Half-year Report to 30 June 2016 - Replacement
This replaces announcement number 6248I released at 07.00 BST on 1 September 2016. Under Portfolio Performance, the second bullet point has been amended to read "Portfolio return of 8.2% on a compounded annualised basis". All other information remains the same.
1 September 2016
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2016
International Public Partnerships Limited ("INPP"), the listed infrastructure investment company which invests internationally in public infrastructure projects, today announces half year results for the six months ended 30 June 2016.
Financial Highlights (as at 30 June 2016 unless otherwise stated)
· Continued Net Asset Value ('NAV') growth over the half year of 6.3% to £1,371.4 (31 December 2015: £1,290.2 million) with NAV per share over the same period increasing 6.1% to 138.2 pence (31 December 2015: 130.2 pence)1
· Half year 2016 fully covered cash dividend of 3.325 pence per share declared (30 June 2015: 3.225 pence per share)2
· Minimum target dividend for 2016 financial year of 6.65 pence per share and 2017 of 6.82 pence per share, an average annual increase of c.2.5%3
· IFRS profit before tax of £109.6 million (30 June 2015: £38.4 million)
· Total Shareholder Return since listing in 2006 of 139.2%, compared to 55.6% on the FTSE All Share over that same period4
· Following robust portfolio growth, new investments and a significantly oversubscribed £125 million capital raise in July 2016, c.36% increase in market capitalisation to £1.5 billion (30 June 2015: £1.1 billion)
Rupert Dorey, Chairman of International Public Partnerships Limited, said: "Predictable, growing returns continue to characterise our financial performance as the Company delivers further value growth over the first half of 2016."
"The significantly oversubscribed capital raise following the half year end demonstrates the continued demand and underlying value of our portfolio and the pipeline assets in which we are well-positioned to invest. The UK and global infrastructure market continues to provide diversified investment opportunities as we maintain our focus on the early phases of governments' procurement processes where we are a proven participant in the structuring and risk management of pipeline projects."
"We remain confident in the pipeline of both PFI/PPP and regulated assets and will continue to deploy our tried and tested approach to active asset management of our existing portfolio, which remains fundamental to our long-term success. With this, we look forward to maintaining our commitment to delivering durable, low-risk and inflation-linked returns to our shareholders."
Portfolio Performance
· Total of over £60 million in five investments and commitments in the electricity transmission, regulated utility, education and transport infrastructure sectors, enhancing diversification and maturity of the portfolio
· Portfolio return of 8.2% on a compounded annualised basis
· Continued investment into the £4.2 billion Thames Tideway project, taking the total so far invested to some £93.9 million with an additional £116.1 million committed
· Completed £26.8 million investment into the sixth UK offshore transmission project, Westermost Rough, marking the Company's leading role in the sector
· Following 30 June 2016, invested £72.3 million in a schools portfolio
· Maximised pre-emptive rights to make value-enhancing follow-on investments in education and transport portfolio, in UK's Building Schools for Future and Australia's Gold Coast Light Rail projects
Outlook
· Outlook for the UK and global infrastructure sector continues to be buoyant
· Demand for assets in both the primary PPP/PFI space and regulated industries, and the associated stable and inflation-linked distributions the Company's investment in these generate, likely to remain high
· Strategic focus remains on sourcing off-market primary investments through the Investment Adviser
[1] See Interim Report and Financial Statements for the six months ended 30 June 2016 for further details on NAV methodology.
2 The forecast date for payment of the half year dividend is 3 November 2016.
3 Future profit forecast and dividends cannot be guaranteed. Projections are based on the current individual asset financial models and may vary in the future.
4 Source: Bloomberg. Share price plus dividends assumed to be reinvested.
ENDS.
INPP will be holding an analyst presentation and investor conference call at 9.30am on the day of announcement (1 September 2016).
Investors and analysts wishing to join the conference call should dial +44(0)20 3043 2002 and use the confirmation code 4950811.
A copy of the results presentation can be downloaded from the Company's website:
www.internationalpublicpartnerships.com
http://www.rns-pdf.londonstockexchange.com/rns/6703I_-2016-9-1.pdf
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Amber Infrastructure Erica Sibree |
+44 (0)20 7939 0558 |
|
FTI Consulting Ed Berry
|
+44 (0)20 3727 1046 +44 (0)7703 330 199
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About International Public Partnerships:
International Public Partnerships ('INPP') is a listed infrastructure investment company which invests in global public infrastructure projects developed under the public private partnerships ('PPP'), private finance initiative ('PFI'), regulated asset and other similar procurement methods.
Listed in 2006, INPP is a long-term investor in 122 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport, utility and transmission projects in the U.K., Europe, Australia and North America. INPP seeks to provide its shareholders with both a long-term yield and capital growth through investment across both construction and operational phases typically of 25-40 year concessions.
Amber Infrastructure Group ('Amber') is the Investment Advisor to INPP and consists around 90 dedicated staff who manage, advise on and originate projects for INPP.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
International Public Partnerships Limited
Interim Report and Financial Statements for the six months ended 30 June 2016
Registered number: 45241
www.internationalpublicpartnerships.com
Note: Page references in this announcement refer to the full formatted Interim Financial Report and Financial Statements for the period ended 30 June 2016 that can be found on the Company's website. Certain charts cannot be reproduced for the RNS format and can also be seen in the PDF version of this document available on the Company's website.
Key Points
Net Asset Value
- Net Asset Value ('NAV')1 per share of 138.2 pence as at 30 June 2016 (31 December 2015: 130.2 pence)
- NAV of £1,371.4 million as at 30 June 2016, up £81.2 million (31 December 2015: £1,290.2 million )
Shareholder Returns
- 2016 half year fully covered cash dividend2 of 3.325 pence per share3 (30 June 2015: 3.225 pence per share)
- Two year forward looking fully covered minimum cash dividend target4 for the years ended 31 December 2016 and 2017 of 6.65 and 6.82 pence per share respectively - maintaining a long-term average increase of c.2.5% per annum
- Significant degree of long-term inflation linkage within the portfolio with a 0.75% per annum projected increase in return for a 1% increase over anticipated average portfolio inflation5
- Total Shareholder Return since listing in 2006 to 30 June 2016 of 139.2% compared to 55.6% on the FTSE All Share over that same period or on an annualised basis 9.5% compared to 4.7% (respectively)6
Earnings
- Profit before tax of £109.6 million for the six months ended 30 June 2016 (30 June 2015: £38.4 million
Highlights
- £60.0 million of additional investments or commitments made during the period and a further £91.2 invested or committed since 30 June 2016
- Strong pipeline of investment opportunities emerging including payments to support the Company's commitment to Thames Tideway Tunnel, one of the UK's largest Infrastructure projects
- Majority owned investments represent 70.8% of portfolio providing high level of asset control
- Underlying investments with external debt7 represent 85.9% of the investment portfolio, 14.1% of the Company's assets have no external debt8
1 The methodology used to determine investment fair value is incorporated within the Net Asset Value ('NAV') as described in detail on page 10.
2 Cash dividend payments to investors are paid from net operating cash flow (after taking into account financing costs) as detailed on page 16.
3 The forecast date for payment of the full year dividend is November 2016.
4 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
5 See pages 15 and 16 for information relating to the Company's use of sensitivity analysis.
6 Source: Bloomberg. Share price plus dividends assumed to be reinvested.
7 Represents investments where debt has been provided by an external lender.
8 Represents investments where the Company owns the entire capital structure.
Company Overview
International Public Partnerships Limited (the 'Company'), in accordance with its Investment Policy, invests in equity, subordinated/mezzanine debt and senior loans to entities owning or operating infrastructure concessions, assets or related businesses.
Investments include schools, courthouses, health facilities, police stations, and other public sector buildings, rail operations, rolling stock leasing entities, waste water and offshore electricity transmission asset owning entities. The Company's investments are located in the UK, Europe, Australia and North America.
Whilst the Company is able to invest in a variety of infrastructure projects, to date it has primarily invested in entities holding physical infrastructure and associated services which are regulated or procured under Public Private Partnerships ('PPP')/Private Finance Initiative ('PFI') and similar public procurement processes.
Features of International Public Partnerships Limited and its investment portfolio are:
Portfolio
- Geographically diversified with a portfolio across eight countries in a variety of sectors
- A focus on yielding operational investments but with an element 'in construction' offering prospects for future capital appreciation
- A significant degree of inflation linkage to investment returns - a 1% per annum increase in the anticipated rate of inflation across the portfolio would imply a 0.75% per annum increase in return across the portfolio
- The Investment Adviser has historical success in originating and developing new 'primary market' investment opportunities in new sectors with low risks relative to returns
- A high degree of management and control of underlying investments to support sustained performance
- Access to a pool of pre-emptive and other preferred rights to increase investment in assets that have proven performance within the existing portfolio
- Operational performance and income from underlying investments is predominantly founded on asset availability, not demand, usage or other non-controllable variables
- A significant portion 10.9% of the portfolio is invested in secured senior debt (where no other debt ranks in preference to the Company's investment in the asset)
Shareholder Returns
- Strong track record of delivering consistent dividend growth and capital appreciation
- Total Shareholder Return since listing in 2006 to 30 June 2016 of 9.5% on an annualised basis1
- Share liquidity through listing and trading on the London Stock Exchange
- Target internal rate of return equal to or greater than 8% per annum set at the time of initial public offering in 2006
Governance
- Experienced independent leadership and strong corporate governance
- Long-term alignment of interest with the Investment Adviser and asset manager
Market Information
- Member of the FTSE 250 and FTSE All Share indices
- Listed since November 2006 with an initial market capitalisation of £300 million and current market capitalisation of £1.51 billion as at 30 June 2016 (31 December 2015: £1.38 billion)
- 992.6 million shares in issue as at 30 June 2016 (31 December 2015: 990.6 million)
- The Company's shares are eligible for ISA/PEPs and SIPPs transfers
- The Company's shares are excluded from the Financial Conduct Authority restrictions which apply to non-mainstream investment products and can therefore be recommended by independent financial advisers to their clients
Investment Adviser Fees
- Competitive fee structure
- For investments bearing construction risk: 1.2% per annum of gross asset value ('GAV')
- For fully operational assets:
· 1.2% per annum of the GAV (excluding uncommitted cash from capital raisings) up to £750 million
· 1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between £750 million and £1.5 billion
· 0.9% per annum where GAV (excluding uncommitted cash from capital raisings) value exceeds £1.5 billion
- 1.5% asset origination fee of the value of new investments to cover acquisition due diligence and more time/cost intensive primary market new origination activities
- Investment Adviser bears the risk of abortive transaction origination costs
- No incentive or performance fees
- Further details can be found in the Company's 2015 Annual Report on pages 12 and 13
1 Source: Bloomberg. Share price plus dividends assumed to be reinvested.
Key Portfolio Facts
As at 30 June 2015
Sector Breakdown
|
Energy transmission |
29% |
|
Education |
22% |
|
Transport |
20% |
|
Health |
7% |
|
Courts |
6% |
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Waste Water |
6% |
|
Police Authority |
3% |
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Military Housing |
3% |
|
Other |
4% |
122 investments in infrastructure projects across a variety of sectors.
Geographic Split
|
UK |
70% |
|
Belgium |
12% |
|
Australia |
7% |
|
Germany |
4% |
|
Canada |
3% |
|
US |
3% |
|
Ireland |
1% |
|
Italy |
<1% |
Invested in selected jurisdictions which meant the Company's risk and return requirements.
Mode of Acquisition/Asset Status
|
Construction |
10% |
|
Operational |
90% |
|
Primary Investor1 |
88% |
|
Later Stage Investor2 |
12% |
Early stage investor to maximise capital growth opportunities.
Investment Type
|
Risk capital only3 |
86% |
|
Company owns Risk Capital and Senior Debt |
14% |
Invested across the capital structure taking into account appropriate risks to returns.
Project Ownership
|
100% |
66% |
|
50%-100% |
5% |
|
<50% |
29% |
Preference to hold majority stakes.
Investment Life
|
<20 years |
52% |
|
20 - 30 years |
24% |
|
>30 years |
24% |
Weighted average portfolio life of 28 years4
Information provided in charts above is based on 31 December 2015 portfolio investment fair value. Unless otherwise stated the Company and its subsidiaries hold investments in equity, subordinated debt and senior loans made to entities owning or operating infrastructure concessions, assets or related businesses most of which are investment subsidiaries.
1 Primary Investor - asset developed or originated by the Investment Adviser or predecessor team in the primary market as a new investment opportunity.
2 Later Stage Investor - asset acquired from a third party investor in the secondary market.
3 Risk Capital - includes both project level equity and subordinated debt.
4 Once the Company has fully invested in the Tideway project the average investment life will, other things being equal, be c.40 years. Twenty-eight years represents the current weighted average investment life based on the £76.0m invested in Tideway as at 30 June 2016.
Top Ten Investments
|
Name of Project |
Location |
Sector |
Status at 30 June 2016 |
% Holding at 30 June 2016 |
% Investment Fair Value 30 June 2016 |
% Investment Fair Value 30 June 2016 |
|
Lincs Offshore Transmission |
Lincolnshire, England |
Energy Transmission |
Operational |
100% Risk Capital1 |
13.0% |
16.3% |
|
Diabolo Rail Link2 |
Brussels, Belgium |
Transport |
Operational |
100% Risk Capital1 |
11.7% |
14.1% |
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Ormonde Offshore Transmission |
Cumbria, England |
Energy Transmission |
Operational |
100% Risk Capital1 and 100% senior debt |
9.9% |
11.4% |
|
Thames Tideway Tunnel2 |
London, United Kingdom |
Waste Water |
Under Construction |
16% Risk Capital1 |
6.4% |
11% |
|
Angel Trains2 |
Various, United Kingdom |
Transport |
Operational |
5% Risk Capital1 |
5.0% |
4.9% |
|
Royal Children's Hospital |
Victoria, Australia |
Health |
Operational |
100% Risk Capital1 |
3.2% |
3.4% |
|
US Military Housing2 |
Various, United States |
Military Housing |
Operational |
100% Risk Capital1 |
2.7% |
2.7% |
|
BeNEX Rail |
Various, Germany |
Transport |
Operational |
49% Risk Capital1 |
2.7% |
2.9% |
|
Northampton Schools |
Northamptonshire, England |
Education |
Operational |
100% Risk Capital1 |
2.6% |
2.7% |
|
Hereford & Worcester Courts |
Worcestershire, England |
Courts |
Operational |
100% Risk Capital1 and 100% senior debt |
2.4% |
2.7% |
1 Risk Capital includes both project level equity and subordinated debt.
2 These projects contain revenues which are not solely dependent on availability but also include an element of linkage to other factors such as passenger numbers, rolling stock releasing assumptions, occupancy and/or are regulated assets. All other investments receive entirely availability based revenues.
Note that investment contribution to the portfolio is calculated on a drawn cash basis and does not take into account amounts committed through letters of credit etc. Further information about each of the investments in the Company's portfolio is available on the Company's website.
Significant movements in the Company's portfolio for the period ended 30 June 2016 can be found on pages 19 and 20 of this Report.
Chairman's Letter
Dear Shareholders,
It is very pleasing to be able to report to you again that your Company continued to perform strongly - the six months to June 2016 saw very robust underlying returns from the existing portfolio. We were also fortunate in being able to bring a number of new investments into the portfolio during the period, adding incremental value to your shareholding.
The combination of portfolio growth, new investment and the subscription of new capital saw the Company's market capitalisation reach over £1.5 billion shortly after the close of the half year, up from £1.1 billion at the equivalent time last year.
Dividend Growth
In line with its stated dividend target of 6.65 pence per share for the 2016 financial year, the Company declared a dividend of 3.325 pence per share for the six months to 30 June 2016. This represents c.3.1% growth over the prior corresponding period and is consistent with the c.2.5% average annual dividend growth that has been delivered to investors since the Company's inception over nine years ago. The ability to deliver consistent and growing income to investors is at the heart of the Company's investment strategy and we appreciate its importance to investors in increasingly volatile market conditions.
The Board has once again published a minimum dividend target, being 6.65 pence per share for 2016, and guidance of 6.82 pence per share for the 2017 dividend, an average increase of c.2.5% per annum, to give additional clarity to shareholders of our future intentions.1
1 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
Operational and Portfolio Performance
The Company's portfolio of assets continued to perform well with revenues and cash receipts in line with management forecasts and levels of satisfaction remaining high amongst our public sector clients. As a result the cash flow and valuation performance of the Company's existing portfolio remained very healthy. Net Asset Value growth was strong during the period, increasing 6.3% to £1,371.4 million or 6.1% to 138.2 pence on a NAV per share basis.
The existing portfolio has continued to benefit from strong asset management of investments which we see as fundamental to the Company's overall long-term success. This approach not only encompasses larger-scale project issues such as ensuring that major construction schemes or project variations are tracking to schedule and budget, but the effective management of day-to-day relationships, such as ensuring that the head teachers in our schools are satisfied with the facility services being delivered and the terms of the concession contracts are being fulfilled.
Investment Activity and Capital Raising
Demand for infrastructure investment continues apace not only in the UK but internationally. The Company is well positioned and continues to prefer to focus its attention on the early phases of governments' procurement processes where it can be an active participant in the structuring and risk management of a project thereby deriving the best outcome for our investors from a project's inception. This is distinct from those whose focus is mainly to acquire investments in the secondary market where, typically, because of the competitive auction process, price is the key determinant and the project's investment parameters are dictated by the preceding owner/s. We believe our ability to originate and structure transactions so that the Company is an early stage investor into the majority of its investments is a major differentiating factor which creates real added value for our shareholders.
In this period we made investments and commitments to five infrastructure investments in the electricity transmission, regulated utility, education and transport infrastructure sectors totalling over £60.0 million. Additional commitments or investments of £91.2 million have also been made by the Company into additional infrastructure projects in the months since the end of the half year.
The largest investment during the period was the Company's commitment to the Westermost Rough offshore transmission project, where £26.8 million was invested. This is the Company's sixth such investment into what we believe to be one of the most attractive sectors in the UK at the current time.
The Company also continued to invest into the £4.2 billion Thames Tideway Project which will deliver a 25 kilometre 'super-sewer' under the River Thames in London. As at the date of this report the Company had invested some £76.0 million, with an additional £134.0 million committed by way of letter of credit to be drawn down during the construction phase of the project over the next year and a half.
The capital required to fund these new investments came from a mix of the Company's existing cash resources, its corporate debt facility and the proceeds from share issuance in the previous period.
The Company also conducted a capital raising in the first week of July 2016. Despite the turbulent market conditions that followed the Brexit decision, the offer closed significantly oversubscribed and the Company was able to enlarge the amount raised from the initial target of £75 million to £125 million. Pleasingly the placement was concluded at a very narrow discount to the market price on the day the raising was announced and was supported by a range of existing and new investors.
This new capital was immediately used to reduce the drawn balance of the Company's revolving credit facility and to invest into committed investment opportunities. We would like to thank all shareholders who participated in the offer for their support and welcome all of our new shareholders to the register.
Corporate Governance and Regulation
The Board has closely monitored market and political reactions following the referendum in respect of UK European Union (EU) Membership on 23 June 2016. While the decision to leave the EU will inevitably lead to uncertainty and associated market-related volatility (including but not limited to currency, credit and stock markets) the full impact of 'Brexit' is extremely difficult to forecast. We will continue to monitor the outcome and potential impacts.
We do however note that in our opinion the Company's current investments are not likely to be impacted in the long-term to a significant degree by Brexit as the counterparties to the concessions in which we invest will continue to use and require our services. Moreover there are no 'Brexit-related' clauses that would lead to the cessation of our concession agreements. Finally, in the context of the uncertainty created by the decision, the demand for assets in which the Company invests and the associated stable and inflation-linked distributions generated, is likely to continue to be high and we see this as broadly positive for the Company and its investor base.
The OECD proposals aimed at limiting the tax deductibility of interest charges on related and third party debt remain of particular relevance to the infrastructure sector. In May 2016, following the announcements made in the 2016 Budget, Her Majesty's Treasury invited a further consultation on the proposed regulations for corporate interest deductibility in the UK. The Company and its Investment Adviser have, in conjunction with industry participants and forums, submitted responses in this consultation. We are encouraged by movements in the latest proposals towards attempting to avoid unintended consequences on the infrastructure sector, however until detailed rules are finalised both in the UK and in other jurisdictions there remains a degree of uncertainty over any potential future impact on the Company. We will continue to work with our professional advisers and engage with industry groups as well as the relevant authorities throughout the consultation and implementation stage with an aim to mitigate unintended consequences where possible.
As reported in the 2015 Annual Report, in addition to its usual review of risks, the Board considered in more detail the cyber-risks that the Company may face - an increasingly topical area of risk for many businesses. The Board commissioned a review of the Company's security protocols in this respect which has found that controls are fit for purpose for the Company.
Going Concern
We have reviewed comprehensive cash flow forecasts, which are based on market data and past experience, and continue to believe, based on those forecasts and an assessment of the Group's committed banking facilities and available headroom, that it is appropriate to prepare the financial statements of the Group on the going concern basis.
In arriving at our conclusion that the Group has adequate financial resources we were mindful that at the date of this report the Group has unrestricted cash balances of £49.5 million, restricted cash balances available for investments of £26.6 million and undrawn banking facilities of £158.4 million. Forecasts indicate continuing full compliance with associated banking covenants. Further details can be found on page 21.
Outlook
Despite uncertainty in some of the markets in which we operate the Company remains confident in its ability and that of its Investment Adviser to continue to identify and execute new investments in core markets to strengthen the portfolio further. This includes both infrastructure assets within the primary PPP/PFI space and regulated infrastructure assets.
Where new investment opportunities do arise the Company will continue to be selective in those acquisitions which it brings into the portfolio to ensure that they bring long-term value to shareholders.
Finally, and notwithstanding the comments above and the opportunities listed in more detail in the Financial and Operating Review, it should be noted that the Company's projected performance is not dependent upon making future investment commitments in order to deliver its projected returns. These can be delivered in the Company's view from its existing assets. Further investment opportunities will, first and foremost, be judged based on whether they add value and quality to the Company's existing portfolio.
Rupert Dorey
31 August 2016
Chairman
Financial and Operating Review
Key Performance Indicators
The Key Objectives of the Company are set out below and ten priorities have been identified to assist in meeting these. In order to assess annual performance in meeting these objectives the Company reviews semi-annually its performance against the following Key Performance Indicators ('KPIs'). The KPIs and the relative performance for the six months to 30 June 2016 are summarised below and further details of each of these elements are provided in the sections that follow:
Key Objectives
Investor Returns
|
Key Objectives |
Key Performance Indicator |
Six months to 30 June 2016 Performance |
|
Deliver sustainable long-term returns to shareholders
Focus on providing shareholders with predictable, and where possible growing dividends
|
- Maintain and enhance distributions to shareholders |
- Achieved targeted fully covered cash dividend of 3.325 pence/share, a 3.1% increase on HY 2015 dividend |
|
Deliver capital value enhancement where possible |
- Total shareholder return
- NAV and NAV pence/share |
- Achieved. The total shareholder return since IPO is 139.2%, or 9.5% on an annualised basis
- NAV of £1,371.4 million and NAV per share of 138.2 pence an increase of 6.3% and 6.1% |
Strategic Priorities
1. Active Asset Management
|
|
Strategic Priorities |
Key Performance Indicator |
Six months to 30 June 2016 Performance |
|
1 |
Focus on delivery of anticipated returns from existing investments
Actively manage investments to ensure that they meet financial and other targets |
- Availability for all controlled investments at 98% or above
- Returns from investments in line with expectations |
- Achieved
- Met HY 2016 net revenue generation and dividend goals |
|
2 |
Maintain high levels of public sector satisfaction and asset performance |
- Performance deductions below 3% for all projects |
- Achieved |
|
3 |
Deliver additional value from existing assets through management of construction risk and delivery of operational improvements to meet client requirements
|
- Number of change requests from existing contracts
- Management of investments in the course of construction projects in line with overall delivery timetable |
- Around 340 variation requests processed representing c. £4.3 million of the additional works at the project level
- Construction works on projects in line with project timetables |
2. Value-focused Portfolio Development
|
|
Strategic Priorities |
Key Performance Indicator |
Six months to June 2016 Performance |
|
4 |
Through relationships with co-shareholders and pre-emptive rights, where applicable, increase individual investment holdings to 100% where beneficial |
- Value enhancing follow-on investments |
- Increased stake in Wolverhampton Phase Two Building Schools for the Future project up to 82% - Follow-on investment in Gold Coast Light Rail project |
|
5 |
Make additional acquisitions where they can be acquired on or off-market at prospective returns that are beneficial in risk/return terms |
- Value of additional investments acquired off-market |
- All investments in the period were acquired outside secondary market auction processes |
|
6 |
Enhance prospects for capital growth by investing in construction phase assets where available |
- Number of investments in construction |
- 4 projects currently in construction phase representing 9.8% of NAV |
|
7 |
Identify complementary investment sectors within the Company's investment policy offering better returns with a similar risk profile |
- Value of investments in complementary investment sectors |
- Continued investment into regulated water investment, Tideway |
|
8 |
Take advantage of infrastructure opportunities internationally where investments have an appropriate risk profile and contractual structures are reliably enforceable to enhance diversification |
- Number of new opportunities in international markets |
- Committed c.£3.8 million investment into extension of the Gold Coast Light Rail project in Australia |
|
9 |
Undertake continuing review of portfolio composition to ensure suitable blend of risk/return, inflation linkage, yield versus capital characteristics, level of diversification and opportunistic enhancements |
- Improvement of risk/return, inflation linkage, return, diversification characteristics |
- Investments, notably Tideway, significantly enhanced the average duration of the portfolio. Once fully invested in 2018 the weighted average portfolio duration will be c.40 years. |
|
3. Efficient Financial Management
|
|||
|
|
Strategic Priorities |
Key Performance Indicator |
Six months to 30 June 2016 Performance |
|
10 |
Provide efficient management of cash holdings and debt facilities available for investment and appropriate hedging policies
|
- Dividends paid to investors covered by operating cash flow
- New investments made from available cash (after payment of dividend) in priority to use of corporate debt
- Competitive cash deposit rates
- Use of appropriate hedging strategies |
- Dividends paid to investors 1.3 times covered by net operating cash flow1
- All investments in the period funded through excess cash2 before utilising the corporate debt facility
- Benchmarked market cash rates and re-allocated based on risk/return profile where possible
- Foreign exchange forward contracts in place at the balance sheet date to mitigate short-term foreign exchange cash flow volatility |
1 Cash dividends to shareholders are paid from net operating cash flow (including financing costs) before non-recurring operating costs.
2 Residual cash after payment of dividend and corporate costs over the next twelve months.
Performance against key objectives during the year - Investor Returns
Profits and Distributions
Profit before tax for the six months to 30 June 2016 was £109.6 million (30 June 2015: £38.4 million) driven largely by the net change in fair value of investments, with earnings per share of 11.14 pence (30 June 2015: 4.71 pence).
Income from portfolio investments (investment income) including fair value movements, dividends and interest in the period was impacted accordingly, rising to £124.5 million (30 June 2015: £47.0 million). These returns were partially offset by operating expenses (including finance costs) of £10.7 million (30 June 2015: £9.5 million) and adverse movements on foreign currency contracts of £5.1m (30 June 2015: gain of £0.1m)
These results allowed the Company to deliver a dividend of 3.325 pence per share for the six months to 30 June 2016 (30 June 2015: 3.225 pence per share)
Total Shareholder Return
The Company's Total Shareholder Return (share price growth plus reinvested distributions) for investors since the IPO of the Company in November 2006 to 30 June 2016 has been 139.2%, compared to a total return on the FTSE All-Share index over the same period of 55.6% or 9.5% and 4.7% (respectively) on an annualised basis1. The Company has exhibited relatively low levels of volatility compared to the market, as evidenced by the graph below which shows the Company's share price since IPO against the price performance of the major FTSE indices and the Company's NAV.
INPP Share Price Performance
[Chart can be found in PDF version of this document on the Company's website.]
Net Asset Valuation
The Company reported a 6.3% increase in NAV to £1,371.4 million at 30 June 2016 up from £1,290.2 million at 31 December 2015. This represented an increase of 6.1% of NAV per share to 138.2 pence per share from 130.2 pence per share at 31 December 2015.
The build-up of NAV is derived from a discounted cash flow calculation to determine the fair value of investments plus the value of cash and other net assets held within the Company's consolidated group.
The key drivers of the change to the NAV between 31 December 2015 and 30 June 2016 are highlighted in the graph and described in more detail below.
1 Bloomberg - share price appreciation plus income.
Net Asset Value Movement (£m)
[Chart can be found in PDF version of this document on the Company's website.]
Over the six months to 30 June 2016, government bond yields decreased in all countries the Company holds investments in, resulting in a positive impact on the NAV. This was partly offset by an increase in project premiums to ensure the project valuations continue to reflect current market pricing.
Sterling weakened considerably against the Australian, Canadian and United States' Dollars and the Euro over the half year to 30 June 2016, particularly after the announcement of the 'Brexit' decision, and this had a positive impact on the NAV. The most significant foreign exchange impact was seen in the valuation of the Company's Euro denominated investments.
Cash distributions were £29.2 million during the period and represent the cash elements of the dividend paid to shareholders in respect of the second half of the 2015 financial year.
The NAV Return of £37.8 million captures the following:
- Unwinding of the discount factor - the movement of the valuation date and the receipt of forecast distributions;
- Updated project forecasts - refinement of project model and macroeconomic assumptions to reflect current expectations of future cash flows and ensure that cash can be extracted from the underlying investments as early as reasonably possible; and
- Movements in the Company's working capital position.
Investment Valuation
Forecast future cash flows
The Company's investments are expected to exhibit (and historically have exhibited) predictable cash flows as the Company has a large degree of visibility over expected income from its current investments. The chart below sets out the Company's expectation for the evolution of investment receipts from its current portfolio (over the remaining life of current investments).
The majority of the receipts over the life of the concessions are investment income in the form of dividends or interest and principal payments from senior and subordinated debt investments.
The Company generally invests in infrastructure entities with finite lives (determined by concession or licence terms). As the remaining life of each of the Company's investments reduces, the Company's receipts in respect of that investment will represent return of capital as well as income. The line in the chart overleaf illustrates how, in the event that the Company never acquires any additional assets, nor raises any additional capital and other things being equal, the value of the Company's portfolio would reduce to zero over time1. Equally however, any future acquisitions (or disposals) or changes to the projected cash flows of any investment (or the assumptions upon which they are based) will change this projection from time to time (although it can be expected to retain the same general amortising profile).
1 The chart has been updated from previously published versions and now presents Investments at Fair Value i.e. the underlying value of the assets rather than NAV for fairer presentation.
INPP Forecast Cash Flow Profile and Portfolio Valuation
[Chart can be found in PDF version of this document on the Company's website.]
Portfolio Performance and Return
The Company's investment portfolio is reviewed semi-annually by the Investment Adviser, and presented for approval by the Directors. The Directors' valuation of the portfolio, Investments at Fair Value, as at 30 June 2016 was £1,352.4 million, an increase of 12.6% since 31 December 2015. Investments at Fair Value Movements (£m)
Investments at Fair Value Movements
[Chart can be found in PDF version of this document on the Company's website.]
The Portfolio Return of £49.2 million captures the following:
- Unwinding of the discount factor - the movement of the valuation date and the receipt of forecast distributions; and
- Updated project forecasts - refinement of project model and macroeconomic assumptions to reflect current expectations of future cash flows and ensure that cash can be extracted from the underlying investments as early as reasonably possible.
In addition there was:
- A net reduction in discount rates across all jurisdictions in which the Company holds investments, leading to a £34.3 million increase in portfolio value;
- A reduction of £3.1 million following a reduction in the long-term Australian deposit rate assumptions and a one year delay in the step-up to the long-term deposit rate assumptions for all jurisdictions; and
- An increase of £43.1 million due to a significant weakening of Sterling against all four currencies the Company has exposure to.
The remaining movements relate to investments and the funding of affiliated entities totalling £74.0 million1 and project distributions of £46.2 million.
1 Represents £56.2m of cash investments and £17.8m of funds advanced to affiliated entities to facilitate the Tideway investment immediately following the balance sheet date.
Macroeconomic assumptions
The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis and, following a thorough market assessment during the period, certain adjustments have been made to some of the assumptions used to derive the Company's portfolio valuation.
The key assumptions used as the basis for deriving the Company's portfolio valuation are summarised in the following table with further details provided in note 12. Across the portfolio the weighted average long-term inflation assumption as at 31 December 2015 was 2.57% (2014: 2.55%) and the weighted average deposit rate assumption was 3.11% (2014: 3.47%). The Net Asset Valuation Section above provides further details on the impact of these assumptions on the valuation during the period.
|
Variable |
Basis |
30 June 2016 |
31 December 2015 |
30 June 2015 |
||
|
Inflation |
UK Australia Europe Canada US4 |
2.75% 2.50% 1.00% in 2016 then 2.00% 2.00% N/A |
2.75% 2.50% 1.00% in 2016 then 2.00% 2.00% |
2.75% 2.50% 1.00% in 2016; then 2.00% 2.00% N/A |
||
|
Long -term Deposit Rates1 |
UK Australia Europe Canada US4 |
3.00% 3.00% 3.00% 3.00% N/A |
3.00% 4.50% 3.00% 3.00% N/A |
3.00% 4.50% 3.00% 3.00% N/A |
||
|
Foreign Exchange |
GBP/AUD GBP/CAD GBP/EUR GBP/USD4 |
1.91 1.76 1.14 1.36 |
2.13 2.02 1.28 1.49 |
2.15 1.33 1.95 N/A |
||
|
Tax Rate2 |
UK Australia Europe Canada US4 |
18.00%-20.00%3 30.00% Various (12.50%-33.99%) Various (26.50%-27.00%) N/A |
18.00%-20.00%3 30.00% Various (12.50%-33.99%) Various (26.50%-27.00%) N/A |
20.00% 30.00% Various (12.50%-33.99%) Various (25.00%-26.50%) N/A |
||
1 The 30 June 2016 portfolio valuation assumes actual current deposit rates are maintained until 31 December 2019 before adjusting to the long-term rates noted in the table above.
2 Corporation tax rates are only updated once they have been substantively enacted.
3 20.00% until 31 March 2017, 19.00% from 1 April 2017 until 31 March 2020 and 18.00% from 1 April 2020.
4 The Company made its first US denominated investment during 2015. It had no USD exposure prior to this time. The investment is in fully yielding subordinated debt instruments and therefore not directly impacted by inflation, deposit and tax rates.
Discount rates
The discount rate used for valuing each investment is based on the appropriate long-term government bond yield and a risk premium. The risk premium takes into account risks and opportunities associated with each project (including location, phase of operation/construction etc.).
The majority of the Company's portfolio (85.9%) is comprised of investments where the Company only holds the Risk Capital in the underlying projects. The remainder of the portfolio (14.1%) is comprised of investments where the Company holds both the Risk Capital and the senior debt. In order to provide investors with a greater level of transparency, the Company publishes both a Risk Capital weighted average discount rate and a portfolio weighted average discount rate across all investments including senior debt interests.
The current discount rates used by the Company are provided in the table. These rates need to be considered against the assumptions and projections upon which the Company's anticipated cash flows are based.
Care needs to be exercised if the Company's average discount rates are to be compared with those of similar companies. In the Company's view comparisons of average discount rates between competitor investment portfolios or funds is only meaningful if there is a comparable level of confidence in the quality of forecast cash flows (and assumptions) the rates are applied to; the risk and return characteristics of different investment portfolios are understood; and the depth and quality of asset management employed to manage risk and deliver expected returns are identical across the compared portfolios. As such assumptions are unlikely to be homogenous, and a focus on average discount rates without an assessment of these and other factors could be misleading.
|
Metric |
30 June 2016 |
31 December 2015 |
30 June 2015 |
Movement 31 December 2015 - 30 June 2016 |
|
Weighted Average Government Bond Rate (Nominal) - portfolio basis - Risk Capital and senior debt |
2.00%
|
2.31% |
2.12% |
(0.31%) |
|
Weighted Average Project Premium over Government Bond Rate - Risk Capital and senior debt (Nominal) |
5.37%
|
5.22% |
5.17% |
(0.15%) |
|
Weighted Average Discount rate - Portfolio basis - Risk Capital and senior debt |
7.37%
|
7.53% |
7.29% |
(0.16%) |
|
Weighted Average Discount rate - Risk Capital only1 |
7.88% |
8.09% |
7.83% |
(0.21%) |
|
NAV per share |
138.2p |
130.2p |
128.6p |
8.0p |
1 Risk Capital includes both project level equity and subordinated debt.
Government bond rates
In the table above the Company has provided an analysis of the weighted average government bond rate used in calculating the discount rate. It should be noted that the nominal (i.e. non-inflation linked) bond rate has been used in this calculation. The Company considers, however, that investors may also find a comparison with inflation adjusted government bond rates beneficial. This is the case due to the significant level of inflation linkage inherent in the Company's anticipated cash flows.
|
|
30 June 2016 |
31 December 2015 |
Movement (December 2015 - June 2016) |
||||
|
Country |
Nominal |
Real |
Nominal |
Real |
Nominal |
Real |
|
|
UK |
2.05% |
(0.89%) |
2.33% |
(0.76%) |
(0.28%) |
(0.13%) |
|
|
Australia |
2.96% |
0.92% |
3.29% |
1.00% |
(0.33%) |
(0.08%) |
|
|
Europe1 |
1.35% |
(0.49%) |
1.73% |
(0.14%) |
(0.38%) |
(0.35%) |
|
|
Canada |
1.96% |
0.50% |
2.20% |
0.55% |
(0.24%) |
(0.05%) |
|
|
US |
2.52% |
0.89% |
2.99% |
1.18% |
(0.47%) |
(0.29%) |
|
|
Portfolio weighted average |
2.00% |
(0.61%) |
2.31% |
(0.44%) |
(0.31%) |
(0.17%) |
|
Real (i.e. inflation adjusted) bond rates are included in the table below. Using these real rates on a weighted average basis leads to a 'real' portfolio rate of (0.61%) with the difference between the 'real' and 'nominal' rates reflecting in theory the implied rates of future expected inflation. In some countries this is higher than those currently being assumed to calculate the Company's NAV. This information is provided to enable investors to make approximate comparisons of the projected return of the Company with that available from government index linked bonds. It should be noted that any such comparison can only be estimated due in part to the fact that the Company's cash flows are not fully linked to inflation and the Company's cash flows already assume a core level of inflation as set out in the section headed Macroeconomic assumptions on page 13.
1 Includes Belgium, Germany, Ireland, and Italy. Note estimates only for Belgium and Ireland as no index linked bonds available.
Portfolio level assumptions underlying NAV calculation
The Company is aware that there are subtle differences in approach to the valuation of portfolios of investments among different infrastructure funds. To clarify the Company's position in this regard its key cash flow inputs and broad valuation principles include that:
- Key macroeconomic variables (outlined in the section above) continue to be applicable
- The contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated before their contractual expiry date
- Where deductions are suffered under such contracts they are fully passed down to subcontractors
- Where possible lifecycle costs/risks are not borne by the Company but are passed down to a third party such as a facilities management contractor
- Cash flows from and to the Company's subsidiaries and the infrastructure asset owning entities in which it has invested will be made and are received at the times anticipated
- Where assets are in construction they are either completed on time or any costs of delay are borne by the contractors not the Company
- Where the operating costs of the Company or the infrastructure asset owning entities in which it has invested are fixed by contract such contracts are performed, and where such costs are not fixed, that they remain within projected budgets
- Where the Company or the infrastructure asset owning entities in which it has invested owns the residual property value in an asset that the projected amount for this value is realised
Impact of Changes in Key Macroeconomic Variables to 30 June 2016 NAV 138.2p per Share
[Chart can be found in PDF version of this document on the Company's website.]
Discount rates
The Company's approach to determining the discount rate is described in detail above. Assuming all other things are equal, a reduction of 1% to the underlying project discount rates would increase the 30 June 2016 NAV per share by 16.3 pence. Should the underlying project discount rates increase by 1% the NAV per share would decrease by 13.8 pence.
Inflation
In an environment where investors are increasingly focused on achieving long-term real rates of return on their investments, inflation protection is an important consideration for the Company. At 31 December 2015, the majority of assets in the portfolio had some degree of inflation linkage and, in aggregate, the weighted return of the portfolio would be expected to increase by 1% per annum in response to a 0.75% per annum inflation increase across the whole portfolio over the currently assumed rates.
Where actual inflation is higher or lower than the assumed levels, it can be expected to impact on the Company's actual future cash flow in a correspondingly positive or negative manner other things being equal. If the underlying project inflation rates were to increase by 1% per annum evenly across the portfolio there would be an 11.4 pence increase to the NAV per share. Conversely, if the rates were to decrease by 1% per annum there would be a 10.1 pence decrease to the NAV per share.
Forecasting the impact of possible future inflation/deflation on projected returns and NAV in isolation cannot be relied on as an accurate guide to the future performance of the Company as actual inflation is unlikely to follow any of these scenarios exactly and in any case, many other factors and variables will combine to determine what actual future returns are available. The analysis provided above should therefore be treated as being indicative only and not as providing any form of profit or dividend forecast.
Foreign exchange
The Company has a geographically diverse portfolio and therefore revenues are subject to foreign exchange rate risk. Should the assumed exchange rates increase by 10% per annum this could be anticipated to lead to a 4.0 pence increase in the NAV per share while a 10% per annum reduction in the exchange rates would result in a 4.0 pence decrease in NAV per share. Short-term fluctuation in foreign exchange rates are managed through currency forward contracts.
Deposit rates
The long-term weighted average deposit rate assumption across the portfolio is 3.00% per annum. While operating cash balances tend to be low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and therefore variations to deposit rates may impact the portfolio. During the period the Company reduced the deposit rates it was assuming for its Australian assets from 4.50% to 3.00%. Taking this slight change into account and all else being equal, a 1% per annum increase in the underlying deposit rates could be anticipated to lead to a 1.5 pence increase in the NAV per share and a 1% per annum decrease in deposit rate to a 1.4 pence reduction in the NAV per share.
Tax rates
The Company has a geographically diverse portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all relevant jurisdictions. Should the assumed tax rates increase by 1% per annum this could be anticipated to lead to a 0.8 pence decrease in the NAV per share while a 1% per annum reduction in the tax rates could be anticipated to lead to a 0.8 pence increase in NAV per share.
Under UK group tax loss relief rules, losses within the UK group companies can be, subject to UK tax law, offset against taxable profits in other UK group companies (including controlled project entities). This group tax loss relief can reduce the overall tax charge across the portfolio and potentially reduce taxable profits substantially below the levels currently modelled by the Company. The Company has taken a conservative approach to the valuation of future tax losses and, to date, has not incorporated these into the NAV.
Project lifecycle spend
Over a project's lifecycle there is a process of renewal required to keep the physical asset fit for use and at the standard required of it under the agreement with the occupying public sector body. The proportion of total cost that is lifecycle spend will depend on the nature of the asset. In order to enhance the certainty around cash flows, around 93.53% of the Investments at Fair Value comprise investments that have been structured such that lifecycle cost risk is taken by a subcontractor for a fixed price (isolating equity investors from such downside risk). As a result, the impact of any changes to the Company's lifecycle cost profile is relatively small. A 10% increase in lifecycle costs would lead to a 0.6 pence reduction in NAV per share. A 10% decrease in lifecycle costs would lead to a 0.6 pence increase in NAV per share.
Under UK group tax loss relief rules, losses within the UK group companies can be, subject to UK tax law, offset against taxable profits in other UK group companies (including controlled project entities). This group tax loss relief can reduce the overall tax charge across the portfolio and potentially reduce taxable profits substantially below the levels currently modelled by the Company. The Company has taken a conservative approach to the valuation of future tax losses and, to date, has not incorporated these into the NAV.
Cash flow movements in the period
|
Summary of consolidated cash flow |
Six months to 30 June 2016 £ million |
Six months to 30 June 2015 £ million |
Year to 31 December 2015 £ million |
|
Opening cash balance |
72.4 |
29.4 |
29.4 |
|
Cash from investments |
46.2 |
37.8 |
76.0 |
|
Operating costs (recurring) |
(7.7) |
(6.8) |
(13.7) |
|
Net financing costs |
(1.2) |
(1.1) |
(3.5) |
|
Net cash before non-recurring operating costs |
37.3 |
29.9 |
58.8 |
|
Non-recurring operating costs |
(1.0) |
(1.5) |
(2.8) |
|
Net cash flow from operations1 |
36.3 |
28.4 |
56.0 |
|
Cost of new investments |
(56.2) |
(42.7) |
(143.1) |
|
Net drawdown/(repayment)of corporate debt facility |
23.7 |
25.0 |
(16.3) |
|
Proceeds of capital raisings (net of costs) |
- |
- |
195.0 |
|
Distributions paid |
(29.2) |
(23.8) |
(48.6) |
|
Funds advanced to affiliated entities |
(17.8) |
- |
- |
|
Net cash at period end |
29.2 |
16.3 |
72.4 |
1 Net cashflows from operations are detailed further in the financial statements on page 30.
The Company's net cash reduced by £43.2 million from 31 December 2015 to £29.2 million reflecting new investments as well as dividends paid, offset by positive operating cash inflows and drawdowns on the corporate debt facility.
Cash inflows from the Company's portfolio of investments increased by £8.4 million to in comparison with the corresponding period in 2015. The increase can be attributed to both the ongoing maturity of the Company's assets and the positive impact of recent investments.
Recurring operating costs increased from £6.8 million to £7.7 million at 30 June 2016 as a result of higher management fees (in line with the increase to the Company's NAV) and other cost movements, as outlined in the accompanying table. Net financing costs are in line with the comparable period in 2015 since the majority of cash outflows associated with the higher drawn balance at 30 June 2015 were incurred in the second half of the year. Non-recurring operating costs in the period to 30 June 2016 relate principally to one-off transaction costs incurred on new investments.
New investments in the period are detailed in note 12 of the financial statements and were funded from a mix of the Company's existing cash resources, its corporate debt facilities and the proceeds from share issuance. To ensure the Company satisfied its commitment to invest £17.8 million into the Tideway project on 1 July 2016, cash was drawn on the corporate debt facility and transferred prior to the balance sheet date. This transfer is shown as "funds advanced to affiliated entities".
Dividends paid in the period of £29.2 million (30 June 2015: £23.8 million) were in respect of the six-month period ended 31 December 2015.
Corporate expenses and ongoing charges
A breakdown of corporate operating costs paid in the six months to 30 June is provided below
|
Corporate Expenses |
Six months to 30 June 2016 £ million |
Six months to 30 June 2015 £ million |
Year to 31 December 2015 £ million |
|
Management fees |
(7.0) |
(6.2) |
(12.5) |
|
Audit fees |
(0.2) |
(0.1) |
(0.2) |
|
Directors' fees |
(0.1) |
(0.1) |
(0.2) |
|
Other running costs |
(0.4) |
(0.4) |
(0.8) |
|
Operating costs (ongoing) |
(7.7) |
(6.8) |
(13.7) |
|
Ongoing Charges |
Six months to 30 June 2016 £ million |
Year to 31 December 2015 £ million |
Six months to 30 June 2015 £ million |
|
Annualised Ongoing Charges1 |
(15.4) |
(13.7) |
(13.7) |
|
Average NAV2 |
1,330.8 |
1,143.3 |
1,069.9 |
|
Ongoing Charges |
(1.16%) |
(1.20%) |
(1.28%) |
The increase in management fees paid to the Investment Adviser is in line with the growth in managed investments and the growth of the Company's portfolio.
1 The Ongoing Charges ratio was prepared in accordance with the Association of Investment Companies' ('AIC') recommended methodology, noting this excludes non-recurring costs
2 Average of published NAVs for the relevant period.
The Board seeks to mitigate and manage risks relating to the Company through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group's portfolio.
The Company's approach to risk is set out in the Risk Report of the 31 December 2015 Annual Report and Financial Statements (pages 36-44), the Risk Report includes an overview of the principle 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 19 October 2015). These risks and uncertainties are expected to remain relevant to the Company for the next six months of its financial year and include (but are not limited to):
Inflation risk - Revenues and expenditures of project entities with respect to infrastructure assets are generally partially or wholly subject to indexation and an assumption is made that inflation will increase at a long-term rate. The Group's ability to meet targets may be adversely or positively impacted by inflation;
Foreign exchange risk - The Group has exposures to foreign currencies and therefore exposure to exchange rate fluctuations
Credit and counterparty risks - The risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group;
Liquidity risk - The ability to successfully access suitable financial resources in the debt, equity and related financial markets;
Contract risk - The ability of counterparties to operate contracts to the detriment of the Company and the risk of default under contract whether by the Company, its subsidiaries or it or their counterparties; and
Other external risks - Includes the political and regulatory risks (including tax and accounting policies and practices) associated with the Company and its projects and changes in the competitive environment which may have an adverse impact on the Group. In particular, actions that may be taken in light of the OECD's Action plan on Base Erosion and Profit Shifting ('BEPS') may lead to fundamental changes to international tax structures and may have knock on consequences for domestic standards as well.
The Board considers and reviews the risks that the Company is exposed to on a regular basis.
Performance against Strategic Priorities - 1. Active Asset Management
Investment cash flow received from the Company's portfolio of 122 investments has continued to perform in line with the Company's expectations. Ensuring that the Company's assets are available for use and are performing in accordance with contractual expectations is a critical task for the Company and its service providers.
The Investment Adviser, on behalf of the Company, closely monitors the relationship between service providers and public sector clients. It is actively involved in the ongoing management of assets to ensure that performance standards are being met. In addition to these day-to-day activities, the Investment Adviser works with public sector clients on assignments as they arise.
These capabilities were tested in March when the Company's investment in the Diabolo Rail project was closed due to the horrifying terrorist activities at the Belgium National Airport, Zaventem, to which the project is linked. While our facilities were largely unaffected physically, as would be expected in such circumstances, rail services to the airport were suspended while security personnel and the government focussed on the atrocity. Following this the Investment Manager has worked with the Airport and other local authorities to reinstate services to the airport as quickly as possible. Although it is a short time since the incident, passengers have continued to use the service and the Company does not expect there to be any significant impact on the financial position of the project.
During the first half of 2016, our public sector clients commissioned c 340 variations resulting in over £4.3 million of additional works at the project level. All variations were overseen by the Investment Adviser as part of the day-to-day asset management activities it undertakes in conjunction with the project facilities manager and the public sector client. Variations ranged in size from a few hundred pounds to over £1 million and demonstrate the value and flexibility of PFI/PPP contracts to respond to the changing requirements of public sector clients.
Construction work continues on the New Schools PPP Project in Australia (Victorian Schools 2). The Project comprises 15 new build schools across twelve different green-field sites in outer metropolitan Melbourne. Construction on the project is split into two tranches with the first eight schools due to be completed by 1 January 2017 and the remainder by 1 January 2018. Overall progress is on schedule, with the design submissions for the Tranche 1 schools nearly complete, construction well advanced and design submissions for Tranche 2 underway.
Enabling works on the Thames Tideway Tunnel ('Tideway') continued during the period, preparing the 24 sites across London for the driving of the tunnel itself, with the most prominent piece of work taking place in the foreshore by Blackfriars Bridge. Pleasingly during the period main works construction has started slightly earlier than planned.
The Gold Coast Stage 2 project which will link the existing light rail system with the local heavy rail network and provide users with direct access to Brisbane has commenced. Design work is underway along with early enabling works.
Projects under construction as at 30 June 2016, all of which are currently on schedule for operational commencement are set out in the table below.
|
Asset |
Location |
Construction Completion Date |
Defects Completion Year |
Status |
% of Fair Value of Investment |
|
Priority School Building Aggregator Programme - five batches |
UK |
2018 |
2019 |
On Schedule |
3.32% |
|
Thames Tideway Tunnel1 |
UK |
2024 |
2027 |
On Schedule |
6.40% |
|
Victoria Schools PPP Project1 |
Australia |
2018 |
2019 |
On Schedule |
0.04% |
|
Gold Coast Light Rail Stage Two1 |
Australia |
2018 |
2019 |
On Schedule |
0.01% |
1 Project is currently funded via a letter of credit. Investment will be made at construction completion or, in the case of Tideway, over the course of construction.
Performance against Strategic Priorities - 2. Value-focused Portfolio Development
During the six months to 30 June 2016 the Company made further investment or commitments of £60.0 million across five projects. The projects acquired were either sourced by the Investment Adviser from project inception (i.e. in response to an initial government procurement process) or were acquired by way of further investment into the Company's existing assets. These methods of procurement remain the Company's preferred route to market as they necessarily avoid investment in the open secondary market which remains very competitive. Details of acquisitions are provided below.
|
Asset |
Location |
Acquisition/ Divestment |
Operational Status |
Investment/ Commitment |
Acquisition date |
|
Westermost Rough OFTO |
Yorkshire, UK |
Acquisition |
Operational |
£26.8 million |
4 February 2016 |
|
Thames Tideway Tunnel |
London, UK |
Acquisition |
Under construction |
£17.1 million |
1 April 2016 |
|
Priority School Building Aggregator Programme - Batch 5 |
Midlands, UK |
Acquisition |
Under construction |
£5.1 million |
26 April 2016 |
|
Wolverhampton BSF |
Wolverhampton, UK |
Acquisition |
Operational |
£7.2 million |
29 June 2016 |
|
Gold Coast Light Rail |
Gold Coast, Australia |
Acquisition |
Under Construction |
£3.8 million |
28 April 2016 |
|
Post 30 June 2016 |
|
|
|
|
|
|
Thames Tideway Tunnel |
London, UK |
Acquisition |
Under construction |
£17.8 million |
1 July 2016 |
|
Halton Place Building Schools for the Future |
Cheshire, UK |
Acquisition |
Operational |
£1.1 million |
27 July 2016 |
|
Building Schools for the Future Portfolio |
Various |
Acquisition |
Operational |
£72.3 million |
22 August 2016 |
Westermost Rough offshore transmission project ('OFTO')
In February 2016, Transmission Capital Partners, the consortium comprising the Company, Amber Infrastructure and Transmission Investment reached financial close for the long-term license and operation of its sixth UK offshore transmission project, Westermost Rough OFTO.
The Company made a £26.8 million investment for 100% of the equity and subordinated debt of the OFTO. The OFTO will connect a windfarm containing 35 turbines generating 6MW located 8km off the coast of Yorkshire to the onshore grid network, providing enough electricity to power around 150,000 UK homes.
Thames Tideway Tunnel
In the six months to 30 June 2016 the Company invested £17.1 million into the Tideway project making a further £17.8 million contribution following the period end. As at the date of this report the Company had an additional c.£116.1 million to be invested by early 2018 (currently supported by a letter of credit) of which c.£35.2 million is expected to be committed during the remainder of 2016.
As discussed above, during the period Tideway made good progress towards commencement of construction and Tideway recently announced a 35-year £700 million loan with the European Investment Bank in addition to the £1 billion in funding already in place.
Priority Schools Building Programme 'Aggregator'
During the period the Company invested £5.1 million into the fifth and final batch of schools being delivered through the Priority Schools Building Programme ('PSBP').
These projects use an innovative financing model based upon the establishment of a funding vehicle known as the 'Aggregator'. One of the key features of the Aggregator is the ability to warehouse loans and thereby aggregate total financing requirements across all five schools batches. The Aggregator is financed by a Consortium including the Company along with Aviva Investors and the European Investment Bank providing senior debt.
Additional investment in Wolverhampton Building Schools for the Future ('BSF') project
During the period, the Company acquired an additional 72% investment in the Wolverhampton BSF concession, growing the Company's existing 10% investment in the project to 82%.
The Company invested £7.2 million in the project with two secondary schools, Heath Park Academy in the Fallings Park area and St. Matthias School in the Wardle area of Wolverhampton. Both schools are a mixture of new build and refurbished pre-existing buildings. Upon completion, the schools will provide greatly enhanced education facilities for over 2,000 secondary school students. The project was acquired from Carillion Private Finance.
Additional investment in Gold Coast Light Rail project
The Company committed to make a further approximately AUD$7 million (c.£3.8 million) investment into a 7.3km extension to the Gold Coast Light Rail project in Queensland, Australia. The commitment is supported by a letter of credit provided by the Company.
The Company secured a 26.7% equity stake in the extension alongside Plenary Group, Marubeni Group, Palisade, Keolis and Aveng Group. Construction is expected to reach completion at the end of 2017, with operations commencing in early 2018 in time for the opening of the Gold Coast Commonwealth Games in April.
Halton Place Building Schools for the Future
In July, following the half year end, the Company purchased a 22.5% share of the subordinated debt and equity cashflows of HTP Grange Limited, a Building Schools for the Future (BSF) project located in Halton, Cheshire for £1.1 million.
Building Schools for the Future portfolio
Following the half year end, in July the Company committed to invest up to £72.3 million to acquire investment interests in a total of ten schemes. The investment opportunity was secured through pre-emption rights that INPP gained as part of its ownership of Building Schools for the Future Investments LLP ("BSFI"). INPP acquired BSFI from the Department of Education and Partnerships UK in August 2011.
Owing to its established position in UK education infrastructure, the Company already holds 10% interests in seven of the Balfour Beatty's investments in question, and as a result of the transaction will increase its stake to 90% in each scheme post-acquisition. The Company will at the same time acquire new interests in a further three BSF schemes previously under Balfour Beatty's ownership.
Performance against Strategic Priorities - 3. Efficient Financial Management
The Company seeks to generate dividends to investors that are paid from operating cash flow. For the six months ended 30 June 2016 the cash dividend paid to investors was 1.3 times covered by net operating cash flow and the Company remains confident that it will be able to grow dividends in the future.
The Company continued to make use of its £300 million corporate debt facility in the period, drawing £23.7 million in cash as short term funding for the investment in BSF Wolverhampton 2 and to finance its commitment to invest £17.8 million in the Tideway project on 1 July 2016.
In July 2016 the Group successfully raised £125 million of additional capital which was used in part to repay the cash drawn balance outstanding on the corporate debt facility. As at the date of this report, the corporate debt facility was £nil cash drawn, £141.6 million was issued as letters of credit and £158.4 million remained undrawn or unutilised and available for investment in new and existing projects until May 2018. The facility is forecast to continue in full compliance with the associated banking covenants. In addition, at the date of this report, the Group had cash balances of £76.1million available for future investment. The Company also continues to fully cover costs and distributions from underlying cash flows from investments.
It remains the Company's policy not to have long-term corporate level debt and it is anticipated that to the extent that the corporate facility is drawn to fund acquisitions, this would be a short-term arrangement and equity funding, by means of a capital raising, would be sought to repay outstanding debt as soon as practicable. The corporate debt facility is currently subject to renewal in May 2018.
Outlook
Current Market Environment and Future Opportunities
Overall the Company continues to have a positive market outlook. Despite the uncertainties surrounding Brexit, Government support for private sector investment in infrastructure in the UK and other jurisdictions in which the Company operates continues to feature as a high public priority. Competition continues to be very high for freely marketable operational assets which are trading in the secondary market resulting in continued price inflation for those investors having to purchase in this way. As we have highlighted to you before, the Company's focus continues to be either on investments originated directly from the public sector rather than via the secondary market; or through the secondary market but usually only where the Company has an in-built competitive advantage through holding pre-existing pre-emption rights.
In addition rather than see pricing pressure in the unrestricted secondary market as a negative we are in fact encouraged as these transactions provide us with a great deal of comfort around the value of the Company's existing assets and the market's appetite for infrastructure more generally including being a firmly established class of investment asset in its own right.
Currently, the Investment Adviser has identified a significant investment pipeline for the Company. In addition to these potential investments the Company and its Investment Adviser have a larger number of transactions under review, which are at an earlier stage of development.
Current Pipeline
Overall, the Company remains positive about its prospects, both in terms of the performance of its existing investments and the opportunity to add high quality investments to the portfolio during the remainder of 2016.
In addition to the commitment to Tideway, the Investment Adviser has a pipeline of other potential investment opportunities that are at an earlier stage of development, which subject to further review and will be progressed as investment opportunities for the Company. Key areas of current activity within the Company and/or its Investment Adviser (or associates) include:
- Continued activities in the area of UK offshore transmission
- Enhanced access to US P3 opportunities, particularly through the relationship with Amber/Hunt
- Other UK and European primary investment opportunities (for instance in the healthcare and judicial sectors)
- Acquisition of additional investments in projects where the Company already has an investment. Typically these will arise under pre-emption and similar rights
- The growing range of opportunities in Northern Europe, Australia and New Zealand which conform to the existing risk profile within the Company's portfolio
- Appropriately priced proposals from third parties seeking to dispose of projects meeting the Company's investment criteria which have synergies with the Company's existing portfolio
Selected specific current opportunities identified by the Investment Adviser are outlined in the table below.
Notwithstanding the projects listed above, it should be noted that the Company's performance is not dependent upon making additional investments in order to deliver its projected returns. Further investment opportunities will be judged by their anticipated contribution to overall portfolio returns.
|
Other/medium-term opportunities |
||||
|
Regulated assets |
UK |
c. £250 million3 |
Perpetual |
The Company is involved in a number of potential bids for such investments |
|
OFTO's |
UK |
c. £37.5 million3 |
20 years |
INPP expects to continue to bid these projects |
|
Broadband networks |
UK |
c. £50 million - £100 million3 |
20 years + |
Opportunities being reviewed |
1 This project has reached financial close and the Company is committed to invest up to a further c.£116.1m. Residual commitment funded by letter of credit.
2 Represents the estimated current unaudited capital value of the project and includes both debt and equity.
3 Represents current estimated total future investment commitment by the Company.
|
Current Projects |
Location |
Estimated Investment Opportunity/Project Capital Value |
Expected Concession Length |
Project Status |
|
Thames Tideway Tunnel |
UK |
c. £116.1 million investment commitment remaining1 |
120 years |
The Company is part of the Bazalgette consortium awarded licence to own and finance project. Investment in phases until early 2018 |
|
HUB framework projects |
UK |
c. £127 million2 |
c. 25 years |
INPP is preferred investor under the |
|
Police Centre |
Germany |
c. £6 million3 |
32.5 years |
Preferred bidder |
|
Transport |
Australia |
c. £40 million2 |
c. 28 years |
Potential refinancing transaction |
|
Military Housing |
US |
c. £17 million3 |
c. 36 years |
Opportunity being pursued |
|
Education |
UK |
c. £2 million - £20 million3 |
c. 20 years |
Further Building Schools for Future opportunities |
The above represents potential opportunities currently under review by the Investment Adviser (and its associates) including current bids, preferred bidder opportunities and the estimated value of opportunities to acquire additional investments including under pre-emption/first refusal rights. There is no certainty these will translate to actual investment opportunities for the Company. The value referenced in relation to the pre-emption opportunities represents the estimated potential investment value which reflects the current estimate of the total likely acquisition value at that time. In relation to opportunities where the current estimated gross value of the relevant project is given (which includes an estimate of both debt and equity), the estimates provided are not necessarily indicative of the eventual acquisition price for, or the value of, any interest that may be acquired.
Rupert Dorey John Whittle
31 August 2016 31 AUgust 2016
Chairman Director
Board of Directors
The table below details all Directors of the Company at the date of this report.
Background and Experience
|
Rupert Dorey1 Chairman Chairman, Investment Committee |
John Whittle1 Senior Independent Director Chairman, Risk and Audit Committee |
John Le Poidevin1 |
John Stares1 Chairman, Risk Sub-Committee Chairman, Nomination and Remuneration Committee |
Claire Whittet1 Chairman, Management Engagement Committee |
Giles Frost |
|
Aged 56 and a resident of Guernsey, Rupert has over 30 years of experience in financial markets, including 17 years at CSFB where he specialised in credit related products.
Rupert's expertise was principally in the areas of debt distribution, origination and trading, where he held a number of senior positions at CSFB, including Fixed income Credit product coordinator for European offices and head of UK Credit and Rates Sales.
Since 2005 Rupert has been a Non-Executive Director for a number of Hedge Funds, Private Equity & Infrastructure Funds.
He is a member of the Institute of Directors. |
Aged 61, John is a resident of Guernsey. John is a Chartered Accountant and holds the Institute of Directors Diploma in Company Direction. John holds non-executive positions on a number of other boards.
John was previously Finance Director of Close Fund Services, a large independent fund administrator.
Prior to moving to Guernsey, John was at Price Waterhouse in London before embarking on a career in business services, predominantly telecoms. |
Aged 46, and a resident of Guernsey, John has over 20 years of business experience.
John is a Fellow of the Institute of Chartered Accountants in England and Wales and a former partner of BDO LLP, where as Head of Consumer Markets, he developed an extensive breadth of experience and knowledge across the leisure and retail sectors in the UK and overseas.
John is a non-executive on several plc boards and chairs a number of Audit Committees. |
Aged 65 and a resident of Guernsey since 2001, John has over 40 years business experience.
Before moving to Guernsey John worked for 23 years as a management consultant with Accenture where he held a wide variety of leadership roles.
He currently holds non-executive positions on the boards of several other companies.
John is a Fellow of the Institute of Chartered Accountants in England and Wales, a member of the Worshipful Company of Management Consultants and a Freeman of the City of London. |
Aged 61 and a resident of Guernsey, Claire has nearly 40 years' experience in the banking industry. Claire became a Director of Rothschild Bank International Limited in 2003 and was latterly Managing Director and Co-Head of the bank and a Director of Rothschild Bank (CI) Ltd until May 2016 when she became a Non-Executive Director of the former. Claire started her career at Bank of Scotland and was subsequently Global Head of Private Client Credit at Bank of Bermuda.
Claire is a Non-Executive Director on a number of other listed funds, is an ACIB member of the Chartered Institute of Bankers in Scotland, a member of the Chartered Insurance Institute, a Chartered Banker, a member of the Institute of Directors and holds the Institute of Directors Diploma in Company Direction. |
Aged 53, resident in the United Kingdom, Giles is a founder and Director of Amber and has worked in the infrastructure investments sector for over 20 years. Giles qualified as a solicitor and partner in the law firm Wilde Sapte (now Dentons).
Giles is a Director of Amber Infrastructure Group Holdings Limited, the ultimate holding company of the Investment Adviser to the Company and various of its subsidiaries.
|
|
|
|||||
|
Date of Appointment |
|
|
|||
|
2 August 2006 |
6 August 2009 |
1 January 2016 |
28 August 2013 |
10 September 2012 |
2 August 2006 |
1 All of the Independent Directors are members of all committees
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:
The condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting';
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
The interim financial and operating review includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board
Rupert Dorey John Whittle
31 August 2016 31 August 2016
Chairman Director
Report to International Public Partnerships Limited
Introduction
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 2016 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 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the Annual Financial Statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly Financial Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-yearly Financial Report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly Financial Report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey
31 August 2016
Condensed Consolidated Statement of Comprehensive Income (unaudited)
Six months ended 30 June 2016
|
|
|
Notes |
Six months ended 30 June 2016 £'000s |
Six months ended 30 June 2015 £'000s |
|
Interest income |
|
4 |
26,041 |
20,707 |
|
Dividend income |
|
4 |
4,832 |
9,595 |
|
Net change in fair value of investments at fair value through profit or loss |
|
4 |
93,669 |
16,649 |
|
Total investment income |
|
|
124,542 |
46,951 |
|
Other operating (expense) / income |
|
5 |
(4,264) |
980 |
|
Total income |
|
|
120,278 |
47,931 |
|
|
|
|
|
|
|
Management costs |
|
6,17 |
(7,439) |
(6,485) |
|
Administrative expenses |
|
|
(538) |
(552) |
|
Transaction costs |
|
7,17 |
(844) |
(644) |
|
Directors' fees |
|
|
(134) |
(115) |
|
Total expenses |
|
|
(8,955) |
(7,796) |
|
Profit before finance costs and tax |
|
|
111,323 |
40,135 |
|
|
|
|
|
|
|
Finance costs |
|
8 |
(1,748) |
(1,730) |
|
Profit before tax |
|
|
109,575 |
38,405 |
|
|
|
|
|
|
|
Tax credit |
|
9 |
818 |
1,011 |
|
Profit for the period |
|
|
110,393 |
39,416 |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
From continuing operations |
|
|
|
|
|
Basic and diluted (pence) |
|
10 |
11.14 |
4.71 |
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 (2015: nil). The profit for the period represents the Total Comprehensive Income for the period.
Condensed Consolidated Statement of Changes in Equity (unaudited)
Six months ended 30 June 2016
|
|
Notes |
Share capital |
Other distributable reserve |
Retained earnings |
Total |
|
|
|
£'000s |
£'000s |
£'000s |
£'000s |
|
Balance at 31 December 2015 |
|
825,362 |
182,481 |
282,359 |
1,290,202 |
|
|
|
|
|
|
xxxx |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
- |
- |
110,393 |
110,393 |
|
|
|
|
|
|
|
|
Issue of ordinary shares |
15 |
2,775 |
- |
- |
2,775 |
|
Distributions in the period |
15 |
- |
- |
(31,948) |
(31,948) |
|
Balance at 30 June 2016 |
|
828,137 |
182,481 |
360,804 |
1,371,422 |
|
|
|
Share capital |
Other distributable reserve |
Retained earnings |
Total |
|
|
|
£'000s |
£'000s |
£'000s |
£'000s |
|
Balance at 31 December 2014 |
|
625,289 |
182,481 |
254,298 |
1,062,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
- |
- |
39,416 |
39,416 |
|
|
|
|
|
|
|
|
Issue of ordinary shares |
|
2,521 |
- |
- |
2,521 |
|
Distributions in the period |
|
- |
- |
(26,338) |
(26,338) |
|
Balance at 30 June 2015 |
|
627,810 |
182,481 |
267,376 |
1,077,667 |
Condensed Consolidated Balance Sheet (unaudited)
As at 30 June 2016
|
|
Notes |
|
|
30 June 2016 |
31 December 2015 |
|
Non-current assets |
|
|
|
|
|
|
Investments at fair value through profit or loss |
11 |
|
|
1,352,393 |
1,201,107 |
|
Total non-current assets |
|
|
|
1,352,393 |
1,201,107 |
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
11,13 |
|
|
25,253 |
23,099 |
|
Cash and cash equivalents |
11 |
|
|
29,175 |
72,391 |
|
Derivative financial instruments |
11 |
|
|
- |
1,719 |
|
Total current assets |
|
|
|
54,428 |
97,209 |
|
Total assets |
|
|
|
1,406,821 |
1,298,316 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
11,14 |
|
|
8,377 |
8,114 |
|
Derivative financial instruments |
11 |
|
|
3,367 |
- |
|
Total current liabilities |
|
|
|
11,744 |
8,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Bank loans |
8,11 |
|
|
23,655 |
- |
|
Total non-current liabilities |
|
|
|
23,655 |
- |
|
Total liabilities |
|
|
|
35,399 |
8,114 |
|
Net assets |
|
|
|
1,371,422 |
1,290,202 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Share capital |
15 |
|
|
828,137 |
825,362 |
|
Other distributable reserve |
15 |
|
|
182,481 |
182,481 |
|
Retained earnings |
15 |
|
|
360,804 |
282,359 |
|
Equity attributable to equity holders of the parent |
|
|
|
1,371,422 |
1,290,202 |
|
Net assets per share (pence per share) |
16 |
|
|
138.2 |
130.2 |
The financial statements were approved by the Board of Directors on 31 August 2016.
They were signed on its behalf by:
Rupert Dorey John Whittle
31 August 2016 31 August 2016
Chairman Director
|
|
Notes |
|
Six months ended 30 June 2016 £'000s |
Six months ended 30 June 2015 £'000s |
|
Profit from operations |
|
|
110,393 |
39,416 |
|
Adjusted for: |
|
|
|
|
|
Gain on investments at fair value through profit or loss |
4 |
|
(93,669) |
(16,649) |
|
Unrealised exchange (gain) / loss |
|
|
(596) |
112 |
|
Finance costs |
8 |
|
1,748 |
1,730 |
|
Net income tax credit |
9 |
|
(818) |
(1,011) |
|
Fair value movement on derivative financial instruments |
5 |
|
5,086 |
(68) |
|
Working capital adjustments |
|
|
|
|
|
Increase in receivables |
|
|
(1,661) |
(1,304) |
|
Increase / (decrease) in payables |
|
|
263 |
(112) |
|
|
|
|
20,746 |
22,114 |
|
Income tax received1 |
|
|
(54) |
- |
|
Net cash inflow from operations2 |
|
|
20,692 |
22,114 |
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
Acquisition of investments at fair value through profit or loss |
12 |
|
(56,162) |
(42,695) |
|
Funds advanced to affiliated entities3 |
|
|
(17,849) |
- |
|
Net repayments from investments at fair value through profit or loss |
|
|
16,393 |
7,313 |
|
Net cash outflow from investing activities |
|
|
(57,618) |
(35,382) |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
Dividends paid |
15 |
|
(29,173) |
(23,817) |
|
Finance costs paid |
|
|
(1,225) |
(727) |
|
Net loan drawdowns |
8,11 |
|
23,655 |
24,980 |
|
Net cash (outflow) / inflow from financing activities |
|
|
(6,743) |
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(43,669) |
(12,832) |
|
Cash and cash equivalents at beginning of period |
|
|
72,391 |
29,391 |
|
Exchange gain / (loss) on cash and cash equivalents |
|
|
453 |
(270) |
|
|
|
|
|
|
|
Cash and cash equivalents at end of period4 |
|
|
29,175 |
16,289 |
Condensed Consolidated Cash Flow Statement (unaudited)
Six months ended 30 June 2016
1 Cashflows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
2 Net cash inflows from operations as disclosed in the Financial and Operating review of £36.3m includes net repayments from investments at fair value through profit and loss of £16.4m, exchange gains and losses on cash and cash equivalents of £0.5m and finance costs paid of £1.2m, reconciling back to the figure shown above.
3 Includes £17.8 million of funds advanced to affiliated entities to facilitate Tideway investment immediately following the balance sheet date. Further details are provided in note 11.4.
4 Includes restricted cash of £nil (June 2015: £nil) which can only be utilised for new investments.
Notes to the Condensed set of Financial Statements (unaudited)
Six months ended 30 June 2016
1. Basis of Preparation
International Public Partnerships Limited is a closed ended authorised investment company incorporated in Guernsey under The Companies (Guernsey) Law, 2008. The address of the registered office is given in the inside back cover. The nature of the Group's operations and its principal activities are set out in pages 2 to 4.
These financial statements are presented in pounds Sterling as this is the currency of the primary economic environment in which the Group ('Parent and consolidated subsidiary entities') operates and represents the functional currency of the Parent and all values are rounded to the nearest (£'000), except when otherwise indicated.
The financial information for the year ended 31 December 2015 included in this Half-yearly Financial Report is derived from the 31 December 2015 Annual Report and Financial Statements and does not constitute statutory accounts as defined in The Companies (Guernsey) Law, 2008. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 263 (2) and (3) of The Companies (Guernsey) Law, 2008.
Accounting policies
The annual financial statements of International Public Partnerships Limited are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. 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 European Union and should be read in conjunction with the consolidated financial statements for the year ended 31 December 2015, 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 2015. The new and revised IFRS and interpretations becoming effective in the period have had no impact on the accounting policies of the Group.
As disclosed in the annual financial statements for the year ended 31 December 2015, the Directors determined that International Public Partnerships Limited is an investment entity as defined by IFRS 10 on the basis that:
a) it obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services;
b) it commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
c) it measures and evaluates the performance of substantially all of its investments on a fair value basis.
Accordingly, these condensed consolidated financial statements consolidate only those subsidiaries that provide services relevant to its investment activities, such as management services, strategic advice and financial support to its investees. Subsidiaries that do not provide investment-related services are required to be measured at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
Going concern
The Directors have reviewed comprehensive cash flow forecasts prepared by management. Based on those forecasts and an assessment of the Group's ('Parent and consolidated subsidiary entities') committed banking facilities, they have concluded that it is appropriate to prepare the financial statements of the Group on a going concern basis.
In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that at the date of this report the Group has unrestricted cash balances of £49.5 million, restricted cash balances available for investments of £26.6 million and the Company's corporate debt facility of £300 million. Following the 30 June 2016 balance sheet date, in July 2016 the Group successfully raised £125 million of additional capital which was used in part to repay the cash drawn balance outstanding on the corporate debt facility. As at the date of this report, the corporate debt facility was £nil cash drawn, £141.6 million was issued as letters of credit and £158.4 million remained undrawn or unutillised and available for investment in new and existing projects until May 2018. The facility is forecast to continue in full compliance with the associated banking covenants. The Company also continues to fully cover costs and distributions from underlying cash flows from investments.
2. Significant Judgements and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments, the condensed consolidated financial statements incorporate the financial statements of the Company and service entities controlled by the Company up to 30 June 2016. Typically a service entity provides management services, strategic advice and financial support to investee entities. Judgment is therefore required in assessing which entities meet these definitional requirements. The Directors have reviewed and assessed the criteria applied in the assessment of services entities based on the guidance in place as at 30 June 2016 and are satisfied with the resulting conclusion.
Fair valuation of investments at fair value through profit or loss
Fair values are determined using the income approach which discounts the expected cash flows at a rate appropriate to the risk profile of each asset. In determining the discount rate and relevant long-term government bond yields, tax risks, specific risks and the evidence of recent transactions are considered. Details of the valuation process and key sensitivities are provided in note 11.
3. Segmental Reporting
Based on a review of information provided to the chief operating decision makers, the Group has identified four reportable segments based on the geographical risk within the Group. The factors used to identify the Group's reportable segments are centred on the risk free rates and the maturity of the Infrastructure sector (particularly PFI/PPP) within each region. Further, foreign exchange and political risk are identified, as these also determine where resources are allocated. Management has concluded that the Group is currently organised into four reportable segments being UK, Europe (non UK), North America and Australia.
|
|
|
Six months ended 30 June 2016 |
|||
|
|
UK £'000s |
Europe Non UK £'000s |
North America £'000s |
Australia £'000s |
Total £'000s |
|
Segmental results |
|
|
|
|
|
|
Dividend and interest income |
22,191 |
3,396 |
3,053 |
2,233 |
30,873 |
|
Fair value gain on investments |
44,069 |
27,115 |
10,788 |
11,697 |
93,669 |
|
Total investment income |
66,260 |
30,511 |
13,841 |
13,930 |
124,542 |
|
Reporting segment profit1 |
56,374 |
28,851 |
12,870 |
12,298 |
110,393 |
|
Segmental financial position |
|
|
|
|
|
|
Investments at fair value |
953,469 |
227,916 |
77,375 |
93,633 |
1,352,393 |
|
Current assets |
54,428 |
- |
- |
- |
54,428 |
|
Total assets |
1,007,897 |
227,916 |
77,375 |
93,633 |
1,406,821 |
|
Total liabilities |
(35,399) |
- |
- |
- |
(35,399) |
|
Net assets |
972,498 |
227,916 |
77,375 |
93,633 |
1,371,422 |
1 Reporting segment results are stated net of operational costs including management fees.
|
|
|
Six months ended 30 June 2015 |
|||
|
|
UK £'000s |
Europe Non UK £'000s |
North America £'000s |
Australia £'000s |
Total £'000s |
|
Segmental results |
|
|
|
|
|
|
Dividend and interest income |
23,761 |
3,345 |
869 |
2,327 |
30,302 |
|
Fair value gain/(loss) on investments |
40,049 |
(16,282) |
(1,354) |
(5,764) |
16,649 |
|
Total investment income/(loss) |
63,810 |
(12,937) |
(485) |
(3,437) |
46,951 |
|
Reporting segment profit/(loss)1 |
55,963 |
(13,206) |
(360) |
(2,981) |
39,416 |
|
Segmental financial position |
|
|
|
|
|
|
Investments at fair value |
767,779 |
194,409 |
37,131 |
85,653 |
1,084,972 |
|
Current assets |
41,307 |
- |
- |
- |
41,307 |
|
Total assets |
809,086 |
194,409 |
37,131 |
85,653 |
1,126,279 |
|
Total liabilities |
(48,612) |
- |
- |
- |
(48,612) |
|
Net assets |
760,474 |
194,409 |
37,131 |
85,653 |
1,077,667 |
Revenue from investee entities, representing more than 10% of the Group's interest and dividend income approximates £6.0 million (June 2015: £9.8 million). Segmental profits in Europe, North America and Australia have increased in the period in part due to the impact of foreign exchange movements following the UK referendum on membership of the European Union in June 2016.
4. Investment Income
|
|
Six months ended 30 June 2016 |
Six months ended 30 June 2015 |
|
Interest income |
|
|
|
Interest on investments |
26,009 |
20,689 |
|
Interest on bank deposits |
32 |
18 |
|
Total interest income |
26,041 |
20,707 |
|
|
|
|
|
Dividend income |
4,832 |
9,595 |
|
Net change in fair value of financial assets (excluding derivatives) at fair value through profit or loss |
93,669 |
16,649 |
|
Total investment income |
124,542 |
46,951 |
All dividend income and interest income has resulted from transactions with unconsolidated subsidiary entities. Gains on investments at fair value through profit or loss also relate to investments in unconsolidated subsidiaries. Gains on valuations in the period are driven primarily by favourable movements in foreign denominated assets and reductions in government bond yields.
No disposals were carried out in the six months ended 30 June 2016 or the six months ended 30 June 2015.
5. Other Operating (Expense) / Income
|
|
Six months ended 30 June 2016 |
Six months ended 30 June 2015 |
|
Fair value (loss)/gain on foreign exchange contracts |
(5,086) |
68 |
|
Gain on foreign exchange movements |
822 |
912 |
|
Total other (expense) / income |
(4,264) |
980 |
Fair value movements above represent unrealised gains and losses on foreign exchange contracts. Foreign exchange movements represent unrealised gains made on foreign denominated cash and receivable balances held by the Group and realised gains or losses made on foreign exchange trades.
6. Management Costs
|
|
Six months ended 30 June 2016 |
Six months ended 30 June 2015 |
|
Base fee (note 17) |
7,439 |
6,485 |
|
Total management costs |
7,439 |
6,485 |
7. Transaction Costs
|
|
Six months ended 30 June 2016 |
Six months ended 30 June 2015 |
|
Investment advisory costs |
844 |
640 |
|
Legal and professional costs |
- |
4 |
|
Total transaction costs |
844 |
644 |
Details of investment advisory costs paid are provided in note 17.
8. Finance Costs
|
|
Six months ended 30 June 2016 |
Six months ended 30 June 2015 |
|
Commitment fees and other charges |
1,251 |
1,350 |
|
Issue cost amortisation |
497 |
380 |
|
Total finance costs |
1,748 |
1,730 |
The Group currently has available a corporate debt facility of £300 million provided by Royal Bank of Scotland and National Australia Bank Limited. As at 30 June 2016, the cash drawn balance on the corporate debt facility was £23.7 million1. The drawdowns on the facility are in the form of cash drawdowns and issuance of letters of credit. Cash drawdowns are used to fund the investments and the letter of credit drawdowns are used to back the Group's commitment to a future pipeline of cash investments.
The interest rate margin on the corporate debt facility is 175 basis points over Libor. The loan facility matures in May 2018 and is secured over the assets of the Group.
1 At 30 June 2016, £23.7 million of the corporate debt facility was cash drawn, £159.4 million was issued as letters of credit and £116.9 million remained undrawn or unutilised.
9. Tax
|
|
Six months ended 30 June 2016 £'000s |
Six months ended 30 June 2015 £'000s |
|
Current tax: |
|
|
|
UK corporation tax credit - current period |
(898) |
(1,081) |
|
Overseas tax - current period |
80 |
70 |
|
Tax credit for the period |
(818) |
(1,011) |
|
|
Six months ended 30 June 2016 £'000s |
Six months ended 30 June 2015 £'000s |
|
Profit before tax |
109,575 |
38,405 |
|
Expected tax on profit at Guernsey income tax rate - 0% (2015: 0%) |
- |
- |
|
Application of overseas tax rates |
80 |
70 |
|
Group tax losses surrendered to unconsolidated investee entities |
(898) |
(1,081) |
|
Tax credit for the period |
(818) |
(1,011) |
Reconciliation of effective tax rate
The income tax credit above does not represent the full tax position of the entire Group as the investment returns received by the Company are net of tax payable at the underlying investee entity level. In accordance with the IFRS 10 investment entity amendments, underlying investment entity tax is not consolidated within these financial statements. Total forecasted corporation tax payable by the Group's underlying investments is £753 million over their full concession lives.
10. Earnings Per Share
The calculation of basic and diluted earnings per share is based on the following data:
|
|
Six months ended 30 June 2016 £'000s |
Six months ended 30 June 2015 £'000s |
|
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent |
110,393 |
39,416 |
|
|
|
|
|
Number of shares |
Number |
Number |
|
Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share |
991,001,925 |
836,373,591 |
|
Basic and diluted (pence) |
11.14 |
4.71 |
The denominator for the purposes of calculating both basic and diluted earnings per share is the same, as the Group has not issued any share options or other instruments that would cause dilution.
11. Financial Instruments
Financial assets and financial liabilities are recognised at the point of execution of the contracts. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'. Financial liabilities are derecognised when the obligation is discharged, cancelled or expired. Specific financial asset and liability accounting policies are provided below.
11.1 Financial assets
|
|
30 June 2016 £'000s |
31 December 2015 £'000s |
|
Investments at fair value through profit and loss1 |
1,352,393 |
1,201,107 |
|
Financial asset loans and receivables |
|
|
|
Trade and other receivables |
25,253 |
23,099 |
|
Cash and cash equivalents |
29,175 |
72,391 |
|
Derivative financial instruments |
|
|
|
Currency swaps |
- |
1,719 |
|
Total financial assets |
1,406,821 |
1,298,316 |
1 Includes fair value of investments in associates amounting to £2.3 million (2015: £2.0 million). Movements in the period represent additional fair value gains offset by net repayments from investments.
11.2 Financial liabilities
|
|
30 June 2016 |
31 December 2015 |
|
Financial liabilities at amortised cost |
|
|
|
Trade and other payables |
8,377 |
8,114 |
|
Bank loans |
23,655 |
- |
|
Derivative financial instruments |
|
|
|
Currency swaps |
3,367 |
- |
|
Total financial liabilities |
35,399 |
8,114 |
The carrying value of all financial assets and liabilities are considered to approximate their fair value.
11.3 Financial risk and management objectives
The Group's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Group's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Group's continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and inflation risk), credit risk and liquidity risk arising from the financial instruments it holds. The Group's Investment Adviser is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Adviser and is ultimately responsible for the overall risk management of the Group.
The Group's risk management framework and approach is set out within the Strategic Report in the 31 December 2015 annual financial statements.
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 losses are disclosed in the fair value hierarchy section 11.4.
The Group's portfolio of investments has been developed in anticipation of continued inflation at or above the levels used in the Group's valuation assumptions over the long term. Where inflation is at levels below the assumed levels, investment performance may be impaired. The level of inflation linkage across the investments held by the Group varies and is not consistent.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying borrowings within the investee entities are either hedged through interest rate swap arrangements or are fixed rate loans. It is generally a requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. Hedging activities are aligned with the period of the loan, which also mirrors the concession period and are highly effective. The Group's corporate facility is unhedged on the basis it is utilised as an investment bridging facility and drawn for a relatively short period of time. Therefore, the Group is not significantly exposed to cash flow risk due to changes in interest rates over its variable rate borrowings. Interest income on bank deposits held at underlying investment level is included within the fair value of investment. Sensitivity analysis showing the impact of variations in the interest income deposit rate on fair value of investment is shown in section 11.5.
Foreign Currency Risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations. Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. The carrying amounts of the Group's foreign currency denominated monetary financial instruments at the reporting date are set out in the table below:
|
|
30 June 2016 |
31 December 2015 |
|
Cash |
|
|
|
Euro |
628 |
871 |
|
Canadian Dollar |
1,285 |
1,107 |
|
Australian Dollar |
12 |
11 |
|
US Dollar |
1,865 |
3 |
|
|
3,790 |
1,992 |
|
Current receivables |
|
|
|
Euro receivables |
386 |
393 |
|
US Dollar receivables |
235 |
- |
|
|
621 |
393 |
|
Investments at fair value through profit or loss |
|
|
|
Euro |
227,916 |
202,968 |
|
Canadian Dollar |
40,888 |
34,819 |
|
Australian Dollar |
93,633 |
85,370 |
|
US Dollar |
36,487 |
32,204 |
|
|
398,924 |
355,361 |
|
Total |
403,335 |
357,746 |
The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant investment returns from overseas investments.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of dealing only with creditworthy counterparties at the underlying entity level. PFI/PPP and similar concessions are entered into with government, quasi government, other public or equivalent low risk bodies.
Liquidity risk
Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non-listed equity and loans). As a closed-ended investment vehicle there are no automatic redemption of capital rights. The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring the forecast and actual cash flows. Cash flow forecasts assume full availability of underlying infrastructure to the public sector entities. Failure to maintain assets available for use or operating in accordance with pre-determined performance standards may entitle the public sector to stop (wholly or partially) paying the income that the Group has projected to receive.
The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored. Contractual mechanisms also allow for significant pass-down of unavailability and performance risk to sub-contractors.
11.4 Fair value hierarchy
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
- Level 1 - Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities
- Level 2 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)
- Level 3 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable).
During the period there were no transfers between Level 2 and Level 3 categories.
Level 1:
The Group has no financial instruments classified as level 1.
Level 2:
This category includes derivative financial instruments such as interest rate swaps, RPI swaps, currency forward contracts and investments at fair value through profit or loss. As at 30 June 2016, the Group's Level 2 financial instruments include currency forward contracts amounting to a liability of £3.4 million (December 2015: asset of £1.7 million). Financial instruments classified as Level 2 have been valued using models whose inputs are observable in an active market (spot exchange rates, yield curves, interest rate curves). Valuations based on observable inputs include financial instruments such as swaps and forward contracts which are valued using market standard pricing techniques where all the inputs to the market standard pricing models are observable.
Level 3:
This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities and affiliates which are classified at fair value through profit or loss. At 30 June 2016, the fair value of financial instruments classified within Level 3 totalled £1,352.4 million (December 2015: £1,201.1 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 of the Company. The valuation of unlisted equity and debt investments is performed on a quarterly basis by the Investment Adviser and reviewed by the senior members of the Investment Adviser. The valuations are also subject to quality assurance procedures performed by the Investment Adviser. The Investment Adviser verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to relevant project financial models and market information. In addition, the accuracy of the computation is tested. The latest valuation is also compared with the valuations in the preceding semi-annual and annual reporting periods. The senior members of the Investment Adviser consider the appropriateness of the valuation methods and inputs. On a quarterly basis, after the checks above have been performed the Investment Adviser presents the valuation results to the Audit and Risk Committee. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more significant investments. Any changes in valuation methods and assumptions are discussed and agreed with the Company's Audit and Risk Committee.
Valuation methodology
The valuation methodologies used are primarily based on discounting the underlying investee entities' future projected net cash flows at appropriate discount rates. Valuations are also reviewed against recent market transactions for similar assets in comparable markets observed by the Group or Investment Adviser and adjusted where appropriate.
Projected net future cash flows
Cash flow forecasts for each underlying investment are generated through detailed project specific financial models. Financial models forecast the project related cash flows for the full term of the underlying service concession. The cash flows included in the forecasts used to determine fair value are typically fixed under contracts however there are certain variable cash flows which are based on management estimation. These models also forecast the dividend, shareholder loan interest payments, capital repayments and senior debt repayments (where applicable) expected from the underlying investments. Key macroeconomic inputs and assumptions utilised in projecting the Group's net future cash flows include:
|
|
UK |
Europe Non UK |
North America |
Australia |
|
Inflation |
2.75% |
1% in 2016; 2% there after |
2.00% |
2.50% |
|
Long-term tax |
20.00% - 18.00% |
12.50% - 33.99% |
26.50% - 27.00% |
30.00% |
|
Foreign exchange rates |
N/A |
1.14 |
1.36-1.76 |
1.91 |
|
Long-term deposit rates |
3.00% |
3.00% |
3.00% |
3.00% |
Discount rate
The discount rate used for valuation of each investment is the aggregate of the following:
- The six-month average yield on a government bond with a remaining maturity matched as closely to the remaining life of the project as possible, issued by the national government for the location of the asset ('government bond yield');
- A premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds;
- A further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in construction and/or to reflect any current asset specific or operational issues. Typically this risk premium will reduce over the life of any asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash flows decrease; and
- A further adjustment reflective of market-based transaction valuation evidence for similar assets.
Over the period, the weighted average government bond yield decreased by 0.31%. This was offset by a 0.15% increase in the weighted average project premium to reflect current market pricing.
|
Valuation Methodology |
30 June 2016 |
31 December 2015 |
Movement |
|
Weighted Average Government Bond Rate |
2.00% |
2.31% |
(0.31%) |
|
Weighted Average Project Premium |
5.37% |
5.22% |
0.15% |
|
Weighted Average Discount Rate |
7.37% |
7.53% |
(0.16%) |
|
|
|
|
|
|
Weighted Average Discount Rate1 |
7.88% |
8.09% |
(0.21%) |
1 Weighted average discount rate on Risk Capital only (equity and subordinated debt).
|
Reconciliation of Level 3 fair value measurements of financial assets: |
30 June 2016 £'000s |
|
Balance at 1 January 2016 |
1,201,107 |
|
Additional investments during the period |
56,161 |
|
Net repayments during the period |
(16,393) |
|
Funds advanced to affiliated entities1 |
17,849 |
|
Net change in fair value of investments at fair value through profit or loss |
93,669 |
|
Balance at 30 June 2016 |
1,352,393 |
1 Represents funds advanced to affiliated entities to facilitate Tideway investment immediately following the balance sheet date.
11.5 Sensitivity analysis
The valuation requires management to make certain assumptions in relation to unobservable inputs to the model, the significant assumptions along with sensitivity analysis are provided below:
|
Significant assumptions |
Weighted average rate applied in base case valuations |
Sensitivity factor |
Change in fair value of investment £'000's |
Sensitivity factor |
Change in fair value of investment £'000's |
|
|
Discount rate |
7.37% |
+1.00% |
(137,181) |
-1.00% |
161,854 |
|
|
Inflation rate (overall) |
2.56% |
+1.00% |
112,940 |
-1.00% |
(99,945) |
|
|
UK |
2.75% |
+1.00% |
68,043 |
-1.00% |
(59,321) |
|
|
Europe |
2.00% |
+1.00% |
32,031 |
-1.00% |
(26,685) |
|
|
North America |
2.00% |
+1.00% |
1,083 |
-1.00% |
(956) |
|
|
Australia |
2.50% |
+1.00% |
11,783 |
-1.00% |
(12,983) |
|
|
FX rate |
n/a |
+10.00% |
39,936 |
-10.00% |
(39,944) |
|
|
Tax rate |
21.67% |
+1.00% |
(7,974) |
-1.00% |
8,002 |
|
|
Deposit rate |
3.00% |
+1.00% |
14,569 |
-1.00% |
(13,856) |
|
12. Investment Acquisitions
|
Date of acquisition |
Description |
Consideration £'000's |
% Ownership post acquisition |
|
04 February 2016 |
The Group acquired 100% of the equity and subordinated debt of the Westermost Rough offshore transmission project.
|
26,837 |
100% |
|
01 April 2016 |
The Group funded a further tranche of investment in the Thames Tideway Tunnel Project.
|
17,122 |
15.99% |
|
26 April 2016 |
The Group invested in its fifth batch of funding via the Aggregator Vehicle PLC into various PF2 schools procured under the UK governments Priority Schools Building Programme.
|
5,054 |
100% |
|
29 June 2016 |
The Group made a follow on investment for an additional 72% interest in the Wolverhampton phase two Building Schools for the Future project.
|
7,149 |
82% |
|
Total capital spend on new acquisitions during the period |
56,162 |
|
|
13. Trade and Other Receivables
|
|
30 June 2016 |
31 December 2015 |
|
Accrued interest receivable |
19,184 |
17,363 |
|
Other debtors |
6,069 |
5,736 |
|
Total transaction costs |
25,253 |
23,099 |
Other debtors included £5.1 million (2015: £4.3 million) of receivables from unconsolidated subsidiary entities for surrender of Group tax losses.
14. Trade and Other Payables
|
|
30 June 2016 |
31 December 2015 |
|
Accrued management fee |
7,439 |
6,987 |
|
Other creditors and accruals |
938 |
1,127 |
|
Total trade and other payables |
8,377 |
8,114 |
15. Share Capital and Reserves
|
Share capital |
|
30 June 2016 shares '000's |
31 December 2015 shares '000's |
|
In issue 1 January |
|
990,634 |
836,159 |
|
Issued for cash |
|
- |
150,573 |
|
Issued as a scrip dividend alternative |
|
1,969 |
3,902 |
|
Closing shares in issue - fully paid |
|
992,603 |
990,634 |
|
|
|
30 June 2016 |
31 December 2015 |
|
|
Opening balance |
|
825,362 |
625,289 |
|
|
|
|
|
|
|
|
Issued for cash (excluding issue costs) |
|
- |
197,996 |
|
|
Issued as a scrip dividend alternative |
|
2,775 |
5,211 |
|
|
Total share capital issued in the period |
|
2,775 |
203,207 |
|
|
Costs on issue of Ordinary Shares |
|
- |
(3,134) |
|
|
Closing balance |
|
828,137 |
825,362 |
|
At present, the Company has one class of Ordinary Shares which carry no right to fixed income.
On 27 May 2016, 1,969,282 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 2015.
Other distributable reserve
On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share premium account in order to provide a distributable reserve to repurchase its shares if and when it is considered beneficial to do so by the Directors. Following court approval, the distributable reserve account was created. The balance in the distributable reserve account as at 30 June 2016 is £182.5 million (December 2015: £182.5 million).
Retained earnings
|
Retained earnings |
30 June 2016 £'000's |
31 December 2015 £'000's |
|
Opening balance |
282,359 |
254,298 |
|
Net profit for the period |
110,393 |
81,859 |
|
Dividends paid1 |
(31,948) |
(53,798) |
|
Closing balance |
360,804 |
282,359 |
1 Includes scrip element of £2.8 million in 2016 (2015: £5.2 million).
Distributions
The Board is satisfied that, in every respect, the solvency test as required by the Companies (Guernsey) Law, 2008, was satisfied for the proposed dividend and the dividend paid in respect of the year ended 31 December 2015.
The Board approved an interim distribution of 3.325 pence per share (six months to June 2015: 3.225 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 corporate facility and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet on-going expenses and dividend payments.
The Group's Investment Adviser reviews the capital structure on a semi-annual basis. As part of this review, the Investment Adviser considers the cost of capital and the risks associated with each class of capital.
16. Net Assets per Share
|
|
|
30 June 2016 £'000's |
31 December 2015 £'000's |
|
Net assets attributable to equity holders of the parent |
|
1,371,422 |
1,290,202 |
|
|
|
|
|
|
|
|
Number |
Number |
|
Number of shares |
|
|
|
|
Ordinary shares outstanding at the end of the period |
|
992,603,319 |
990,634,037 |
|
Net assets per share (pence per share) |
|
138.2 |
130.2 |
17. Related Party Transactions
During the period, Group companies entered into certain transactions with related parties that were not members of the Group but were related parties by reason of being in the same group as Amber Infrastructure Group Holdings Limited, which is the ultimate holding company of the Investment Adviser, Amber Fund Management Limited ('AFML').
Under the Investment Advisory Agreement ('IAA'), AFML was appointed to provide investment advisory services to the Group including advising the Group as to the strategic management of its portfolio of investments.
AFML is a subsidiary company of Amber Infrastructure Group Holdings Limited ('Amber Group'), in which Mr G Frost is a Director and also a shareholder.
Mr G Frost is also a Director of International Public Partnerships Limited (the 'Company'); International Public Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Company); and the majority of other companies in which the Group indirectly has an investment. The transactions with the Amber Group are considered related party transactions under IAS 24 'Related Party Disclosures'.
The Director's fees for Mr G Frost's directorship of the Company are paid to his employer, Amber Infrastructure Limited.
The amounts of the transactions in the period that were related party transactions are set out in the table below:
|
|
Related party expense in the Income Statement |
|
Amounts owing to related parties in the Balance Sheet |
|||
|
|
For the six months to 30 June 2016 £'000s |
For the six months to 30 June 2015 £'000s |
|
At 30 June 2016 £'000s |
At 31 December 2015 £'000s |
|
|
International Public Partnerships GP Limited |
7,439 |
6,485 |
7,439 |
6,987 |
||
|
Amber Fund Management Limited1 |
844 |
640 |
184 |
231 |
||
|
Total |
8,283 |
7,125 |
7,623 |
7,218 |
||
1 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the balance sheet.
Investment advisory fee / profit share payable during the period is calculated as follows:
For existing construction assets:
- 1.2% per annum of gross asset value of investments bearing construction risk
For existing fully operational assets:
- 1.2% per annum of the gross asset value ('GAV') excluding uncommitted cash from capital raisings up to £750 million;
- 1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between £750 million and £1.5 billion;
- 0.9% per annum where GAV (excluding uncommitted cash from capital raisings) value exceeds £1.5 billion.
Investment advisory fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group's assets are available for use for certain periods and the Investment Adviser fails to implement a remediation plan agreed with the Group. The IAA may also be terminated by either party giving to the other five years notice of termination, expiring at any time after ten years from the date of the IAA.
As at 30 June 2016, Amber Infrastructure held 8,002,379 (June 2015: 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
Claire Whittet acquired an additional 1,144 shares in the six-month period ended 30 June 2016. None of the other Directors acquired any additional shares in the Company during the period.
18. Contingent Liabilities and commitments
As at 30 June 2016, the Group has committed investments supported by letters of credit amounting to £159.4 million which were drawn on the Group's corporate debt facility.
There were no contingent liabilities at the date of this report.
19. Events after Balance Sheet Date
|
Date |
Description |
|
01 July 2016 |
The Group continued funding its investment commitments as part of the Bazalgette consortium into the Tideway project. From the interim balance sheet date to the date of this report, the Group invested £17.8 million in line with the Tideway investment schedule. |
|
14 July 2016 |
The Group raised £125 million through its Placing and Offer for Subscription of 83,612,040 Ordinary shares at an issue price per share of 149.5p. |
|
27 July 2016 |
The Group acquired an interest in the Halton BSF project. £1.1 million was invested for a 22.5% interest in the equity and subordinated debt of the project. |
|
22 August 2016 |
The Group invested £72.3 million to acquire interests in ten Building Schools for the Future (BSF) projects |
20. Other Mandatory Disclosures
New standards that the Group has applied from 1 January 2016
Standards and amendments to standards that became effective during the period are listed below. These have no material impact on the reported performance or financial statements of the Group.
- Amendments to IFRS 11: Accounting for Acquisitions of interests in Joint operations (1 January 2016).
- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment entities: Applying the Consolidation Exception (1 January 2016).
- Annual Improvements to IFRSs 2012-2014 Cycle (1 January 2016).
- Amendments to IAS 1 Disclosure Initiative (1 January 2016).
Unconsolidated subsidiaries
A list of the significant investments in unconsolidated subsidiaries, including the name, country of incorporation as at 30 June 2016 and proportion of ownership is shown below:
|
Name |
Place of incorporation (or registration) and operation |
Proportion of ownership interest % |
|
Abingdon Limited Partnership |
UK |
100 |
|
Aggregator PLC |
UK |
100 |
|
Access Justice Durham Limited |
Canada |
100 |
|
AKS Betriebs GmbH & Co. KG |
Germany |
98 |
|
BBPP Alberta Schools Limited |
Canada |
100 |
|
BPSL No. 2 Limited Partnership |
UK |
100 |
|
Building Schools for the Future Investments LLP |
UK |
100 |
|
Calderdale Schools Partnership |
UK |
100 |
|
CHP Unit Trust |
Australia |
100 |
|
Derbyshire Courts Limited Partnership |
UK |
100 |
|
Derbyshire Schools |
UK |
100 |
|
Derbyshire Schools Phase Two Partnership |
UK |
100 |
|
H&W Courts Limited Partnership |
UK |
100 |
|
INPP Infrastructure Germany GmbH & Co. KG |
Germany |
100 |
|
Inspire Partnership Limited Partnership |
UK |
100 |
|
IPP CCC Limited Partnership |
Ireland |
100 |
|
Inspiredspaces Durham (Project Co 1) Limited |
UK |
91 |
|
Kent PFI (Project Co 1) Limited |
UK |
58 |
|
Inspiredspaces Nottingham (Project Co 1) Limited |
UK |
82 |
|
Inspiredspaces Nottingham (Project Co 2) Limited |
UK |
82 |
|
Inspiredspaces STaG (Project Co 1) Limited |
UK |
90 |
|
Inspiredspaces STaG (Project Co 2) Limited |
UK |
90 |
|
Inspiredspaces Wolverhampton (Project Co 1) Limited |
UK |
82 |
|
Inspiredspaces Wolverhampton (Project Co 2) Limited |
UK |
82 |
|
IPP (Moray Schools) Holdings Limited |
UK |
100 |
|
Maesteg School Partnership |
UK |
100 |
|
Norfolk Limited Partnership |
UK |
100 |
|
Northampton Schools Limited Partnership |
UK |
100 |
|
Northern Diabolo N.V. |
Belgium |
100 |
|
Pinnacle Healthcare (OAHS) Trust |
Australia |
100 |
|
Plot B Partnership |
UK |
100 |
|
St Thomas More School Partnership |
UK |
100 |
|
PPP Solutions (Long Bay) Partnership |
Australia |
100 |
|
PPP Solutions (Showgrounds) Trust |
Australia |
100 |
|
Strathclyde Limited Partnership |
UK |
100 |
|
TH Schools Limited Partnership |
UK |
100 |
|
TC Robin Rigg OFTO Limited |
UK |
100 |
|
TC Barrow OFTO Limited |
UK |
100 |
|
TC Gunfleet Sands OFTO Limited |
UK |
100 |
|
TC Ormonde OFTO Limited |
UK |
100 |
|
TC Lincs OFTO Limited |
UK |
100 |
|
TC Westermost Rough OFTO Limited |
UK |
100 |
The entities listed above in aggregate represent 83.1% (December 2015: 85.7%) of investments at fair value through profit or loss. The remaining fair value is driven from joint ventures, associate interests and minority stakes held by the Group.
Consolidated subsidiaries
The principal subsidiary undertakings of the Company, all of which have been included in these consolidated financial statements are as follows:
|
Name |
Place of incorporation (or registration) and operation |
Proportion of ownership interest % |
|
International Public Partnerships Limited Partnership |
UK |
100 |
|
International Public Partnerships Lux 1 Sarl |
Luxembourg |
100 |
|
International Public Partnerships Lux 2 Sarl |
Luxembourg |
100 |
|
IPP Bond Limited |
UK |
100 |
|
IPP Investments Limited Partnership |
UK |
100 |
Contacts
|
Investment Adviser |
Auditor |
Corporate Brokers |
|
Amber Fund Management Limited 1st Floor Two London Bridge London SE1 9RA |
Ernst & Young LLP Royal Chambers St Julian's Avenue St Peter Port Guernsey Channel Island GY1 4AF
|
Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT |
|
Registered Office |
Legal Adviser |
Public Relations |
|
Heritage Hall PO Box 225, Le Marchant Street St Peter Port Guernsey Channel Islands GY1 4HY |
Carey Olsen PO Box 98, Carey House Les Banques Guernsey Channel Islands GY1 4BZ
|
FTI Consulting 200 Aldersgate Aldersgate Street London EC1A 4HD |
|
Administrator and Company Secretary |
Corporate Banker |
|
|
Heritage International Fund Managers Limited Heritage Hall PO Box 225, Le Marchant Street St Peter Port Guernsey Channel Islands GY1 4HY |
Royal Bank of Scotland International 1 Glategny Esplanade St Peter Port Guernsey Channel Islands GY1 4BQ
|
|
This information is provided by RNS
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