TIDMINPP
RNS Number : 2453U
International Public Partnership Ld
28 March 2019
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY,
IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH
AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR
TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT
CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
28 March 2019
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
("INPP" or the "Company")
FULL YEAR RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 2018
-- Current cash generation is strong and consistent with forecasts
-- The Company has a sustained track record of stable and
growing shareholder returns with c.2.5% annual dividend increase
for 2018, and two-year forward dividend guidance for a further
increase of c.2.5% p.a. for 2019 and 2020, respectively
-- The Company's primary origination capability resulted in
c.GBP105 million of new or follow-on investments and
commitments
-- The Company's continued focus on portfolio asset and risk
management facilitated the effective transition of the projects
impacted by Carillion plc's liquidation to new facilities
management providers at no material financial impact on the Company
or its public sector clients
-- There is ongoing engagement with Ofgem to achieve a
satisfactory outcome to the current consultation on proposed price
control measures (RIIO-2) which would govern, among other things,
the revenue and incentives received by Cadent between 2021 and
2026. The Company has adopted a precautionary approach to the
assumed outcome while this continues
-- Total Shareholder Return since IPO is now 171.8%, which
represents an annualised total shareholder return of 8.6% since IPO
in 2006, in line with the long-term returns target of 8% or
greater(1)
-- Over 3,000 hours of scheduled management meetings took place
in 2018 with public sector clients and the portfolio achieved 99.9%
asset availability (for those investments whose performance is
measured by availability)
-- New capital totalling GBP116 million was raised in October
2018 from new and existing investors at a price of 152.5 pence per
share
FINANCIAL HIGHLIGHTS(3)
-- Net Asset Value ('NAV') growth of 7.9% to GBP2.2 billion (31
December 2017: GBP2.0 billion)
-- NAV per share growth to 148.1 pence (31 December 2017: 145.0 pence)
-- Full-year dividend increase of c.2.5% to 7.00 pence per share
(31 December 2017: 6.82 pence per share)
-- IFRS profit before tax of GBP138.1 million (31 December 2017: GBP106.4 million)
-- Inflation-linkage with projected increase in return of 0.82%
p.a. for each 1% p.a. increase in inflation (31 December 2017:
0.81%)(3)
-- Target 2019 and 2020 full-year dividends of 7.18 and 7.36 pence per share, respectively
-- 2018 cash dividend cover of 1.2x(4)
PORTFOLIO UPDATE
In 2018, the Company continued to pursue its proven long-term
strategy of value-focused portfolio development, active asset
management and effective financial management with respect to its
portfolio of high quality, predictable, long-term projects and
businesses which meet societal and environmental needs both now and
in the future. These include:
-- Selective exposure to stable, inflation-linked regulated assets
o An investment of GBP46.2 million into the Company's seventh
offshore transmission asset, Dudgeon OFTO, which provides the
transmission cable connection to offshore wind power generation for
c.410,000 U.K. homes
o Commitment of c.GBP35 - 40 million to acquire a further
interest in Cadent which, together with its initial option, will
see the Company invest a total of GBP150-155 million in Cadent by
the end of June 2019 (subject to price adjustment per the terms of
its option agreements).
o An additional GBP1.6 million commitment was made into
Offenbach Police Centre, which is currently under construction and
due to complete in mid-2021
-- Early mover into emerging low-risk core infrastructure asset classes
o The Company continued to invest into digital infrastructure,
with a focus on enhancing U.K. fibre broadband connections, via a
GBP14.8 million investment as part of its GBP45 million commitment
to invest alongside HM Government via the National Digital
Infrastructure Fund ('NDIF')
-- Strategic use of pre-emption rights to increase stakes in existing assets
o GBP1.7 million investment to acquire further interest in
Hertfordshire Building Schools for Future ('BSF') project,
increasing ownership level to 100%
o GBP0.6 million final investment into the second stage of the
Gold Coast Light Rail PPP concession, Australia
-- Measured exposure to construction assets for greater capital growth
o The Company had three projects totalling 11% of the Company's
portfolio (by value) under construction including Tideway, where
the new 25km sewer under the River Thames is now 40% complete;
minor works on the fourth batch of the Priority Schools Building
Programme and groundworks on the Offenbach Police Headquarters,
Germany
-- Alignment of interest with public sector counterparties
o The Company completed three project refinancings during the
period, comprising two education assets under the Building Schools
for Future ('BSF') programme and the senior debt in Liverpool
Central Library, all of which delivered significant shared
financial benefits to the Company's clients
ASSET STEWARDSHIP(6)
The Company's investments continue to deliver sustained value to
stakeholders including by supporting their public-sector partners
and the wider communities in which they operate. Owing to the
Investment Adviser's active asset management approach, the Company
helped deliver, among other things:
-- 881 commissioned contract variations resulting in over
c.GBP10.9 million of additional project work conducted on behalf of
the commissioning body
-- >150,000 additional hours of asset availability dedicated to community use
-- >91% of the Company's investments monitored their energy usage
Michael Gerrard, Chairman of International Public Partnerships
Limited, commented: "The Company has once again delivered its
target level dividend through a year of strong portfolio
performance. The visibility of underlying cashflows, the quality of
our portfolio and the active approach to asset management
undertaken by the Company's Investment Adviser gives the Board full
confidence in delivering future returns for shareholders.
The Company's focus will continue to be on a wide range of
established and emerging asset classes where we believe private
finance can deliver outstanding infrastructure and good value for
money for our clients and end-users.
Our existing portfolio combined with a promising pipeline of
global and diversified investment opportunities will support our
ability to continue to deliver predictable, long-term, inflation
linked returns to our shareholders with a consistently low
correlation to the broader equity market."
DIRECTORATE CHANGES
As previously announced on 4 September 2018, the Company
appointed Mr. Michael Gerrard as an independent non-executive
director, assuming the role of Chairman on 31 December 2018
following Mr. Rupert Dorey's planned retirement. Mr. John Le
Poidevin was appointed as Chairman of the Audit and Risk Committee
with effect from 1 July 2018. His predecessor, Mr. John Whittle
remains as Senior Independent Director of the Company's Board of
Directors. John Stares retired from his role as Chair of the
Nomination and Remuneration Committee and also as the Chair of the
Risk Sub-Committee on 1 February 2019. Julia Bond has been
appointed as his replacement for both positions. John Stares
remains a Director of the Company.
http://www.rns-pdf.londonstockexchange.com/rns/2453U_1-2019-3-27.pdf
S.
INPP will be holding an analyst and investor presentation and
conference call at 9am on the day of announcement (28 March
2019).
For those analysts or investors who cannot attend in person, a
conference call facility will also be available by dialling +44
(0)330 336 9125 and using the confirmation code 1504735. Please
note the conference call is not open to the media or third-party
representatives thereof.
A copy of the results presentation can be downloaded from the
Company's website:
www.internationalpublicpartnerships.com
NOTES TO EDITORS
Amber Infrastructure FTI Consulting FTI Consulting
Erica Sibree / Amy Joslin Ed Berry Mitch Barltrop
+44 (0)20 7939 0558 / +44 (0)7703 330 199 +44 (0)7807 296 032
0587
Important Information
This announcement contains information that is inside
information for the purposes of the Market Abuse Regulation (EU)
No. 596/2014.
This announcement is an advertisement. It does not constitute a
prospectus relating to the Company and does not constitute, or form
part of, any offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for, any shares
in the Company in any jurisdiction nor shall it, or any part of it,
or the fact of its distribution, form the basis of, or be relied on
in connection with or act as any inducement to enter into, any
contract therefor.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These forward-looking statements speak only as at the
date of this announcement. The Company, Amber and Numis Securities
expressly disclaim any obligation or undertaking to update or
revise any forward-looking statements contained herein to reflect
actual results or any change in the assumptions, conditions or
circumstances on which any such statements are based unless
required to do so by the Financial Services and Markets Act 2000,
the Prospectus Rules of the Financial Conduct Authority or other
applicable laws, regulations or rules.
About International Public Partnerships:
International Public Partnerships ('INPP') is a listed
infrastructure investment company which invests in global public
infrastructure projects and businesses, which meet societal and
environmental needs, both now, and into the future.
INPP is a long-term investor in 130 infrastructure projects and
businesses, including utility and transport businesses,
transmission projects, schools, courts and police headquarters in
the UK, Europe, Australia and North America. INPP seeks to provide
its shareholders with both a long-term yield and capital
growth.
Amber Infrastructure Group ('Amber') is the Investment Adviser
to INPP and consists over 120 staff who are responsible for the
management of, advice on and origination of infrastructure
investments.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
Notes:
1. Bloomberg - share price appreciation plus dividends assumed
to be reinvested - from IPO in November 2006 to 31 December
2018
2. Only applicable for projects where the Investment Adviser
provides oversight of the management services. Where applicable,
jobs referred to are employees of the Company's Facilities
Management subcontractors and not of the Company of its
subsidiaries
3. Projected increase in portfolio return for a 1.00% p.a.
increase in the inflation rate assumed in the current valuation
analysis for each asset in the portfolio
4. Cash dividend payments to investors are paid from net
operating cash flow before non-recurring operating costs as
detailed.
International Public Partnerships Limited
Annual Report and Financial Statements for the year ended 31
December 2018
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
2018 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.
COMPANY FACTS
- London Stock Exchange trading code: INPP.L
- Member of the FTSE 250 and FTSE All-Share indices
- GBP2.3 billion market capitalisation at 31 December 2018
- 1,484 million shares in issue at 31 December 2018
- Eligible for ISA/PEPs and SIPPs
- Guernsey incorporated company
- International Public Partnerships ('the Company', 'INPP')
shares are excluded from the Financial Conduct Authority's ('FCA')
restrictions, which apply to non-mainstream investment products,
and can be recommended by independent financial advisers to their
clients
COVER IMAGE:
Dudgeon Offshore Transmission Project ('OFTO') - photo credit to
Equinor, photographer - Jan Arne Wold. The image illustrates the
Company's Dudgeon offshore substation, which was acquired in
November 2018. The project's transmission cables link between the
onshore and offshore substations.
FULL-YEAR FINANCIAL HIGHLIGHTS
We aim to provide our investors with long-term, inflation-linked
returns, by growing our dividend and creating the potential for
capital appreciation.
We expect to achieve this through responsible investment in
public infrastructure, which meets societal and environmental
needs, both now, and into the future.
Our investments are chosen with the intention of creating robust
and long-term investment cash flows.
DIVIDS
7.00p - 2018 full-year dividend(1) per share
7.18p - 2019 full-year dividend target(2) per share
7.36p - 2020 full-year dividend target(2) per share
c.2.5% - Average annual dividend increase(2)
1.2x - Cash dividend covered(3)
NET ASSET VALUE ('NAV') (4)
GBP2.2bn - NAV at 31 December 2018 (2017: GBP2.0bn)
148.1p - NAV per share at 31 December 2018(4) (2017: 145.0p)
7.9% - Increase in NAV
2.1% - Increase in NAV per share
PORTFOLIO ACTIVITY
c.GBP105m - Cash investments and commitments made during
2018
TOTAL SHAREHOLDER RETURN ('TSR')
171.8% - TSR since inception(5)
8.6%p.a. - Annualised Total Shareholder Return since
inception(5)
PROFIT
GBP138.1m - Profit before tax (2017: GBP106.4m)
1 The forecast date for payment of the dividend relating to the
six months to 31 December 2018 is 10 June 2019.
2 Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
3 Cash dividend payments to investors are paid from net
operating cash flow before capital activity as detailed on pages
24-25.
4 The methodology used to determine the NAV is described in detail on pages 26-33.
5 Since inception November 2006. Source: Bloomberg. Share price
plus dividends assumed to be reinvested.
COMPANY OVERVIEW
CONSISTENT AND GROWING RETURNS
INPP Dividend Payments
[Diagram can be found in PDF version of this document on the
Company's website].
Annualised Total Shareholder Return since inception of 8.6%
p.a.(1)
Since listing, INPP has grown from GBP300m market capitalisation
to GBP2.3bn (December 2018)
Annual dividend growth has averaged 2.5% since inception(2)
High degree of inflation linkage
LOW RISK AND DIVERSIFIED PORTFOLIO
Sector Breakdown
Energy Transmission 22%
--------------------- ----
Transport 21%
--------------------- ----
Education 19%
--------------------- ----
Gas Distribution 12%
--------------------- ----
Waste Water 11%
--------------------- ----
Health 4%
--------------------- ----
Courts 3%
--------------------- ----
Military Housing 3%
--------------------- ----
Other 5%
130 investments in infrastructure projects and businesses across
a variety of sectors
Geographic Split
U.K. 71%
----------- ----
Australia 10%
----------- ----
Belgium 10%
----------- ----
U.S. 3%
----------- ----
Germany 3%
----------- ----
Canada 2%
----------- ----
Ireland 1%
----------- ----
Italy <1%
Invested in selected global regions that meet INPP's specific
risk and return requirements
Investment Type
Investments with third
party senior debt 91%
--------------------------- ----
Investments with no third
party senior debt(4) 9%
Invested across the capital structure, taking into account
appropriate risks to returns
Mode of Acquisition/Asset Status
Construction 11%
------------------------- ----
Operational 89%
------------------------- ----
Early Stage Investor(5) 70%
------------------------- ----
Later Stage Investor(6) 30%
Early stage investment gives first mover advantage maximises
capital growth opportunities
Project Ownership
100% 49%
--------- ----
50%-100% 7%
--------- ----
<50% 44%
Preference to hold majority positions/control or an alternative
position of influence e.g. board representation
Investment Life
<20 years 48%
------------- ----
20-30 years 26%
------------- ----
>30 years 26%
Weighted average portfolio life of 35 years(7)
International Public Partnerships invests in high-quality
infrastructure projects and businesses that are resilient over the
long-term
Highly PREDICTABLE portfolio performance
Projected Investment Receipts(3)
[Diagram can be found in PDF version of this document on the
Company's website].
Note: This chart is not intended to provide any future profit
forecast. Cash flows shown are projections based on the current
individual asset financial models and may vary in the future. Only
investments committed as at 31 December 2018 included.
Long-dated, contractual, predictable cash flows
Revenue streams from regulated or government backed
counterparties
Investments focused on high-quality, OECD countries
Strong stewardship
- Experienced independent Board and strong corporate governance
- The Company's Investment Adviser, Amber Infrastructure
('Amber'), is a leading originator, asset and fund manager
- The Investment Adviser has one of the largest independent
teams in the sector with over 120 employees working internationally
managing our assets
- We have a long-standing relationship - the Investment Adviser
has managed the Company's assets since our inception in 2006
- The Investment Adviser has a strong track record of
originating and developing opportunities for new investment
- The Investment Adviser's active management approach to
underlying asset investments supports sustainable performance
- We aim to integrate ESG considerations throughout the investment lifecycle
Relationship with the Investment Adviser
[Diagram can be found in PDF version of this document on the
Company's website].
1. Since inception November 2006. Source: Bloomberg. Share price
plus dividends assumed to be reinvested.
2. Future dividends cannot be guaranteed. Projections based on
current estimates and may vary in the future.
3. 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.
4. Investments where the Company holds the Risk Capital and the
senior debt or the senior debt has been repaid.
5. 'Early Stage Investor' - asset developed or originated by the
Investment Adviser or predecessor team in primary or early phase
investments.
6. 'Later stage investor' - asset acquired from a third party
investor in the secondary market.
7. Includes non-concession entities which have potentially a
perpetual life but assumed to have finite lives for this
illustration.
TOP 10 INVESTMENTS
International Public Partnerships' ('INPP's'), ('the Company's')
top ten investments by fair value at 31 December 2018 are
summarised below. A complete listing of the Company's investments
can be found in note 21 of the financial statements, with further
information available on the Company's website
(www.internationalpublicpartnerships.com).(1)
% holding % investment % investment
Status at at fair value fair value
Name of 31 December 31 December 31 December 31 December
Investment Location Sector 2018 2018 2018 2017
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Various, 4% Risk
Cadent United Kingdom Gas Distribution Operational Capital 12.4% 14.0%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Cadent owns four of the U.K.'s eight regional gas distribution networks
('GDNs') and in aggregate provides gas to approximately 11 million
consumers. It is expected that INPP will acquire an additional 3%
of Cadent from National Grid in June 2019.
----------------------------------------------------------------------------------------------------------------------
London, United Under 16% Risk
Tideway Kingdom Waste Water Construction Capital 10.6% 10.8%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Tideway is a GBP4.2 billion investment and relates to the design,
build and operation of a 25km 'super-sewer' under the River Thames.
----------------------------------------------------------------------------------------------------------------------
Diabolo Rail Brussels, 100% Risk
Link Belgium Transport Operational Capital 10.0% 10.0%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Diabolo Rail link integrates Brussels Airport with the national rail
network allowing passengers to access high-speed trains, such as
Amsterdam-Brussels-Paris and NS Hispeed trains.
----------------------------------------------------------------------------------------------------------------------
Lincs Offshore Lincolnshire, Energy 100% Risk
Transmission United Kingdom Transmission Operational Capital 9.0% 9.0%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
The project connects the 270MW Lincs offshore windfarm, located 8km
off the east coast of England, to the national grid. The transmission
cables comprise the onshore and offshore substations and under-sea
cables, 100km in length.
----------------------------------------------------------------------------------------------------------------------
100% Risk
Ormonde Capital
Offshore Cumbria, Energy and 100%
Transmission United Kingdom Transmission Operational senior debt 6.2% 6.5%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
The project connects 132kV Ormonde offshore windfarm, located 10km
off the Cumbrian coast, to the national grid. The transmission assets
comprise the onshore and offshore substations and under-sea cables,
41km in length.
----------------------------------------------------------------------------------------------------------------------
Reliance Sydney, 33% Risk
Rail Australia Transport Operational Capital 4.3% 4.4%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Reliance Rail is responsible for financing, designing, manufacturing
and ongoing maintenance of 78 next-generation, electrified, 'Waratah'
train sets serving Sydney in New South Wales, Australia.
----------------------------------------------------------------------------------------------------------------------
Various, 5% Risk
Angel Trains United Kingdom Transport Operational Capital 3.5% 3.4%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Angel Trains is a rolling stock leasing company asset base comprising
over 4,400 vehicles. Angel trains has invested over GBP5 billion
in new rolling stock and refurbishment since 1994, and is the second
largest private investor in the industry after Network Rail.
----------------------------------------------------------------------------------------------------------------------
U.S. Military Various, Military 100% Risk
Housing(2) United States Housing Operational Capital 3.1% 3.0%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
Two tranches of mezzanine debt underpinned by security over seven
operational PPP military housing projects, relating to a total of
19 operational military bases in the U.S. and comprising c.21,800
individual housing units.
----------------------------------------------------------------------------------------------------------------------
Dudgeon North Norfolk, Energy Operational 100% Risk 2.2% N/A
Offshore United Kingdom Transmission Capital
Transmission
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
The project connects the 402MW Dudgeon offshore windfarm, located
32km off the coast of Cromer in North Norfolk, to the national grid.
The transmission asset comprise the onshore and offshore substations
and under-sea cables, 89km in length.
----------------------------------------------------------------------------------------------------------------------
Various, 49% Risk
BeNEX Rail Germany Transport Operational Capital 2.0% 2.0%
---------------- ----------------- ----------------- ---------------- -------------- ------------- -------------
BeNEX leases rolling stock to train operating companies. It holds
shares in six rail companies and one bus company, providing transport
services of c.39 million train km and c.9 million km by road.
----------------------------------------------------------------------------------------------------------------------
1. Risk Capital includes both project level equity and subordinated shareholder debt.
2. Includes two tranches of investment into U.S. military housing.
Significant movements in the Group's portfolio for the year
ended 31 December 2018 can be found on page 15 of the Strategic
Report.
CHAIRMAN'S LETTER
Dear Shareholders,
In this, my first letter as your Chairman, I am pleased to
report another year of successful performance across the Company's
investment portfolio. Our strong financial returns mean that the
Company has again met its target full-year dividend of 7.00 pence
per share (2017: 6.82 pence per share), representing an annualised
increase of 2.6%. This is in line with our well-established,
long-term expectations for annual dividend growth of approximately
2.5%. This helps bring our total shareholder return to 171.8%, or
8.6% on an annualised basis since the Company's inception.
Owing to the robustness and forward-visibility of the cash flows
generated by the underlying assets in which the Company invests,
the Board has reaffirmed its dividend target for 2019 of 7.18 pence
per share and has provided additional guidance of 7.36 pence per
share for the year ending 31 December 2020. We maintain our strong
inflation linkage, such that for a 1.00% sustained increase in the
assumed inflation rate, the Company would expect to generate a
0.82% increase in portfolio return.
The Investment Adviser's active approach to asset management and
origination of new investment opportunities has helped to realise
the potential for capital growth within the existing portfolio and
has contributed to a 2.1% growth in NAV per share to 148.1 pence
per share for 2018 (2017: 145.0 pence per share). At the same time,
the total NAV has increased by 7.9% to GBP2.2 billion (2017: GBP2.0
billion).
INVESTMENT ACTIVITY
During 2018, the Company successfully invested and committed up
to approximately GBP105 million in new or follow-on investments,
taking the total number of assets in the portfolio to 130. This
included an investment of GBP46.2 million into the Company's
seventh offshore transmission asset, Dudgeon Offshore Transmission
Project ('OFTO'). The project provides the transmission connection
to a 402MW offshore wind farm located off the coast of Norfolk,
which produces enough clean energy to power over 410,000 U.K.
homes.
Following the previously disclosed exercise of put/call options,
the Company is due to invest a further c.GBP150-155 million
(subject to price adjustment per the terms of the option
agreements) in Cadent Gas Limited ('Cadent') by the end of June
2019. On conclusion of these arrangements, the Company is expected
to hold a 7.25% ownership interest in Cadent, providing it with the
permanent right to appoint a board director, consistent with the
Company's long-term target level of shareholding in the Cadent
business.
Throughout the course of the year, the Company continued to
diversify and selectively grow its exposure to the U.K. digital
infrastructure sector via a GBP14.8 million investment from our
GBP45 million commitment to the National Digital Infrastructure
Fund ('NDIF'), in which we are a co-investor alongside HM
Government. These digital investments are currently forecast to
serve over 250,000 new premises with improved ultrafast broadband
connectivity providing over 1,000km of new high-capacity fibre
routes across the U.K. Further details of investments the Company
made during the year can be found on page 15.
Despite uncertainty in the wider equity capital markets
impacting investor appetite for capital issuance, support for the
Company's investment case and track record remained strong - with
GBP116 million of additional capital raised from existing and new
investors in October 2018 at a price of 152.5 pence per share. The
Company's share price continued to demonstrate an intrinsically low
correlation to the broader equity market at 0.23(1) , which was
consistent with 2017.
ASSET STEWARDSHIP AND PORTFOLIO PERFORMANCE
Since its formation in 2006, the Company has been a highly
specialist and dedicated investor across a wide range of
established and emerging asset classes which help meet a modern
society's demand for safe, reliable and cost-effective
infrastructure. The Company's focus has been, and continues to be,
on those situations where we believe that private finance has the
capacity to deliver outstanding infrastructure facilities and
services, using its expertise to offer good value for money to
governments and the societies which they serve and, at the same
time, earn long-term returns in line with our investment
objectives.
By maintaining a well-resourced, active and focused approach to
asset management, the Company, through the Investment Adviser, was
well positioned when Carillion plc ('Carillion'), a contractor and
facilities manager to many businesses in the sector, entered
liquidation in January 2018. As previously announced, the Company
closely monitored Carillion's performance prior to its collapse and
contingency plans were in place as a matter of course. This enabled
all 24 affected projects to be transitioned to new facilities
management providers on a permanent basis with no impact on the
availability of the facilities to their public sector users; and
all on-site personnel, who formerly worked for Carillion, were
offered continuity of employment on the same terms. Work continues
to transition to a new construction contractor on one project, the
fourth batch of the Priority Schools Building Programme -
Aggregator ('PSBP Midlands Limited'). Construction on this project
is expected to reach completion during 2019 and the Company
maintains its guidance that we expect no more than a GBP1.5 million
impact on NAV as a result of Carillion's liquidation, across the 24
affected projects.
The Company notes Interserve Plc's announcement on 15 March 2018
that administrators have been appointed, and that the sale of its
business and assets, including the entity providing facilities
management services to 6% of the Company's portfolio (by investment
fair value), to a newly incorporated company (Interserve Group Ltd)
controlled by its lenders has been completed. We are working
closely with the new company and its lenders to ensure continuity
of service, whilst at the same time keeping contingency plans in
place. We do not currently anticipate that this will adversely
impact the Company's valuation. More information is available on
page 22.
The Company completed three refinancings of projects within its
portfolio during 2018, including two Building Schools for Future
('BSF') projects and the Liverpool Central Library. These
refinancings delivered significant shared financial benefits to the
Company's local authority clients, which helped further align our
interests with the Company's public sector counterparties.
Progress continues to be made on the construction of one of our
largest projects, Tideway, where the new 25km sewer being built
under the River Thames in London is now c.40% complete. The project
will ultimately deliver significant environmental and social
benefits for London through the reduction of sewage and associated
wastewater discharges, which currently flow directly into the River
Thames whenever the current sewer network is overloaded (which can
happen with only modest rainfall).
Since its formation, the Company has been a strong supporter of
Environmental, Social and Governance ('ESG') initiatives and in
this Annual Report we allocate increased space to their coverage on
pages 34-38. The growing importance of stakeholder support for the
Company's investment activities is a subject I will return to in
future letters.
OPERATING ENVIRONMENT
The Audit and Risk Committee of the Board has been monitoring
the risks associated with all potential outcomes from the U.K.
leaving the E.U. and their potential impact on the Company. The
possibility of disruption to some of the supply chains on which the
Company depends (for example, for skilled workers or spare parts)
cannot be discounted. Accordingly, the Investment Adviser has
adopted a position of heightened readiness and close communication
with key contractors, so that as much early warning as possible can
be given to enable appropriate mitigating measures to be
implemented, if an identified risk becomes a material issue for one
of the Company's investments.
The U.K. gas and electricity market regulator, Ofgem, is
currently consulting with industry participants on the next round
of regulatory settlement which will govern, amongst other things,
the revenue and incentives received by Cadent. In December 2018,
Ofgem published a consultation document on its proposed price
control measures which would apply in its next regulatory period
from 2021 to 2026.
We remain very positive about our investment in Cadent, its
operating model and its long-term contribution to the Company's
investment portfolio. On the Company's behalf, the Investment
Adviser continues to engage actively with Cadent's management team
and our co-shareholders in Cadent, to help achieve a fair and
reasonable outcome from Ofgem's consultations. While the
consultation period is ongoing, we have taken a cautious view on
the range of possible outcomes that may potentially impact the
valuation of Cadent within the Company's portfolio.
The Company has also been a long-term investor in transportation
assets, making its first investment in U.K. rolling stock in 2008
via the train leasing company, Angel Trains. Angel Trains has
achieved significant growth during the last 10 years, surpassing
the Company's original base case expectations. In the last 12
months, however, the increased demand for new trains within the
U.K. has brought new entrants into the sector which, in turn, has
placed additional competitive pressures in its key marketplace.
Whilst we have taken this into account in our view on future
prospects, the Company remains confident in Angel Trains' long-term
investment case.
More information about the operating environment and the
potential implications for the Company can be found on pages
26-33.
VALUATION
Recent third-party transactions, competitive bid processes
engaged in by the Investment Adviser and the takeover and
subsequent de-listing of John Laing Infrastructure Fund ('JLIF')
have all provided positive valuation indicators for the types of
assets which the Company holds. These drivers have served to
highlight value-adding factors within the infrastructure sector and
have been considered as part of the Company's valuation
methodology, in terms of the appropriate choice of discount rates
used.
At the same time, and in conjunction with necessary adjustments
to the applicable discount rates, the Company continues to adopt a
cautious approach to the management of near-term uncertainty
associated with forecasting operational cash flows generated by
investee businesses including, for the reasons described above,
Cadent and Angel Trains.
In balancing these factors, and notwithstanding the positive NAV
growth we otherwise recorded over the period, the Company continues
to adopt a cautious approach to the protection of shareholder value
- further information about which can be found on pages 26-33.
CORPORATE GOVERNANCE
The Board has noted that several listed investment funds have
announced plans to redomicile from Guernsey and elsewhere to the
U.K. and register as U.K. Investment Companies. Based on
professional advice, the Company believes that some of our
shareholders could be disadvantaged by a change of domicile and
hence, whilst the Board will continue to keep this under review, it
sees no current imperative to become a U.K. Investment Company or
to otherwise change the Company's long-established domicile. As
previously advised, the Board keeps the Company's domicile under
regular review and monitors any proposed legislative changes
governing listed investment funds.
The Company's investments pay tax locally in the relevant
jurisdiction. In the U.K. the Company's assets are held in U.K.
company structures that are liable to pay U.K. Corporation Tax, in
line with U.K. law and as set out within the Company's tax strategy
(available on the Company's website). U.K. shareholders in the
Company are subject to U.K. tax according to their status and
subject to their making the investment through an approved pension,
ISA or SIPP.
The Board values strong corporate governance and continues to
comply with the Association of Investment Companies Code of
Corporate Governance and the U.K. Corporate Governance Code as set
out on page 54. Over the course of the year, the Board undertook an
externally facilitated evaluation of its practices and the
Management Engagement Committee formally reviewed the performance
of the Investment Adviser and other key service providers to the
Company. The Board reviews operational processes on an ongoing
basis.
As part of its long-term succession planning, the Board
previously signaled Rupert Dorey's intention to retire as Chairman
of the Board, effective at the end of 2018. Having been appointed
as a non-executive director of the Company on 4 September 2018, I
assumed the role of Chairman upon Rupert's retirement. I would like
to pay tribute to Rupert's highly effective oversight and direction
of the Company during his period as Chairman. He led the Board for
over four years and was one of the first directors of the Company
at the time of its listing in 2006. During this period, the Company
has consistently delivered on its objectives, often exceeding them,
and I warmly thank Rupert on behalf of all our shareholders, past
and present.
John Le Poidevin was appointed as Chairman of the Audit and Risk
Committee with effect from 1 July 2018. John is a former audit
partner at BDO LLP with substantial experience of financial
reporting, corporate governance and the listing rules and has been
a Board member since 2016. John Whittle retired from his role as
Chair of the Audit and Risk Committee and remains the Senior
Independent Director of the Board. John Stares retired from his
role as Chair of the Nomination and Remuneration Committee and also
as the Chair of the Risk Sub-Committee on 1 February 2019. Julia
Bond has been appointed as his replacement for both positions. John
Stares remains a Director of the Company.
Further information on the Company's corporate governance
developments and operational reviews over the year can be found in
the Corporate Governance section of this report on pages 54-63.
OUTLOOK
Since the 1980s, models created in the U.K. for the delivery,
management and operation of infrastructure have been copied across
the world, from privatisation through the Private Finance
Initiative ('PFI') and public-private-partnerships more generally,
on to more bespoke structures such as that used on the Tideway
project.
The market for the type of assets in which the Company invests
remains fundamentally strong, with governments and regulators in
the countries in which we invest being committed to the principle
of long-term private sector investment, as part of an overall
toolkit for public infrastructure delivery. The Company's exposure
to 'classic' PFI projects in the U.K. is relatively modest at c.8%
of our investment portfolio value and our diversified investment
strategy does not rely on a forward pipeline of U.K. PFI
opportunities.
The Board remains vigilant in its monitoring and mitigation of
the risks affecting the U.K. listed infrastructure sector. The
Company's portfolio and diversity of supply chain, together with
the hands-on asset management approach of our Investment Adviser
(as proven in our handling of Carillion's liquidation) has, to
date, served to mitigate the impact of emerging risks. Given the
high-quality and diversity of the Company's portfolio and our
promising pipeline of global investment opportunities, we remain
confident in our ability to continue to deliver predictable,
long-term, inflation-linked returns to our shareholders. More
information and a detailed pipeline of opportunities are set out in
the Current Market Environment and Future Opportunities section
pages 17-19.
Finally, I would like to express the appreciation and thanks of
the Board not only to you, our shareholders, for your ongoing
support, but also to our public sector clients for their working
partnerships; to the users of our infrastructure for their custom;
to our supply chain for their commitment to service quality; and
last, but by no means least, to our Investment Adviser for their
vigilance and professionalism. All of these and many other
stakeholders are integral to the ongoing success of the
Company.
Mike Gerrard
Chairman
27 March 2019
1 Correlation to FTSE All-share index for the 12 months to 31 December 2018.
STRATEGIC REPORT
BUSINESS MODEL - DELIVERING INVESTOR RETURNS
OUR OBJECTIVES
International Public Partnerships ('INPP') invests in
high-quality, predictable, long-duration public infrastructure
investments internationally or located within core OECD
countries
We aim to provide our investors with sustainable long-term
returns through progressive dividends with the potential for
capital appreciation
This is supported by a robust investment cash flow with
inflation linkage
Through the active management of our existing asset portfolio,
new investments and the prudent use of gearing, we target an
internal rate of return ('IRR') equal to or greater than 8% per
annum(1)
OUR STRENGTHS
a sustainable APPROACH
- Long-term alignment of interests between the Company,
Investment Adviser and other key suppliers
- A vertically-integrated model with direct relationships with public sector customers
- The Investment Adviser has one of the largest independent
teams in the sector (over 120 people)
- Experts in all aspects of infrastructure development, investment and management
- The Investment Adviser has physical presence in all the major
countries in which we invest, which provides local insights and
relationships
- 'Hands-on' approach to asset management - with an experienced and dedicated team
- Active approach to investment stewardship, which is the
cornerstone of successful investment
- Strong relationships with our service providers and clients
- Active engagement with key stakeholders
- Consideration and integration of material ESG issues and opportunities
OUR OPERATING MODEL
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
Together with the Investment Adviser, we seek new investments
that:
- enhance predictable, long-term cash flows
- provide opportunities for capital appreciation
- protect the environment and enhance society
IDENTIFY
The insights, knowledge and relationship of the Investment
Adviser's local teams are used to identify attractive new
investments. We monitor opportunities to enhance the existing
investments.
ASSESS
We seek investments with low exposure to market demand risks and
for which financial, macroeconomic, regulatory, ESG and country
risks are well understood and manageable.
ACCESS
The Investment Adviser's strong origination team develops unique
investment opportunities that can lead to enhanced returns.
OPTIMISE RETURNS
We seek to balance risk and return, using detailed research and
analysis to optimise each investment; and to create opportunities
for enhanced environmental and social outcomes.
APPROVAL
Our rigorous framework includes substantive input from the
Investment Adviser and, as appropriate, external advisers, with the
Company Board providing final robust challenge and scrutiny.
ACTIVE ASSET MANAGEMENT
Together with the Investment Adviser, we actively manage
investments to:
- deliver target returns
- mitigate and manage risks
- enhance prospects for growth
- maintain client satisfaction
ENTITY MANAGEMENT
Where possible, through the Investment Adviser we manage the
day-to-day activities of each of our investments internally to
ensure we have line of sight over project cash flows.
MONITOR PERFORMANCE
Extensive monitoring includes asset level board and management
meetings, reviewing data and following industry trends, and
obtaining formal and informal feedback through the Investment
Adviser.
REPORT
We robustly measure and report our financial and non-financial
performance to inform and feed back into our decision-making
process and operating model.
DRIVE GROWTH
We actively work with our public sector clients to ensure that
projects are being managed in an efficient manner, deliver the
required outputs - optimising returns for our investors.
effective financial management
- Ensuring cash covered dividends
- Hedging against short-term foreign exchange rate movements
- Managing investment capital flows
effective risk management
- Managing risks throughout the investment cycle
- Robust risk assessment and mitigation process
- ESG risks and opportunity realisation
STRONG INVESTMENT STEWARDSHIP
- Building resilience and resistance in line with environmental and social trends
- Uphold high standards of business integrity
- Work with trusted partners
- Strong independent Board and governance
OUR VALUE CREATION
investor returns
We focus on the following Key Performance Indicators ('KPIs') to
track the value we provide to shareholders:
- Distributions to shareholders
- Total Shareholder Returns
- Net Asset Value and Net Asset Value per Share
7.00p - 2018 dividends per share(1) (2017 dividends per share:
6.82p)
0.82% - Real returns, Portfolio inflation linkage(2)
148.1p - NAV per share(3) (31 Dec 2017: 145.0p)
c.2.5% - Average dividend growth since IPO(4)
8.6% p.a. - Annualised Total Shareholder Return since
inception(5)
GBP138.1m - Profit before tax (2017: GBP106.4m)
Broader value creation
We focus on project stewardship across the portfolio and
recognise the broader value created from our investments. These
five key areas of impact demonstrate the social and environmental
value we deliver to the end-users and communities that our projects
serve.
[Diagram can be found in PDF version of this document on the
Company's website].
1. On the Initial Public Offer issue price of 100 pence per Ordinary Share.
2. See pages 31-32 for information relating to the Company's use of sensitivity analysis.
3. See pages 36-33 for the methodology used to determine NAV.
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.
STRATEGIC REPORT
PERFORMANCE AGAINST STRATEGIC PRIORITIES
The Company's strategy covers three interlinked areas of focus.
This three-pronged approach helps us to manage our assets and
finances throughout the investment cycle and also to identify new
opportunities that meet our investment objectives. We link KPIs to
these Strategic Priorities and review our performance against these
KPIs throughout the year. We also assess the risks relating to each
KPI (as identified in the Risk Management section of this
Report).
STRATEGIC DESCRIPTION KEY PERFORMANCE PERFORMANCE IN 2018
PRIORITIES INDICATORS
============== ================================================================ =============================================================== =================================================================
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
INVEST IN
ASSETS THAT * Make new investments that enhance prospects for * Value of new investments * c.GBP46.2 million investment in Dudgeon OFTO. The
ENHANCE future value growth and ESG performance contribution investment supports climate mitigation by
PORTFOLIO transmitting clean power to over 410,000 U.K. homes
RETURNS
RELATIVE
TO RISK AND
MAINTAIN A
WELL-BALANCED
INVESTMENT
PORTFOLIO
* Make additional acquisitions off-market or through * Proportion of investments in construction * 11% of portfolio currently under construction
preferential access (e.g. sourced through pre-emptio
n
rights or via Amber/Hunt Companies LLC ('Hunt')). Se * Value of additional investments acquired off-market
e or through preferred access * Acquisitions totalling GBP17.1 million secured
page 19 for more information on Hunt through pre-emption rights including additional
stakes in the Hertfordshire BSF, Gold Coast Light
Rail (Phase 2) projects, and further investments
through NDIF
* Additional commitment in the year to Cadent of
c.GBP35-40 million
* Manage portfolio composition with complementary * Improvement of risk/return, inflation linkage and * Assets acquired exhibited robust cash flow profiles
investments, in line with the Company's Investment diversification of cash flows, including geographic
Policy and enhancing at least one of the following al
aspects: diversification * Overall portfolio value inflation linkage increased
from 0.79% to 0.82% for every 1.00% p.a. increase
over assumed inflation rates (calculated by running a
* Blend of risk to return 'plus 1.00%' inflation sensitivity for each
investment and solving each investment's discount
rate to return the original valuation. The inflation
* Inflation linkage linkage is the increase in the portfolio weighted
average discount rate)
* Cash flow profile
* Capital attributes (such as construction risk and
residual value growth potential)
============== ================================================================ =============================================================== =================================================================
ACTIVE ASSET MANAGEMENT
ACTIVE AND
EFFECTIVE * Focus on delivery of target returns from existing * Availability for all controlled investments at 98% or * Availability for investments at 99.9% or greater
MANAGEMENT investments above - returns from investments in line with
OF ASSETS expectations
* Maintain high levels of public sector client
satisfaction and asset performance * Performance deductions below 3% for all projects
* Performance deductions of 0.18% for all projects
* Number of change requests from existing contracts
* Deliver additional value from existing assets through * Over 881 change requests undertaken
management of construction risk and delivery of
operational improvements to meet client requirements
* Management of investments during the course of
construction projects in line with overall delivery
* Enhance prospects for capital growth by investing in timetable
construction phase assets where available
* Number of investments actively managing ESG factors * Majority of construction projects managed on time and
to budget. Costs of small project delays absorbed by
construction partners
* Increase long-term resilience through management of
environmental and social performance of assets
* Over 90%(1) of the portfolio's total investments (by
number) have an ESG policy in place
=========== ================================================================= ================================================================= =================================================================
EFFECTIVE FINANCIAL MANAGEMENT
EFFECTIVE
MANAGEMENT * Provide efficient management of cash holdings and * Dividends paid to investors covered by operating cash * Cash dividends paid to investors 1.2 times covered by
OF THE debt facilities available for investment and flow operating cash before capital activity
COMPANY'S appropriate hedging policies
FINANCES
* New investments made from available cash (after * All investments in 2018 funded through excess cash in
payment of dividend) ahead of using corporate debt priority to the corporate debt facility
* Efficient management of the Company's overall * Competitive cash deposit rates
finances, with the intention to reduce ongoing
charges where possible * Market tested cash deposit rates
* Use of appropriate hedging strategies
* Manage portfolio in a cost-efficient manner * GBP91.6 million of foreign exchange forward contracts
in place to mitigate short-term foreign exchange cash
* Management of ongoing charges flow volatility
* Ongoing charges 1.17% p.a. (2017: 1.15%)
1 The nature of ESG policies varies across investments,
depending on their ownership structure and services provided.
STRATEGIC REPORT
CASE STUDY - dudgeon ofto
DIFFERENTIATION OF THE OPERATING MODEL
Long-term, sustainable investments are the core of the Company's
business. To ensure that our investments are robust for the
long-term, we need to draw on a wide range of tools, resources and
analysis, including ESG considerations, in making investment
decisions.
ESG is an important focus as we recognise that environmental and
social factors have the potential to influence the performance of
the Company's investments. These can be wide ranging and include
risks such as impacts of climate change, environmental regulation,
or political change. By identifying, monitoring and mitigating
relevant ESG risks, we aim to manage the outcomes and protect the
Company's return on investments. Equally, ESG factors can also
create investment opportunities, which the Company is actively
exploring. For example, the trend towards low carbon and renewable
energy is driving significant investment opportunities in the
markets within which we operate.
Through the Company's Investment Adviser, the Company stays well
informed of emerging investment trends and actively positions
itself for future opportunities. The OFTO regime in the U.K. is a
good example of how the Company has proactively positioned itself
to be at the forefront of an emerging investment opportunity.
U.K. OFFSHORE TRANSMISSION - A ROBUST INVESTMENT WITH STRONG ESG
CREDENTIALS
The U.K. Government set an ambitious target for the deployment
of renewable energy. By 2020, the Government expects 15% of the
U.K.'s total energy needs to be met from renewable sources - this
means that around 30% of electricity may come from renewables(1) .
Last year the U.K. installed record levels of offshore wind farm
capacity, contributing towards an estimated 17% of Britain's total
electricity needs in 2018, with a record high of 34.7% in December
2018(2) .
To support this target, the Government identified that a new
approach to developing transmission networks would be required and
developed the offshore transmission regulatory regime. The Company
recognised this opportunity and strategically positioned itself as
one of the very few original consulting parties to Ofgem on the
regime in 2009. At that point, a typical OFTO investment was below
GBP100 million, whereas we are now exploring OFTO opportunities of
more than GBP1 billion.
Since the time of the Company's first investment, the Company
has become a market leader with a combined total of over 40 years
of operational performance and a portfolio with the capacity to
transmit nearly 1.5GW(3) of renewable electricity - equivalent to
the electricity needs of an estimated 1.3 million U.K. homes(4) .
Not only has this provided a good financial investment opportunity,
it also contributes to the U.K.'s carbon reduction targets and the
United Nations Sustainable Development Goals ('UNSDGs').
THE COMPANY REACHED FINANCIAL CLOSE ON DUDGEON OFTO
In 2018, the Company successfully reached financial close for
the long-term operation of the transmission link to the 402MW
Dudgeon offshore wind farm. Located 32km off the coast of Cromer in
North Norfolk. Dudgeon OFTO provides the Dudgeon Wind Farm access
to transmit clean power to more than 410,000 U.K. homes by
transmitting electricity generated by 67 6MW offshore wind
turbines(5) .
The trend towards offshore wind is set to continue, with several
new wind farms due for completion in 2019 and 2020 including the
Beatrice project in Moray Firth; East Anglia ONE project; and the
Hornsea Project ONE wind farm off the Yorkshire coast. The Company
is well positioned to continue investing in this sector and is
currently shortlisted for an additional OFTO and is awaiting the
outcome of shortlisting for three further assets.
1 https://www.ofgem.gov.uk/electricity/transmission-networks/offshore-transmission
2
https://www.renewableuk.com/news/431383/New-wind-generation-peak-rounds-off-record-breaking-year-for-renewables.htm
3 1,469MW. Data provided directly from wind farm owners.
4 Data provided directly from wind farm owners. Figure may vary
depending on actual wind generated and transmitted, which is
naturally variable.
5 http://dudgeonoffshorewind.co.uk/
STRATEGIC REPORT
OPERATING REVIEW
Value -Focused Portfolio Development
New investments that meet the Company's Investment Policy are
made after assessing their risk and return profile relative to the
existing portfolio. In particular, we seek investments to
complement the existing portfolio through enhancing long-term,
predictable cash flows and/or to provide the opportunity for higher
capital growth. The Board also regularly reviews the overall
composition of the portfolio to ensure it continues to remain
aligned with the Company's investment objectives. Desirable key
attributes for the portfolio include:
1. Long-term, stable returns
2. Inflation-linked investor cash flows
3. Early stage investor (e.g. the Company is an early stage
investor in a new asset developed by our Investment Adviser)
4. Preferential access (e.g. sourced through pre-emptive rights
or through the activities of our Investment Adviser)
5. Enhanced capital attributes (e.g. potential for additional
capital growth through 'de-risking' or the potential for
residual/terminal value growth)
6. Broader ESG considerations
During the year to 31 December 2018, the Company invested or
made investment commitments up to c.GBP105 million. The majority of
these projects were sourced by Amber ('the Investment Adviser'),
either from the start of the project (i.e. early stage developments
in response to an initial government procurement process); through
increasing its interest in existing assets; or as part of a larger
consortium, building on the Company's experience and credibility to
participate in multi-billion-pound regulated infrastructure
transactions. These three procurement approaches are the Company's
preferred route to market as they limit bidding in the competitive
secondary market.
Details of investment activity during 2018 are provided
below.
INVESTMENTS LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
MADE DURING STATUS DATE
2018
1 2 3 4 5 6
----------------------------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
Dudgeon U.K. ü ü ü ü ü Operational GBP46.2 13 November
Offshore million 2018
Transmission
Project
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
National U.K. ü ü ü ü Operational GBP14.8 Various
Digital million
Infrastructure
Fund
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
BSF U.K. ü ü ü ü Operational GBP1.7 28 March
Hertfordshire million 2018
Project
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
Gold Coast Australia ü ü ü ü ü Operational GBP0.6 2 January
Light million(1) 2018
Rail Phase 2
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
GBP63.3
million
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
INVESTMENT
COMMITMENTS
MADE DURING
THE YEAR TO
31 DECEMBER OPERATIONAL INVESTMENT
2018 LOCATION KEY ATTRIBUTES STATUS INVESTMENT DATE
1 2 3 4 5 6
----------------------------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
Cadent U.K. ü Operational c.GBP35-40 30 April
million 2018
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
Offenbach Germany ü ü ü ü ü Under GBP1.6 26 July
Police construction million(1) 2018
Centre
---------------- ----------- ------- ------- ------- ------- ------- ------- ------------- ------------ ------------
1 GBP translated value of investment.
Further details for each of these transactions are provided
overleaf.
DUDGEON OFFSHORE TRANSMISSION PROJECT, U.K.
The Company reached financial close for the long-term ownership
and operation of the transmission link to the 402MW Dudgeon
offshore wind farm in November 2018. The project is the Company's
seventh OFTO investment and relates to the transmission connection
to the offshore wind farm located 32km off the coast of Cromer in
North Norfolk.
The Company made a GBP46.2 million investment for 100% of the
equity and subordinated debt of the OFTO.
Approximately 85% of the Dudgeon offshore transmission assets
acquisition was funded by way of a public bond issuance which
received a Baa1 rating from Moody's. The asset is fully operational
and is expected to provide investment returns over its 20 year
initial revenue period, correlated to U.K. RPI.
DIGITAL INFRASTRUCTURE CO-INVESTMENT, U.K.
In July 2017, the Company committed jointly with HM Government
to make an investment in digital infrastructure and particularly
fibre optic broadband connections through a commitment to the NDIF,
a vehicle also managed by the Investment Adviser. The Company has
committed to invest up to GBP45 million into the U.K. digital
infrastructure through NDIF alongside HM Government.
During 2018, the Company invested GBP14.8 million, as part of
its GBP45 million commitment to NDIF, into four investments
including Community Fibre Limited, Airband Ltd and Nextgenaccess
Ltd. The commitments that NDIF have made align to the fund's
primary focus of investing in businesses and projects building
physical infrastructure assets and delivering an essential
utility-like service, with high barriers to entry and the
expectation to be highly profitable and cash generative once
mature.
ADDITIONAL INVESTMENT IN BUILDING SCHOOLS FOR THE FUTURE ('BSF')
PROJECTS, U.K.
BSF is a former U.K. Government programme for the redevelopment
of secondary schools in the U.K. financed using a combination of
design and build contracts and private finance type arrangements.
The programme for new developments was closed in July 2010.
In March 2018, the Company acquired an additional 20% interest
in the Hertfordshire BSF project, taking its interest to 100%, by
investing a further GBP1.7 million.
ADDITIONAL INVESTMENT IN GOLD COAST LIGHT RAIL, AUSTRALIA
In January 2018, the Company made its final investment of GBP0.6
million into the Gold Coast Light Rail Phase 2 concession project
in Queensland, Australia. This follows the completion of the
construction of the 7.3km extension which opened for passenger
services in December 2017, in time for the Gold Coast Commonwealth
Games in April 2018.
CADENT, U.K.
In November 2018, National Grid announced that it had elected to
exercise the options to sell its remaining 39% shareholding of
Cadent to the Quadgas consortium, of which the Company is a member.
The Company previously announced that it had entered into put/call
options with respect to the additional stake that National Grid has
now exercised. As a result, the Company expects to make a further
investment of c.GBP150-155 million into Cadent (subject to price
adjustment in accordance with the terms of the option agreements)
by the end of June 2019. On conclusion of these arrangements, the
Company is expected to hold a 7.25% ownership interest in Cadent,
giving it the permanent right to appoint a board director. This has
been the Company's long-term target level of shareholding in the
Cadent business.
OFFENBACH POLICE CENTRE, GERMANY
In 2017, the Company committed to invest in the new public
private partnership police centre of South-East Hesse in Offenbach
which is approximately 5km from Frankfurt, Germany. It is
anticipated that the project will take approximately three years to
construct after which it will have a 30 year operational term. The
Company initially committed GBP7.2 million for a 50% economic
interest in the project. The commissioning public authority
requested an extension of the building to accommodate an additional
130 working places. This c.EUR30 million variation to the scheme
was successfully agreed in July 2018, leading to an additional
GBP1.6 million commitment into the project by the Company. A
subsidiary affiliated with the project's construction contractor
will assume responsibility for the project's financing during the
construction period. As such, aside from a small initial
investment, the Company's financial commitment is not due until
satisfactory construction completion, anticipated to occur in
mid-2021.
CURRENT MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES
UNITED KINGDOM
The U.K. Government remains committed to the development of
public infrastructure as a key component of its long-term economic
policy and recognising the increasing need for public
infrastructure across the U.K.
The Infrastructure and Projects Authority released the
Government's National Infrastructure and Construction Pipeline in
November 2018, forecasting that infrastructure investment over the
next decade will be GBP600 billion, with planned investment across
both the public and private sectors. The pipeline will include
investment in the U.K.'s roads, hospitals and schools, ensuring
that modern technologies are embraced to build infrastructure
effectively and improve productivity as part of the Transforming
Infrastructure Performance programme, which will help improve
delivery and performance of social and economic infrastructure.
As a result, there has continued to be a focus on the assessment
of value for money of private sector investment in public
infrastructure. During the year, there was continued comment by the
U.K. Labour Party challenging the use of the private sector in
financing of public infrastructure, including suggestions to
renationalise key public infrastructure assets. In particular,
there has been a greater volume of commentary directed at
historical PFI projects associated with large, acute hospitals in
the U.K. - to which the Company has no exposure. We note that the
Company's exposure to such 'classic' PFI projects in the U.K. is
relatively modest (8.0% at 31 December 2018). In October 2018, the
Government announced the abolition of U.K. infrastructure procured
through PFI or PF2. However, at the same time the Government
announcement reaffirmed its continued support for existing PFI
projects and flagged the need for private finance to support the
infrastructure pipeline as a whole.
In the Spring Statement, the government reiterated that it is
committed to the role of private finance in infrastructure and
confirmed that of the projected GBP600 billion infrastructure
pipeline, over half is forecast to come from the private sector(1)
. The Government also announced it will not be seeking a
like-for-like replacement for the previous delivery models but will
be exploring new ways to use private finance in government projects
and in March 2019 the Government launched a formal consultation on
infrastructure finance. The Company believes that partnerships
between public authorities and the private sector can deliver
significant value for money benefits to society, through access to
specialist expertise and resources, rigorous risk management and
long-term asset management strategies.
In addition, there has been an increased focus on outsourcing
and the services offered by privatised utilities. As mentioned
earlier in this Annual Report, regulators, such as Ofwat and Ofgem,
have been consulting with industry participants on the next round
of regulatory settlements with an increased focus on ensuring
customer satisfaction and value for money. Ofgem's RII-O2
consultation will govern, among other things, the revenue and
incentives provided for the next regulatory period (2021 to 2026).
Ofgem has published its initial methodology which proposes to
adjust several price control measures in its next regulatory review
period from 2021 to 2026.
Whilst political uncertainty will likely continue to impact the
sector, market sentiment has improved over the course of the year.
There has been significant demand for infrastructure assets of the
type and quality in which the Company invests, and there is no
indication that this is due to change. This was demonstrated in the
second half of 2018 by the successful takeover bid of the listed
infrastructure fund, JLIF, by a consortium of private
infrastructure investors at a 12% premium to the 30 June 2018 NAV.
The transaction, amongst other recent transactions throughout the
period, highlighted the quality and underlying value of the listed
infrastructure fund's assets, and the cautious approach taken in
the valuation methodology.
The U.K.'s proposed exit from the European Union ('E.U.') has
also added an element of uncertainty to the markets in which the
Company operates. Whilst the Investment Adviser does not currently
foresee any material impacts, this cannot be guaranteed and it
continues to monitor the risks associated with the U.K. leaving the
E.U., with or without an agreement. For more information, please
refer to page 41.
Looking to the year ahead, the Company will build upon its
success as a pioneer of investments into offshore transmission and
digital infrastructure in the U.K. and will continue to develop
suitable opportunities from its strong and well diversified
investment pipeline.
1. 'National Infrastructure and Construction Pipeline 2018',
Infrastructure and Projects Authority, December 2018.
EUROPE - EXCLUDING UNITED KINGDOM
Investment into European infrastructure continues to be strong
and is supported by broader E.U. frameworks. As part of the
Investment Plan for Europe, the European Fund for Strategic
Investment was launched by the European Investment Bank and the
European Commission in July 2015. Its initial focus is on
infrastructure, including energy, digital, transport and social
infrastructure with a current investment target to the end of 2020
of EUR500 billion.
In order to upgrade Europe's infrastructure, the European
Commission has estimated that approximately EUR200 billion is
needed during the current decade (to 2030) for transmission grids
and gas pipelines, in addition to investment proposed by the
European Commission to develop sustainable and innovative transport
infrastructure in Europe across all modes of transport. Funding
will be focused on modernising and upgrading existing
infrastructure and developing innovative projects and new
technologies for transport, as well as upgrading the railway
network, maritime connections and ports and inland waterways and in
other new opportunities.
Demand for the PPP asset class also remains strong, with steady
volumes of transactions in the European market. While the U.K. is
the largest market in Europe by the number of transactions,
Germany, France and Belgium continue to see steady deal flows.
In Europe (excluding the U.K.), the Company is focusing on
stable and well-structured Northern European economies including
Belgium, the Netherlands, Germany, Austria and Ireland. These
jurisdictions offer a steady flow of new primary market
opportunities across a range of sectors, including accommodation,
schools, police facilities and transportation.
Future success will depend on securing opportunities through bid
processes in primary and secondary markets, while ensuring that
every opportunity fits within the Company's risk and reward
parameters.
AUSTRALIA
Australia has a history of private sector organisations
providing and financing public sector infrastructure. It has a
well-developed market for infrastructure investment and debt
finance, with an active pool of domestic and overseas investors and
banks.
Over the medium to long-term, much of Australia's infrastructure
development will be undertaken within the strategic and policy
framework of Infrastructure Australia's 'Australian Infrastructure
Plan' (updated February 2018). Australia's population is expected
to grow by nearly 12 million over the next 30 years and this plan
has become the reference point for the most important
infrastructure investments over the next 15 years, with a pipeline
of projects having a capital value of around A$55 billion and a
further A$25 billion of infrastructure projects now in delivery.
Many are large-scale (multi-billion Australian dollar) transport
projects, responding to population growth in Australia's biggest
cities. Greenfield PPP activity during 2018 declined compared to
previous years, with A$1.5 billion of projects closing during the
year compared to A$15.4 billion in 2017. A number of high-value
transport and social infrastructure projects, particularly in
Queensland and Victoria, have been announced for procurement over
the next 12-24 months.
Australian states are also developing smaller scale social
infrastructure projects in health, social housing and education
sectors. In keeping with policy recommendations in the
Infrastructure Plan, some states are also adopting infrastructure
procurement models that outsource operator services to the private
sector, as well as seeking private sector capital to develop the
asset.
2018 saw a significant amount of debt refinancing of existing
PPP projects, with asset owners taking advantage of favourable debt
market conditions, together with some trading of PPP assets on the
secondary market.
The Company's view is positive about the prospects for further
investments in the region and, whilst mindful of the recent
improvement in the value of sterling since the announcement of
Brexit, will continue to monitor currency volatility in respect of
new transactions. Although the Company remains cautious of the
refinancing risk prevalent within Australia's current primary PPP
market, current liquidity in debt markets is at a level that may
provide the Company with opportunities to manage its exposure to
such risk.
NORTH AMERICA
Infrastructure in the U.S. continues to come under pressure and
is significantly underfunded. The American Society of Civil
Engineers ('ASCE') gave America's infrastructure a grade D+ on its
2017 report card, falling to twelfth in the world according to the
World Economic Forum, estimating that the U.S. needed to spend
US$4.6 trillion by 2025, with a funding gap of US$1.5 trillion, to
rebuild the U.S. public infrastructure from its current state of
disrepair. Many of the states with the greatest requirement for new
infrastructure are located in the North East of the country as the
population in these states grows and the existing infrastructure
reaches the end of its life.
As part of President Donald Trump's 'Rebuild America's
Infrastructure' plan to reform how infrastructure projects are
regulated, funded, delivered and maintained over the next 10 years,
the President's target is to invest US$1.5 trillion into national
infrastructure, including US$200 billion of federal funding
commitment with the remainder to be funded by state and local
governments and private investors. The funds will be allocated to
various projects to not only address traditional infrastructure
requirements but also other needs such as drinking and wastewater
systems, waterways, resources, energy, rural infrastructure, public
lands and veterans' hospitals. During 2018, initiatives have been
proposed and enacted at both a state and federal level to
facilitate the deployment of funds into infrastructure projects;
transportation projects are some of the first deals to benefit from
the prioritisation of infrastructure. In the last quarter of 2018,
fresh rounds of private activity bonds and other specific
transportation funding
initiatives were announced helping to facilitate new
projects.
Increasing private investment to reach the targets proposed is a
theme that runs throughout the Infrastructure Plan, in addition to
incentives and amendments to existing limitations to encourage
private investment. It encourages a move away from financing the
country's infrastructure through government and tax-advantage
schemes to using public private partnerships as the principal
method of funding.
Canada has a strong track record of infrastructure investment
and the 'Investing in Canada Plan' aims to deliver C$180 billion of
infrastructure investment by 2028 to support local, provincial and
territorial projects over 12 years. This includes funding in public
transit, green and social infrastructure, transportation
infrastructure to support trade and rural northern communities and
is split equally between new investment projects and funding
existing initiatives. The long-term Infrastructure Plan will see
more than C$33 billion in federal investment towards infrastructure
projects across the country. The Company has an ongoing presence in
the country through two operational projects. The continued focus
on expanding the Infrastructure Plan over the next decade allows
the Company to capitalise on this opportunity and develop the
already existing relationships.
The ability for the private sector to participate in more North
American infrastructure projects provides the Company with a broad
variety of investment opportunities. The Company is well-positioned
to capitalise on these developments through its relationship with
U.S. group, Hunt Companies LLC ('Hunt'), the Company's Investment
Adviser's main shareholder, where the Company has 'right of first
look' over investment opportunities in North America originated or
sold by Hunt, which meet the Company's investment criteria.
CURRENT PIPELINE
The Company's performance does not depend upon additional
investments to deliver projected returns. Further investment
opportunities will be judged by their anticipated contribution to
overall portfolio returns relative to risk. Selected opportunities
that may be considered for investment in due course as identified
by the Investment Adviser are outlined below.
KNOWN/COMMITTED LOCATION ESTIMATED INVESTMENT EXPECTED INVESTMENT INVESTMENT STATUS
OPPORTUNITIES PERIOD
----------------- --------- -------------------------- -------------------- ----------------------
Cadent U.K. c.GBP150-155 million(1) Operational Put/call option
business has been exercised,
further investment
expected at the
end of June 2019
----------------- --------- -------------------------- -------------------- ----------------------
NDIF U.K. c.GBP30 million(1) Operational Of the GBP45
businesses million commitment
to NDIF, c.GBP15
million has been
invested to 31
December 2018
----------------- --------- ------------------------ -------------------- ----------------------
Offenbach Police Germany c.GBP8.8 million(1, c.30 years Investment commitment
Headquarters 2) made. Expected
to be funded
mid-2021
----------------- --------- -------------------------- -------------------- ----------------------
SECTOR OF INVESTMENT LOCATION ESTIMATED CAPITAL EXPECTED INVESTMENT STATUS
OPPORTUNITY VALUE(3) INVESTMENT
LENGTH
----------------------- ----------------- -------------------- ------------- -------------------------
Other, including U.K., Europe c.GBP7.0 billion Various, Regulated opportunities
regulated investments including at varying stages
operational
businesses
----------------------- ----------------- -------------------- ------------- -------------------------
OFTO U.K. c.GBP3.9 billion c.20 years Shortlisted on
one OFTO
----------------------- ----------------- -------------------- ------------- -------------------------
Education U.K., Europe c.GBP1.0 billion Various Opportunities
through variations
to existing PPP
contracts and
through the Investment
Adviser's wider
relationships
----------------------- ----------------- ------------------ ------------- -------------------------
Health Australia c.GBP730 million Various
----------------------- ----------------- -------------------- ------------- -------------------------
Transport Australia, c.GBP390 million Various Includes follow-on
Europe opportunities
----------------------- ----------------- -------------------- ------------- -------------------------
Accommodation U.K., Europe, c.GBP1.0 billion Various Variety of opportunities
U.S., Australia mainly PPP-style
investments
----------------------- ----------------- -------------------- ------------- -------------------------
1 Represents the current estimate of total future investment commitment by the Company.
2 Project has reached financial close. Commitment to invest once
construction has completed, expected to be mid-2021.
3 Includes both debt and equity.
The above includes commitments and a selection of potential
opportunities currently under review by the Investment Adviser
including current bids, preferred bidder opportunities and the
estimated value of opportunities to acquire additional investments
including under pre-emption/first refusal rights and future
opportunities that meet the Company's investment criteria. There is
no certainty that potential opportunities will translate to actual
investments for the Company. 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.
ACTIVE ASSET MANAGEMENT
Ensuring that the Company's assets are available for use and are
performing in accordance with contractual expectations is critical
for the Company and its service providers. In line with the
Company's ESG approach to managing assets, wherever possible, we
work with our partners to improve the Company's environmental and
social performance throughout the investment lifecycle. Through the
Company's Investment Adviser, we operate as an active investor and
closely monitor relationships between our service providers and
clients, the regulator, the operating business and the end-user.
With over 120 employees, of which nearly a third are dedicated to
asset management, the Investment Adviser has the flexibility,
resource and experience to respond quickly to the changing
requirements of its clients and counterparties.
The Investment Adviser is actively involved in managing the
assets to not only ensure performance standards are met, but it
also seeks to deliver the highest standard of project stewardship
across the portfolio. By using the contractual requirements as a
framework to deliver on its projects' expected outcomes, the
Investment Adviser also considers its sustainable approach to asset
development and the ongoing management of its investments. It does
this by engaging with and encouraging feedback from its clients and
stakeholders; whether a facilities management partner, lender,
regulatory authority or local authority representative. The
Investment Adviser's knowledge of the project, combined with
frequent site visits, and interactions with management and customer
contact, allows it to carefully ascertain the risks and
opportunities that each project entails.
OPERATIONAL PORTFOLIO PERFORMANCE
The Investment Adviser maintains a well-resourced, dedicated
asset management team that ensures active asset management across
the Company's portfolio. The Company has a diverse exposure to
service providers across its portfolio and counterparty risk is
actively managed and mitigated. The chart below illustrates the
Company's service providers (by investment fair value) highlighting
the diversification across the portfolio.
[Diagram can be found in PDF version of this document on the
Company's website].
1 Based on percentage of NAV as at 31 December 2018.
2 Senior debt includes Interserve (1.7%), OFTO (4.9%), Integral
(0.5%), Galliford try (0.4%), FES (0.4%), Laing O' Rourke
(0.3%).
3 These risk capital investments operate with no significant
exposure to any one service provider or delivery partner
As noted in the Chairman's letter, during the period, the
Company has focused resource on the 24 projects (representing
c.3.0% of the portfolio by investment fair value at the valuation
date immediately preceding Carillion's liquidation), where
subsidiaries of Carillion provided construction and/or facilities
management services. Since the collapse of Carillion in January
2018 the Company's Investment Adviser has successfully transitioned
all the projects impacted, to new facilities management providers,
with just one facility requiring a new construction partner to be
appointed, the fourth batch of the Priority Schools Building
Programme - Aggregator. The Company still anticipates that the
overall cost of transitioning will be immaterial (less than GBP1.5
million). Please refer to Projects Under Construction on page 22
for more information.
In addition, the Company has been monitoring the issues
affecting Interserve Plc and notes its announcement that
administrators have been appointed, and the sale of its business
and assets to a newly incorporated company (Interserve Group
Limited) controlled by its lenders has been completed. Interserve
Integrated Services Ltd provides facilities management services to
c.6% (by investment fair value) of the Company's portfolio, of
which INPP holds senior debt interests in 2%. Furthermore, the
Company has no exposure to ongoing construction risk within these
investments as all facilities that have been affected are currently
operational with no disruption to service delivery. The Company
will continue to monitor the situation and broader contingency
plans are in place, should they be required. At this time, the
Company believes that the administration of Interserve Plc will not
adversely impact the Company's valuation. The Company and the
Investment Adviser continue to closely monitor the performance of
all its service providers and where necessary, have contingency
plans in place to ensure the continuity of operation of
services.
While the Carillion transition was a resource-intensive exercise
for the Investment Adviser's asset management team, its oversight
of day-to-day project management continued. Throughout the year the
Investment Adviser continued to engage with its public sector
clients to manage variations to the existing schemes to support
positive business change. During the year, the Company's public
sector clients commissioned over 881 contract variations in
projects resulting in over GBP10.9 million of additional project
work conducted on behalf of the commissioning body, with individual
variations ranging in value from GBP25 to over GBP1.3 million. The
Investment Adviser assesses each case on its individual merits and
ensures there is no material change to the risk profile or
financial return, whilst assisting their clients to achieve their
objectives. For example, in 2018, to meet the demand from
significant population growth in the areas served by the 12 sites
that comprise the Company's schools' investment in Melbourne,
Victoria, the Investment Adviser oversaw the installation of an
additional 49 classrooms, art studios, and administration
facilities across seven sites with a value of A$15 million.
The Investment Adviser seeks to actively manage and add value to
the portfolio where it is able to do so, and where it is in the
best interests of its clients and the end-user. The Company
undertook three debt refinancings of projects within its portfolio
including two of its education assets under the BSF programme and
Liverpool Library. The three refinancings are part of a series
across the Company's portfolio that have been conducted with the
aim of delivering savings to the projects and the local
authorities. These refinancings generate improved financial returns
which are shared with the public sector counterparty and
demonstrate an important pillar of our active asset management and
financial approach - delivering benefits to our clients and the
end-users, whilst not increasing the charge paid by the public
sector. The Company completed a further refinancing at one of its
education assets under the BSF programme in February 2019 and has
further refinancings in progress that will complete throughout
2019.
The Investment Adviser works with its public sector
counterparties to deliver ongoing value and operational savings.
During the period, five benchmarking exercises were performed in
its social accommodation projects, which included reviewing
facilities management services delivered on the projects in order
to assess value for money for the public sector. The Investment
Adviser also continued to focus on energy efficiency, resulting in
savings to public sector counterparties, an example being the
ongoing efforts to identify and deliver operational savings for
Norfolk Police OCC Project, where the catering service was
re-designed delivering a GBP53,000 annual reduction in the cost of
the service to the Authority. The Investment Adviser continues to
work with the Authority to identify efficiencies, including the
transfer of lifecycle responsibility for furniture, fittings and
equipment that will be concluded in 2019. This will allow the
Authority to deliver savings from the GBP2.3 million budget over
the remaining 17 years of the contract through product selection,
buying power and replacement strategies.
As part of our focus on ESG, we have delivered incremental
improvements across the portfolio. Further information is available
on pages 34-38.
PROJECTS UNDER CONSTRUCTION
Three projects, representing approximately 11% of the Company's
portfolio were under construction at 31 December 2018.
Construction progress on Tideway continues in line with
expectations with c.40% of the project now completed and final
completion targeted for 2024. Tideway continues to embed a
transformational approach to health, safety and wellbeing with
excellent performance to date. In 2018, plans for three acres of
new public space were published by Tideway. These new areas of
public space will be located along the River Thames, providing
multiple environmental and social benefits.
Construction work remains outstanding following the collapse of
Carillion on the fourth batch of the Priority Schools Building
Programme - Aggregator where the Company provides debt to the
project. These works predominately relate to the outstanding
construction of a sports hall at one school and the external works
at four other schools within the eight schools in the fourth batch.
A replacement construction provider has been identified and a plan
is being agreed to resolve the outstanding works, which is expected
to occur during 2019, subject to a new construction provider being
appointed to replace Carillion Construction Limited, following its
liquidation.
Ground work activities for Offenbach Police Headquarters
continue to proceed in line with the construction schedule. The
overall building licence has been received after submitting all
relevant documents to the municipality. Currently, the floor plate
of the building is installed, and finalisation of this construction
stage is expected to be completed by the end of April 2019.
Projects under construction as at 31 December 2018 are set out
in the table below.
ASSET LOCATION CONSTRUCTION DEFECTS COMPLETION STATUS % OF FAIR
COMPLETION DATE VALUE OF
DATE INVESEMENT
---------------------- ---------- -------------- ------------------- -------------------------- ------------
Priority Schools
Building Programme
- Aggregator (batch Outstanding construction
4) U.K. 2019 2020 works(1) 0.4%
---------------------- ---------- -------------- ------------------- -------------------------- ------------
Tideway U.K. 2024(2) 2027(3) On Schedule 10.6%
---------------------- ---------- -------------- ------------------- -------------------------- ------------
Offenbach Police
Headquarters Germany 2021 2025 On Schedule 0.0%
---------------------- ---------- -------------- ------------------- -------------------------- ------------
1 Construction remains outstanding following the collapse of
Carillion on the fourth batch of the Priority Schools Building
Programme - Aggregator. These works predominately relate to the
outstanding construction of a sports hall at one school and the
external works at four other schools within the eight schools in
the fourth batch. The construction works are scheduled to complete
in 2019.
2 Scheduled handover date. Source: Tideway Annual Report 2017-2018.
3 Scheduled system acceptance date. Source: Tideway Annual Report 2017-2018.
EFFECTIVE FINANCIAL MANAGEMENT
The Company aims to manage its finances effectively by
minimising its unutilised cash holdings, while maintaining the
financial flexibility to pursue new investment opportunities. This
is achieved through active monitoring of cash held and generated
from operations, appropriate hedging strategies, and prudent use of
the Company's corporate debt facility ('CDF').
SUMMARY OF CASH FLOWS
SUMMARY OF CONSOLIDATED CASH YEAR TO 31 DECEMEBER YEAR TO 31 DECEMEBER
FLOW 2018 2017
GBP MILLION GBP MILLION
--------------------------------- --------------------- ---------------------
Opening cash balance 33.9 71.0
Cash from investments 138.8 118.9
Corporate costs (for ongoing
charges ratio) (24.5) (21.5)
Other corporate costs (0.1) (3.3)
Net financing costs (3.2) (4.1)
--------------------------------- --------------------- ---------------------
Net operating cash flows before
capital activity(1) 111.0 90.0
--------------------------------- --------------------- ---------------------
Cost of new investments (63.3) (464.0)
Investment transaction costs (1.2) (7.0)
Net movement of corporate
debt facility (17.8) 17.8
Proceeds of capital raisings
(net of costs) 114.9 404.4
Distributions paid (92.8) (76.2)
Funds advanced to affiliate
entities - (2.1)
--------------------------------- --------------------- ---------------------
Net cash at period end 84.7 33.9
--------------------------------- --------------------- ---------------------
Cash dividend cover 1.2x 1.2x
--------------------------------- --------------------- ---------------------
1. Net operating cash flows before capital activity as disclosed
above of c.GBP111.0 million (31 December 2017: GBP90.0 million)
include net repayments from investments at fair value through
profit and loss of c.GBP34.9 million (31 December 2017: GBP25.8
million), and finance costs paid of c.GBP3.2 million (31 December
2017: GBP4.1 million) and exclude investment transaction costs of
c.GBP1.2 million (31 December 2017: GBP7.0 million) when compared
to net cash inflows from operations of c.GBP78.2 million (31
December 2017: GBP61.3 million) as disclosed in the statutory cash
flow statement on page 80 of the financial statements.
CASH FLOWS ASSOCIATED WITH ONGOING CHARGES RATIO
CORPORATE COSTS YEAR TO 31 DECEMBER 2018 YEAR TO 31 DECEMBER
GBP MILLION 2017
GBP MILLION
--------------------- ------------------------- --------------------
Management fees (22.7) (19.4)
Audit fees (0.3) (0.3)
Directors' fees (0.4) (0.3)
Other running costs (1.1) (1.5)
Corporate costs (24.5) (21.5)
--------------------- ------------------------- --------------------
ONGOING CHARGES RATIO YEAR TO 31 DECEMBER 2018 YEAR TO 31 DECEMBER
GBP MILLION 2017
GBP MILLION
------------------------------- ------------------------- --------------------
Annualised Ongoing Charges(1) (24.5) (21.5)
Average NAV(2) 2,097.8 1,865.0
Ongoing Charges (1.17%) (1.15%)
------------------------------- ------------------------- --------------------
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.
The Company's cash balance at 31 December 2018 was GBP84.7
million, a GBP50.8 million increase on the corresponding balance at
31 December 2017 of GBP33.9 million. A significant factor
contributing to this increase was GBP42.2 million of proceeds
remaining at year end from the October 2018 capital raising, which
in total raised GBP114.9 million net of fees. We expect this
unutilised amount to be fully invested during the first half of
2019 to fund investments into the Company's committed investment
pipeline on page 20.
Cash receipts from investments increased by c.GBP20 million,
reflecting the further growth and maturity of the portfolio. This
was partially offset by higher ongoing charges driven by NAV
growth, including management fees of GBP22.7 million paid during
2018 (2017: GBP19.4 million). Net financing costs were GBP3.2
million during the year, a decrease of GBP0.9 million compared to
2017 due to lower amounts drawn as cash or as letters of credit on
the corporate debt facility during 2018. Other corporate costs
during the year were GBP0.1 million (2017: GBP3.3 million). Other
corporate costs in 2017 included a one-off adjustment, made to
align the management fee payments with the contractual quarterly
payment cycle (previously a biannual payment practice); this
resulted in an additional payment of GBP2.9 million being made
during 2017 to accommodate this change.
The cost of new investments in 2018 was GBP63.3 million (2017:
GBP464 million), as disclosed in note 12 of the financial
statements. Investment transaction costs reduced from GBP7.0
million in 2017 to GBP1.2 million in 2018, reflecting the lower
level of investment activity during the year.
Following the capital raise in October 2018, the Company was
able to fully repay the cash drawn balance of the facility. This is
consistent with the practice of using the facility for short-term
funding, rather than for long-term financing. The Company has a
GBP400 million corporate debt facility (available until July 2021)
and as at 31 December 2018, the facility was undrawn with GBP0.5
million committed via letters of credit (2017: GBP17.8 million cash
drawn).
Cash dividends paid in the year of GBP92.8 million (2017:
GBP76.2 million) were in respect of the six month periods ended 31
December 2017 and 30 June 2018; the increase reflecting both the
larger shareholder base following share issuances in 2017, as well
as a scrip alternative not being offered for the 31 December 2017
dividend. The Company seeks to generate dividends paid to investors
through its operating cash flows and cash dividends paid were 1.2
times covered by the Company's net operating cash flows before
capital activity in the period. The Company remains confident of
its ability to continue to grow dividends going forward as
demonstrated through its dividend guidance of 7.18 pence in 2019
and 7.36 pence in 2020.
INVESTOR RETURNS
The Company has continued to deliver consistent dividend growth,
NAV growth and inflation linkage from underlying cash flows.
DIVID GROWTH AND PERFORMANCE
The Company targets predictable and, where possible, growing
dividends. Since inception, the Company has delivered a c.2.50% per
annum average dividend increase. The Company forecasts to pay the
second 3.50 pence per share dividend in respect of 2018 in June
2019. Once paid, this would bring the total dividends paid in
respect of 2018 to 7.00 pence per share (2017: 6.82 pence). The
Company forecasts to pay 7.18 pence per share and 7.36 pence per
share for 2019 and 2020 respectively. The Company's dividend growth
is illustrated in the chart on page 2.
Total investment income in the period was GBP167.0 million
(2017: GBP139.8 million) including fair value movements, dividends
and interest. These returns were partially offset by operating
expenses (including finance costs) of GBP29.6 million (2017:
GBP34.0 million), as shown in the Consolidated Statement of
Comprehensive Income.
Profit before tax was GBP138.1 million, an increase from the
prior year (2017: GBP106.4 million) due to increased investment
income as a result of the growing portfolio as well as the impact
of fair value movements. Earnings per share were 9.75 pence (2017:
8.36 pence).
TOTAL SHAREHOLDER RETURN
The Company's Total Shareholder Return (share price growth plus
reinvested distributions) for investors since IPO in November 2006
to 31 December 2018 was 171.8% (8.6% on an annualised basis). This
compares to a FTSE All-Share index total return over the same
period of 78.4% (4.9% on an annualised basis). As shown in the
share price performance graph below, the Company has historically
exhibited relatively low levels of volatility compared to the
market, a trend that continued through 2018 with a correlation of
0.23 with the FTSE All-Share index (for the 12 months to 31
December 2018). Earlier in the year the Company's share price
performance came under pressure as part of a sector-wide shift to
the otherwise positive sentiment towards the U.K. listed
infrastructure funds. However, the Company's share price
subsequently recovered following transactions of similar assets in
the market which assisted in demonstrating the overall value of the
Company's portfolio.
The Company's Share Price Performance
[Diagram can be found in PDF version of this document on the
Company's website].
Inflation linked cash flows
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 2018, the majority of assets in the portfolio had
some degree of inflation linkage and, in aggregate, the weighted
average return of the portfolio (before fund-level costs) would be
expected to increase by 0.82% per annum in response to a 1.00% per
annum increase in the currently assumed inflation rates across the
whole portfolio(1) .
1. Calculated by running a 'plus 1.00%' inflation sensitivity
for each investment and solving each investment's discount rate to
return the original valuation. The inflation linkage is the
increase in the portfolio weighted average discount rate.
VALUATIONS
Net asset valuation
The Company reported a 7.9% increase in NAV from GBP2,038.3
million at 31 December 2017 to GBP2,198.7 million at 31 December
2018. Over the same period, the NAV per share increased by 2.1%
from 145.0 pence to 148.1 pence.
The NAV represents the fair value of the Company's investments
plus the value of other net assets held within the Company's
consolidated group (the 'Group'). The key drivers of the change to
the NAV between 31 December 2017 and 31 December 2018 are
highlighted in the graph that follows and are described in more
detail below.
Net Asset Value Movement (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
1. Represents movements in the forward rates used to translate
forecast non-GBP investment cash flows and the spot rates used to
translate non-GBP cash balances.
2. The NAV return represents amongst other things, (i) variances
in both realised and forecast investment cash flows, (ii) the
unwinding of the discount factor applied to those cash flows, and
(iii) changes in the Company's net assets.
The movements seen in the chart above are explained further
below:
- GBP114.9 million (net of costs) of new capital was raised at a
price of 152.5 pence per share. The proceeds of the capital raising
were used to repay the cash drawn balance of the CDF
- Government bond yields increased in the U.K., Canada, Ireland,
Italy and the U.S., and decreased in Australia, Belgium and
Germany, resulting in a small net negative impact on NAV
- There was a significant reduction in the investment risk
premia reflecting (i) market-based evidence of pricing, including a
number of single-asset transactions as well as the takeover of
JLIF, observed by the Company during the year, and (ii) a cautious
approach to the assumptions underpinning the cash flow forecasts of
certain investments and therefore a reduction in the risk inherent
in the cash flows, including in Cadent and Angel Trains (this point
should be considered alongside the NAV Return impact noted
below)
- The portfolio also benefited from a reduction in the
construction risk premia applied to assets that moved out of the
construction or defect liability period and into full
operations
- Sterling weakened against the euro and the U.S. dollar, but
strengthened against the Australian and Canadian dollars. The net
impact was positive on the NAV, with the most significant impact
seen on the Company's euro-denominated investments
- In line with forward guidance provided previously, two cash
dividends totalling GBP92.8 million were paid to the Company's
shareholders during the year. These two dividends were made in
respect of the six month periods ended 31 December 2017 and 30 June
2018 respectively
The NAV Return of GBP43.1 million captures the impact of the
following:
- The movement in the valuation date from 31 December 2017 to 31
December 2018 and the receipt of distributions
- Updated operating assumptions to reflect current expectations
of forecast cash flows. This includes the cautious approach that
has been taken with regards to the assumptions underpinning the
cash flow forecasts on both Cadent and Angel Trains. On Cadent, the
adjustments have been made following recent announcements made by
the energy regulator, Ofgem, in respect of their ongoing
consultation regarding regulatory returns for the price control
period beginning in 2021. On Angel Trains, the adjustments have
been made following the increased competition seen within the
rolling stock sector and the resulting uncertainty in the company's
growth plans. Whilst these adjustments have had a negative impact
on the full-year 2018 NAV Return, the impact on the NAV has been
partially mitigated by the discount rate adjustments noted on page
27. The Company remains positive on the long-term contribution that
these investments make to the wider portfolio
- Actual distributions received above the forecast amount due to
active management of the Company's portfolio, including negotiating
and optimising investment cash flows, to ensure cash can be
extracted from the underlying investments earlier than forecast
- Movements in the Company's working capital position
INVESTMENTS AT FAIR VALUE
The valuation of the Company's investment portfolio is
determined by the Board, with the benefit of advice from the
Investment Adviser and review by the Company's auditors. It is
considered quarterly for approval by the Company's directors.
Investments at fair value as at 31 December 2018 were GBP2,097.5
million, an increase of 4.6% since 31 December 2017 (GBP2,005.3
million).
Investments at Fair Value Movements (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
1. The Portfolio Return represents, amongst other things, (i)
variances in both realised and forecast investment cash flows and
(ii) the unwinding of the discount factor applied to those future
investment cash flows.
2. Represents movements in the forward rates used to translate
forecast non-GBP investment receipts and the spot rates used to
translate non-GBP cash balances.
The movements seen in the chart above are explained further
below.
- An increase of GBP63.3 million in the Investments at Fair
Value owing to new investments made during the year
- A decrease of GBP139.8 million due to investment distributions paid out from the portfolio
- The Portfolio Return of GBP74.2 million captures broadly the
same items as the NAV Return (set out in detail on page 27) with
the principal exception being the fund-level operating costs
- There was a reduction in the discount rates used by the
Company to value its investments. The component parts of the
GBP87.8 million impact shown above can be seen in the NAV movements
chart on page 27
- The Rebased Investments at Fair Value is presented in order to
allow an assessment of the Portfolio Return assuming that the
investments and distributions occurred at the start of the relevant
period
- Sterling weakened against the euro and the U.S. dollar, but
strengthened against the Australian and Canadian dollars. There was
a net positive impact on the NAV, with the most significant impact
seen on the Company's euro-denominated investments
PROJECTED FUTURE CASH FLOWS
The Company's investments are expected to continue to exhibit
predictable cash flows, owing to the contracted nature or the
protections provided through their respective regulatory regime. As
the Company has a large degree of visibility over the forecast cash
flows of its current investments, the chart below sets out the
Company's forecast investment receipts from its current portfolio
before fund-level costs.
The majority of the forecast investment receipts are in the form
of dividends or interest and principal payments from subordinated
and senior debt investments. The Company's portfolio comprises both
investments with finite lives (determined by concession or licence
terms) and perpetual investments (including, for example, ownership
interests in regulated trading companies) that may be held for a
much longer term. Over the term of investments with finite lives,
the Company's receipts from these investments effectively represent
a return of capital as well as income, and the fair value of such
investments is expected to reduce to zero over time.
Projected Investment Receipts
[Diagram 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. No new investments other than those committed
as at 31 December 2018 have been included.
Macroeconomic Assumptions
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis. Following a thorough market
assessment, it was resolved that no adjustments should be made
other than to the foreign exchange rates used to value the
Company's overseas investments. In addition, and further to recent
announcements by both Ofgem and Ofwat, the Company will now publish
its assumption for the consumer price inflation including
owner-occupiers' housing costs index ('CPIH') which will be
relevant for valuation purposes from 2021 for Cadent and from 2030
for Tideway. The regulators have stated that this is not designed
to negatively impact companies but rather to reflect the perceived
shortcomings of the RPI (i.e. the regulators' intention is for the
transition from RPI to CPIH to be valuation neutral).
The key macroeconomic assumptions used as the basis for deriving
the Company's portfolio valuation are summarised below, with
further details provided in note 11 of the financial
statements.
MACROECONOMIC ASSUMPTIONS 31 DECEMBER 2018 31 DECEMBER 2017
--------------------------- ----------- ------------------------- -------------------------
Inflation U.K. 2.75% RPI/2.00% 2.75% RPI
CPIH
Australia 2.50% 2.50%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
U.S.(1) N/A N/A
--------------------------- ----------- ------------------------- -------------------------
Long-term Deposit Rates(2) U.K. 2.00% 2.00%
Australia 3.00% 3.00%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
U.S.(1) N/A N/A
--------------------------- ----------- ------------------------- -------------------------
Foreign Exchange(3) GBP/AUD 1.88 1.85
GBP/EUR 1.05 1.08
GBP/CAD 1.80 1.78
GBP/USD 1.34 1.43
--------------------------- ----------- ------------------------- -------------------------
Tax Rate U.K. 17.00%-19.00%(4) 17.00%-19.00%(4)
Australia 30.00% 30.00%
Europe Various (12.50%-29.58%) Various (12.50%-29.58%)
Canada Various (26.50%-27.00%) Various (26.50%-27.00%)
U.S.(1) N/A N/A
--------------------------- ----------- ------------------------- -------------------------
1 The Company's U.S. investment is in the form of subordinated
debt and therefore not directly impacted by inflation, deposit and
tax rate assumptions.
2 The portfolio valuation assumes actual current deposit rates
are maintained until 31 December 2019 before adjusting to the
long-term rates noted in the table above.
3 The Company uses a four year forward curve for the foreign
exchange rate's post valuation date.
4 The reduction in U.K. tax rates reflects the rates
substantively enacted as at the valuation date.
Discount Rates
The discount rate used to value each investment comprises the
appropriate long-term government bond yield plus an
investment-specific risk premium which considers the perceived
risks and opportunities associated with each investment.
The majority of the Company's portfolio (91.7%) comprises Risk
Capital investments (including equity and subordinated debt
investments), while the remaining portfolio (8.3%) comprises senior
debt investments. 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, the latter of which captures the discount rates of all
investments including the senior debt interests.
The weighted average discount rates are presented in the table
overleaf. These rates need to be considered against the assumptions
and projections upon which the Company's forecast cash flows are
based.
31 DECEMBER 31 DECEMBER
2018 2017 MOVEMENT
------------------------------ ------------ ------------ ---------
Weighted Average Government
Bond Yield - Portfolio 1.83% 1.83% -
------------------------------ ------------ ------------ ---------
Weighted Average Investment
Premium over Government
Bond Yield - Portfolio 5.43% 5.69% (0.26%)
------------------------------ ------------ ------------ ---------
Weighted Average Discount
rate - Portfolio 7.26% 7.52% (0.26%)
------------------------------ ------------ ------------ ---------
Weighted Average Discount
rate - Risk Capital only(1) 7.55% 7.87% (0.32%)
------------------------------ ------------ ------------ ---------
NAV per share 148.1p 145.0p 3.1p
------------------------------ ------------ ------------ ---------
The Company is aware that there are subtle differences in
approach to the valuation of investments among different listed
infrastructure funds similar to the Company. In the Company's view,
comparisons of average discount rates between different listed
infrastructure funds are only meaningful if there is a comparable
level of confidence in the quality of forecast cash flows (i.e.
assumptions are homogenous); the risk and return characteristics of
different investment portfolios are understood; and the quality of
asset management employed to manage risk and deliver returns are
identical. Any focus on average discount rates without an
assessment of these and other factors would be incomplete and could
therefore derive misleading conclusions.
VALUATION SENSITIVITIES
This section indicates the sensitivity of the 31 December 2018
NAV per share of 148.1 pence to change in key assumptions. Further
details can be found in note 11 of the financial statements. This
analysis is provided as an indication of the potential impact of
these assumptions 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. The movement in each assumption could be
higher or lower than presented. Further, forecasting the impact of
these assumptions on the NAV in isolation cannot be relied on as an
accurate guide to the future performance of the Company as
invariably, many other factors and variables will combine to
determine what actual future returns are available. These
sensitivities should therefore be used only for general guidance
and not as an accurate prediction of outcomes.
Impact of Changes in Key Assumptions to 31 December 2018 NAV
148.1p per Share
[Diagram can be found in PDF version of this document on the
Company's website].
DISCOUNT RATES
The chart above indicates the sensitivity of the NAV per share
to uniform changes to the discount rates applied to the forecast
cash flows from each individual investment.
INFLATION
The impact of inflation on the value of each investment depends
upon the extent to which the revenues and costs, including the
financing arrangements, of that particular investment are linked to
an inflation index. On a portfolio basis, there is a positive
correlation to inflation with a 1.0% sustained increase in the
assumed inflation rate projected to generate a 0.82% increase in
portfolio returns. The returns generated by the Company's U.K.
investments are typically linked to the RPI whereas the Company's
non-U.K. investments are typically linked to the relevant Consumer
Price Index ('CPI') for that jurisdiction. Further to recent
announcements by the regulators, the revenues earned by Cadent and
Tideway will be linked to the CPIH from 2021 and 2030 respectively.
The regulators have stated that this is not designed to negatively
impact companies but rather to reflect the perceived shortcomings
of the RPI (i.e. the regulators' intention is for the transition
from RPI to CPIH to be valuation neutral). The inflation
sensitivities by region are provided in note 11.5 of the financial
statements.
FOREIGN EXCHANGE
The Company has a geographically varied portfolio and forecast
cash flows from investments are subject to foreign exchange rate
risk in relation to euros, Australian dollars, Canadian dollars and
U.S. dollars. The Company seeks to mitigate the impact of foreign
exchange rate changes on near-term cash flows by entering into
forward contracts, but the Company does not hedge exposure to
foreign exchange rate risk on long-term cash flows. The impact of a
10% increase or decrease in these rates is provided for
illustration.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across
the portfolio is 1.87% 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 valuations. The impact of a 1.00% increase or decrease
in these rates is provided for illustration.
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. The impact of a 1.00% increase or
decrease in these rates is provided for illustration. Other
potential tax changes are not covered by this scenario.
LIFECYCLE SP
There is a process of renewal required to keep physical assets
fit for use and at the standard required of them under agreements
with relevant public sector counterparties. The proportion of total
cost that represents this 'lifecycle spend' will depend on the
nature of the asset. To enhance the certainty around cash flows,
and excluding the Company's regulated investments, around 80% of
the Company's assets (by value) are currently 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 changes to the forecast lifecycle costs is relatively
small.
Regulated assets, such as Tideway and Cadent, are treated
differently due to the protections offered by the regulatory regime
under which they operate. Regulated assets have their revenues
determined for a known regulatory period and each settlement
includes revenue sufficient to allow the owner to undertake the
efficient lifecycle management of its assets due in that regulatory
period. It is common practice to employ reputable sub-contractors
to undertake lifecycle work under contracts which include incentive
and penalty regimes aligned with the businesses own regulatory
targets. This approach ensures an alignment of interest and helps
to mitigate the risk of increased lifecycle costs falling on the
equity investor.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the
Group through continual review, policy setting and enforcement of
contractual obligations. It also regularly monitors the investment
environment and the management of the Group's portfolio.
The Group's approach to risk is set out in the Risk Report in
this Annual Report on pages 42-48, the Risk Report includes an
overview of the principal risks and their mitigation. Risk factors
are also detailed further in the Company's last Prospectus (the
Placing, Open Offer and Offer for Subscription and Placing
Programme Prospectus published on 12 April 2017). These risks and
uncertainties are expected to remain relevant to the Group for the
next six months of its financial year and include (but are not
limited to):
- Inflation risk - revenues and expenditures of project entities
with respect to infrastructure assets are generally partially or
wholly subject to indexation and an assumption is made that
inflation will increase at a long-term rate. The Group's ability to
meet targets may be adversely or positively impacted by
inflation
- Foreign exchange risk - the Group has exposure to foreign
currencies and therefore exposure to exchange rate fluctuations
- Credit and counterparty risks - the risk that a counterparty
will default on its contractual obligations resulting in financial
loss to the Group
- Liquidity risk - the ability to successfully access suitable
financial resources in the debt, equity and related financial
markets
- Contract risk - the ability of counterparties to operate
contracts to the detriment of the Group and the risk of default
under contract whether by the Group, its subsidiaries or their
counterparties
- Other external risks - includes the political and regulatory
risks (including tax and accounting policies and practices)
associated with the Group and its projects; IT and cyber risks; and
changes in the competitive environment which may have an adverse
impact on the Group
The Board considers and reviews, on a regular basis, the risks
that the Group is exposed to.
By order of the Board
Mike Gerrard John Le Poidevin
Chairman Director
27 March 2019 27 March 2019
STRATEGIC REPORT
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
STRONG PROJECT STEWARDSHIP
OUR APPROACH
There is growing evidence suggesting that financial performance
is linked to strong ESG practices. By identifying, monitoring and
mitigating relevant ESG risks, we aim to manage the outcomes and
protect the Company's return on investments. Similarly, by having a
view on the opportunities that ESG-related factors can present, we
can better support our clients and identify new opportunities for
investment. As a result, we are committed to evolving our approach
to ESG to ensure that we continue to deliver high standards of
stewardship and returns for our shareholders.
In 2018, the Company continued to integrate the Investment
Adviser's Sustainability Policy across the portfolio. Examples of
specific activities undertaken in 2018 include:
1. Continued to make investments with strong ESG credentials,
for example Dudgeon OFTO. Please refer to the case study on page 14
for more detail
2. Updated our investment origination processes to ensure ESG
policies are adequately considered as part of the acquisition
process. This involved consideration of ESG factors as part of the
formal approval of preliminary and final investment cases
3. Engaged with our asset managers to identify ESG opportunities
at the individual investment level. This included exploring energy
efficiency opportunities throughout the asset lifecycle with
facilities management contractors resulting in increased LED
installations
4. Where we hold an investment through an operational company,
we used our board positions to influence the direction of the
underlying businesses. For example, we have been actively engaging
with Cadent on the development of their new sustainability
strategy
5. A questionnaire was issued to the Investment Adviser's asset
managers and its service providers to identify what ESG policies
are in place and what activities are being undertaken at each
investment to implement good ESG practice. For example, we
identified that at least 94% of our investments are influenced by
an overarching ESG policy(1) .
To reflect the Company's ongoing commitment to good stewardship
of the investments that we own and manage, and the increasing
complexity of these challenges, the Investment Adviser has
appointed a new Head of ESG. As part of this newly created role,
the Head of ESG is conducting a full review of the Investment
Adviser's existing processes with the view to further enhance and
develop the Company's approach for 2019. This not only covers our
approach for managing risks, but also how we can use ESG
opportunities to improve the performance of the portfolio and to
identify new investment opportunities. This appointment is a
positive move for the Company and will help us build on the good
ESG stewardship the Company has delivered.
As part of this review, a new Active Management Plan is being
developed for the Company, identifying specific ESG risks and
opportunities and how they will be addressed through
engagement.
Our performance against our five key areas of impact is
summarised below:
[Chart can be found within the PDF document of the report on the
company website.]
1 ESG policies vary depending on the ownership structure and
nature of investment. ESG policies are either applicable directly
to the investment, to the Project Company or to the key services
that the Project Company sub contracts.
HEALTH, SAFETY & WELLBEING
Highlights
-- 100% of investments are influenced by a Health, Safety and Wellbeing Policy
-- 88% of investments have at least partial access to greenspace
-- 77% of investments have provision to support active transport
Relevance to INPP
Health, Safety and Wellbeing are of paramount importance to the
Company. Infrastructure projects inherently involve health and
safety risk from complex construction, such as Tideway, through to
the day-to-day operations of a school or a court. Ensuring the
safety of everyone who comes into contact with our assets,
including end-users, delivery partners, employees and the general
public, is of the highest priority; accordingly, we have a
zero-tolerance approach to accidents and injuries.
Poor physical and mental health costs U.K. businesses an
estimated GBP29 billion each year. In addition, Public Health
England estimates that the state spends more on the treatment of
obesity and diabetes than on the police, fire service and judicial
system combined(1) .
Better health is not just core to one's wellbeing, it also makes
an important contribution to economic progress, as healthy
populations live longer, are more productive, and save more.
Performance
Safety
The Company undertakes a proactive approach to ensuring that all
parties are aware of their health and safety obligations, which are
monitored through quarterly reporting. In 2018, we identified that
100%(2,3) of our total investments are influenced by a Health and
Safety Policy, with all of them actively engaging employees on the
subject.
In 2018, Tideway won an industry award, among others, for their
mandatory, one day Employee Project Induction Centre ('EPIC')(4) .
EPIC has now been attended by 12,000 people and demonstrates how
Tideway are setting new standards for attitudes and performance in
every part of the project and throughout the industry.
Physical health
The World Health Organisation flags the potential health gains
of a shift from private motorised transport to walking, cycling and
rapid transit/public transport, including reduced respiratory and
cardiovascular disease from air pollution and less exposure to
traffic injury risks and noise stress. In 2018, we identified at
least 77%(2) of our investments provide equipment to support active
transport at site level, including bike racks and showers.
The Company continues to maintain several investments in primary
healthcare. These investments provide healthcare services and have
been designed to create a healthy environment. For instance, the
Royal Children's Hospital's design features include solar panels,
volatile organic compound free materials, collection and re-use of
rainwater, water efficient appliances and landscaping, black water
treatment plant, efficient lighting, 500 bike parking spaces,
materials with high recycled content, bio mass fuel boiler, and
5-star Green Star status.
Mental health
Academics at University College London, Imperial College London,
University of Exeter and the Nuffield Trust have found that the
proportion of children and young people that have a mental health
condition has grown six-fold in England over two decades(5) .
There is increasing evidence that access to green spaces has a
positive effect on a person's mental health(6) and we can report
that at least 88%(2) of the Company's investments have at least
partial access to green space.
1 Health matters, Public Health England, March 2017.
2 Metrics are estimates and exclude the digital infrastructure
investments (held in a fund structure), U.S. Military Housing
(where only senior debt is held), Brescia Hospital in Italy (where
we do not provide asset management services) and projects in
construction (except for Tideway). Figures should be considered as
a minimum due to potential gaps in information.
3 BeNEX is not covered by a specific Health and Safety Policy
but is subject to rigorous Health and Safety Statutory requirements
in Germany.
4
https://www.constructionnews.co.uk/events/construction-news-awards/training-excellence-winner/10030920.article
5
https://www.nuffieldtrust.org.uk/news-item/striking-increase-in-mental-health-conditions-in-children-and-young-people
6 www.environmentalevidence.org/SR40.html
COMMITMENT TO PROTECTING THE ENVIRONMENT
-- 1.5GW offshore wind energy connected
-- >91% of total investments monitor their asset's energy usage
Relevance to INPP
Environmental issues present both risk and opportunity for the
Company. By reducing the portfolio's impact on climate change,
improving air quality, and restoring biodiversity, we can help
improve the health and wellbeing of our end-users and support our
main stakeholders delivering key objectives.
Equally, global action on the environment is presenting new
investment opportunities. It is estimated that approximately US$90
trillion of investment into infrastructure is required between 2015
and 2030 to improve the impact of climate change currently.
In the U.K., the Government released two forward-looking
strategies. The first outlines a 25 year plan for how the U.K. can
improve the environment focusing on improved air quality, restoring
biodiversity and increasing climate resilience. The second outlines
a bold vision for how the U.K. can preserve its material resources
by minimising waste, promoting resource efficiency and moving
towards a circular economy. Both of these strategies will require a
market response and new infrastructure if they are to be
delivered.
By keeping abreast of these developments, we can support our
stakeholders and identify new areas for potential investment.
Performance
Climate Change
During 2018, we identified that at least 91%(1) of our total
number of investments monitored their energy usage. In addition,
34%(1) of the Company's portfolio implemented energy saving
initiatives, with a large number rolling out LED lighting as part
of the lifecycle management of these assets in 2018.
In addition to environmental project stewardship, the Company
continued to invest in low carbon infrastructure. In total, the
Company has mobilised a total of c.GBP1 billion of long-term
private sector network investment into offshore transmission to
support the UK's green economy, with approximately 1.5GW connected.
Please refer to the case study on page 14.
Air Quality
In 2018, the Company increased its investment in Gold Coast
Light Rail. Since launching in 2014, Gold Coast Light Rail has
contributed to an increased use of public transport, with on-going
increased patronage of c.20%(2) since opening. Within the areas
measured prior to the project's installation, there has been a
general decrease in the number of vehicles being used. With more
passengers travelling by electric trains rather than by car, Gold
Coast Light Rail will deliver improved local air quality benefits.
This builds on our evolving rail investment portfolio, which
includes Reliance Rail, Diabolo, BeNEX and Angel Trains.
Resource Efficiency
In support of the growing concern around waste and the U.K.
Government's ambition to move to a more circular economy, we have
started to identify how many of our assets are actively considering
waste production and disposal. In 2018, 35%(1) of our investments
monitored waste at the site level, which we are looking to
improve.
In addition, in 2018 Cadent continued to test the viability of
using renewable gas on the network. Renewable gas production plants
convert waste from food and crops or sewage into a gas that has a
negligible carbon footprint and is compatible with existing
pipelines and appliances. In the last five years, Cadent has
connected 29 providers of renewable gas to its networks, producing
energy to heat 87,000 homes(3) .
Biodiversity
As part of its legacy environmental commitments, Tideway is
supporting research to aid understanding of habitats and aquatic
ecology of the River Thames. In 2018, the Zoological Society of
London ('ZSL') completed the second year of surveys of juvenile
fish in the estuary in October. During 2019, the survey findings
for 2017 and 2018 will be analysed with the intention of mapping
those parts of the river which are most important for juvenile
fish(4) .
1 Metrics are estimates and exclude the digital infrastructure
investments (held in a fund structure), U.S. Military Housing
(where only senior debt is held), Brescia Hospital in Italy (where
we do not provide asset management services) and projects in
construction (except for Tideway). Figures should be considered as
a minimum due to potential gaps in information.
2 Gold Coast Light Rail Status Report, 2017.
3 Cadent Annual Report (2017-2018).
4 Tideway HSSE Committee bi-annual report.
SUPPORTING PUBLIC-SECTOR CLIENTS
-- >190,000 number of pupils at schools within the portfolio
-- 79% Ofsted rating of 'Good' or above
-- >3,000 management meeting hours with public sector
Relevance to INPP
The provision of essential services to our public sector clients
is a core component of their success and the regions in which they
operate. Our investments provide the capital required by the public
sector to deliver the vital infrastructure and services they need
for local communities to thrive.
By working in partnership with our public sector clients, we not
only deliver services for which we are contracted, but also provide
job creation, place making and economic development. The ability to
work with our partners for the benefit of the local community that
each project serves is fundamental to the ongoing success of each
investment.
Performance
Partnerships
Stakeholder engagement is a key part of supporting our public
sector clients and the Company's 'hands-on' approach facilitates a
strong collaborative relationship that generates mutual benefits.
By maintaining an intimate understanding of the projects and
engaging extensively with the public sector that uses them, the
Company is better positioned to determine the risks and
opportunities that may occur at each asset. We maintain these
relationships by holding regular meetings and engaging with our
public sector clients, with an estimate of 3,000 hours(1) or more
of face-to-face meetings in 2018.
Availability
Ensuring that the facilities the Company provides are available
for their intended use, that areas are safe and secure, and that
the performance standards set out in the underlying agreements are
achieved is a key deliverable for the Investment Adviser. The
availability and performance data for the Company's investments are
monitored and appraised regularly to assess the overall performance
of each investment. Please see the availability of the Company's
investments on page 13.
Education Performance
Education assets within the portfolio represent c.20% of the
Company and provide educational development and facilities to over
190,000 pupils(2) , bringing social value to the local communities
in which they are based. Catering facilities are provided to 20
U.K. based schools through the supply chain, and since the
beginning of the year, our supply chain has prepared in excess of
411,000 free school meals(1) . Across the INPP U.K. school estate,
79% of the portfolio achieved an OFSTED rating of 'Good' or
above(2) .
1 Metrics are estimates and exclude digital infrastructure
investments, U.S. Military Housing, Brescia Hospital and
construction projects (except Tideway).
www.gov.uk/government/organisations/ofsted
2 Estimate based on Tideway document; 'Community investment highlights for 2018'.
INVESTING IN THE COMMUNITY
-- >150,000 out of hours community use
-- 10,142 volunteer hours on Tideway
Relevance to INPP
Engaged communities can play an important role in successful
delivery of new assets and their long-term operations. Strong
communities have the potential to influence the operations of our
assets as the positive effects of strong communities can include:
lower crime rates, better educational achievement, higher
employment and better health.
Through its projects, the Company is exploring how it can work
with the local communities where it invests and bring
socio-economic benefits to the area.
Performance
Local Employment
Tideway are actively working towards providing 4,000 sustainable
employment options to its local communities. In 2018, Tideway
continued to work towards employing local people, including those
previously unemployed across London and the South East, combined
with delivering on a commitment to ensure payment of London Living
Wage across all of their sites.
Community hours
Across all of the Company's investments, an estimation of over
150,000 hours(1) of community use have been provided to support
local groups. For example, the Company's schools in Calderdale and
Derby offer a central hub that can be used by the wider community.
The facilities used by local community groups, businesses and
charities include:
-- Tupton High School. The local Rugby and Athletics club use
the school facilities at evenings and weekends; and
-- Long Eaton High School. Local Church groups use the
facilities at weekends and the North East Derbyshire Music Group
uses the facilities three times per week, as well as holding
concerts in the main hall at various times during the year.
Volunteering
Volunteering, supporting charities and community-based
initiatives are a priority at a number of the Company investments.
For example, Tideway's staff made a major contribution to the
project's community programme in 2018 through volunteering. Giving
time through volunteering to support the local community is one of
Tideway's specific legacy commitments and in 2018 construction
staff volunteered for the total of 10,142 hours(3) . This includes
7,000 hours volunteered by the main works contractor.
COMMITMENT TO SKILLS AND EMPLOYMENT
-- >95% of investments are influenced by an employee development/training programme
-- >94% of managed investments are influenced by an Equality, Diversity and Inclusion Policy
Relevance to INPP
The socio-economic impact of the Company's assets and its supply
chain are a key factor of the long-term success of the Company's
portfolio. As part of our active asset management approach, we
engage with our counterparties regularly and there is ongoing
communication. By monitoring these relationships, we can better
understand our delivery partners workforce and their employee
satisfaction.
Performance
Staff training
We actively engage with our partners to deliver a high level of
employee satisfaction within the underlying businesses. At least
95%(1) of our assets are covered by a staff training/development
programme, with many providing additional performance incentives.
For instance, Cadent, delivered around 26,000(2) training days in
2017/2018 across its total workforce. Training and professional
development can increase staff motivation and efficiency, leading
to improved operational performance and strong employee retention
and development.
Equality, Diversity and Inclusion
As part of our approach to active management of our investments,
we ensure that Equality, Diversity and Inclusion is considered. At
least 94%(1) of the Company's investments have an Equality,
Diversity and Inclusion Policy in place to help promote a good
working environment.
Cadent has a large workforce that covers much of England, with
over 4,000 employees. Cadent has established processes to diversify
their employee base to reflect, as far as possible, that of their
customer base across the U.K., through fair and equitable
recruitment procedures. They also run groups that focus on the
engagement, attraction and awareness of the sector through
participation in energy and utility skills or skill partnership
groups. For example, their key target audiences include women,
ethnic minorities, service leavers, parents, unemployed, and
'NEETS' (Not in Education, Employment or Training).
Productivity
According to the U.K. Government, apprenticeships are an
important component of improving the productivity of businesses,
their efficiency, boosting the economy and supporting young
people's employment prospects(3) . In 2018, Tideway made progress
on plans to develop the next generation of talent and help local
and disadvantaged people into employment. This included targets for
Tideway and its contractors to employ apprentices, local people and
ex-offenders.
1 Metrics are estimates and exclude the digital infrastructure
investments (held in a fund structure), U.S. Military Housing
(where only senior debt is held), Brescia Hospital in Italy (where
we do not provide asset management services) and projects in
construction (except for Tideway). Figures should be considered as
a minimum due to potential gaps in information.
2 Cadent Annual report (2017-2018).
3 Productivity Matters: The Impact of Apprenticeships on the
U.K. Economy, Centre for Economics and Business Research.
RISK MANAGEMENT
EFFECTIVE RISK MANAGEMENT
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 and perform a detailed
annual workshop to consider emerging and changing risks along with
the Investment Adviser. The Audit and Risk Committee considers the
risks facing the Company and controls and other measures in place
to mitigate the impact of risks.
There is an ongoing process for identifying, evaluating and
managing the most significant risks faced by the Company. The
process has been in place through 2018 and up to the date of
approval of this Annual Report.
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. While 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 external controls process reviews
performed annually, 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 and its Risk
Sub-Committee identify risks with additional input from the
Company's Investment Adviser and Estera International Fund Managers
(Guernsey) Limited ('the Administrator'). The Board also receives
detailed quarterly asset management reports highlighting
performance and potential risk issues on an
investment-by-investment basis. The Audit and Risk Committee also
has an open dialogue with its advisers to assist with assessment of
significant risks, if any, that might arise between reporting
periods.
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. A
robust assessment of the principal risks facing the Company is
performed. In terms of risks that might impact viability, these are
separately considered. See the Viability Statement on page 49 for
more information of this assessment.
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.
MONITORING, REPORTING AND REASSESSMENT OF RISK
Risks are monitored and 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].
Direct communication between the Company and its Investment
Adviser, and the entity level asset manager, is 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, to the extent possible, to the underlying investment portfolio
as illustrated in the Business Model on pages 10-11.
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 regulated and
long-term nature of the investments with similar risk profiles.
However, 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, and in
some instances such risks have changed in the year.
Counterparty risk was closely monitored during the year
following the identification of issues affecting certain service
providers to the Group, with contingency plans developed by the
Investment Adviser. Following the collapse of Carillion plc in
early 2018, work to transition affected assets to new facilities
management services commenced, with announcements made during this
process to ensure appropriate communication with shareholders of
key developments and impacts for the Company. The Investment
Adviser continues to closely monitor other service providers within
the portfolio. More information is provided in the Active Asset
Management section of this report on pages 21-23.
There remains uncertainty over the eventual relationship between
the U.K. and the E.U. This uncertainty makes it hard to foresee
what impact Brexit will have on the wider macroeconomic environment
and hence the valuation of the Company's assets. The Audit and Risk
Committee has sought to manage Brexit risk as it might manifest at
both the Company and asset levels. In keeping with the approach
taken by the Audit and Risk Committee, during the year the
Investment Adviser established a focused Brexit risk committee to
identify, assess and, where relevant, identify mitigating
strategies for potential Brexit risk arising across the Group.
Focus has been given to areas which may have the potential to
impact the Company, including any developments in the approach to
cross-border AIFMD regulation and taxation of cross-border
financing. Regarding the portfolio, attention has also been given
to managing potential risks that may affect projects or businesses,
and which may consequently impact the valuation of the assets.
Particular areas of consideration at this level include, for
example, availability of staff, availability of financing and
supply chain considerations for key parts, amongst others. As a
result of these assessments, we do not currently believe there will
be a significant impact on the Company as a direct result of
Brexit; however, this cannot be guaranteed and we continue to
closely monitor developments as the withdrawal process continues to
evolve.
The U.K. Labour Party's proposed policy to nationalise privately
owned infrastructure including U.K. PFI, should it come into
government, has also been previously noted. The Company believes
that significant compensation would be required in order to enact
this legitimately within existing contractual arrangements,
therefore we maintain the view that the Company is defensively
positioned in this regard.
As part of the Board's ongoing commitment to manage risk during
the year the Board commissioned an external review of the Company's
tax policies and procedures, including a focus on the Company's tax
risk approach. See the Audit and Risk Committee report on page 66
for further details of this review.
In addition, the Company is conscious that the long-term
performance of its investments is influenced by ESG factors. These
might include how the portfolio of investments respond to climate
change; the efficacy of water management, how effective their
health and safety policies are in the protection against accidents;
how they manage their supply chains, how they treat their workers;
and whether they have a corporate culture that builds trust and
fosters innovation. The Audit and Risk Committee has identified ESG
factors as its focus for internal review this year, which will
assess the Company's current approach to reporting and overall
incorporation of ESG factors into its processes.
The Board's view of principal risks and how the relative
significance may have changed in the period are set out on the
following pages. This section 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 materially impact the performance of the Company, its
assets, capital resources and reputation.
We note the potential impact of, and heightened focus on,
cybersecurity which continues to be an issue of relevance across
all businesses as a response to the growing levels of
sophistication being used in carrying out cyber-attacks. The
Company recently procured an external independent review of its
cybersecurity control enforcement and continues to monitor
resilience to these threats. Following careful consideration, it is
not believed that cybersecurity represents a specific risk to the
Company beyond that relevant to all other funds and it is instead
managed as a general risk affecting all such businesses
accordingly.
A description of broader risk factors relevant to investors is
disclosed in the latest Company prospectus available on the website
www.internationalpublicpartnerships.com.
While the Company has applied mitigation processes (set out
overleaf) 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:
Risk Heat Map
[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 movement of risk exposures during the period:
RISK TYPE
INCREASE Risk exposure has increased in the period
DECREASE Risk exposure has reduced in the period
NO SIGNIFICANT No significant change in risk exposure since last
CHANGE reporting period
1 Inflation
2 Foreign Exchange Movements
3 Interest Rates
4 Tax and Accounting
5 Political Policy
6 Law and Regulation
7 Asset Performance
8 Counterparty Risk
9 Physical Asset Risk
10 Contract Risk
11 Financial Forecasts
RISK DESCRIPTION MITIGATION/APPROACH
----------------------------- ----------------------------------------- ------------------------------------
MACROECONOMIC RISKS
--------------------------------------------------------------------------------------------------------------
Inflation Inflation may be higher The Company monitors the
or lower than expected. effect of inflation on
Investment cash flows are its portfolio through
positively correlated to its biannual valuation
inflation therefore increases/decreases process. It also provides
to inflation compared to sensitivities to investors
current projections would indicating the projected
impact positively or negatively impact on the Company's
on the Company's future NAV of a number of alternative
projected cash inflows. inflation scenarios, offering
Negative inflation (deflation) investors an ability to
will reduce the Company's anticipate the likely
future cash flows in absolute effects alternative inflation
terms. scenarios may have on
The Company's portfolio their investment.
has been developed in anticipation The Company uses a long-term
of continued inflation view of inflation within
at, or above, the levels its forecasts, benchmarked
used in the Company's valuation where possible to independent
assumptions. Where inflation analysis.
is at levels below the
assumed levels, investment
performance may be impaired.
The level of inflation
linkage across the investments
held by the Company varies
and is not consistent.
Some investments have no
inflation linkage, and
some have a geared exposure
to inflation. The consequences
of higher or lower levels
of inflation than that
assumed by the Company
will not be uniform across
its portfolio. The Company
is also exposed to the
risk of changes to the
manner in which inflation
is calculated by the relevant
authorities.
----------------------------------------- ------------------------------------
1
----------------------------------------- ------------------------------------
NO SIGNIFICANT
CHANGE
Foreign Exchange The Company indirectly The Company uses forward
Movements holds part of its investments foreign exchange contracts
in entities in jurisdictions to mitigate the risk of
with currencies other than short-term volatility
sterling, but borrows corporate in foreign exchange rates
level debt, reports its on investment returns
NAV and pays dividends from overseas investments.
in sterling. Changes in These may not be fully
the rates of foreign currency effective and rely on
exchange are outside the the strength of the counterparties
Company's control and may to those contracts to
impact positively or negatively be enforceable.
on cash flows and valuation. The Company monitors the
effect of foreign exchange
on its portfolio through
its biannual valuation
process and reports this
to investors. The Company
also provides sensitivities
to investors indicating
the projected impact on
the 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. We continue
to be mindful of the potential
for exchange rate volatility
in light of international
economic and political
change, including during
the U.K.'s withdrawal
from the European Union.
We note a devaluation
of sterling against the
main currencies (in which
non-U.K. investments are
made) would typically
have a positive impact
on NAV. The opposite would
also be true for an increase
in the value of sterling.
----------------------------------------- ------------------------------------
2
----------------------------------------- ------------------------------------
NO SIGNIFICANT
CHANGE
Changes in market rates
of interest can affect
the Company in a variety
Interest Rates of different ways:
Valuation Discount Rate
The Company, in valuing
its investments, uses a
discounted cash flow methodology.
Changes in market rates
of interest (particularly
government bond yields)
may directly impact the
discount rate used to value
the Company's future projected
cash flows and thus its
valuation. Higher rates
will have a negative impact
on valuation while lower
rates will have a positive
impact.
-----------------------------------------
3
-----------------------------------------
NO SIGNIFICANT
CHANGE
In determining the discount
rates used to value its
investments, the Company
generally uses nominal
government bond yields
to which specific investment
risk premia are added
to determine discount
rates. The investment
risk premia may provide
a buffer against rising
bond yields assuming market
demand for investment
is sustained. Where the
Company's cash investment
inflows are linked to
inflation, higher interest
rates can often be precipitated
by higher inflation expectations,
and therefore any inflation
linkage may partly mitigate
the effect of interest
rate changes.
----------------------------------------- ------------------------------------
Corporate Debt Facility
The Company has a corporate In the event that the
debt facility that may interest rate increases,
be drawn from time-to-time. the Company has the option
Interest is charged on of repaying its corporate
a floating rate basis, debt facility at any time
so higher than anticipated with minimal notice, providing
interest rates will increase sufficient funds are available.
the cost of this facility
adversely impacting on
cash flow and the Company's
valuation.
----------------------------- ----------------------------------------- ------------------------------------
Underlying portfolio considerations
Changes in interest rates As presented in the sensitivity
have potential impacts analysis, variations in
on the portfolio at underlying cash deposit rates have
investee entity level. little impact on the Company's
Portfolio entities typically NAV. Due to the spread
choose or can be required of cash holdings within
to hold various cash balances, ring-fenced SPV structures
including contingency reserves and relatively smaller
for future costs (such balances in the SPVs,
as major lifecycle maintenance it is not economically
or debt service reserves). feasible to hedge against
adverse deposit rate movements.
These are generally held The Company monitors the
on interest bearing accounts effect of historical and
and under the contractual projected interest rates
terms applicable to certain on its portfolio through
investments which in many its biannual valuation
cases are projected to process and reports this
be held for the long-term. to investors. It also
The Company assumes that provides sensitivities
it will earn interest on to investors indicating
such deposits over the the projected impact on
long-term. Changes in interest the Company's NAV of a
rates may mean that the limited number of alternative
actual interest receivable scenarios, offering investors
by the Company is different an ability to anticipate
to that projected. If the the likely effects of
Company receives less interest some deposit interest
than it projects this will rate scenarios on their
impact cash flows and NAV investment.
adversely. Certain assets The risk of adverse movements
within the portfolio contain in debt interest rates
refinancing assumptions. for unhedged debt within
Increases in lending rates regulated entities is
available to these projects limited through protections
would have the potential provided by the regulatory
to increase their cost regime.
of financing and therefore
impact the overall returns
from these assets.
---------------------------- ----------------------------------------- ------------------------------------
Tax and Accounting Change in Tax Rates
Headline rates of tax have
tended to reduce in recent
years, both in the U.K.
and overseas jurisdictions
in which the Company operates.
However, there is a risk
that this trend could be
reversed if government
or policy were to change
in the future.
----------------------------------------- ------------------------------------
The Company incorporates
changes in tax rates within
its forecast cash flows
and NAV once substantively
enacted.
--- ----------------------------------------- ------------------------------------
4 Change in tax legislation
NO SIGNIFICANT Changes in tax legislation The diversified jurisdictional
CHANGE across the multiple jurisdictions mix of the Company's investments
in which the Company has may provide some mitigation
investments can reduce to tax changes in any
returns impacting on the one jurisdiction.
Company's future cash flow The Company believes it
returns and hence valuation takes a cautious approach
(calculated on a discounted to tax planning. The Board
cash flow basis). monitors changes in tax
The OECD's Action Plan legislation and takes
on Base Erosion and Profit advice as appropriate
Shifting ('BEPS'), published from external, independent,
in 2013, seeks to address qualified advisers. While
perceived flaws in international the Board and the Company's
tax rules. It sets out Investment Adviser seek
15 actions to counter BEPS to minimise the impact
in a comprehensive and of adverse changes in
coordinated way. Countries tax requirements, its
in which the Company invests ability to do so is naturally
have been assessing their limited.
compliance or otherwise The Company's Investment
with this guidance. Adviser continues to monitor
developments relating
to tax reform across the
jurisdictions in which
the Company has operations.
Future legislation in
response to the OECD proposals,
or changes in approach
to existing legislation
as a consequence of market
practice or updated guidance,
continue to have the potential
to negatively impact the
Company.
---------------------------- ----------------------------------------- ------------------------------------
Accounting
The Company and its portfolio A portion of the Company's
of investments and holding income is received in
entities form an international the form of shareholder
group structure. The Group debt interest income i.e.
uses long-term cash flow from pre-tax cash flows
forecasts from its portfolio and not constrained by
as part of its valuation distributable profits
process. These cash flow tests. However, changes
forecasts are dependent in accounting standards
upon distribution profiles/cash or challenges to accounting
tax profiles and therefore judgements can potentially
can fluctuate because of have an impact on distributable
future changes in accounting profits or post-tax cash
standards, or challenges flows.
to accounting judgements.
Therefore, future changes
to accounting standards,
or changes in interpretation
and application of existing
standards, have the potential
to impact the distributable
profits of entities in
the portfolio and so the
cash flows available to
the Group and overall portfolio
valuation.
--- ------------------- ----------------------------------------- ------------------------------------
POLITICAL AND REGULATORY RISKS
-------------------------------------------------------------------------------------------------------------
The nature of the businesses Most of the Company's
in which the Company invests existing investments benefit
exposes it to potential from long-term service
changes in policy and legal and asset availability-based
requirements. All investments pricing contracts or regulatory
have a public sector infrastructure frameworks and the countries
service aspect and are in which the Company operates
exposed to political scrutiny do not tend to have a
and the potential for adverse tradition of penal retrospective
public sector or political legislation. They tend
criticism. to be long-term supporters
of infrastructure and
similar investment and
recognise the risk of
deterring future investment
in the event that penal
or disproportionate steps
are taken in respect of
existing contractual engagements.
---------------------------- ----------------------------------------- ------------------------------------
Political Policy
---------------------------- ------------------------------------------
5
------ -------------------
NO SIGNIFICANT Current global policy
CHANGE practice continues to
Change in political policy support the use of private
Political policy and financing sector capital to finance
decisions may adversely impact public infrastructure,
either on existing investments, despite challenge from
or on the Company's ability some political parties,
to source new investments, particularly in the U.K.,
at attractive prices or at around the role of the
all. This may impact the Company's private sector in the
reputation. provision of such services.
A certain degree of reputational The Company seeks to maintain
risk exists in this area as strong and positive relationships
policy decisions adversely with its public sector
impacting the Company have clients where possible.
the potential to be made as It also has an active
a direct or indirect result relationship with other
of reputational developments external stakeholders
seen across the wider sector. including investors.
---------------------------- ------------------------------------------ ----------------------------------------
Termination of Contracts
Often contracts between public The Company engages with
sector bodies and the Company's its public sector clients
investment entities contain in developing cost-saving
rights for the public sector initiatives and seeks
to voluntarily terminate contracts to act as a 'good partner'
in certain situations. While including by focusing
the contracts typically provide on the ESG aspects of
for some compensation in such its investments. None
cases, this may be less than of the Company's investments
required to sustain the Company's have been identified,
valuation, causing loss of by any government audit
value. There have been instances or public sector report,
of contracts being voluntarily as poor value for money
terminated in the U.K. (although or not in the public interest.
not affecting the Company). The Investment Adviser
is a signatory to the
Code of Conduct for Operational
PFI/PPP contracts in the
U.K. 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
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.
Regarding the U.K.'s planned
withdrawal from the E.U.,
there are no specific
'Brexit' termination clauses
in the Company's underlying
project contracts.
---------------------------- ------------------------------------------ ----------------------------------------
Law and regulation Change in Law/Regulation
6 Changes in law or regulation Some investments maintain
NO SIGNIFICANT may increase costs of operating a reserve or contingency
CHANGE and maintaining facilities designed to meet change
or impose other costs or obligations in law costs and/or have
that indirectly adversely affect a mechanism to allow some
the Company's cash flow from change in law costs (typically
its investments and/or valuation building maintenance related)
of them. to be passed back to the
public sector. There remains
the possibility for there
to be changes in law or
regulation as a result
of Brexit which have the
potential to impact costs
or obligations of the
Company or portfolio projects,
which may not be fully
capable of mitigation.
---------------------------- ------------------------------------------ ----------------------------------------
Regulatory requirements
The Company is subject to changes The Company and its Investment
in regulatory requirements Adviser monitor regulatory
that relate to its business developments and seek
and that of its Investment independent professional
Adviser (both in terms of its advice in order to manage
investments and in terms of compliance with changing
itself). It is supervised by regulatory requirements.
the Guernsey Financial Services It is unclear currently
Commission and is required what impact, if any, Brexit
to comply with the U.K. Listing will have on regulatory
Rules applicable to 'Premium' requirements, however
listings. The Investment Adviser as the Company is a Guernsey-based,
is regulated by the Financial self-managed AIF, there
Conduct Authority in the U.K. is not expected to be
in accordance with the Financial a direct impact on the
Services and Markets Act 2000. Company's regulatory status
or its existing ability
to raise capital.
---------------------------- ------------------------------------------ ----------------------------------------
OPERATIONAL AND VALUATION RISKS
----------------------------------------------------------------------------------------------------------------
Asset Performance Construction
For the Company's assets under
construction, there is an element
of construction risk that takes
the form of cost overruns that
could impact on project returns.
Operational Performance
Assets in the portfolio contain
revenues which are based on
the availability of the asset,
as well as revenues not solely
dependent on availability but
also have linkage to other factors
including being subject to regulatory
frameworks.
The entitlement of the Company's
PPP and OFTO investments to
receive revenues is generally
dependent on underlying physical
assets remaining available for
use and continuing to meet certain
performance standards. Failure
to maintain assets available
for use or operating in accordance
with pre-determined performance
standards may dis-entitle (wholly
or partially) the continued
receipt of income that the Company
has projected to receive.
Certain assets in the portfolio
which contain revenue streams
that are not solely based on
availability of the asset may
include linkage to other factors
or are subject to the regulatory
regime
7
NO SIGNIFICANT
CHANGE
Contractual mechanisms
allow for significant
pass-down of construction
cost overrun risk to
sub-contractors or consumers,
subject to credit risk
(see below).
The Board reviews underlying
investment performance
of each investment, quarterly,
allowing asset performance
to be monitored in close
to real time.
Historically, the Company
has seen very high levels
of asset performance,
which suggests a positive
trend for the future.
For regulated assets,
the regulatory regimes
under which the assets
operate provide a level
of protection of cash
flows for these assets.
Contractual mechanisms
and underlying regulatory
frameworks also allow
for significant pass-down
of unavailability and
performance risk to sub-contractors
in many cases, subject
to credit risk (see overleaf).
Termination
In serious cases where the terms In the event of significant
of the underlying contract with and continuing unavailability
the public sector are breached across the Company's
due to default or force majeure portfolio, it is able
then that contract can usually to terminate the Investment
be terminated without compensation. Advisory Agreement. This
Failure to receive the amount serves to reinforce alignment
of revenue projected or termination of interest between the
of a contract will have a consequential Company and the Investment
impact on the Company's cash Adviser.
flow and value. The risk of termination
of contracts as a result
of political policy is
addressed in risk five
above.
---------------------------- ------------------------------------------ --------------------------------------
Counterparty Risk The Company's investments The Company has a broad range
are dependent on the of suppliers and believes
performance of a series that supplier counterparty
of counterparties to risk is diversified across
contracts including its investments. All contracts
public sector bodies, include the provision of a
consortium partners, security package from counterparties
construction contractors, to mitigate the impact of
facilities management supplier failure. In addition,
and maintenance contractors, generally payments are made
asset and investment in arrears to service providers
managers (including giving the Company some protection
the Investment Adviser), against failures in performance.
banks and lending institutions The credit quality of supplier
and others. Failure counterparties is reviewed
by one or more of these as part of the Company's due
counterparties to perform diligence at the time of making
their obligations fully its investments and for key
or as anticipated could supplies on a regular basis.
adversely affect the Most of the services provided
performance of affected to the Company's investments
investments. There are reasonably established
may be disruption or with competing providers.
delay to the services Therefore, there are expectations
provided to investments, that there will be a pool
or replacement counterparties of potential replacement supplier
(where they can be counterparties in the event
obtained) may only that a service counterparty
be obtained at a greater fails, albeit not necessarily
cost. These risks would at the same cost.
negatively impact the Early 2018 saw the collapse
Company's cash flows of Carillion plc. Facilities
and valuation. management services were provided
Over recent years there by Carillion FM to projects
has been particular making up approximately 3%
pressure on construction (by fair value at the valuation
and facilities management date immediately preceding
firms operating across the collapse of Carillion)
the sector, particularly of the Company's portfolio.
within the U.K. The Investment Adviser had
been monitoring the issues
affecting Carillion plc for
some time and had developed
contingency plans accordingly.
The impact of transitioning
projects to alternative service
providers, including transaction
costs, is expected to be immaterial
(see pages 21-22). In addition,
in early 2019 Interserve Plc
entered administration and
the sale of its business and
assets to a newly incorporated
company (Interserve Group
Limited) controlled by its
lenders completed immediately
Where borrowings exist afterwards. Interserve Integrated
in respect of INPP's Services Ltd provides facilities
investments, interest management services to c.6%
rates are generally of the Company's portfolio
fixed through the use (by fair value). The Company
of interest rate swaps. has been monitoring the issues
INPP is therefore exposed affecting Interserve Plc and
if the counterparties has developed contingency
of these swaps were plans. All the facilities
to default or the swaps that have been affected are
otherwise become ineffective. currently operational with
no disruption to service delivery.
At this time, it is not believed
that the administration of
Interserve Plc will adversely
impact the Company's valuation
(see page 22). The Company
continues to monitor the risk
of any additional developments
occurring in this space relating
to its other significant counterparties.
The credit risk of such swap
counterparties is considered
at the time of entering into
these arrangements and is
regularly reviewed. However,
there is a risk of credit
deterioration which could
impact affected investments.
-------------------------------- ------------------------------------------
8
-------------------------------- ------------------------------------------
NO SIGNIFICANT
CHANGE
------------------- -------------------------------- ------------------------------------------
Physical Asset The Company indirectly The Company's investments
Risk invests in physical benefit from regular risk
assets used by the reviews and external insurance
public and thus is advice which is intended to
exposed to possible ensure that those assets continue
risks, both reputational to benefit from insurance
and legal, in the event cover that is standard for
of damage or destruction such assets.
to such assets and
their users, 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.
-------------------------------- -------------------------------------
9
-------------------------------- -------------------------------------
NO SIGNIFICANT
CHANGE
Contract Risk The performance of Such contracts have been entered
the Company's investments into, usually, only after
is dependent on the lengthy negotiations and with
complex set of contractual the benefit of external legal
arrangements specific advice. A legal review of
to each investment contract documentation is
continuing to operate undertaken as part of the
as intended. The Company Company's due diligence at
is exposed to the risk the time of making new investments.
that such contracts See Political Policy on page
do not operate as intended, 45 for further commentary
are incomplete, contain on contractual risk of voluntary
unanticipated liabilities, termination.
are subject to interpretation
contrary to its expectations
or otherwise fail to
provide the protection
or recourse anticipated.
-------------------------------- -------------------------------------
10
-------------------------------- -------------------------------------
NO SIGNIFICANT
CHANGE
Financial Forecasts The Company's projections Financial forecasts are generally
depend on the use of subject to model audit by
financial models to external accountancy firms,
calculate its future which is a process designed
projected investment to identify errors. The comparison
returns. These are of past actual performance
in turn dependent on of investments against past
the outputs from other projected performance also
financial model forecasts gives confidence in financial
at the underlying investment models where actual performance
entity level. There has closely matched projected
may be errors in any performance. However, there
of these financial can be no assurance that forecast
models, including calculation results will be realised,
errors, incorrect assumptions, particularly in relation to
programming, logic operational infrastructure
or formulaic errors businesses where more variables
and output errors. can impact forecast results.
Once corrected, such Investments in regulated business
errors may lead to are considered very long-term,
a revision in projected beyond the much shorter regulatory
cash flows and thus cycles. Valuations of such
impact valuation. business should take into
Recent investments account robustness of yield
in operating infrastructure and potential for increases
businesses that can in regulated asset base over
result in more variability time.
in performance than
contracted concessions
special purpose companies,
are inherently more
difficult to forecast
accurately given the
wider range of variables
that apply.
-------------------------------- -------------------------------------
11
-------------------------------- -------------------------------------
increase
Recent investment
opportunities have
been seen more
in operating infrastructure
businesses that
exhibit greater
variability to
assumptions around
growth, refinancing
and/or allowed
returns
Sensitivities
The Company publishes Sensitivities are produced
information relating for the information of investors
to its portfolio including and are accompanied by disclaimers
projections of how and guidance explaining that
portfolio performance limited reliance can be placed
and valuation might upon them.
be impacted by changes
in various factors
e.g. interest rates,
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.
------------------------------ -------------------------------- -------------------------------------
VIABILITY STATEMENT
In accordance with provision C2:2 of the 2014 revision of the
U.K. Code of Corporate Governance, we have considered the Company's
viability as summarised below. Due to the long-term and/or
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. 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 appropriate timeframe for assessing the Company's viability
given these inherent uncertainties.
The viability assessment process is 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
pages 64-67
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
(noting that a high rate environment would typically be positive
for the Company's investment cash flows giving linkage of revenues
to inflation across many investments), large currency fluctuations
impacting on receipts from overseas investments, and the impact
from the loss of income from investments (whether due to key
sub-contractor default or other assets 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 has a reasonable expectation that the Company
will be able to continue in operation and meet all of its
liabilities as they fall due up to March 2024. This assessment is
based on the following assumptions which are not within the
Company's control:
- No changes to government policy, laws and regulations
affecting the Company or its investments other than the impacts
already factored into future cash flows as part of the 31 December
2018 NAV valuation
- 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.
Mike Gerrard John Le Poidevin
Chairman Director
27 March 2019 27 March 2019
CORPORATE GOVERANCE
SUMMARY OF INVESTMENT POLICY
OVERVIEW
The Company invests in public or social infrastructure assets
and related businesses located in the U.K., Australia, Europe,
North America and other parts of the world where the risk profile
meets the Company's risk and return requirements.
The Company has a long-term view and invests in operational and
construction phase assets for the life of the asset or concession,
or under a license issued by a regulator unless there is a
strategic rationale for earlier realisation. The
Company seeks to enhance the capital value and the income
derived from its investments to optimise returns for its investors.
The Investment Policy is summarised below and available in full at
www.internationalpublicpartnerships.com.
INVESTMENT parameters
Maintaining the performance of the existing portfolio is the
Company's key focus. However, it will also seek attractive
opportunities to expand its portfolio, including:
- Investments with characteristics similar to the existing portfolio
- Investments in other assets or concessions or regulated
businesses having a public or social infrastructure character with
either availability, property rental or user paid payment
mechanisms or appropriate regulatory frameworks
- 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
- Divestments where an investment is no longer aligned with the
Company's investment objectives or where circumstances offer an
opportunity to enhance the value of the portfolio
PORTFOLIO COMPOSITION
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. It does not expect to invest in non-OECD countries,
unless it can get comfortable with the risk-return profile.
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 on the
suitability of the investment from a risk and return perspective.
The Company Overview on page 2 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 total assets in any one
investment in order to limit the risk of any one investment to the
overall portfolio.
As a London Stock Exchange listed company, the Company is also
subject to certain restrictions pursuant to the U.K.L.A Listing
Rules.
MANAGING CONFLICTS OF INTEREST
Further investments will continue to be sourced by the
Investment Adviser, Amber Fund Management Limited. 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 Corporate Governance Report sets out
more details on the conflicts management process.
Financial management
The Company may also 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 ('GAV') of the Company's investments
and cash balances. The Company has the ability to borrow in
aggregate up to 66% of such GAV on a short-term basis (i.e. less
than 365 days) if considered appropriate. Details of the Company's
corporate debt facility can be found on page 43.
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 U.K. Listing Rules.
CORPORATE GOVERANCE
BOARD OF DIRECTORS
The table below details all directors of the Company at the date
of this report.
BACKGROUND AND EXPERIENCE
----------------------------------------------------------------------------------------------------------------------------------------------
Mike Gerrard Julia Bond(1) John Le John Stares(1) Claire John Whittle(1) Giles Rupert
Board Chair, Poidevin(1) Chair, Whittet(1) Senior Frost Dorey(1)
Chair, Risk Chair, Risk Chair, Independent Board
Chair, Sub-Committee Audit Sub-Committee, Management Director, Chair,
Investment Chair, and Risk Chair, Engagement Chair, Chair,
Committee Nomination Committee Nomination Committee Audit and Investment
(with and Remuneration (with and Remuneration Risk Committee Committee
effect Committee effect Committee (until (until
from 31 (with effect from 1 (until 1 July his retirement
December from 1 July 2018) 1 February 2018) on 31
2018) February 2019) December
2019) 2018)
--------------- ------------------ -------------- ----------------- ---------------- ---------------- --------------- -----------------
Aged 61 Aged 59 Aged 48 Aged 67 Aged 63 Aged 63, Aged Aged 57
and a and a resident and a and a resident and a resident John is 55 and and a
resident in the resident of Guernsey of Guernsey, a resident a resident resident
in the United of Guernsey, since 2001, Claire of Guernsey. in the of Guernsey,
U.K., Kingdom, John has John has has 40 John is United Rupert
Mike has Julia has over 25 over 40 years' a Fellow Kingdom, has over
30 years 27 years' years years' experience of the Giles 30 years
of financial experience of business experience. in the Institute is a of experience
and management of capital experience. Before banking of Chartered founder in financial
experience markets John is moving industry Accountants and director markets,
in global in the a Fellow to Guernsey, with Bank in England of Amber including
infrastructure financial of the John worked of Scotland, and Wales Infrastructure 17 years
investment. sector Institute for 23 Bank of and holds and has at CSFB
He has and held of Chartered years as Bermuda the Institute worked where
held a senior Accountants a management and Rothschild of Directors in the he specialised
number positions in England consultant and Co Diploma infrastructure in
of senior within and Wales with Accenture, Bank in Company investments credit-related
positions, Credit and a where he International Direction. sector products.
including Suisse former held a where she John holds for over Rupert's
as an including partner wide variety was latterly, non-executive 20 years. expertise
assistant Head of of BDO of leadership managing positions Giles was principally
director One Bank LLP, where roles. director on a number qualified in the
of Morgan Delivery he held He currently and co-Head of other as a areas
Grenfell and Global a number holds until May boards. solicitor of debt
plc, a Head of of non-executive 2016 when John was and partner distribution,
director Sovereign leaderships positions she became previously in the origination
of HM Wealth rules, on the a non-executive finance law firm and trading,
Treasury funds activity. including boards director. director Wilde where
Taskforce, Julia is Head of of several She is of Close Sapte he held
deputy currently Consumer other companies. also Fund Services, (now a number
CEO and a non-executive Markets, John is non-executive a large Dentons). of senior
later director where a Fellow director independent Giles positions
CEO of and trustee he developed of the of a number administrator. is a at CSFB,
Partnerships of several an extensive Institute of other Prior to director including
U.K. plc. governmental breadth of Chartered investment moving of Amber Fixed
Mike has bodies of experience Accountants company to Guernsey, Infrastructure Income
a breadth and charities and knowledge in England Boards John was Group Credit
of experience including across and Wales, and is at Price Holdings product
across the British the real a member not involved Waterhouse Ltd, coordinator
a range Foreign estate, of the in any in London the ultimate for European
of economic and Commonwealth. leisure Worshipful trading before holding offices
and social and retail Company companies. embarking company and head
infrastructure sectors of Management Claire on a career of the of U.K.
sectors in the Consultants, is a member in business Investment Credit
and has U.K. and and a Freeman of the services, Adviser and Rates
been involved overseas. of the Chartered predominantly to the Sales.
in some John is City of Institute telecoms. Company Since
of the a London. of Bankers and various 2005,
largest non-executive in Scotland, of its Rupert
infrastructure director the Chartered subsidiaries. has been
projects on several Insurance a non-executive
in the plc boards Institute, director
U.K. and chairs is a Chartered for a
a number Banker, number
of Audit a member of Hedge
Committee. of the Funds,
Institute Private
of Directors Equity
and holds & Infrastructure
the Institute Funds.
of Directors He is
Diploma a member
in Company of the
Direction. Institute
of Directors.
DATE OF APPOINTMENT
--------------------------------------------------- ------------------------------------- --------------------------------------------------
4 September 1 September 1 January 28 August 10 September 6 August 2 August 2 August
2018 2017 2016 2013 2012 2009 2006 2006
--------------- ------------------ -------------- ----------------- ---------------- ---------------- --------------- -----------------
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS
---------------------------------------------------------------------------------------------------------- --------------- ---------------
Mike Gerrard Julia John Le John Stares(1) Claire John Whittle(1) Giles Rupert
Mike holds Bond(1) Poidevin(1) Terra Whittet(1) Aberdeen Frost Dorey(1)
several European Aurigny Firma BH Macro Frontier Giles AP Alternative
non-executive Assets Air Services (for a Ltd Markets is also Assets
positions Trust Ltd number Eurocastle Investment a director LP
within ('EAT') BH Macro of Investment Company of a number Cinven
boards Ltd Guernsey-based Ltd Ltd of the Capital
and committees Safecharge entities) Riverstone Globalworth Company's Management
that oversee International Governor Energy Real Estate subsidiary IV, V,
the development Group of More Ltd Investments and investment VI Ltd
and delivery Ltd House TwentyFour Ltd holding and Cinven
of Stride School Select GLI Finance entities General
infrastructure Gaming New Monthly Ltd and of Partner
investments plc Philanthropy Income India Capital other Ltd.
in the Capital Fund Ltd Growth entities NB Global
U.K. and (Trustee) Third Fund Ltd in which Floating
Europe Point Starwood the Company Rate Income
Offshore European has an Fund Ltd
Investors Real Estate investment. M&G General
Ltd Finance He does Partner
Ltd not receive Inc.
Chenavari directors' Tetragon
Toro Income fees from Financial
Fund Ltd such roles Group Limited
for the
Company.
----------------- -------------- ---------------- --------------- ---------------- ------------------ --------------- ---------------
1 All of the independent directors are members of all Committees
with the exception of Mr Gerrard, who is not a member of the Audit
and Risk Committee.
CORPORATE GOVERNANCE
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 that is a constituent of the FTSE 250 Share Index.
The Board is responsible to shareholders for the overall
direction and oversight of the Company, for agreeing its strategy,
monitoring its financial performance, and setting and monitoring
its risk appetite.
This section describes how the Company is governed. It explains
how the Board is organised and operates, including the roles and
composition of each of its Committees, and provides details on our
Board members and how they are remunerated. As an investment
company, the Company has no employees and relies on the advice and
expertise of its key suppliers, notably its Investment Adviser,
Amber Fund Management Limited ('Amber'). This section therefore
also explains the nature of the Company's relationship with the
Investment Adviser, and how this is managed, including the
remuneration of the Investment Adviser.
Compliance with Corporate Governance Codes AND REGULATIONS
All companies with a Premium Listing on the London Stock
Exchange are required to confirm their compliance with (or explain
departures from) the U.K. Corporate Governance Code (the 'U.K.
Code'). This requirement applies regardless of where the company is
incorporated. Whilst a revised U.K. Code was issued in July 2018,
it will apply to the Company for its forthcoming financial year and
therefore the relevant U.K. Code remains the April 2016
edition.
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 July 2016 (the
'AIC Code') can assist externally managed companies in meeting
their obligations under the U.K. Code in areas that are of specific
relevance to investment companies. We note that the AIC published a
revision to its Code in February 2019 which will apply to the
Company's 2019 financial year end. However, the Board has taken a
forward-looking position and adopted some of its recommendations in
advance of the proposed application.
The Guernsey Financial Services Commission has also confirmed
that companies that report against the U.K. Code or AIC Code are
deemed to meet the Guernsey Code of Corporate Governance.
The AIC Code is available from the Association of Investment
Companies website (www.theaic.co.uk). The U.K. 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 U.K. Code. However, 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
U.K. Code's two separate principles of setting out the
responsibilities of the chief executive and disclosing the
remuneration of executive directors (Section A.2 of the U.K. Code)
are therefore not applicable.
The Company is subject to a new European Union Regulation
(2017/653) ('the Regulation') which deems it to be a packaged
retail and insurance-based investment product ('PRIIPs'). In
accordance with the requirements of the Regulation, the Company
published and updated its standardised three page Key Information
Document ('KID') on 2 October 2018. The KID is available on the
Company's website www.internationalpublicpartnerships.com/investors
and will be updated at least every 12 months.
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 six of the seven directors are independent.
Board of Directors
The Board of Directors consists of seven non-executive
directors, whose biographies, on pages 52-53, demonstrate a breadth
of investment and business experience.
The Board consists solely of non-executive directors and, for
the period of this report, was chaired by Mr Dorey, who was
responsible for leadership of the Board and ensuring its
effectiveness in all aspects of its role. The Board considered that
Mr Dorey was independent, upon appointment, and remained
independent throughout his term of service for the purposes of the
AIC Code. For the period of this report, Mr Whittle held the role
of Senior Independent Director. He is an alternative point of
contact for shareholders and leads in matters where it is
inappropriate 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-executive directors 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. All directors offer themselves
for re-election on an annual basis. The Board considers its
composition and succession planning on an ongoing basis.
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 had been a Board member since August 2006 but retired
on 31 December 2018, and Mr Gerrard was appointed as Chairman of
the Board. More information is available in the Chairman's Letter.
Mr Whittle has been a Board member since August 2009. The Board is
confident that Mr Whittle remains independent. However, during the
period, Mr Whittle retired from his role as Chair of the Audit and
Risk Committee and will be retiring from the Board at the 2020 AGM
as part of the Board's ongoing succession programme.
The Board has agreed that all Directors will stand for
re-election at each 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.
- 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 upon 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 has two female directors.
Board Remuneration
The Nomination and Remuneration Committee considers matters
relating to the directors' remuneration, taking into account
benchmark information (including 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. During the latter half of
2018, the Board invited Trust Associates to undertake an
independent review of Board remuneration to ensure that it remained
in line with the market and is at a level to attract high calibre
individuals to the Board. As a result, the Board resolved to
increase Board remuneration with effect from 1 January 2019 as
outlined in the table below.
2019 FEE P.A. 2018 FEE P.A.
POSITION GBP GBP
Board Chair 85,000 67,500
Audit and Risk Committee
Chair 58,000 55,000
Senior Independent Director 47,000 43,000
Risk Sub-Committee Chair 47,000 43,000
Management Engagement Committee
Chair 47,000 43,000
Nomination & Remuneration
Committee Chair 47,000 43,000
Director (Independent and
Non-Independent) 45,000 43,000
-------------------------------- ------------- -------------
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 are the Chairs of
the Audit and Risk Committee, the Risk Sub-Committee, the
Management Engagement Committee, the Nomination & Remuneration
Committee, as well as the Senior Independent Director.
There are no long-term incentive schemes provided by the Company
and no performance fees, or bonuses paid to directors. Any changes
to directors' aggregate remuneration are considered at the Annual
General Meeting ('AGM') of the Company.
2018 FEES PAID 2017 FEES PAID
DIRECTOR GBP GBP
-------------------- -------------- --------------
Mike Gerrard(2) 21,683 -
Julia Bond(3) 43,000 14,333
John Le Poidevin(4) 46,000 53,000
John Stares(5) 43,000 53,000
Claire Whittet 43,000 53,000
John Whittle(6) 49,000 65,000
Giles Frost(7) 43,000 53,000
Rupert Dorey(8) 67,500 77,500
-------------------- -------------- --------------
1 The 2017 fees include GBP10,000 of fees payable to Board
members with respect to the May 2017 share issuance.
2 Mr Gerrard joined the Board on 4 September 2018.
3 Ms Bond was appointed as Risk Sub-Committee Chair, effective from 1 February 2019.
4 Mr Le Poidevin was appointed as Chairman of the Audit and Risk
Committee on 1 July 2018 for which he receives a higher fee.
5 Mr Stares had lead responsibility for risk within the Risk Sub-Committee during the year.
6 Mr Whittle retired as Chairman of the Audit and Risk Committee on 1 July 2018.
7 The emoluments for Mr Frost are paid to his employer Amber
Infrastructure Limited, a related company of the Company's
Investment Adviser.
8 Mr Dorey became Chairman of the Board on 31 December 2013 for
which he received a higher fee.
Mr Frost is also 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 addition to the director fees above, following Mr Whittle's
appointment as Director to the five Luxembourg subsidiary entities
of International Public Partnerships, he is entitled to fees of
GBP3,000 per entity for the year ended 2018.
Directors' Interests
Directors, who held office at 31 December 2018, had the
following interests in the shares of the Company:
31 DECEMBER 2018 31 DECEMBER 2017
DIRECTOR NUMBER OF ORDINARY SHARES(1) NUMBER OF ORDINARY SHARES(1)
------------------ ----------------------------- -----------------------------
Mike Gerrard(2) 55,739 -
Julia Bond 14,020 -
John Le Poidevin 97,883 65,333
John Stares 75,000 75,000
Claire Whittet(3) 69,602 68,017
John Whittle(4) 58,864 58,864
Giles Frost 893,797 880,313
Rupert Dorey(5) 1,037,614 1,037,614
------------------ ----------------------------- -----------------------------
1 All shares are beneficially held.
2 Mr Gerrard joined the Board on 4 September 2018.
3 Holds shares through a Retirement Annuity Trust Scheme jointly with Ms Whittet's spouse.
4 Holds shares through a Retirement Annuity Trust Scheme.
5 Included in this number are 200,000 shares owned by Mr Dorey's
spouse and 43,927 shares are held by another close family
member.
There have been no changes to the holdings of existing directors
between 31 December 2018 and the date of this report.
Committees of the Board
[Diagram can be found in PDF version of this document on the
Company's website].
The Board has established four Committees consisting of the
independent on-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 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 Gerrard as Board Chairman and Mr Frost as
the Non-Independent Director.
Mr Le Poidevin is the current Chairman of the Audit and Risk
Committee, following his appointment on 1 July 2018. During the
period, Mr Stares had lead responsibility for risk within the Risk
Sub-Committee and was succeeded in the role by Julia Bond,
effective 1 February 2019. During his tenure as Company Chairman,
Mr Dorey, was a member of the Audit and Risk Committee. Whilst the
AIC does not preclude the Board Chairman from being a member of the
Audit and Risk Committee, in line with corporate governance best
practice, it has been agreed that Mr Gerrard, as the new Company
Chairman, would not be a member of the Audit and Risk Committee.
However, Mr Gerrard may attend meetings of the Audit and Risk
Committee at the invitation of the 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, through the separately convened Risk Sub-Committee, is
also responsible for reviewing the Company's risk management
function and framework, in relation to the investment policy of the
Company 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.
The Audit and Risk Committee formally reviews the Company's
overall approach to risk management on an annual basis and its risk
register on at least a quarterly basis. During the year, topics
considered in greater detail included the Company's readiness for
the U.K.'s exit from the European Union; please refer to page 41
for further information. The Committee is 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 the Company's relevant industry peers.
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 Gerrard, as Chairman of the Company following his
appointment upon Mr Dorey's retirement.
The Committee considers proposals relating to the acquisition
and disposal of investments and, if thought fit, approves those
proposals. Details of the transactions completed during the period
are outlined on page 15 of this Annual Report.
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 Ms Whittet. The duties of the
Management Engagement Committee in discharging its responsibilities
are outlined in the diagram on page 58.
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.
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 was chaired during the reporting period by Mr Stares,
with Julia Bond succeeding him as Committee Chair with effect from
1 February 2019.
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 58 for more detail on the Committee).
In accordance with the Corporate Governance Code required for
listed companies of the premium segment of London Stock Exchange,
the Company undertakes an externally facilitated evaluation every
three years. Utilising the services of corporate governance
consultant, Trust Associates, the Nomination and Remuneration
Committee undertook a review of the performance of the Board and
its Committees during 2017. No significant issues were reported as
a result of this review.
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.
The table below lists Directors' attendance at Board and
Committee meetings during the year. In addition, during the year,
five Board Committee meetings1 took place to finalise matters that
had been approved in principle at full meetings of the Board.
MANAGEMENT NOMINATION
QUARTERLY AUDIT AND INVESTMENT ENGAGEMENT AND REMUNERATION
DIRECTORS BOARD RISK COMMITTEE COMMITTEE COMMITTEE COMMITTEE
------------------ ---------- ---------------- ----------- ------------ ------------------
Maximum number 4 5 1 1 2
------------------ ---------- ---------------- ----------- ------------ ------------------
Mike Gerrard(2) 2 N/A N/A 1 1
Julia Bond 4 4 - 1 1
John Le Poidevin 4 5 1 1 2
John Stares 4 5 1 1 2
Claire Whittet 4 5 1 1 2
John Whittle 4 5 1 1 2
Giles Frost(3) 4 N/A N/A N/A N/A
Rupert Dorey 4 5 1 1 2
------------------ ---------- ---------------- ----------- ------------ ------------------
1. Board Committee meetings are formed of any two or more
members of the Board and do not require full attendance. All
members of the Board are appraised of the matters to be discussed
at the Committee meeting and have the opportunity to raise
questions to the Chairman, Investment Adviser or other advisers, as
required.
2. Mr Gerrard joined the Board on 4 September 2018. Mr Gerrard
joined the Committees of the Board (with the exception of the Audit
and Risk Committee) on 29 November 2018.
3. Mr Frost is not a member of the Audit and Risk Committee,
Management Engagement Committee, Nomination & Remuneration
Committee or the Investment Committee. While Mr Frost attended the
majority of ad-hoc Board and Committee meetings, as these meetings
considered recommendations from the Investment Adviser his presence
does not count towards the quorum so has been excluded from this
tally.
The Board has reviewed the composition, structure and diversity
of the Board, succession planning, the independence of the
Directors and whether each of the Directors has sufficient time
available to discharge their duties effectively. The Board confirms
that it believes it has an appropriate mix of skills and
backgrounds, that a majority of directors should be considered as
independent in accordance with the provisions of the AIC Code and
that all directors have the time available to discharge their
duties effectively.
Notwithstanding that a number of the independent directors sit
on the boards of a number of other listed companies, the Board,
noted that these individuals are exclusively non-executive
directors and that listed investment companies generally requires
less day-to-day responsibility and time commitment than trading
companies. Furthermore, the Board noted that attendance of all
Board and Committee meetings during the year is high by all
Directors and that each Director has always shown the time
commitment necessary to fully and effectively discharge their
duties as a director.
Accordingly, the Board recommends that shareholders vote in
favour of the re-election of all directors at the forthcoming
AGM.
Relationship with Administrator and Company Secretary
Estera International Fund Managers (Guernsey) Limited acts as
Administrator and Company Secretary, and is responsible to the
Board under the terms of the Administration Agreement. Noting that
final responsibility lies with the Board, the Administrator ensures
compliance with Guernsey Company Law, London Stock Exchange listing
requirements, the regulatory requirements of the Guernsey Financial
Services Commission, 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 as referred to
above.
Relationship with the Investment Adviser
The Directors are responsible for the overall management and
direction of the affairs of the Company. Under the Investment
Advisory Agreement ('IAA'), Amber Fund Management Limited (a member
of the Amber Infrastructure Group Holdings Limited group of
companies) acts as Investment Adviser to the Company to review and
monitor current investments and to advise the Company in relation
to strategic management of the investment portfolio.
Contractual arrangements and fees
The IAA allows 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
('GAV') and composition of the investment portfolio as well as a
contribution to expenses. The annual base fees are detailed in note
17 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 GAV of the portfolio
> 1.0% for that part of the portfolio that exceeds GBP750
million in GAV but is less than GBP1.5 billion
> 0.9% for that part of the portfolio that exceeds GBP1.5 billion in GAV
In addition, GAV 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 10 year fixed term with a five year
notice period. The Board considers that, given the long-term nature
of the Company's investments, 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. 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 the 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 Company. 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.
Cash receipts from capital raisings and tap issuances are not
included in the GAV for the purposes of the calculation of base
fees until such receipts are invested for the first time.
investment approval process
As outlined above, the Investment Committee, comprised of
independent directors of the Company, make decisions with respect
to new investments or divestments 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 it makes 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 overleaf 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 direction 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 pages 42-48.
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 Senior
Independent Director are available to meet shareholders as
required.
In addition to more formal investor events, such as 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 2018, the Investment Adviser and members of the
Board held formal meetings with over 135 shareholders in addition
to day-to-day interaction, including calls and other forms of
correspondence. In addition, major investors were approached as
part of the externally facilitated Board evaluation process. The
Company also has an active programme of sell-side engagement and
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 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 Regulatory News
Service ('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's website (www.internationalpublicpartnerships.com) enables
investors to easily find publicly disclosed documents including
Annual Reports and RNS announcements, together with additional
background information on its assets and corporate practice.
Investors can register to receive notifications (via email) of RNS
announcements that 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).
AUDIT AND RISK COMMITTEE REPORT
The Audit and Risk Committee (the 'Committee' for the purposes
of this report) is an essential part of the Company's governance
framework. The Board has delegated oversight of the Company's
financial reporting, internal controls, compliance and external
audit to the Committee. During the year, John Le Poidevin was
appointed as Chairman of the Audit and Risk Committee, taking over
the role on 1 July 2018 from John Whittle, who remains as Senior
Independent Director of the Company. An overview of the Committee's
work during the year and details of how the Committee have
discharged our duties is set out below.
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
The Committee meetings during the year were attended by the
Investment Adviser and Administrator by invitation. A
representative of the Company's external auditor, Ernst & Young
LLP ('EY'), also attended those meetings where financial reporting
planning, the Annual Report and financial statements, and the
half-yearly financial report were considered.
All Committee 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
52-53.
Committee Agenda
The Committee's agenda during the year included:
- Review of the Company's risk profile, specific risks and
mitigation practices, with a special focus on Brexit
- Review of the effectiveness of the Company's internal control
systems, including specific focus in the year on tax policies and
procedures, which included an external review
- Review of the regulatory environment the Company operates within
- Review of the Annual Report and financial statements and
half-yearly financial report and matters raised by management and
the external auditors (including significant financial reporting
judgements therein), including consideration of the positive FRC
review observations
- Review of the appropriateness of the Company's accounting policies
- 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 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
Key activities considered during the year
The Committee undertook the following activities in discharging
our responsibilities during the year:
Financial Reporting
The Committee reviewed the Company's Annual Report and financial
statements, the half-yearly financial report and interim management
reports prior to approval by the Board and advised the Board with
respect to meeting the Company's financial reporting obligations.
The Committee 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 its views on whether the
Annual Report and financial statements, taken as a whole, was fair,
balanced and understandable.
The Committee considered the most significant accounting
judgement exercised in preparing the financial statements to be the
basis for determining the fair value of the Company's investments,
as detailed overleaf.
Fair Value of Investments
The Company's investments are typically in unlisted securities,
including shares and debt, 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 11 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. The Committee challenged the Investment Adviser on the
year end fair value of investments as part of our consideration of
the audited statements.
During the period, the Committee 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 prior
years. The Committee also reviewed and challenged the valuation
assumptions (discount rates, interest rates, foreign exchange
rates, inflation rates and tax rates).
The external auditor explained the results of its review of the
valuations, including its assessment of management's underlying
cash flow projections and assumptions; macroeconomic assumptions;
and discount rate methodology and output. The auditor confirmed no
material adjustments were proposed.
The Committee concluded that a consistent valuation methodology
has been applied throughout the year and any forecast assumptions
applied were appropriate.
Revenue Recognition
The 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.
The Committee 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
Following extensive dialogue with management, the Committee
reviewed the Company's 2018 Annual Report and financial statements.
The Committee 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.
FRC review
During the year, the FRC's Corporate Reporting Review team, as
part of its obligations under the Companies Act 2006, performed a
routine review of the Company's 2017 Annual Report and financial
statements. The Committee are pleased to report that the FRC had no
immediate questions or queries to raise following the review. In
pursuit of continuous improvement in the quality of corporate
reporting, the Committee have taken into account additional
recommendations made by the FRC when preparing the current Annual
Report and financial statements. The FRC review provides no
assurance that our Annual Report and financial statements were
correct in all material respects; the FRC's role is not to verify
the information provided but to consider compliance with reporting
requirements.
RISK MANAGEMENT
In addition to our positive work performance as set out within
the risk section of this Annual Report the Committee undertook the
following work:
Viability assessment
The Committee carried out a robust assessment of the principal
risks facing the Company with a view to identify risks which may
impact the Company's viability. Detailed stress tests, including an
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 49.
Tax compliance, reporting and controls review
Companies are increasingly required to manage tax risk by
integrating greater process and controls to meet new and more
stringent reporting requirements, increased regulatory demands, and
audit activity. A critical aspect is the Company's ability to
streamline and strategically manage the end-to-end core processes
underlying all tax activities with a focus on managing risk. During
the year, an external controls and process review was performed by
KPMG focusing on the Company's tax policies and procedures, as well
as reviewing the Company's tax strategy. The review concluded that
appropriate policies and procedures are in place.
The Committee continue to monitor tax regulation and tax policy
developments, in particular developments around the OECD-led BEPS
initiative, across our geographies. Whilst no material net adverse
valuation impacts have currently been noted from enacted
legislation in this area to date, there can be no guarantee that
future responses to the OECD proposals by governments or changes in
approach to current rules as a consequence of changes in guidance
or recognised industry practice will not have a negative impact on
the Company's performance.
U.K. withdrawal from the European Union
Risk management activities during the year also included focus
on the potential risks which may arise on the Company as a result
of the U.K.'s withdrawal from the European Union, as set out on
page 41.
External Auditor
The Committee recommended to the Board the scope and terms of
engagement of the external auditor. The Committee considered
auditor objectivity and independence, audit tenure, audit tendering
and auditor effectiveness as detailed below.
Objectivity and independence
In assessing the objectivity of the auditor, the Committee
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.
The Company's policy for non-audit services was reviewed and
updated in the year to ensure it continues to be effective in
mitigating risks to auditor independence. Under the policy, there
is a specific list of services for which the external auditor
cannot be engaged, as the Committee consider that the provision of
such services would impact its independence. Potential services to
be provided by the external auditor with 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 value require pre-approval by the full Audit and Risk
Committee. Non-audit fees represented 11.5% of total audit fees
during the period under review. 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 7 to the financial statements. These were reported to
us and were not considered to be a significant risk impacting the
objectivity and independence of EY as external auditors.
Audit Tendering and tenure
The Committee annually 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 2018 was the third year for the current lead audit
partner. The Committee continue to challenge EY on its process for
transitioning other key current audit team members reaching the end
of their rotation terms and continue to be actively engaged in the
developments in this area and in ensuring an appropriate level of
continuity of the team.
The Company last put the audits of the Group and its controlled
investee entities out to full tender in October 2010. 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 was
appointed auditor of the Company (previously Deloitte). In line
with the new auditor rotation requirements for listed companies,
the next full tender process is expected to commence during
2020.
Since 2010, the Committee has market tested the audits for a
number of investee level entities, resulting in these audits being
awarded to alternative audit firms, principally KPMG.
Review of auditor effectiveness
As part of our annual review of the objectivity and
effectiveness of the audit, the Committee conducted an in-depth
review in 2018 of the auditor's performance and the Committee were
satisfied in this regard. 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. There were no significant
matters arising which require the service to be immediately
retendered. 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's remuneration
The Committee carried out a review of the proposed audit fees
for 2018. The audit fee for the Group (including unconsolidated
subsidiaries) remained broadly consistent with the prior year. The
Committee consider that the audit fees for 2018 present good value
for money for the Company's shareholders.
Regulatory and Tax Environment
The Committee received regular reports from the Administrator
and Investment Adviser on regulation and regulatory developments.
Main areas of regulatory focus during the year have included the
Common Reporting Standard, Tax Strategy reporting, the Retail
distribution of unregulated collective investment schemes
(regulation which the Company remains excluded from), the U.K.
Criminal Finance Act 2017, the Alternative Investment Fund Managers
Directive ('AIFMD'), The Foreign Account Tax Compliance Act
('FATCA'), and the Packaged Retail and Insurance-based Investment
Products (PRIIPs). The Company maintains, and seeks to maintain,
compliance with all applicable regulation.
Focus for 2019
From 1 February 2019, Julia Bond assumed lead responsibility for
risk within the Risk Sub-Committee, succeeding John Stares who
previously held the role. Alongside routine matters, this year the
Committee will progress the independent review of the Company's ESG
policies and procedures, as well as continuing to monitor any
political, tax and regulatory developments in its applicable
geographies.
John Le Poidevin
Chairman, Audit and Risk Committee
27 March 2019
DIRECTORS' REPORT
Introduction
The Directors present their Annual Report on the performance of
the Company and Group for the year ended 31 December 2018.
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 U.K. Listing Authority and are traded
on the main market of the London Stock Exchange.
The Chairman's Letter and Strategic Report contain a review of
the business during the year. A Corporate Governance Report is
provided on pages 54-63.
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 2018, 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. OF ORDINARY
NAME OF HOLDER % ISSUED CAPITAL SHARES DATE NOTIFIED
------------------------------ ----------------- ---------------- --------------
Investec Wealth & Investment 5 September
Ltd 12.00% 168,673,159 2018
27 September
Schroders plc 6.66% 93,679,484 2018
There have been no additional notices between 31 December 2018
and the date of this report.
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 24 May
2018. The Company will seek to renew such authority at the Annual
General Meeting to take place on 29 May 2019. 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 U.K. 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 7 June
2017. Up to 10% of the Company's shares may be held as treasury
shares.
Going Concern
The Company'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 10-38. The financial
position of the Company (and consolidated subsidiaries), its cash
flows, liquidity position and borrowing are described in the
financial statements from page 77.
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 Company (and consolidated subsidiaries) 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 person 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
Mike Gerrard John Le Poidevin
Chairman Director
27 March 2019 27 March 2019
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 ('IFRS') as adopted by the European Union, of the state
of affairs of the Company and its consolidated subsidiaries (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.
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 IFRS as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and net return
of Group
- The Annual Report and financial statements 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 U.K. 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 it to be fair, balanced and understandable and
that it provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
By order of the Board
Mike Gerrard John Le Poidevin
Chairman Director
27 March 2019 27 March 2019
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF INTERNATIONAL PUBLIC
PARTNERSHIPS LIMITED
Opinion
In our opinion:
- International Public Partnerships Limited's group financial
statements give a true and fair view of the state of the Group's
affairs as at 31 December 2018 and of its profit for the year then
ended;
- the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
- the financial statements have been prepared in accordance with
the requirements of the Companies (Guernsey) Law, 2008
We have audited the financial statements of International Public
Partnerships Limited which comprise:
- Consolidated statement of comprehensive income for the year ended 31 December 2018;
- Consolidated balance sheet as at 31 December 2018;
- Consolidated statement of changes in equity for the year ended 31 December 2018;
- Consolidated cash flow statement for the year ended 31 December 2018; and
- Related notes 1 to 21 to the consolidated financial
statements, including a summary of significant accounting
policies
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (U.K.) (ISAs (U.K.)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report below. We are independent of the
Group in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the U.K., including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND
VIABILITY STATEMENT
We have nothing to report in respect of the following
information in the Annual Report, in relation to which the ISAs
(U.K.) require us to report to you whether we have anything
material to add or draw attention to:
- the disclosures in the Annual Report set out on page 39 that
describe the principal risks and explain how they are being managed
or mitigated
- the Directors' confirmation set out on page 40 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 Directors' Statement set out on page 70 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 12 months
from the date of approval of the financial statements;
- whether the Directors' Statement in relation to going concern
required under the Listing Rules is materially inconsistent with
our knowledge obtained in the audit
- the directors' explanation set out on page 49 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 due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions
Overview of our audit approach
Key audit matters
* Misstatement or manipulation of investment fair value
* Income recognition
------------------ --------------------------------------------------------------
Audit scope
* We performed an audit of International Public
Partnerships Limited and the consolidated service
entities ('the Group'), for the year ended 31
December 2018
* The Group 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 1 of the financial statements.
Service entities are audited to Group materiality
threshold
* All audit work performed for the purposes of the
audit was undertaken by the Group audit team
------------------ --------------------------------------------------------------
Materiality
* Overall Group materiality of GBP22.0 million (2017:
GBP20.4 million) which represents 1% (2017: 1%) of
Equity
------------------ --------------------------------------------------------------
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Misstatement or manipulation of investment fair value
GBP2,097 million (2017: GBP2,005 million)
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 11
of the financial statements and are discussed in the strategic
report - 'Operating Review' and 'Risk Management' sections.
The valuation risk includes the risk of an inappropriate
valuation model being applied, the risk of manipulation
or error in both the assumptions applied and the amount
and timing of expected cash flows.
----------------- --------------------------------------------------------------------
Our response Test of Controls: We have tested the effectiveness of
to the risk controls in operation over investment acquisitions, forecasting
cashflows, distributions and model integrity and we have
placed reliance on control over these processes.
Verification of existence and ownership of Investments:
We have tested, on a sample basis, the ownership of investments
to ensure the Group is entitled to distributions from
the investments.
Valuation assumptions: We have been supported in our testing
of macroeconomic inputs and discount rates by specialists
from our EY Valuation & Business Modelling (EYVBM) team.
We selected a sample of investments that cover specific
risks identified. The following procedures were performed:
Macroeconomic Inputs: We tested that the macroeconomic
inputs (inflation rates, foreign exchange rates, deposit
rates and tax rates) reviewed by our EYVBM team were applied
consistently and accurately in the selected models.
Discount Rates: We engaged our EYVBM specialists to test
the discount rates used in the selected models.
Model integrity: We reviewed management controls including
management's use of third-party audits of the initial
model and analysis of yields. We engaged our EYVBM specialists
to test the year-on-year changes to the logical operation
on selected models.
Model inputs: We agreed a sample of contractual cash flows
to contractual terms and actual cash flows. We engaged
KPMG to perform this work for a part of our sample as
they are the auditors of some of the underlying unconsolidated
subsidiaries which hold the investments selected for testing.
We engaged EYVBM specialists to assess the assumptions
used to determine the underlying variable cash flows which
require significant judgement. Their assessment was based
on a combination of market data and experience of valuing
other similar investments.
We performed the following procedures across the whole
portfolio:
* We reviewed the changes in discount rate of the
assets in the Company's portfolio by analysing the
components of the discount rate build up approach
adopted by management. Any material movements in the
components were discussed with management and
explanations obtained were corroborated with
appropriate evidence
* For a sample of investments, we tested that the
macro-economic inputs (inflation rates, foreign
exchange rates, deposit rates and tax rates) reviewed
by our EYVBM team were applied consistently and
accurately
* We have performed a detailed analytical review based
on year-on-year movement on each investment and
validating significant variances from expectation
* We tested the historical accuracy of forecasting by
comparing the historical forecast distributions from
the projects to the actual distributions
* We tested all acquisitions during the year. There
were no disposals during the year.
Market Review: We engaged EYVBM specialists to provide
benchmarking information on the variable components e.g.
inflation rates, risk free rates, deposit rates etc.
----------------- ------------------------------------------------------------------
Key Observations We confirmed that there were no material matters arising
communicated from our audit work that we wanted to bring to the attention
to the Audit of the Audit Committee.
Committee We confirmed that the valuation of the investments is
fairly stated and was in line with IFRS as adopted by
the European Union.
----------------- ------------------------------------------------------------------
Risk Income recognition
Income primarily comprises of the dividend and interest
income stream generated by the investments held in underlying
subsidiaries.
Management may seek to overstate income as a result of
seeking to report the desired level of return to investors.
----------------- ------------------------------------------------------------------
Our response We updated our understanding of the Group's processes
to the risk and policies for income recognition including our understanding
of the systems and controls implemented.
We reviewed minutes of all board meetings during the year
to ensure dividends declared have been recognised.
We agreed a representative sample of dividend and interest
receipts to documentation from unconsolidated subsidiaries
and we checked the calculation of interest amounts and
the allocation thereof to the appropriate period. We have
performed cut off and completeness testing to conclude
on accuracy.
----------------- ------------------------------------------------------------------
Key Observations We confirmed that there were no matters to bring to the
communicated attention of the Audit Committee.
to the Audit
Committee
----------------- ------------------------------------------------------------------
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Group. This enables us to form an opinion on the financial
statements. We take into account size, risk profile, the
organisation of the Group and effectiveness of controls, including
controls and changes in the business environment when assessing the
level of work to be performed.
The Group consists of International Public Partnerships Limited
('the Company') and the consolidated service entities as explained
in note 1 of the financial statements. All audit work performed for
the purposes of the audit was undertaken by the Group audit
team.
Our application of materiality
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 GBP22.0 million
(2017: GBP20.4 million), which is 1% (2017: 1%) of equity. We
believe that total equity provides us with an appropriate basis for
audit materiality as NAV 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 GBP2,056
million at 30 June 2018 to GBP2,199 million as at 31 December 2018
mainly due to capital raise in October 2018. This resulted in a
higher materiality of GBP22.0 million compared to GBP20.6 million
that was originally determined at the audit planning stage.
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 75% of materiality, namely GBP16.5 million
(2017: GBP15.3 million). We have set performance materiality based
on our understanding of the entity and the past history of no
misstatements (corrected and uncorrected).
Given the importance of interest income, dividend income and
related party fees to the users of the financial statements we also
apply a lower performance materiality of GBP3.7 million (2017:
GBP2.8 million) with regard to misstatements in these balances.
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 GBP1.1 million
(2017: GBP1 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.
OTHER INFORMATION
The other information comprises the information included in the
Annual Report, other than the financial statements and our
auditor's report thereon. The Directors are responsible for the
other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this Annual Report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
- Fair, balanced and understandable statement set out on page 65
by the Directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group's performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit
- Audit Committee reporting set out on page 64
- Directors' Statement of compliance with the U.K. Corporate
Governance Code set out on page 70 the parts of the Directors'
Statement required under the Listing Rules relating to the
Company's compliance with the U.K. Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R (2) do not properly disclose a
departure from a relevant provision of the U.K. Corporate
Governance Code
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
- proper accounting records have not been kept by the Company,
or proper returns adequate for our audit have not been received
from branches not visited by us
- the financial statements are not in agreement with the
Company's accounting records and returns
- We have not received all the information and explanations we require for our audit.
responsibilities of directors
As explained more fully in the Directors' Responsibilities
Statement set out on page 70, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the Directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (U.K.) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
USE OF OUR REPORT
This report is made solely to the Group's members, as a body, in
accordance with Section 262 of the Companies (Guernsey) Law, 2008.
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.
Richard Le Tissier
for and on behalf of Ernst & Young LLP,
Guernsey
Channel Islands
27 March 2019
Notes:
1. The maintenance and integrity of the International Public Partnerships Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.
2. Legislation in the Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEARED 31 DECEMBER 2018
Year ended Year ended
31 December 31 December
2018 2017
Notes GBP'000s GBP'000s
---------------------------------------- ----- --------------- ------------
Interest income 4 71,201 69,356
Dividend income 4 32,018 20,655
Net change in investments at fair value
through profit or loss 4 63,826 49,808
----------------------------------------- ----- --------------- ------------
Total investment income 167,045 139,819
Other operating income 5 622 588
========================================= ===== =============== ============
Total income 167,667 140,407
Management costs 17 (22,798) (20,637)
Administrative costs (1,520) (1,700)
Transaction costs 6, 17 (957) (6,835)
Directors' fees (359) (316)
----------------------------------------- ----- --------------- ------------
Total expenses (25,634) (29,488)
----------------------------------------- ----- --------------- ------------
Profit before finance costs and tax 142,033 110,919
Finance costs 8 (3,944) (4,534)
----------------------------------------- ----- --------------- ------------
Profit before tax 138,089 106,385
Tax credit 9 280 114
----------------------------------------- ----- --------------- ------------
Profit for the year 138,369 106,499
----------------------------------------- ----- --------------- ------------
Earnings per share
From continuing operations
Basic and diluted (pence) 10 9.75 8.36
----------------------------------------- ----- --------------- ------------
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 (2017: nil). The profit for the year represents the Total
Comprehensive Income for the year.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEARED 31 DECEMBER 2018
OTHER DISTRIBUTABLE RETAINED
NOTES SHARE CAPITAL RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2017 1,441,048 182,481 414,769 2,038,298
---------------------------- ------ -------------- -------------------- ---------- ----------
Total comprehensive income - - 138,369 138,369
Issue of Ordinary shares 15 120,270 - - 120,270
Issue costs applied to
new shares 15 (1,075) - - (1,075)
Distributions in the year 15 - - (97,115) (97,115)
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2018 1,560,243 182,481 456,023 2,198,747
---------------------------- ------ -------------- -------------------- ---------- ----------
YEARED 31 DECEMBER 2017
OTHER DISTRIBUTABLE RETAINED
NOTES SHARE CAPITAL RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2016 1,029,387 182,481 391,785 1,603,653
---------------------------- ------ -------------- -------------------- ---------- ----------
Total comprehensive income - - 106,499 106,499
Issue of Ordinary shares 15 417,283 - - 417,283
Issue costs applied to
new shares 15 (5,622) - - (5,622)
Distributions in the year 15 - - (83,515) (83,515)
---------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2017 1,441,048 182,481 414,769 2,038,298
---------------------------- ------ -------------- -------------------- ---------- ----------
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2018
31 DECEMBER 31 DECEMBER
2018 2017
NOTES GBP'000S GBP'000S
---------------------------------- ----- ----------- -----------
Non-current assets
Investments at fair value through
profit or loss 11 2,097,468 2,005,292
---------------------------------- ----- ----------- -----------
Total non-current assets 2,097,468 2,005,292
================================== ===== =========== ===========
Current assets
Financial assets at amortised
cost 11,13 25,234 26,963
Cash and cash equivalents 11 84,718 33,850
Total current assets 109,952 60,813
================================== ===== =========== ===========
Total assets 2,207,420 2,066,105
---------------------------------- ----- ----------- -----------
Current liabilities
Trade and other payables 11,14 8,366 8,303
Derivative financial instruments 11 307 1,704
---------------------------------- ----- ----------- -----------
Total current liabilities 8,673 10,007
---------------------------------- ----- ----------- -----------
Non-current liabilities
---------------------------------- ----- ----------- -----------
Bank loans 8, 11 - 17,800
---------------------------------- ----- ----------- -----------
Total non-current liabilities - 17,800
---------------------------------- ----- ----------- -----------
Total liabilities 8,673 27,807
Net assets 2,198,747 2,038,298
---------------------------------- ----- ----------- -----------
Equity
Share capital 15 1,560,243 1,441,048
Other distributable reserve 15 182,481 182,481
Retained earnings 15 456,023 414,769
---------------------------------- ----- ----------- -----------
Equity attributable to equity
holders of the parent 2,198,747 2,038,298
---------------------------------- ----- ----------- -----------
Net assets per share (pence per
share) 16 148.1 145.0
---------------------------------- ----- ----------- -----------
The financial statements were approved by the Board of Directors
on 27 March 2019.
They were signed on its
behalf by:
Mike Gerrard John Le Poidevin
Chairman Director
27 March 2019 27 March 2019
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2018
Year ended Year ended
31 December 31 December
2018 2017
Notes GBP'000s GBP'000s
------------------------------------------------- ------ ------------- -------------
Profit before tax in the Consolidated Statement
of Comprehensive Income(1) 138,089 106,385
Adjusted for:
Gain on investments at fair value through
profit or loss 4 (63,826) (49,808)
Finance costs(2) 8 3,944 4,534
Fair value movement on derivative financial 5,
instruments 11 (1,397) (2,923)
Working capital adjustments
Decrease in receivables 1,645 2,664
Increase/(decrease) in payables 62 (2,075)
------------------------------------------------- ------ ------------- -------------
78,517 58,777
Income tax (paid)/received(3) (296) 2,525
------------------------------------------------- ------ ------------- -------------
Net cash inflow from operations(4) 78,221 61,302
------------------------------------------------- ------ ------------- -------------
Investing Activities
Acquisition of investments at fair value
through profit or loss 12 (63,293) (464,027)
Net repayments from investments at fair
value through profit or loss 34,943 25,759
------------------------------------------------- ------ ------------- -------------
Funds advanced to affiliated entities(5) - (2,053)
------------------------------------------------- ------ ------------- -------------
Net cash outflow from investing activities (28,350) (440,321)
------------------------------------------------- ------ ------------- -------------
Financing Activities
Proceeds from issue of shares net of issue
costs 114,925 404,385
Dividends paid 15 (92,845) (76,230)
Finance costs paid(2) (3,234) (4,086)
Loan drawdowns(2) 54,991 338,264
------------------------------------------------- ------ ------------- -------------
Loan repayments(2) (72,791) (320,464)
------------------------------------------------- ------ ------------- -------------
Net cash provided by financing activities 1,046 341,869
------------------------------------------------- ------ ------------- -------------
Net increase/(decrease) in cash and cash
equivalents 50,917 (37,150)
Cash and cash equivalents at beginning
of year 33,850 70,981
Foreign exchange (loss)/gain on cash and
cash equivalents (49) 19
================================================= ====== ============= =============
Cash and cash equivalents at end of year(6) 84,718 33,850
------------------------------------------------- ------ ------------- -------------
1 Includes interest received of GBP68.5 million and dividends
received of GBP32.0 million.
2 These are cash flows and non-cash flows for financing
liabilities in accordance with IAS 7, 44A-E.
3 Cash flows received from unconsolidated subsidiary entities in
respect of surrender of tax losses.
4 Net cash flows from operations above are reconciled to net
operating cash flows before capital activity as shown in the
Strategic Report on pages 24-25.
5 Funds advances to affiliated entities to facilitate financial
close of investments around the balance sheet date in the prior
year.
6 Includes restricted cash of GBP42.2 million (2017: GBP1.2
million) which under the terms of the Corporate Debt Facility
Agreement can only be utilised for new investments.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2018
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 the inside back cover. The nature of the Group's
('Parent and consolidated subsidiary entities') operations and its
principal activities are set out on pages 2 and 10
respectively.
These financial statements are presented in pounds sterling as
this is the currency of the primary economic environment in which
the Group 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
U.K. Listing Authority. These 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, and that are not themselves
investment entities. Subsidiaries that do not provide
investment-related services are required to be measured at fair
value through profit or loss in accordance with IFRS 9 Financial
Instruments.
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 GBP42.5 million as at 31 December 2018. The
Company continues to fully cover operating costs and distributions
from underlying cash flows from investments. The Company has access
to a corporate debt facility of GBP400 million, of which GBP399.5
million was uncommitted as at 31 December 2018, and is available
for investment in new and existing projects until July 2021. In
addition, a portion of the facility can be utilised for working
capital purposes. The facility is forecast to continue in full
compliance with the associated banking covenants.
Accounting Policies
The same accounting policies, presentation and methods of
computation are followed in this set of financial statements as
applied in the previous financial year. The new and revised IFRS
and interpretations becoming effective in the period have had no
material impact on the accounting policies of the Group. Note 20
sets out a comprehensive listing of all new standards applicable
from 1 January 2018.
2. Significant Judgements and Estimates
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 evidence of recent transactions are considered. Details
of the valuation process and key sensitivities are provided in note
11.
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating
decision makers of the Company, the Group has identified four
reportable segments based on the geographical risk associated with
the jurisdictions in which it operates. The factors used to
identify the Group's reportable segments are centered on the
risk-free rates and the maturity of the Infrastructure sector
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 U.K., Europe (excl. U.K.), North
America and Australia.
Year ended 31 December 2018
---------- -----------------------------------------------------------------
U.K. Europe (EXCL. North America Australia Total
GBP'000s U.K.) GBP'000s GBP'000s GBP'000s
GBP'000s
------------------------ ---------- ----------------------- -------------- ---------- ----------
Segmental results
Dividend and interest
income 76,463 6,907 8,521 11,328 103,219
Fair value gain on
investments(1) 30,184 23,485 6,298 3,859 63,826
------------------------ ---------- ----------------------- -------------- ---------- ----------
Total investment income 106,647 30,392 14,819 15,187 167,045
------------------------ ---------- ----------------------- -------------- ---------- ----------
Reporting segment
profit(2) 77,348 30,887 14,570 15,564 138,369
------------------------ ---------- ----------------------- -------------- ---------- ----------
Segmental financial
position
Investments at fair
value 1,496,423 290,406 103,767 206,872 2,097,468
Current assets 109,952 - - - 109,952
------------------------ ---------- ----------------------- -------------- ---------- ----------
Total assets 1,606,375 290,406 103,767 206,872 2,207,420
Total liabilities (8,673) - - - (8,673)
------------------------ ---------- ----------------------- -------------- ---------- ----------
Net assets 1,597,702 290,406 103,767 206,872 2,198,747
------------------------ ---------- ----------------------- -------------- ---------- ----------
Year ended 31 December 2017
---------- -----------------------------------------------------------------
Europe (EXCL.
U.K. U.K.) North America Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------- ---------- ----------------------- -------------- ---------- ------------
Segmental results
Dividend and interest
income 69,396 7,759 8,675 4,181 90,011
Fair value gain/(loss)
on investments 15,134 31,043 (1,643) 5,274 49,808
------------------------- ---------- ----------------------- -------------- ---------- ------------
Total investment income 84,530 38,802 7,032 9,455 139,819
------------------------- ---------- ----------------------- -------------- ---------- ------------
Reporting segment
profit(2) 50,621 38,855 7,393 9,630 106,499
------------------------- ---------- ----------------------- -------------- ---------- ------------
Segmental financial
position
Investments at fair
value 1,421,619 277,489 98,349 207,835 2,005,292
Current assets 60,813 - - - 60,813
------------------------- ---------- ----------------------- -------------- ---------- ------------
Total assets 1,482,432 277,489 98,349 207,835 2,066,105
Total liabilities (27,807) - - - (27,807)
------------------------- ---------- ----------------------- -------------- ---------- ------------
Net assets 1,454,625 277,489 98,349 207,835 2,038,298
------------------------- ---------- ----------------------- -------------- ---------- ------------
1 Reporting segment results are stated net of operational costs including management fees.
2 Investment fair value losses for North America investments
were primarily the result of adverse foreign exchange movements in
the year impacting valuation assumptions.
Revenue from investments which individually represent more than
10% of the Group's interest and dividend income approximates
GBP23.0 million (2017: GBP12.1 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 and is recognised gross of withholding tax,
if any.
Dividend income
Dividend income is recognised gross of withholding tax 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 change in investments at fair value through profit or
loss
Net change in investments 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
2018 2017
GBP'000s GBP'000s
------------------------------------------- ------------ ------------
Interest income
Interest on investments 71,201 69,351
Interest on bank deposits - 5
------------------------------------------- ------------ ------------
Total interest income 71,201 69,356
------------------------------------------- ------------ ------------
Dividend income 32,018 20,655
Net change in fair value of investments at
fair value through profit or loss 63,826 49,808
------------------------------------------- ------------ ------------
Total investment income 167,045 139,819
------------------------------------------- ------------ ------------
Dividend and interest income includes that from transactions
with unconsolidated subsidiary entities. Changes in investments at
fair value through profit or loss are also recognised in relation
to the Group's investments in unconsolidated subsidiaries.
5. Other Operating Income
Year ended Year ended
31 December 31 December
2018 2017
GBP'000s GBP'000s
---------------------------------------------- ------------ ------------
Fair value gain on foreign exchange contracts 1,397 2,923
Other losses on foreign exchange movements (775) (2,335)
----------------------------------------------- ------------ --------------
Total other operating income 622 588
----------------------------------------------- ------------ --------------
6. Transaction Costs
Year ended Year ended
31 December 31 December
2018 2017
GBP'000s GBP'000s
----------------------------- ------------ ------------
Investment advisory costs 935 6,835
Legal and professional costs 22 -
----------------------------- ------------ ------------
Total transaction costs 957 6,835
----------------------------- ------------ ------------
Details of total transaction costs paid to the Investment
Adviser are provided in note 17.
7. Auditor's Remuneration
Year ended Year ended
31 December 31 December
2018 2017
GBP'000s GBP'000s
-------------------------------------------------------------- ------------ ------------
Fees payable to the Group's auditor for the
audit of the Group's financial statements 304 306
Fees payable to the Group's auditor and their
associates for other services to the Group
* The audit of the Group's consolidated subsidiaries 46 42
* The audit of the Group's unconsolidated subsidiaries 111 329
-------------------------------------------------------------- ------------ ------------
Total audit fees 461 677
-------------------------------------------------------------- ------------ ------------
Other fees
* Audit related assurance services 11 10
* Other services 42 202
-------------------------------------------------------------- ------------ ------------
Total non-audit fees 53 212
-------------------------------------------------------------- ------------ ------------
8. Finance Costs
Accounting Policy
Interest bearing loans and overdrafts are initially recorded as
the proceeds received net of any directly attributable issue costs.
Subsequent measurement is at amortised cost, with borrowing costs
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 debt facility.
Finance costs for the year were GBP3.9 million (2017: GBP4.5
million). The Group has a corporate debt facility of GBP400 million
provided by Royal Bank of Scotland, National Australia Bank,
Barclays Bank and Sumitomo Mitsui Banking Corporation. 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 specific future cash
investments. As at December 2018 there were no cash drawn amounts
on the facility. The uncommitted balance of the facility which was
not cash drawn or notionally drawn via letters of credit, was
GBP399.5 million.
The facility was renewed in July 2018 on improved terms. The
interest rate margin on the corporate debt facility is 165
(previously 175) basis points over Libor. The loan facility matures
in July 2021 and is secured over the assets of the Group.
9. 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
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 Group
may be subject to withholding tax imposed in the country of origin
of such income.
Year ended Year ended
31 December 2018 31 December
GBP'000s 2017
GBP'000s
------------------------------------------- ----------------- ------------
Current tax:
U.K. corporation tax credit - current year (412) (694)
U.K. corporation tax - prior year - 399
Other overseas tax - current year 82 181
Other overseas tax - prior year 50 -
------------------------------------------- ----------------- ------------
Tax credit for the year (280) (114)
------------------------------------------- ----------------- ------------
Reconciliation of effective tax rate
Year ended
Year ended 31 December
31 December 2018 2017
GBP'000s GBP'000s
------------------------------------------------ ------------------ -------------
Profit before tax 138,089 106,385
------------------------------------------------ ------------------ -------------
Exempt tax status in Guernsey - -
Application of overseas tax rates 82 181
Group tax losses surrendered to unconsolidated
investee entities (412) (694)
Adjustments to previous year's assessment 50 399
------------------------------------------------ ------------------ -------------
Tax credit for the year (280) (114)
------------------------------------------------ ------------------ -------------
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 exception, underlying investee
entity tax is not consolidated within these financial statements.
To provide an indication of the tax paid across the wider
portfolio, total forecasted corporation tax payable by the Group's
underlying investments is in excess of GBP1 billion (2017: GBP1
billion) over their full concession lives.
10. Earnings Per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Year ended Year ended
31 December 31 December
2018 2017
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 138,369 106,499
-------------------------------------------------- ------------- -------------
Number Number
-------------------------------------------------- ------------- -------------
Weighted average number of Ordinary shares for
the purposes of basic and diluted earnings per
share 1,418,962,119 1,273,495,032
-------------------------------------------------- ------------- -------------
Basic and diluted (pence) 9.75 8.36
-------------------------------------------------- ------------- -------------
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.
11. Financial Instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
instrument. 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 IFRS 9 Financial Instruments. Financial liabilities
are derecognised when the obligation is discharged, cancelled or
expired. Specific financial asset and liability accounting policies
are provided below.
11.1 Financial assets
31 December 31 December
2018 2017
GBP'000s GBP'000s
-------------------------------------------------- ----------- -----------
Investments at fair value through profit and loss 2,097,468 2,005,292
Financial assets
Financial assets at amortised cost 25,234 26,963
Cash and cash equivalents 84,718 33,850
Total financial assets 2,207,420 2,066,105
-------------------------------------------------- ----------- -----------
Accounting Policy
The Group classifies its financial assets as at fair value
through profit or loss or as financial assets at amortised costs.
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 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 and other
non-controlled investments are held in a portfolio, the business
model of which is to manage them on a fair value basis. The Group's
policy is to fair value both the equity and debt investments in
underlying 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 total investment income in the Consolidated
Statement of Comprehensive Income.
Financial assets
Trade and other receivables that meet the contracted cash flow
test as solely payments of principal and interest and which are
held in a business model to receive these contractual cash flows
are classified as 'financial assets at amortised cost'. Financial
assets at amortised cost are measured at amortised cost, less any
impairment. 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 classified as financial assets and liabilities
at fair value through profit or loss, held for trading. Derivatives
are recognised initially, and are subsequently remeasured, at fair
value. Derivatives are shown as assets when their fair value is
positive or as liabilities when their fair value is negative. 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 at fair value
through profit or loss are assessed for indicators of impairment at
each balance sheet date using a simplified approach to calculate
any expected credit losses. There is no material impairment at the
balance sheet date.
11.2 Financial liabilities
31 December 31 December
2018 2017
GBP'000s GBP'000s
---------------------------------------- ----------- -----------
Financial liabilities at amortised cost
Trade and other payables 8,366 8,303
Bank loans - 17,800
Derivative financial instruments
Foreign exchange contracts 307 1,704
---------------------------------------- ----------- -----------
Total financial liabilities 8,673 27,807
---------------------------------------- ----------- -----------
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 carrying value of
other liabilities is considered to approximate their fair
value.
11.3 Financial risk management
The Group's objective in managing risk is the 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 39-49). 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
11.4.
The Group's portfolio of investments has been developed in
anticipation of continued inflation at or above the levels used in
the Group's valuation assumptions. Where inflation is at levels
below the assumed levels for a sustained period of time, 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, are fixed rate loans or the risk of adverse
movement in interest rates is limited through protections provided
by the regulatory regime. For example, 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. However, particularly
in Australia, refinancing risk exists in a number of such
investments. The Group's corporate debt 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 within underlying investments
is included within the fair value of investments.
Foreign currency risk
The Group undertakes certain transactions denominated in foreign
currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated
in a foreign currency other than the functional currency in which
they are measured. The Group uses forward foreign exchange
contracts to mitigate the risk of short-term volatility in foreign
exchange on significant investment returns from overseas
investments. The Group doesn't hedge its exposure to foreign
exchange in relation to foreign currency denominated investment
balances. 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
2018 2017
GBP'000s GBP'000s
------------------------------------------------- ----------- -----------
Cash
Euro 2,555 204
Canadian Dollar 1,184 1,486
Australian Dollar 97 196
U.S. Dollar 1,227 405
------------------------------------------------- ----------- -----------
5,063 2,291
Current receivables
Euro receivables 1,454 1,650
U.S. Dollar receivables 183 329
------------------------------------------------- ----------- -----------
1,637 1,979
Investments at fair value through profit or loss
Euro 290,406 277,489
Canadian Dollar 38,163 38,287
Australian Dollar 206,872 207,835
U.S. Dollar 65,604 60,062
------------------------------------------------- ----------- -----------
601,045 583,673
------------------------------------------------- ----------- -----------
Total 607,745 587,943
------------------------------------------------- ----------- -----------
Sensitivity analysis showing the impact of variations of the
above risks on the fair value of investments is shown in section
11.5.
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 with creditworthy
counterparties and reviewing this on a regular basis at the
underlying entity level. The majority of underlying investments are
in public-private partnerships and similar concessions (which are
entered into with government, quasi government, other public,
equivalent low risk bodies), or in regulated businesses that
inherently exhibit low levels of credit risk. The maximum exposure
of credit risk over financial assets as a result of counterparty
default is the carrying value of those financial assets in the
balance sheet. In addition, the underlying investee entities
contract with third-party construction and facilities managements
contractors. The Group seeks to mitigate this risk through using a
diverse range of sub-contractors and through at least quarterly
review of the credit position of major contractors.
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 capital redemption
rights. The Group manages liquidity risk by maintaining adequate
cash reserves, banking facilities and reserve borrowing facilities
and by continuously monitoring forecast and actual cash flows. Cash
flow forecasts assume full availability of underlying
infrastructure to the relevant public sector body or end-user.
Failure to maintain assets available for use or operating in
accordance with pre-determined performance standards or licence
conditions may lead to a reduction (wholly or partially) in the
investment 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. The
terms of public-private partnership contractual mechanisms also
allow for significant pass-down of unavailability and performance
risk to sub-contractors. Regulated asset regimes allow for the pass
through of efficiently incurred costs to the purchaser.
11.4 Fair value hierarchy
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 - Quoted market prices in an active market (that are
unadjusted) for identical assets or liabilities
Level 2 - Valuation techniques (for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable)
Level 3 - Valuation techniques (for which the lowest level input
that is significant to the fair value measurement is
unobservable)
During the period there were no transfers between Level 2 and
Level 3 categories.
Level 1:
The Group has no financial instruments classified as Level
1.
Level 2:
This category includes derivative financial instruments such as
interest rate swaps, RPI Swaps and currency forward contracts. As
at 31 December 2018, the Group's only derivative financial
instruments were currency forward contracts amounting to a
liability of GBP0.3 million (2017: GBP1.7 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 and
other non-controlled investments which are classified at fair value
through profit or loss. At 31 December 2018, the fair value of
financial instruments classified within Level 3 totalled GBP2,097.5
million (2017: GBP2,005.3 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
quarterly1 basis by the Investment Adviser and reviewed by the
senior members of the Investment Adviser.
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.
Cash flow forecasts for the full-term of each underlying
investment are generated by detailed investment specific financial
models. These models forecast the dividend, shareholder loan
interest payments, capital repayments and senior debt repayments
(where applicable) expected from the underlying investments. 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's estimations
(see also pages 24-25 of the strategic report). The significant
unobservable inputs and assumptions used in projecting the Group's
net future cash flows are shown overleaf:
1 Indicative valuations are calculated in respect of each at 31
March and 30 September.
Europe
31 december 2018 U.K. (Excl. U.K.) North America Australia
----------------------------- -------------- -------------- ------------------ ----------
Inflation 2.75% RPI, 2.00% 2.00% 2.50%
2.00% CPIH
Long-term tax 19.00%-17.00% 12.50%-29.58% 26.50% -27.00%(1) 30.00%
Foreign exchange rates N/A 1.05 1.34-1.80 1.88
Long-term deposit rates 2.00% 2.00% 2.00% 3.00%
----------------------------- -------------- -------------- ------------------ ----------
Europe
31 december 2017 U.K. (Excl. U.K.) North America Australia
----------------------------- -------------- -------------- ------------------ ----------
Inflation 2.75% RPI 2.00% 2.00% 2.50%
Long-term tax 19.00%-17.00% 12.50%-29.58% 26.50% -27.00%(1) 30.00%
Foreign exchange rates N/A 1.08 1.43-1.78 1.85
Long-term deposit rates 2.00% 2.00% 2.00% 3.00%
----------------------------- -------------- -------------- ------------------ ----------
1 Related to investments in Canada.
Discount rate
The discount rate used in the valuation of each investment is
the aggregate of the following:
- Yield on a government bond with a remaining term equivalent to
(or as close as possible to) the investment being valued, issued by
the national government for the location of the relevant investment
('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. However, the rate may increase in
relation to investments with unknown residual values at the end of
the relevant concession life as that date nears
- A further adjustment reflective of market-based transaction
valuation evidence for similar assets
Over the period, the weighted average government bond yield was
stable. The weighted average investment risk premium decreased by
0.26%, reflecting observable market-based evidence. Further details
are provided within the Strategic Report on pages 30-31.
31 December 2018 31 December
Valuation ASSUMPTIONS 2017 Movement
----------------------------- ----------------- ------------ ---------
Weighted Average Government
Bond Yield 1.83% 1.83% -
Weighted Average Investment
Risk Premium 5.43% 5.69% (0.26%)
----------------------------- ----------------- ------------ ---------
Weighted Average Discount
Rate 7.26% 7.52% (0.26%)
----------------------------- ----------------- ------------ ---------
Weighted Average Discount
Rate on Risk Capital(1) 7.55% 7.87% (0.32%)
----------------------------- ----------------- ------------ ---------
1 Weighted average discount rate on Risk Capital only (equity and subordinated debt).
Reconciliation of Level 3 fair value measurements 31 DECEMBER 31 DECEMBER
of financial assets: 2018 2017
--------------------------------------------------- ------------- -------------
Balance at 1 January 2,005,292 1,515,163
Additional investments during the year 63,293 464,027
Net repayments during the year (34,943) (25,759)
Funds advanced to affiliated entities - 2,053
Net change in fair value of investments at
fair value through profit or loss 63,826 49,808
--------------------------------------------------- ------------- -------------
Balance at 31 December 2,097,468 2,005,292
--------------------------------------------------- ------------- -------------
11.5 Sensitivity analysis
The valuation requires management to make certain assumptions in
relation to unobservable inputs to the model. There are no straight
forward inter-relationships between the unobservable inputs. A
sensitivity analysis for reasonably possible alternative
assumptions is provided below:
Weighted average Change in Change in
rate in base fair value fair value
Significant assumptions case valuations Sensitivity of investment Sensitivity of investment
31 DECEMBER 2018 factor GBP'000's factor GBP'000's
------------------------ ------------------- ----------- -------------- ----------- --------------
Discount rate 7.26% +1.00% (215,216) -1.00% 259,450
------------------------ ------------------- ----------- -------------- ----------- --------------
Inflation rate
(overall) 2.38% +1.00% 260,898 -1.00% (220,864)
U.K. 2.75% +1.00% 204,773 -1.00% (173,197)
Europe 2.00% +1.00% 46,126 -1.00% (39,019)
North America(1) 2.00% +1.00% 1,079 -1.00% (917)
Australia 2.50% +1.00% 8,920 -1.00% (7,709)
------------------------ ------------------- ----------- -------------- ----------- --------------
FX rate N/A +10.00% 60,833 -10.00% (60,820)
------------------------ ------------------- ----------- -------------- ----------- --------------
Tax rate 17.65% +1.00% (19,044) -1.00% 18,970
------------------------ ------------------- ----------- -------------- ----------- --------------
Deposit rate 1.87% +1.00% 23,842 -1.00% (22,310)
------------------------ ------------------- ----------- -------------- ----------- --------------
Weighted average Change in Change in
rate in base fair value fair value
Significant assumptions case valuations Sensitivity of investment Sensitivity of investment
31 DECEMBER 2017 factor GBP'000's factor GBP'000's
------------------------ ------------------- ----------- -------------- ----------- --------------
Discount rate 7.52% +1.00% (199,454) -1.00% 240,577
------------------------ ------------------- ----------- -------------- ----------- --------------
Inflation rate
(overall) 2.60% +1.00% 215,094 -1.00% (181,979)
U.K. 2.75% +1.00% 160,216 -1.00% (135,020)
Europe 2.00% +1.00% 44,149 -1.00% (37,210)
North America(1) 2.00% +1.00% 1,055 -1.00% (1,224)
Australia 2.50% +1.00% 9,685 -1.00% (8,515)
------------------------ ------------------- ----------- -------------- ----------- --------------
FX rate N/A +10.00% 58,876 -10.00% (58,882)
------------------------ ------------------- ----------- -------------- ----------- --------------
Tax rate 19.85% +1.00% (13,625) -1.00% 13,715
------------------------ ------------------- ----------- -------------- ----------- --------------
Deposit rate 2.11% +1.00% 22,433 -1.00% (22,429)
------------------------ ------------------- ----------- -------------- ----------- --------------
1 Relates to Canadian investments only.
12. Investments
2018
Consideration % Ownership
Date of investment Description GBP'000's post investment
-------------------- ---------------------------------------------- -------------- -----------------
The Group funded a final tranche
of investment in the Gold Coast Rapid
2 January 2018 Transport project, Australia 575 30%
The Group made an investment to acquire
an additional interest in the Hertfordshire
Phase 1 Building Schools for the
28 March 2018 Future project, U.K. 1,745 100%
The Group made investments as part
April - December of its commitment to the National
2018 Digital Infrastructure Fund, U.K. 14,807 45%
The Group made an investment in the
7 November Dudgeon offshore transmission project,
2018 U.K. 46,166 100%
Total capital spend on investments during the
year 63,293
-------------------------------------------------------------------- -------------- -----------------
2017
Consideration % Ownership
Date of investment Description GBP'000's post investment
-------------------- ---------------------------------------------- -------------- -----------------
The Group funded four further tranches
March - December of investment in the Tideway project,
2017 U.K. 78,234 15.99%
The Group, as part of a consortium,
made an investment to acquire a share
of 61% of Cadent gas distribution
31 March 2017 networks business, U.K. 272,501 4.4%
The Group made an investment to acquire
an additional interest in the Wolverhampton
5 May 2017 Building Schools for the Future project 1,536 90%
The Group funded six tranches of investment
July - December for the extension of the Gold Coast
2017 Rapid Transport project, Australia 3,899 30%
The Group funded four tranches of
September - investment in the Victoria Schools
December 2017 Two project, Australia 20,797 100%
The Group made an investment to acquire
an additional interest in the Reliance
28 November Rail rolling stock project in New
2017 South Wales, Australia 86,779 33%
The Group injected funding as part
8 December of its investment in the National
2017 Digital Infrastructure Fund, U.K. 230 45%
-------------------- ---------------------------------------------- -------------- -------------------
The Group made an initial investment
21 December on financial close of a Police Centre
2017 project in Offenbach, Germany 51 45%
-------------------- ---------------------------------------------- -------------- -------------------
Total capital spend on investments during the
year 464,027
-------------------------------------------------------------------- -------------- -----------------
1 Acquired debt only.
13. financial assets at amortised cost
31 December 31 December
2018 2017
GBP '000's GBP'000's
------------------------------------------ ------------ -------------
Accrued interest receivable 20,704 22,295
Other debtors 4,530 4,668
------------------------------------------ ------------ -------------
Total financial assets at amortised cost 25,234 26,963
------------------------------------------ ------------ -------------
Other debtors included GBP4.3 million (2017: GBP3.8 million) of
receivables from unconsolidated subsidiary entities for surrender
of Group tax losses.
14. Trade and Other Payables
31 December 31 December
2018 2017
GBP '000s GBP'000s
-------------------------------- ------------ -------------
Accrued management fee 7,131 7,056
Other creditors and accruals 1,235 1,247
-------------------------------- ------------ -------------
Total trade and other payables 8,366 8,303
-------------------------------- ------------ -------------
15. Share Capital and Reserves
31 December 31 December
2018 2017
shares shares
Share capital GBP'000s GBP'000s
---------------------------------------- ----------- -----------
In issue 1 January 1,405,420 1,127,421
Issued for cash 76,066 273,333
Issued as a scrip dividend alternative 2,843 4,666
----------------------------------------- ----------- -----------
In issue at 31 December - fully paid 1,484,329 1,405,420
----------------------------------------- ----------- -----------
31 December 31 December
2018 2017
GBP'000s GBP'000s
----------------------------------------- ----------- ----------------------
Opening balance 1,441,048 1,029,387
------------------------------------------ ----------- ----------------------
Issued for cash (excluding issue costs) 116,000 410,000
Issued as a scrip dividend alternative 4,270 7,283
------------------------------------------ ----------- ----------------------
Total share capital issued in the year 120,270 417,283
------------------------------------------ ----------- ----------------------
Costs on issue of Ordinary Shares (1,075) (5,622)
------------------------------------------ ----------- ----------------------
Balance at 31 December 1,560,243 1,441,048
------------------------------------------ ----------- ----------------------
At present, the Company has one class of Ordinary Shares which
carry no right to fixed income.
On 29 October 2018, the Group raised an additional GBP116
million of equity through a tap issue of 76,065,574 Ordinary Shares
at an issue price per share of 152.5 pence.
On 8 November 2018, 2,843,332 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
2018.
31 December 31 December
2018 2017
Other distributable reserve GBP'000s GBP'000s
---------------------------- ----------- -----------
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
2018 2017
Retained earnings GBP'000s GBP'000s
------------------------ ----------- -----------
Opening balance 414,769 391,785
Net profit for the year 138,369 106,499
Dividends paid(1) (97,115) (83,515)
------------------------ ----------- -----------
Closing balance 456,023 414,769
------------------------ ----------- -----------
1 Includes scrip element of GBP4.3 million in 2018 (2017: GBP7.3 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 2018.
The Board has approved interim distributions as follows:
Year ended Year ended
31 December 31 December
2018 2017
GBP'000s GBP'000s
-------------------------------------------------- ------------ ------------
Amounts recognised as distributions to equity
holders for the year ended 31 December 97,115(1) 83,515
Declared
Interim distribution for the period 1 January
to 30 June 2018 was 3.5 pence per share (2017:
3.41 pence per share) 49,189 46,028
Interim distribution for the period 1 July to
31 December 2018 was 3.5 pence per share2 (2017:
3.41 pence per share) 51,952 47,945
-------------------------------------------------- ------------ ------------
1 Includes the 2017 interim distribution for the period 1 July to 31 December 2017.
2 The distribution for the period 1 July to 31 December 2018 was
approved by the Board on 27 March 2019 and therefore has not been
included as a liability in the balance sheet for the year ended 31
December 2018.
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 debt 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 ongoing expenses and dividend
payments. The Group's investment policy is set out in the Corporate
Governance Report on pages 50-51.
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 associated risks.
16. Net Assets per Share
31 December 31 December
2018 2017
GBP'000s GBP'000s
---------------------------------------------- ------------- -------------
Net assets attributable to equity holders of
the parent 2,198,747 2,038,298
----------------------------------------------- ------------- -------------
Number Number
---------------------------------------------- ------------- -------------
Number of shares
Ordinary shares outstanding at the end of the
year 1,484,329,031 1,405,420,125
----------------------------------------------- ------------- -------------
Net assets per share (pence per share) 148.1 145.0
----------------------------------------------- ------------- -------------
17. 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 and International Public Partnerships GP Limited are
subsidiary companies 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 GBP43,000 (2017: GBP43,000) for Mr G
Frost's directorship of the Company are paid to his employer, Amber
Infrastructure Limited (a member of the Amber Group).
The amounts of the transactions in the year that were related
party transactions are set out in the table below:
Amounts owing to
Related party expense related parties in
in the Income Statement the Balance Sheet
---------------------------- ----------------------------
For the For the
year ended year ended At At
31 December 31 December 31 December 31 December
2018 2017 2018 2017
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------------- ------------- ------------- ------------- -------------
International Public Partnerships
GP Limited 22,798 20,637 7,131 7,056
Amber Fund Management Limited(1) 957 6,835 2 103
----------------------------------- ------------- ------------- ------------- -------------
Total 23,755 27,472 7,133 7,159
----------------------------------- ------------- ------------- ------------- -------------
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 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
Asset origination 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 2018, Amber Infrastructure held 8,002,379
(2017: 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 year are disclosed
below:
Number of New Ordinary Shares
------------------ --------------------------------
YEARED 31 YEARED 31
Director DECEMBER 2018 DECEMBER 2017
------------------ --------------- ---------------
Mike Gerrard 55,739 -
------------------ --------------- ---------------
Julia Bond 14,020 -
------------------ --------------- ---------------
John Le Poidevin 32,550 65,333
------------------ --------------- ---------------
Claire Whittet 1,585 15,760
------------------ --------------- ---------------
John Whittle - 6,666
------------------ --------------- ---------------
Giles Frost 13,484 367,039
Rupert Dorey - 329,000
------------------ ---------------
Total purchased 117,378 783,798
Remuneration paid to the Non-Executive Directors is disclosed on
page 56.
18. Contingent Liabilities and commitments
As at 31 December 2018 the Group has committed funding of up to
c. GBP195.0 million (2017: GBP179.1 million), including committed
investment amounts as noted in the Strategic Report on page 15 and
amounts supported by letter of credit which were notionally drawn
against the Group's corporate debt facility.
There were no contingent liabilities at the date of this
report.
19. Events after Balance Sheet Date
There were no events to report after the balance sheet date.
20. Other Mandatory Disclosures
New Standards that the Group has applied from 1 January 2018
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.
- IFRS 9 Financial Instruments (1 January 2018)
- IFRS 15 Revenue from Contracts with Customers (1 January 2018)
- Clarifications to IFRS 15 Revenue from Contracts with Customers (1 January 2018)
- Amendments to IFRS 2 Classification and Measurement of
Share-based Payment Transactions (1 January 2018)
- Amendments to IAS 40 Transfers of Investment Property (1 January 2018)
- Amendments to IFRS 4 Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts (1 January 2018)
- IFRIC Interpretation 22 Foreign Currency Transactions and
Advance Consideration (1 January 2018)
-
Standards Issued but not yet Effective
Standards issued but 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,
however does not currently anticipate the standards to have a
significant impact on the Group's financial statements. Current
assumptions regarding the impact of future standards will remain
under consideration in light of interpretation notes as and when
they are issued.
- IFRS 16 Leases (1 January 2019)
- Amendments to IFRS 9 Prepayment Features with Negative Compensation (1 January 2019)
- Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (1 January 2019)
- IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (1 January 2019)
- IFRS 17 Insurance Contracts (1 January 2021)
Unconsolidated subsidiaries
A list of the significant investments in unconsolidated
subsidiaries, including the name, country of incorporation as at 31
December 2018 and proportion of ownership is shown below:
Place of incorporation Proportion
(or registration) of ownership
Name and operation interest %
Abingdon Limited Partnership U.K. 100
Aggregator PLC U.K. 100
Access Justice Durham Limited Canada 100
AKS Betriebs GmbH & Co. KG Germany 98
BBPP Alberta Schools Limited Canada 100
Blackburn with Darwen Phase 1 Limited U.K. 90
Blackburn with Darwen Phase 2 Limited U.K. 90
BPSL No. 2 Limited Partnership U.K. 100
Building Schools for the Future Investments
LLP U.K. 100
Calderdale Schools Partnership U.K. 100
CHP Unit Trust Australia 100
Derby City BSF Limited U.K. 90
Derbyshire Courts Limited Partnership U.K. 100
Derbyshire Schools U.K. 100
Derbyshire Schools Phase Two Partnership U.K. 100
Future Ealing Phase 1 Limited U.K. 80
4 Futures Phase 1 Limited U.K. 90
4 Futures Phase 2 Limited U.K. 90
Hertfordshire Schools Building Partnership
Phase 1 Limited U.K. 100
H&W Courts Limited Partnership U.K. 100
INPP Infrastructure Germany GmbH & Co.
KG Germany 100
Inspire Partnership Limited Partnership U.K. 100
IPP CCC Limited Partnership Ireland 100
Inspiredspaces Durham (Project Co 1) Limited U.K. 91
Kent PFI (Project Co 1) Limited U.K. 58
Inspiredspaces Nottingham (Project Co
1) Limited U.K. 82
Inspiredspaces Nottingham (Project Co
2) Limited U.K. 82
Inspiredspaces STaG (Project Co 1) Limited U.K. 90
Inspiredspaces STaG (Project Co 2) Limited U.K. 90
Inspiredspaces Wolverhampton (Project
Co 1) Limited U.K. 90
Inspiredspaces Wolverhampton (Project
Co 2) Limited U.K. 90
Transform Islington (Phase 1) Limited U.K. 90
Transform Islington (Phase 2) Limited U.K. 90
IPP (Moray Schools) Holdings Limited U.K. 100
LCV Project Trust Australia 100
Maesteg School Partnership U.K. 100
Norfolk Limited Partnership U.K. 100
Northampton Schools Limited Partnership U.K. 100
Northern Diabolo N.V. Belgium 100
Oldham BSF Limited U.K. 99
Pinnacle Healthcare (OAHS) Trust Australia 100
Plot B Partnership U.K. 100
St Thomas More School Partnership U.K. 100
PPP Solutions (Long Bay) Partnership Australia 100
PPP Solutions (Showgrounds) Trust Australia 100
Strathclyde Limited Partnership U.K. 100
TH Schools Limited Partnership U.K. 100
TC Robin Rigg OFTO Limited U.K. 100
TC Barrow OFTO Limited U.K. 100
TC Gunfleet Sands OFTO Limited U.K. 100
TC Ormonde OFTO Limited U.K. 100
TC Lincs OFTO Limited U.K. 100
TC Westermost Rough OFTO Limited U.K. 100
TC Dudgeon OFTO PLC U.K. 100
The entities listed above in aggregate represent 63.0% (2017:
62.2%) of investments at fair value through profit or loss. The
remaining fair value is driven from joint ventures, associate
interests and minority stakes held by the Group.
Consolidated subsidiaries
The principal subsidiary undertakings of the Company, all of
which have been included in these consolidated financial statements
are as follows:
Place of incorporation Proportion of
(or registration) ownership
Name and operation interest %
International Public Partnerships Limited
Partnership U.K. 100
International Public Partnerships Lux
1 Sarl Luxembourg 100
International Public Partnerships Lux
2 Sarl Luxembourg 100
IPP Bond Limited U.K. 100
IPP Investments Limited Partnership U.K. 100
21. Investments
The Group holds 130 investments across energy transmission,
education, transport, health, courts, wastewater, police, military
housing and other sectors. The table overleaf sets out the Group's
investments that are recorded at fair value through profit or
loss.
Per cent.
Status at Risk Capital
31 December Owned by the INvestment
Investment Name Country 2018 Group(1) end
U.K.
U.K. PPP Assets
Calderdale Schools U.K. Operational 100.0 April 2030
Derbyshire Schools Phase
Two U.K. Operational 100.0 February 2032
December
Northamptonshire Schools U.K. Operational 100.0 2037
Derbyshire Courts U.K. Operational 100.0 August 2028
Derbyshire Schools Phase
One U.K. Operational 100.0 April 2029
North Wales Police HQ U.K. Operational 100.0 December 2028
St Thomas More Schools U.K. Operational 100.0 April 2028
Tower Hamlets Schools U.K. Operational 100.0 August 2027
Norfolk Police HQ U.K. Operational 100.0 December 2036
Strathclyde Police Training September
Centre U.K. Operational 100.0(2) 2026
Hereford & Worcester Courts U.K. Operational 100.0(2) September
2025
Abingdon Police Station U.K. Operational 100.0 April 2030
Bootle Government Offices U.K. Operational 100.0 June 2025
Maesteg Schools U.K. Operational 100.0 July 2033
Moray Schools U.K. Operational 100.0 February
2042
Liverpool Library U.K. Operational 100.0 November
2037
Priority Schools Building Aggregator
Programme
Batch 1 - Schools in North U.K. Operational 0.0(2) August 2040
East England
Batch 2 - Schools in Hertfordshire,
Luton and Reading U.K. Operational 0.0(2) November 2040
Batch 3 - Schools in North U.K. Operational 0.0(2) August 2041
West of England
Batch 4 - Schools in the U.K. Construction 0.0(2) December
Midlands Region 2041
Batch 5 - Schools in Yorkshire U.K. Operational 0.0(2) September
2041
OFTOs
Robin Rigg OFTO U.K. Operational 100.0 March 2031
Gunfleet Sands OFTO U.K. Operational 100.0 July 2031
Barrow OFTO U.K. Operational 100.0 March 2030
Ormonde OFTO U.K. Operational 100.0(2) July 2032
Lincs OFTO U.K. Operational 100.0(2) November
2034
Westermost Rough OFTO U.K. Operational 100.0 February 2036
Dudgeon OFTO U.K. Operational 100.0 November 2038
Building Schools for the
Future Portfolio
Minority Shareholdings
in 26
Building Schools for the
Future Projects U.K. Mixed Various Various
Blackburn with Darwen Phase U.K. Operational 90.0 September
One 2036
Blackburn with Darwen Phase U.K. Operational 90.0 September
Two 2039
Derby City U.K. Operational 90.0 August 2037
Durham Schools U.K. Operational 91.0 January 2036
Ealing Schools Phase One U.K. Operational 80.0 March 2038
Halton Place U.K. Operational 45.0 March 2038
Hertfordshire Schools Phase U.K. Operational 100.0 August 2037
One
Islington Phase One U.K. Operational 90.0 August 2034
Islington Phase Two U.K. Operational 90.0 March 2039
Oldham Schools U.K. Operational 99.0 August 2037
Tameside Schools One U.K. Operational 46.0 August 2036
Tameside Schools Two U.K. Operational 46.0 August 2037
Nottingham Schools One U.K. Operational 82.0 August 2034
Nottingham Schools Two U.K. Operational 82.0 August 2038
South Tyneside and Gateshead U.K. Operational 90.1 October 2034
Schools One
South Tyneside and Gateshead U.K. Operational 90.1 September
Schools Two 2036
Southwark Phase One U.K. Operational 90.0 January 2036
Southwark Phase Two U.K. Operational 90.0 December
2036
Wolverhampton Schools Phase U.K. Operational 90.0 September
One 2037
Wolverhampton Schools Phase U.K. Operational 90.0 August 2040
Two
Kent Schools U.K. Operational 58.0 August 2035
NHS LIFT Portfolio
Beckenham Hospital U.K. Operational 49.8 December
2033
Garland Road Health Centre U.K. Operational 49.8 December
2031
Alexandra Avenue Primary
Care Centre, Monks Park
Health Centre (two projects) U.K. Operational 49.8 June 2031
Gem Centre Bentley Bridge,
Phoenix Centre December
(two projects) U.K. Operational 49.8 2030
Sudbury Health Centre U.K. Operational 49.8 November
2032
Mt Vernon U.K. Operational 49.8 December
2033
Lakeside U.K. Operational 49.8 November
2032
Fishponds Primary Care
Centre, Hampton House Health
Centre (two projects) U.K. Operational 33.4 January 2031
Shirehampton Primary Care
Centre, Whitchurch Primary
Care Centre (two projects) U.K. Operational 33.4 May 2032
Blackbird Leys Health Centre,
East Oxford Care Centre
(two projects) U.K. Operational 33.4 May 2031
Brierley Hill U.K. Operational 34.3 April 2035
Ridge Hill Learning Disabilities
Centre, Stourbridge Health
& Social Care Centre
(two projects) U.K. Operational 34.3 October 2031
Harrow NRC (three projects) U.K. Operational 49.8 June 2034
Goscote Palliative Care U.K. Operational 49.8 November
Centre 2035
South Bristol Community U.K. Operational 33.4 February
Hospital 2042
East London LIFT Project U.K. Operational 30.0 October 2030
One (four projects)
East London LIFT Project U.K. Operational 30.0 April 2033
Two (three projects)
East London LIFT Project
Three
(Newby Place) U.K. Operational 30.0 May 2037
East London LIFT Project U.K. Operational 30.0 August 2036
Four (two projects)
Other U.K.
Angel Trains U.K. Operational 4.8 December
2038
Tideway U.K. Construction 15.99 March 2150
Cadent U.K. Operational 4.4 June 2069
National Digital Infrastructure U.K. Operational 45.0 July 2027
Fund
Australia
Royal Melbourne Showgrounds Australia Operational 100.0 August 2031
Long Bay Forensic & Prisons Australia Operational 100.0 July 2034
Hospital Project
Reliance Rail Australia Operational 33.0 February
2044
Royal Children's Hospital Australia Operational 100.0 December
2036
Orange Hospital Australia Operational 100.0 December
2035
NSW Schools Australia Operational 25.0 December
2035
Gold Coast Rapid Transport Australia Operational 30.0 May 2029
Victoria Schools Two Australia Operational 100.0 December
2042
North America
Alberta Schools Canada Operational 100.0 June 2040
Durham Courts Canada Operational 100.0 November
2039
U.S. Military Housing U.S. Operational 0.0(2) October 2052
Europe (ex U.K.)
Diabolo Rail Link Project Belgium Operational 100.0 June 2047
Dublin Courts Ireland Operational 100.0 February
2035
BeNEX (Bus and Rail) Germany Operational 49.0 December
2037
Federal German Ministry
of Education and Research
Headquarters Germany Operational 97.0 July 2041
Pforzheim Schools Germany Operational 98.0 September
2039
Offenbach Police Centre Germany Construction 45.0 June 2050
Brescia Hospital Italy Operational 37.0 November
2021
1 Risk Capital includes project level equity and/or subordinated shareholder debt
2 Investment contains senior or mezzanine debt in addition to
any Risk Capital ownership shown
CONTACTS
Investment Adviser Auditor Corporate Brokers
Amber Fund Management Ernst & Young LLP Numis Securities Limited
Limited Royal Chambers The London Stock Exchange
3 More London Riverside St Julian's Avenue Building
London St Peter Port 10 Paternoster Square
SE1 2AQ Guernsey London
Channel Island EC4M 7LT
GY1 4AF
Registered Office Legal Adviser Public Relations
Heritage Hall Carey Olsen FTI Consulting
PO Box 225, Le Marchant PO Box 98, Carey House 200 Aldersgate
Street Les Banques Aldersgate Street
St Peter Port Guernsey London
Guernsey Channel Islands EC1A 4HD
Channel Islands GY1 4BZ
GY1 4HY
Administrator and Company
Secretary Corporate Banker
Estera International Fund Royal Bank of Scotland
Managers (Guernsey) Limited International
Heritage Hall 1 Glategny Esplanade
PO Box 225, Le Marchant St Peter Port
Street Guernsey
St Peter Port Channel Islands
Guernsey GY1 4BQ
Channel Islands
GY1 4HY
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MMGZFRNGGLZM
(END) Dow Jones Newswires
March 28, 2019 03:01 ET (07:01 GMT)
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