TIDMINPP
RNS Number : 5449Y
International Public Partnerships
10 September 2020
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY,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.
10 September 2020
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
('INPP', the 'Company')
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2020
OPERATIONAL UPDATE
-- The high quality of the Company's investments and the active
stewardship of the portfolio by the Investment Adviser, Amber
Infrastructure Group ('Amber'), has ensured that the portfolio has
continued to perform well, both for shareholders and wider
stakeholders.
-- The Company has to date, experienced limited impact from
Covid-19 on its financial and operational performance and net cash
flows received in the period were consistent with expectations
prior to the pandemic.
-- However, there are a few specific risk areas which the
Company has previously indicated, relating principally to Tideway,
the Company's largest asset under construction, and where the
Company is exposed to elements of demand-based risk, the most
significant example being the Diabolo Rail Link.
-- Notwithstanding the ongoing uncertainty caused by Covid-19
and the Company's deliberately cautious approach to managing
associated risks, the reliability of the portfolio's operational
performance and cash flow has supported a 2.5% increase in
half-year fully-covered cash dividend distribution of 3.68 pence
per share. [i] The Company has also reaffirmed its current dividend
guidance for the full year 2020 and 2021 [ii] .
-- The Company's liquidity position remains robust with a GBP400
million revolving debt facility (maturing in July 2021) of which
only c.GBP28.3 million is currently utilised [iii] .
COVID-19 RISK MITIGATION
-- The Company has taken a cautious approach and sought to
reflect the anticipated financial impact of Covid-19 within its 30
June 2020 cash flow forecasts and valuations. This cautious
approach has contributed to a 0.7% decrease in Net Asset Value
('NAV') to GBP2.41 billion (31 December 2019: GBP2.43 billion). The
implications and risks of Covid-19 are most significant on Tideway
and the Diabolo Rail Link. Further information on these two
investments is set out below:
o Tideway, UK: In February 2020, the excavation of the main
tunnel reached the halfway mark of the new 25km super sewer.
However, in response to Covid-19, progress has slowed owing to new
working protocols and safety measures required and in order to
ensure the safety of Tideway workers and the wider community. As a
result, in August 2020, Tideway published an update which indicated
that the project cost could increase from c.GBP3.9bn to c.GBP4.1bn
and the completion date could be delayed to the first half of 2025.
The impact on Tideway investors (the Company is a 16% shareholder
in Tideway) is mitigated by existing contractual and regulatory
safeguards. The estimated impact on the Company after applying
judgement in respect of the anticipated mitigating factors is
reflected in our 30 June 2020 valuation.
o Diabolo Rail Link, Belgium: As a result of Covid-19, passenger
numbers have been materially lower during 2020 to date compared to
previous periods. In the event of prolonged under-performance
without remedial action, the Company is unlikely to receive
distributions from this investment for some time and a technical
default may be triggered under the terms of the debt secured on
that investment. We have strong, long-term relationships with our
stakeholders and constructive discussions are ongoing with project
lenders and the Belgian state railway in order to agree how to
overcome any potential liquidity or compliance issues. In addition,
if required the project benefits from a contractual mechanism which
permits an adjustment to the passenger fee in the event that
passenger numbers and returns fall below a certain threshold.
Notwithstanding these nearer term uncertainties, which have been
reflected within our cash flow forecasts, the Company maintains a
positive view on the quality of this investment and remains
reassured by the contractual protections and the length of the
contract term, which runs until 2047.
FINANCIAL HIGHLIGHTS [iv]
-- NAV per share of 149.2 pence (31 December 2019: 150.6 pence).
-- Interim dividend increase of 2.5% to 3.68 pence per share (30
June 2019: 3.59 pence per share).
-- Total Shareholder Return ('TSR') of 219% since IPO,
equivalent to an annualised TSR of 8.9%. [v]
-- IFRS profit before tax of GBP35.4 million (30 June 2019:
GBP83.7 million). The reduction compared to the prior corresponding
period was principally reflective of the BeNEX transaction being
recognised in the prior period, as well as the current period
decrease in valuation of the portfolio overall as a result of
factoring in additional uncertainty caused by Covid-19.
-- Strong inflation protection was maintained with a projected
increase in return of 0.78% p.a. in the event of a 1.00% p.a.
increase in inflation over and above the assumed rates (31 December
2019: 0.82% p.a.). [vi]
-- Low long-term correlation to the FTSE All Share Index of 0.37
over the five years to 30 June 2020. [vii]
-- Interim cash dividend cover of 1.3x (HY 2019: 1.3x). [viii]
PORTFOLIO HIGHLIGHTS
-- GBP11.7 million of new cash investments were made during the
first half of 2020 as the Company continues to leverage the breadth
and scale of Amber's resource to undertake additional investment
activity alongside actively managing the existing portfolio. All
acquisitions in the period were funded through the Company's
existing cash balances.
o UK schools: taking further advantage of its pre-emption
rights, the Company invested GBP6.7 million in the Essex Building
Schools for Future ('BSF') project which provides education
facilities to over 3,700 secondary school pupils across the country
of Essex, UK. Post-period end, the Company acquired additional
stakes in six BSF project companies that own 14 schools across
Bradford and Lewisham.
o UK digital infrastructure: as part of the GBP45 million
commitment to the National Digital Infrastructure Fund ('NDIF'),
the Company invested a further GBP5 million in three of NDIF's
existing investments, which include urban and rural alternative
network providers offering ultrafast fibre connectivity to UK homes
and businesses. Post-period end, NDIF partially realised an initial
investment in Community Fibre which reflected a positive return on
the Company's original investment and will support the further
growth of Community Fibre in delivering fibre connectivity across
London.
ASSET STEWARDSHIP
-- Along with the management team at Cadent (a UK gas
distribution network) and its co-investors, the Company - via its
Investment Adviser - has continued to engage with Ofgem concerning
the regulatory settlement for the five-year period beginning April
2021. Cadent, the Company and other market participants will
continue to work towards the best possible outcome for both
customers and investors in the final determination that Ofgem is
expected to publish in December 2020.
-- Over 400 commissioned contract variations on the Company's
PPP projects resulted in c.GBP12 million of additional project work
conducted on behalf of the respective commissioning bodies. The
Company also repurposed several social infrastructure assets -
including schools, blue light facilities and other public buildings
- to help support the wider community in response to Covid-19. For
those investments whose performance is measured by both
availability and performance, the availability of those assets was
99.6% for the six months to 30 June 2020.
-- The Company integrates the UN Sustainable Development Goals
into its investment lifecycle in order to improve the ESG
performance of its underlying assets. The Company's Investment
Adviser, a signatory to the United Nations backed Principles of
Responsible Investment, was awarded an A+ ranking in its inaugural
assessment for both the strategy, governance and the infrastructure
modules as testament to the responsible investment approach the
Company remains committed to.
OUTLOOK
The full implications of Covid-19 remain difficult to fully
ascertain. However, the wider market for new infrastructure
investment remains positive and the Company is supportive of
governments around the world using infrastructure spending as a
tool for fiscal stimulus to foster global economic recovery. The
asset valuations seen in the secondary market continue to support
the Company's existing valuations. The Investment Adviser's team
have been very active during the period and the Company have
reviewed over 40 different investment opportunities. We will
continue to deploy shareholders capital prudently towards an
identified global pipeline, including c.GBP100m of new investment
opportunities at preferred bidder stage or equivalent. More
information is detailed on pages 16 of the Interim Report.
Michael Gerrard, Chairman of International Public Partnerships
Limited, said: "Many aspects of modern society have been tested by
the Covid-19 pandemic and our social and public infrastructure is
not immune. However, the Company's portfolio continues to show
considerable resilience. As a result of the high-quality,
diversified investments carefully originated and actively managed
by our Investment Adviser's dedicated team, we have continued to
generate consistent and growing returns for our shareholders. The
near-term uncertainty due to the implications of Covid-19 will
likely result in some short to medium term headwinds for some of
our investments, but together with our track record of successfully
solving asset management issues and the contractual protections we
have in place to protect downside risks, I remain fully confident
in the Company's ability to generate positive outcomes for all our
stakeholders."
S.
http://www.rns-pdf.londonstockexchange.com/rns/5449Y_1-2020-9-9.pdf
A copy of the results presentation can be downloaded from the
Company's website:
www.internationalpublicpartnerships.com
NOTES TO EDITORS
Amber Infrastructure
Erica Sibree / Amy Joslin
+44 (0)20 7939 0558 / 0587
FTI Consulting
Ed Berry / Mitch Barltrop
+44 (0) 20 3727 1046 / 1039
About International Public Partnerships ('INPP'):
INPP is a listed infrastructure investment company that invests
in global public infrastructure projects and businesses, which
meets societal and environmental needs, both now, and into the
future.
INPP is a responsible, long-term investor in 130 infrastructure
projects and businesses. The portfolio consists of utility and
transmission, transport, education, health, justice and digital
infrastructure projects and businesses , 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 of over 130 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.
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.
Endnotes
[i] The forecast date for payment of the dividend relating to
the six months to 30 June 2020 is 13 November 2020. The 2.5% stated
increase relates to the comparable interim dividend payment in
2019.
[ii] There can be no assurance that these targets will be met or
that the Company will make any distributions at all. Whilst we
generally have good forward-visibility of cash flows generated by
the Company's investments the current Covid-19 pandemic creates
additional uncertainty.
[iii] As at 9 September 2020.
[iv] For the half year ended 30 June 2020 unless otherwise
stated.
[v] Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
[vi] 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.
[vii] Correlation (R) from Bloomberg - 5 years to 30 June
2020.
[viii] Cash dividend payments to investors are paid from net
operating cash flow before non-recurring operating costs as
detailed.
International Public Partnerships Limited
HALF-YEARLY Report and Financial Statements for the SIX MONTHS
ended 30 JUNE 2020
Registered number: 45241
www.internationalpublicpartnerships.com
Note: Page references in this announcement refer to the full
formatted Half-Yearly Financial Report for the period ended 30 June
2020 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.
OUR PURPOSE
Our purpose is to deliver long-term benefits for all
stakeholders by investing responsibly in public and social
infrastructure.
We aim to provide our investors with long-term, inflation-linked
returns, by growing our dividend and creating the potential for
capital appreciation.
We support all our stakeholders through responsible investment
and active asset management, which meet societal and environmental
requirements both now and into the future.
COMPANY FACTS
- London Stock Exchange trading code: INPP.L
- Member of the FTSE 250 and FTSE All-Share indices
- GBP2.7 billion market capitalisation at 30 June 2020
- 1,615 million shares in issue at 30 June 2020
- Eligible for ISA/PEPs and SIPPs
- Guernsey incorporated company
- International Public Partnerships ('the Company', 'INPP', the
'Group' (where including consolidated entities)) 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:
Liverpool Library, UK
FULL-YEAR FINANCIAL HIGHLIGHTS
DIVIDS
3.68p - H1 2020 dividend per share(1)
7.36p - 2020 full-year dividend target per share(2)
7.55p - 2021 full-year dividend target per share(2)
2.5% - H1 2020 divident growth(2)
1.3x - H1 2020 cash dividend cover(3) (H1 2019: 1.3x)
NET ASSET VALUE ('NAV') (4)
GBP2.4bn - NAV at 30 June 2020 (4) (31 Dec 2019: GBP2.4bn)
149.2p - NAV per share at 30 June 2020(4) (31 Dec 2019:
150.6p)
0.7% - Decrease in NAV for the six months to 30 June 2020
0.9% - Decrease in NAV per share for the six months to 30 June
2020
PORTFOLIO ACTIVITY
GBP11.7m - Cash investments made during H1 2020
INFLATION PROTECTION
0.78% - Portfolio inflation-linkage at 30 June 2020(5) (31 Dec
2019: 0.82%)
TOTAL SHAREHOLDER RETURN ('TSR')
219% - TSR since Initial Public Offering ('IPO')(6)
8.9%p.a. - Annualised TSR since IPO(6)
PROFIT
GBP35.4m - H1 2020 profit before tax (H1 2019: GBP83.7m)
1 The forecast date for payment of the dividend relating to the six
months to 30 June 2020 is 13 November 2020.
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 22-23.
4 The methodology used to determine the NAV is described in detail
on pages 24-31.
5 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.
6 Since inception in November 2006. Source: Bloomberg. Share price
appreciation plus dividends assumed to be reinvested.
COMPANY OVERVIEW
CONSISTENT AND SUSTAINED RETURNS
INPP Dividend Payments
[Diagram can be found in PDF version of this document on the Company's
website].
PREDICTABLE portfolio performance
P rojected Investment Receipts
[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 30 June 2020 are included.
LOW RISK AND DIVERSIFIED PORTFOLIO
Sector Breakdown Energy Transmission 22%
--------------------- ----
Transport 19%
--------------------- ----
Education 19%
--------------------- ----
Gas Distribution 17%
--------------------- ----
Waste Water 9%
--------------------- ----
Health 4%
--------------------- ----
Courts 3%
--------------------- ----
Military Housing 3%
--------------------- ----
Other 4%
130 investments in infrastructure projects and businesses across a
variety of sectors(1)
Geographic Split UK 73%
----------- ----
Australia 9%
----------- ----
Belgium 8%
----------- ----
Germany 4%
----------- ----
US 3%
----------- ----
Canada 2%
----------- ----
Ireland 1%
----------- ----
Italy <1%
Invested in selected global regions that meet INPP's specific risk
and return requirements
Investment Type Risk Capital(2) 89%
----------------- ----
Senior Debt 11%
Invested across the capital structure, taking into account appropriate
risks to returns
Asset Ownership
100% 50%
--------- ----
50%-100% 6%
--------- ----
<50% 44%
Preference to hold majority stakes
Mode of Acquisition/Asset Status
Construction 9%
------------------------- ----
Operational 91%
------------------------- ----
Early Stage Investor(3) 68%
------------------------- ----
Later Stage Investor(4) 32%
Early stage investment gives first mover advantage maximises
capital growth opportunities
Investment Life
<20 years 52%
------------- ----
20-30 years 19%
------------- ----
>30 years 29%
Weighted average portfolio life of 34 years(5)
1. The majority of assets benefit from availability-based
revenues.
2. Risk Capital includes both asset level equity and
subordinated shareholder debt.
3. 'Early Stage Investor' - assets developed or originated by
the Investment Adviser or predecessor team in primary or early
phase investments.
4. 'Later stage investor' - assets acquired from a third party
investor in the secondary market.
5. Includes non-concession entities which have potentially a
perpetual life but assumed to have finite lives for this
illustration.
International Public Partnerships invests in high-quality
infrastructure projects and businesses that are resilient over the
long-term
We have a long-standing relationship with Amber Infrastructure
Group ('Amber'), the Company's Investment Adviser
Amber has managed the Company's assets since IPO in 2006
- Amber is a specialist international infrastructure investment
manager and one of the largest independent teams in the sector with
over 130 employees working internationally. It is a leading
investment originator, asset and fund manager with a strong track
record
- Amber applies an active asset management approach to the
underlying investments to support sustainable performance
- The Company has first right of refusal over qualifying
infrastructure assets developed by Amber and for US investments, by
its main shareholder, US Group, Hunt Companies LLC ('Hunt')
Relationship with the Investment Adviser
[Diagram can be found in PDF version of this document on the
Company's website].
OUR STRENGTHS
- Long-term alignment of interests between the Company, Amber and other key suppliers
- Amber has physical presence in all of the major countries in
which we invest, which provides local insights and
relationships
- A vertically integrated model with direct relationships with public sector authorities
- Experienced team in all aspects of infrastructure development, investment and management
- Active approach to investment stewardship which is the cornerstone of successful investment
- Consideration and integration of material environmental,
social and governance ('ESG') issues and opportunities
- Active engagement with all key stakeholders
- Strong independent Board with a diversity of experience and strong corporate governance
BUSINESS MODEL
DELIVERING long-term benefits
OUR PURPOSE
Our purpose is to deliver long-term benefits for all
stakeholders by investing responsibly in public and social
infrastructure.
We aim to provide our investors with long-term, inflation-linked
returns, by growing our dividend and creating the potential for
capital appreciation.
We support all our stakeholders through responsible investment
and active asset management, which meet societal and environmental
requirements both now and into the future.
what we do
INVEST
We seek new investments through our extensive relationships,
knowledge and insights to:
- Enhance predictable, long-term cash flows
- Provide opportunities to create long-term value and enhance returns
- Ensure ESG is core to the investment process
ASSESS
The Company operates a rigorous framework of governance,
incorporating a streamlined screening, diligence and execution
process. This includes substantive input from the Company's
Investment Adviser and, as appropriate, external advisers, with the
Company's Board providing robust challenge and scrutiny
OPTIMISE
Using the Investment Adviser's highly experienced in-house asset
management team, we seek to actively manage the Company's
investments, balancing risk and return, and using detailed research
and analysis to optimise our investment performance
DELIVER
Together with our Investment Adviser's active asset management
of our investments, we aim to deliver strong ongoing asset
performance for stakeholders and achieve target returns from the
portfolio for investors
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
- We seek investments with no or low exposure to market demand risks and for which financial, macroeconomic, regulatory, ESG and country risks are well understood and manageable
- The Investment Adviser has a strong investment team that
originates unique opportunities in line with the Company's
investment strategy
- We continually monitor opportunities to enhance the Company's existing investments
ACTIVE ASSET MANAGEMENT
- The Investment Adviser has an in-house asset management team
dedicated to managing the Company's investments
- Where possible, through the Investment Adviser, we manage the
day-to-day activities of each of our investments internally
- We carry out extensive monitoring, for example, asset level
board and management meetings occur on a quarterly basis
- The Company works with public sector clients to ensure
investments are being managed both responsibly and efficiently to
deliver the required outputs
- We focus on project stewardship across the portfolio and
recognise the broader value created from our investments
efficient financial management
- Efficient financial management of investment cash flows and working capital
- Maintaining cash covered dividends
- Ensuring cost-effective operations
CONTINUOUS risk management
- Robust risk analysis during investment origination ensures strong portfolio development
- Integrated risk management throughout the investment cycle to support strategic objectives
- Ongoing risk assessment and mitigation ensures successful ongoing performance
RESPONSIBLE INVESTMENT
- Fully integrating ESG considerations across the investment cycle
- Setting robust ESG objectives to build resilience and drive
environmental and social progress
- Uphold high standards of business integrity and governance
VALUE CREATION
investor returns
Continue to deliver consistent financial returns for investors
through dividend growth and inflation-linkage from underlying cash
flows and provide opportunities for capital appreciation
PUBLIC SECTOR AND OTHER CLIENTS
Providing responsible investment in infrastructure to support
the delivery of essential public services. Our ability to deliver
services and maintain relationships with our clients and other key
stakeholders is vital for the long-term prosperity of each
investment
communities
Delivering social infrastructure for the benefit of local
communities. The Company's investments provide vital public assets
for their communities, and seek to provide additional benefits
through deploying investment in local economies, job creation and
by using investments to help strengthen communities
SUPPLIERS AND THEIR EMPLOYEES
The performance of our service providers, supply chain and their
employees are crucial for the long-term success of our investments.
The Company promotes a progressive approach to:
- Corporate social responsibility
- Healthy, inclusive workplaces
- Opportunities for professional development
- Staff engagement
STRATEGIC REPORT
OBEJCTIVES AND PERFORMANCE
The value we provide to our investors is monitored using our
Investor Return Key Performance Indicators ('KPIs'). The delivery
of value to both investors and our wider stakeholders is achieved
by carefully monitoring our performance against related strategic
priorities.
INVESTOR RETURNS Delivering long-term, - Target an - 2.5% Dividend increase
inflation-linked annual dividend achieved for H1 2020
returns to investors increase of 2.5% (H1 2019: 2.6%)
- Target a long-term - 7.9% p.a. IRR achieved
total return since IPO to 30 June 2020(1)
in excess of (31 Dec 2019: 8.0%)
7.0% per annum
- 0.78% Inflation-linked
returns on a portfolio
- Inflation-linked basis at 30 June 2020
returns on a (31 Dec 2019: 0.82%)
portfolio basis
----------------- --------------------------- --------------------- -----------------------------------
Value-focused Originate investments New investments 100% Of the investments
portfolio with stable, long-term meet at least made in H1 2020 met at
development cash flows and potential three of six least three of the six
growth attributes, attributes: attributes
whilst maintaining 1. Stable, long-term (H1 2019: 100%)
a balanced portfolio returns
of assets 2. Inflation-linked
investor cash
flows
3. Early stage
investor
4. Investment
secured through
preferential
access
5. Other capital
enhancement attributes
6. Positive UN
Sustainable Development
Goals ('SDGs')
contribution
-------------- ------------------------------- ------------------------- -----------------------------------
ACTIVE ASSET Managing strong ongoing - Strong ongoing - 100% Forecast distributions
MANAGEMENT asset performance asset performance received for H1 2020(2)
as demonstrated (H1 2019: 100%)
by:
- 0.1% Asset performance
deductions achieved against
a target of <3% during
H1 2020
(H1 2019: 0.4%)
- 99.6% Asset availability
achieved against a target
of >98% during H1 2020
(H1 2019: 99.9%)
- Managing investments - 8.9% of portfolio investments
under construction under construction
(31 Dec 2019: 9.2%
-------------- ------------------------------- ------------------------- -----------------------------------
efficient Making efficient - Cash covered - 1.3x Dividends fully
financial use of the Company's dividends cash covered for H1 2020
management finances and working (H1 2019: 1.3x)
capital - Competitive - 1.21% Ongoing charges
ongoing charges ratio for H1 2020
(H1 2019: 1.16%)
-------------- ------------------------------- ------------------------- -----------------------------------
Responsible Management of material - Robust integration - A+ United Nations ('UN')
Investment ESG factors of ESG into investment backed Principles of Responsible
lifecycle Investment ('PRI') rating(3)
-------------- ------------------------------- ------------------------- -----------------------------------
1 Calculated by reference to the November 2006 IPO issue price
of 100p and reflecting NAV appreciation plus dividends paid.
2 Measured by comparing forecast portfolio distributions against
actual portfolio distributions received.
3 In its first year of participation, the Company's Investment
Adviser achieved A+ in the UN backed PRI 2019 assessment for both
the strategy and governance and the infrastructure modules.
CHAIRMAN'S LETTER
Dear Shareholders,
Many aspects of modern society have been tested by the Covid-19
pandemic during the first six months of 2020, including the social
and public infrastructure in which the Company invests. Despite
this, the assets that we invest in have remained available
throughout this period, and have continued to facilitate the
provision of essential services.
As I write this letter, all the countries in which the Company
invests are managing the economic consequences of Covid-19, and
will continue to have social distancing and other restrictive
public health measures in place which will impact all aspects of
life, including the use of infrastructure. This situation is
unlikely to change in the short to medium term. The full economic
impact of these events on our investments, as well as the wider
consequences for the communities in which we invest, cannot yet be
determined and it is, in the Company's view, highly likely that
they will not be fully ascertained for many months. Whilst we
maintain confidence in the portfolio's resilience, the Board will
continue to take a prudent and realistic view of the future, as the
Company and the societies in which we operate navigate through this
difficult period.
OPERATIONAL AND FINANCIAL PERFORMANCE
Our approach to the selection of investments together with the
stewardship of those investments has enabled the Company to
maintain a strong financial performance. I am very pleased to note
that net cash flows received by the Company in the period to the
end of June were consistent with our expectations prior to the
pandemic. This has allowed the Company to declare a fully
cash-covered dividend for the first half of the year in the amount
previously targeted. Despite market and economic adversity, the
Company continues to do its utmost to fulfil its commitment to
generating long-term, sustainable returns throughout the economic
cycle, as the infrastructure asset class continues to prove its
fundamental role in investment allocation and portfolio
diversification.
In the first half of 2020, a key driver of this performance was
the Investment Adviser's focus on active asset management. This
included active mitigation of risks associated with the pandemic,
whilst continuing to support our public sector partners, to ensure
that the infrastructure assets and businesses in which the Company
invests continue to serve the public, as well as protect the health
and safety of staff and users.
Throughout the period, all of our operational assets have
maintained their availability. This achievement is a function of
the nature of the investments which the Company makes and is a mark
of the professionalism and commitment of all those many thousands
of people who operate our assets and businesses including, in
particular, the staff of the Investment Adviser. I and all my
fellow directors wish to record our intense appreciation to all
those who have kept the Company's infrastructure assets and
businesses running during these difficult times.
We do nevertheless see challenges ahead. The future financial
performance of some of our assets will certainly be affected by the
consequences of Covid-19. Some of these challenges are noted below.
In particular, we have assumed a negative impact on our cash flow
from some of our investments in the second half of 2020 and in
future reporting periods. The impact that this will have on the
Company cannot yet be assessed precisely. The Company continues to
aim to pay future dividends in line with the targets announced
previously, but will assess the situation at the relevant
times.
The Company will continue to take a conservative approach to
managing the implications of the pandemic on the Company's
portfolio, its valuation, and relationships with our
stakeholders.
PORTFOLIO UPDATE
Overall, our portfolio, as noted, continues to perform well.
Moreover, a number of our investments benefit from a range of
protective mechanisms to mitigate, at least in part, the
consequences of adverse events. These protective mechanisms include
contractual and regulatory safeguards to support cash flows.
However, against the backdrop of the general resilience of the
portfolio's operational and financial performance, there are a few
specific risk areas which the Company has identified where it may
be exposed to financial consequences from the disruption caused by
the pandemic. These relate principally to the Thames Tideway Tunnel
('Tideway'), the Company's largest asset under construction, and
where the Company is exposed to elements of demand-based risk, the
most significant example being the Diabolo Rail Link. Please see
descriptions of these investments on page 12.
Tideway
Good progress was being made prior to the outbreak of Covid-19
in the UK and in February 2020, the excavation of the main tunnel
reached the halfway milestone with 12.5km of tunnelling having been
completed. However, in response to formal UK Government guidance
issued in March 2020 as a result of Covid-19, Tideway reduced
construction activities across its sites and continued only with
essential and safety-critical works. In May 2020, following the
easing of restrictions in the UK and after a series of detailed
safety reviews which resulted in the implementation of measures to
protect its workers as well as the wider community, Tideway
recommenced work on its construction sites
There are a number of contractual and regulatory safeguards
available to Tideway to help minimise the possible financial
impacts of these measures. These include provisions to share
additional costs between contractors, Tideway investors (including
the Company) and end-customers, up to a threshold, beyond which
they are borne by the UK Government. Tideway has also indicated
that it is in constructive discussions with the UK water regulator,
Ofwat, on a package of measures that would mitigate the financial
impact of Covid-19 on Tideway's shareholders, of which the Company
is one. These discussions are progressing and we expect an
agreement to be reached in the coming months. Notwithstanding this,
it is unlikely that the time lost will be recovered and Covid-19
safety measures are anticipated to slow the rate of progress. In
August 2020, Tideway published an update which included an
estimated GBP233 million impact on cost, increasing the total
project cost from GBP3.9 billion to GBP4.1 billion, and a
nine-month impact on schedule, taking completion to the first half
of 2025. The Company owns 16% of Tideway and, in keeping with the
Company's prudent approach, it has factored this estimated impact
on a pro rated basis into its 30 June 2020 forecasts. This includes
a short period during which it is assumed that distributions from
the investment will be withheld as a consequence of Covid-19
related uncertainties. The Company has been able to consider this
impact within its 30 June 2020 valuation as a result of its
Investment Adviser's board presence and awareness of ongoing
developments. We continue to have confidence in the project, given
the ability of Tideway's experienced management team and the
expertise of our co-investors and our Investment Adviser.
Diabolo Rail Link
Our investment in the Diabolo Rail Link to Brussels Airport
provides the fixed infrastructure and not the train services. The
bulk of its revenues are related to the passenger use of either the
rail link itself or the wider Belgian rail network. Passenger
numbers have, of course, been significantly lower in the first half
of 2020 compared to the same period last year. As social lockdown
measures ease, passenger numbers have shown signs of recovery but
are likely to remain below base case expectations for some time. In
the event of prolonged under-performance without remedial action,
the Company is unlikely to receive distributions from this
investment for some time and a technical default may be triggered
under the terms of the debt secured on that investment.
We have strong, long-term relationships with our stakeholders
and constructive discussions are ongoing with project lenders and
the Belgian state railway in order to agree how to overcome any
potential liquidity or compliance issues. In addition, if required
the project benefits from a contractual mechanism which permits an
adjustment to the passenger fee in the event that passenger numbers
and returns fall below a certain threshold. This mechanism was
operated successfully earlier in the life of the contract, although
under different circumstances. Notwithstanding these nearer term
uncertainties, which have been reflected within our cash flow
forecasts, the Company maintains a positive view on the quality of
this investment and remains reassured by the contractual
protections and the length of the contract term, which runs until
2047.
Minority investments
While aggregate distributions from our portfolio of investments
during the period were in line with forecasts, including from
assets where the Company is a minority investor, where we do not
hold a majority investment in an asset the Company has less
visibility than would otherwise be the case. This includes
decisions as to the quantum and timing of distributions payable to
the Company. In the current circumstances, it is appropriate to
note that these companies may decide to defer or reduce the
distributions they pay to their investors (including the Company).
We do not currently foresee a material impact on our cash flow
arising from such decisions, nor if such decisions occurred would
it necessarily result in a permanent loss of cash flow to the
Company as it might simply be deferred. However, we do see it as a
possible risk factor for cash flows in the shorter term and the
Board will keep this situation and any response to it under close
review.
For more information on these investments, please refer to the
asset management section on pages 17-21.
VALUATION AND DIVIDS
Given the uncertainty that persists concerning the implications
of the pandemic, the Company continues to take a deliberately
cautious approach in the valuation of the portfolio. The Company
has revised its cash flow assumptions and has reduced its valuation
of certain investments in particular Diabolo and Tideway as
highlighted above. This has contributed to a 0.7% decrease in NAV,
from GBP2.43 billion at 31 December 2019 to GBP2.41 billion at 30
June 2020, and a NAV per share decrease of 0.9%, from 150.6 pence
at 31 December 2019 to 149.2 pence at 30 June 2020. Please see the
Investor Returns section on pages 24-31 for further details.
Despite these cash flow and valuation impacts, the Board remains
confident in the overall resilience of the Company's portfolio. The
Board is therefore pleased to reaffirm the 3.68 pence per share
dividend for the period to 30 June 2020. The Board has previously
announced an overall target dividend of 7.36 pence per share for
2020 and a 2021 dividend target of 7.55 pence per share and the
Company currently maintains this guidance, although will naturally
keep this under review.
ASSET STEWARDSHIP
This period more than any, has justified the emphasis that the
Company and the Investment Adviser place on our active asset
management approach, given how fundamental it is to the long-term
performance of the Company. The Company continues to deliver
transparent and responsible stewardship of its infrastructure
assets, which provide essential public services. Moreover, past
experience of successful troubleshooting has enhanced our
reputation with stakeholders. During the pandemic, the Investment
Adviser has worked closely with a number of public authorities in
helping adapt and repurpose buildings, such as school facilities.
For more information on how the Company has supported the users of
our investments, please refer to the Responsible Investment section
on pages 32 -39.
Through the Investment Adviser, the Company has access to a
large resource of skilled individuals who monitor asset performance
and, to the extent possible, mitigate risks across the portfolio. A
significant area of their focus, during the period, has been to
work with the management team at Cadent, a UK gas distribution
network ('GDN'). Along with its co-investors, the Company has been
engaging with the industry regulator, Ofgem, concerning its
regulatory settlement for the next five-year period, starting April
2021. Cadent, the Company, and other market participants will
continue to work towards a better outcome for both Cadent's
customers and investors in the final determination that Ofgem is
expected to publish in December of this year. Please see further
information on pages 18-19 for more detail.
Environmental stewardship and attention to wider social
considerations are a very important part of the Company's approach
to responsible infrastructure investment and the management of our
portfolio and relationships. The Company believes the best way to
support communities and maintain our role as a responsible investor
is to continue to work collaboratively with our public sector
clients and be flexible within the boundaries of agreed contracts.
The Company, through its Investment Adviser, has continued to
actively engage with public sector clients in the most productive
way and endeavoured to keep services running, whilst ensuring that
employees and contractors are operating in a safe environment.
Within the wider ESG context, the Board is pleased to note that
our Investment Adviser, which became a signatory to the PRI in
2019, achieved the distinction of an A+ ranking in the 2020
assessment for both the strategy and governance, and infrastructure
modules. The Company integrates the SDGs across its investment
process and within its approach to asset management. As outlined in
the Responsible Investment section, the result is that ESG is
integrated into all aspects of the Company's investment strategy.
Please see more information on pages 32-39.
INVESTMENT ACTIVITY
The last six months have not only been about responding to the
Covid-19 pandemic. Given the resources and expertise of the
Investment Adviser, the Company has been able, in parallel, to
continue implementing its strategic priorities as set out on pages
6 and 7; and during the six months to 30 June 2020, the Company
completed GBP11.7 million of additional investments across the
education and digital infrastructure sectors.
In May 2020, the Company acquired an additional interest in the
Essex Building Schools for Future ('BSF') project. The Company
invested a further GBP6.7 million to acquire stakes in the two
project companies which own four schools. These provide education
facilities to over 3,700 secondary school pupils across Essex, UK.
The project is yielding and was accretive to the Company's
returns.
In July 2017, the Company agreed to invest up to GBP45 million
in UK digital infrastructure alongside the UK Government, through
the National Digital Infrastructure Fund ('NDIF'). To date, c.GBP33
million of the Company's GBP45 million commitment has been called
by NDIF.
During the six months to 30 June 2020, NDIF called GBP5 million
to further invest in three of its existing investments. Over the
period, the market has recognised that digital infrastructure is
becoming an increasingly defensive asset class as the critical
nature of digital connectivity services have been amplified by the
current volume of people working from home and the expectation that
this will continue post-Covid-19. This was demonstrated after the
end of the period by a partial realisation of NDIF's investment in
Community Fibre, an internet service provider rolling out fibre
optic broadband networks across London. While the terms of the
transaction are confidential, the Company has announced that the
transaction reflected a positive return on NDIF's original
investment and will support further growth for Community Fibre.
Further details of investments made during the period can be found
on page 13-14.
CORPORATE GOVERNANCE
In the Company's 2019 Annual Report, I wrote about the
retirement of John Whittle and John Stares from the Board, and
about my own and my fellow directors' appreciation for their long
service. John Whittle was our Senior Independent Director and I am
delighted that Claire Whittet has since agreed to take on this
important role. I also wrote about how pleased we were to welcome
two new directors to the Board this year: Sally-Ann David and
Meriel Lenfestey. Both Sally-Ann and Meriel were appointed to the
Audit and Risk, the Management Engagement and the Nomination and
Remuneration Committees in March 2020. All Directors who stood for
re-election or election at the AGM on 27 May 2020 were duly
re-elected or elected.
The Board complies with the Association of Investment Companies
Code of Corporate Governance and the UK Corporate Governance Code
as set out in the Corporate Governance section of the 2019 Annual
Report and financial statements.
CURRENT ENVIRONMENT AND OUTLOOK
Aside from Covid-19 related issues, the wider market for new
infrastructure investments remains positive. This was demonstrated
by the UK Government announcing, in March 2020, that it believed
the UK has under-invested in public infrastructure and disclosed an
intention to commit GBP640 billion of gross capital investment to
roads, railways, digital networks, schools, hospitals and power
networks across the UK by 2024/25. There is currently no clarity on
the role of private sector capital in this renewal of the UK's
infrastructure, but we remain confident that the policy direction
will continue to provide a tailwind to the Company's pipeline of
investment prospects. We are also convinced of the benefits to
society and the economy of using private sector investment to
deliver new public infrastructure and know that our Investment
Adviser will continue to make this case to the UK Government.
In parallel with their ongoing management of the pandemic,
governments in the countries where we invest continue to put
infrastructure investment at the core of plans for longer-term
economic recovery. For example, across Europe there is a continued
focus on investing in cleaner transport, sustainable energy,
digital and social infrastructure. Please see more information in
the Current Market and Environment section on page 15.
In the secondary market, we continue to see existing and new
entrants drive up demand for operational infrastructure assets
across all the geographies in which the Company invests. While good
for the Company in terms of existing asset values, this trend makes
it increasingly difficult to identify and acquire investments that
are accretive to the Company's valuation and within the Company's
risk appetite without taking on additional and sometimes less
familiar risks. Notwithstanding this, the Investment Adviser's team
have been very active, and the Company has reviewed approximately
40 opportunities during the period. We continue to believe that
patience is a virtue in this market.
The course and consequences of Covid-19 will naturally remain
everyone's focus in the coming months. Social and public
infrastructure remain at the heart of our societies' ability to
meet the challenges which the pandemic presents, and the Company
will continue to play its part by making sure that our assets and
businesses are as responsive and resilient as possible. The
majority of our investments have demonstrated robust financial
performance during this period and continue to do so. In the few
cases where there have been short-term financial pressures, we are
confident that mitigating measures will minimise their impact and
help restore the expected longer-term stability of these
investments. At this time, the priority for the Company continues
to be the health, safety and wellbeing of the people that deliver,
manage, operate and use our infrastructure assets.
Finally, the Audit and Risk Committee of the Board has also been
monitoring the risks associated with potential outcomes from the UK
leaving the European Union ('EU'). Accordingly, whilst we do not
believe that the Company is unusually exposed to such risks, or
that there will necessarily be a significant impact on the Company
as a direct result of the end of the Brexit transition period, the
Investment Adviser has adopted a position of heightened readiness
and close communication with key contractors and suppliers. Please
see more information on page 15 and 31.
I and my fellow directors thank you for your continued
support.
Mike Gerrard
Chairman
9 September 2020
1 Calculated by reference to the November 2006 IPO issue price
of 100p and reflecting NAV appreciation plus dividends paid.
TOP 10 INVESTMENTS
The Company's top ten investments by fair value at 30 June 2020
are summarised below. A complete listing of the Company's
investments can be found on the Company's website (
www.internationalpublicpartnerships.com ).(1)
% holding % investment % investment
Status at at fair value fair value
Name of 30 June 30 June 30 June 31 December
Investment Location Sector 2020 2020 2020 2019
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
7% Risk
Cadent UK Gas distribution Operational Capital 16.6% 17.1%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
Cadent owns four of the UK's eight regional GDNs and in aggregate
provides gas to approximately 11 million consumers.
----------------------------------------------------------------------------------------------------------------------
16% Risk
Tideway UK Waste water Under Construction Capital 8.9% 9.2%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
Tideway relates to the design, build and operation of a 25km 'super-sewer'
under the River Thames.
----------------------------------------------------------------------------------------------------------------------
Diabolo Rail 100% Risk
Link Belgium Transport Operational Capital 8.2% 8.6%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
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.
----------------------------------------------------------------------------------------------------------------------
Energy 100% Risk
Lincs OFTO UK transmission Operational Capital 7.6% 7.9%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
The project connects the 270MW Lincs offshore wind farm, located
8km off the east coast of England, to the National Grid. The transmission
assets comprise the onshore and offshore substations and under-sea
cables, 100km in length.
----------------------------------------------------------------------------------------------------------------------
100% Risk
Capital
Energy and 100%
Ormonde OFTO UK transmission Operational senior debt 5.1% 5.3%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
The project connects 132kV Ormonde offshore wind farm, 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 33% Risk
Rail Australia Transport Operational Capital 3.8% 3.7%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
Reliance Rail is responsible for financing, designing, delivering
and ongoing maintenance of 78 next-generation, electrified, 'Waratah'
train sets serving Sydney in New South Wales, Australia.
----------------------------------------------------------------------------------------------------------------------
100% Risk
BeNEX Germany Transport Operational Capital 3.4% 3.4%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
BeNEX is both a rolling stock leasing company as well as an investor
in train operating companies ('TOCs'), providing approximately 40
million train km of annual rail transport.
----------------------------------------------------------------------------------------------------------------------
5% Risk
Angel Trains UK Transport Operational Capital 3.3% 3.3%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
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 investor in the industry after Network Rail.
----------------------------------------------------------------------------------------------------------------------
US Military Military 100% Risk
Housing(2) US housing Operational Capital 3.0% 2.7%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
Two tranches of mezzanine debt underpinned by security over seven
operational Public-Private Partnerships ('PPP') military housing
projects, relating to a total of 19 operational military bases in
the US and comprising c.21,800 individual housing units.
----------------------------------------------------------------------------------------------------------------------
100% Risk
Capital
Robin Rigg Energy and 100%
OFTO UK transmission Operational senior debt 2.5% 2.3%
------------------ ----------- ------------------ ------------------- -------------- ------------- -------------
The project connects the 180MW Robin Rigg East and West offshore
wind farms, located 12km off the coast of Cumbria, to the National
Grid. The transmission assets comprise the onshore and offshore substations
and under-sea cables, 25km in length.
----------------------------------------------------------------------------------------------------------------------
1. Risk Capital includes both project level equity and subordinated shareholder debt.
2. Includes two tranches of mezzanine debt into US military housing.
Significant movements in the Company's portfolio for the six
months to 30 June 2020 can be found on pages 13-14 of the Financial
and Operating Review.
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 opportunity developed by our Investment
Adviser)
4. Investment secured through preferential access (e.g. sourced
through pre-emptive rights or through the activities of our
Investment Adviser)
5. Other capital enhancement attributes (e.g. potential for
additional capital growth through 'de-risking' or the potential for
residual/terminal value growth)
6. Positive UN SDG contribution
Performance against strategic priority KPIs: 100% of investments
made in H1 2020 met at least three of the six attributes
As discussed in the Chairman's Letter, the six month period to
30 June 2020 saw the Company focus on its existing portfolio and
the impact of Covid-19. As a result, investment during the six
months to 30 June 2020 was lower compared to the prior period but
still saw the Company invest GBP11.7 million. These opportunities
were sourced by the Investment Adviser through increasing its
interest in existing assets or from the start of a project (e.g.
early stage developments in response to an initial government
procurement process). These origination approaches avoid bidding in
the competitive secondary market and are preferred routes to market
for the Company.
Details of investment activity for the six months to 30 June
2020, and post-period end, are provided below. The investments made
by the Company during the period meet or exceed the Company's
performance indicator of having at least three of the required six
key investment attributes. Please refer to the key performance
indicators on pages 6-7. Further details for each of these
transactions are provided overleaf.
INVESTMENTS LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
MADE DURING STATUS DATE
THE SIX MONTHS
TO 30 JUNE 2020
1 2 3 4 5 6
------------------------------- --- --- --- --- --- ------------ --------------- ------------
BSF Essex Project UK Operational GBP6.7 million 26 May 2020
------------------- ---------- --- --- --- --- --- ------------ --------------- ------------
NDIF UK Operational GBP5.0 million Various
------------------- ---------- --- --- --- --- --- ------------ --------------- ------------
GBP11.7
million
-------------------------------------------------------------------------- --------------- ------------
INVESTMENTS LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
MADE AFTER POST STATUS DATE
PERIOD
1 2 3 4 5 6
------------------------------ --- --- --- --- --- ------------ --------------- ---------------
BSF Bradford UK Operational GBP3.6 million 12 August 2020
and Lewisham
Projects
------------------ ---------- --- --- --- --- --- ------------ --------------- ---------------
INVESTMENTS MADE DURING THE PERIOD
ADDITIONAL INVESTMENTS in BSF PROJECTS, UK
BSF is a former UK Government programme for the redevelopment of
secondary schools in the UK, which used a combination of design and
build contracts and private finance type arrangements.
In May 2020, the Company acquired an accretive interest in the
Essex BSF project, which provides education facilities to over
3,700 secondary school pupils across Essex. The transaction saw the
Company invest a further GBP6.7 million in two private finance
initiative ('PFI') project companies that own the project's four
schools and increased the Company's existing investment to 28% on
phase 1 and 100% on phase 2 of the project.
Post-period end, in August 2020, the Company acquired stakes in
six PFI project companies that own 14 schools. These schools
provide education facilities to over 17,000 pupils across Bradford
and Lewisham. The Company invested a further GBP3.6 million and as
a result increased its existing stake by 4% in each of the six
underlying project companies. Upon completion, the Company will
hold a 54% investment in three of the Lewisham BSF schemes and 45%
in the fourth, as well as increasing its share in the two Bradford
schemes to 15.5% and 19% in the phase 1 and 2 schemes,
respectively.
These acquisitions build on the existing investment of over
GBP200 million that the Company has previously invested to develop
and refurbish over 200 individual schools across the UK as part of
the broader BSF programme.
DIGITAL INFRASTRUCTURE, U.K.
In July 2017, the Company agreed to invest up to GBP45 million
into UK digital infrastructure alongside the UK Government through
NDIF, a vehicle managed by the Investment Adviser. During the
period the Company made further commitments across three of NDIF's
existing portfolio companies, NextGenAccess, Airband and toob, as
part of the Company's GBP45 million commitment. To date, GBP32.9
million of the Company's GBP45 million commitment has been called
by NDIF, supporting NDIF's four investments.
Post-period end, NDIF agreed further funding by new investors in
Community Fibre. The transaction also involved a part realisation
by NDIF of its investment in Community Fibre to Warburg Pincus LLC
and Deutsche Telekom Capital Partners. The proceeds realised will
be retained by NDIF for reinvestment. The realisation reflected a
positive return on NDIF's original investment and will support
further growth for Community Fibre. The Company invested in
Community Fibre through NDIF in 2018 to fund the roll-out of
full-fibre connectivity and in July 2020, Community Fibre announced
that it will accelerate the availability of full-fibre broadband to
one million households across London by 2023, thereby delivering
critical infrastructure.
The Company's commitment to digital infrastructure will help to
transition the UK to full-fibre at a time when reliance on digital
infrastructure has never been greater.
current MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES
As Covid-19 continues to affect many aspects of society and
government policy, it is not possible to fully assess its future
impact. Despite the current uncertainty, we continue to monitor the
environment and review opportunities that meet the Company's
risk-return profile. As part of the Investment Adviser's appraisal
process, it considers the long-term viability of investments to
ensure they are fit for the future and it considers ESG aspects
such as resilience to technology changes, environmental impact and
shifting societal expectations. Whilst no country has been prepared
for this pandemic and it is not possible at this stage to determine
what the full impact will be, the Company believes that relative to
other sectors, the social and public infrastructure sectors will be
less severely affected. In particular, the Company's portfolio
driven by its active stewardship and prudent approach, benefits
from substantial mitigations to Covid-19.
Following the outbreak of Covid-19 there has been increased
focus on ensuring resilience against future threats, and there is a
clear view that infrastructures plays a pivotal role in delivering
this. Following the announcement in March 2020, whereby the UK
Government stated that the UK had under-invested in infrastructure
and expressed an intention to commit GBP640 billion of gross
capital investment to infrastructure, in June 2020 the UK Prime
Minister outlined plans to rebuild Britain and the economy across
the UK with significant infrastructure spending forecast for the
immediate future. The UK Government announced proposed spending of
over GBP4.5 billion over the next few years across healthcare,
transport, courts and schools as well as greenfield projects. At
this stage, however, there is lack of clarity on the precise role
of private sector capital in delivering this new UK
infrastructure.
Following the delay in the publication of the National
Infrastructure Strategy earlier in the year, it is now scheduled to
be released in Autumn 2020. It will consider the UK's future
economic infrastructure needs to 2050 and provide recommendations
on how to deliver new projects and how to fund future
infrastructure in the UK. In addition, the Infrastructure Finance
Review, the results of which were due to be released earlier in the
year, is expected to be announced alongside the National
Infrastructure Strategy. The Company continues to believe that
there are considerable benefits to the public sector in utilising
private sector capital to finance new public infrastructure.
Governments outside the UK have similarly worked with the
private sector to ensure that essential infrastructure continues to
operate, to the extent that it is possible to do so. In other
jurisdictions in which the Company operates, there continues to be
a recognition for the need for infrastructure investment. This has
been highlighted as a result of Covid-19, and there continues to be
particular focus on social, digital and sustainable energy
infrastructure sectors, and the EU committed to clean energy with
the Next Generation EU initiative.
As noted in the Chairman's Letter, the Audit and Risk Committee
of the Board has also been monitoring the risks associated with
potential outcomes from the UK leaving the EU, which remains a
source of uncertainty for the infrastructure sector and for 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, whilst we do not
believe that the Company is unusually exposed to such risks, or
that there will necessarily be a significant impact on the Company
as a direct result of the end of the Brexit transition period, the
Investment Adviser has adopted a position of heightened readiness
and close communication with key contractors and suppliers.
CURRENT PIPELINE
The Company's performance does not depend upon additional
investments to deliver current 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(1) EXPECTED INVESTMENT INVESTMENT STATUS
OPPORTUNITIES PERIOD
----------------- --------- -------------------------- -------------------- ----------------------
NDIF UK GBP12.1 million Operational Of the GBP45
businesses million commitment
to NDIF, c.GBP33
million has been
invested to 30
June 2020
----------------- --------- -------------------------- -------------------- ----------------------
Offenbach Police Germany GBP8.5 million(2) c.30 years Investment commitment
Headquarters made. Expected
to be funded
mid-2021
----------------- --------- ------------------------ -------------------- ----------------------
Preferred bidder.
Investment expected
Rampion OFTO UK c.GBP35 - 45 million c.20 years late 2020
----------------- --------- -------------------------- -------------------- ----------------------
Preferred bidder.
Investment expected
Beatrice OFTO UK Up to GBP60 million c.23 years late 2020
----------------- --------- -------------------------- -------------------- ----------------------
SECTOR OF INVESTMENT LOCATION ESTIMATED CAPITAL EXPECTED INVESTMENT INVESTMENT STATUS
OPPORTUNITY VALUE (3) LENGTH
--------------------- ---------------- -------------------- -------------------- ----------------------
Regulated UK, Europe c.GBP19.0 billion Various, including Various opportunities
operational
businesses
--------------------- ---------------- -------------------- -------------------- ----------------------
OFTO UK c.GBP1.7 billion c.20 years Various opportunities
--------------------- ---------------- -------------------- -------------------- ----------------------
Education UK, Europe c.GBP0.7 Various Various opportunities
billion
--------------------- ---------------- ------------------ -------------------- ----------------------
Health Europe c.GBP1.5 billion Various Various opportunities
--------------------- ---------------- -------------------- -------------------- ----------------------
Transport Australia, c.GBP6.0 billion Various Various opportunities
Europe
--------------------- ---------------- -------------------- -------------------- ----------------------
Other UK, Europe, c.GBP9.5 billion Various Various opportunities
North America,
Australia
--------------------- ---------------- -------------------- -------------------- ----------------------
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 third-party 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 into
actual investments for the Company. In relation to opportunities
where the current estimated gross value of the relevant investment
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
The Company's Investment Adviser has a highly experienced,
well-resourced, dedicated team of approximately 40 asset managers,
as part of the wider pool of over 130 infrastructure professionals
across nine countries. The Company's Investment Adviser operates a
full-service approach to infrastructure, and this includes
day-to-day asset management and oversight of the Company's
investments. This active asset management approach has been
fundamental to the Company's performance since IPO in 2006 and has
enabled the Company to build a reputation of delivering
transparent, responsible stewardship of public infrastructure
assets that support essential services. These skills have been
especially highlighted during the current unprecedented uncertainty
caused by the Covid-19 pandemic.
OPERATIONAL PERFORMANCE
The Company's Investment Adviser adopts a hands-on approach to
monitoring asset performance utilising robust internal processes.
The Investment Adviser's involvement will vary depending on each
investment type, noting each investment is actively managed to
optimise performance. During H1 2020, 100% of forecast investment
portfolio receipts were received (H1 2019: 100%(1) .
Infrastructure projects inherently involve health and safety
risk from construction through to operation. The health and safety
of the Company's end-users, delivery partners, employees and
members of the public, who come into contact with our assets, are
of the upmost importance to the Company, and we accord the highest
priority to health and safety, including advocating a
zero-tolerance approach to accidents and near misses across our
portfolio. The Company's accident frequency rate for occupational
accidents that resulted in lost time was 0.31 per 100,000 hours
worked (as at 30 June 2020)(2) . This data is reported and
evaluated on a quarterly and 12-month rolling period, including
hours worked, minor injury, near miss, critical incidents and the
number of lost time injuries which occurred as a result of work
activities.
Performance against strategic priority KPIs:
100% Forecast distributions received(1)
0.1% Asset deductions achieved against target of <3%
99.6% Asset availability achieved against a target of
>98%
PPP PROJECTS
The Company's Investment Adviser has extensive experience in PPP
projects, which account for c.41% of the portfolio (by investment
at fair value) with a large majority developed by the Investment
Adviser. Ensuring that the facilities 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, are key deliverables for the Investment Adviser. The
Company's Investment Adviser works closely with its partners to
ensure these standards are met. For those investments whose
performance is measured by both availability and performance, for
the six months to 30 June 2020, the availability of those assets
was 99.6% and across all projects there were performance deductions
of 0.13%, both exceeding the Company's targets.
In addition, the Company's public sector clients commissioned
over 400 contract variations during the period, resulting in a
combined value of c.GBP12 million of additional project work
conducted on behalf of the commissioning body. The completed
changes during the period ranged from classroom alterations within
education facilities to the delivery of transport facility
upgrades. Four benchmarking exercises were also performed and
agreed in our social accommodation projects, which included
reviewing facilities management services delivered on the projects
in order to assess value for money for the public sector.
During the period, in response to Covid-19 and government
guidelines, certain schools, blue light facilities and other public
buildings were required to close for a period, although a large
number remained open with no availability issues and others were
repurposed to help support the wider community, where possible.
1 Measured by comparing forecast portfolio distributions against
actual portfolio distributions received.
2 This includes UK social accommodation (where the Investment
Adviser provides oversight of the management services), Cadent,
Tideway and all investments in Germany, Australia and Canada.
Diabolo Rail Link
As highlighted earlier in the Chairman's Letter, the Company's
investment in Diabolo Rail Link to Brussels airport provides the
fixed infrastructure and not the train services. The bulk of its
revenues are related to the passenger use of either the rail link
itself or the wider Belgian rail network. As a result of Covid-19,
passenger numbers have been significantly lower in the six months
to 30 June 2020 compared to the same period last year. In the event
of prolonged under-performance without remedial action, the Company
is unlikely to receive distributions from this investment for some
time and a technical default may be triggered under the terms of
the debt secured on that investment. As previously outlined, the
Company's Investment Adviser has a strong, long-term relationship
with our stakeholders and constructive discussions are ongoing with
project lenders and the Belgian state railway in order to agree how
to overcome potential liquidity or compliance issues. In addition,
if required, the project benefits from a contractual mechanism
which permits an adjustment to the passenger fee in the event that
passenger numbers and returns fall below a certain threshold. This
mechanism operated successfully earlier in the life of the
contract, although under different circumstances. As lockdown
restrictions have eased, passenger numbers have increased, however
in the shorter term, volumes continue to be lower than
pre-Covid-19.
REGULATED INVESTMENTS
The Company invests in a number of regulated investments,
including OFTOs, Cadent and Tideway. The Company owns 100% of each
of its OFTO investments and whilst the Company does not hold
majority positions in Cadent or Tideway, the Company engages
through its board director positions and membership of management
committees. The Company's Investment Adviser actively works with
respective boards to maintain alignment and focus on strategic
goals to drive financial and operational best practice and ensure
effective risk management.
OFTOs
The Company's OFTO investments are regulated by Ofgem but the
revenues are not linked to electricity production or price, instead
the OFTO is paid a pre-agreed, availability-based revenue stream
for the duration of the licence. The Company's OFTO investments
have been relatively unaffected by the Covid-19 pandemic and have
continued to remain available and meet performance standards.
Tideway
Tideway is a 25km 'super sewer' being built under the River
Thames and following the UK Government's guidance issued in
response to Covid-19, Tideway reduced construction activities
across its sites and continued only with essential and
safety-critical works. In May 2020, following the easing of
restrictions and after a series of detailed safety reviews and the
implementation of measures to protect its workers as well as the
wider community, Tideway recommenced work on its construction
sites. However, it is unlikely that the time that was lost will be
recovered and current social distancing requirements are likely to
lead to construction progressing more slowly in comparison to
pre-Covid-19 levels.
In August 2020, Tideway published an update which included an
estimated GBP233 million impact on cost, increasing the project
cost from GBP3.9 billion to GBP4.1 billion, and a nine-month impact
on schedule, taking completion to the first half of 2025. In terms
of contractual and regulatory safeguards, the Tideway project
documentation includes provisions to share additional costs between
contractors, Tideway investors (including the Company) and
end-customers, up to a threshold, beyond which they are borne by
the UK Government. Tideway has also indicated that it is in
constructive discussions with Ofwat on a package of measures that
would mitigate the financial impact of Covid-19 on Tideway's
shareholders, of which the Company is one. These discussions are
progressing and we expect an agreement to be reached in the coming
months. The Company owns 16% of Tideway and, in keeping with the
Company's prudent approach, it had factored this estimated impact
on a pro-rated basis into its 30 June 2020 forecasts. This includes
a short period during which it is assumed that distributions from
the investment will be withheld as a consequence of Covid-19
related uncertainties. The Company was able to consider this impact
within its 30 June 2020 valuation as a result of its Investment
Adviser's board presence and awareness of ongoing developments. At
the time of writing, the construction works were more than 50%
complete with the excavation of the main tunnel reaching the
halfway milestone in February 2020.
Cadent
Cadent, which owns four of the UK's eight regional GDNs, is
regulated by Ofgem under a regime with similar principles as those
applied by Ofwat to Tideway. Changes in the regulatory regime have
the potential to impact the returns of Cadent. In July 2020, Ofgem
released its RIIO-2 Draft Determination for Cadent which covers the
price control period from April 2021 to March 2026. The Draft
Determination sets out Ofgem's initial assessment of various
factors which will ultimately be used to determine the revenues
that Cadent will be able to earn during the next price control
period. Whilst some aspects of the announcement were disappointing,
it should be noted that the Draft Determination represents Ofgem's
initial proposal and is subject to further consultation. The
Company's Investment Adviser continues to work with Cadent, its
co-investors, and other market participants, in order to obtain a
better outcome for both customers and investors at the final
determination, which Cadent expects to receive from Ofgem in
December 2020.
During the period, Cadent prioritised the emergency response
service for suspected gas leaks as well as its programme of
essential maintenance, working around the clock to keep the public
safe, warm and able to cook with gas. This was done in accordance
with the enabling framework set out by Ofgem, which allowed network
companies to defer lower priority works and services without undue
fear of regulatory enforcement or penalties. Notwithstanding the
disruption caused by Covid-19, Cadent identified certain iron mains
replacement projects which could be completed despite the existence
of social distancing requirements and opportunistically completed
these at a time when disruption to local shops, businesses and road
users was minimised. This work was undertaken with safety being the
number one priority. In addition to its day-to-day operations,
Cadent continues to play a role in supporting the UK Government's
net-zero target for 2050 by undertaking important research to
demonstrate how the existing gas network can be used for lower
carbon fuel distribution in the future.
OTHER OPERATING BUSINESSES
The Company invests in a number of operating businesses
including BeNEX, Angel Trains and digital infrastructure (via its
commitment to NDIF). With the exception of Angel Trains, the
Investment Adviser holds a board position on each of its operating
businesses and uses these positions to influence and strengthen
company policies and procedures, for example, enhancing ESG
credentials, health and safety performance as well as protecting
the value and mitigating operational risk.
BeNEX
BeNEX generates revenues through the contractual leasing of its
rolling stock to TOCs as well as through its investments in TOCs
themselves. Only a small minority of annual revenues (less than
20%) are linked to passenger numbers and therefore whilst Germany,
like many other countries, saw a significant reduction in the
number of people using public transport during the period, the
impact on BeNEX has been limited. In addition, compensation for the
loss of revenue is currently expected to be received from the
Federal Government and/or the relevant Federal State. In May 2020,
all TOCs resumed full services and passenger numbers are slowly
returning towards normal levels.
Angel Trains
The Company holds a minority shareholding in Angel Trains. Angel
Trains generates the majority of its revenues from the contractual
leasing of its rolling stock to TOCs and therefore its revenues
have been largely unaffected by Covid-19. Angel Trains was due to
make a distribution in H1 2020, however, due to the significant
uncertainty faced at the time, the board of Angel Trains prudently
decided to defer the distribution to a later date.
Digital Infrastructure
The Company's Investment Adviser has been actively monitoring
the investee businesses in which the Company invests via its
commitment to NDIF. Whilst in the shorter term, as a result of
Covid-19, physical deployment has been impacted, the critical
nature of digital connectivity has been heightened by the current
volume of people working remotely during this period, and, as a
result, may lead to a permanent change in work patterns with
increased levels of remote working post-Covid-19, thereby
demonstrating the need for resilient digital infrastructure and the
accelerated roll-out of fibre.
COUNTERPARTY RISK
Whilst counterparty risk exists to some extent across all
investments, this risk is particularly significant when considered
in relation to PPPs which have a long-term fixed-price contract
with a facilities management provider.
The Company has a diverse exposure to service providers across
its portfolio and counterparty risk is actively managed and
mitigated. The chart overleaf illustrates the Company's service
providers (by investment fair value), highlighting the
diversification across the portfolio.
We continue to monitor any developments or issues affecting
Interserve, following the administration of this service provider
in 2019. Interserve continues to be the service provider of c.6% of
the portfolio (by investment fair value) and all facilities remain
operational with no disruption to service delivery. The Investment
Adviser continues to closely monitor other service providers within
the portfolio for counterparty risk.
INPP Service Providers
[Chart can be found within the PDF document of the report on the
company website.]
The Investment Adviser takes a holistic approach to monitoring
counterparty risk, which draws upon a number of sources to form a
full picture of how each counterparty and its wider group are
performing. A key aspect of the Investment Adviser's risk
management activities is a focus on the early identification of
signs that a counterparty is encountering problems through regular
contract performance monitoring and internal performance
benchmarking of contracts, in-depth reviews of counterparty
financial and market data and information available in the trade
press, and drawing upon our contacts in the industry for any other
non-public information.
Early identification of increased counterparty risk ensures that
corrective measures are taken at the appropriate time, to help
mitigate potential losses to the Company. Those measures may
include working more closely with the contractor to support them in
their efforts to improve contract performance or, at its most
extreme, the implementation of contingency plans designed to
facilitate the replacement of that contractor. In response to
Covid-19, the Company's Investment Adviser has continued to monitor
each counterparty as normal, but it has increased the frequency of
its reviews to ensure that any issues as a result of Covid-19 are
identified as soon as possible.
Ultimately the Company's desire is to see its service providers
succeed and deliver a high-quality service, and the Investment
Adviser makes all efforts to ensure this is achieved. However,
where a subcontractor does fail, the Investment Adviser has the
necessary processes and procedures in place to mitigate and manage
the risk to the Company.
PROJECTS UNDER CONSTRUCTION
The Investment Adviser's asset management team has extensive
experience and possesses the key skillsets needed to successfully
deliver projects through construction and into the operational
phase. The Company has a strong track record of delivering
construction projects safely, on time, to budget and to a high
quality by understanding the project environment and the potential
risks that may occur. The team works closely with the contractors
and technical advisers throughout this stage in order to deliver
the expected project performance and create value for investors and
communities. Two projects, representing 8.9% of the Company's
portfolio, were under construction at 30 June 2020.
The progress made on Tideway's construction pre-Covid-19 was
positive, with the excavation of the main tunnel reaching the
halfway milestone in February 2020. As described above, due to UK
Government guidelines issued in response to Covid-19, there were
reduced construction activities across the Tideway project sites
during the period, although the number of workers onsite has
increased since May 2020 as restrictions eased. It is important to
note that this has been carried out after a series of safety
reviews and training to protect its workers. Notwithstanding this,
it is unlikely that the time lost will be recovered and the
Covid-19 safety measures are anticipated to slow the rate of
progress previously expected. Please refer to the page 18 for
information relating to the impact on cost and schedule announced
in August 2020 by Tideway.
Performance against strategic priority KPIs:
8.9% of portfolio under construction
Construction works for Offenbach Police Headquarters have
continued to proceed over the six months to 30 June 2020 as
scheduled and to budget. The structural work for the building is
complete and the interior construction work has progressed well.
The Company's current expectation is that the project will start
the implementation and operation preparation phase in Q4 of this
year with delivery on schedule for mid-2021.
Projects under construction as at 30 June 2020 are set out in
the table below.
ASSET LOCATION CONSTRUCTION DEFECTS COMPLETION STATUS % OF FAIR
COMPLETION DATE VALUE OF
DATE INVESEMENT
------------------ ---------- -------------- ------------------- ----------------- ------------
Behind original
Tideway UK 2025 2028 schedule(1) 8.9%
------------------ ---------- -------------- ------------------- ----------------- ------------
Offenbach Police
Headquarters Germany 2021 2025 On Schedule 0.0%(2)
------------------ ---------- -------------- ------------------- ----------------- ------------
1 As a result of Covid-19, the construction completion date has
been impacted and it is now scheduled for H1 2025.
2 The investment fair value of Offenbach Police Headquarters as at 30 June 2020 was 0.02%.
EFFECTIVE FINANCIAL MANAGEMENT
The Company aims to manage its finances efficiently, to provide
the financial flexibility to pursue new investment opportunities,
whilst minimising levels of unutilised cash holdings. Efficient
financial management is achieved through actively monitoring cash
held and generated from operations, ensuring cash covered dividends
and managed levels of corporate costs. This is supported by
appropriate hedging strategies and prudent use of the Company's
corporate debt facility ('CDF').
Cash dividends paid in the period of GBP51.5 million (H1 2019:
GBP50.5 million), were 1.3 times (H1 2019: 1.3 times) covered by
the Company's net operating cash flows before capital activity.
This achieved the Company's objective to generate dividends paid to
investors through its operating cash flows.
Corporate costs were managed effectively during the period and
represent 1.21% for H1 2020 (H1 2019: 1.16%). This ratio has
increased in the period due to the timing impact of a reduction in
NAV during the period and corporate fees being calculated in
arrears. Corporate costs include management fees paid of GBP13.5
million for the year to 30 June 2020 (H1 2019: GBP11.6
million).
As outlined on page 43 of the financial statements, IFRS profit
before tax of GBP35.4 million was reported (30 June 2019: GBP83.7
million). The reduction compared to the prior corresponding period
was principally reflective of the BeNEX transaction being
recognised in the prior period, as well as the current period
decrease in valuation of the portfolio overall as a result of
factoring in additional uncertainty caused by Covid-19.
The Company's cash balance as at 30 June 2020 was GBP40.4
million, a small decrease on the corresponding balance at 31
December 2019 of GBP45.6 million. The decrease in the cash balance
in the period was principally the result of a net GBP7.7 million
repayment of the CDF during the period. Cash receipts from
investments increased by GBP5.5 million in the period, to GBP83.4
million (H1 2019: GBP77.9 million), reflecting the further growth
and maturity of the portfolio. Other corporate costs during the
period were negligible (H1 2019: GBP0.1 million). As detailed in
note 10 of the financial statements, as well as on page 13 of the
Operating Review earlier in this report, GBP11.7 million of
investments were made during the period to 30 June 2020,
significantly lower than the same period last year (H1 2019:
GBP193.4 million). As a result, investment transaction costs paid
in H1 2020 were GBP0.5 million (H1 2019: GBPnil, with relevant
transaction fees settled in the second half of the year).
The Company has a GBP400 million CDF (available until July
2021). At 30 June 2020, the facility was GBP20.2 million cash
drawn
(31 December 2019: GBP27.9 million cash drawn). Net financing
costs paid were GBP2.1 million, a small increase compared to H1
2019
(H1 2019: GBP1.3 million) reflecting the level of utilisation of
the Company's CDF during the period.
Performance against strategic priority KPIs:
1.3x Dividends fully cash covered
1.21% Ongoing charges ratio
SUMMARY OF CASH FLOWS
SUMMARY OF CONSOLIDATED Six months Six months to YEAR TO 31 DECEMBER
CASH FLOW to 30 June 30 June 2019 2019
2020 GBP million GBP MILLION
GBP million
Opening cash balance 45.6 84.7 84.7
Cash from investments 82.9 77.9 159.6
Corporate costs (for ongoing
charges ratio) (14.6) (12.8) (25.1)
Other corporate costs - (0.1) (0.1)
Net financing costs (2.1) (1.3) (4.7)
============================== ============= ============= ===================
Net operating cash flows
before capital activity(1) 66.2 63.7 129.7
============================== ============= ============= ===================
Cost of new investments (11.7) (193.4) (281.3)
Investment transaction costs (0.5) - (3.7)
Net movement of CDF (7.7) 143.3 27.9
Proceeds of capital raisings
(net of costs) - - 190.1
Dividends paid (51.5) (50.5) (101.8)
Closing cash balance 40.4 47.8 45.6
============================== ============= ============= ===================
Cash dividend cover 1.3x 1.3x 1.3x
============================== ============= ============= ===================
1 Net operating cash flows before capital activity as disclosed
above of c.GBP66.2 million (30 June 2019: c.GBP63.7 million)
include net repayments from Investments at Fair Value through
profit and loss of c.GBP17.8 million (30 June 2019: c.GBP19.5
million), and finance costs paid of c.GBP2.1 million (30 June 2019:
c.GBP1.3 million) and exclude investment transaction costs of
c.GBP0.5 million (30 June 2019: GBPnil) when compared to net cash
inflows from operations of c.GBP49.8 million (30 June 2019:
c.GBP45.5 million) as disclosed in the statutory cash flow
statement on page 43 of the financial statements
CASH FLOWS ASSOCIATED WITH ONGOING CHARGES RATIO
CORPORATE COSTS Six months to 30 Six months to YEAR TO 31 DECEMBER
June 2020 30 June 2019 2019
GBP million GBP million GBP MILLION
Management fees (13.5) (11.6) (23.4)
Audit fees (0.2) (0.2) (0.3)
Directors' fees (0.2) (0.2) (0.4)
Other running costs (0.7) (0.8) (1.0)
===================== ================= ============= ===================
Corporate costs (14.6) (12.8) (25.1)
===================== ================= ============= ===================
ONGOING CHARGES RATIO Six months to 30 Six months to 30 YEAR TO 31 DECEMBER
June 2020 June 2019 2019
GBP million GBP million GBP MILLION
Annualised ongoing
charges(1) (29.2) (25.6) (25.1)
Average NAV(2) 2,417.3 2,215.4 2,285.3
Ongoing charges (1.21%) (1.16%) (1.10%)
======================= ================= ================ ===================
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.
INVESTOR RETURNS
DIVID GROWTH
The Company targets predictable and, where possible, growing
dividends. During the period, the Company paid a dividend of 3.59
pence per share in respect of the six months ended 31 December
2019. This brought the total dividends paid in respect of 2019 to
7.18 pence per share, consistent with forward guidance provided
previously. As illustrated in the chart on page 2, the Company has
delivered a c.2.5% average annual dividend increase since IPO. The
Company is currently maintaining its previously announced dividend
targets of 7.36 pence and 7.55 pence per share in respect of 2020
and 2021, respectively.
TOTAL SHAREHOLDER RETURN ('TSR')
The Company's annualised TSR(1) since the IPO to 30 June 2020
was 8.9%. This compares to the annualised FTSE All-Share index TSR
over the same period of 4.2%. As previously reported, during 2019,
the Company undertook an exercise to reassess its KPIs and as such
modified the Company's long-term target return to 7.0%(2) . The
total return achieved since IPO to 30 June 2020 is 7.9%(2) on an
annualised basis.
As shown in the share price performance graph below, the Company
has historically exhibited relatively low levels of correlation
with the market. Whilst the correlation during the six months to 30
June 2020 increased owing to the impacts of Covid-19 on economies
worldwide, we anticipate the correlation to return to more normal
levels over the longer term. For reference, the correlation with
the FTSE All-Share index was 0.194 and 0.367 over the five years to
31 December 2019 and 30 June 2020, respectively.
Performance against strategic priority KPIs:
7.9% p.a. IRR achieved since IPO(2)
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 focused on achieving
long-term real rates of return on their investments, inflation
protection is an important consideration for the Company. At 30
June 2020, 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 0.78% per annum in response to a 1.00% per annum
increase in all of the assumed inflation rates(3) .
1 Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
2 Calculated by reference to the November 2006 IPO issue price
of 100p and reflecting NAV appreciation plus dividends paid.
3 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
NAV
The NAV represents the fair value of the Company's investments
plus the value of other net assets or liabilities held within the
Group. The fair values of the Company's investments are determined
by the Board, with the benefit of advice from the Investment
Adviser, and are reviewed by the Company's auditor on a sample
basis. The Company reports a 0.7% decrease in NAV from GBP2,425.2
million at 31 December 2019 to GBP2,409.4 million at 30 June 2020.
Over the same period, the NAV per share decreased by 0.9% from
150.6 pence to 149.2 pence. The key drivers of the change in NAV
are described in more detail below.
NAV Movements (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
The movements seen in the chart above are explained further
below:
- The yields on the overwhelming majority of government bonds
used as part of the valuation process decreased during the period,
resulting in a net GBP76.5 million increase in the NAV;
- The net positive impact of the reduction in government bond
yields was more than offset by an increase in the investment risk
premia designed to ensure that (i) the valuations continue to
reflect recent market-based evidence of pricing for infrastructure
investments and (ii) any heightened or emerging risks owing to
Covid-19 are reflected within the valuation of relevant investments
(principally in relation to Tideway and Diabolo Rail Link). The net
impact of these adjustments was a reduction in the NAV of GBP100.8
million;
- Sterling weakened against all four foreign currencies to which
the Company is exposed; the Euro, Australian dollar, Canadian
dollar and US dollar. Including the change in the value of the
forward foreign exchange contracts, the net positive impact on the
NAV was GBP30.4 million with the most significant impact seen on
the Company's Euro-denominated investments;
- Cash deposit rate assumptions were prudently revised to
reflect lower interest rate expectations across all geographies in
which the Company is invested. Further detail of these changes can
be seen from the table on page 28 and in aggregate these had a
negative GBP22.5 million impact on the NAV;
- In line with forward guidance provided previously, a cash
dividend of 3.59 pence per share totalling GBP51.5 million, was
paid to the Company's shareholders during the six months to 30 June
2020. This dividend was paid in respect of the six months ended 31
December 2019;
- Among other things, the NAV Return of GBP52.1 million captures the impact of the following:
o Unwinding of the discount rate;
o Updated operating assumptions to reflect current expectations
of forecast cash flows. This includes (i) the cautious approach
that has been adopted with regards to the potential impact of
Covid-19 on Tideway, Diabolo Rail Link and, to a lesser extent,
Cadent and BeNEX, and (ii) the updates to the forecast Cadent cash
flows to reflect the ongoing consultation regarding regulatory
returns for the price control period beginning in April 2021 (see
pages 18-19 for more information);
o Actual distributions received above the forecast amount due to
active management of the Company's portfolio; and
o Changes in the Company's working capital position.
INVESTMENTS AT FAIR VALUE
The Investments at Fair Value represents the fair value of the
Company's investments without consideration of the other net assets
or liabilities held within the Group which are captured within the
NAV. The Company reports a 0.3% decrease in the investments at fair
value from GBP2,382.6 million at 31 December 2019 to GBP2,375.2
million at 30 June 2020. The key drivers of the change in the
Investments at Fair Value are described in more detail below.
Investments at Fair Value Movements (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
The movements seen in the chart above are explained further
below.
- An increase of GBP11.7 million owing to new investments made during the period;
- A decrease of GBP82.9 million due to distributions paid out
from the portfolio during the period;
- The Rebased Investments at Fair Value of GBP2,311.4 million 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;
- The Portfolio Return of GBP75.4 million captures broadly the
same items as the NAV Return (set out in detail on page 25) with
the principal exception being the fund-level operating costs and
portfolio working capital movements;
- There was a net increase in the discount rates used by the
Company to value its investments which had a negative GBP24.3
million impact on the Investments at Fair Value. Further
information on the component parts of the impact shown is provided
on page 25;
- Sterling weakened against all four foreign currencies to which
the Company is exposed; the Euro, Australian dollar, Canadian
dollar and US dollar. The net positive impact on the Investments at
Fair Value was GBP35.2 million with the most significant impact
seen on the Company's Euro-denominated investments; and
- Cash deposit rate assumptions were prudently revised to
reflect the lower interest rate expectation across all geographies
in which the Company is invested. Further detail of these changes
can be seen from the table on page 28 and in aggregate these had a
negative GBP22.5 million impact on the NAV.
PROJECTED CASH FLOWS
The Company's investments are generally expected to continue to
exhibit predictable cash flows, owing to the principally contracted
or regulated nature of the underlying cash flows. 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 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 (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
Macroeconomic Assumptions
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis. Following a thorough market
assessment, it was resolved that certain adjustments should be made
to the deposit rates and foreign exchange rates used to value the
Company's overseas assets.
The key macroeconomic assumptions used as the basis for deriving
the Company's investment valuations are summarised below, with
further details provided in note 9 of the financial statements.
MACROECONOMIC ASSUMPTIONS 30 june 2020 31 December 2019
--------------------------- ----------- ----------------- -----------------
Inflation Rates UK 2.75% RPI/2.00% 2.75% RPI/2.00%
CPIH CPIH
Australia 2.50% 2.50%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
US(1) N/A N/A
--------------------------- ----------- ----------------- -----------------
Long-term Deposit Rates(2) UK 1.00% 2.00%
Australia 2.00% 3.00%
Europe 1.00% 2.00%
Canada 2.00% 2.50%
US(1) N/A N/A
--------------------------- ----------- ----------------- -----------------
Foreign Exchange Rates(3) GBP/AUD 1.83 1.92
GBP/EUR 1.07 1.13
GBP/CAD 1.71 1.80
GBP/USD 1.25 1.37
--------------------------- ----------- ----------------- -----------------
Tax Rates(4) UK 19.00% 19.00%
Australia 30.00% 30.00%
Europe Various (12.50% Various (12.50%
Canada - 32.28%) - 32.28%)
US(1) Various (23.00% Various (23.00%
- 26.50%) - 26.50%)
N/A N/A
--------------------------- ----------- ----------------- -----------------
1 The Company's US 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 2022 before adjusting to the
long-term rates noted in the table above from 1 January 2023. The
31 December 2019 valuation assumed the long-term rates noted in the
table above would apply from 1 January 2022.
3 The Company uses the four-year forward curve and maintains the
four-year forward rate for the longer term.
4 Tax rates reflect those substantively enacted as at the
valuation date or those that could reasonably be expected to be
substantively enacted shortly after 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 reflects the risks and
opportunities associated with that particular investment and is
designed to ensure that the resulting valuation reflects prevailing
market conditions.
The majority of the Company's portfolio (88.5%) comprises Risk
Capital investments, while the remaining portion (11.5%) 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.
31 DECEMBER
30 JUNE 2020 2019 MOVEMENT
------------------------------------- ------------- ------------ ---------
Weighted average government bond
yield - portfolio 0.69% 0.98% (29bps)
------------------------------------- ------------- ------------ ---------
Weighted average investment premium
- portfolio 6.39% 6.04% 35bps
------------------------------------- ------------- ------------ ---------
Weighted average discount rate
- portfolio 7.08% 7.02% 6bps
------------------------------------- ------------- ------------ ---------
Weighted average discount rate
- risk capital 7.64% 7.52% 12bps
------------------------------------- ------------- ------------ ---------
The Company is aware that there are differences in approach to
the valuation of investments among listed infrastructure funds
similar to the Company. In the Company's view, comparisons of
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 allowance is made for differences in
the quality of asset management employed to manage risk and deliver
returns. Any focus on average discount rates without an assessment
of these and other factors would be incomplete and could therefore
lead to misleading conclusions.
VALUATION SENSITIVITIES
This section indicates the sensitivity of the 30 June 2020 NAV
per share of 149.2 pence to changes in key assumptions. Further
details can be found in note 9 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 unlikely basis that
the changes occur uniformly across the portfolio. 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 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.
Estimated impact of changes in key variables on the 30 June 2020
NAV of 149.2p 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 of that particular
investment are linked to an inflation index. On a portfolio basis,
there is a positive correlation to inflation with a 1.00% sustained
increase in the assumed inflation rates projected to generate a
0.78% increase in returns (31 December 2019: 0.82%). The returns
generated by the Company's UK investments are typically linked to
the Retail Price Index ('RPI'), whereas the Company's non-UK
investments are typically linked to the relevant Consumer Price
Index ('CPI') for that jurisdiction. Further to recent
announcements by the UK's energy and water regulators, the revenues
earned by Cadent and Tideway will be linked to the CPIH (CPI
including owner occupied housing costs) 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 geographical region are provided in note 9.5 of
the financial statements.
FOREIGN EXCHANGE
The Company has a geographically diverse portfolio and forecast
cash flows from investments are subject to foreign exchange rate
risk in relation to Euros, Australian dollars, Canadian dollars and
US 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 1.15% 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
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 the proportion of total cost that represents this
'lifecycle spend' will depend on the nature of the asset.
PPPs will typically need to ensure that the assets are kept at
the standard required of them under agreements with relevant public
sector counterparties. To enhance the certainty around cash flows,
the majority of the Company's PPP investments, and all of the
Company's OFTO investments, are currently structured such that
lifecycle cost risk is taken by a sub-contractor for a fixed price
(isolating equity investors from such downside risk). As a result,
the impact of changes to the forecast lifecycle costs for the
Company's PPP investments is relatively small.
The Company's investments in rolling stock leasing or operating
businesses, or businesses providing digital infrastructure, are
also distinct from PPPs which have fixed revenue streams from which
they need to pay lifecycle costs. These businesses will still
expect to incur lifecycle costs but will typically aim to recover
any changes in lifecycle costs through the prices they charge their
end-users.
Tideway and Cadent are treated differently due to the
protections offered by the regulatory regimes 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 subcontractors to undertake
lifecycle work under contracts which include incentive and penalty
regimes aligned with the businesses' regulatory targets. This
approach ensures an alignment of interest and helps to mitigate the
risk of increased lifecycle costs falling on the equity investor.
Accordingly, no lifecycle sensitivity has been run in respect of
the Company's investments in Tideway and Cadent.
The impact of a 10% increase or decrease in the lifecycle costs
incurred by the Company's PPPs, OFTOs and operating businesses is
provided for illustration.
PRINCIPAL and emerging RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the
Company through continual review, policy setting and enforcement of
contractual obligations. It also regularly monitors the investment
environment and the management of the Company's portfolio. The
Company's approach to risk is set out in the Risk Report in the
2019 Annual Report and financial statements (pages 42-53), the Risk
Report includes an overview of the principal and emerging 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 Company for the next six months of its financial
year and include (but are not limited to):
- Inflation risk - revenues and expenditures of project entities
with respect to infrastructure assets are generally partially or
wholly subject to indexation and an assumption is made regarding
the long-term average inflation rate. The Company's ability to meet
targets may be adversely or positively impacted by inflation
- Foreign exchange risk - the Company 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 Company
- Liquidity risk - the ability to successfully access suitable
financial resources in the debt, equity and related financial
markets
- Contract risk - the ability of counterparties to operate
contracts to the detriment of the Company and the risk of default
under contract whether by the Company, its subsidiaries or their
counterparties
- Covid-19 disruption - the Company notes that there are a range
of contingent risks stemming from Covid-19. These include, but may
not be limited to, staff shortages and supply chain breakdowns and
their consequences
- Climate change - An emerging risk which has the potential to
impact infrastructure assets through such effects as physical
damage as a result of extreme weather, change in demand and usage
and impact from new regulatory requirements
- Other external risks - including political and regulatory
risks (including tax and accounting policies and practices and
risks associated with the end of the Brexit transition period)
associated with the Company and its projects; any Covid-19 pandemic
impact on the timescales and budgets for our assets under
construction or operating assets where there is an element of
demand-based revenue, IT and cyber risks; and changes in the
competitive environment which may have an adverse impact on the
Company
- The Board considers and reviews, on a regular basis, the risks
to which the Company is exposed.
By order of the Board
Mike Gerrard John Le Poidevin
Chairman Director
9 September 2020 9 September 2020
RESPONSIBLE INVESTMENT
RESPONSIBLE INVESTMENT
OUR APPROACH
Fundamentally, the Company believes that by investing in
infrastructure that supports a sustainable, prosperous and
resilient society, it will maintain robust financial
performance.
Consideration of ESG drivers is an essential part of how the
Company assesses the long-term viability of the investments that it
makes and its associated asset management strategies. ESG drivers
are non-financial factors that can influence and be influenced by
the Company's business activities and include issues such as
climate change, demographics, resources, technology and social
values.
Consideration of ESG is important to the Company for the
following key reasons:
- ESG drivers present an opportunity for new markets and investments;
- Incorporating ESG into the Company's management processes
supports its high standards of financial rigour and requirements
for long-term financial performance;
- By investing in infrastructure and associated businesses, the
Company can meaningfully support sustainable development.
The Company has adopted the ESG Policy(1) of its Investment
Adviser. It defines the objectives and approach to embedding ESG in
operations, investments and in the communities in which the
Company's investments operate. The Company is supportive of the
2030 Agenda for Sustainable Development adopted by the UN Member
States in 2015. Alongside the research of the Investment Adviser
into emerging ESG trends and sustainable development, the Company
draws on the SDGs to help guide its approach to sustainability.
More information on the Investment Adviser's ESG Integration
Framework is available on its website(2) .
ESG is integrated into the Company's everyday activities and
this includes investment origination and the management of the
Company's investments. At the Investment Adviser level, this is
monitored by the Head of ESG, although all members of its Executive
Committee have responsibility to ensure that this is carried
out.
PRI
To benchmark the Investment Adviser's ESG integration
performance, the Investment Adviser became a signatory of the
UN-backed PRI in August 2019. In addition to integrating ESG into
core investment practices across the business, the Investment
Adviser participates in various PRI-led initiatives and working
groups such as the UN SDG Infrastructure Working Group. This
included contributing towards a set of practical guidelines that
have recently been published by the PRI.
Reporting is compulsory for all PRI signatories. Upon joining
the PRI, signatories have a one-year period whereby the first
reporting cycle is voluntary. The Company is pleased to report that
its Investment Adviser decided to forgo this grace period and, upon
submitting its first report, obtained an A+ ranking for both
responsible investment strategy and governance, and the
infrastructure module. The PRI assessment methodology(3) and the
Investment Advisers Transparency Report can be found on the PRI
website(4) .
UN SUSTAINABLE DEVELOPMENT GOAL ALIGNMENT
The Investment Adviser, on behalf of the Company, has aligned
with the SDGs1. In addition to screening and managing material ESG
risks, both organisations have committed to advancing these
objectives. Infrastructure appears as both an explicit goal under
SDG 9 (industry, innovation and infrastructure) and as an implicit
means to support other SDGs, for example school buildings enabling
a quality education (SDG 4).
By investing in the 'right type' of infrastructure, the Company
believes its investments can significantly support the targets set
out by the SDGs. For each investment sector, the Company has
identified which SDGs its investments are positively impacting. The
core benefits to society are described under the 'Impact' section
on the following pages.
Equally, the Company believes any investment must be managed in
a sustainable way. The Company has undertaken an exercise to
identify what ESG topics are material for each sector that need to
be actively managed. This is to ensure that any ESG risks are
managed, and opportunities for environmental and social progress
are maximised. Performance against these objectives is described
under 'Sustainable Management'. The principle SDGs supported by the
Company's investments are set out below.
[Graphics can be found in PDF version of this document on the
Company's website].
1
https://www.un.org/sustainabledevelopment/sustainable-development-goals/
IMACT AND STEWARDSHIP
The Company has developed bespoke ESG stewardship objectives
which map out how the Company measures the positive impact of its
investments and how it drives sustainable asset management.
ESG impact and stewardship objectives are divided into five
asset classes. This allows the Company to target and manage
material ESG issues, which can vary considerably across a diverse
portfolio of assets. These include all sectors listed in the sector
breakdown in the Company Overview section of this report. Data for
these sections is gathered through a half-yearly data capture
request, and the Company is pleased to have a 100% response rate
for its investments.
Whilst the Company focuses on material issues for each sector,
there are several requirements and cross-cutting issues which are
relevant across the portfolio.
ESG MINIMUM REQUIREMENTS
All investments must meet local regulation as a minimum. Due to
the regions in which the Company invests, this generally means that
investments must meet high standards of ESG compliance. The Company
has also introduced several minimum requirements for the overall
ESG governance framework. To the extent the investment does not
have robust equivalent policies already in place, the Company
endeavours to implement relevant key ESG policies as part of the
post-investment plan.
CLIMATE CHANGE
Climate change is an emerging risk which could lead to more
frequent or severe weather events such as flooding, fires, droughts
and storms. To the extent that climate change does occur,
investments may be subject to extreme weather and changes in
precipitation and temperature, all of which may result in physical
damage or a decrease in demand for infrastructure assets located in
the areas affected by these conditions. In the case that the impact
of climate change is material in nature or occurs for lengthy
periods of time, the financial condition or results of operations
of the investments could be adversely affected.
Climate change is considered alongside other ESG risks by the
Company's Investment Committee, and Audit and Risk Committee.
COVID-19
The Investment Adviser's asset management team has dedicated
significant resource to monitoring and managing the impact of the
Covid-19 pandemic during the six months to 30 June 2020, as
described on pages 17-21.
The PRI has outlined how it is working with its signatories to
respond to the Covid-19 crisis. It has established two signatory
participation groups to coordinate and develop investor responses,
focusing on short and long-term responses.
The Investment Adviser is participating in these working groups
and has been exploring how it is actively supporting recommended
actions and building these into its approach to asset management
throughout the crisis.
SOCIAL INFRASTRUCTURE
Incorporates the Company's investments in educational
facilities, hospitals, healthcare facilities, judicial and other
government buildings
impact
Education HEALTHCARE GOVERNMENT
267 Schools 3 Hospitals 5 Police Stations
>195,000 Pupils 37 Healthcare facilities 8 Judicial Buildings
>540,000 patients
annually
Social infrastructure is pivotal to the development of
sustainable communities. While the provision of housing, clean
water and electricity are vital for meeting basic human needs,
other services such as schools, law and order and healthcare
facilities are important for ensuring the long-term satisfaction of
residents. Together, these types of infrastructure create the
framework within which residents can establish a community with
opportunities for social and economic wellbeing.
As part of this, ensuring equitable access to these services is
critical. Basic services such as health, education, shelter, water
and sanitation being available to all is central to the objectives
of the SDGs.
By investing directly in social infrastructure, the Company is
supporting three SDGs; SDG 3 (good health and wellbeing, SDG 4
(quality education) and SDG 9 (industry, innovation and
infrastructure).
SUSTAINABLE MANAGEMENT(1)
ENVIRONMENT
92% (Investments with an Environment Management System)
94% (Investments monitoring energy usage)
31% (Investments monitoring waste)
88% (Investments monitoring water)
83% (BREEAM 'Very Good' or higher)
During H1 2020, 92% of social infrastructure investments were
managed by facilities management companies with an Environmental
Management System, with no reportable environmental incidents.
The Company identified that 94% of social infrastructure
investments monitored their energy usage. In addition, 31% of the
Company's social infrastructure investments implemented
energy-saving initiatives, with several investments operating a
rolling programme of replacing lighting with LED alternatives.
The Company continues to monitor investments and how they are
managing resources, and 88% of investments now monitor water usage
(an increase in 6%). Approximately 31% of the Company's social
infrastructure investments monitored waste at the site level. The
Investment Adviser continues to identify opportunities to reduce
waste from lifecycle. For example, the AstroTurf pitches removed
from Derby schools have been re-used by a local golf course.
social
100% (Investments with a health & safety policy and management
system)
>4,000 (Sustained full-time employees)
96% (Investments with equality, diversity and inclusion policy)
11,605 (Additional community hours)
The importance of health and safety as a core value of the
Company has been heightened during the Covid-19 pandemic.
Promoting the benefit of assets for community use continues to
be a priority and the Investment Adviser's asset management team
have been exploring how it can support both local and national
initiatives.
Across the portfolio, the Company has large spaces, such as
sports halls, that have been made available for broader use while
the asset itself has either been closed or not fully occupied. The
decline in pupils attending schools has offered an opportunity to
support the local areas; for example, where catering facilities
have not been fully utilised, they have been used to prepare food
for distribution across the relevant local authority. To date, over
19,400 meals have been provided to children of key workers in
school and over 4,000 hampers have been delivered to pupils who
receive free school meals.
1 Note: Metrics are estimates and include the Company's
investments in social infrastructure, schools, hospitals,
healthcare facilities, judicial and other government buildings
2 https://www.breeam.com/
[Relevant UN SDG graphics can be found in PDF version of this
document on the Company's website].
WASTE WATER
Encompasses the Company's investment in Tideway
impact
37 million (Tonnes of avoided sewage)
25km (Tunnel length)
3 Acres (New public space)
An average of 39 million tonnes of untreated waste water
containing raw sewage overflows into the River Thames in London
every year(1) .
On completion, Tideway will stop tens of millions of tonnes of
sewage polluting the River Thames and in doing so will transform
the River Thames and will bring both environmental and social
benefits, including a cleaner Thames, more water sports and the
creation of more jobs. It has already delivered many benefits
during its construction period.
While the main benefit of the tunnel when built is to prevent
pollution and improve biodiversity in the tidal River Thames,
during the eight-year construction period, the project has and
continues to be delivered in a sustainable way.
By investing directly in environmental infrastructure, the
Company can directly support three SDGs; SDG 6 (clean water and
sanitation), SDG 9 (industry, innovation and infrastructure) and
SDG 11 (sustainable cities and communities).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
100% (Investments with an Environment Management System)
34 tCO(2) e (Scope 2 GHG Emissions)
39,796 tCO(2) e (Scope 3 GHG Emissions)
94% (Beneficial re-use of excavated material)
Tideway has a robust environmental management system in place to
deliver on planning requirements and on its legacy commitments.
This includes a variety of initiatives to minimise its impact on
the environment.
Tideway continues to track emissions performance against its
anticipated construction carbon footprint of under 768,756 tCO(2)
e. Tideway's Scope 2 emissions were 34 tCO(2) e and Scope 3 were
39,786 tCO(2) e for H1 2020.
In terms of responsible sourcing of materials, Tideway has
included a
requirement within its works information that 100% of key
building materials (cement, aggregates, steel) must be certified to
responsible sourcing of construction products standards.
All timber being used on site must be certified as FSC and/or
PEFC standard. For the period of this report the materials procured
came from certified responsible
sources (or otherwise agreed with the project manager) ranged
from 97% to
100% which has improved since the previous report where the
range was between 92% and 100%.
social
100% (Investments with a health and safety policy and management
system)
2,514 (Sustained full-time employees)
56% (Female employees)
Tideway's social performance metrics continue to meet the high
standards set by the business. Since the emergence of Covid-19,
Tideway has pivoted some of its existing initiatives to support its
communities.
For example, Tideway has been using the free educational
resources that it makes available at www.tideway.london/tunnelworks
and the organisation Uptree to engage and support young people that
are home schooling due to Covid-19.
Tideway has a strong focus on community fundraising and gave
emergency donations to South London Cares, The Drive Forward
Foundation and London Youth Rowing at the end of the business year
as they struggled with the impact of the Covid-19 crisis.
Tideway's award-winning safety regime, Employers Project
Induction Centre, continues to evolve and includes additional
modules developed for road logistics and marine activity. These new
modules have trained over 1,000 HGV drivers and 100 marine
operatives engaged to date.
1
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/471847/thames-tideway-tunnel-strategic-economic-case.pdf
2 https://www.tideway.london/media/3128/a0601_green-bond-report-2018_vis8.pdf
[Relevant UN SDG graphics can be found in PDF version of this
document on the Company's website].
TRANSPORT
Includes transport related investments, such as rail PPPs and
other rail businesses
impact
>229 million (Passengers per annum)
4,651 (Train units)
>364 million (Train kilometres)
Well planned and coordinated economic
infrastructure is fundamental to the economic and social
wellbeing of a community. It is also becoming increasingly
important to combat climate change and has been identified as a key
part of net-zero carbon strategies emerging internationally(1)
.
In normal times, the Company's rail investments move c.230
million passengers annually (over 627,000 people daily). This is
roughly the equivalent to moving the entire population of Glasgow
city(2) every day.
Although rail is already an existing low-carbon form of
transport, the Company recognises that there will be a growing
shift towards cleaner units, and it will fully support investments
to make this transition.
By investing directly in sustainable transport, the company can
support SDG 9 (industry, innovation and infrastructure) and SDG 11
(sustainable cities and communities).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
64% (Composition of fleet of trains that are electric)
80% (Investments with a sustainability / ESG policy)
60% (Investments with an Environment Management System)
100% (Investments monitoring energy)
In H1 2020, 100% of transport investments continue to monitor
their energy use. Approximately 64% of the train units under
investment were electric, with three: Gold Coast Light Rail,
Diabolo Rail Link and Reliance Rail being 100% electric.
In H1 2020, Angel Trains Limited marked an important milestone
in the ground breaking Hydrive(3) project with Chiltern Railways
and Magtec. The project aims to convert diesel train units into
low-emission hybrid units, as an innovative solution to decarbonise
the UK rail industry.
60% of transport investments are monitoring water and 40%
monitoring waste. During train use, many train components such as
bogies, wheelsets, gear boxes and engines are mostly refurbished
and reused and not disposed of.
social
100% (Investments with a health and safety policy)
>2,300 (Sustained full-time employees)
100% (Equality diversity and inclusion policy)
Health and safety is the highest priority for the Company's
investments in rail, with 100% of investments holding a robust
health and safety policy and management system.
Since Covid-19, the Company's rail investments have taken
measures to maintain operations and keep passengers safe. For
example, BeNEX has increased train capacities (e.g. double heading)
wherever possible to allow passengers to follow the social
distancing rules and disinfection dispensers are available in the
trains and BeNEX/TOCs inform the passengers comprehensively on
their specific train cleaning and hygiene activities.
In 2020, 100% of transport investments held a diversity and
inclusion policy. In most instances these are developed by the
investment themselves. In other cases, the investment adopts
government standards. For example, BeNEX was obliged to apply the
Hamburg Corporate Governance Code. This includes meeting
requirements for non-discrimination, promotion of equal
opportunities and gender distribution.
1 https://www.theccc.org.uk/publication/net-zero-technical-report/
2
https://www.nrscotland.gov.uk/files/statistics/council-area-data-sheets/glasgow-city-council-profile.html
4 https://www.ft.com/content/4f7d9fd8-ba98-11e8-8274-55b72926558f
[Relevant UN SDG graphics can be found in PDF version of this
document on the Company's website].
ENERGY TRANSMISSION
Encompasses the Company's OFTO investments
impact
1.5 GW (Transmission capacity)
1.3 Million (Homes powered by renewable
energy)
Offshore wind generation is a success story for the UK.
Long-term government support has underpinned innovation and
investment in the sector, helping to drive down costs while
contributing to decarbonisation of the economy. We now have the
largest installed offshore wind capacity in the world, with 9.8
gigawatts ('GW') installed which will rise to 19.5 GW by mid 2020s.
The UK has provided more support for offshore wind than any other
country in the world and we anticipate that the technology will
play a key role in helping the UK meet net zero by 2050.
The Company remains a leader in OFTO investment and is currently
preferred bidder on its eighth and ninth OFTO projects.
The investment delivers transmission capacity of 1.5 GW, which
transmits the equivalent amount of energy to 1.3 million homes.
By investing in OFTOs, the Company is directly supporting SDG 7
(affordable and clean energy) and SDG 13 (climate action).
SUSTAINABLE MANAGEMENT
ENVIRONMENT
100% (Investments with an Environment Management System)
100% (Investments monitoring energy)
100% (Investments monitoring waste)
As part of ISO 14001 Environmental Management System, each
investment monitors water, energy usage and waste. During H1 2020,
there were no reportable environmental incidents.
Across all the sites the OFTOs are mandated by environmental
legislation to record the quantity of fluorinated gases (F-gases)
held within the equipment. This includes sulphur hexafluoride
('SF6'), which is used across the energy transmission sector. Any
leaks of SF6 are immediately identified by SCADA systems.
During the period, OFTOs implemented energy efficiency measures
through installing LED lights. In addition, the investments are
powered through renewable energy tariffs.
social
100% (Investments with a health and safety policy and management
system)
12 (Sustained full-time employees)
33% (Female employees)
All of the Company's OFTO investments are covered by a robust
ISO18001 health and safety system. Transmission Capital Services(1)
implement several training initiatives, with all staff receiving
ongoing training which is relevant to their role.
Since the outbreak of Covid-19, the Company's Investment Adviser
has positively engaged with both Ofgem and is coordinating with
OFTO projects outside of the Company's portfolio to explore
potential shared resource pools in the event of failure response
being compromised by organisational resource constraints.
The Company's OFTO investments support a relatively small, but
highly skilled workforce. The potential to play an important role
in the government's plans to export UK skills and services to areas
like Europe, Japan, South Korea, Taiwan and the United States as
part of plans to boost global exports for offshore wind fivefold to
GBP2.6 billion per year by 2030(2)
1 Transmission Capital Services are responsible for management of the OFTO.
2
https://www.gov.uk/government/news/offshore-wind-energy-revolution-to-provide-a-third-of-all-uk-electricity-by-2030
[Relevant UN SDG graphics can be found in PDF version of this
document on the Company's website].
Gas distribution
Currently comprises the Company's investment in Cadent
impact
4.9 million GJ/day (Maximum energy throughput)
>11 million (Homes and businesses connected
to gas)
As the largest GDN in the UK, Cadent provides an essential
service that transports gas to over 11 million homes, offices and
businesses.
The gas network is at the centre of the energy system in the UK,
delivering critical energy to homes, businesses and industry;
reliably, efficiently and securely.
Following the UK's commitment to achieving net-zero carbon by
2050, the Company recognises that the UK cannot continue using
fossil fuels in the way it does today and still meet its carbon
emissions reduction targets. The Company believes Cadent has an
important role to play in transitioning the UK to a net-zero carbon
economy and is committed to supporting Cadent to pilot and invest
in infrastructure to increase the distribution of low carbon fuels
including biomethane and hydrogen.
By investing in Cadent, the Company is directly supporting two
SDGs; SDG 7 (affordable and clean energy) and SDG 9 (industry,
innovation and infrastructure).
SUSTAINABLE MANAGEMENT(1)
ENVIRONMENT
35 (Biomethane connections)
6,923 tCO(2) e (Scope 1 and Scope 2 business GHG Emissions)(1)
94% (Waste diverted from landfill)
As a business, the most significant impact Cadent has on the environment
is leakage from the networks they operate, excavation waste, vehicle
emissions and waste from direct activities. Cadent has made progress
against each of these, with 94% waste diverted from landfill in
2019/2020 (86% in 2018/2019).
Cadent is undertaking important research and demonstration projects
to support the transition to a sustainable energy system, in the
home, for industry, and for transport. These innovative projects
mean Cadent is positioning itself to play a key role within the
changing energy landscape. Cadent continues to position the network
for cleaner fuel distribution and increased biomethane connections
from 32 to 35.
In addition to this important research, Cadent has recently launched
a fleet of new hydrogen and electric vehicles and will be shortly
running a supporting campaign which demonstrates the benefits.
social
100% (Investments with a health and safety policy and management
system)
>4000 (Sustained full-time employees)
18% (Female representation on the board)
Cadent was the first GDN to sign the Covid-19 Business Pledge
launched by former cabinet minister, Rt Hon Justine Greening and
entrepreneur David Harrison. The pledge encourages businesses and
other organisations to find creative ways of supporting the NHS and
the general public throughout the crisis and this includes taking
measures to ensure their own staff's mental and physical health.
Key measures include:
-- Two days paid leave per month for local volunteering
opportunities for all c.4,000 Cadent staff during April and May
-- Gas emergency engineers can buy up to GBP10 of goods for
vulnerable customers they visit and can claim it back through their
expenses
-- Some depot car parks have been made available to ambulances as rest areas
In addition, the Cadent Foundation funded by Cadent, has
committed GBP240,000 to help food banks in the Trussell Trust's
network as they seek to support people affected by Covid-19. The
Trussell Trust supports more than 1,200 food bank centres.
[viii] Greenhouse Gas Emissions data only applicable to Q1 and
excludes shrinkage.
CORPORATE GOVERANCE
BOARD OF DIRECTORS
The table below details all directors of the Company during the
six month period ended 30 June 2020.
Mike Gerrard Julia Sally-Ann Meriel John Claire Giles John Stares(1) John
Board Chair, Bond David(1) Lenfestey(1) Le Poidevin(1) Whittet(1) Frost Whittle(1)
Chair, Investment (1) Chair, Chair, Chair, Senior
Committee Risk Audit Management Independent
Sub-Committee; and Risk Engagement Director
Chair, Committee Committee (until
Nomination Senior 27 May
and Remuneration Independent 2020)
Committee Director,
with effect
from 28
May 2020
------------------- ------------------- --------------- ------------- ---------------- ----------------- --------------- ------------------ ----------------
Aged 62 Aged Aged Aged Aged 50 Aged 65 Aged 57 Aged 69 Aged 65,
and a resident 61 and 56 and 50 and and a and a resident and a and a resident John is
in the UK, a resident a resident a resident resident of Guernsey, resident of Guernsey a resident
Mike has in the of Guernsey, of Guernsey, of Guernsey, Claire has in the since 2001, of Guernsey.
over 30 UK, Julia Sally-Ann Meriel John has over 40 UK, Giles John has John is
years of has 27 has over has over over 25 years' is a founder over 40 a Fellow
financial years' 34 years 25 years years experience of Amber years' of the
and management experience of experience of of business in the banking Infrastructure experience. Institute
experience of capital in multi-sector experience. industry and has Before of Chartered
in global markets infrastructure business John is with Bank worked moving Accountants
infrastructure in the projects experience. a Fellow of Scotland, in the to Guernsey, in England
investment. financial in the With of the Bank of infrastructure John worked and Wales
He has held sector energy a background Institute Bermuda investments for 23 and holds
a number and held sector, in human of Chartered and Rothschild sector years as the Institute
of senior senior including centred Accountants and Co Bank for over a management of Directors
positions, positions international design in England International, 20 years. consultant Diploma
including within offshore for and Wales where she Giles with Accenture, in Company
as an assistant Credit transmission technology, and a was latterly qualified where he Direction.
director Suisse, systems she brings former managing as a solicitor held a John holds
of Morgan including and the a strategic partner director and partner wide variety non-executive
Grenfell Head challenges end-user of BDO and co-Head in the of leadership positions
plc, a director of One of the focus LLP, where until May law firm roles. on a number
of HM Treasury Bank energy and a he held 2016 when Wilde He currently of other
Taskforce, Delivery transition. broad a number she became Sapte holds boards.
deputy CEO and Global Having set of of leaderships a non-executive (now Dentons). non-executive John was
and later Head held experiences roles, director. Giles positions previously
CEO of of Sovereign senior encompassing including She has is chairman on the finance
Partnerships Wealth positions many Head of extensive and a boards director
UK plc and, funds within sectors Consumer experience director of several of Close
most recently, activity. the power and scales Markets, as a of Amber other companies. Fund Services,
a managing utility of where non-executive Infrastructure John is a large
director arena, organisation he developed director Group a Fellow independent
of Thames Sally-Ann ranging an extensive and is currently Holdings of the administrator.
Water Utilities is currently from breadth a non-executive Ltd, the Institute Prior
Limited. the Chief her own of experience director ultimate of Chartered to moving
Mike has Operating start-ups and knowledge of a number holding Accountants to Guernsey,
a breadth Officer through across of other company in England John was
of experience of Guernsey global the real non-trading, of the and Wales, at Price
across a Electricity corporations estate, investment Investment a member Waterhouse
range of Ltd. and leisure companies. Adviser of the Coopers
economic She is governmental and retail Claire is to the Worshipful in London
and social a Chartered programmes. sectors a member Company Company before
infrastructure Engineer in the of the Chartered and various of Management embarking
sectors and Chartered UK and Institute of its Consultants, on a career
and has Director. overseas. of Bankers subsidiaries. and a Freeman in business
been involved John is in Scotland, of the services,
in some a non-executive the Chartered City of predominantly
of the largest director Insurance London. telecoms.
infrastructure on several Institute,
projects plc boards is a Chartered
in the UK. and chairs Banker,
He is a a number a member
Fellow of of audit of the Institute
the Institution committees. of Directors
of Civil and holds
Engineers. the Institute
of Directors
Diploma
in Company
Direction.
DATE OF APPOINTMENT
----------------- ---- ----------------------------------------------------------------- ------------------------------------ ----------------------------------
4 September 1 September 10 January 10 January 1 January 10 September 2 August 28 August 6 August
2018 2017 2020 2020 2016 2012 2006 2019 2009
Date of Date of
retirement: retirement:
31 March 27 May
2020 2020
------------------- ------------------- --------------- ------------- ---------------- ----------------- --------------- ------------------ ----------------
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS
---------------------------------------------------------------------------------------------------------------------------- ---------------- ----------------
Mike Gerrard Julia Sally-Ann Meriel John Claire Giles John John Whittle(1)
Mike holds Bond (1) David Lenfestey Le Whittet(1) Frost Stares(1) Aberdeen
no other European Guernsey Bluefield Poidevin(1) BH Macro Giles Governor Frontier
listed Assets Electricity Solar Episode Ltd is also of More Markets
company Trust ('EAT') Ltd Income Inc. Eurocastle a director House Investment
positions Julia is Channel Fund Limited BH Macro Investment of a School Company
but holds currently Islands Meriel Ltd Ltd number New Ltd
several a non-executive Electricity sits on Riverstone of the Philanthropy Globalworth
non-executive director Grid a number Energy Company's Capital Real Estate
positions of British Sally-Ann of other Ltd subsidiary (Trustee) Investments
within Foreign is also commercial TwentyFour and investment Ltd
boards and Commonwealth, a director boards Select holding GLI Finance
and committees Strategic for several including Monthly entities Ltd
that oversee Command charities Gemserv, Income and of India
the development within Jersey Fund Ltd other Capital
and delivery the Ministry Telecom, Third entities Growth
of of Defence Aurigny Point in which Fund Ltd
infrastructure and is Air Services Offshore the Company Starwood
investments Vice Chair and is Investors has an European
in the of the a committee Ltd investment. Real Estate
UK and Royal Academy member He does Finance
Europe. of Dance. for the not receive Ltd
Guernsey directors' Chenavari
Institute fees Toro Income
of Directors from Fund Ltd
such
roles
for the
Company.
----------------- --------------------- --------------- --------------- -------------- --------------- ----------------- ---------------- ----------------
1 All of the independent directors are members of all Committees
with the exception of Michael Gerrard, who is not a member of the
Audit and Risk Committee. Mr Frost is a non-independent director.
John Stares and John Whittle retired from the Company's Board on 31
March 2020 and 27 May 2020, respectively .
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Half-yearly
Financial Report in accordance with applicable law and
regulations.
The Directors confirm to the best of their knowledge:
a) The condensed set of financial statements have been prepared
in accordance with IAS 34 'Interim Financial Reporting';
b) The interim financial and operating review includes a fair
review of the information required by DTR 4.2.7R (indication of
important events during the first six months and description of
principal risks and uncertainties for the remaining six months of
the year); and
c) The interim financial and operating review includes a fair
review of the information required by DTR 4.2.8R (disclosure of
related parties' transactions and changes therein).
By order of the Board
Mike Gerrard John Le Poidevin
Chairman Director
9 September 2020 9 September 2020
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF INTERNATIONAL PUBLIC
PARTNERSHIPS LIMITED
I NTRODUCTION
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Equity, the Condensed
Consolidated Balance Sheet, the Condensed Consolidated Cash Flow
Statement and the related Notes 1 to 18. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
DIRECTORS' RESPONSIBILITIES
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the
Group are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey
9 September 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)
SIX MONTHSED 30 JUNE 2020
Six months Six months
ended ended
30 June 30 June
2020 2019
Notes GBP'000s GBP'000s
---------------------------------------- ----- --------------- ----------
Interest income 4 39,775 36,533
Dividend income 4 17,439 22,654
Net change in investments at fair value
through profit or loss 4 (1,418) 40,427
----------------------------------------- ----- --------------- ----------
Total investment income 55,796 99,614
Other operating (expense) / income 5 (4,251) 745
========================================= ===== =============== ==========
Total income 51,545 100,359
Management costs 15 (13,027) (11,607)
Administrative costs (852) (945)
Transaction costs 15 (150) (2,449)
Directors' fees (209) (198)
----------------------------------------- ----- --------------- ----------
Total expenses (14,238) (15,199)
----------------------------------------- ----- --------------- ----------
Profit before finance costs and tax 37,307 85,160
Finance costs 6 (1,888) (1,480)
----------------------------------------- ----- --------------- ----------
Profit before tax 35,419 83,680
Tax credit 7 171 37
----------------------------------------- ----- --------------- ----------
Profit for the period 35,590 83,717
----------------------------------------- ----- --------------- ----------
Earnings per share
From continuing operations
Basic and diluted (pence) 8 2.21 5.64
----------------------------------------- ----- --------------- ----------
All results are from continuing operations in the period.
All income is attributable to the equity holders of the parent.
There are no non-controlling interests within the consolidated
Group.
There are no other Comprehensive Income items in the current
period (30 June 2019: nil). The profit for the period represents
the Total Comprehensive Income for the period.
condensed CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited)
SIX MONTHSED 30 JUNE 2020
SHARE CAPITAL
and share OTHER DISTRIBUTABLE RETAINED
NOTES premium RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2019 1,753,840 182,481 488,918 2,425,239
----------------------------- ------ -------------- -------------------- ---------- ----------
Total comprehensive income - - 35,590 35,590
Issue of Ordinary Shares 13 6,364 - - 6,364
Distributions in the period 13 - - (57,828) (57,828)
Balance at 30 June 2020 1,760,204 182,481 466,680 2,409,365
----------------------------- ------ -------------- -------------------- ---------- ----------
SIX MONTHSED 30 JUNE 2019
SHARE CAPITAL
and share OTHER DISTRIBUTABLE RETAINED
NOTES premium RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2018 1,560,243 182,481 456,023 2,198,747
----------------------------- ------ -------------- -------------------- ---------- ----------
Total comprehensive income - - 83,717 83,717
Issue of Ordinary Shares 13 1,501 - - 1,501
Issue costs applied to 13 - - - -
new shares
Distributions in the period 13 - - (51,952) (51,952)
----------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 30 June 2019 1,561,744 182,481 487,788 2,232,013
----------------------------- ------ -------------- -------------------- ---------- ----------
condensed CONSOLIDATED BALANCE SHEET (unaudited)
AS AT 30 june 2020
31 DECEMBER
30 june 2020 2019
NOTES GBP'000S GBP'000S
---------------------------------- ----- ------------ -----------
Non-current assets
Investments at fair value through
profit or loss 9 2,375,179 2,382,645
---------------------------------- ----- ------------ -----------
Total non-current assets 2,375,179 2,382,645
================================== ===== ============ ===========
Current assets
Other financial assets 9, 11 28,074 31,150
Cash and cash equivalents 9 40,364 45,610
Derivative financial instruments 9 - 4,161
Total current assets 68,438 80,921
================================== ===== ============ ===========
Total assets 2,443,617 2,463,566
---------------------------------- ----- ------------ -----------
Current liabilities
Trade and other payables 9, 12 13,467 10,471
Derivative financial instruments 9 627 -
---------------------------------- ----- ------------ -----------
Total current liabilities 14,094 10,471
---------------------------------- ----- ------------ -----------
Non-current liabilities
---------------------------------- ----- ------------ -----------
Bank loans 6, 9 20,158 27,856
---------------------------------- ----- ------------ -----------
Total non-current liabilities 20,158 27,856
---------------------------------- ----- ------------ -----------
Total liabilities 34,252 38,327
Net assets 2,409,365 2,425,239
---------------------------------- ----- ------------ -----------
Equity
Share capital and share premium 13 1,760,204 1,753,840
Other distributable reserve 13 182,481 182,481
Retained earnings 13 466,680 488,918
---------------------------------- ----- ------------ -----------
Equity attributable to equity
holders of the parent 2,409,365 2,425,239
---------------------------------- ----- ------------ -----------
Net assets per share (pence per
share) 14 149.2 150.6
---------------------------------- ----- ------------ -----------
The financial statements were approved by the Board of Directors
on 9 September 2020.
They were signed on its
behalf by:
Mike Gerrard John Le Poidevin
Chairman Director
9 September 2020 9 September 2020
condensed CONSOLIDATED CASH FLOW STATEMENT (unaudited)
six months ended 30 june 2020
Six months Six months
ended ended
30 June 30 June
2020 2019
Notes GBP'000s GBP'000s
------------------------------------------------- ------ ------------ -------------
Profit before tax in the Consolidated Statement
of Comprehensive Income(1) 35,419 83,680
Adjusted for:
Loss / (Gain) on investments at fair value
through profit or loss 4 1,418 (40,427)
Finance costs(2) 6 1,888 1,480
Fair value movement on derivative financial
instruments 5 4,788 (720)
Working capital adjustments
Decrease / (increase) in receivables 2,940 (609)
Increase in payables 2,996 2,222
------------------------------------------------- ------ ------------ -------------
49,449 45,626
Income tax received/(paid) (3) 340 (163)
------------------------------------------------- ------ ------------ -------------
Net cash inflow from operations (4) 49,789 45,463
------------------------------------------------- ------ ------------ -------------
Investing activities
Acquisition of investments at fair value
through profit or loss 10 (11,741) (193,370)
Net repayments from investments at fair
value through profit or loss 17,789 19,362
------------------------------------------------- ------ ------------ -------------
Net cash flow from investing activities 6,048 (174,008)
------------------------------------------------- ------ ------------ -------------
Financing activities
Dividends paid 13 (51,463) (50,450)
Finance costs paid(2) (2,098) (1,311)
Loan drawdowns(2) 11,302 143,300
Loan repayments(2) (19,000) -
------------------------------------------------- ------ ------------ -------------
Net cash (used in)/ provided by financing
activities (61,259) 91,539
------------------------------------------------- ------ ------------ -------------
Net decrease in cash and cash equivalents (5,422) (37,006)
Cash and cash equivalents at beginning
of period 45,610 84,718
Foreign exchange gain on cash and cash
equivalents 176 92
Cash and cash equivalents at end of period 40,364 47,804
------------------------------------------------- ------ ------------ -------------
1 Includes interest received of GBP46.8 million (H1 2019 GBP34.1
million) and dividends received of GBP17.4 million (H1 2019 GBP22.7
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
operating cash flows as shown in the Operating Review on pages
22-23.
NOTES TO THE condensed set of FINANCIAL STATEMENTS
(unaudited)
FOR THE six months ended 30 june 2020
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 4 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.
The financial information for the year ended 31 December 2019
included in this half-yearly Financial Report is derived from the
31 December 2019 Annual Report and Financial Statements and does
not constitute statutory accounts as defined in the Companies
(Guernsey) Law, 2008. The auditors reported on those accounts:
their report was unqualified, did not draw attention to any matters
by way of emphasis, and did not contain a statement under section
263 (2) and (3) of the Companies (Guernsey) Law, 2008.
Accounting Policies
The annual financial statements of the Company are prepared in
accordance with International Financial Reporting Standards
('IFRS') as adopted by the EU. The set of condensed consolidated
financial statements included in this Half-yearly Financial Report
have been prepared in accordance with International Accounting
Standard 34 - 'Interim Financial Reporting' as adopted by the EU
and should be read in conjunction with the consolidated financial
statements for the year ended 31 December 2019, as they provide an
update of previously reported information.
The same accounting policies, presentation and methods of
computation are followed in this set of condensed financial
statements as applied in the Group's latest annual audited
financial statements for the year ended 31 December 2019. The new
and revised IFRS and interpretations becoming effective in the
period have had no material impact on the accounting policies of
the Group.
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 which include the
reassessment of the operational forecasts as a result of Covid-19.
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 GBP40.4 million as at 30 June 2020. 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 GBP379.8
million was uncommitted as at 30 June 2020. In addition, a GBP20
million 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. The facility is available
for investment in new and existing assets until July 2021, and the
Company expects to renew the facility later in the year.
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
9.
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 centred 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 UK, Europe (excl. UK), North America
and Australia.
Six months ended 30 June 2020
---------- -----------------------------------------------------------------
UK Europe (EXCL. North America Australia Total
GBP'000s UK) GBP'000s GBP'000s GBP'000s
GBP'000s
------------------------ ---------- ----------------------- -------------- ---------- ----------
Segmental results
Dividend and interest
income 42,274 4,371 4,310 6,259 57,214
Fair value (loss)
/ gain on investments (11,753) (5,463) 6,686 9,112 (1,418)
------------------------ ---------- ----------------------- -------------- ---------- ----------
Total investment income 30,521 (1,092) 10,996 15,371 55,796
------------------------ ---------- ----------------------- -------------- ---------- ----------
Reporting segment
profit (1) 14,566 (3,174) 9,859 14,339 35,590
------------------------ ---------- ----------------------- -------------- ---------- ----------
Segmental financial
position
Investments at fair
value 1,745,345 309,863 111,141 208,830 2,375,179
Current assets 64,111 - - - 64,111
------------------------ ---------- ----------------------- -------------- ---------- ----------
Total assets 1,809,456 309,863 111,141 208,830 2,439,290
Total liabilities (29,925) - - - (29,925)
------------------------ ---------- ----------------------- -------------- ---------- ----------
Net assets 1,779,531 309,863 111,141 208,830 2,409,365
------------------------ ---------- ----------------------- -------------- ---------- ----------
Six months ended 30 June 2019
---------- -----------------------------------------------------------------
Europe (EXCL.
UK UK) North America Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------- ---------- ----------------------- -------------- ---------- ------------
Segmental results
Dividend and interest
income 44,882 3,019 4,315 6,971 59,187
Fair value gain on
investments 14,302 19,646 2,564 3,915 40,427
------------------------- ---------- ----------------------- -------------- ---------- ------------
Total investment income 59,184 22,665 6,879 10,886 99,614
------------------------- ---------- ----------------------- -------------- ---------- ------------
Reporting segment
profit (1) 42,542 22,910 7,490 10,775 83,717
------------------------- ---------- ----------------------- -------------- ---------- ------------
Segmental financial
position
Investments at fair
value 1,694,338 305,011 105,854 206,700 2,311,903
Current assets 73,997 - - - 73,997
------------------------- ---------- ----------------------- -------------- ---------- ------------
Total assets 1,768,335 305,011 105,854 206,700 2,385,900
Total liabilities (153,887) - - - (153,887)
------------------------- ---------- ----------------------- -------------- ---------- ------------
Net assets 1,614,448 305,011 105,854 206,700 2,232,013
------------------------- ---------- ----------------------- -------------- ---------- ------------
1 Reporting segment results are stated net of operational costs including management fees.
Revenue from investments which individually represent more than
10% of the Group's interest and dividend income approximates
GBP14.2 million (30 June 2019: GBP15.9 million).
4. Investment Income
Six months Six months
ended ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
------------------------------------------- ------------------------------------ -------------
Interest income 39,770 36,533
Interest on investments 5 -
Total interest income 39,775 36,533
------------------------------------------- ------------------------------------ -------------
Dividend income 17,439 22,654
Net change in fair value of investments at
fair value through profit or loss (1,418) 40,427
------------------------------------------- ------------------------------------ -------------
Total investment income 55,796 99,614
------------------------------------------- ------------------------------------ -------------
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 (expense) / Income
Six months Six months
ended ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
--------------------------------------------- ------------- -------------
Fair value (loss) / gain on foreign exchange
contracts (4,788) 720
Other foreign exchange movements 537 25
---------------------------------------------- ------------- ---------------
Total other operating (expense) / income (4,251) 745
---------------------------------------------- ------------- ---------------
6. Finance Costs
Finance costs for the period were GBP1.9 million (30 June 2019:
GBP1.5 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, used to
partially fund investments. As at 30 June 2020, the facility was
GBP20.2 million cash drawn (31 December 2019: GBP27.9 million). The
uncommitted balance of the facility which was not cash drawn or
notionally drawn via letters of credit was c.GBP379.8 million.
The interest rate margin on the CDF is 165 basis points over
Libor. The loan facility matures in July 2021 and is secured over
the assets of the Group.
7. Tax
Six months
Six months ended
ended 30 June
30 June 2020 2019
GBP'000s GBP'000s
--------------------------------------------- ------------- ----------
Current tax:
UK corporation tax (credit) - current period (196) (67)
UK corporation tax charge/(credit) - prior
period - 23
Other overseas tax - current period 25 35
Other overseas tax (credit) - prior period - (28)
--------------------------------------------- ------------- ----------
Tax credit for the period (171) (37)
--------------------------------------------- ------------- ----------
Reconciliation of effective tax rate
Six months
Six months ended
ended 30 June
30 June 2020 2019
GBP'000s GBP'000s
------------------------------------------------ --------------- -----------
Profit before tax 35,419 83,680
------------------------------------------------ --------------- -----------
Exempt tax status in Guernsey - -
Application of overseas tax rates 25 35
Group tax losses surrendered to unconsolidated
investee entities (196) (67)
Adjustment to prior period - (5)
------------------------------------------------ --------------- -----------
Tax credit for the period (171) (37)
------------------------------------------------ --------------- -----------
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 the 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 (30 June 2019:
GBP1 billion) over their full concession lives.
8. Earnings Per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Six months Six months
ended ended
30 June 30 June
2020 2019
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 35,590 83,717
-------------------------------------------------- ------------- -------------
Number Number
-------------------------------------------------- ------------- -------------
Weighted average number of Ordinary Shares for
the purposes of basic and diluted earnings per
share 1,611,047,072 1,484,433,340
-------------------------------------------------- ------------- -------------
Basic and diluted (pence) 2.21 5.64
-------------------------------------------------- ------------- -------------
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.
9. 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.
9.1 Financial assets
30 June 31 December
2020 2019
GBP'000s GBP'000s
-------------------------------------------------- --------- -----------
Investments at fair value through profit and loss 2,375,179 2,382,645
Financial assets
Other financial assets 28,074 31,150
Cash and cash equivalents 40,364 45,610
Derivative financial instruments
Foreign exchange contracts - 4,161
Total financial assets 2,443,617 2,463,566
-------------------------------------------------- --------- -----------
9.2 Financial liabilities
31 December
30 June 2020 2019
GBP'000s GBP'000s
---------------------------------------- ------------ -----------
Financial liabilities at amortised cost
Trade and other payables 13,467 10,471
Bank loans 20,158 27,856
Derivative financial instruments
Foreign exchange contracts 627 -
---------------------------------------- ------------ -----------
Total financial liabilities 34,252 38,327
---------------------------------------- ------------ -----------
9.3 Financial risk management
The Group's objective in managing risk is the protection of
stakeholder 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
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 Board of
Directors is ultimately responsible for the overall risk management
of the Group, with delegation of oversight and activities
(including identifying and controlling risks) provided to the Audit
and Risk Committee and the Group's Investment Adviser. The Group's
risk management framework and approach is set out within the
Strategic Report (pages 44-56 of the 2019 Annual Report and
financial statements). 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
9.4.
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
30 June 2020 2019
GBP'000s GBP'000s
------------------------------------------------- ------------ -----------
Cash
Euro 1,256 2,951
Canadian dollar 545 654
Australian dollar 472 1,623
US dollar 96 664
------------------------------------------------- ------------ -----------
2,369 5,892
Current receivables
Euro receivables 275 124
US dollar receivables 994 539
------------------------------------------------- ------------ -----------
1,269 663
Investments at fair value through profit or loss
Euro 309,863 321,337
Canadian dollar 40,118 39,911
Australian dollar 208,830 200,552
US dollar 71,023 65,090
------------------------------------------------- ------------ -----------
629,834 626,890
------------------------------------------------- ------------ -----------
Total 633,472 633,445
------------------------------------------------- ------------ -----------
Sensitivity analysis showing the impact of variations of the
above risks on the fair value of investments is shown in section
9.5.
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. The Group
considers that any impairment under the expected credit losses
model was not material at the balance sheet date.
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.
9.4 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 30 June 2020, the Group's only derivative financial instruments
were currency forward contracts amounting to a liability of GBP0.6
million (31 December 2019: asset of GBP4.2 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 30 June 2020, the fair value of
financial instruments classified within Level 3 totalled GBP2,375.2
million (31 December 2019: GBP2,382.6 million).
Financial instruments are classified within Level 3 if their
valuation incorporates significant inputs that are not based on
observable market data (unobservable inputs). A valuation input is
considered observable if it can be directly observed from
transactions in an active market, or if there is compelling
external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The
valuation of unlisted equity and debt investments is performed on a
quarterly(1) basis by the Investment Adviser and reviewed by the
senior members of the Investment Adviser.
(1 Indicative valuations are calculated in respect of each at 31
March and 30 September.)
Valuation methodology
The valuation methodologies used are primarily based on
discounting 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 the
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.
The significant unobservable inputs and assumptions used in
projecting the Group's net future cash flows are shown below.
Europe
30 June 2020 UK (Excl. UK) North America Australia
------------------------- ------------ ------------ ---------------- ----------
Inflation rates 2.75% RPI, 2.00% 2.00% 2.50%
2.00% CPIH
12.50% -
Tax rates 19.00% 32.28% 23.00% - 26.50% 30.00%
Foreign exchange rates N/A 1.07 1.25 - 1.71 1.83
Long-term deposit rates 1.00% 1.00% 2.00% 2.00%
------------------------- ------------ ------------ ---------------- ----------
Europe
31 December 2019 UK (Excl. UK) North America Australia
------------------------- ------------ ------------ ---------------- ----------
Inflation rates 2.75% RPI, 2.00% 2.00% 2.50%
2.00% CPIH
12.50% -
Tax rates 19.00% 32.28% 23.00% - 26.50% 30.00%
Foreign exchange rates N/A 1.13 1.37 - 1.80 1.92
Long-term deposit rates 2.00% 2.00% 2.50% 3.00%
------------------------- ------------ ------------ ---------------- ----------
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.
30 June 2020 31 December
Valuation assumptions 2019 Movement
----------------------------- ------------- ------------ ---------
Weighted Average Government
Bond Yield 0.69% 0.98% (0.29%)
Weighted Average Investment
Risk Premium 6.39% 6.04% 0.35%
----------------------------- ------------- ------------ ---------
Weighted Average Discount
Rate 7.08% 7.02% 0.06%
----------------------------- ------------- ------------ ---------
Weighted Average Discount
Rate on Risk Capital(1) 7.64% 7.52% 0.12%
----------------------------- ------------- ------------ ---------
1 Weighted average discount rate on Risk Capital only (equity and subordinated debt).
31 December
Reconciliation of Level 3 fair value 30 June 2020 2019
measurements of financial assets : GBP'000s GBP'000s
------------------------------------------ ------------- -------------
Opening balance 2,382,645 2,097,468
Additional investments during the period 11,741 281,286
Net repayments during the period (17,789) (40,241)
Net change in fair value of investments
at fair value through profit or loss (1,418) 44,132
------------------------------------------ ------------- -------------
Closing balance 2,375,179 2,382,645
------------------------------------------ ------------- -------------
9.5 Sensitivity analysis
The valuation requires management to make certain assumptions in
relation to unobservable inputs to the model. There are no
straightforward inter-relationships between the unobservable
inputs. A sensitivity analysis for reasonably possible alternative
assumptions is provided below:
Change in Change in
Weighted average fair value fair value
Significant assumptions rate in base Sensitivity of investment Sensitivity of investment
at 30 June 2020 case valuations factor GBP'000s factor GBP'000s
------------------------ ------------------- ----------- ---------------------- ----------- --------------
Discount rate 7.08% +1.00% (224,333) -1.00% 271,478
------------------------ ------------------- ----------- ---------------------- ----------- --------------
Inflation rate
(overall) 2.40% +1.00% 255,603 -1.00% (208,106)
UK 2.75% +1.00% 203,675 -1.00% (162,894)
Europe 2.00% +1.00% 40,233 -1.00% (34,600)
North America 2.00% +1.00% 1,108 -1.00% (947)
Australia 2.50% +1.00% 10,605 -1.00% (9,658)
------------------------ ------------------- ----------- ---------------------- ----------- --------------
FX rate N/A +10.00% (63,750) -10.00% 63,757
------------------------ ------------------- ----------- ---------------------- ----------- --------------
Tax rate 21.67% +1.00% (20,215) -1.00% 20,432
------------------------ ------------------- ----------- ---------------------- ----------- --------------
Deposit rate 1.15% +1.00% 23,981 -1.00% (20,953)
------------------------ ------------------- ----------- ---------------------- ----------- --------------
Change in Change in
Weighted average fair value fair value
Significant assumptions rate in base Sensitivity of investment Sensitivity of investment
31 December 2019 case valuations factor GBP'000s factor GBP'000s
------------------------ ------------------- ----------- -------------- ----------- --------------
Discount rate 7.02% +1.00% (221,830) -1.00% 266,321
------------------------ ------------------- ----------- -------------- ----------- --------------
Inflation rate
(overall) 2.26% +1.00% 247,568 -1.00% (204,613)
UK 2.47% +1.00% 198,445 -1.00% (160,506)
Europe 2.00% +1.00% 39,398 -1.00% (33,825)
North America 2.00% +1.00% 1,037 -1.00% (899)
Australia 2.50% +1.00% 8,700 -1.00% (9,384)
------------------------ ------------------- ----------- -------------- ----------- --------------
FX rate N/A +10.00% 63,017 -10.00% (63,017)
------------------------ ------------------- ----------- -------------- ----------- --------------
Tax rate 18.31% +1.00% (20,668) -1.00% 19,729
------------------------ ------------------- ----------- -------------- ----------- --------------
Deposit rate 1.81% +1.00% 23,642 -1.00% (20,778)
------------------------ ------------------- ----------- -------------- ----------- --------------
10. Investments
Consideration % Ownership
Date of investment Description GBP'000's post investment
-------------------- --------------------------------------- -------------- -----------------
The Group made a follow on investment
into the Essex 1 and 2 Building
Schools for the Future projects,
May 2020 UK 6,655 28% - 100%
The Group made further investments
as part of its commitment to the
January - June National Digital Infrastructure
2020 Fund, UK 5,086 45.00%
Total capital spend on investments during the
period 11,741
------------------------------------------------------------- -------------- -----------------
11. other FINANCIAL ASSETS
30 June 2020 31 December
GBP'000s 2019
GBP'000s
------------------------------ ------------- -------------
Accrued interest receivable 24,135 27,273
Other debtors 3,939 3,877
------------------------------ ------------- -------------
Total other financial assets 28,074 31,150
------------------------------ ------------- -------------
Other debtors included GBP3.5 million (31 December 2019: GBP3.7
million) of receivables from unconsolidated subsidiary entities for
the surrender of Group tax losses.
12. Trade and Other Payables
30 June 2020 31 December
GBP '000s 2019
GBP'000s
-------------------------------- ------------- -------------
Accrued management fee 7,764 8,285
Other creditors and accruals 5,703 2,186
-------------------------------- ------------- -------------
Total trade and other payables 13,467 10,471
-------------------------------- ------------- -------------
13. Share Capital and Reserves
30 June 2020 31 December
Shares 2019 Shares
Share capital '000s '000s
---------------------------------------- ------------ -------------
In issue 1 January 1,610,795 1,484,329
Issued for cash - 124,248
Issued as a scrip dividend alternative 4,163 2,218
----------------------------------------- ------------ -------------
Closing balance 1,614,958 1,610,795
----------------------------------------- ------------ -------------
30 June 2020 31 December
GBP'000s 2019
Share capital GBP'000s
------------------------------------------ ------------ ------------
Opening balance 1,753,840 1,560,243
------------------------------------------- ------------ ------------
Issued for cash (excluding issue costs) - 192,071
Issued as a scrip dividend alternative 6,364 3,482
------------------------------------------- ------------ ------------
Total share capital issued in the period 6,364 195,553
------------------------------------------- ------------ ------------
Costs on issue of Ordinary Shares - (1,956)
------------------------------------------- ------------ ------------
Closing balance 1,760,204 1,753,840
------------------------------------------- ------------ ------------
The Company has one class of Ordinary Shares which carry no
right to fixed income.
On 19 June 2020, 4,162,764 new Ordinary fully paid shares were
issued as a scrip dividend alternative in lieu of cash for the
interim dividend in respect of the six months ended 31 December
2019.
30 June 2020 31 December
GBP'000s 2019
Other distributable reserve GBP'000s
---------------------------- ------------ ------------
Opening balance 182,481 182,481
Movement in the period - -
---------------------------- ------------ ------------
Closing balance 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.
30 June 2020 31 December
GBP'000s 2019
Retained earnings GBP'000s
-------------------------- ------------ ------------
Opening balance 488,918 456,023
Net profit for the period 35,590 138,168
Dividends paid(1) (57,828) (105,273)
-------------------------- ------------ ------------
Closing balance 466,680 488,918
-------------------------- ------------ ------------
1 Includes scrip element of GBP6.4 million in 2019 (December 2019: GBP3.5 million).
Dividends
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 2019. The Board has approved an interim
distribution of 3.68 pence per share (six months ended 30 June
2019: 3.59 pence per share).
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 CDF 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 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.
14. Net Assets per Share
30 June 2020 31 December
GBP'000s 2019
GBP'000s
---------------------------------------------- ------------- -------------
Net assets attributable to equity holders of
the parent 2,409,365 2,425,239
----------------------------------------------- ------------- -------------
Number Number
---------------------------------------------- ------------- -------------
Number of shares
Ordinary shares outstanding at the end of the
period 1,614,958,240 1,610,795,476
----------------------------------------------- ------------- -------------
Net assets per share (pence per share) 149.2 150.6
----------------------------------------------- ------------- -------------
15. 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 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 period that were related
party transactions are set out in the table below:
Amounts owing to
Related party expense related parties in
in the Income Statement the Balance Sheet
--------------------------- ------------------------
For the
For the six
six months
months to to At At
30 June 30 June 30 June 31 December
2020 2019 2020 2019
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------------- -------------- ----------- --------- -------------
International Public Partnerships
GP Limited 13,027 11,607 7,764 8,285
Amber Fund Management Limited(1) 150 2,449 170 533
----------------------------------- -------------- ----------- --------- -------------
Total 13,177 14,056 7,934 8,818
----------------------------------- -------------- ----------- --------- -------------
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 the Gross Asset Value ('GAV') of investments bearing construction risk.
For existing fully operational assets:
- 1.2% per annum of the GAV excluding uncommitted cash from
capital raisings up to GBP750 million;
- 1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion;
- 0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) value exceeds GBP1.5 billion.
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
10 years from the date of the IAA.
As at 30 June 2020, Amber Infrastructure held 8,002,379 (31
December 2019: 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 six-month period ended 30
June 2020 are disclosed below:
Director Number of New Ordinary Shares
------------------ ------------------------------
Mike Gerrard 22,330
------------------ ------------------------------
Meriel Lenfestey 9,979
------------------ ------------------------------
Giles Frost 12,974
------------------ ------------------------------
Claire Whittet 1,708
------------------ ------------------------------
16. Contingent Liabilities and commitments
As at 30 June 2020, the Group has funding commitments of up to
c.GBP39.6 million (31 December 2019: GBP43.5 million)1.
There were no contingent liabilities at the date of this
report.
17. Events after THE Balance Sheet Date
There are a range of contingent risks stemming from Covid-19.
These include, but may not be limited to, staff shortages and
supply chain breakdowns and their consequences. The Company will
continue to monitor and where possible take action to avoid or
mitigate any such impacts on its portfolio. The Company is closely
monitoring distributions from all investments and through its
Investment Adviser is actively engaging with counterparts at the
portfolio level - the majority of which are public sector
counterparties. The overwhelming majority of revenues come from
availability-based payments or regulated cashflows that generally
provide a range of protections against adverse scenarios.
In light of the Covid-19 pandemic, the Company has reassessed
the operational performance of its material investments as well as
the cash flow position for the Company itself, including stress
testing for adverse plausible impacts. In addition, the Directors
also note that the Company has free cash reserves at the date of
this report of c.GBP91 million and ability to draw GBP20 million on
its corporate debt facility for working capital purposes.
The Company reaffirms that the operational performance of its
investment portfolio continues as expected and the Covid-19
pandemic has, to date, had no material impact on the Company's
cashflows from its investment portfolio. As the Covid-19
developments remain ongoing, it is premature to assess the
implications of recent events on market pricing of underlying
assets. Whilst the full consequences of the pandemic and its
effects on the portfolio cannot yet be known, the Company believes
that its liquidity position, its business model, diversified
portfolio and its focus on risk mitigation combined with
operational cash and funding reserves, offer a significant degree
of protection.
18. Other Mandatory Disclosures
New standards that the Group has applied from 1 January 2020
Standards and amendments to standards applicable to the Group
that became effective during the period are listed below. These
have no material impact on the reported performance or financial
statements of the Group.
- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7 (1 January 2020)
1 Includes a remaining funding commitment of c.GBP19.1 million
for Benex.
KEY 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
PO Box 286 Carey Olsen FTI Consulting
Floor 2, Trafalgar Court PO Box 98, Carey House 200 Aldersgate
Les Banques Les Banques Aldersgate Street
St Peter Port Guernsey London
Guernsey Channel Island EC1A 4HD
Channel Islands GY1 4BZ
GY1 4LY
Administrator and Company
Secretary Corporate Banker
Ocorian Administration Royal Bank of Scotland
(Guernsey) Limited International
PO Box 286 1 Glategny Esplanade
Floor 2, Trafalgar Court St Peter Port
Les Banques Guernsey
St Peter Port Channel Islands
Guernsey GY1 4BQ
Channel Islands
GY1 4LY
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