has sector differentiation and a
competitive advantage in being able to take this approach through
the strong record of its Investment Adviser (and its associated
group) in developing new opportunities and gaining early-mover
competitor advantage in relatively new growth sectors such as
OFTOs(1) and through innovative structures including Tideway and
the Priority Schools Scheme Aggregator programme.
As a consequence, the Directors believe that the Company will
continue to be well placed to take advantage of similar off-market
and emerging sector opportunities in the future as well as
on-market opportunities that may emerge. For further details, refer
to the Operating Model section of this Strategic Report.
Portfolio development may also include realisation of value for
investors through divestment, particularly where investments are no
longer core or are minority holdings and where the acquisition of
further investment to a majority position is considered
unlikely.
3. Efficient Financial Management
- Efficient financial management of cash holdings and debt
facilities available for investment and appropriate hedging
strategies
The Board seeks to manage returns on operating cash surpluses
and efficiently manage cash available for investment through
prudent use of a corporate debt facility. The Company also seeks to
use foreign exchange derivatives, interest rate swaps and other
appropriate hedging strategies to protect investment returns where
appropriate to do so, in accordance with the Investment Policy (see
Investment Policy section). Currently the Company only has foreign
exchange forward contracts in place (excluding hedging arrangements
at the underlying investment entity level
(1) Offshore electricity transmission owner licensed entities.
Strategic Report
Operating Model
[Diagram can be found in PDF version of this document on the
Company's website].
Key Aspects of the Operating Model
The diagram above illustrates the Company's operating model,
which is founded upon:
- Strong independent Board leadership and governance
- A long-term alignment of interest with its Investment Adviser and other key suppliers
- Consistent communication and delivery of strategy throughout the Group
- A vertically integrated model which gives the Company
visibility of and a relationship with its public sector
customers
- An experienced Investor Adviser team, expert in all aspects of
infrastructure development, investment and management
- A disciplined approach to asset selection and country risk
- A focus on acquiring controlling stakes (or minority positions
where strategically beneficial to do so)
Relationship with the Investment Adviser and its group
[Diagram can be found in PDF version of this document on the
Company's website].
Board and Committees
The Board sets the strategy for the Company and makes decisions
on changes to the portfolio (including approvals of acquisitions,
disposals and valuations). Through committees and the use of
external independent advisers it manages risk and governance of the
Company. The Board has a majority of Independent Directors -
currently five of the six Directors are independent. See the
Corporate Governance Report for further details.
Investment Adviser
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The Company's Investment Adviser is Amber Fund Management
Limited (a member of the Amber Infrastructure Group Holdings
Limited group of companies).
Contractual arrangements and fees
The contractual arrangements allow for the provision of
investment advisory and certain other financial services to the
Board. In return, the Investment Adviser receives fees based on the
gross asset value and composition of the investment portfolio as
well as a contribution to expenses. The annual base fees are
detailed in note 18 to the financial statements and calculated at
the following rates:
- 1.2% for that part of the portfolio that bears construction
risk (i.e. the asset has not fully completed all construction
stages including any relevant defects period and achieved
certification by the relevant counterparty and senior lender)
- For fully operational assets:
-- 1.2% for the first GBP750 million of gross asset value of the portfolio
-- 1.0% for that part of the portfolio that exceeds GBP750
million in gross asset value but is less than GBP1.5 billion
-- 0.9% for that part of the portfolio that exceeds GBP1.5 billion in gross asset value
In addition, gross asset value excludes uncommitted cash from
capital raisings.
The Company has a long-standing relationship with the Investment
Adviser and the Board believes that the continuation of this
relationship, on a long-term basis, is in the Company's best
interest. The current Investment Advisory Agreement ('IAA') was
renegotiated in 2013 and has a ten year fixed term with a five year
notice period. The Board consider that given the long-term nature
of the Company's investments and its responsibility for the
detailed day-to-day delivery of management services and
relationships with public sector clients, it is important that it
benefits from the continuity of service provided by a long-term
advisory partner. In order to ensure that shareholder interests are
protected, termination provisions have been put in place to ensure
that, in the event of poor investment performance, the Company has
flexibility to remove the Investment Adviser.
The Investment Adviser is also entitled to receive an asset
origination fee of 1.5% of the value of new investments acquired by
the Group. It should be noted that, generally, the Investment
Adviser bears the risk of abortive transaction origination costs
and that this fee has been waived or reduced by agreement in the
past where it has been deemed appropriate to do so for the
transaction in question. Certain discretionary fees that were
previously included in the IAA had not in fact been paid to the
Investment Adviser. Such equity raising and disposal fees were
formally removed from the IAA in October 2015.
Cash receipts from capital raisings and tap issuances are not
included in the gross asset value for the purposes of the
calculation of base fees until such receipts are invested for the
first time.
Further information and details of the Board's process for
independent management and review of the relationship between the
Investment Adviser and the Company are set out within the Corporate
Governance Report.
Group Structure
The Company holds its investments through a number of holding
entities including an English law limited partnership of which one
of its subsidiaries is the sole limited partner and a company
associated with the Investment Adviser is the general partner.
Beneath these holding entities the Company's investments are held
in special purpose investment entities so that, as far as possible,
each investment is held in a separate entity to avoid cross
collateralisation between investments.
Investment entity asset management
Underlying investment entities (particularly PPP/PFI entities)
do not typically have their own employees, although there are
important exceptions to this. Outside of these exceptions, normal
practice is for such services to be subcontracted at the time of
project inception to specialist asset management entities. The role
of the asset manager is to manage all interfaces between the
investment entity, the client, financiers and supply chain
sub-contractors.
Such services are generally provided directly to each investment
under asset management contracts specific to that investment
entity. Services typically include day-to-day management, issue
resolution, monitoring and reporting for the entity and can cover
operational, regulatory, compliance, accounting, tax, company
secretarial and other related services specific to each entity.
Typically such services are provided by a third party in return
for a fixed fee under contracts put in place at the inception of
the project after a period of competition.
The Company's preference for the majority of its investments is
for associates of the Investment Adviser to provide such services
to the relevant entity. This ensures that financial and operational
aspects are performed in house by Amber rather than subcontracted
to other third party service providers who have less incentive to
focus on delivery of desired outcomes. The contracts and fees
payable for such asset management services (whether with third
parties or, where Amber provides these services, associates of the
Investment Adviser) are generally set in real terms for the life of
the project and agreed at the time of documentation of the project
with the public sector (which in many cases will be prior to the
Company's investment). These form part of the project costs along
with other project service related costs (and are thus outside the
Company's direct control) but the Company's projected investment
returns are calculated after taking account of all such project
costs.
In line with IFRS 10 (Investment Entity Consolidation Exemption)
all underlying project level costs (and project level revenues) are
excluded from the Group's financial statements. Instead and
consistent with other investment funds, the financial statements
present investment returns received from underlying investments
(received out of investee entity net cash flows).
Investment origination
The Investment Adviser plays a key role in identifying,
developing and originating investment opportunities that meet the
Company's requirements and putting these forward to the Board of
Directors for initial consideration and, where appropriate, final
approval. These opportunities may lead to the Company investing in
such projects and/or acquiring investments from associates of the
Investment Adviser. Where investments are acquired from associates
of the Investment Adviser, consideration is undertaken in
accordance with detailed procedures designed to ensure the fair
treatment of the Company and to ensure the valuation is approved
independently by a suitably experienced third party valuer. More
details are set out in the Corporate Governance Report.
Where associates of the Investment Adviser undertake project
origination and development activity (e.g. bidding for new primary
projects) they do so at their own risk and bear the risks of lack
of success and associated abortive costs (which on large projects
can be substantial). The Company does however have a contractual
right of first look at such investment opportunities either on
financial close or, if originally invested in by an associate of
the Investment Adviser, upon disposal of that investment. Following
success in project origination and development activity, fees and
costs will in the normal course be payable on financial close of
the opportunity to a range of service providers (including
associates of the Investment Adviser) relating to matters such as
reimbursement of bid costs, and in respect of legal, technical,
development and financial advisory work. For the avoidance of
doubt, such amounts are not paid by the Company but by the project
entity formed to carry on that project and any such amounts form
part of the overall capital or project bid costs. The Company's
projected investment return from any prospective investment is
calculated after taking account of all such costs.
Differentiation of Operating Model
The operational structure of the Company and the investee
entities it invests in and through is designed to align the
interests of those entities with the Company. The Company's
preferred operational structure and the structure of the Investment
Adviser and its associates (acting as investment adviser, operator
and asset manager) effectively extends the Board's oversight to the
underlying asset management and finance teams enabling it to be an
active rather than a passive investor.
The Investment Adviser and its associates employ more than 80
personnel, the majority to support the Company and its investment
entities in the provision of financial and asset management
services. This operating model contrasts with competitor models
that have tended to employ smaller teams and instead outsource some
or all of such services.
The Company believes its operating structure differentiates it
within the market and provides it with greater control of the
performance of its underlying investments (for example management
of lifecycle cost risk or control of contract variations).
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The Company's operating model is also differentiated through the
capability of the Company's Investment Adviser to originate new
primary market transactions which provide the Company with access
to off-market opportunities not afforded to other infrastructure
investment funds. These opportunities typically take several years
or more to gestate and are regularly reviewed between the Company
and its Investment Adviser. Under the terms of the Investment
Advisory Agreement the Company has a right of 'first look' at
investments fitting its investment mandate that are being realised
by Amber. This has been extended to include certain opportunities
being realised by Hunt Companies (a U.S. based group and 50%
shareholder in the Investment Adviser). The access that the Company
has had to such 'primary' opportunities (alongside the access that
the Company has, in common with other funds, to 'secondary'
opportunities) broadens the Company's opportunity set for new
investments.
Strategic Report
2015 Financial and Operating Review
Key Performance Indicators
The Key Objectives of the Company are set out below and ten
priorities have been identified to assist in meeting these. In
order to assess annual performance in meeting these objectives the
Company reviews semi-annually its performance against the following
key performance
Indicators ('KPIs'). The KPIs and the relative performance for
the 2015 financial year are summarised below and further details of
each of these elements are provided in the sections that
follow:
Key Objectives
Investor Returns
Key Performance
Key Objectives Indicator 2015 Performance
-------------------------------------------------------- ============================================================ ===============================================================
Deliver sustainable
long-term returns
to shareholders
* Maintain and enhance distributions to shareholders * Achieved targeted fully covered cash dividend of 6.45
* Focus on providing shareholders with predictable, pence/share, a c.2.5% increase on 2014 dividend
and
where possible growing dividends
* Deliver capital value enhancement where possible * Total shareholder return * Achieved. The total shareholder return since IPO is
115.0%, or 8.7% on an annualised basis
* NAV and NAV pence/share * NAV of GBP1,290.2 million and NAV per share of 130.2
pence an increase of 2.52%
Strategic Priorities
1. Active Asset Management
Key Performance
Strategic Priorities Indicator 2015 Performance
----------------------------------------------------------- --------------------------------------------------------------------- -----------------------------------------------------------
1 Focus on delivery
of anticipated
returns from
existing investments
* Availability for all controlled investments at 98% or * Achieved
* Actively manage investments to ensure that they meet above
financial and other targets
* Returns from investments in line with expectations * Met 2015 net revenue generation and dividend goals
----------------------------------------------------------- --------------------------------------------------------------------- -----------------------------------------------------------
2 Maintain high * Achieved
levels of public * Performance deductions below 3% for all projects
sector satisfaction
and asset performance
----------------------------------------------------------- --------------------------------------------------------------------- -----------------------------------------------------------
3 Deliver additional
value from existing * Number of change requests from existing contracts * Around 950 variation requests processed representing
assets through c. GBP10 million of the additional works at the
management of project level
construction
risk and delivery
of operational
improvements * Management of investments in the course of * Works commenced on new construction projects in line
to meet client construction projects in line with overall delivery with project timetables
requirements timetable
----------------------------------------------------------- --------------------------------------------------------------------- -----------------------------------------------------------
2. Value-focused Portfolio Development
Strategic Key Performance
Priorities Indicator 2015 Performance
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
4 Through
relationships * Value enhancing follow-on investments * Increased stake in Liverpool Library project to 100%
with
co-shareholders
and pre-emptive
rights, where * Increased stake in Lewisham Building Schools for the
applicable, Future project up to 50%
increase
individual
investment
holdings to
100% where
beneficial
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
5 Make additional
acquisitions * Value of additional investments acquired off-market * All investments in the year were acquired outside
where they secondary market auction processes
can be acquired
on or off-market
at prospective
returns that
are beneficial
in risk/return
terms
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
6 Enhance
prospects * Number of investments in construction * Investment into six projects in construction phase
for capital during the period representing 8% of NAV
growth by
investing
in construction
phase assets
where available
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
7 Identify
complementary * Value of investments in complementary investment * Investment into regulated water investment, Thames
investment sectors Tideway Tunnel
sectors within
the Company's
investment
policy offering
better returns
with a similar
risk profile
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
8 Take advantage
of * Number of new opportunities in international markets * During the year, GBP31.7 million was invested in a U
infrastructure S
opportunities Military housing project
internationally
where
investments
have an * GBP17.5 million was committed to an investment in
appropriate Australia
risk profile
and contractual
structures
are reliably
enforceable
to enhance
diversification
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
9 Undertake
continuing * Improvement of risk/return, inflation linkage, return, * Investments during the year, notably Tideway,
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review of diversification characteristics significantly enhanced the average duration of the
portfolio portfolio from 21 years to over 27. Once fully
composition invested the portfolio duration will be c. 40 years.
to ensure
suitable
blend of
risk/return,
inflation
linkage,
yield versus
capital
characteristics,
level of
diversification
and
opportunistic
enhancements
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
3. Efficient Financial Management
Strategic Key Performance
Priorities Indicator 2015 Performance
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
10 Provide
efficient * Dividends paid to investors covered by operating cash * Dividends paid to investors 1.2 times covered by net
management flow operating cash flow(1)
of cash holdings
and debt
facilities
available for * New investments made from available cash (after
investment payment of dividend) in priority to use of corporate * All investments in the period funded through excess
and appropriate debt cash(2) before utilising the corporate debt facility
hedging policies
* Competitive cash deposit rates * Benchmarked market cash rates and re-allocated based
on risk/return profile where possible
* Use of appropriate hedging strategies * GBP1.7 million of foreign exchange forward contracts
in place at the balance sheet date to mitigate
short-term foreign exchange cash flow volatility
--- ----------------- ------------------------------------------------------------- -----------------------------------------------------------
(1) Cash dividends to shareholders are paid from net operating
cash flow (including financing costs) before non-recurring
operating costs.
(2) Residual cash after payment of dividend and corporate costs over the next twelve months.
Performance against key objectives during the year - Investor
Returns
Profits and Distributions
Profit before tax was GBP79.9 million (2014: GBP71.2 million)
with earnings per share of 9.54 pence (2014: 9.49 pence).
Returns from portfolio investments (investment income) in the
year were GBP100.2 million (2014: GBP90.1 million) including fair
value movements, dividends and interest. These returns were
partially offset by operating expenses (including finance costs) of
GBP21.6 million (2014: GBP18.3 million).
These results allowed the Company to deliver a dividend of 6.45
pence per share for the year (2014: 6.30 pence per share).
Total Shareholder Return
The Company's Total Shareholder Return (share price growth plus
reinvested distributions) for investors since the initial public
offer of the Company in November 2006 to 31 December 2015 has been
115.0%, compared to a total return on the FTSE All-Share index over
the same period of 49.2%(1) or 8.7% and 4.5% (respectively) on an
annualised basis. The Company has exhibited relatively low levels
of volatility compared to the market, as evidenced by the graph
below which shows the Company's share price since IPO against the
price performance of the major FTSE indices and the Company's
NAV.
INPP Share Price Performance
[Chart can be found in PDF version of this document on the
Company's website.]
Net Asset Valuation
The Company reported a 21.5% increase in NAV, up to GBP1,290.2
million at 31 December 2015 from GBP1,062.1 million at 31 December
2014. This represented an increase of 2.5% of NAV per share,
increasing to 130.2 pence per share at 31 December 2015 from 127.0
pence per share at 31 December 2014.
The build-up of NAV is derived from a discounted cash flow
calculation to determine the fair value of investments plus the
value of cash and other net assets held within the Company's
consolidated group.
The key drivers of the change to the NAV between 31 December
2014 and 31 December 2015 are highlighted in the graph that follows
and described in more detail below.
(1) Bloomberg - share price appreciation plus income.
Net Asset Value Movement (GBPm)
[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 future international project distributions.
(2) The NAV Return represents, amongst other things, (i)
variances in both realised and forecast project cash flows, (ii)
the unwinding of the discount factor applied to those future
project cash flows and (iii) changes in the Company's other net
assets (see also more detail below).
During the period a total of GBP198 million of new capital was
raised (before costs) from a tap issue and via a Placing, Open
Offer and Offer for Subscription. Proceeds were utilised to repay
the drawn balance of the corporate debt facility and acquire new
investments.
For the twelve months to 31 December 2015, government bond
yields decreased in all countries the Company holds investments in,
resulting in a positive impact on the NAV. This was partly offset
by an increase in the project premium reflecting observable market
based evidence which does not support the full reduction in
government bond yields. The portfolio also benefited from a
reduction in discount rate risk premia as assets moved out of the
construction or defects liability phase and towards full
operations.
Sterling strengthened against the Australian dollar, the
Canadian dollar and the Euro over the year to 31 December 2015 and
this had a negative impact on the NAV. The most significant foreign
exchange impact was seen in the valuation of the Company's Euro
denominated investments.
Cash distributions reached GBP48.6 million during the year and
represent the cash elements of two dividends made to INPP
shareholders.
The NAV Return of GBP77.1 million, representing a return of
6.4%, captures the following:
- Unwinding of the discount factor - the movement of the
valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received
above the forecast amount due to active management of the Company's
portfolio, including negotiating and optimising project cash flows
to ensure cash can be extracted from the underlying investments
earlier than forecast and optimising Group tax losses
- Movements in the Company's working capital position
- Updated project forecasts - refinement of project model and
macroeconomic assumptions to reflect current expectations of future
cash flows
Investment Valuation
Forecast future cash flows
The Company's investments are expected to exhibit (and
historically have exhibited) 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 in the form of dividends or interest and
principal payments from senior and subordinated debt
investments.
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. Equally however, 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 the same
general amortising profile).
INPP Projected Cash Flow Profile
[Chart can be found in PDF version of this document on the
Company's website.]
Note: There are many factors that may influence the actual
achievement of long-term cash flows to the Company. These include
both internal as well as external factors and investors should not
treat the chart above as being more than an indicative profile and
not a projection, estimate or profit forecast. The actual achieved
profile will almost certainly be different and may be higher or
lower than indicated.
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 31 December 2015 was GBP1,201.1, an increase
of 16.3% since 31 December 2014.
Investments at Fair Value Movements (GBPm)
[Chart can be found in PDF version of this document on the
Company's website.]
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(1) The Portfolio Return represents, amongst other things i)
variations in forecast project cash flows ii) the unwinding of the
discount factor applied to those future project cash flows and iii)
any distributions received during the period.
The portfolio return of GBP101.5 million represents a 9.2%
increase in the rebased value of investments 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 Investments at Fair
Value
- 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 GBP17.7 million increase in
portfolio value
- A net decrease of GBP2.4 million which reflects the changes
made to the macroeconomic assumptions
- A net decrease in the portfolio valuation due to foreign
exchange rate movements in all four currencies the Company has
exposure to
The remaining movements relate to investments of GBP143.1
million and project distributions of GBP76.0 million.
Macroeconomic assumptions
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis and, following a thorough market
assessment during the period, certain adjustments have been made to
some of the assumptions used to derive the Company's portfolio
valuation.
The key assumptions used as the basis for deriving the Company's
portfolio valuation are summarised in the following table with
further details provided in note 12. Across the portfolio the
weighted average long-term inflation assumption as at 31 December
2015 was 2.57% (2014: 2.55%) and the weighted average deposit rate
assumption was 3.11% (2014: 3.47%). The Net Asset Valuation Section
above provides further details on the impact of these assumptions
on the valuation during the period.
31 December 31 December
Variable Basis 2015 2014
------------------- ----------- ------------------- -------------
Inflation UK 2.75% 2.75%
Australia 2.50% 2.50%
1.0% in 2016,
Europe then 2.00% 2.00%
Canada 2.00% 2.00%
US 2.00% N/A(2)
=================== =========== =================== =============
Long -term Deposit
Rates1 UK 3.00% 3.50%
Australia 4.50% 4.50%
Europe 3.00% 3.00%
Canada 3.00% 3.00%
US 3.00% N/A(2)
------------------- ----------- ------------------- -------------
Foreign Exchange GBP/AUD 2.13 2.03
GBP/CAD 2.02 1.84
GBP/EUR 1.28 1.23
GBP/USD 1.49 N/A(2)
------------------- ----------- ------------------- -------------
Tax Rate UK 20%-18%(3) 20%
Australia 30% 30%
Europe Various (no Various (no
Canada change) change)
US Various (26%-27%) Various (no
Various change)
N/A(2)
------------------- ----------- ------------------- -------------
(1) The portfolio valuation assumes actual current deposit rates
are maintained until 31 December 2018 before adjusting to the
long-term rates noted in the table above.
(2) The Company made its first US denominated investment in
during 2015. It had no USD exposure prior to this time.
(3) The reduction in UK tax rates reflects the latest
substantively enacted rates at 31 December 2015 and therefore
captures the reduction to 19% from 1 April 2017 and 18% from 1
April 2020.
Discount rates
The discount rate used for valuing each investment is based on
the appropriate long-term government bond yield plus a risk
premium. The risk premium takes into account risks and
opportunities associated with each project (including location,
phase of operation/construction etc).
The majority of the Company's portfolio (84%) is comprised of
investments where the Company only holds the Risk Capital in the
underlying projects. The remaining portfolio (16%) is comprised of
investments where the Company holds both the Risk Capital and the
senior debt. In order to provide investors with a greater level of
transparency, the Company publishes both a Risk Capital weighted
average discount rate and a portfolio weighted average discount
rate across all investments including senior debt interests.
The current discount rates used by the Company are provided in
the table below. These rates need to be considered against the
assumptions and projections upon which the Company's anticipated
cash flows are based.
If the Company's average discount rates are to be compared with
those of similar companies, this needs to be done rigorously. In
the Company's view comparisons of average discount rates between
competitor investment portfolios or funds is only meaningful if
there is a comparable level of confidence in the quality of
forecast cash flows (and assumptions) the rates are applied to; the
risk and return characteristics of different investment portfolios
are understood; and the depth and quality of asset management
employed to manage risk and deliver expected returns are identical
across the compared portfolios. As such assumptions are unlikely to
be homogenous, and focus on average discount rates without an
assessment of these and other factors could be misleading.
Movement
31 December
2014 -
31 December 30 June 31 December 31 December
Metric 2015 2015 2014 2015
----------------------------- ------------ -------- ------------ -------------
Weighted Average Government
Bond Rate (Nominal)
- portfolio basis
- Risk Capital and
senior debt 2.31% 2.12% 2.79% (0.48%)
----------------------------- ------------ -------- ------------ -------------
Weighted Average Project
Premium over Government
Bond Rate - Risk Capital
and senior debt (Nominal) 5.22% 5.17% 4.69% 0.53%
----------------------------- ------------ -------- ------------ -------------
Weighted Average Discount
rate
- Portfolio basis
- Risk Capital and
senior debt 7.53% 7.29% 7.48% 0.05%
----------------------------- ------------ -------- ------------ -------------
Weighted Average Discount
rate
- Risk Capital only(1) 8.09% 7.83% 7.90% 0.19%
----------------------------- ------------ -------- ------------ -------------
NAV per share 130.2p 128.6p 127.0p 3.2p
----------------------------- ------------ -------- ------------ -------------
(1) Risk Capital is equity and subordinated debt investments.
The change in the weighted average discount rate in the period
is principally due to the accretive nature of the assets that were
brought into the portfolio together with revaluations of certain
assets.
Government bond rates
In the table above the Company has provided an analysis of the
weighted average government bond rate used in calculating the
discount rate. It should be noted that the nominal (i.e. non
inflation linked) bond rate has been used in this calculation. The
Company considers, however, that investors may also find a
comparison with inflation adjusted government bond rates
beneficial. This is the case due to the significant level of
inflation linkage inherent in the Company's anticipated cash
flows.
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Real (i.e. inflation adjusted) bond rates are included in the
table below. Using these real rates on a weighted average basis
leads to a 'real' portfolio rate of (0.44%) with the difference
between the 'real' and 'nominal' rates reflecting in theory the
implied rates of future expected inflation. In some countries this
is higher than those currently being assumed to calculate the
Company's NAV. This information is provided to enable investors to
make approximate comparisons of the projected return of the Company
with that available from government index linked bonds. It should
be noted that any such comparison can only be estimated due in part
to the fact that the Company's cash flows are not fully linked to
inflation and the Company's cash flows already assume a core level
of inflation as set out in the section headed Macroeconomic
assumptions on page 21.
31 December 31 December Movement (2014
2015 2014 -2015)
------------------ ------------------ ------------------
Country Nominal Real Nominal Real Nominal Real
------------------- -------- -------- -------- -------- -------- --------
UK 2.33% (0.76)% 2.85% (0.36%) (0.52)% (0.40)%
------------------- -------- -------- -------- -------- -------- --------
Australia 3.29% 1.00% 3.80% 1.41% (0.51)% (0.41)%
------------------- -------- -------- -------- -------- -------- --------
Europe(1) 1.73% (0.14)% 2.17% 0.25% (0.44)% (0.39)%
------------------- -------- -------- -------- -------- -------- --------
Canada 2.20% 0.55% 2.56% 0.57% (0.36)% (0.02)%
------------------- -------- -------- -------- -------- -------- --------
US 2.99% 1.18% N/A N/A N/A N/A
------------------- -------- -------- -------- -------- -------- --------
Portfolio
weighted average 2.31% (0.44)% 2.79% (0.05%) (0.48)% (0.39)%
------------------- -------- -------- -------- -------- -------- --------
(1) Includes Belgium, Germany, Ireland, and Italy. Note
estimates only for Belgium and Ireland as no index linked bonds
available.
Portfolio level assumptions underlying NAV calculation
The Company is aware that there are subtle differences in
approach to the valuation of portfolios of investments among
different infrastructure funds. To clarify the Company's position
in this regard its key cash flow inputs and broad valuation
principles include that:
- Key macroeconomic variables (outlined in the section above) continue to be applicable
- The contracts under which payments are made to the Company and
its subsidiaries remain on track and are not terminated before
their contractual expiry date
- Where deductions are suffered under such contracts they are
fully passed down to subcontractors
- Where possible lifecycle costs/risks are not borne by the
Company but are passed down to a third party such as a facilities
management contractor
- 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
- Where assets are in construction they are either completed on
time or any costs of delay are borne by the contractors not the
Company
- 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
- Where the Company or the infrastructure asset owning entities
in which it has invested owns the residual property value in an
asset that the projected amount for this value is realised
- Foreign exchange rates remain consistent with current four year forward looking projections
- There are no regulatory changes in the future which negatively impact the cash flow forecasts
Impact of Changes in Key Macroeconomic Variables to 31 December
2015 NAV 130.2p per Share
[Chart can be found in PDF version of this document on the
Company's website.]
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 12. This analysis is provided
as an indication of the likely impact of these variables on the NAV
per share on the basis that they apply uniformly across the
portfolio whereas in practice the impact is unlikely to be uniform.
These sensitivities should be used only for general guidance and
not as accurate predictors of outcomes.
Discount rates
The Company's approach to determining the discount rate is
described in detail above. Assuming all other things are equal, a
reduction of 1% per annum to the underlying project discount rates
would increase the 31 December 2015 NAV per share by 14.7 pence.
Should the underlying project discount rates increase by 1% per
annum the NAV per share would decrease by 12.4 pence.
Inflation
In an environment where investors are increasingly focused on
achieving long-term real rates of return on their investments,
inflation protection is an important consideration for the Company.
At 31 December 2015 the majority of assets in the portfolio had
some degree of inflation linkage and, in aggregate, the weighted
return of the portfolio would be expected to increase by 1% per
annum in response to a 0.76% per annum inflation increase across
the whole portfolio over the 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% per annum evenly across the portfolio there would
be a 10.7 pence increase to the NAV per share. Conversely, if the
rates were to decrease by 1% per annum there would be a 9.5 pence
decrease to the NAV per share.
Forecasting the impact of possible future inflation/deflation on
projected returns and NAV in isolation cannot be relied on as an
accurate guide to the future performance of the Company as actual
inflation is unlikely to follow any of these scenarios exactly and
in any case, many other factors and variables will combine to
determine what actual future returns are available. The analysis
provided above should therefore be treated as being indicative only
and not as providing any form of profit or dividend forecast.
Foreign exchange
The Company has a geographically diverse portfolio and therefore
revenues are subject to foreign exchange rate risk. Should the
assumed exchange rates increase by 10% per annum this could be
anticipated to lead to a 4.0 pence increase in the NAV per share
while a 10% per annum reduction in the exchange rates would result
in a 3.3 pence decrease in NAV per share. Short-term fluctuation in
foreign exchange rates are managed through currency forward
contracts.
Deposit rates
The long-term weighted average deposit rate assumption across
the portfolio is 3.11% 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% per annum
increase in the underlying deposit rates could be anticipated to
lead to a 1.3 pence increase in the NAV per share and a 1% per
annum decrease in deposit rate to a 1.4 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% per annum this could be anticipated to lead to a 0.8 pence
decrease in the NAV per share while a 1% per annum reduction in the
tax rates could be anticipated to lead to a 0.8 pence increase in
NAV per share.
Project Lifecycle Spend
Over a project's lifecycle there is a process of renewal
required to keep the physical asset fit for use and at the standard
required of it under the agreement with the occupying public sector
body. The proportion of total cost that is lifecycle spend will
depend on the nature of the asset. In order to enhance the
certainty around cash flows, around 93.5% 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 cost profile is relatively small. A 10%
increase in lifecycle costs would lead to a 0.5 pence reduction in
NAV per share. A 10% decrease in lifecycle costs would lead to a
0.5 pence increase in NAV per share.
Future group tax relief
Under UK group tax loss relief rules, losses within the UK group
companies can be, subject to UK tax law, offset against taxable
profits in other UK group companies (including controlled project
entities). This group tax loss relief can reduce the overall tax
charge across the portfolio and potentially reduce taxable profits
substantially below the levels currently modelled by the Company.
The Company has taken a conservative approach to the valuation of
future tax losses and, to date, has not incorporated these into the
NAV.
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Cash flow movements in the period
Year to Year to
31 December 31 December
Summary of consolidated cash 2015 2014
flow GBP million GBP million
------------------------------- ------------- ------------
Opening cash balance 29.4 80.6
Cash from investments 76.0 64.0
Operating costs (recurring) (13.7) (12.2)
Net financing costs (3.5) (1.9)
------------------------------- ------------- ------------
Net cash before non-recurring
operating costs 58.8 49.9
------------------------------- ------------- ------------
Non-recurring operating costs (2.8) (5.0)
------------------------------- ------------- ------------
Net cash flow from operations 56.0 44.9
------------------------------- ------------- ------------
Cost of new investments (143.1) (188.2)
Net (repayment)/drawdown of
corporate debt facility (16.3) 16.3
Proceeds of capital raisings
(net of costs) 195.0 94.2
Disposal proceeds - 22.3
Distributions paid (48.6) (40.7)
------------------------------- ------------- ------------
Net cash at period end 72.4 29.4
------------------------------- ------------- ------------
The Company's net cash at 31 December 2015 was GBP72.4 million
(31 December 2014: GBP29.4 million), an increase of GBP43 million
reflecting proceeds from capital raising and positive investment
cash flows offset by new investments made in the year and repayment
of outstanding balances on the corporate debt facility.
Cash inflow from the Company's investment portfolio was GBP76.0
million (31 December 2014: GBP64.0 million). The increased cash
flow was mainly due to the contributions from new investments made
during the year.
Recurring operating costs have increased from GBP12.2 million to
GBP13.7 million, in line with the increase in the Company's NAV and
increased audit fees, as detailed in the 'ongoing charges' table
below; other operating costs have remained largely consistent. Net
financing costs increased from GBP1.9 million to GBP3.5 million
mainly due to the drawdowns on the corporate debt facility made to
provide financing for investments prior to the equity capital
raise. Non-recurring operating costs of GBP2.8 million (31 December
2014: GBP5.0 million) mainly represent costs associated with the
refinancing of the corporate debt facility in the period and
one-off transaction costs incurred on new investments.
The Company funded its acquisitions during the period by drawing
down on its corporate debt facility which was subsequently repaid
using the proceeds from capital issuance. No investments were
disposed of in the year (31 December 2014: GBP22.3 million).
Cash dividends paid in the period of GBP48.6 million (31
December 2014: GBP40.7 million) were in respect of the six month
periods ended 31 December 2014 and 30 June 2015.
Corporate expenses and ongoing charges
A breakdown of corporate operating costs paid is provided
below:
Year to Year to
31 December 31 December
2015 2014
Corporate Expenses GBP million GBP million
--------------------------- ------------- -------------
Management fees (12.5) (11.1)
--------------------------- ------------- -------------
Audit fees (0.2) (0.1)
--------------------------- ------------- -------------
Directors' fees (0.2) (0.2)
--------------------------- ------------- -------------
Other running costs (0.8) (0.8)
--------------------------- ------------- -------------
Operating costs (ongoing) (13.7) (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.
Year to Year to
31 December 31 December
2015 2014
Ongoing Charges GBP million GBP million
------------------------------- ------------- -------------
Annualised Ongoing Charges(1) (13.7) (12.2)
------------------------------- ------------- -------------
Average NAV(2) 1,143.3 983.5
------------------------------- ------------- -------------
Ongoing Charges (1.20%) (1.24%)
------------------------------- ------------- -------------
(1) The Ongoing Charges ratio was prepared in accordance with
the Association of Investment Companies' ('AIC') recommended
methodology, noting this excludes non-recurring costs.
(2) Average of published NAVs for the relevant period.
Performance against Strategic Priorities - 1. Active Asset
Management
Investment cash flow from the Company's portfolio of 120
investments has continued to perform in line with the Company's
forecasts. Ensuring that the Company's assets are available for use
and are performing in accordance with contractual expectations is a
critical task for the Company and its service providers.
The Investment Adviser, on behalf of the Company, closely
monitors the relationship between service providers and public
sector clients. It is actively involved in the ongoing management
of assets to ensure that performance standards are being met. In
addition to these day-to-day activities, the Investment Adviser
works with public sector clients on assignments as they arise.
During 2015, our public sector clients commissioned c.950
variations resulting in over GBP10 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. Variations ranged in size from a few
hundred pounds to over GBP2 million and demonstrate the value and
flexibility of PFI/PPP contracts to respond to the changing
requirements of public sector clients.
The Company also takes an active role in assisting its public
sector clients to achieve savings from existing concession
arrangements. The Investment Adviser is working with a number of
its public sector counterparties to identify and deliver
efficiencies and savings in operational PFI and PPP contracts.
Across the portfolio a number of benchmarking exercises have been
undertaken in relation to both insurance and facility management
services that have resulted in reduced costs to the public
sector.
On a number of the Company's portfolio of assets the Investment
Adviser, facilities management operator and the public sector
client work extensively with the local community. Examples include
local sports clubs using schools facilities, schools utilising the
court facilities for mock trials, workplace experience for students
and those who have been long term unemployed, and various out of
school hours clubs.
During the latter stages of 2015 work commenced on two new
assets in construction. The New Schools PPP Project in Australia
(Victorian Schools 2) reached financial close on 29 October 2015.
The Project comprises 15 new build schools across twelve different
green-field sites in outer metropolitan Melbourne. In order to meet
the construction programme, design development commenced shortly
after the confirmation of preferred bidder status and design
submissions to the State continued through financial close to the
end of 2015.
Construction on the project is split into two tranches with the
first eight schools due to be completed by 1 January 2017 and the
remainder by 1 January 2018. Design and construction progress on
the project is on programme and includes:
- Submission of five design packages to the State;
- The establishment of several sites and commencement of ground works.
Works over the next twelve months include completion of the
design and construction of the first tranche of eight schools and
finalised design for the remaining schools.
In addition since its investment in Thames Tideway Tunnel
('Tideway') significant milestones have been achieved to allow the
company to start construction on the 25km 'super sewer'. Thames
Water, on Tideway's behalf, is well-advanced with the necessary
enabling works which are preparing the 24 sites across London for
the driving of the tunnel itself, with the most prominent piece of
work taking place in the foreshore by Blackfriars Bridge. Main
works construction is anticipated to start slightly earlier than
planned, in the first half of 2016.
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Projects under construction as at 31 December 2015, all of which
are currently on schedule for operational commencement are set out
in the table below.
% of
Construction Defects Fair
Completion Completion Value
Asset Location Date Year Status of Investment
---------------------- ----------- -------------- ------------- ------------- ---------------
Priority School
Building Aggregator
Programme -
4 batches UK 2018 2019 On Schedule 3.1%
---------------------- ----------- -------------- ------------- ------------- ---------------
Thames Tideway
Tunnel UK 2024 2027 On Schedule 4.9%
---------------------- ----------- -------------- ------------- ------------- ---------------
Victoria Schools
PPP Project Australia 2018 2019 On Schedule N/A(1)
---------------------- ----------- -------------- ------------- ------------- ---------------
(1) The Victoria Schools Project is currently funded via a
letter of credit. Investment will be made at construction
completion.
Strategic Report
Case Study - Thames Tideway Tunnel
- GBP210m
- Investment Commitment
- 25km
- Length of tunnel
- 65m
- Maximum tunnel depth
Thames Tideway Tunnel (Tideway) is a new GBP4.2bn investment in
the sewer network which will carry sewage and storm water
discharges from the London sewerage network.
Project Overview
- Tideway will be a 25km sewer tunnel running up to 65 metres
below the Thames, effectively replacing the Thames as a 'sewer of
last resort', feeding overflow sewage to a pumping station at Abbey
Mills in East London
- The tunnel will be built under three separate construction
contracts each covering a distinct physical section of the
network
- The winning construction contractors were selected through a
separate competitive tender process run by Thames Water
[Diagram can be found in PDF version of this document on the
Company's website.]
Project Background & Financing
- Amber, the Company's Investment Adviser, worked on behalf of
the Company and formed the Bazalgette consortium in 2014 to bid on
the project alongside other leading investors including:
-- Allianz Capital Partners
-- Dalmore Capital Limited
-- DIF Infrastructure
-- Swiss Life
- The investor group includes a significant proportion of UK
pension funds through which over 1.7 million
- UK pensioners will have an indirect investment in Tideway
- The Company will invest up to GBP210m for a 16% stake, in
instalments drawn during the construction period
- INPP's commitment is backed by letters of credit against the
Company's corporate debt facility. The last instalment is scheduled
to occur in early 2018
- Six relationship banks will provide senior non-recourse debt directly to the project
Key features
- A yielding investment through both construction and operating periods (120 years)
- A fully RPI-linked revenue stream
- The investment will significantly extend the Company's
portfolio's life; the weighted average concession life of the
portfolio to c.40 years once full investment is made
- Strong protections exist to mitigate construction risks, including:
-- Experienced management team, project manager and construction contractors already in place
-- Significant incentive arrangements under the construction
contracts, licence and stakeholder arrangements
-- A government support package which provides significant
mitigation to the risks of construction
-- Bespoke regulatory features to reflect the nature of the
construction obligations including a mechanism applied after
construction to incentivise cost and time savings
Performance against Strategic Priorities - 2. Value-focused
Portfolio Development
During the year the Company made further investment or
commitments of GBP311.7 million across nine projects. The projects
acquired were either sourced by the Investment Adviser from project
inception (i.e. in response to an initial government procurement
process) or were acquired 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 remains very
competitive. Details of acquisitions are provided below.
Acquisition/ Operational Investment/ Acquisition
Asset Location Divestment Status Commitment date
----------------- --------------- ------------- ------------------- ------------ ------------
Priority North Acquisition Under construction GBP7.9 10 March
School Building East, million 2015
Aggregator UK
Programme
- Batch 1
----------------- --------------- ------------- ------------------- ------------ ------------
Priority Hertfordshire, Acquisition Under construction GBP10.2 19 March
School Building Luton million 2015
Aggregator and Reading,
Programme UK
- Batch 2
----------------- --------------- ------------- ------------------- ------------ ------------
Priority North Acquisition Under construction GBP8.4 25 March
School Building West, million 2015
Aggregator UK
Programme
- Batch 3
----------------- --------------- ------------- ------------------- ------------ ------------
Building Lewisham, Acquisition Operational GBP14.3 17 April
Schools for UK million 2015
the Future
----------------- --------------- ------------- ------------------- ------------ ------------
Liverpool Liverpool, Acquisition Operational GBP1.9 30 June
Central Library UK million 2015
----------------- --------------- ------------- ------------------- ------------ ------------
Priority Midlands, Acquisition Under construction GBP9.8 13 August
School Building UK million 2015
Aggregator
Programme
- Batch 4
----------------- --------------- ------------- ------------------- ------------ ------------
Thames Tideway London, Acquisition Under construction Up to 24 August
Tunnel UK GBP210 2015
million(1)
----------------- --------------- ------------- ------------------- ------------ ------------
US Military Various, Acquisition Operational GBP31.7 4 October
Housing P3 US million 2015
----------------- --------------- ------------- ------------------- ------------ ------------
Victoria Victoria, Acquisition Under construction GBP17.5 28 October
Schools PPP Australia million(1) 2015
Project
----------------- --------------- ------------- ------------------- ------------ ------------
Post 31 December
2015
----------------- --------------- ------------- ------------------- ------------ ------------
Westermost Yorkshire, Acquisition Operational GBP26.8 3 February
Rough OFTO UK million 2016
----------------- --------------- ------------- ------------------- ------------ ------------
(1) Funding for investment solely or partially by way of letter
of credit to support future investment commitment.
Priority Schools Building Programme 'Aggregator'
During the twelve months to 31 December 2015 the Amber
Consortium of which the Company is part, reached financial close
investing GBP36.3 million into four of 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 along with Aviva Investors and the European
Investment Bank providing senior debt.
The Company expects to provide up to an additional c.GBP7
million funding to the remaining batch. Financial close of this
final batch is expected in the early part of 2016.
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 concession, increasing the Company's
overall exposure to between 41% and 50% in the underlying BSF
assets.
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The Company invested GBP14.3 million for an additional 40%
interest from Babcock Project Investments Limited. The Lewisham
project comprises schools located in south east London boroughs,
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 PFI concession
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, 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.
Thames Tideway Tunnel project
In August, the Company along with its consortium partners
reached financial close on the Thames Tideway Tunnel ('Tideway')
project. The Company will invest up to GBP210 million in relation
to its 16% stake in the project. It is the Company's largest
investment to date. The remaining Risk Capital is being funded by
the consortium partners.
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.
Tideway will be a new part of the sewer network which will carry
sewage and storm water discharges from the broader London sewerage
system. 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 throughout this period.
Construction of the estimated GBP4.2 billion 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 companies' regulatory cycles.
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.
As a result at 31 December 2015, the Company had invested GBP58.9
million into the project with the remainder backed by a letter of
credit.
US Military Housing P3
The Company invested approximately US$48 million (c.GBP32
million) into a series of fully yielding subordinated debt
instruments with a remaining average life of 37 years. The
subordinated debt was acquired by the Company from the Federal Home
Loan Mortgage Corporation ('Freddie Mac') and is underpinned by
security over seven operational P3 military housing projects
relating to a total of 19 operational military bases in the US
comprising approximately 21,800 individual housing units.
The opportunity was identified as a consequence of the Hunt
shareholding in the Company's Investment Adviser and the
relationship that exists between Hunt and the Company with respect
to US opportunities. Hunt are one of the largest owners, managers
and providers of ongoing services in the P3 Military Housing sector
having interests in approximately 33,000 housing units including
those the subject of this transaction where they also provide
property management services in respect of most of the units.
Victoria Schools PPP Project
The Company reached financial close on a new schools scheme in
the State of Victoria, Australia. The Company will invest A$35.6
million (GBP17.5 million), representing 100% of the Project's risk
capital at the end of the project's construction period, expected
in 2018. The commitment is currently secured through the issue of a
letter of credit under the Company's corporate debt facility.
The Project has been commissioned by the Victorian Department of
Education and Training, and comprises the design, building,
financing and maintenance of 15 schools across twelve sites. The
contract with the Victorian Government is for a period of 25 years
from the expected date of construction completion.
The Project is expected to deliver a predictable and high
quality cash flow to the Company backed by the credit of the State
of Victoria which is rated AAA by both S&P and Moody's. The
Company anticipates a return on its investment fully in line with
its experience on other comparable projects.
Westermost Rough offshore transmission project ('OFTO')
In February 2016, Transmission Capital Partners, the consortium
comprising INPP, Amber Infrastructure and Transmission Investment
reached financial close for the long-term license and operation of
its sixth UK offshore transmission project, Westermost Rough
OFTO.
The Company made a GBP26.8 million investment for 100% of the
equity and subordinated debt of the OFTO. The OFTO will connect a
windfarm containing 35 6MW turbines located 8km off the coast of
Yorkshire to the onshore grid network, providing enough electricity
to power around 150,000 UK homes.
Performance against Strategic Priorities - 3. Efficient
Financial Management
The Company seeks to generate dividends to investors that are
paid from operating cash flow. For the year ended 31 December 2015
the cash dividend paid to investors was 1.2 times covered by net
operating cash flow and the Company remains confident that it will
be able to grow dividends in the future.
In May 2015, the Company renewed its corporate debt facility
('the facility') with existing providers, Royal Bank of Scotland
and the National Australia Bank Limited. The facility size
increased from GBP175 million to GBP300 million. The margin on the
facility is 175 basis points, 50 basis points lower than the
original arrangement. The facility is subject to renewal in May
2018. The drawn portion of the facility was fully repaid in
December 2015. Currently GBP169 million is drawn on the facility
via letters of credit, which takes into account the Company's
investment into Westermost Rough OFTO in February 2016.
It remains the Company's policy not to have long-term corporate
level debt and it is anticipated that to the extent that the
corporate facility is drawn to fund acquisitions, this would be a
short-term arrangement and equity funding, by means of a capital
raising, would be sought to repay outstanding debt as soon as
practicable.
Strategic Report
Outlook
Current Market Environment and Future Opportunities
The Company anticipates continued benefits arising from the
strong outlook in the infrastructure markets in which we invest.
Moreover, the governments in the jurisdictions in which our efforts
are directed continue to promote new infrastructure projects and
broadly favour continued reliance on the private sector as the
source of finance and investment expertise in this space.
Most government in developed nations have a policy on renewing
and improving infrastructure provision in their countries. In the
UK and Australia this is evidenced by the National Infrastructure
Plan and many other countries have similar ambitions. This trend
for promotion of new infrastructure projects will, in the Company's
view, persist in the medium to long term. This offers very positive
macroeconomic support for the Company's future growth
prospects.
While the Company is confident of the long term opportunities
within the sector, the prospects for new investment over any short
term period are inevitably more difficult to predict. The
investment levels of the past should not necessarily be seen as
indicative of the levels of investment that the Company may make
going forward. Future investment is dependent on factors
including:
- The number and quality of new 'greenfield' infrastructure
opportunities being procured by public sector bodies (known as the
'primary market')
- The number and quality of investments being sold by existing
owners (known as the 'secondary market')
- The level of competition for primary or secondary
opportunities and the resulting impact on pricing and levels of
returns
- The macroeconomic environment (e.g. the impact of inflation,
interest rates, and the pricing of risk and return for alternative
investments)
We also continue to guide investors that competition in the
secondary market for assets such as those in which the Company
invests remains strong. While the Company is always interested in
reviewing mature secondary market investment opportunities being
sold by their existing owners, not all of these opportunities are
likely to be accretive to the Company's portfolio.
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The Company is also selective to enable it to realise an
appropriate risk and return balance within the overall portfolio.
In the past, this has resulted in the Company taking opportunities
to divest smaller, non-strategic assets where there is little
prospect of increasing stakes to controlling positions and where
market pricing is higher than book value. While no such divestments
are currently envisaged, the Company will continue to review its
portfolio with this option in mind.
The Company has an international focus and the current market
environment in each of the major jurisdictions in which it operates
and the potential for future investment within each is outlined in
more detail below:
United Kingdom
The UK government has continued the previous coalition
government's focus and interest in the UK infrastructure sector,
and it views high-quality infrastructure as a means to increase
productivity and competitiveness. In its Summer 2015 Budget, the UK
government pledged to be 'bold in delivering infrastructure' and
announced the intention to publish a productivity plan that will
'set out measures to encourage long-term investment in economic
capital...including infrastructure'.
In recognition of this it has now streamlined its approach to
the development of infrastructure assets in the UK, establishing
the Infrastructure and Projects Authority. The Authority will
provide support for the major economic projects, centralising the
financing and delivery of such projects. In order to assist the
planning of major infrastructure projects the government also
established the National Infrastructure Commission which is charged
with offering unbiased analysis of the UK's long-term
infrastructure needs.
While many of the GBP411 billion projects currently identified
in the National Infrastructure Plan fall outside the scope of the
Company's investment parameters, there is likely to be a wide
variety of projects in which the Company might invest. Although
these projects may have risk/return dynamics similar to those found
in the Company's existing portfolio, increasingly these assets are
not likely to be structured as traditional PFI/PPP procurements.
The Company expects more regulated assets to come under
consideration by it in 2016.
For example, the Company is particularly interested in the
government's willingness to use the regulated asset model as a
means for infrastructure procurement - where, simplistically,
investors receive a permitted and pre-specified return on capital
invested through agreement with the relevant regulator. This
methodology was used in the recent Tideway transaction with water
regulator, Oftwat's oversight and support. The expectation is that
the regulated model could be used to procure other core
infrastructure assets and we watch this space, as well as
opportunities with existing utilities, with interest.
We have also highlighted for some time the attractive
characteristics of the offshore transmission ('OFTO') sector -
where investment is made into the cables and substations that link
offshore wind farms to the national electricity grid. These
projects continue to be amongst some of the most attractive in our
sector as they provide long-term income without demand risk i.e. no
exposure to volume of electricity generated by the wind farm. The
Company has, to date, been a market leader in investment into this
space having invested into six projects. The Company expects to
continue to benefit from additional opportunities in this sector
that will come to market over the coming years; the regulator,
Ofgem, has estimated a further GBP2 billion of investment required
in OFTOs within the next two years with the prospect of
significantly more in the years thereafter. The government has also
been engaged in a consultation process on arrangements for the
introduction of competitive tendering of onshore electricity
transmission projects.
Australia
Australia has long involved private sector organisations in the
provision and financing of its public sector infrastructure. It
also has a well-developed market for investment, not only by local
superannuation funds and similar investors but it has also
developed a large pool of international investors who have invested
widely there.
Both Federal and State governments have their own long-term
infrastructure strategy delivery organisations and there is a
unified method for the delivery of PPP projects. A National PPP
Policy Framework has been developed which aims to provide a
consistent approach by procuring agencies and streamlined
procedures that encourage private sector investment in public
infrastructure.
Currently Australia's infrastructure priorities include
multi-billion Australian Dollar transport projects such as
improvements, developments and modernisation of highways and rail
transport together with water and communications infrastructure.
There are presently six potential PPP projects identified by State
governments for development in 2016/17, with a further three
greenfield projects in procurement as well as one existing project
subject to a major augmentation. It is also anticipated that asset
sales in some states may lead to funding availability for further
projects.
The Australian government's 2015 Infrastructure Audit identified
a number of infrastructure challenges facing Australia, including
population growth, a desire to increase productivity and
connectivity and improve resilience and maintenance.
Consequently an Australia Infrastructure Plan was released in
February 2016 which provides a comprehensive roadmap to address
'infrastructure gaps' and identifies a priority list of project
initiatives in each state and territory. Particular focus is placed
on solutions that would improve the public funding of
infrastructure and enable increased private sector investment.
Europe - excluding UK
Select jurisdictions in Northern Europe, including Belgium, the
Netherlands, Germany, Austria, Ireland and parts of Scandinavia,
continue to offer new primary market infrastructure opportunities
across a range of sectors including accommodation and
transportation which are attractive to the Company. The Company
expects further suitable opportunities to be offered by the
European market following the publication of the Investment Plan
for Europe (commonly known as the Juncker Plan) by the European
Commission in November 2014.
According to European PPP Expertise Centre's '2014 Market
Update: Review of the European PPP Market' in 2014, 82 PPP
transactions, with a total value of EUR18.7 billion reached
financial close in the European market (including the UK),
representing a 15% increase in value from 2013. Whilst the UK was
the largest such market in Europe by value and number of
transactions in 2014, Germany was named in 2014 as the third
largest PPP market, and the Company was recently announced
preferred bidder on a PPP opportunity there.
Looking forward, there are further potential new PPP
opportunities announced in jurisdictions such as the Netherlands,
with twelve projects identified as being prepared to tender through
PPP and/or in procurement.
The Investment Plan for Europe, launched in November 2014, was
set up to enable EUR315 billion of investment in strategic projects
across Europe in a three year period from January 2015; its aim is
to encourage the mobilisation of private funding in Europe.
The plan laid the foundation for the creation of a EUR16 billion
guarantee to be provided by the European Investment Bank ('EIB'),
funded from the EU budget, known as the European Fund for Strategic
Investments ('EFSI'). The EFSI guarantee offers specific cover to
investments financed by the EIB, and will allow the EIB Group to
provide additional financing of approximately EUR61 billion over
its investment period.
The strategic investments which the EFSI will support include
projects in the transport and energy infrastructure sectors. The
EFSI guarantee has already been used for PPP and other
infrastructure/energy projects including examples in continental
Europe such as the Vienna Hospitals PPP and the EUR560m West
Strasbourg Bypass concession.
In summary therefore the infrastructure markets of Europe
continue to grow in ways that offer encouragement to the Company.
The same qualification as applies to all the Company's
opportunities applies equally to those in Europe: that is that
future success will depend on both success in bid processes (both
in the primary and secondary markets) and confidence that such
opportunities fit within the Company's risk and reward parameters
and offer overall benefit to the portfolio.
United States
The infrastructure market in the United States is very
significant in size. In 2015 KPMG estimated the historical size of
the US P3 market as being around US$8.5 billion per annum with a
future forecast of US$12.5 billion per annum. As with
infrastructure markets in other developed countries the projected
growth is anticipated to be delivered partly as a consequence of
the need for infrastructure renewal and partly because of changes
in demographics and the future shape of public services. Moody's
Investor Services stated in October 2014, "Given the sheer size of
its infrastructure and growing urban population the US has the
potential of becoming the largest market for public private
partnerships in the world".
Following the launch of President Obama's 'Build America
Investment Initiative' in July 2014, the US Treasury released
recommendations formulated by the Interagency Infrastructure
Finance Working Group in order to expand public-private
collaboration in infrastructure. The recommendations included eight
pathways designed to provide more favourable conditions for private
investors across all infrastructure sectors. The Treasury is also
working on a white paper exploring options for alternative
incentive arrangements that would assist in aligning the incentives
of the public and private sector.
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Some 33 of the individual states have enacted legal authority to
transact public private partnership (PPP/P3) projects and
availability based payment schemes (which match the Company's
preferred form of project) have seen increasing levels of attention
from procurers.
The Company is well positioned to capitalise on developments in
this market through its relationship with Hunt (described in more
detail on page 15), where it has 'right of first look' over
investment opportunities in the United States originated or
divested by Hunt which meet the Company's investment criteria.
Other Countries
Infrastructure opportunities are well established in Canada and
the Company holds two existing Canadian PPP investments. The
Company's Investment Adviser remains active in the Canadian market.
However, the market is dominated by very price competitive domestic
pension funds making entry into new investment opportunities more
challenging. The Investment Adviser continues to believe that there
will be attractive investment opportunities in the longer-term as
infrastructure is upgraded. In the short term investment is more
likely to be secondary market opportunities rather than primary
investments.
New Zealand continues to also be of interest to the Company. The
government in that market has been pursuing a privatisation process
of several government controlled energy and infrastructure
businesses. While relatively small, the Investment Adviser
continues to monitor projects as they come to market, resourcing
these opportunities from its Australian offices and is reviewing
one such opportunity.
The Company keeps a watching brief on opportunities in other
international markets including markets such as Scandinavia but
will only consider deals in other markets where it is satisfied
that the combination of sovereign credit and rule of law makes such
investment comparable with the Company's existing investments.
Current Pipeline
Overall, the Company is very positive about its short and longer
term prospects, both in terms of the performance of its existing
investments and the opportunity to add high quality investments to
the portfolio during 2016.
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
where the Company has recently closed its sixth project, Westermost
Rough OFTO and is actively bidding each new opportunity as it comes
to market
- Enhanced access to US P3 opportunities, particularly through the relationship with Amber/Hunt
- Other UK and European primary investment opportunities (for
instance in the regulatory, healthcare and judicial sectors)
- Other UK and international regulated assets
- Acquisition of additional investments in projects where the
Company already has an investment. Typically these will arise under
pre-emption and similar rights
- 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
Current opportunities identified by the Investment Adviser are
outlined in the table below. It should be noted that it can take a
number of months for such opportunities to be awarded to a
preferred bidder and many more again to reach financial close.
Moreover none of these projects is certain to progress either with
the Company or at all.
Finally, and notwithstanding the comments above and the
opportunities listed below, it should be noted that the Company's
projected economic performance is not dependent upon making future
investment commitments in order to deliver its projected returns.
These can be delivered in the Company's view from its existing
assets. Fundamentally therefore, further investment opportunities
will, first and foremost, be judged based on whether they add value
and quality to the Company's existing portfolio.
Estimated
Investment
Opportunity/Project Expected
Capital Concession
Current Projects Location Value Length Project Status
------------------ ---------- --------------------- ------------ ------------------------
Priority UK Up to GBP7 25 years Remaining investment
Schools Building million(1) expected to be
Aggregator made in early
Programme 2016
------------------ ---------- --------------------- ------------ ------------------------
Thames Tideway UK Up to GBP151 120 years The Company is
Tunnel million part of the Bazalgette
investment consortium awarded
commitment licence to own
remaining(1) and finance project.
Investment in
phases until
early 2018
------------------ ---------- --------------------- ------------ ------------------------
Education UK GBP8 million(1) c.25 years Investment in
projects existing projects,
some pre-emptive
------------------ ---------- --------------------- ------------ ------------------------
HUB framework UK GBP132 c. 25 years Hub framework
projects million(2) for various Scottish
social community
------------------ ---------- --------------------- ------------ ------------------------
Transportation Australia GBP133 c. 15 years Follow-on investment
project million(2) in existing project
------------------ ---------- --------------------- ------------ ------------------------
Police Centre Germany c.GBP6 c.32.5 Named as preferred
million(1) years bidder
------------------ ---------- --------------------- ------------ ------------------------
Other/medium-term opportunities
-------------------
Judicial Netherlands c.GBP66 c. 25 years The Company is
million(2) involved in a
number of ongoing
bids for projects
Healthcare Austria GBP57 million(2) c. 25 years
Transportation Australia GBP56 million(1) c. 20 years
Accommodation Australia, GBP233 c. 20 years
Germany million(2)
OFTOs UK GBP250 20 years
million(2)
--------------- ------------ ----------------- ------------ ---------------------
(1) Represents current estimated total investment that may be invested by the Company.
(2) Represents the estimated current unaudited capital value of
the project and includes both debt and equity.
The above represents potential opportunities currently under
review by the Investment Adviser (and its associates) including
current bids, preferred bidder opportunities and the 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 that
time. In relation to opportunities where the current estimated
gross value of the relevant project is given (which includes an
estimate of both debt and equity), the estimates provided are not
necessarily indicative of the eventual acquisition price for, or
the value of, any interest that may be acquired.
Rupert Dorey John Whittle
23 March 2016 23 March 2016
Chairman Director
Strategic Report
Risk Report
Risk Management and Internal Controls
The Board is responsible for overall risk management with
delegation provided to the Audit and Risk Committee. The system of
risk management and internal control has been designed to manage,
rather than eliminate, the risk of failure to meet the business
objectives. Regard is given to the materiality of relevant risks in
designing systems of internal control but no system of control can
provide absolute assurance against the incidence of risk,
misstatement or loss.
The Company has in place a risk management framework, with a
risk register that is reviewed and updated by the Board and Audit
and Risk Committee on a quarterly basis. The Audit and Risk
Committee considers the risks facing the Company and controls and
other measures in place to mitigate the impact of risks.
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There is an ongoing process for identifying, evaluating and
managing the risks judged as most significant faced by the Company.
The process has been in place for the year under review and up to
the date of approval of the Annual Report and financial
statements.
Risk management process
The Company's risk management process as overseen by the Board
can be summarised as:
[Diagram can be found in PDF version of this document on the
Company's website.]
Risk framework and systems of internal control
The Board recognises the importance of identifying and actively
monitoring the financial and non-financial risks facing the
business. Whilst responsibility for risk management rests with the
Board, the aim is that the management of risk is embedded as part
of the everyday business and culture of the Company and its
principal advisers.
The Board has considered the need for an internal audit function
but because of the internal controls systems in place at the key
service providers, and the controls process reviews performed, it
has decided instead to place reliance on those control and
assurance processes.
The overall risk governance framework is the responsibility of
the Board, overseen by the Audit and Risk Committee with input from
the Management Engagement Committee. It is implemented through the
following risk control processes.
Risk identification
The Board and Audit and Risk Committee identify risks with
additional input from the Company's Investment Adviser and
Administrator. The Board also receives detailed quarterly asset
management reports highlighting performance and potential risk
issues on an investment-by-investment basis.
Risk assessment
Each identified risk is assessed in terms of probability of
occurrence, potential impact on financial performance and movements
in the relative significance of each risk from period to
period.
Action plans to mitigate risk
Where new risks are identified or existing risks increase in
terms of likelihood or impact, the Audit and Risk Committee assists
the Company in developing an action plan to mitigate the risk and
put in place enhanced monitoring and reporting.
Re-assessment and reporting of risk
Such risk mitigation plans are reassessed by the Audit and Risk
Committee, where applicable with the relevant key service providers
and reported to The Board on a quarterly basis.
[Diagram can be found in PDF version of this document on the
Company's website.]
The direct communication between the Company and its Investment
Adviser and the entity level asset manager is regarded as a key
element in the effective management of risk (and performance) at
the underlying investment level.
The risk framework is applied holistically across the Company
and the underlying investment portfolio as illustrated in the
Operating Model diagram on page 13.
Principal Risks and Mitigation
The key risks affecting the Company and the investment portfolio
have not in the view of the Board, materially changed year to year,
largely due to the contractual and long-term nature of the
investments with similar risk profiles. Changes in the
macroeconomic environment and broader global regulatory and tax
environment can impact on fund returns and are a permanent feature
of the risk appraisal process.
The Board's views on the principal risks and uncertainties for
the Company and the relevance of these risks to meeting the
Company's objectives, together with movement of those risks in the
period, are set out in detail in the table on pages 37 to 41. This
is not intended to highlight all the potential risks to the
business. There may be other risks that are currently unknown or
regarded as less material which could turn out to be material. Any
of these could have the potential to impact materially the
performance of the Company, its assets, capital resources and
reputation.
A description of broader risk factors relevant to investors is
disclosed in the latest Company prospectus available on the
Company's website www.internationalpublicpartnerships.com.
Whilst the Company has applied mitigation processes as
highlighted below it is unlikely that the techniques applied will
fully mitigate the risk.
The chart below provides a summary of the Board's view of the
probability and potential impact of the Company's principal
risks:
[Diagram can be found in PDF version of this document on the
Company's website.]
The following key is used in the table below to highlight the
Board's view on how risk exposures are considered to have moved
during the period:
Risk exposure has increased in the period
Risk exposure has reduced in the period
No significant change in risk exposure since last reporting
period
Risk Description Mitigation/Approach
------------------------- -------------------------------------- -----------------------------------
Macroeconomic Risks
------------------------------------------------------------------------------------------------------
Inflation Inflation may be higher The Company monitors
or lower than expected. the effect of inflation
Investment cash flows on its portfolio
are positively correlated through its twice
to inflation therefore yearly valuation
increases/decreases process and reports
to inflation compared on this to investors.
to current projections The Company also
would impact positively provides sensitivities
or negatively on the to investors indicating
Company's future projected the projected impact
cash flows. Negative on the Company's
inflation (deflation) NAV of a number of
will reduce the Company's alternative inflation
future cash flows scenarios, offering
in absolute terms. investors an ability
to anticipate the
The Company's portfolio likely effects of
has been developed some inflation scenarios
in anticipation of on their investment.
continued inflation
at or above the levels The Company utilises
used in the Company's a long-term view
valuation assumptions. of inflation within
Where inflation is its forecasts, benchmarked
at levels below the where possible to
assumed levels investment independent analysis.
performance may be
impaired. The level
of inflation linkage
across the investments
held by the Company
varies and is not
consistent. Some investments
have no inflation
linkage and some have
a geared exposure
to inflation. The
consequences of higher
or lower levels of
inflation than that
assumed by the Company
will not be uniform
across its portfolio.
The Company is also
exposed to the risk
of changes to the
manner in which inflation
is calculated by the
relevant authorities.
------------------------- -------------------------------------- -----------------------------------
Foreign Exchange The Company indirectly The Company uses
Movements holds part of its forward foreign exchange
investments in entities contracts to mitigate
in jurisdictions with the risk of short-term
Reduction currencies other than volatility in foreign
in overall Sterling but borrows exchange on significant
exposure corporate level debt, investment returns
to foreign reports its NAV and from overseas investments.
exchange pays dividends in These may not be
originated Sterling. Changes fully effective and
assets mainly in the rates of foreign rely on the strength
due to substantial currency exchange of the counterparties
increase are outside the control to those contracts
in the NAV of the Company and to be enforceable.
driven by may impact positively
new GBP investments or negatively on Company The Company monitors
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and capital cash flows and valuation. the effect of foreign
raised in exchange on its portfolio
the year. through its twice
yearly valuation
process and reports
this to investors.
The Company also
provides sensitivities
to investors indicating
the projected impact
on the Company's
NAV of a limited
number of alternative
foreign exchange
scenarios, offering
investors an ability
to anticipate the
likely effects of
some foreign exchange
scenarios on their
investment.
------------------------- -------------------------------------- -----------------------------------
Interest Changes in market
Rates rates of interest
can affect the Company
in a variety of different
ways: In determining the
discount rate used
Valuation Discount to value the Company's
Rate investments the Company
The Company, in valuing generally uses nominal
its investments, uses interest rates. Where
a discounted cash the Company's cash
flow methodology. investment inflows
Changes in market are linked to inflation,
rates of interest higher interest rates
(particularly government can often be precipitated
bond rates) may directly by higher inflation
impact the discount expectations, and
rate used to value therefore any inflation
the Company's future linkage may partly
projected cash flows mitigate the effect
and thus its valuation. of interest rate
Higher rates will changes
have a negative impact
on valuation while
lower rates will have
a positive impact.
------------------------- -------------------------------------- -----------------------------------
Corporate Debt Facility
The Company has a In the event that
corporate level debt the interest rate
facility that may increases then the
be drawn from time Company has the option
to time. Interest of repaying that
is charged on a floating facility at any time
rate basis, so higher with minimal notice,
than anticipated interest providing sufficient
rates will increase funds are available.
the cost of this facility
potentially adversely
impacting on cash
flow and the Company's
valuation.
---------------------------------- -----------------------------------
Cash Holdings
The Company and underlying As presented in the
investment entities sensitivity analysis,
typically choose or variations in cash
can be required to deposit rates have
hold various cash little impact on
balances, including the Company's NAV.
contingency reserves Due to the spread
for future costs (such of cash holdings
as major lifecycle within ringfenced
maintenance or debt SPV structures and
service reserves). relatively smaller
These are generally balances in the SPV's,
held on interest bearing it is not economically
accounts and under feasible to hedge
the contractual terms against adverse deposit
applicable to certain rate movements.
investments which
in many cases are The Company monitors
projected to be held the effect of historical
for the long term. and projected interest
rates on its portfolio
The Company assumes through its twice
that it will earn yearly valuation
interest on such deposits process and reports
over the long term. this to investors.
Changes in interest The Company also
rates may mean that provides sensitivities
the actual interest to investors indicating
receivable by the the projected impact
Company is less than on the Company's
projected. If the NAV of a limited
Company receives less number of alternative
interest than it projects scenarios, offering
this will impact cash investors an ability
flows and NAV adversely. to anticipate the
likely effects of
some deposit interest
rate scenarios on
their investment.
--------------------------- ---------------------------------- -----------------------------------
Taxation Change in Legislation
Changes in tax legislation The diversified jurisdictional
across the multi-jurisdictions mix of the Company's
in which the Company investments may provide
has investments can some mitigation to
reduce returns impacting tax changes in any
on the Company's cash one jurisdiction.
flow and valuation.
---------------------------------- -----------------------------------
Change in Tax Rates
Most recently the The Company believes
Company has benefited it takes a conservative
from reductions in approach to tax planning.
the headline rates The Board monitors
of UK corporation changes in tax legislation
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tax positively impacting and takes advice
its UK based investments, as appropriate from
however there is a external, independent,
risk that this could qualified advisers.
be reversed if there Whilst the Board
were a change in government and the Company's
or policy. Such changes Investment Adviser
may occur in all jurisdictions seek to minimise
in which the Company the impact of adverse
operates. changes in tax requirements,
its ability to do
so is naturally limited.
------------------------- ---------------------------------- -----------------------------------
Base Erosion and Profit
Shifting The Company's Investment
The OECD's Action Adviser has responded
Plan on Base Erosion to the OECD BEPS
and Profit Shifting consultation process
('BEPS'), published but there can be
in 2013, seeks to no guarantee that
address perceived any enactment of
flaws in international BEPS into national
tax rules. It sets legislation within
out 15 actions to those countries where
counter BEPS in a the Group operates
comprehensive and will not have a negative
coordinated way. These impact, whether direct
actions may result or indirect, on the
in fundamental changes Company's performance.
Increased to the international
uncertainty tax standards and
over future potentially have unintended
tax policy consequences for domestic
across a number tax standards too.
of geographies If widely drawn they
mainly driven may have negative
by OECD recommendations implications for the
on BEPS. Company.
--------------------------- ---------------------------------- -----------------------------------
Accounting Accounting changes A significant portion
can have the effect of the Company's
of reducing distributable income is received
profits in investee in the form of shareholder
entities and holding debt interest income
entities and may impact i.e. from pre-tax
the Company's cash cash flows and therefore
flows and thus valuation not constrained by
adversely. distributable profits
tests.
--------------------------- ================================== ===================================
Risk Description Mitigation/Approach
============================= ================================ ===================================
Market Risk
Political The nature of the The Company's existing
and Regulatory businesses in which investments mainly
the Company invests benefit from long-term
exposes the Company service and asset
to potential changes availability based
in policy and legal pricing contracts
Increasing requirements. All and the countries
pressures investments have a in which the Company
on public public sector infrastructure operates do not tend
sector bodies service aspect. Some to have a tradition
globally have are subject to formal of penal retrospective
the potential regulatory regimes. legislation. The
to impact All are exposed to countries where the
the infrastructure political scrutiny Company operates
industry. and the potential tend to be long-term
for adverse public supporters of infrastructure
sector or political and similar investment
criticism. Moreover and recognise the
all are either dependent risk of deterring
ultimately on public future investment
sector expenditure in the event that
or dependent on regulatory penal or disproportionate
or other similar frameworks steps are taken in
for most of their respect of existing
revenues. The Company contractual engagements.
is therefore potentially
highly exposed to
changes in policy,
law or regulations
including adverse
or punitive changes
of law.
-------------------------------- -----------------------------------
Termination of Contracts
Often contracts between The Company maintains
public sector bodies strong and positive
and the Company's relationships with
investment entities its public sector
contain rights for clients where it
the public sector can. The Company
to voluntarily terminate engages with its
contracts in certain public sector clients
situations. Whilst in developing cost
the contracts typically saving initiatives
provide for some compensation and acting as a 'good
in such cases, this partner' where it
could be less than can. None of the
required to sustain Company's investments
the Company's valuation have been identified,
causing loss of value by any government
to the Company. There audit or public sector
have been instances report as being poor
of contracts being value-for-money or
voluntarily terminated not in the public
in the UK (although interest.
not affecting the
Company). The Investment Adviser
is a signatory to
the Code of Conduct
for Operational PFI/PPP
contracts in the
UK. The voluntary
code of conduct sets
out the basis on
which public and
private sector partners
agree to work together
to make savings in
operational Public
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PPP contracts.
Compensation on termination
clauses within such
contracts serve to
partially mitigate
the risk of voluntary
termination. Furthermore
in the current financial
climate where voluntary
termination leads
to a requirement
to pay compensation
such compensation
is likely in many
cases to represent
an unattractive immediate
call on the public
finances for the
public sector.
-------------------------------- -----------------------------------
Change in Law/Regulation
Changes in law or Some investments
regulation may increase maintain a reserve
costs of operating or contingency designed
and maintaining facilities to meet change in
or impose other costs law costs and/or
or obligations that have a mechanism
indirectly adversely to allow some change
affect the Company's in law costs (typically
cash flow from its building maintenance
investments and/or related) to be passed
valuation of them. back to the public
sector.
-------------------------------- -----------------------------------
Change in Political
Policy Current policy trends
Political policy and in the UK and elsewhere
financing decisions continue to support
may also impact on the use of private
relationships on existing sector capital to
investments and on finance public infrastructure.
the Company's ability
to source new investments
at attractive prices
or at all.
-------------------------------- -----------------------------------
UK European Union
('EU') Membership Possible period of
Impact resulting from volatility in the
'in-out' referendum months preceding
in respect of UK EU the referendum due
Membership on 23 June to uncertainty with
2016. respect to the outcome.
If the UK were to
exit the EU there
is the potential
for this to impact
UK gilt rates and
the credit rating
of the UK Government
and continuing market
volatility, including
stock markets. This
could include a negative
impact on Sterling
however this could
be partially mitigated
by the Company's
non-Sterling denominated
projects.
-------------------------------- -----------------------------------
Change in Regulations
The Company is subject The Company and its
to changes in regulatory Investment Adviser
policy that relate monitor regulatory
to its business and developments and
that of its Investment seek independent
Adviser both in terms professional advice
of its investments in order to manage
and in terms of itself. compliance with changing
The Company is supervised regulatory requirements.
by the Guernsey Financial
Services Commission
and is required to
comply with the UK
Listing Rules applicable
to 'Premium' listings.
The Investment Adviser
is regulated by the
Financial Conduct
Authority in the UK
in accordance with
the Financial Services
and Markets Act 2000.
----------------------------- -------------------------------- -----------------------------------
Recent Regulatory
Changes The Board considers
Recent regulatory the Company is self-managed
changes have included (i.e. it is its own
the transposition Alternative Investment
of the European Union's Fund Manager ('AIFM')).
Alternative Investment It is therefore subject
Fund Managers Directive to a lighter regulatory
('AIFMD') into UK regime than if it
and other EU countries were to appoint an
national laws which AIFM from within
will impact the Company the EU. However it
by increasing its is not possible to
regulatory burden. entirely mitigate
the risk the Company
may be deemed or
choose to be managed
by an EU AIFM in
the future.
============================= ================================ ===================================
Operational and Valuation Risk
====================================================================================================
Asset Performance Asset Availability
The Company's investments' The Board reviews
entitlement to receive underlying investment
income is generally performance of each
dependent on the underlying investment quarterly
physical assets remaining allowing asset performance
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available for use to be monitored in
and continuing to close to real time.
meet certain performance
standards. Failure Historically the
to maintain assets Company has seen
available for use very high levels
or operating in accordance of asset performance
with pre-determined which suggests a
performance standards positive trend for
may dis-entitle (wholly the future.
or partially) the
continued receipt Contractual mechanisms
of income that the also allow for significant
Company has projected pass-down of unavailability
to receive. and performance risk
to sub-contractors
in many cases.
Termination
In serious cases where In the event of significant
the terms of the underlying and continuing unavailability
contract with the across the Company's
public sector are portfolio the Company
breached due to default is able to terminate
or force majeure then the Investment Advisory
that contract can Agreement. This serves
usually be terminated to reinforce alignment
without compensation. of interest between
Failure to receive the Company and the
the amount of revenue Investment Adviser.
projected or termination
of a contract will
have a consequential
impact on the Company's
cash flow and value.
----------------------------- -------------------------------- -----------------------------------
Counterparty The Company's investments The Company has a
Risk are dependent on the broad range of suppliers
performance of a series and believes that
of counterparties supplier counterparty
to contracts including risk is diversified
public sector bodies, across its investments.
construction contractors, All contracts include
facilities management the provision of
New investment and maintenance contractors, a security package
activity by asset and investment from counterparties
the Company managers (including to mitigate the impact
in the year the Investment Adviser), of supplier failure.
has decreased banks and lending In addition, generally
the level institutions and others. payments are made
of risk within Failure by one or in arrears to service
the portfolio more of these counterparties providers giving
through diversification to perform their obligations the Company some
of counterparties. fully or as anticipated protection against
could adversely affect failures in performance.
the performance of
affected investments. The credit quality
Replacement counterparties of supplier counterparties
where they can be is reviewed as part
obtained may only of the Company's
be obtained at a greater due diligence at
cost. These risks the time of making
would negatively impact its investments.
the Company's cash
flows and valuation. Most of the services
provided to the Company's
investments are reasonably
generic and therefore
there can be expected
to be a pool of potential
replacement supplier
counterparties in
the event that a
service counterparty
fails albeit not
necessarily at the
same cost.
============================= ================================ -----------------------------------
Where borrowings exist The credit risk of
in respect of the such swap counterparties
Company's investments, is considered at
interest rates are the time of entering
generally fixed through into these arrangements
the use of interest and are regularly
rate swaps. The Company reviewed. However,
is therefore exposed there is a risk of
if the counterparties credit deterioration
of these swaps were which could impact
to default or the affected investments.
swaps otherwise become
ineffective.
----------------------------- -------------------------------- -----------------------------------
Physical Asset The Company indirectly The Company's investments
Risk invests in physical benefit from regular
assets used by the risk reviews and
public and thus is external insurance
exposed to possible advice which is intended
risks, both reputational to ensure that those
and legal, in the assets continue to
event of damage or benefit from insurance
destruction to such cover that is standard
assets and their users for such assets.
including loss of
life, personal injury
and property damage.
While the assets the
Company invests in
benefit from insurance
policies these may
not be effective in
all cases.
----------------------------- -------------------------------- -----------------------------------
Contract Risk The performance of Such contracts have
the Company's investments been entered into
is dependent on the usually only after
complex set of contractual lengthy negotiations
arrangements specific and with the benefit
to each investment of external legal
continuing to operate advice. A legal review
as intended. The Company of contract documentation
is exposed to the is undertaken as
risk that such contracts part of the Company's
do not operate as due diligence at
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intended, are incomplete, the time of making
contain unanticipated new investments.
liabilities, are subject
to interpretation
contrary to the Company's
expectation or otherwise
fail to provide the
protection or recourse
anticipated by the
Company.
----------------------------- -------------------------------- -----------------------------------
Financial The Company's projections Financial forecasts
Forecasts depend on the use are generally subject
of financial models to model audit by
to calculate future external accountancy
projected investment firms which is a
returns for the Company. process designed
These are in turn to identify errors.
dependent on the outputs The comparison of
from other financial past actual performance
model forecasts at of investments against
the underlying investment past projected performance
entity level. There also gives confidence
may be errors in any in financial models
of these financial where actual performance
models including calculation has closely matched
errors, incorrect projected performance.
assumptions, programming, However there can
logic or formulaic be no assurance that
errors and output forecast results
errors. Once corrected will be realised.
such errors may lead
to a revision in the
Company's projections
for its cash flows
and thus impact on
its valuation.
================================ ===================================
Sensitivities
The Company publishes Sensitivities are
information relating produced for the
to its portfolio including information of investors
projections of how and are accompanied
portfolio performance by disclaimers and
and valuation might guidance explaining
be impacted by changes that limited reliance
in various factors can be placed upon
e.g. interest rates, them.
inflation, deposit
rates etc. The sensitivity
analysis and projections
are not forecasts
and actual performance
is likely to differ
(possibly significantly)
from that projection
as in practice the
impact of changes
to such factors will
be unlikely to apply
evenly across the
portfolio or in isolation
from other factors.
----------------------------- -------------------------------- -----------------------------------
Cyber-security Cyber-security is A number of control
an issue of increasing layers are in place
relevance across all across the Company
businesses as a response structure to mitigate
to the growing levels as far as possible
of sophistication against the risk
Increasing being used in carrying of a cyber-security
levels of out cyber-attacks issue occurring in
sophistication targeting businesses. the Company's operational
are being Cybercrime could impact or investment activities.
used in cyber-attacks the Company in a number
targeting of ways including
businesses. financially, operationally
or through reputational
impact.
----------------------------- -------------------------------- -----------------------------------
Viability Statement
In accordance with provision C2:2 of the 2014 revision of the UK
Code of Corporate Governance, we have considered the Company's
viability as summarised below. Due to the very long term and
contractual nature of our investments, we have a significant level
of confidence over the endurance and longevity of our business
however it is difficult to assess the regulatory, tax and political
environment on a long-term basis. Therefore whilst we consider the
valuation of investment cash flows for the purposes of NAV over a
considerably longer period than five years, we view five years as
an the appropriate timeframe for assessing the Company's viability
given these inherent uncertainties.
In 2015, the viability assessment process was embedded within
the Company's annual risk review cycle and involves the
following:
1) An Audit and Risk Committee review and assessment of the
risks facing the Company. A summary of the review process is
detailed on page 35
2) Identification of those principal risks that are deemed more
likely to occur and have a potential impact on the Company's
viability over the viability period (this exercise has included
consideration of a persistent low inflation rate environment, a
persistent weak currency environment impacting on overseas
investments, and the impact from the loss of income from
investments (whether due to key sub-contractor default or other
asset underperformance)). We note that a number of risks identified
during the risk review process in step one above may have
implications for the Company's valuation but may be considered
insignificant from a five year viability perspective
3) Quantification analysis of the potential impact of those
principal risks occurring in isolation and under plausible combined
sensitivity scenarios over the viability period
4) Assessment of potential mitigation strategies to mitigate the
potential impact of principal risks over the viability period. This
exercise has considered the potential to liquidate investments
and/or refinance investments if necessary
The viability assessment is approved by the Board. Following the
assessment, the Board have a reasonable expectation that the
Company will be able to continue in operation and meet all its
liabilities as they fall due up to March 2021. This assessment is
based on the following assumptions which are not within the
Company's control:
- No retrospective changes to government policy, laws and
regulations affecting the Company or its investments; and
- Continued availability of sufficient capital and market
liquidity to allow for the refinancing/repayment of any short term
recourse debt facility obligations as they become due
Corporate Governance
Board of Directors
Background and Experience
Rupert John Whittle(1) John Le John Stares(1) Claire Whittet(1) Giles
Dorey(1) Senior Poidevin(1) Chairman, Chairman, Frost
Chairman Independent Risk Sub-Committee Management
Chairman, Director Chairman, Engagement
Investment Chairman, Nomination Committee
Committee Risk and and Remuneration
Audit Committee Committee
Aged 55 Aged 60, Aged 45, Aged 64 Aged 60 Aged 53,
and a John is and a resident and a resident and a resident resident
resident a resident of Guernsey, of Guernsey of Guernsey, in the
of Guernsey, of Guernsey. John has since 2001, Claire has United
Rupert John is over 20 John has over 38 Kingdom,
has over a Chartered years of over 40 years' experience Giles
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March 24, 2016 03:00 ET (07:00 GMT)
30 years Accountant business years business in the banking is a founder
of experience and holds experience. experience. industry. and Director
in financial the Institute Since 2003 of Amber
markets, of Directors John is Before Claire has and has
including Diploma a Fellow moving been a Director worked
17 years in Company of the to Guernsey and, more in the
at CSFB Direction. Institute John worked recently, infrastructure
where John holds of Chartered for 23 Managing investments
he specialised non-executive Accountants years as Director sector
in credit positions in England a management and Co-Head for over
related on a number and Wales consultant of Rothschild 20 years.
products. of other and a former with Accenture Bank International Giles
boards. partner where he Ltd and qualified
Rupert's of BDO held a Director as a solicitor
expertise John was LLP, where wide variety of Rothschild and partner
was principally previously as Head of leadership Bank (CI) in the
in the Finance of Consumer roles. Ltd. Claire law firm
areas Director Markets, was previously Wilde
of debt of Close he developed He currently with Bank Sapte
distribution, Fund Services, an extensive holds of Scotland (now Dentons).
origination a large breadth non-executive and was
and trading, independent of experience positions latterly Giles
where fund and knowledge on the Global Head is a Director
he held administrator. across boards of Private of Amber
a number the leisure of several Client Credit Infrastructure
of senior Prior to and retail other companies. at Bank Group
positions moving sectors of Bermuda. Holdings
at CSFB, to Guernsey, in the John is Limited,
including John was UK and a Fellow Claire is the ultimate
Fixed at Price overseas. of the a Non-Executive holding
income Waterhouse Institute Director company
Credit in London John is of Chartered on a number of the
product before a non-executive Accounts of other Investment
coordinator embarking on several in England funds, is Adviser
for European on a career plc boards and Wales, a member to the
offices in business and chairs a member of the Chartered Company
and head services, a number of the Institute and various
of UK predominantly of Audit Worshipful of Bankers of its
Credit telecoms. Committees. Company in Scotland, subsidiaries.
and Rates of Management a member
Sales. Consultants of the Chartered
and a Freeman Insurance
Since of the Institute,
2005 Rupert City of a Chartered
has been London. Banker,
a Non-Executive a member
Director of the Institute
for a of Directors
number and holds
of Hedge the Institute
Funds, of Directors
Private Diploma
Equity in Company
& Infrastructure Direction.
Funds.
He is
a member
of the
Institute
of Directors.
Date of Appointment
2 August 6 August 1 January 28 August 10 September 2 August
2006 2009 2016 2013 2012 2006
(1) All of the Independent Directors are members of all
committees
Listed Company and Other Relevant Directorships
Rupert John Whittle John Le John Stares Claire Giles Frost
Dorey Poidevin Whittet
Advance JT Group Giles is
Frontier Challenger (Chairman) BH Macro also a
AP Alternative Markets Acquisitions Limited Director
Assets Fund Ltd Limited Terra Firma of a number
LP, AAA Globalworth (Guernsey-based Eurocastle of the
Guernsey Real Estate Market entities) Investment Company's
Ltd Investments Tech Holdings Limited subsidiary
Ltd Limited Governor and investment
Cinven GLI Finance of More Riverstone holding
Capital Limited Safecharge House School Energy entities
Management (Alternate) International Ltd and of
III, IV, India Capital Group Limited New Philanthropy other entities
V, VI Ltd, Growth Capital TwentyFour in which
General Fund Ltd Stride (Trustee) Select the Company
Partner and Advance Gaming Monthly has an
Ltd, Cinven Frontier plc Income investment.
Ltd Markets Fund Limited He does
Fund Ltd not receive
NB Global directors'
Floating Starwood fees from
Rate Income European such roles
Fund Ltd Real Estate for the
Finance Company.
M&G General Limited
Partner
Inc, Episode Toro Limited
LLP & Episode
Inc.
Partners
Group Global
Opportunities
Ltd
Tetragon
Financial
Group Ltd
/Tetragon
Financial
Group Master
Fund Ltd
Corporate Governance Report
Introduction
The Board of Directors is committed to high standards of
corporate governance and has put in place a framework for corporate
governance which it believes is appropriate for an investment
company.
Compliance with Corporate Governance Codes
All companies with a Premium Listing on the London Stock
Exchange are required to confirm their compliance with (or explain
departures from) the UK Corporate Governance Code issued in
September 2014 (the 'UK Code'). This requirement applies regardless
of where the Company is incorporated.
The Company is a member of the Association of Investment
Companies (the 'AIC'). The Financial Reporting Council acknowledges
that the AIC Corporate Governance Code issued in February 2015 (the
'AIC Code') can assist externally managed companies in meeting
their obligations under the UK Code in areas that are of specific
relevance to investment companies.
The Guernsey Financial Services Commission has also confirmed
that companies that report against the UK Code or AIC Code are
deemed to meet the Guernsey Code of Corporate Governance.
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The AIC Code is available from the Association of Investment
Companies (www.theaic.co.uk). The UK Code is available from the
Financial Reporting Council website (www.frc.co.uk).
The Company has complied throughout the year with all the
provisions of the AIC Code and as such also meets the requirements
of the UK Code except to the extent highlighted below. In
particular the Company notes the following departures from the code
(for part or all of the year) for the reasons as set out below:
1. The role of the Chief Executive and Executive Directors' remuneration
As an investment company, most of the Company's day-to-day
responsibilities are delegated to third parties. The Company does
not have any Executive Directors. The UK Code's two separate
principles of setting out the responsibilities of the Chief
Executive and disclosing the remuneration of executive directors
(Section 12 - A.2 of the UK Code) are therefore not applicable.
2. Re-election of all Directors
The Board notes that the AIC Code and UK Code suggest it would
be good practice for all Directors to be offered for re-election at
regular intervals subject to continued satisfactory performance. In
accordance with the Company's articles of incorporation, at least
one third of the Independent Directors and Mr Frost (treated for
the purposes of the AIC Code as a Non-Independent Director) will
retire at each Annual General Meeting (Principle 3 - AIC Code). The
Company considers that putting forward all Independent Directors
for re-election annually as is recommended for FTSE350 companies
under the AIC Code would not be in the best interests of
shareholders, given the long-term nature of the Company's assets
that benefit from a consistent approach across years both in terms
of management and independent Board supervision.
As such the Company takes the view that the benefits to
shareholders arising from the Directors' long-term knowledge and
experience of these underlying assets and their management
(including their ongoing ability to review the performance of the
Investment Adviser and other advisers) outweighs the benefit of
more frequent re-election being applied to all Directors.
However, as detailed in the 'Board Tenure and Re-election'
section below as Mr Dorey's tenure reached nine years in August
2015, the Board determined that it would be appropriate that he
offer himself for re-election on an annual basis.
Other Directors seeking re-election this year are detailed in
the sections below.
The Board of Directors
The Board of Directors currently consists of six Non-Executive
Directors, whose biographies, on pages 43 - 44, demonstrate a
breadth of investment and business experience.
The Board consists solely of Non-Executive Directors and is
chaired by Mr Dorey who is responsible for leadership of the Board
and ensuring its effectiveness in all aspects of its role. Mr Dorey
met the independence criteria of the AIC Code and UK Code upon
appointment and has continued to meet this condition throughout his
term of service. Mr Whittle was appointed as Senior Independent
Director on 31 December 2013 and as such, is an alternative point
of contact for shareholders and he leads in matters where it is not
appropriate for the Chairman to do so.
For the purposes of the AIC Code Mr Frost is treated as not
being an Independent Director, due to his relationship with the
Company's Investment Adviser. In accordance with the AIC Code all
other non-executives are independent of the Company's Investment
Adviser.
Board Tenure and Re-election
Directors do not have service contracts. Directors are appointed
under letters of appointment, copies of which are available at the
registered office of the Company. The Board considers its
composition and succession planning on an ongoing basis.
In accordance with the UK Listing Authority Rules, Mr Frost will
retire and stand for re-election at the 2016 AGM.
In accordance with the AIC Code, when and if any Director has
been in office (or on re-election would at the end of that term of
office have been in office) for more than nine years the Company
will consider further whether there is a risk that such a Director
might reasonably be deemed to have lost independence through such
long service.
Mr Dorey has been a Board member since August 2006 and in August
2015 had served as a Board member for over nine years. While the
Board is confident that Mr Dorey remains independent, he has agreed
to offer himself for re-election on an annual basis until his
intended retirement from the Board at the Company's 2018 AGM.
Also, on a rotational basis, one third of the remaining
Directors retire and put themselves up for re-election at every
AGM; Mrs Whittet will make herself available for re-election at the
2016 AGM.
Any Directors appointed to the Board since the previous AGM also
retire and stand for re-election. Mr Le Poidevin was appointed to
the Board on 1 January 2016 and will therefore offer himself for
re-election at the 2016 AGM.
Taking the above into account Mr Dorey, Mr Frost, Mr Le Poidevin
and Mrs Whittet will all retire and stand for re-election at the
2016 AGM.
Directors' Duties and Responsibilities
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
- Statutory obligations and public disclosure
- Approval of investment decisions
- Strategic matters and financial reporting
- Board composition and accountability to shareholders
- Risk assessment and management, including reporting,
compliance, monitoring, governance and control
- Other matters having material effects on the Company
These reserved powers of the Board have been adopted by the
Directors to demonstrate clearly the importance with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions.
The Board monitors the Company's share price and NAV and
regularly considers ways in which shareholder value may be
enhanced. These may include implementing marketing and investor
relations activities, appropriate management of share price
premium/discount and the relative positioning and performance of
the Company to its competitors. The Board is also responsible for
safeguarding the assets of the Company and for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Individual Directors may, at the expense of the Company, seek
independent professional advice on any matter that concerns them in
the furtherance of their duties. The Company maintains appropriate
Directors' and Officers' liability insurance in respect of legal
action against its Directors on an ongoing basis and the Company
has maintained appropriate cover throughout the period.
All new Directors receive introductory support and education
about the infrastructure sector and the Company from the Investment
Adviser on joining the Board and, in consultation with the Chairman
all Directors are entitled to receive other relevant ongoing
training as necessary.
Board Diversity
The Board is committed to maintaining the appropriate balance of
skills, gender, knowledge and experience among its members to
ensure strong leadership of the Company. When appointing Board
members, its priority will always be based on merit, but will be
influenced by the strong desire to maintain Board diversity. The
Board currently has one female Director.
Board Remuneration
The Nomination and Remuneration Committee considers matters
relating to the Directors' remuneration, taking into account
benchmark information (including taking into account fees paid to
directors of comparable companies, although such a review does not
necessarily result in any changes to the fees paid) and based upon
the amount of work performed by the Board members. In 2015 no
advice or services were provided by any external persons in respect
of its consideration of Directors' remuneration and no changes were
made to Board remuneration.
All fees payable to the Directors should reflect the time spent
by the Directors on the Company's affairs and the responsibilities
borne by the Directors and be sufficient to attract, retain and
motivate Directors of a quality required to run the Company
successfully. The Chairman of the Board is paid a higher fee in
recognition of additional responsibilities, as is the Chairman of
the Audit and Risk Committee. The Chairmen of the Nomination and
Remuneration, Management Engagement, and Investment Committees,
respectively do not receive additional fees for these roles.
There are no long-term incentive schemes provided by the Company
and no performance fees, or bonuses paid to Directors. Any changes
to Directors remuneration are considered at the Annual General
Meeting of the Company.
During the year, serving Directors were paid the following
emoluments:
2015 2014
Fees paid/accrued(1) Fees paid
Director GBP GBP
---------------- --------------------- ----------
Rupert Dorey(2) 70,000 60,000
Giles Frost(3) 42,000 32,000
John Whittle(4) 60,000 50,000
Claire Whittet 47,500 37,500
John Stares 47,500 37,500
John Le
Poidevin(5) - -
---------------- --------------------- ----------
(1) Includes GBP10,000 fee payable to Board members with respect
to the October 2015 Placing, Open Offer and Offer for Subscription
and Placing Programme, paid in January 2016.
(2) Mr Dorey became Chairman of the Board on 31 December 2013
for which he receives a higher fee.
(3) The emoluments for Mr Frost are paid to his employer Amber
Infrastructure Limited, a related company of the Company's
Investment Adviser.
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(4) Mr Whittle became Chairman of the Audit and Risk Committee
on 31 December 2013 for which he receives a higher fee.
(5) Mr Le Poidevin was appointed to the Board on 1 January
2016.
Directors' Interests
Directors, who held office at 31 December 2015, had the
following interests in the shares of the Company:
31 December
31 December 2014
2015 Number
Number of of
Ordinary Ordinary
Director Shares(1) Shares(1)
---------------- ----------- -----------
Rupert
Dorey(2) 793,687 643,687
Giles
Frost 448,745 298,745
John Whittle(3) 52,198 40,256
Claire
Whittet(3) 50,000 -
John Stares 75,000 -
John Le
Poidevin4 N/A N/A
---------------- ----------- -----------
All shares are beneficially held.
(2) Shares owned by Mr Dorey's spouse.
(3) Holds shares through a Retirement Annuity Trust Scheme.
(4) Mr Le Poidevin was appointed to the Board on 1 January 2016
and had no interests in the shares of the Company prior to his
appointment
There have been no changes to any of the above holdings between
31 December 2015 and the date of this report.
Mr Frost is also a Director of International Public Partnerships
Lux 1 SARL a wholly-owned subsidiary undertaking of the Company,
and a director of a number of other companies in which the Company
directly or indirectly has an investment, although he does not
control or receive remuneration in relation to these entities.
In December 2015, Mr Whittle was appointed as Director of
International Public Partnerships Lux 1 Sarl and International
Public Partnerships Lux 2 Sarl. The appointment is effective from
January 2016. No Director fees have been accrued or paid for the
year ended 31 December 2015.
Committees of the Board
[Diagram can be found in PDF version of this document on the
Company's website]
Committees of the Board
The Board has established four committees consisting of the
independent Non-Executive Directors. The responsibilities of these
Committees are described below. Terms of reference for each
Committee have been approved by the Board and are available in full
on the Company's website.
Audit and Risk Committee
The Audit and Risk Committee is comprised of the full Board with
the exception of Mr Frost as the Non-Independent Director.
Mr Whittle is Chairman of the Audit and Risk Committee and Mr
Stares has lead responsibility for Risk within that committee. As a
consequence, the Company Chairman is a member of the Audit and Risk
Committee, which the Board believes is appropriate as Mr Dorey
brings significant independent expertise in investment trusts and
finance for the benefit of that Committee.
The duties of the Audit and Risk Committee in discharging its
responsibilities are outlined in the Audit and Risk Committee
Report.
In respect of its risk management function, the Audit and Risk
Committee is also responsible for reviewing the Company's risk
management framework including the acquisition and disposal of
assets, the valuation of assets and ensuring that the risk
management function of the Investment Adviser, Administrator and
other third party service providers are adequate and to seek
assurance of the same. More detail is provided within the Risk
Report.
The Audit and Risk Committee were satisfied that the key risks
that could impact the Company and its investments were effectively
mitigated and reported upon and were broadly in line with those of
Company's more relevant industry peers.
Management Engagement Committee
The Management Engagement Committee is comprised of the full
Board, with the exception of Mr Frost as the Non-Independent
Director, and is chaired by Mrs Whittet. The duties of the
Management Engagement Committee in discharging its responsibilities
are outlined in the diagram on page 47.
The Management Engagement Committee carries out its review of
the Company's advisers through consideration of a number of
objective and subjective criteria and through a review of the terms
and conditions of the advisers' appointments with the aim of
evaluating performance, identifying any weaknesses and ensuring
value for money for the Company's shareholders.
During the year the Management Engagement Committee formally
reviewed the performance of the Investment Adviser and other key
service providers to the Company and no material weaknesses were
identified. Overall the Committee confirmed its satisfaction with
the services and advice received. The external evaluation of the
Board referred to above also considered the effectiveness of the
Board's relationship with the Company's advisers including the
Investment Adviser and concluded positively on the these
relationships.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee is comprised of the
full Board with the exception of Mr Frost as the Non-Independent
Director, and is chaired by Mr Stares.
The Committee is formally charged by the Board to consider the
structure, size, remuneration and composition of the Board. It also
oversees the appointment and re-appointment of directors, taking
into account the expertise of the candidates and their independence
(see page 47 for more detail on the Committee).
As part of its ongoing remit, the Nomination and Remuneration
Committee undertook an evaluation of the performance of the Board
and Chairman. Each Director was asked to provide written feedback
regarding the performance of the Board as a whole and the Chairman
set against a range of best practice corporate governance criteria.
A report of this feedback was considered by the Nomination and
Remuneration Committee. No material issues were identified by the
Directors regarding the performance of the Board and Chairman. The
Board notes that in accordance with the Corporate Governance Code
for FTSE 350 companies, the Company undertakes externally
facilitated evaluation every three years. The last external
evaluation was undertaken in 2014.
As part of the Board's ongoing succession planning, ahead of Mr
Dorey's planned retirement in 2018 and potential anticipated
changes in chairmanship roles of the existing Board at that time,
the Nomination and Remuneration Committee were charged with
recruiting an additional Board member. The Board's search for a
suitable director canvased its advisers and other market
participants for a list of suitable candidates. Given the high
calibre of applicants through this process the Board did not engage
a search consultancy. The candidates were considered against
various criteria, notably the breadth of experience and background
of the existing Directors to ensure that the new appointee both
complemented and enhanced the skill set of the existing Board while
also being able to bring a fresh perspective to Company business.
One-on-one meetings between the shortlisted candidates and the
Directors and senior personnel at the Investment Adviser were
conducted and the Nomination and Remuneration Committee recommended
the appointment of Mr Le Poidevin. This recommendation was accepted
and approved by the Board and Mr Le Poidevin was appointed to the
Board on 1 January 2016.
Investment Committee
The Investment Committee is comprised of the full Board with the
exception of Mr Frost as the Non-Independent Director, and is
chaired by Mr Dorey. The Committee considers proposals relating to
the acquisition and disposal of investments and, if thought fit,
approve those proposals. Details of the transactions it invested in
during the period are outlined on page 28 - 30 of the Strategic
Report.
Board and Committee Meeting Attendance
The full Board meets at least four times per year and in
addition there is regular contact between the Board, the Investment
Adviser, the Administrator and the Company Secretary. The agenda
and supporting papers are distributed in advance of quarterly Board
and Committee meetings to allow time for appropriate review and to
facilitate full discussion at the meetings.
In addition, as part of its commitment to maintaining an active
dialogue with investors, in May 2015 the Board was pleased to meet
with a number of investors and sell-side analysts 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 the Investment Adviser.
The table below lists Directors' attendance at Board and
Committee meetings during the year, to the date of this report.
Relationship with Administrator and Company Secretary
Heritage International Fund Managers Limited acts as
Administrator and Company Secretary and is responsible to the Board
under the terms of the Administration Agreement. The Administrator
is also responsible for ensuring compliance with the Rules and
Regulations of Guernsey Law, London Stock Exchange listing
requirements, anti-money laundering regulations and observation of
the Reserved Powers of the Board and in this respect the Board
receives detailed quarterly reports.
The Directors have access to the advice and services of the
Company Secretary who is responsible to the Board for ensuring that
Board procedures are followed and that it adheres to applicable
legislation, rules and regulations under Guernsey Law, the Guernsey
Financial Services Commission and the London Stock Exchange.
Relationship with the Investment Adviser
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The Directors are responsible for the overall management and
direction of the affairs of the Company. Under the Investment
Advisory Agreement, Amber Fund Management Limited acts as
Investment Adviser to the Company to review and monitor investments
and to advise the Company in relation to strategic management of
the investment portfolio. Details of the Investment Adviser's
relationship with the Company are provided on page 14 within the
Strategic Report.
In accordance with its normal practice the Board continues to
hold discussions relating to the future strategy of the Company
with the Investment Adviser and regular formal and informal
discussions are held on this subject. The Directors confirm that
they believe that it is in shareholders' best interests to continue
the appointment of Amber Fund Management Limited ('AFML') as the
Company's Investment Adviser.
Audit Management Investment Remuneration
Quarterly Ad-hoc and Risk Engagement Committee and Nomination
Directors Board Board Committee Committee Committee
---------------- ----------- ----------- ----------- ------------ ----------- ----------------
Maximum
number. 4 6 5 1 10 2
---------------- ----------- ----------- ----------- ------------ ----------- ----------------
Rupert Dorey 4 6 5 1 10 2
Giles Frost1 4 1 N/A N/A N/A N/A
John Whittle 4 5 5 1 10 2
Claire Whittet 4 4 5 1 9 2
John Stares 4 5 5 1 9 2
John Le
Poidevin(2) N/A N/A N/A N/A N/A N/A
---------------- ----------- ----------- ----------- ------------ ----------- ----------------
(1) Mr Frost is not a member of the Audit and Risk Committee,
Management Engagement Committee or Investment Committee. Mr Frost
does not attend Ad-hoc Board Meetings as a Director where
recommendations from the Investment Adviser are under
consideration.
(2) Mr Le Poidevin was appointed to the Board on 1 January 2016
and as such did not attend any meetings during 2015.
Making New Investments
As outlined above the Investment Committee, comprised only of
independent Directors of the Company, make investment decisions
with respect to new investments after reviewing recommendations
made by the Company's Investment Adviser. The Investment Adviser
has a detailed set of procedures and approval processes in relation
to the recommendation of new investments to the Board.
It is expected that further investments will be sourced by the
Investment Adviser. It is likely that some of these investments
will have been originated and developed by, and in certain cases
may be acquired from other members of the Investment Adviser's
group. Where that is the case the conflicts management process
summarised below is followed.
Managing Conflicts of Interest
The Company has established detailed procedures to deal with
conflicts of interest that may arise on investments acquired from
the Investment Adviser's group, and manage conduct in respect of
any such acquisitions. As previously mentioned, the Company's Board
has a majority of independent members and a Chairman who is
independent of the Investment Adviser. Each Director is required to
inform the Board of any potential or actual conflicts of interest
prior to Board discussions.
The potential conflicts of interest that may arise include when
an Amber entity is an existing investor in the target entity while
an associated company, AFML, acts on the 'buyside' as Investment
Adviser to the Company. The Investment Advisory Agreement contains
procedures with the intention of ensuring that the terms on which
the vendors of such assets dispose of their assets are fair and
reasonable to the vendors; and on the 'buyside' the Company as
Investment Adviser must be satisfied as to the appropriateness of
the terms for and the price of the acquisition.
Key features of these procedures include:
- The creation of separate committees representing the interests
of the vendors on the one hand (the 'Sellside Committee') and the
Company on the other (the 'Buyside Committee'), to ensure arm's
length recommendation and approval processes. The membership of
each committee is restricted in such a way as to ensure its
independence and to minimise conflicts of interest arising
- A requirement for the Buyside Committee to conduct and report
to the Company on an independent due diligence process on the
assets proposed to be acquired prior to making an offer
- A requirement for any offer made for the assets to be
supported by advice on the fair market value for the transaction
from an independent expert
- The establishment of 'information barriers' between the
Buyside and Sellside Committees to ensure information is kept
confidential to one or the other side
- The provision of a 'release letter' to each employee of the
relevant associate of the Investment Adviser who is a member of the
Buyside and Sellside Committees. The release letter confirms that
the employee shall be treated as not being bound by his/her duties
as an employee to the extent that such duties conflict with any
actions or decisions which are in the employee's reasonable opinion
necessary for him/her to carry out as a member of the Buyside
Committee or Sellside Committee
- Individuals with material direct or indirect economic
interests in the relevant assets will not participate in Buyside
Committee and Sellside Committee discussions regarding the relevant
assets
- A requirement that the financial statements, policies and
records of any such asset offered to the Company be compliant with
the Company's accounting policies and procedures
The acquisition of all assets, including those from any
associate of the Investment Adviser is considered and approved in
advance by the Investment Committee. In considering any such
acquisition, the Committee will, as it deems necessary, review and
ask questions of the Buyside Committee of the Investment Adviser
and the Group's other advisers and the acquisition will be approved
by the Committee on the basis of this advice. The purpose of these
procedures is to ensure that the terms upon which any investment is
acquired from a member of the Amber group is on an arm's length
basis.
Risk Management and Internal Controls
The Board is responsible for overall risk management with
delegation provided to the Audit and Risk Committee. The system of
risk management and internal control has been designed to manage,
rather than eliminate, the risk of failure to meet the business
objectives. Regard is given to the materiality of relevant risks
and therefore the system of internal control cannot provide
absolute assurance against material misstatement or loss.
This process is outlined in further detail in the Risk Report
found on page 35.
Relations with Shareholders
The Board welcomes shareholders' views and places great
importance on communication with shareholders. It has
responsibility for communication with the investor base and is
directly involved in major communications and announcements.
The Board receives regular reports on the views of shareholders
and the Chairman and other Directors, including the Chairman of the
Remuneration and Nomination Committee, are available to meet
shareholders as required.
In addition to more formal investor events, such as the Investor
Briefing mentioned on page 49 above and Results Presentations, the
Investment Adviser conducts the day-to-day investor relations
activities for the Company. It meets with major shareholders on a
regular basis and reports to the Board on these meetings. During
2015 the Investment Adviser and members of the Board held formal
meetings with around 100 individual shareholders in addition to
day-to-day interaction, including calls and other forms of
correspondence. The Board is also informed on a regular basis of
all relevant market commentary on the Company by the Investment
Adviser, Administrator and the Company's Broker.
The Annual General Meeting ('AGM') of the Company provides a
forum for shareholders to meet and discuss issues with the
Directors and with the Investment Adviser of the Company. It is the
Board's policy to publish the results of the voting at the AGM via
RNS at the completion of the meeting.
To promote a clear understanding of the Company, its objectives
and financial results, the Board aims to ensure that information
relating to the Company is disclosed in a timely manner. The
Company has an investor relations section on its website
(www.internationalpublicpartnerships.com) where it makes available
all its publicly disclosed documents including Annual Reports and
RNS announcements together with additional background information
on its assets and corporate practices. Investors can register to
receive notification (via email) of RNS announcements the Company
issues. The Board encourages investors to utilise this useful
online resource.
Any shareholder issues of concern including on corporate
governance or strategy can be addressed in writing to the Company
at its registered office address (see back cover).
Corporate Social and Environmental Responsibility
Introduction
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The Company is committed to its responsibility to the
environment and having a positive role in the local and global
community in which it operates. The Company encourages high
standards in sustainability through an integrated approach to
managing and influencing our indirect environmental and social
impacts. The Company recognises the value of active management in
delivering quality services, risk management and resource
efficiency.
The Company's most material impacts are indirect, relating to
the environmental and social performance of the construction and
operation of the buildings and infrastructure which make up its
portfolio. Additionally, it recognises the importance of managing
its relationship with its Investment Adviser (and associated asset
management operations) including the energy and resources used
within its operations and their contribution to the local and
global community.
The Company's Investment Adviser focuses on sustainability
commitments, both within its operations and through the management
of the projects and assets within the Company's portfolio. The
Investment Adviser operates a Sustainability Policy which looks
beyond legislative and regulatory requirements to promote best
practice and continual improvement in environmental management and
social responsibility.
The Investment Adviser is certified to The Planet Mark and is
committed to measuring and reducing its carbon footprint and wider
sustainability metrics. It also supports best practice in
responsible investment.
The Company sees its key sustainability stakeholders as its
Investment Adviser and its employees, and the service providers it
works with to deliver and manage infrastructure projects. As a
result, the Company encourages its partners to report on
sustainability performance.
Many investment entities in which the Company holds investments
achieve high standards in sustainability, including building
certifications such as BREEAM, LEED and Green Star.
Focus Project:
Thames Tideway Tunnel ('Tideway'), UK - Tideway is a major new
development under the Thames River in London. Tideway is committed
to be a responsible business, a good neighbour and to give back to
local communities as part of delivering a lasting legacy for
London. Its CSR activities began to widen in 2015 as it prepared
for the start of construction in 2016.
-- The beginning of 2015 marked the first full year of Thames
River Watch, a pioneering citizen science project to monitor the
heath of the river. Funded by Tideway and run by environmental
charity Thames 21, it measures water quality, quantity and types of
litter, and the spread of invasive non-native species. The data
collected aims to raise awareness of the threats facing the Thames.
The water quality results for year one showed coliform bacteria was
in the majority of samples, a key sign of the pollution from sewer
overflows that will be drastically reduced by the tunnel.
-- As more staff joined the project, Tideway became the first
company outside the financial industry to launch a Returners
programme to help professionals back into work after a career
break. Working with Women Returners, who help professional women
re-launch their careers, the project offered twelve-week paid
assignments for professionals who have been out of the workforce
for two years or more. As a result of the programme, seven
'returners' landed roles with the project, which included
opportunities in business planning, legal, stakeholder engagement,
operations management, asset management and financial
modelling.
-- One of the highlights of our community programme was the
Row4Results partnership with London Youth Rowing, a schools project
that aims to establish an indoor rowing programme and competition
across London boroughs that border the River Thames. The scheme
forms part of Tideway's efforts to encourage young people to
reconnect with the river and take advantage of the leisure
opportunities it provides. In July 2015 Kingsford School from
Newham were presented with the Row4Results trophy in the presence
of the Duke of Edinburgh after they retained their title.
Other project highlights
German Ministry of Education and Research BMBF, Germany - The
project was awarded 'Gold Status' for the Evaluation Scheme for
Sustainable Construction of Federal Buildings in Germany by the
German Federal Ministry of Environment, Nature Conservation,
Building and Nuclear Safety.
Pforzheim Schools, Germany - The project was designed for
resource efficiency, cost effectiveness and sustainability over the
concession term. Since the commencement of operations in 2008 the
innovative low energy heating, cooling and ventilation system has
resulted in significant savings for the public sector.
Durham Schools, UK - Two combined heat and power plants operate
to serve two secondary and one primary school. Pure plant oil
verified as being obtained from sustainable sources is used as the
fuel source. Surplus electricity that is not used is fed back into
the national electricity grid.
South Tyneside and Gateshead Schools, UK - Rainwater harvesting
is operational and the water re-used within the building with
ground water being directed into a lagoon where plant and insect
life has developed.
Moray Schools, UK - Elgin Academy, situated at the base of the
Cairngorm Mountains is designed in a unique shape providing
protection within the inner playground courtyard from the elements
whilst helping to retain heat within the school. Despite harsh
conditions utility savings of 10% have been achieved with a 'gain
share' for using less than the target consumption of utilities.
Highfields/Pennfields Schools, UK - The project incorporates a
renewable combined heat and power unit ('CHP') which meets 62-67%
of the schools' total energy requirements and saves 620 tonnes per
annum in carbon emissions. The CHP unit is fuelled by sustainable
rapeseed oil that is cultivated and crushed in the UK and generates
both renewable heat and power for the schools. Excess 'green'
electrical energy is supplied onto the grid network benefiting both
the schools and the associated local authority.
Derby Courts, UK - Energy saving initiatives have included the
fitting of LED lights to the office area together with passive
infrared sensors in all retiring and interview rooms. The
facilities are utilised to provide a venue for the Court's
Magistrates' Court Mock Trial competition, held in conjunction with
Derbyshire Secondary Schools, which aims to introduce the legal
system to young people in an innovative and exciting way, giving
them the opportunity to gain hands on experience.
Northampton Schools, UK - The Project Company, through its
designers and contractors has worked with Northamptonshire County
Council and the Building Research Establishment to optimise systems
and introduce energy efficient and low carbon technologies to the
construction of new classrooms at eleven of the project sites. An
apprenticeship programme has seen three Apprentices taken on with
commitment to award two apprenticeships and one graduate place in
2015. Locally 50% of orders are with suppliers and subcontractors
based in Northamptonshire and a minimum of 13 days of free time
will be given under the 'Give a Day of Your Time' programme.
Audit and Risk Committee Report
The Audit and Risk Committee (the 'Committee') is an essential
part of the Company's governance framework to which the Board has
delegated oversight of the Company's financial reporting, internal
controls, compliance and external audit. I have set out below an
overview of the work of the Committee and details of how we have
discharged our duties during the year.
The terms of reference for the Committee, together with details
of the standard business considered by the Committee, have been
approved by the Board and are available on the Company's
website.
Committee Meetings
Our Committee meetings were attended by the Investment Adviser
and Administrator by invitation during the year. A representative
of the Company's external Auditors, Ernst and Young LLP ('EY'),
also attended those meetings at which the financial reporting
planning and the Annual Report and Financial Statements and
Half-yearly Financial Report were considered.
All of the Committee's members are considered to be
appropriately experienced to fulfil their role, having significant,
recent and relevant financial experience in line with the AIC Code.
Biographies of the Committee members can be found on pages 43 -
44.
Committee Agenda
Our Committee's agenda during the year included:
- Review of the Annual Report and Financial Statements and
Half-yearly Financial Report and matters raised by management and
external Auditors (including significant financial reporting
judgements therein)
- Review of the appropriateness of the Company's accounting policies
- Review of the effectiveness of the Company's internal control systems
- Review of the effectiveness, objectivity and independence of
the external Auditors and the terms of engagement, cost
effectiveness and the scope of the audit
- Approving the external Auditor's plan for the current year end
- Review of the policy on the provision of non-audit services by the external Auditor
- Consideration and challenge of the draft valuation of the
Company's investments prepared by the Investment Adviser and
recommendations made to the Board on the appropriateness of the
valuation
- Review of the Company's risk profile, specific risks and mitigation practices
- Review of the Company's exposure to cybercrime risks
Key activities considered during the year
We undertook the following activities in discharging our
responsibilities during the year:
Financial reporting
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The Committee reviewed the Company's Annual Report and Financial
Statements, the Half-yearly Financial Report and interim management
statements prior to approval by the Board and advised the Board
with respect to meeting the Company's financial reporting
obligations. We reviewed the Company's accounting policies and
practices, including: approval of critical accounting policies;
consideration of the appropriateness of significant judgements and
estimates; and advising the Board as to their views on whether the
Annual Report and Financial Statements, taken as a whole, are fair,
balanced and understandable.
We considered the most significant accounting judgements
exercised in preparing the financial statements continued to be:
the application of investment entity amendments as required by IFRS
10 (Applying the Consolidation Exemption); and the basis for
determining the fair value of the Company's investments as detailed
below.
- Investment entity and service entities accounting
considerations
A company which qualifies as an investment entity in accordance
with IFRS 10 is required to prepare financial statements on an
investment basis, that is carry underlying investments (including
controlled, jointly controlled or entities over which it has
significant influence) in its accounts at fair value.
Service entities that provide services in connection with the
investment entity's activities but that are not themselves
investment entities under IFRS 10 continue to be consolidated
within the investment entity's group accounts rather than accounted
for at fair value.
We considered reports from the Investment Adviser setting out
the basis on which the Company continues to meet the investment
entity definition and certain subsidiary entities continue to meet
the service entity definition of IFRS 10 (but are not themselves
investment entities), and agreed this with the Company's Auditors.
We accordingly recommended that the Board approve the financial
statements on this basis (i.e. that investment entities are
accounted for at fair value and service entities are consolidated).
Further details on the application of investment entity amendments
and service entity considerations are detailed in note 1 to the
financial statements.
- Fair Value of Investments
The Company's investments are typically in unlisted securities,
hence market prices for such investments are not typically readily
available. Instead the Company uses a discounted cash flow
methodology and benchmarks to market comparables to derive the
Directors' valuation of investments.
This methodology requires a series of judgements to be made as
explained in note 12 to the financial statements.
The valuation process and methodology were discussed with the
Investment Adviser regularly during the year and with the Auditor
as part of the year-end audit planning and interim review
processes. We challenged the Investment Adviser on the year-end
fair value of investments as part of our consideration of the
audited financial statements.
During the period, we reviewed the Investment Adviser's
quarterly valuation reports, reports on the performance of the
underlying assets and the Investment Adviser's assessment of
macroeconomic assumptions. The Investment Adviser confirmed that
the valuation methodology has been applied consistently with the
prior years. We also reviewed and challenged the valuation
assumptions (discount rates, deposit rates, foreign exchange rates,
inflation rates and tax rates).
The external Auditor explained the results of their review of
the valuations, including their assessment of management's
underlying cash flow projections and assumptions; macroeconomic
assumptions; and discount rate methodology and output. On the basis
of their audit work the Auditor confirmed no material adjustments
were proposed.
The Committee, having considered the major assumptions applied
especially on larger investments, recommended their appropriateness
to the Board.
Revenue recognition
The Audit and Risk Committee have considered the risk of
inappropriate accounting recognition of revenue to be a relatively
low risk given the nature of the Company's activities.
Internal controls over financial reporting
The Committee satisfied itself that the system of internal
control and compliance over financial reporting was effective,
through consideration of regular reports from the Investment
Adviser and Administrator.
We also considered the adequacy of resources, qualifications and
experience of staff in the finance function and had direct access
and independent discussions with the external Auditor during the
course of the year.
Fair, Balanced and Understandable
We reviewed the Company's 2015 Annual Report and Financial
Statements and advised the Board that, in our opinion, the Annual
Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
to assess the Company's performance, operating model and
strategy.
Cybercrime review
As part of the Company's rolling annual controls and processes
review, an independent assessment of Company's exposure to
cybercrime is in progress.
Viability assessment
During 2015, we carried out a robust assessment of the key risks
faced by the Company with a view to identify risks which may impact
the Company's viability. Detailed stress tests, including impact
assessment on the Company's forecasted cash flows, showed
significant resilience in the Company's ability to remain viable.
The results of the risk assessment process are detailed in the
Viability Statement on page 42.
External Auditor
We recommended to the Board the scope and terms of engagement of
the external Auditor. We considered Auditor objectivity and
independence, audit tenure and audit tendering and Auditor
effectiveness as detailed below:
- Objectivity and independence
In assessing the objectivity of the Auditor, we considered the
terms under which the external Auditor may be appointed to perform
non-audit services. Work expected to be completed by an external
auditor includes formal reporting for shareholders, regulatory
assurance reports and work in connection with new investments.
Under the policy there is a specific list of services for which
the external Auditor cannot be engaged as we consider that the
provision of such services would impact their independence. Any
potential services to be provided by the external Auditor that have
an expected value of up to GBP50,000 and which are not prohibited
by the policy must be pre-approved by the Chairman of the
Committee; any services above this require pre-approval by the full
Audit and Risk Committee.
Non-audit fees represented 11.0% of total audit fees, reflecting
the relatively low level of non-audit work conducted.
EY undertook its standard independence and objectivity
procedures in relation to non-audit engagements and confirmed
compliance with these to the Committee. Further details on the
amounts of non-audit fees paid to EY are set out in note 8 to the
financial statements. These were reported to us and were considered
not to be significant as to risk impacting the objectivity and
independence of EY external Auditors.
- Audit Tendering and tenure
The Committee considers the reappointment of the external
Auditor, including rotation of the audit partner. The external
Auditor is required to rotate the audit partner responsible for the
Group audit every five years and the year to 31 December 2015 will
be the last year for the current lead audit partner. We have
challenged EY on its process to transition to a new lead audit
partner and are satisfied with progress to date and with the level
of continuity of other key audit team members.
In October 2010, the Company put out to full tender the audits
of the group and its controlled investee entities. In addition to
complying with good practice and satisfying new corporate
governance requirements, the tender enabled the Board to benchmark
competitiveness and value for money. Following the tender, EY were
appointed Auditor of the Company.
As part of our annual review of the objectivity and
effectiveness of the audit, the Committee conducted an in depth
review of their performance. There were no matters arising from the
review in the current year, which require the service to be
tendered immediately.
During the year, we reviewed the competitiveness and performance
of the Auditor across the group and this led to a small number of
changes in auditor at subsidiaries to KPMG LLP.
In accordance with the relevant Corporate Governance Code
principles the Committee will continue to review the effectiveness
of the external Auditor and seek to retender in line with best
practice.
- Review of Auditor effectiveness
For the year ended 31 December 2015 we reviewed the
effectiveness and independence of the external Auditor. This was
facilitated through the completion of a questionnaire by relevant
stakeholders (including members of the Committee and senior members
of the Investment Adviser's finance team), review and challenge of
the audit plan for consistency with the Company's financial
statement risks, and review of the audit findings report.
- Review of Auditor's remuneration
Following the end of a four year fixed scope fee arrangement
(negotiated at the time of last audit tender in 2010), the
Committee carried out a fresh review of the proposed audit fees for
2015. This resulted in an increase at the group level driven by
changes in the underlying accounting standards, higher audit
regulatory requirements, changes to scope of work being carried out
and general cost inflation. This was partially mitigated through
reductions in fees of underlying investee entities (consolidated
subsidiary entities), including a number that, following a
benchmarking exercise, will be audited for the first time by KPMG
LLP. We consider the audit fees for 2015 to be cost effective and
present good value for money for the Company's shareholders.
Regulatory environment
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We received regular reports from the Administrator and
Investment Adviser on regulation and regulatory developments.
- Common Reporting Standard
In recent years, governments have become much more aware of the
large amounts of undisclosed wealth held in offshore accounts.
Governments see an opportunity to boost revenue by collecting tax
relating to these accounts. Implementation of Common Reporting
Standard ('CRS') is a step in that direction. All qualifying
entities are required to comply with the requirements of CRS from
2016. The Company through its registrar (Capita) has appropriate
systems and procedures in place to comply with these regulations.
We will continue to review compliance with these rules as the
staged implementation continues throughout 2016.
- Retail distribution of unregulated collective investment
schemes
Financial Conduct Authority ('FCA') rules came into force on 1
January 2014 relating to the restrictions on the retail
distribution of unregulated collective investment schemes and close
substitutes came into effect. The Company continues to confirm that
its shares will qualify as an 'excluded security' under these rules
and will therefore be excluded from the FCA's restrictions which
apply to non-mainstream pooled investment products. As such, the
Company's shares can continue to be recommended by independent
financial advisers ('IFAs') to ordinary retail investors in
accordance with the FCA's rules.
The Company is advised that the basis of being excluded from
these restrictions is principally due to the Company conducting its
affairs in such a manner that it would have qualified for approval
by HMRC as an investment that had been resident in the UK in its
previous accounting periods. The Company intends to conduct its
affairs so that this remains the case for the foreseeable
future.
- Foreign Account Tax Compliance Act ('FATCA')
The legislation is aimed at determining the ownership of US
assets in foreign accounts and improving US Tax compliance with
respect to those assets. The Company continues compliance with the
legislation and is registered with IRS.
- Alternative Investment Fund Management Directive ('AIFMD')
The Company is deemed to be an internally managed non-EU fund.
An internally managed non-EU fund is outside the full scope of
AIFMD and is the subject of lighter AIFMD requirements at the point
of marketing within the EU. The Company registered as a non-EU AIF
with FCA in 2014 and commenced quarterly reporting from 31 December
2014.
Focus for 2016
In addition to our routine matters and continued monitoring of
areas above, the Committee will select a new process for an
independent review in 2016 as part of the Company's annual internal
controls and procedures rolling review program.
The Committee will also review compliance with new regulations
such as Common Reporting Standards and continue to monitor ongoing
tax and regulatory developments such as Base Erosion and Profit
Shifting.
John Whittle
23 March 2016
Chairman, Audit and Risk Committee
Directors' Report
Introduction
The Directors present their Annual Report on the performance of
the Company and Group for the year ended 31 December 2015.
Principal Activity
The Company is a limited liability, Guernsey incorporated
authorised closed-ended investment company under Companies
(Guernsey) Law, 2008. The Company's shares have a premium listing
on the Official List of the UK Listing Authority and are traded on
the main market of the London Stock Exchange.
The Chairman's Statement and Strategic Report contain a review
of the business during the year. A Corporate Governance Report is
provided on pages 45 - 52.
Directors' Indemnities
The Company has made qualifying third-party indemnity provisions
for the benefit of its Directors which were made during the period
and remain in force at the date of this report.
Substantial Shareholdings
As at 31 December 2015, the Company had been notified, in
accordance with chapter five of the Disclosure and Transparency
Rules, of the following interests in 5% or more of the Company's
Ordinary Shares to which voting rights are attached:
No.
Name of % Issued of Ordinary Date
holder Capital Shares notified
--------------- --------- ------------- ----------
Schroder 4 Dec
plc 13.97% 116,774,275 2014
Investec
Wealth
& Investment 19 Nov
Limited 9.85% 97,616,757 2015
--------------- --------- ------------- ----------
As at 23 March 2016, being the most current information
available no further notifications had been received.
Directors' Authority to Buy Back Shares and Treasury Shares
The Company did not purchase any shares for treasury or
cancellation during the year.
The current authority of the Company to make market purchases of
up to 14.99% of the issued Ordinary Share Capital expires on 2 June
2016. The Company will seek to renew such authority at the Annual
General Meeting to take place on 2 June 2016. Any buy back of
Ordinary Shares will be made subject to Guernsey law and within any
guidelines established from time to time by the Board and the
making and timing of any buy backs will be at the absolute
discretion of the Board.
Purchases of Ordinary Shares will only be made through the
market at prices below the prevailing NAV of the Ordinary Shares
(as last calculated) where the Directors believe such purchases
will enhance shareholder value. Such purchases will also only be
made in accordance with the Listing Rules of the UK Listing
Authority which provide that the price to be paid must not be more
than 5% above the average of the middle market quotations for the
Ordinary Shares for the five business days before the shares are
purchased (unless previously advised to shareholders). No such
shares were bought back by the Company in the period from 2 June
2015.
In accordance with the Company's Articles of Association up to
10% of the Company's shares may be held as treasury shares.
Going Concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Strategic Report on pages 9 - 42. The financial
position of the Group, its cash flows, liquidity position and
borrowing are described in the financial statements from page
62.
The Directors have considered significant areas of possible
financial risk and comprehensive financial forecasts have been
prepared and submitted to the Board for review. The Directors have,
based on the information contained in these forecasts and the
assessment of the committed banking facilities in place, formed a
judgement, at the time of approving the financial statements, that
the Group and the Company have adequate resources to continue in
operational existence for the foreseeable future.
After consideration, the Directors are satisfied that it is
appropriate to adopt the going concern basis in preparing the
financial statements.
Director Declaration
Each of the persons who is a Director at the date of approval of
this Annual Report confirms that:
So far as the Director is aware, there is no relevant audit
information of which the Company's external Auditor is unaware.
Each Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware of any
relevant audit information and to establish that the Company's
Auditor is aware of that information. This confirmation is given
and should be interpreted in accordance with the provisions of
Section 249 of the Companies (Guernsey) Law, 2008.
By order of the Board
Rupert Dorey John Whittle
23 March 2016 23 March 2016
Chairman Director
Directors' Responsibilities Statement
The Directors are responsible for preparing financial statements
for each year which give a true and fair view, in accordance with
applicable Guernsey law and International Financial Reporting
Standards as adopted by the European Union, of the state of affairs
of the Group and of the profit or loss of the Group for that year.
In preparing those financial statements, the Directors are required
to:
- Select suitable accounting policies and then apply them consistently
- Make judgements and estimates that are reasonable
- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements
- Prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group will continue
in business
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Group and to enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud, error and non-compliance with law and
regulations.
The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the
Auditor does not involve considerations of these matters and,
accordingly, the Auditor accepts no responsibility for any change
that may have occurred to the financial statements since they were
initially presented on the website. Legislation in Guernsey
governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions.
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Responsibility Statement of the Directors' in respect of the
Consolidated Annual Report and Financial Statements
The Directors each confirm to the best of their knowledge
that:
- The Consolidated Financial Statements, prepared in accordance
with IFRSs as adopted by the European Union give a true and fair
view of the assets, liabilities, financial position and net return
of the Group
- The Annual Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties faced.
Directors' Statement under the UK Corporate Governance Code
The Board as advised by the Audit and Risk Committee has
considered the Annual Report and Financial Statements and, taken as
a whole, consider them to be fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
By order of the Board
Rupert Dorey John Whittle
23 March 2016 23 March 2016
Chairman Director
Independent Auditor's Report To The Members Of International
Public Partnerships Limited
Opinion on financial statements
In our opinion the Group financial statements:
- give a true and fair view of the state of the Group's affairs
as at 31 December 2015 and of its profit for the year then
ended;
- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
- have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
What we have audited
International Public Partnerships Limited (the 'Group')
financial statements comprise:
- consolidated statement of comprehensive income for the year ended 31 December 2015;
- consolidated balance sheet as at 31 December 2015;
- consolidated statement of changes in equity for the year ended 31 December 2015;
- consolidated cash flow statement for the year ended 31 December 2015; and
- related notes 1 to 22 to the consolidated financial statements.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRS as adopted by the European
Union.
Overview of our audit approach
Risks
of material * Misstatement or manipulation of investment fair value
misstatement
* Revenue recognition
-------------- -------------------------------------------------------------
Audit
scope * We performed an audit of the Group for the year ended
31 December 2015
* The Company has determined that it is an investment
entity under the requirements of IFRS10 amendments
for Investment Entities ("IFRS 10 amendments") and
therefore only consolidates service entities as
explained in note 2. Service entities are audited to
Group materiality threshold.
* Procedures were performed by the Group audit team.
-------------- -------------------------------------------------------------
Materiality
* Overall Group materiality of GBP12.9m which
represents 1% of Equity.
-------------- -------------------------------------------------------------
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below
as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the
direction of the efforts of the audit team. In addressing these
risks, we have performed the procedures below which were designed
in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual
areas.
Risk Misstatement or manipulation of investment
fair value
Investments comprise a portfolio of assets
measured at fair value through profit
or loss. The fair values of these investments
are determined using the income approach
which discounts the expected cash flows
at a rate appropriate to the risk profile
of each investment. In determining the
discount rate, the relevant long-term
government bond yields, specific investment
risks and the evidence of recent transactions
are considered. Details of the valuation
process and key sensitivities are provided
in note 12 of the financial statements
and are discussed in the report of the
Audit Committee on page 53 - 55.
The valuation risk includes the risk of
an inappropriate valuation model being
applied including the risk of manipulation
or error in both the assumptions applied
and the amount and timing of expected
cash flows.
============= =============================================================
Our response We have tested the effectiveness of controls
to the in operation over the investment acquisitions,
risk forecasting cash flows, distributions
and model integrity and we have placed
reliance on control over these processes.
We selected a sample of investments to
provide coverage over the key geographies
the Group operates in and to address significant
demand risk and performed the following
procedures :
Valuation assumption: We engaged our EY
valuation specialists to assess the discount
rates (sub-debt and equity and senior
debt), inflation rates and deposit rate
assumptions used in the models by comparing
these to market data.
Model integrity: We engaged our EY financial
modelling specialists to sample test the
logical operation of the financial models.
Model inputs: We agreed a sample of contractual
cash flows to contractual terms and actual
cash flows. We engaged EY valuation specialists
to assess demand based cash flows which
require significant judgement.
For all other investments we performed
the following procedures:
* We tested historical accuracy of forecasting by
comparing the historical forecast distributions from
the projects to the actual distributions.
* We developed our own expectations for changes in
investment values. For each investment outside our
expected range we obtained and corroborated reasons
for the difference.
* Consistency of assumptions: We tested that material
macro-economic assumptions (discount rates, inflation
rates, foreign exchange rates, deposit rates and tax
rates) were applied consistently to each investment.
------------- -------------------------------------------------------------
What we We confirmed that there were no matters
concluded arising from our work that we wanted to
to the bring to the audit committees attention.
Audit
Committee
------------- -------------------------------------------------------------
Risk Revenue Recognition
For the purposes of our risk assessment,
dividend and interest income is treated
as 'revenue' and as it is material we
have treated 'revenue recognition' as
a significant risk.
Given the nature of the work we previously
performed and the sources of revenue the
impact of increasing our risk assessment
on our audit strategy was limited.
Management may seek to inflate revenue
in order to improve the Group's reported
performance.
------------- -------------------------------------------------------------
Our response We updated our understanding of the Group's
to the processes and policies for revenue recognition
risk including our understanding of the systems
and controls implemented; and
We agreed a sample of dividend and interest
receipts to documentation from investees
and we checked the calculation of interest
amounts and the allocation thereof to
the appropriate period.
------------- -------------------------------------------------------------
What we We confirmed that there were no matters
concluded identified during our audit work on revenue
to the recognition that we wanted to bring to
Audit the attention of the audit committee.
Committee
------------- -------------------------------------------------------------
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope. Taken together, this enables us to form an opinion on the
consolidated financial statements.
Our application of materiality
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We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
Materiality is the magnitude of an omission or misstatement
that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of the
financial statements. Materiality provides a basis for determining
the nature and extent of our audit procedures.
We determined materiality for the Group to be GBP 12.9 million
(2014: GBP10.6 million), which is 1% (2014: 1%) of equity. We
believe that total equity provides us with an appropriate basis for
audit materiality as net asset value is a key published performance
measure and is a key metric used by management in assessing and
reporting on the overall performance of the Group.
During the course of our audit, we reassessed initial
materiality and noted that total equity had increased from approx.
GBP1.1bn at 30 June 2015 to GBP1.3bn as at 31 December 2015 mainly
due to capital raise in Nov 2015. This resulted in a higher
materiality of GBP12.9m compared to GBP10.8m that was originally
determined at the audit planning stage.
A lower materiality of GBP2.9 million (2014: GBP1.9 million) has
been applied to Interest income, Dividend income and Management
costs to be responsive to the expectations of the users of the
financial statements with regard to misstatements in these balances
of a lesser amount than the Group materiality.
Performance materiality
"Performance materiality" is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Group's overall control environment, our
judgement was that overall performance materiality (i.e. our
tolerance for misstatement in an individual account or balance) for
the Group should be 50% of materiality, namely GBP6.4m (2014: 50%
of materiality, namely GBP5.3m). The performance materiality
percentage is consistent with last year. Our objective in adopting
this approach was to ensure that total uncorrected and undetected
audit differences in the financial statements did not exceed our
materiality level.
Reporting threshold
"Reporting threshold" is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of GBP0.6 million
(2014: GBP0.5 million), which is set at 5% of planning materiality,
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's and the parent company's circumstances
and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial and
non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies we consider
the implications for our report.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 57, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board's Ethical Standards for Auditors.
This report is made solely to the Group's members, as a body, in
accordance with Section 262 of the Companies Law. Our audit work
has been undertaken so that we might state to the Group's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Group and the Group's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Matters on which we are required to report by exception
ISAs (UK We are required to report to you if,
and Ireland) in our opinion, financial and non-financial
reporting information in the annual report is:
* materially inconsistent with the information in the
audited financial statements; or
* apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Group acquired in the course of performing our audit;
or
* otherwise misleading.
In particular, we are required to report
whether we have identified any inconsistencies
between our knowledge acquired in the
course of performing the audit and
the directors' statement that they
consider the annual report and accounts
taken as a whole is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the entity's performance,
business model and strategy; and whether
the annual report appropriately addresses
those matters that we communicated
to the audit committee that we consider
should have been disclosed.
============== ==============================================================
Conclusion
We have no exceptions to report.
Listing We are required to review:
Rules review * the directors' statement in relation to going concern,
requirements set out on page 56, and longer-term viability, set
out on page 42; and
* the part of the Corporate Governance Statement
relating to the company's compliance with the
provisions of the UK Corporate Governance Code
specified for our review.
-------------- --------------------------------------------------------------
Conclusion
We have no exceptions to report.
Companies We are required to report to you if,
(Guernsey) in our opinion:
Law, 2008 * proper accounting records have not been kept; or
requirements
* the financial statements are not in agreement with
the accounting records; or
* we have not received all the information and
explanations we require for our audit.
-------------- --------------------------------------------------------------
Conclusion
We have no exceptions to report.
------------------------------------------------------------------------------
Statement on the Directors' Assessment of the Principal Risks
that Would Threaten the Solvency or Liquidity of the Entity
ISAs (UK We are required to give a statement
and Ireland) as to whether we have anything material
reporting to add or to draw attention to in relation
to:
* the directors' confirmation in the annual report that
they have carried out a robust assessment of the
principal risks facing the entity, including those
that would threaten its business model, future
performance, solvency or liquidity;
* the disclosures in the annual report that describe
those risks and explain how they are being managed or
mitigated;
* the directors' statement in the financial statements
about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing
them, and their identification of any material
uncertainties to the entity's ability to continue to
do so over a period of at least twelve months from
the date of approval of the financial statements; and
* the directors' explanation in the annual report as to
how they have assessed the prospects of the entity,
over what period they have done so and why they
consider that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the entity will be able to continue
in operation and meet its liabilities as they fall
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due over the period of their assessment, including
any related disclosures drawing attention to any
necessary qualifications or assumptions.
-------------- -------------------------------------------------------------
Conclusion
We have nothing material to add or to draw attention
to.
-----------------------------------------------------------------------------
Michael Bane
for and on behalf of Ernst & Young LLP,
Guernsey
Channel Islands
23 March 2016
Financial Statements
Consolidated Statement of Comprehensive Income
Year ended 31 December 2015
Year ended Year ended
31 December 31 December
2015 2014
Notes GBP'000s GBP'000s
------------------------------------ ----- --------------- ---------------
Interest income 4 44,026 32,200
Dividend income 4 16,397 23,605
Net change in fair value of
investments at fair value through
profit or loss 4 39,784 32,187
Realised gain on disposal of
investments 4,5 - 2,104
------------------------------------- ----- --------------- ---------------
Total investment income 100,207 90,096
Other operating income/(expense) 6 1,276 (599)
------------------------------------- ----- --------------- ---------------
Total income 101,483 89,497
Management costs 18 (13,470) (11,608)
Administrative expenses (1,181) (930)
Transaction costs 7 (2,145) (2,874)
Directors' fees (231) (248)
------------------------------------- ----- --------------- ---------------
Total expenses (17,027) (15,660)
------------------------------------- ----- --------------- ---------------
Profit before finance costs
and tax 84,456 73,837
Finance costs 9 (4,523) (2,668)
------------------------------------- ----- --------------- ---------------
Profit before tax 79,933 71,169
Tax credit 10 1,926 2,042
------------------------------------- ----- --------------- ---------------
Profit for the year 81,859 73,211
------------------------------------- ----- =============== ---------------
Earnings per share
From continuing operations
Basic and diluted (pence) 11 9.54 9.49
------------------------------------- ----- --------------- ---------------
All results are from continuing operations in the year.
All income is attributable to the equity holders of the parent.
There are no non-controlling interests within the Consolidated
Group.
There are no other Comprehensive Income items in the current
year (2014: nil). The profit for the year represents the Total
Comprehensive Income for the year.
Consolidated Statement of Changes in Equity
Year ended 31 December 2015
Other
Share distributable Retained
Notes 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 - - 81,859 81,859
Issue of Ordinary
Shares 16 203,207 - - 203,207
Issue costs applied
to new shares 16 (3,134) - - (3,134)
Distributions in
the year 16 - - (53,798) (53,798)
------------------------ ------ ------------ ------------------ ------------ -------------
Balance at 31 December
2015 825,362 182,481 282,359 1,290,202
------------------------ ------ ------------ ------------------ ------------ -------------
Year ended 31 December 2014
Other
Share distributable Retained
Notes 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 - - 73,211 73,211
Issue of Ordinary
Shares 16 101,688 - - 101,688
Issue costs applied
to new shares 16 (792) - - (792)
Distributions in
the year 16 - - (47,430) (47,430)
------------------------ ------ ------------ ------------------ ------------ -------------
Balance at 31 December
2014 625,289 182,481 254,298 1,062,068
------------------------ ------ ------------ ------------------ ------------ -------------
Consolidated Balance Sheet
As at 31 December 2015
31 December 31 December
2015 2014
Notes GBP'000s GBP'000s
--------------------------------- ------- ----------- -----------
Non-current assets
Investments at fair value
through profit or loss 12 1,201,107 1,032,941
--------------------------------- ------- ----------- -----------
Total non-current assets 1,201,107 1,032,941
--------------------------------- ------- ----------- -----------
Current assets
Trade and other receivables 12,14 23,099 19,529
Cash and cash equivalents 12 72,391 29,391
Derivative financial instruments 12 1,719 2,948
--------------------------------- ------- ----------- -----------
Total current assets 97,209 51,868
--------------------------------- ------- ----------- -----------
Total assets 1,298,316 1,084,809
--------------------------------- ------- ----------- -----------
Current liabilities
Trade and other payables 12,15 8,114 6,414
--------------------------------- ------- ----------- -----------
Total current liabilities 8,114 6,414
--------------------------------- ------- ----------- -----------
Non-current liabilities
Bank loans 9,12 - 16,327
--------------------------------- ------- ----------- -----------
Total non-current liabilities - 16,327
--------------------------------- ------- ----------- -----------
Total liabilities 8,114 22,741
--------------------------------- ------- ----------- -----------
Net assets 1,290,202 1,062,068
--------------------------------- ------- ----------- -----------
Equity
Share capital 16 825,362 625,289
Other distributable reserve 16 182,481 182,481
Retained earnings 16 282,359 254,298
--------------------------------- ------- ----------- -----------
Equity attributable to
equity holders of the
parent 1,290,202 1,062,068
--------------------------------- ------- ----------- -----------
Net assets per share (pence
per share) 17 130.2 127.0
--------------------------------- ------- ----------- -----------
The financial statements were approved by the Board of Directors
on 23 March 2016.
They were signed on its behalf by:
Rupert Dorey John Whittle
23 March 2016 23 March 2016
Chairman Director
Consolidated Cash Flow Statement
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Year ended 31 December 2015
Year ended Year ended
31 December 31 December
2015 2014
Notes GBP'000s GBP'000s
----------------------------------- --------- ------------- -------------
Profit from operations 81,859 73,211
Adjusted for:
Gain on investments at fair value
through profit or loss 4 (39,784) (32,187)
Unrealised exchange loss/(gain) 665 (528)
Finance costs 9 4,523 2,668
Net income tax credit 10 (1,926) (2,042)
Fair value movement on derivative
financial instruments 6,12 1,229 716
Realised gain on disposal of
investments 5 - (2,104)
Working capital adjustments
Increase in receivables (6,146) (5,830)
Increase in payables 1,700 80
----------------------------------- --------- ------------- -------------
42,120 33,984
Income tax received(1) 2,662 1,033
----------------------------------- --------- ------------- -------------
Net cash inflow from operations 44,782 35,017
----------------------------------- --------- ------------- -------------
Investing Activities
Acquisition of investments at
fair value through profit or
loss 13 (143,077) (188,228)
Net repayments from investments
at fair value through profit
or loss 14,695 11,628
Cash received from disposal of
investments 5 - 22,332
----------------------------------- --------- ============= =============
Net cash outflow from investing
activities (128,382) (154,268)
----------------------------------- --------- ------------- -------------
Financing Activities
Proceeds from issue of shares
net of issue costs 16 195,002 94,208
Dividends paid 16 (48,587) (40,742)
Finance costs paid (3,482) (1,879)
Net loan (repayments)/drawdowns 9,12 (16,327) 16,327
----------------------------------- --------- ------------- -------------
Net cash provided by financing
activities 126,606 67,914
----------------------------------- --------- ------------- -------------
Net increase/(decrease) in cash
and cash equivalents 43,006 (51,337)
Cash and cash equivalents at
beginning of year 29,391 80,609
Exchange (loss)/gain on cash
and cash equivalents (6) 119
----------------------------------- --------- ------------- -------------
Cash and cash equivalents at
end of year(2) 72,391 29,391
----------------------------------- --------- ------------- -------------
(1) Cashflows received from unconsolidated subsidiary entities
in respect of surrender of tax losses.
(2) Includes restricted cash of GBP51.5 million (2014: nil)
which can only be utilised for new investments.
Notes to the Financial Statements
For the year ended 31 December 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 on page 91. The nature of the Group's operations
and its principal activities are set out on pages 4 and 9 to 12
respectively.
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 where otherwise
indicated.
Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), adopted by the
European Union; interpretations issued by the International
Financial Reporting Interpretations Committee; applicable legal and
regulatory requirements of Guernsey; and the Listing Rules of the
UK Listing Authority. The financial statements follow the
historical cost basis, except for financial assets held at fair
value through profit or loss and derivatives that have been
measured at fair value. The principal accounting policies adopted
are set out in relevant notes to the financial statements.
The Directors have determined that International Public
Partnerships Limited is an investment entity as defined by IFRS 10
on the basis that the Company:
a) obtains funds from one or more investor(s) for the purpose of
providing those investor(s) with investment management
services;
b) commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
c) measures and evaluates the performance of substantially all
of its investments on a fair value basis.
Accordingly, these financial statements consolidate only those
subsidiaries that provide services relevant to its investment
activities, such as management services, strategic advice and
financial support to its investees. 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
As set out in the Directors' Report, the Directors have reviewed
cash flow forecasts prepared by management. Based on those
forecasts and an assessment of the Group's committed banking
facilities, it has been considered appropriate to prepare the
financial statements of the Group on a going concern basis.
In arriving at their conclusion that the Group has adequate
financial resources, the Directors were mindful that the Group had
unrestricted cash of GBP21 million as at 31 December 2015. In May
2015, the Company's corporate debt facility was renewed to GBP300
million (2014: GBP175 million) of which GBP131 million was
uncommitted as at 31 December 2015, and is available for investment
in new and existing projects until May 2018. The new facility is
forecast to continue in full compliance with the associated banking
covenants. The Company also continues to fully cover operating
costs and distributions from underlying cash flows from
investments.
Accounting Policies
The annual financial statements of International Public
Partnerships Limited are prepared in accordance with IFRS as
adopted by the European Union.
The same accounting policies, presentation and methods of
computation are followed in this set of annual financial statements
as applied in the previous financial year. The new and revised IFRS
and interpretations becoming effective in the period have had no
impact on the accounting policies of the Group. Note 21 sets out a
comprehensive listing of all new standards applicable from 1
January 2016.
2. Significant Judgements and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments,
the consolidated financial statements incorporate the financial
statements of the Company and service entities controlled by the
Company up to 31 December 2015, that themselves do not meet the
definition of an investment entity. Typically a service entity
provides management services, strategic advice and financial
support to investee entities. Judgement 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 31 December 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 investment. In determining the discount rate
relevant long-term government bond yields, specific investment
risks and the evidence of recent transactions are considered.
Details of the valuation process and key sensitivities are provided
in note 12.
3. Segmental Reporting
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Based on a review of information provided to the chief operating
decision makers of International Public Partnerships Limited, the
Group has identified four reportable segments based on the
geographical risk associated with 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 region. Further, foreign
exchange and political risk is identified, as these also determine
where resources are allocated. Management has concluded that the
Group is currently organised into four operating segments being UK,
Europe (non UK), Australia and North America.
Year ended 31 December 2015
----------- ==================================================================
Europe North
UK Non UK America Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------ ----------- ------------------------ ---------- ------------ --------------
Segmental results
Dividend and
interest income 46,088 6,983 2,717 4,635 60,423
Fair value gain/(loss)
on investments(1) 55,429 (7,045) (3,495) (5,105) 39,784
------------------------ ----------- ------------------------ ---------- ------------ --------------
Total investment
income/(loss) 101,517 (62) (778) (470) 100,207
------------------------ ----------- ------------------------ ---------- ------------ --------------
Reporting segment
profit/(loss)(2) 81,893 (111) 53 24 81,859
------------------------ ----------- ------------------------ ---------- ------------ --------------
Segmental financial
position
Investments at
fair value 845,746 202,968 67,023 85,370 1,201,107
Current assets 97,209 - - - 97,209
------------------------ ----------- ------------------------ ---------- ------------ --------------
Total assets 942,955 202,968 67,023 85,370 1,298,316
Total liabilities (8,114) - - - (8,114)
------------------------ ----------- ------------------------ ---------- ------------ --------------
Net assets 934,841 202,968 67,023 85,370 1,290,202
------------------------ =========== ======================== ========== ------------ ==============
Year ended 31 December 2014
----------- ===============================================================
Europe North
UK Non UK America Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------ ----------- ------------------------ ---------- ------------ -----------
Segmental results
Dividend and interest
income 47,798 1,178 1,906 4,923 55,805
Fair value gain/(loss)
on investments 8,272 16,994 (1,787) 8,708 32,187
Realised gain
on disposal of
investments 2,103 1 - - 2,104
------------------------ ----------- ------------------------ ---------- ------------ -----------
Total investment
income 58,173 18,173 119 13,631 90,096
------------------------ ----------- ------------------------ ---------- ------------ -----------
Reporting segment
profit (2) 41,336 17,792 184 13,899 73,211
------------------------ ----------- ------------------------ ---------- ------------ -----------
Segmental financial
position
Investments at
fair value 690,071 210,962 38,858 93,050 1,032,941
Current assets 51,868 - - - 51,868
------------------------ ----------- ------------------------ ---------- ------------ -----------
Total assets 741,939 210,962 38,858 93,050 1,084,809
Total liabilities (22,741) - - - (22,741)
------------------------ ----------- ------------------------ ---------- ------------ -----------
Net assets 719,198 210,962 38,858 93,050 1,062,068
------------------------ ----------- ------------------------ ---------- ------------ -----------
(1) Investment fair value losses for non-UK sectors are
primarily the result of adverse foreign exchange movements in the
year impacting valuation assumptions.
(2) Reporting segment results are stated net of operational
costs including management fees.
Revenue from investments which represents more than 10% of the
Group's interest and dividend income approximates GBP12.0 million
(2014: GBP17.0 million).
4. Investment Income
Accounting policy
Interest income
Interest income is recognised when it is probable that the
economic benefits will flow to the Group and the amount of income
can be measured reliably. Interest income is accrued on a
time-apportioned basis, using the effective interest rate of the
instrument concerned as calculated at the acquisition or
origination date. Interest income is recognised gross of
withholding tax, if any.
The effective interest rate is the rate that exactly discounts
the estimated future cash payments and receipts through the
expected life of the financial instrument (or, when appropriate, a
shorter period). When calculating the effective interest rate, the
Group estimates future cash flows considering all contractual terms
of the financial instrument, but excludes future credit losses.
Dividend income
Dividend income is recognised gross of withholding tax in the
Consolidated Statement of Comprehensive Income on the date the
right to receive payment is established. This is the date when the
Directors of the underlying project entity approve the payment of a
dividend.
Net gain from financial instruments at fair value through profit
or loss
Net gain from financial instruments at fair value through profit
or loss includes all realised and unrealised fair value changes
(including foreign exchange movements) other than interest and
dividend income recognised separately.
Year ended Year ended
31 December 31 December
2015 2014
GBP'000s GBP'000s
----------------------------------------- ------------ ------------
Interest income
Interest on investments 43,984 31,862
Interest on bank deposits 42 338
========================================= ============ ============
Total interest income 44,026 32,200
----------------------------------------- ------------ ------------
Dividend income 16,397 23,605
Net change in fair value of financial
assets at fair value through profit
or loss 39,784 32,187
Realised gain on disposal of investments
(see note 5) - 2,104
----------------------------------------- ------------ ------------
Total investment income 100,207 90,096
----------------------------------------- ------------ ------------
All dividend and interest income has resulted from transactions
with unconsolidated subsidiary entities. Gains on investments at
fair value through profit or loss are also recognised on the
Group's investments in unconsolidated subsidiaries.
5. Gain on Disposal of Investments
No disposals were carried out by the Group during the year ended
31 December 2015.
In the year ended 31 December 2014, the Group disposed of a
number of non-strategic minority investments where there was no
realistic scope to increase the investment in the future. The
divestments predominantly related to a small number of minority
interests in the Group's Building Schools for the Future (BSF)
project portfolio. The aggregate gains realised in the period are
shown in the table below:
Year ended 31 December 2014
----------------------- ==============================================
Fair value Cash received Net Realised
of investment at gain on
at disposal disposal disposal
Divestment GBP'000s GBP'000s GBP'000s
------------------------ --------------- -------------- -------------
Aggregate divestments 20,228 22,332 2,104
------------------------ --------------- -------------- -------------
6. Other Operating Income / (Expense)
Year ended Year ended
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31 December 31 December
2015 2014
GBP'000s GBP'000s
------------------------------------ ------------ ------------
Fair value loss on foreign exchange
contracts (1,229) (716)
Other gains on foreign exchange
movements 2,505 117
------------------------------------ ------------ ------------
Total operating income/(expense) 1,276 (599)
------------------------------------ ------------ ------------
7. Transaction Costs
Year ended Year ended
31 December 31 December
2015 2014
GBP'000s GBP'000s
----------------------------- ------------ ------------
Investment advisory costs 2,145 2,818
Legal and professional costs - 56
----------------------------- ------------ ------------
Total transaction costs 2,145 2,874
----------------------------- ------------ ------------
Details of investment advisory costs paid are provided in note
18.
8. Auditor's Remuneration
Year ended Year ended
31 December 31 December
2015 2014
GBP'000s GBP'000s
-------------------------------------------------------------- ------------ ------------
Fees payable to the Group's auditor
for the audit of the Group's financial
statements 250 93
Fees payable to the Group's auditor
and their associates for other services
to the Group
* The audit of the Group's consolidated subsidiaries 42 9
* The audit of the Group's unconsolidated subsidiaries 320 339
* Audit related assurance services 35 20
-------------------------------------------------------------- ------------ ------------
Total audit fees 647 461
-------------------------------------------------------------- ------------ ------------
Other fees
* Regulatory reporting - 49
* Other services 80 9
-------------------------------------------------------------- ------------ ------------
Total non-audit fees 80 58
-------------------------------------------------------------- ------------ ------------
9. Finance Costs
Accounting policy
Borrowing costs are recognised in the Consolidated Statement of
Comprehensive Income in the period in which they are incurred using
the effective interest rate method. Arrangement fees are amortised
over the term of the corporate borrowing facility.
Interest bearing loans and overdrafts are recorded as the
proceeds received net of any directly attributable issue costs.
Finance costs for the year were GBP4.5 million (2014: GBP2.7
million). 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. 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 investments and the
letter of credit drawdowns were used to back the Group's commitment
to a future pipeline of cash investments.
Following an equity capital raise in November 2015, the
outstanding cash drawn balance on the facility was fully repaid (at
31 December 2014 the cash drawn balance on the facility was GBP16.3
million). As at 31 December 2015 the facility was notionally drawn
via letters of credit supporting the Group's committed investments.
The uncommitted balance of the facility as at 31 December 2015 was
GBP131 million.
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.
10. Tax
Accounting policy
Current tax is based on taxable profit for the period. Taxable
profit differs from net profit as reported in the Consolidated
Statement of Comprehensive Income as it excludes items of income or
expense that are taxable or deductible in past or future years and
it further excludes items that are never taxable or deductible. The
Group's asset/liability for current tax is calculated using tax
rates that have been enacted or substantively enacted at the
balance sheet date. The current tax charge/credit in the
Consolidated Statement of Comprehensive Income is recognised net of
receivables recognised for losses surrendered to unconsolidated
Group subsidiary entities.
Under the current system of taxation in Guernsey, the Company
itself is exempt from paying taxes on income, profits or capital
gains. Dividend income and interest income received by the
Consolidated Group may be subject to withholding tax imposed in the
country of origin of such income.
Year ended Year ended
31 December 31 December
2015 2014
GBP'000s GBP'000s
------------------------------------ ------------ ------------
Current tax:
UK corporation tax credit - current
year (2,030) (2,189)
UK corporation tax - prior year 4 (63)
Overseas tax - current year 100 210
------------------------------------ ------------ ------------
Tax credit for the year (1,926) (2,042)
------------------------------------ ------------ ------------
Reconciliation of effective tax rate
Year ended Year ended
31 December 31 December
2015 2014
GBP'000s GBP'000s
==================================== ============= =============
Profit before tax 79,933 71,169
------------------------------------ ------------- -------------
Expected tax on profit at Guernsey - -
corporation rate - 0% (2014: 0%)
Application of overseas tax rates 100 210
Group tax losses surrendered to
unconsolidated investee entities (2,030) (2,189)
Adjustments to previous year's
assessment 4 (63)
------------------------------------ ------------- -------------
Tax credit for the year (1,926) (2,042)
------------------------------------ ------------- -------------
The income tax credit above does not represent the full tax
position of the entire group as the investment returns received by
the Company are net of tax payable at the underlying investee
entity level. As a consequence of the adoption of IFRS 10
investment entity consolidation exemption, underlying investee
entity tax is not consolidated within these financial statements.
Total forecasted corporation tax payable by the Group's underlying
investments is GBP753 million over their full concession lives.
11. Earnings Per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Year Year ended
ended 31 December
31 December 2014
2015 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 81,859 73,211
--------------------------------------- ------------ ------------
Number Number
--------------------------------------- ------------ ------------
Number of shares
------------
Weighted average number of Ordinary
Shares for the purposes of basic and
diluted earnings per share 857,859,876 771,578,934
--------------------------------------- ============ ------------
Basic and diluted (pence) 9.54 9.49
--------------------------------------- ------------ ------------
The denominator for the purposes of calculating both basic and
diluted earnings per share is the same, as the Group has not issued
any share options or other instruments that would cause
dilution.
12. Financial Instruments
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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. Specific financial
asset and liability accounting policies are provided below.
12.1 Financial assets
31 December 31 December
2015 2014
GBP'000s GBP'000s
----------------------------------------- ----------- -----------
Investments at fair value through profit
and loss(1) 1,201,107 1,032,941
Financial asset loans and receivables
Trade and other receivables 23,099 19,529
Cash and cash equivalents 72,391 29,391
Derivative financial instruments
Currency swaps 1,719 2,948
----------------------------------------- ----------- -----------
Total financial assets 1,298,316 1,084,809
----------------------------------------- ----------- -----------
(1) Includes fair value of investments in associates amounting
to GBP2.0 million (2014: GBP1.7 million). Movements in the period
represent additional fair value gains offset by net repayments from
investments.
Accounting policy
The Group classifies its financial assets as at fair value
through profit or loss or as loans and receivables. The
classification depends on the purpose for which the financial
assets were acquired, with investments in unconsolidated
subsidiaries (other than those providing investment-related
services) being designated at fair value through profit and loss as
required by IFRS 10.
Investments at fair value through profit or loss
Investments in underlying unconsolidated subsidiaries are
designated upon initial recognition as financial assets at fair
value through profit or loss. The Group's policy is to fair value
both the equity and debt investments in PPP assets together. All
transaction costs relating to the acquisition of new investments
are recognised directly in profit or loss. Subsequent to initial
recognition, equity and debt investments are measured at fair value
with changes in fair value recognised within operating income in
the Consolidated Statement of Comprehensive Income.
Financial assets loans and receivables
Trade receivables, loans and other receivables that are
non-derivative financial assets and that have fixed or determinable
payments and are not quoted in an active market are classified as
'loans and other receivables'. Loans and other receivables are
measured at amortised cost using the effective interest method,
less any impairment. When calculating the effective interest rate,
the Group estimates cash flows considering all contractual terms of
the financial instruments, but does not consider future credit
losses. Financial assets with maturities less than 12 months are
included in current assets, financial assets with maturities
greater than 12 months after the balance sheet date are classified
as non-current assets.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Derivative Financial Instruments
Derivatives are recognised initially, and are subsequently
remeasured at fair value. Derivatives are classified as assets when
their fair value is positive or as liabilities when their fair
value is negative. Derivative assets and liabilities arising from
different transactions are offset only if the transactions are with
the same counterparty, a legal right of offset exists, and the
parties intend to settle the cash flows on a net basis. Fair value
movements on derivative financial instruments held for trading are
recognised in the Consolidated Statement of Comprehensive
Income.
Impairment of Financial Assets
Financial assets, other than those classified as at fair value
through profit or loss are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where there
is objective evidence that, as a result of one or more events that
occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been adversely
impacted.
12.2 Financial liabilities
31 December 31 December
2015 2014
GBP'000s GBP'000s
---------------------------------------- ----------- -----------
Financial liabilities at amortised cost
Trade and other payables 8,114 6,414
Bank loans - 16,327
---------------------------------------- ----------- -----------
Total financial liabilities 8,114 22,741
---------------------------------------- ----------- -----------
Accounting policy
Trade and other payables
Financial liabilities, other than those specifically accounted
for under a separate policy, are stated based on the amounts which
are considered to be payable in respect of goods or services
received up to the financial reporting date. The cost of other
liabilities is considered to approximate their fair value.
12.3 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 and 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 (pages 35-42). The Board's
considerations of key risks impacting the business are set out
within the Strategic Report. The Board takes into account market,
credit and liquidity risks in forming the Group's risk management
strategy.
Market risk
Market risk is the risk that the fair value or future cash flows
of financial instruments will fluctuate due to changes in market
variables such as changes in inflation, foreign exchange rates and
interest rates.
Inflation risk
The majority of the Group's cash flows from underlying
investments are linked to inflation indices. Changes in inflation
rates can have a positive or negative impact on the Group's cash
flows from investments. The long-term inflation assumptions applied
in the Group's valuation of investments at fair value through
profit or loss are disclosed in the fair value hierarchy section
12.4.
The Group's portfolio of investments has been developed in
anticipation of continued inflation at or above the levels used in
the Group's valuation assumptions. Where inflation is at levels
below the assumed levels, investment performance may be impaired.
The level of inflation linkage across the investments held by the
Group varies and is not consistent.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows from underlying
investments therefore impacting the value of investments at fair
value through profit or loss. The Group has limited exposure to
interest rate risk as the underlying borrowings within the
unconsolidated investee entities are either hedged through interest
rate swap arrangements 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 therefore drawn for a relatively short period
of time. Therefore, the Group is not significantly exposed to cash
flow risk due to changes in interest rates over its variable rate
borrowings.
Interest income on bank deposits held at underlying investment
level is included within the fair value of investments. Sensitivity
analysis showing the impact of variations in interest income
deposit rates on the fair value of investments is shown in section
12.5.
Foreign currency risk
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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:
31 December 31 December
2015 2014
GBP'000s GBP'000s
----------------------------------------- ----------- -----------
Cash
Euro 871 2,263
Canadian Dollar 1,107 824
Australian Dollar 11 1
US Dollar 3 -
----------------------------------------- ----------- -----------
1,992 3,088
Current receivables
Euro receivables 393 407
----------------------------------------- ----------- -----------
393 407
Investments at fair value through profit
or loss
Euro 202,968 210,962
Canadian Dollar 34,819 38,858
Australian Dollar 85,370 93,050
US Dollar 32,204 -
----------------------------------------- ----------- -----------
355,361 342,870
----------------------------------------- ----------- -----------
Total 357,746 346,365
----------------------------------------- ----------- -----------
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
and similar concessions are entered into with government, quasi
government, 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.
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.
12.4 Fair value hierarchy
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
- Level 1 - Quoted market prices in an active market (that are
unadjusted) for identical assets or liabilities
- Level 2 - Valuation techniques (for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable)
- Level 3 - Valuation techniques (for which the lowest level
input that is significant to the fair value measurement is
unobservable)
During the period there were no transfers between Level 2 and
Level 3 categories.
Level 1:
The Group has no financial instruments classified as level
1.
Level 2:
This category includes derivative financial instruments such as
interest rate swaps, RPI Swaps and currency forward contracts. As
at 31 December 2015, the Group's only derivative financial
instruments were currency forward contracts amounting to an asset
of GBP1.7 million (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 31 December
2015, the fair value of financial instruments classified within
Level 3 totalled GBP1,201.1 million (2014: GBP1,032.9 million).
Financial instruments are classified within Level 3 if their
valuation incorporates significant inputs that are not based on
observable market data (unobservable inputs). A valuation input is
considered observable if it can be directly observed from
transactions in an active market, or if there is compelling
external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The
valuation of unlisted equity and debt investments is performed on a
quarterly(1) basis by the Investment Adviser 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 Group's Audit and Risk Committee for
recommendation to the Board.
In addition, any investment acquisitions by the Group from
related parties are also subject to an independent valuation
provided to the Board.
Valuation methodology
The valuation methodologies used are primarily based on
discounting the underlying investee entities' future projected net
cash flows at appropriate discount rates. Valuations are also
reviewed against recent market transactions for similar assets in
comparable markets observed by the Group or Investment Adviser and
adjusted where appropriate.
(1) Indicative valuations performed at 31 March and 30 September
where cash flows are updated for asset performance. Macroeconomic
assumptions are updated at 30 June and 31 December.
Projected net future cash flows
Cash flow forecasts for each underlying investment are generated
through detailed project specific financial models. Financial
models forecast the project related cash flows for the full term of
the underlying service concession. The cash flows included in the
forecasts used to determine fair value are typically fixed under
contracts however there are certain variable cash flows which are
based on management estimation. These models also forecast the
dividend, shareholder loan interest payments, capital repayments
and senior debt repayments (where applicable) expected from the
underlying investments. Key macroeconomic inputs and assumptions
utilised in projecting the Group's net future cash flows
include:
Europe
UK Non UK North America Australia
------------------- --------------- ------------------ ----------------------- -------------------
1% in
2016;
Inflation 2.75% 2% thereafter 2.00% 2.50%
20% - 12.50% 26.00% -
Long-term tax 18% - 33.99% 27.00% 30%
Foreign exchange
rates N/A 1.28 1.49-2.02 2.13
Long-term deposit
rates 3.00% 3.00% 3.00% 4.50%
------------------- --------------- ------------------ ----------------------- -------------------
Discount rate
The discount rate used for valuation of each investment is the
aggregate of the following:
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- yield on government bonds with an average life equivalent to
the weighted average concession length of the Group, issued by the
national government for the location of the asset ('government bond
yield')
- a premium to reflect the inherent greater risk in investing in
infrastructure assets over government bonds
- a further premium to reflect the state of maturity of the
asset with a larger premium applied to immature assets and/or
assets in construction and/or to reflect any current asset specific
or operational issues. Typically this risk premium will reduce over
the life of any asset as an asset matures, its operating
performance becomes more established, and the risks associated with
its future cash flows decrease
- a further adjustment reflective of market-based transaction
valuation evidence for similar assets
Over the period, the weighted average government bond decreased
by 0.48%. This was offset by a 0.53% 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 nearing or that have reached completion. Further details are
provided within the Strategic Report (page 22).
31 December 31 December
Valuation Methodology 2015 2014 Movement
------------------------ ------------ ------------ ---------
Weighted Average
Government Bond Rate 2.31% 2.79% (0.48%)
Weighted Average
Project Premium 5.22% 4.69% 0.53%
------------------------ ------------ ------------ ---------
Weighted Average
Discount Rate 7.53% 7.48% 0.05%
------------------------ ------------ ------------ ---------
Weighted Average
Discount Rate(1) 8.09% 7.90% 0.19%
------------------------ ------------ ------------ ---------
(1) Weighted average discount rate on Risk Capital only (equity
and subordinated debt).
Reconciliation of Level 3 fair value measurements GBP'000s
of financial assets:
--------------------------------------------------- -------------
Balance at 1 January 2015 1,032,941
Additional investments during the year 143,077
Net repayments during the year (14,695)
Net change in fair value of investments
at fair value through profit or loss 39,784
--------------------------------------------------- -------------
Balance at 31 December 2015 1,201,107
--------------------------------------------------- -------------
12.5 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 Change Change
average in fair in fair
rate applied value of value of
Significant in base Sensitivity investment Sensitivity investment
assumptions case valuations factor GBP'000's factor GBP'000's
------------------- -------------------- --------------- --------------- --------------- ---------------
Discount rate 7.53% + 1.00% (122,989) - 1.00% 145,246
------------------- -------------------- --------------- --------------- --------------- ---------------
Inflation rate
(overall) 2.57% + 1.00% 106,251 - 1.00% (94,026)
UK 2.75% + 1.00% 64,013 - 1.00% (55,802)
Europe 2.00% + 1.00% 30,134 - 1.00% (25,105)
North America 2.00% + 1.00% 1,019 - 1.00% (899)
Australia 2.50% + 1.00% 11,085 - 1.00% (12,214)
------------------- -------------------- --------------- --------------- --------------- ---------------
FX rate n/a + 10.00% 39,535 - 10.00% (32,351)
------------------- -------------------- --------------- --------------- --------------- ---------------
Tax rate 21.64% + 1.00% (7,502) - 1.00% 7,528
------------------- -------------------- --------------- --------------- --------------- ---------------
Deposit rate 3.11% + 1.00% 13,706 - 1.00% (13,035)
------------------- -------------------- --------------- --------------- --------------- ---------------
13. Investment Acquisitions
2015
Date of Consideration % Ownership
acquisition Description GBP'000's post acquisition
-------------- --------------------------------------- -------------- ------------------
The Group invested four batches
of funding via the Aggregator
Vehicle PLC into various PF2
March - schools procured under the
August 2015 UK Government's Priority Schools
Building Programme. 36,316 100%
The Group made follow on investments
17 April in four Lewisham Building
2015 Schools for the Future projects. 14,286 41-50%
The Group made a follow on
investment for the remaining
19.9% stake in the Inspire
30 June Partnership Liverpool Library
2015 project. 1,905 100%
The Group made its first three
August - tranches of investment in
December the Thames Tideway Tunnel
2015 project. 58,910 15.99%
2 October The Group acquired a debt 31,660 -
2015 investment in the P3 US Military
Housing sector.
-------------- --------------------------------------- -------------- ------------------
Total capital spend on new acquisitions
during the year 143,077
------------------------------------------------------- -------------- ------------------
2014
Date of Consideration % Ownership
acquisition Description GBP'000's post acquisition
-------------- -------------------------------------- -------------- ------------------
The Group acquired an additional
48% interest in the Kent BSF
31 January education project
2014
The Group acquired 10% of 7,200 58%
the share capital in Inspiredspaces
15 January Wolverhampton (Project Co
2014 2) Ltd 453 10%
The Group acquired a controlling
interest in the new office
building of the Federal German
27 January Ministry of Education and
2014 Research in Berlin (BMBF) 9,687 97%
The Group acquired an additional
27 June 72% interest in BSF Nottingham
2014 phase 2 2,777 82%
The Group acquired 100% of
4 November the equity in the Lincs offshore
2014 transmission project 168,111 100%
-------------- -------------------------------------- -------------- ------------------
Total capital spend on new acquisitions
during the year 188,228
------------------------------------------------------ -------------- ------------------
The BMBF interests were acquired by an unconsolidated subsidiary
entity of the Group from an associate of the Investment Adviser on
27 January 2014.
14. Trade and Other Receivables
31 December 31 December
2015 2014
GBP '000's GBP'000's
----------------------------------- --------------- ----------------
Accrued interest receivable 17,363 13,045
Other debtors 5,736 6,484
----------------------------------- --------------- ----------------
Total trade and other receivables 23,099 19,529
----------------------------------- --------------- ----------------
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Other debtors included GBP4.3 million (2014: GBP4.9 million) of
receivables from unconsolidated subsidiary entities for surrender
of Group tax losses.
15. Trade and Other Payables
31 December 31 December
2015 2014
GBP '000's GBP '000's
-------------------------------- --------------- ---------------
Accrued management fee 6,987 5,980
Other creditors and accruals 1,127 434
-------------------------------- --------------- ---------------
Total trade and other payables 8,114 6,414
-------------------------------- --------------- ---------------
16. Share Capital and Reserves
31 December 31 December
2015 2014
shares shares
Share capital '000's '000's
--------------------------------------- ----------- -----------
In issue 1 January 836,159 760,642
Issued for cash 150,573 70,370
Issued as a scrip dividend alternative 3,902 5,147
---------------------------------------- ----------- -----------
In issue at 31 December - fully
paid 990,634 836,159
---------------------------------------- ----------- -----------
31 December 31 December
2015 2014
GBP'000's GBP'000's
--------------------------------------- ----------- -----------
Opening balance 625,289 524,393
======================================== =========== ===========
Issued for cash (excluding issue
costs) 197,996 95,000
Issued as a scrip dividend alternative 5,211 6,688
---------------------------------------- ----------- -----------
Total share capital issued in the
year 203,207 101,688
---------------------------------------- ----------- -----------
Costs on issue of Ordinary Shares (3,134) (792)
---------------------------------------- ----------- -----------
Balance at 31 December 825,362 625,289
---------------------------------------- ----------- -----------
At present, the Company has one class of Ordinary Shares which
carry no right to fixed income.
On 9 June 2015, 1,846,353 new Ordinary fully paid shares were
issued as a scrip dividend alternative in lieu of cash for the
interim dividend in respect of the six months ended 31 December
2014.
On 9 September 2015, the Group raised an additional GBP18
million of equity through a tap issue of 13,430,202 Ordinary Shares
at an issue price per share of 134.00p.
On 24 October 2015, 2,055,252 new Ordinary fully paid shares
were issued as a scrip dividend alternative in lieu of cash for the
interim dividend in respect of the six months ended 30 June
2015.
On 18 November 2015, the Group raised an additional GBP180
million of equity through its Placing and Offer for Subscription of
137,142,857 Ordinary Shares at an issue price per share of
131.25p.
31 December 31 December
2015 2014
Other distributable reserve GBP'000's GBP'000's
---------------------------- ----------- -----------
Opening balance 182,481 182,481
Movement in the year - -
---------------------------- ----------- -----------
Balance at 31 December 182,481 182,481
---------------------------- ----------- -----------
On 19 January 2007 the Company applied to the Royal Court of
Guernsey, following the initial placing of shares, to reduce its
share premium account. This was in order to provide a distributable
reserve to enable the Company to repurchase its shares if and when
the Board of Directors consider it beneficial to do so. Following
court approval, the distributable reserve account was created.
31 December 31 December
2015 2014
Retained earnings GBP'000's GBP'000's
------------------------ ----------- -----------
Opening balance 254,298 228,517
Net profit for the year 81,859 73,211
Dividends paid(1) (53,798) (47,430)
------------------------ ----------- -----------
Closing balance 282,359 254,298
------------------------ ----------- -----------
(1) Includes scrip element of GBP5.2 million in 2015 (2014: GBP6.7 million).
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
year ended 31 December 2015.
The Board has approved interim distributions as follows:
Year ended Year ended
31 December 31 December
2015 2014
GBP'000's GBP'000's
--------------------------------------- ----------------------- ------------
Amounts recognised as distributions
to equity holders for the year ended
31 December 53,798(1) 47,430
Declared
Interim distribution for the period
1 January to 30 June 2015 was 3.225
pence per share (2014: 3.15 pence per
share) 27,459 24,040
Interim distribution for the period
1 July to 31 December 2015 was 3.225
pence per share (2014: 3.15 pence per
share(2) ) 31,948 26,339
--------------------------------------- ----------------------- ------------
(1) Includes the 2014 interim distribution for the period 1 July to 31 December 2014.
(2) The distribution for the period 1 July to 31 December 2015
was approved by the Board on 23 March 2016 and therefore has not
been included as a liability in the balance sheet for the year
ended 31 December 2015.
Capital risk management
The Group seeks to efficiently manage its financial resources to
ensure that it is able to continue as a going concern while
providing improved returns to shareholders through the management
of the debt and equity balances. The capital structure consists of
the Group's corporate facility and equity attributable to equity
holders of the parent, comprising issued capital, reserves and
retained earnings. The Group aims to deliver its objective by
investing available cash and using leverage whilst maintaining
sufficient liquidity to meet on-going expenses and dividend
payments. The Group's investment policy is set out in the Strategic
Report (pages 9-10).
The Group's Investment Adviser reviews the capital structure on
a semi-annual basis. As part of this review, the Investment Adviser
considers the cost of capital and the risks associated with each
class of capital.
17. Net Assets per Share
31 December 31 December
2015 2014
GBP'000's GBP'000's
--------------------------------------- -------------- --------------
Net assets attributable to equity
holders of the parent 1,290,202 1,062,068
---------------------------------------- -------------- --------------
Number Number
--------------------------------------- -------------- --------------
Number of shares
Ordinary shares outstanding at the
end of the year 990,634,037 836,159,373
---------------------------------------- -------------- --------------
Net assets per share (pence per share) 130.2 127.0
---------------------------------------- -------------- --------------
18. Related Party Transactions
During the period, Group companies entered into certain
transactions with related parties that are not members of the Group
but are related parties by reason of being in the same group as
Amber Infrastructure Group Holdings Limited, which is the ultimate
holding company of the Investment Adviser, Amber Fund Management
Limited ('AFML').
Under the Investment Advisory Agreement ('IAA'), AFML was
appointed to provide investment advisory services to the Group
including advising the Group as to the strategic management of its
portfolio of investments.
AFML is a subsidiary company of Amber Infrastructure Group
Holdings Limited ('Amber Group'), in which Mr. G Frost is a
Director and also a substantial shareholder.
Mr. G Frost is also a Director of International Public
Partnerships Limited (the 'Company'); International Public
Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Group);
and the majority of other companies in which the Group indirectly
has an investment. The transactions with the Amber Group are
considered related party transactions under IAS 24 'Related Party
Disclosures'.
The Director's fees of GBP42,000 (2014: GBP32,000) for Mr. G
Frost's directorship of the Company are paid to his employer, Amber
Infrastructure Limited (a member of the Amber Group).
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The amounts of the transactions in the year that were related
party transactions are set out in the table below:
Amounts owing
Related party to related parties
expense in the in the Balance
Income Statement Sheet
================================== ==================================
For the For the
year year
ended ended At At
31 December 31 December 31 December 31 December
2015 2014 2015 2014
GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- ---------------- ---------------- ---------------- ----------------
International Public
Partnerships GP Limited 13,470 11,608 6,987 5,980
Amber Fund Management
Limited(1) 2,145 2,818 231 -
-------------------------- ---------------- ---------------- ---------------- ----------------
Total 15,615 14,426 7,218 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 arrangements
Investment advisory fees / profit share payable during the
period are calculated as follows:
For existing construction assets:
-- 1.2% per annum of gross asset value of investments bearing construction risk
For existing fully operational assets:
-- 1.2% per annum of the gross asset value ('GAV') excluding
uncommitted cash from capital raisings up to GBP750 million
-- 1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion
-- 0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) value exceeds GBP1.5 billion
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 31 December 2015, Amber Infrastructure held 8,002,379
(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
Shares acquired by Directors in the financial year ended 31
December 2015 are disclosed below:
Number of New
Director Ordinary Shares
--------------------------------- -----------------
John Whittle 11,942
Rupert Dorey (including spouse) 150,000
Claire Whittet 50,000
John Stares 75,000
Giles Frost 150,000
--------------------------------- -----------------
Total purchased 436,942
--------------------------------- -----------------
None of the Directors disposed of any shares during the year
(2014: nil)
Remuneration paid to the Non-Executive directors is disclosed on
page 46.
18. Contingent Liabilities
As at 31 December 2015 the Group has committed investments
supported by letter of credit amounting to GBP169 million which
were notionally drawn on the Group's corporate debt facility.
There were no contingent liabilities at the date of this
report.
19. Events after Balance Sheet Date
In February 2016, the Company reached financial close on its
sixth UK offshore transmission project, Westermost Rough. The
Company made a GBP26.8 million investment for 100% of the equity
and subordinated debt.
20. Other Mandatory Disclosures
New standards that the Group has applied from 1 January 2015
Standards and amendments to standards that became effective
during the period are listed below. These have no material impact
on the reported performance or financial statements of the
Group.
-- Amendments to IAS 19: Defined Benefit Plans (effective date 1 February 2015)
-- Annual improvements to IFRSs 2010-2012 cycle (effective date
not later than 1 February 2015)
-- Annual improvements to IFRSs 2011-2013 cycle (effective date 1 January 2015)
Standards issued but not yet effective
Standards issued and not yet effective up to the date of
issuance of the Group's financial statements are listed below. This
listing is of standards and interpretations issued, which the Group
reasonably expects to be applicable at a future date. The Group
intends to adopt these standards when they become effective. The
Group does not currently anticipate the standards to have a
significant impact on the Group's financial statements, however
this will remain under consideration in light of interpretation
notes as and when they are issued.
-- IFRS 16 Leases (1 January 2019)
-- IFRS 9 Financial Instruments (Issued on 24 July 2014) (1 January 2018)
-- IFRS 15 Revenue from Contracts with Customers (1 January 2018)
-- Amendments to IFRS 10 and IAS 28: Sale or Contribution of
assets between an Investor and its Associate or Joint Venture
(postponed)
-- Amendments to IFRS 11: Accounting for Acquisitions of
interests in Joint operations (1 January 2016)
-- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment
entities: Applying the Consolidation Exception (1 January 2016)
-- Annual Improvements to IFRSs 2012-2014 Cycle (1 January 2016)
-- Amendments to IAS 1 Disclosure Initiative (1 January 2016)
-- Amendments to IAS 12: Recognition of Deferred Tax Assets for
Unrealised Losses (1 January 2017)
-- Amendments to IAS 7: Disclosure Initiative (1 January 2017).
Unconsolidated subsidiaries
A list of the significant investments in unconsolidated
subsidiaries, including the name, country of incorporation as at 31
December 2015 and proportion of ownership is shown below:
Place of incorporation Proportion
(or registration) of ownership
Name and operation interest %
-------------------------------------- ----------------------- -------------
Abingdon Limited Partnership UK 100
Aggregator PLC UK 100
Access Justice Durham Limited Canada 100
AKS Betriebs GmbH & Co. KG Germany 98
BBPP Alberta Schools Limited Canada 100
BPSL No. 2 Limited Partnership UK 100
Building Schools for the Future
Investments LLP UK 100
Calderdale Schools Partnership UK 100
CHP Unit Trust Australia 100
Derbyshire Courts Limited Partnership UK 100
Derbyshire Schools UK 100
Derbyshire Schools Phase Two
Partnership UK 100
H&W Courts Limited Partnership UK 100
INPP Infrastructure Germany
GmbH & Co. KG Germany 100
Inspire Partnership Limited
Partnership UK 100
IPP CCC Limited Partnership Ireland 100
Inspiredspaces Durham (Project
Co 1) Limited UK 91
Inspiredspaces Kent (Project
Co 1) Limited UK 58
Inspiredspaces Nottingham (Project
Co 1) Limited UK 82
Inspiredspaces Nottingham (Project
Co 2) Limited UK 82
Inspiredspaces STaG (Project
Co 1) Limited UK 90
Inspiredspaces STaG (Project
Co 2) Limited UK 90
Inspiredspaces Wolverhampton
(Project Co 1) Limited UK 82
IPP (Moray Schools) Holdings
Limited UK 100
Maesteg School Partnership UK 100
Norfolk Limited Partnership UK 100
Northampton Schools Limited
Partnership UK 100
Northern Diabolo N.V. Belgium 100
Pinnacle Healthcare (OAHS) Trust Australia 100
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Plot B Partnership UK 100
St Thomas More School Partnership UK 100
PPP Solutions (Long Bay) Partnership Australia 100
PPP Solutions (Showgrounds)
Trust Australia 100
Strathclyde Limited Partnership UK 100
TH Schools Limited Partnership UK 100
TC Robin Rigg OFTO Limited UK 100
TC Barrow OFTO Limited UK 100
TC Gunfleet Sands OFTO Limited UK 100
TC Ormonde OFTO Limited UK 100
TC Lincs OFTO Limited UK 100
-------------------------------------- ----------------------- -------------
The entities listed above in aggregate represent 85.7% (2014:
85%) of investments at fair value through profit or loss. The
remaining fair value is driven from joint ventures, associate
interests and minority stakes held by the Group.
Consolidated subsidiaries
The principal subsidiary undertakings of the Company, all of
which have been included in these consolidated financial statements
are as follows:
Place of
incorporation Proportion
(or registration) of ownership
Name and operation interest %
------------------------------------ ------------------- -------------
International Public Partnerships
Limited Partnership UK 100
International Public Partnerships
Lux 1 Sarl Luxembourg 100
International Public Partnerships
Lux 2 Sarl Luxembourg 100
IPP Bond Limited UK 100
IPP Investments Limited Partnership UK 100
------------------------------------ ------------------- -------------
22. Investments
The Group holds 120 investments(1) across Accommodation,
Custodial, Energy, Transport and Utilities sectors. The table
overleaf sets out the Group's investments that are recorded at fair
value through profit or loss.
(1.) As at 31 December 2015, the Victoria Schools project was a
committed investment backed by a letter of credit with equity
investment due to be made on construction completion.
Construction
Short description No. Value(1)
Project of investment Start date End date of years 'millions
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Abingdon Design, construction, 25 March 09 March 30 GBP6.90
- Thames financing and 2000 2030
Valley provision of
Police facilities management
services to a
police facility
including HQ,
station and training
base for Thames
Valley Police
Authority, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Aggregator Four investments 10 March 29 December 26 GBP483.44
through a funding 2015 2041
vehicle to provide
financing for
the UK Priority
Schools Building
Programme (PSBP).
As part of the
programme, 46
schools under
5 PFI projects
are being delivered
using the PF2
private finance
funding structure
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Alberta Design, construction, 02 March 30 November 30 CAD490.00
Schools financing and 2007 2039
provision of
facilities management
services for
a new courthouse
facility in Durham,
Ontario, Canada
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Angel Angel Trains 26 January 31 December 34 GBP699.00
Trains owns a mixture 2005 2038
of passenger
and freight trains,
and leases them
to train operating
companies over
a five to ten
year lease term
in the UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Barnsley Design, redevelopment, 26 May 26 April 25 GBP105.87
PFI SPV financing and 2011 2036
1 provision of
facilities management
services to schools
in Barnsley,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Barnsley Design, redevelopment, 03 January 31 December 25 GBP58.54
PFI SPV financing and 2012 2036
2 provision of
facilities management
services to schools
in Barnsley,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Barnsley Design, redevelopment, 03 September 02 September 25 GBP141.72
PFI SPV financing and 2012 2036
3 provision of
facilities management
services to schools
in Barnsley,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Barking Design, redevelopment, 01 April 19 March 25 GBP30.68
& Dagenham financing and 2012 2037
PFI SPV provision of
1 facilities management
services to schools
in Barking and
Dagenham, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
BeNEX invests
in companies
holding rail
and bus operating
concessions as
well as rolling
stock for its
operating subsidiaries 01 December 01 December
BeNEX in Germany 2000 2031 31(2) EUR360.10
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Birmingham Design, redevelopment, 05 January 30 September 25 GBP56.58
PFI SPV financing and 2011 2036
1 provision of
facilities management
services to schools
in Birmingham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Blackburn Design, redevelopment, 01 September 31 August 25 GBP28.85
PFI SPV financing and 2011 2036
1 provision of
facilities management
services to schools
in Blackburn,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Blackburn Design, redevelopment, 20 August 19 August 25 GBP47.04
PFI SPV financing and 2012 2037
2 provision of
facilities management
services to schools
in Blackburn,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Design, construction,
financing and
provision of
facilities management
services to the
Headquarters
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of the German
Federal Ministry
of Education
and Research 31 July 31 July
BMBF in Berlin, Germany 2014 2041 27 EUR96.00
------------------ ----------------------------- --------------- -------------- ----------- ----------------
(1) Represents the full construction / capex value
of the underlying projects
(2) Benex acts as a holding company for a portfolio
of rail and bus concessions. The start and end dates
above represent the earliest and latest dates of operation
of the portfolio of concessions.
Bootle Design, construction, 17 July 16 July 25 GBP4.10
financing and 2000 2025
provision of
facilities management
services to fully
serviced accommodation
in Bootle for
the occupation
of HM Revenue
& Customs, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Bradford Design, redevelopment, 19 August 18 August 27 GBP90.73
PFI SPV financing and 2006 2033
1 provision of
facilities management
services to schools
in Bradford,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Bradford Design, redevelopment, 01 January 14 March 25 GBP181.55
PFI SPV financing and 2011 2036
2 provision of
facilities management
services to schools
in Bradford,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Refurbish, extend
and provide facilities
management services
to the Brescia
Brescia Hospital Campus, 01 December 07 November
Hospital Italy 2002 2021 19 EUR24.00
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Bristol Design, redevelopment, 31 December 30 September 26 GBP47.79
PFI SPV financing and 2008 2034
1 provision of
facilities management
services to schools
in Bristol, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Calderdale Design, construction, 31 August 17 March 26 GBP44.60
financing and 2004 2030
provision of
facilities management
services to five
schools in Calderdale,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Cambridgeshire Design, redevelopment, 29 October 03 January 25 GBP36.90
PFI SPV financing and 2012 2037
1 provision of
facilities management
services to schools
in Cambridgeshire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Derby Design, redevelopment, 01 September 31 August 25 GBP38.17
City financing and 2012 2037
PFI SPV provision of
1 facilities management
services to schools
in Derby, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Derby Design, construction, 04 June 02 September 25 GBP21.30
Courts financing and 2003 2028
provision of
facilities management
services to two
courthouses in
Derbyshire, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Derby Design, construction, 28 March 28 March 26 GBP25.30
Schools financing and 2003 2029
provision of
facilities management
services to two
secondary schools
in Derbyshire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Derby Design, build, 13 February 12 February 26 GBP28.30
Schools finance and provision 2006 2032
2 of facilities
management services
to two secondary
schools in Derbyshire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Derbyshire Design, redevelopment, 01 June 31 October 23 GBP38.52
PFI SPV financing and 2011 2035
1 provision of
facilities management
services to schools
in Derbyshire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Diabolo Design, construction, 02 October 30 June 40 GBP285.00
(T2 & financing and 2007 2047
T3 & subsequent operation
T5) of a rail link,
Belgium
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Dublin Design, construction, 18 April 30 June 28 GBP105.00
Courts financing and 2007 2035
subsequent provision
of facilities
management services
to a courthouse
in Dublin, Ireland
------------------ ----------------------------- --------------- -------------- ----------- ----------------
(1) Represents the full construction / capex value
of the underlying projects
Durham Design, construction, 02 March 30 November 32 CAD98.00
Courts financing and 2007 2039
provision of
facilities management
services for
a new courthouse
facility in Durham,
Ontario, Canada
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Durham Design, redevelopment, 14 August 03 January 27 GBP42.10
PFI SPV financing and 2009 2036
1 provision of
facilities management
services to Durham
county, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Essex Design, redevelopment, 01 October 31 December 25 GBP75.55
PFI SPV financing and 2011 2036
1 provision of
facilities management
services to schools
in Essex,UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Essex Design, redevelopment, 01 April 31 December 23 GBP29.11
PFI SPV financing and 2014 2036
2 provision of
facilities management
services to schools
in Essex, UK
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Gold Design, construction, 05 May 31 May 18 AUD578.00
Coast financing, operation 2011 2029
Light and provision
Rail of facilities
management services
to a light rail
public transportation
system in Queensland,
Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Hereford Design, construction, 03 March 05 March 22 GBP23.50
& Worcester financing and 2003 2025
subsequent operation
of four courthouses
in Hereford &
Worcester, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Islington Design, redevelopment, 22 December 31 August 25 GBP42.36
PFI SPV financing and 2009 2034
1 provision of
facilities management
services to schools
in Islington,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Islington Design, redevelopment, 05 November 31 December 25 GBP30.95
PFI SPV financing and 2012 2037
2 provision of
facilities management
services to schools
in Islington,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Kent Design, redevelopment, 30 September 30 September 27 GBP82.00
PFI SPV financing and 2010 2037
1 provision of
facilities management
services to Kent,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lancashire Design, redevelopment, 31 December 31 August 27 GBP71.05
PFI SPV financing and 2006 2033
1 provision of
facilities management
services to schools
in Lancashire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lancashire Design, redevelopment, 31 December 31 August 27 GBP39.21
PFI SPV financing and 2007 2034
2 provision of
facilities management
services to schools
in Lancashire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lancashire Design, redevelopment, 31 July 31 March 27 GBP55.05
PFI SPV financing and 2008 2035
2A provision of
facilities management
services to schools
in Lancashire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lancashire Design, redevelopment, 30 June 31 August 26 GBP36.79
PFI SPV financing and 2009 2035
3 provision of
facilities management
services to schools
in Lancashire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lewisham Design, redevelopment, 01 January 31 December 26 GBP67.91
PFI SPV financing and 2009 2034
1 provision of
facilities management
services to schools
in Lewisham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lewisham Design, redevelopment, 01 January 31 August 27 GBP24.10
PFI SPV financing and 2011 2037
2 provision of
facilities management
services to schools
in Lewisham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Lewisham Design, redevelopment, 01 October 31 August 25 GBP33.65
PFI SPV financing and 2012 2037
3 provision of
facilities management
services to schools
in Lewisham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
1 Represents the full construction / capex value of
the underlying projects
Lewisham Design, redevelopment, 01 October 31 March 26 GBP64.60
PFI SPV financing and 2012 2038
4 provision of
facilities management
services to schools
in Lewisham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 26 January 30 December 29 GBP34.95
- Bexley, financing and 2005 2033
Bromley, subsequent operation
Greenwich of the redevelopment
1 of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 31 August 10 December 26 GBP3.23
- Bexley, financing and 2005 2031
Bromley, subsequent operation
Greenwich of the redevelopment
2 of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 19 May 30 June 25 GBP6.98
- BBG financing and 2006 2031
Lakeside subsequent operation
of the redevelopment
of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 15 December 30 June 26 GBP16.87
- BHH financing and 2006 2032
Mt Vernon subsequent operation
of the redevelopment
of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 05 May 30 June 25 GBP7.59
- BHH financing and 2006 2031
Sudbury subsequent operation
of the redevelopment
of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 22 December 29 June 27 GBP11.90
- Brent, financing and 2004 2031
Harrow, subsequent operation
Hillingdon of the redevelopment
of 2 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 31 May 31 March 27 GBP11.43
- Bristol financing and 2004 2031
Fishponds subsequent operation
& Hampton of the redevelopment
House of 2 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 30 November 31 March 26 GBP8.00
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
- Bristol financing and 2005 2032
Shirehampton subsequent operation
& Whitchurch of the redevelopment
of 2 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 15 June 31 March 24 GBP32.94
- Dudley financing and 2007 2031
Brierly subsequent operation
Hill of the redevelopment
of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 31 May 30 June 30 GBP13.82
- Dudley financing and 2004 2034
Ridge subsequent operation
Hill of the redevelopment
& Stourbridge of 2 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 29 May 31 March 29 GBP39.56
- ELLAS financing and 2003 2032
subsequent operation
of the redevelopment
of 4 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 16 December 30 September 29 GBP34.99
- ELLAS financing and 2005 2034
2 subsequent operation
of the redevelopment
of 3 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
1 Represents the full construction / capex value of
the underlying projects
LIFT Design, construction, 10 September 07 May 27 GBP5.61
- ELLAS financing and 2010 2037
3 subsequent operation
of the redevelopment
of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 12 February 03 October 27 GBP8.19
- ELLAS financing and 2010 2036
4 subsequent operation
of the redevelopment
of 2 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 06 October 30 November 26 GBP5.43
- Goscote financing and 2009 2035
subsequent operation
of the redevelopment
of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 26 March 23 June 26 GBP7.76
- Harrow financing and 2008 2034
NRC subsequent operation
of the redevelopment
of 3 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 30 November 30 September 27 GBP16.95
- Oxford financing and 2004 2031
Dunnock subsequent operation
Way & of the redevelopment
East of 2 LIFT hospital
Oxford projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 12 February 13 February 32 GBP43.79
- South financing and 2010 2042
Bristol subsequent operation
Community of the redevelopment
Hospital of LIFT hospital
project, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
LIFT Design, construction, 29 October 08 April 26 GBP12.38
- Wolverhampton financing and 2004 2031
& Walsall subsequent operation
of the redevelopment
of 2 LIFT hospital
projects, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Liverpool Design, construction, 19 July 07 November 27 GBP40.80
Library financing and 2010 2037
provision of
facilities management
services for
the Central Library
and Archive facility
in Liverpool,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Long Design, construction, 01 August 31 May 28 AUD147.00
Bay financing and 2006 2034
subsequent operation
of a prison and
a forensic hospital
in Sydney, Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Luton Design, redevelopment, 01 January 31 December 25 GBP28.46
PFI financing and 2011 2035
SPV 1 provision of
facilities management
services to schools
in Luton, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Maesteg Design, construction, 29 July 30 September 25 GBP17.60
financing and 2008 2033
provision of
facilities management
services for
new build schools
in Maesteg, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Moray Design, construction, 26 February 26 February 30 GBP35.00
Schools financing and 2012 2042
provision of
facilities management
services to two
schools (Elgin
Academy and Keith
Primary School)
under a 30 year
non-profit distribution
PPP concession
agreement with
The Moray Council,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
(1) Represents the full construction / capex value
of the underlying projects
Newham Design, redevelopment, 01 January 06 August 25 GBP59.44
PFI SPV financing and 2011 2035
1 provision of
facilities management
services to schools
in Newham, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Norfolk Design, construction, 17 December 16 December 35 GBP22.50
financing and 2001 2036
subsequent provision
of facilities
management services
for serviced
accommodation
for a new HQ
and ancillary
facilities to
the Norfolk Police
Authority, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Northampton Design, construction 31 December 31 December 32 GBP191.30
Schools (being a mixture 2005 2037
of new build
and refurbishment),
financing and
provision of
facilities management
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
services in respect
of 30 existing
schools and 11
new build schools
in Northamptonshire,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
North Design, construction, 01 March 08 December 24 GBP13.20
Wales financing and 2004 2028
Police subsequent supply
Authority of facilities
management services
to the North
Wales Police
HQ, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Nottingham Design, redevelopment, 13 June 31 August 26 GBP35.30
PFI SPV financing and 2008 2034
1 provision of
facilities management
services to schools
in Nottingham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Nottingham Design, redevelopment, 01 January 30 September 26 GBP20.47
PFI SPV financing and 2013 2038
2 provision of
facilities management
services to schools
in Nottingham,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
NSW Schools Design, construction, 01 March 31 December 29 AUD124.30
financing, operation, 2006 2035
and maintenance
of 10 new schools
for the NSW Department
of Education
and Training
(DET), Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
OFTO Finance, operate 02 March 02 March 20 GBP65.00
- Robin and maintain 2011 2031
Rigg onshore substations,
onshore and under-sea
cables connecting
the mainland
electricity grid
network to offshore
wind-farms, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
OFTO Finance, operate 19 July 19 July 20 GBP49.00
- Gunfleet and maintain 2011 2031
Sands onshore/offshore
substations,
onshore and under-sea
cables connecting
the mainland
electricity grid
network to offshore
wind-farm, UK
------------------ ----------------------------- --------------- ============== ----------- ----------------
OFTO Finance, operate 27 September 27 March 19 GBP33.50
- Barrow and maintain 2011 2030
onshore/offshore
substations,
onshore and under-sea
cables connecting
the mainland
electricity grid
network to offshore
wind-farm, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
OFTO Finance, operate 10 July 09 July 20 GBP103.90
- Ormonde and maintain 2012 2032
onshore/offshore
substations,
onshore and under-sea
cables connecting
the mainland
electricity grid
network to offshore
wind-farm, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
(1) Represents the full construction / capex value
of the underlying projects
OFTO Finance, operate 11 July 10 July 20 GBP307.70
- Lincs and maintain 2014 2034
onshore substations,
onshore and under-sea
cables connecting
the mainland
electricity grid
network to offshore
wind-farm, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Orange Design, construction, 21 December 21 December 28 AUD170.00
Hospital financing and 2007 2035
provision of
facilities management
services to the
Orange Hospital,
Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Pforzheim Construction, 11 September 11 September 30 GBP47.10
Schools financing and 2009 2039
provision of
facilities management
services in respect
to two new secondary
schools buildings
and outside facilities
in the City of
Pforzheim, Germany
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Reliance Finance, design, 31 December 29 February 38 AUD2,081.00
Rail manufacture and 2006 2044
maintain 78 eight-car,
air-conditioned
suburban electric
trains, plus
two spare carriages
with Sydney Trains,
Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Royal Design, construction, 20 December 31 December 29 AUD1,400.00
Children's financing and 2007 2036
Hospital provision of
facilities management
services to the
Royal Children's
Hospital, Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Salford Design, redevelopment, 11 September 31 August 25 GBP64.17
PFI SPV financing and 2011 2036
1 provision of
facilities management
services to schools
in Salford, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Salford Design, redevelopment, 01 April 01 September 26 GBP81.17
PFI SPV financing and 2012 2038
2 provision of
facilities management
services to schools
in Salford, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Showgrounds Design, construction, 01 July 01 August 26 AUD103.00
financing and 2005 2031
subsequent operation
of the redevelopment
of Melbourne
showgrounds,
Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Somerset Design, redevelopment, 01 November 29 October 25 GBP48.90
PFI SPV financing and 2012 2037
1 provision of
facilities management
services to schools
in Somerset,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Southwark Design, redevelopment, 10 January 09 January 24 GBP20.30
PFI SPV financing and 2011 2036
1 provision of
facilities management
services to schools
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2016 03:00 ET (07:00 GMT)
in Southwark,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Southwark Design, redevelopment, 01 September 31 December 22 GBP39.57
PFI SPV financing and 2014 2036
2 provision of
facilities management
services to schools
in Southwark,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
STaG Design, redevelopment, 21 December 04 September 27 GBP21.40
PFI SPV financing and 2009 2036
1 provision of
facilities management
services to schools
in South Tyneside
& Gateshead County,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
STaG Design, redevelopment, 21 December 04 September 27 GBP28.00
PFI SPV financing and 2009 2036
2 provision of
facilities management
services to schools
in South Tyneside
& Gateshead County,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
(1) Represents the full construction / capex value
of the underlying projects
Strathclyde Design, construction, 17 October 16 October 25 GBP18.90
financing and 2001 2026
provision of
facilities management
services to the
Strathclyde Police
Training Centre,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
St Thomas Design, construction, 28 March 28 March 25 GBP12.90
More financing and 2003 2028
School provision of
facilities management
services to St
Thomas More School,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Tameside Design, redevelopment, 01 January 30 August 27 GBP46.00
PFI SPV financing and 2009 2036
1 provision of
facilities management
services to schools
in Tameside,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Tameside Design, redevelopment, 01 April 31 August 27 GBP75.00
PFI SPV financing and 2010 2037
2 provision of
facilities management
services to schools
in Tameside,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Thames License to finance 01 August 31 March 132 GBP4,200.00
Tideway the construction 2015 2147
Tunnel and facilities
management of
a sewerage tunnel
underneath the
River Thames,
London, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Tower Design, construction 28 June 27 August 25 GBP74.10
Hamlets (mix of new build 2002 2027
Schools and refurbishment)
and provision
of facilities
management services
in respect of
25 schools in
Tower Hamlets,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
US Military Investment of 2 October 25 October 37 USD1,818.10
Housing finance into 2015 2052
a pool of 7 projects
procured through
the Military
Housing Privatisation
Initiative, US
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Victoria Design, construction, 29 October 31 December 27 AUD321.06
Schools financing, operation 2015 2042
2 - Learning and maintenance
Communities of 15 new public
Victoria2 schools in the
developing suburbs
around Melbourne,
Australia
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Waltham Design, redevelopment, 31 August 31 August 25 GBP21.90
Forest financing and 2008 2033
PFI SPV provision of
1 facilities management
services to Waltham
Forest, UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Wolverhampton Design, redevelopment, 30 April 04 September 27 GBP43.50
PFI SPV financing and 2010 2037
1 provision of
facilities management
services to Wolverhampton,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
Wolverhampton Design, redevelopment, 01 September 31 August 25 GBP44.00
PFI SPV financing and 2015 2040
2 provision of
facilities management
services to Wolverhampton,
UK
------------------ ----------------------------- --------------- -------------- ----------- ----------------
(1) Represents the full construction / capex value
of the underlying projects
(2) As at 31 December 2015, the Victoria Schools project
was a committed investment backed by a letter of credit
with equity investment due to be made on construction
completion.
-----------------------------------------------------------------------------------------------------------------
Contacts
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GY1 4AF EC4M 7LT
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