Half Year Results - Six Months Ended 30 June 2018
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
6 September 2018
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
("INPP" or the "Company")
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018
· Continued robust portfolio performance with strong dividend yield and further growth in Net Asset Value ('NAV'), driven by active asset management and highly selective, accretive investments and commitments totalling c.£50.5 million.
· Strength of the Investment Adviser's active asset management and portfolio risk management approach demonstrated by the prompt resolution of Carillion plc-related matters impacting a small number of projects, at no material financial impact to the Company or its public-sector clients.
· Post-period end, successful renewal and extension of corporate debt facility to £400 million on improved terms.
· Sustained track record of delivering stable and growing shareholder returns with two-year forward dividend guidance for 2018 and 2019 projecting annual dividend increases of c.2.5%.
· Total Shareholder Return since IPO now 148.6% - an average compound annual growth rate of 8.1% since IPO in 2006, in line with the long-term returns target of 8-9%1.
· The Company's contribution to the achievement of public sector value for money, customer satisfaction and sustainability over the period includes the maintenance of strong public-sector relationships with over 4002 scheduled management meetings led by the Investment Adviser focussing on the smooth running of the assets and ensuring 99.6%2 asset availability across our accommodation-based assets during the period.
FINANCIAL HIGHLIGHTS3
· Net Asset Value ('NAV') growth to £2.1 billion (31 December 2017: £2 billion)
· NAV per share growth to 146.3 pence (31 December 2017: 145.0 pence)
· Interim dividend increase to 3.50 pence per share (30 June 2017: 3.41 pence per share)
· IFRS profit before tax of £65.9 million (30 June 2017: £57.1 million)
· Enhanced inflation-linkage with projected increase in return of 0.81% p.a. for each 1% p.a. increase in inflation (31 December 2017: 0.79%)4
· Target 2018 and 2019 full-year dividends of 7.00 and 7.18 pence per share, respectively
· 2018 cash dividend cover of 1.2x5
PORTFOLIO UPDATE
In the first half of 2018, the Company continued to pursue its proven long-term strategy of value-focused portfolio development, active asset management and effective financial management in high quality, predictable, long-duration assets including:
· Selective exposure to stable, inflation-linked regulated assets
o c.£35-40 million investment commitment to acquire further interest in gas distribution network, Cadent, as part of a consortium of leading long-term U.K. and international institutional investors.
· Early mover into emerging low-risk core infrastructure asset classes
o c.£17 million commitment to invest in two separate U.K. alternative network providers, including Community Fibre, during the period, and subsequently in Airband Community Internet Limited, as part of the £45 million commitment to invest alongside HM Government in U.K. digital infrastructure and fibre-to-the-home broadband connections via the National Digital Infrastructure Fund ('NDIF').
· Strategic use of pre-emption rights to increase stakes in existing assets
o £1.7 million investment to acquire further interest in Hertfordshire Building Schools for Future ('BSF') project, increasing ownership level to 100%.
· Continued global portfolio diversification
o £0.6 million final investment into the second stage of the Gold Coast Light Rail PPP concession, Australia.
· Post period end
o Recent transactions and proposed transactions in the sector augur positively for future valuation increases.
STRONG ASSET STEWARDSHIP6
The Company's investments continue to deliver sustained value to all stakeholders by supporting their public-sector partners and the wider communities in which they operate. Owing to the Investment Adviser's active asset management approach, the Company delivered, among other things:
· 4152 scheduled management meetings with project counterparties, equating to one meeting per month, per asset;
· 99.6%2 asset availability for those investments whose performance is measured by availability, equating to over 269,000 successful operating hours in the period;
· 446 commissioned contract variations resulting in over c.£5.3 million of additional investment;
· 83,000 additional hours of asset availability dedicated to community use provided;
· c.2,3002 full time jobs provided across our accommodation-based assets, with 72%2 employed living within the local community in which they work (within an 8km radius).
DIRECTORATE CHANGES
As previously announced on 4 September 2018, the Company has appointed Mr. Michael Gerrard as an independent non-executive director with the expectation that he will assume the role of Chairman following Mr. Rupert Dorey's planned retirement as Chairman on 31 December 2018. Mr. John Le Poidevin was also appointed as Chairman of the Audit and Risk Committee with effect from 1 July 2018. His predecessor, Mr. John Whittle remains as Senior Independent Director of the Company's Board of Directors.
Rupert Dorey, Chairman of International Public Partnerships Limited, commented: "As a result of the ongoing robust portfolio performance in a period in which we continued to maintain full asset availability for our end-users, I am pleased to report sustained delivery of long-term inflation-linked returns to our shareholders. The market for the type of assets in which the Company invests remains buoyant and we remain confident in our ability to realise a long-term pipeline of harder-to-access opportunities that meet our established risk-return profile."
ENDS.
INPP will be holding an analyst and investor presentation and conference call at 9.30am on the day of announcement (6 September 2018).
For those analysts or investors who cannot attend in person, a conference call facility will also be available by dialling +44 (0)330 336 9125 and using the confirmation code 3027905. Please note the conference call is not open to the media or third-party representatives thereof.
A copy of the results presentation can be downloaded from the Company's website:
www.internationalpublicpartnerships.com
NOTES TO EDITORS
Amber Infrastructure
Erica Sibree / Amy Joslin
+44 (0)20 7939 0558 / 0587
FTI Consulting
Ed Berry
+44 (0)7703 330 199
FTI Consulting
Mitch Barltrop
+44 (0)7807 296 032
Important Information
This announcement contains information that is inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014.
This announcement is an advertisement. It does not constitute a prospectus relating to the Company and does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract therefor.
Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement. The Company, Amber and Numis Securities expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.
About International Public Partnerships:
International Public Partnerships ('INPP') is a listed infrastructure investment company which invests in global public infrastructure projects.
Listed in 2006, INPP is a long-term investor in 129 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and utility and transmission projects in the UK, 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 Adviser to INPP and has over 100 dedicated staff who manage, advise on and originate projects for INPP.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
Notes:
1. Bloomberg - share price appreciation plus dividends assumed to be reinvested - from IPO in November 2006 to 30 June 2018
2. Only applicable for projects where the Investment Adviser provides oversight of the management services. Where applicable, jobs referred to are employees of the Company's Facilities Management subcontractors and not of the Company of its subsidiaries
3. For the half-year ended 30 June 2018 unless otherwise stated
4. Projected increase in portfolio return for a 1.00% p.a. increase in the inflation rate assumed in the current valuation analysis for each asset in the portfolio
5. Cash dividend payments to investors are paid from net operating cash flow before non-recurring operating costs as detailed
6. Please note all metrics exclude the digital infrastructure investments (held in a fund structure), Brescia Hospital, Italy (where we do not provide asset management services) and U.S. Military Housing (where only senior debt is held)
International Public Partnerships Limited
Interim Report and Financial Statements for the six months ended 30 June 2018
Registered number: 45241
www.internationalpublicpartnerships.com
CONTENTS
HIGHLIGHTS 01
COMPANY OVERVIEW 02
TOP 10 INVESTMENTS 04
CHAIRMAN'S LETTER 05
FINANCIAL AND OPERATING REVIEW
- BUSINESS MODEL 08
- PERFORMANCE AGAINST STRATEGIC PRIORITIES 10
- OPERATING REVIEW 12
- CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY 28
BOARD OF DIRECTORS 32
DIRECTORS' RESPONSIBILITIES STATEMENT 34
INDEPENDENT REVIEW REPORT TO INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED 35
FINANCIAL STATEMENTS 36
NOTES TO THE FINANCIAL STATEMENTS 40
CONTACTS 55
COMPANY FACTS
- London Stock Exchange trading code: INPP.L
- Member of the FTSE 250 and FTSE All-Share indices
- £2.0 billion market capitalisation at 30 June 2018
- 1.405 billion shares in issue at 30 June 2018
- Eligible for ISA/PEPs and SIPPs
- International Public Partnerships (the 'Company', 'INPP') shares are excluded from the Financial Conduct Authority's ('FCA') restrictions, which apply to non-mainstream investment products, and can be recommended by independent financial advisers to their clients
COVER IMAGE:
- Thames Tideway Tunnel Project, London U.K.
Highlights
We aim to provide our investors with sustainable, long-term and inflation-linked returns through responsible and sustainable investment in public infrastructure.
We aim to grow our dividend and create the potential for capital appreciation.
Our investments are made with the intent of creating robust and long-term investment cash flows.
DIVIDENDS
3.50p H1 2018 distribution1 per share
7.00p 2018 full-year distribution target2 per share
7.18p 2019 full-year distribution target2 per share
c.2.5% Average annual dividend increase since IPO2
1.2x Cash dividend covered3
NET ASSET VALUE ('NAV')
£2.1bn NAV at 30 June 20184 (31 Dec 2017: £2.0bn)
146.3p NAV per share at 30 June 20184 (31 Dec 2017: 145.0p)
0.9% Increase in NAV
0.9% Increase in NAV per share
PORTFOLIO ACTIVITY
£50.5m Cash investments and commitments made during H1 2018
TOTAL SHAREHOLDER RETURN ('TSR')
148.6% TSR since inception5
8.1% Compound annual growth in TSR since inception5
PROFIT
£65.9m Profit before tax (1H 2017: £57.1m)
1 The forecast date for payment of the dividend relating to the half year ending 30 June 2018 is 8 November 2018.
2 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
3 Cash dividend payments to investors are paid from net operating cash flow before non-recurring operating costs as detailed on pages 18-19.
4 The methodology used to determine investment fair value is described in detail on pages 20-26.
5 Since inception November 2006. Source: Bloomberg. Share price plus dividends assumed to be reinvested.
Company Overview
TRACK RECORD OF STABLE AND GROWING RETURNS TO INVESTORS
INPP Dividend Payments
[Chart can be found in PDF version of this document on the Company's website.]
Compound annual growth rate in TSR of 8.1% p.a.1
Since listing, INPP has grown from £300m market capitalisation to £2.0bn (June 2018)
Annual dividend growth has averaged 2.5% since inception2
High degree of inflation linkage
A WELL DIVERSIFIED PORTFOLIO
Sector Breakdown
|
Transport |
21% |
|
Education |
20% |
|
Energy transmission |
19% |
|
Gas Distribution |
14% |
|
Waste Water |
11% |
|
Health |
4% |
|
Courts |
3% |
|
Military Housing |
3% |
|
Other |
5% |
129 investments in infrastructure projects across a variety of sectors
Geographic Split
|
U.K. |
71% |
|
Belgium |
10% |
|
Australia |
10% |
|
U.S. |
3% |
|
Germany |
3% |
|
Canada |
2% |
|
Ireland |
1% |
|
Italy |
<1% |
Invested in selected global regions that meet INPP's specific risk and return requirements
Investment Type
|
Investments with third party senior debt |
91% |
|
Investments with no third party senior debt4 |
9% |
Invested across the capital structure, taking into account appropriate risks to returns
Mode of Acquisition/Asset Status
|
Construction |
11% |
|
Operational |
89% |
|
Early Stage Investor5 |
73% |
|
Later Stage Investor6 |
27% |
Early stage investment gives first mover advantage and maximises primary capital growth opportunities
Project Ownership
|
100% |
47% |
|
50%-100% |
7% |
|
<50% |
46% |
Preference to hold majority positions/control or an alternative position of influence e.g. board representation
Investment Life
|
<20 years |
44% |
|
20 - 30 years |
28% |
|
>30 years |
28% |
Weighted average portfolio life of 36 years7
1 Since inception November 2006. Source Bloomberg. Share price plus dividends assumed to be reinvested.
2 Future dividends cannot be guaranteed. Projections based on current estimates and may vary in the future.
3 There are many factors that may influence the actual achievement of long-term cash flows to the Company. These include both internal as well as external factors and investors should not treat the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will almost certainly be different and may be higher or lower than indicated.
4 Investments were the Company holds the Risk Capital and the senior debt or the senior debt has been repaid.
5 'Early Stage Investor' - asset developed or originated by the Investment Advisor or predecessor team in primary or early phase investments.
6 'Later Stage Investor' - asset acquired from a third party investor in the secondary market.
7 Includes non-concession entities which have potentially a perpetual life but assume to have finite lives for this illustration.
International Public Partnerships invests in high quality, predictable, long-duration infrastructure projects.
HIGH PREDICTABLE, LONG DURATION CASH FLOWS
· Robust: long-dated, contractual, predictable cash flows
· Secure: from regulated or government backed counterparties
· Investments focused on high-quality, OECD countries
INPP Projected Cash Flow Profile and Relationship with the Investment Advisor and its Group
[Charts can be found in PDF version of this document on the Company's website.]
TOP 10 INVESTMENTS
INPP's top ten investments by fair value at 30 June 2018 are summarised below. Further information about investments in the Group's portfolio is available on the Group's website (www.internationalpublicpartnerships.com).
|
NAME OF INVESTMENT |
LOCATION |
SECTOR |
STATUS AT 30 JUNE 2018 |
% HOLDING AT 30 JUNE 2018 |
% INVESTMENT 30 JUNE 2018 |
% INVESTMENT FAIR VALUE 31 DECEMBER 2017 |
|
Cadent Gas Distribution Network1 |
Various, United Kingdom |
Gas Distribution |
Operational |
4% Risk Capital2 |
13.9% |
14.0% |
|
Thames Tideway Tunnel1 |
London, United Kingdom |
Waste Water |
Under Construction |
16% Risk Capital2 |
10.9% |
10.8% |
|
Diabolo Rail Link1 |
Brussels, Belgium |
Transport |
Operational |
100% Risk Capital2 |
10.0% |
10.0% |
|
Lincs Offshore Transmission1 |
Lincolnshire, United Kingdom |
Energy Transmission |
Operational |
100% Risk Capital2 |
9.1% |
9.0% |
|
Ormonde Offshore Transmission1 |
Cumbria, United Kingdom |
Energy Transmission |
Operational |
100% Risk Capital2 and 100% senior debt |
6.3% |
6.5% |
|
Reliance Rail |
Sydney, Australia |
Transport |
Operational |
33% Risk Capital2 |
4.3% |
4.4 |
|
Angel Trains1 |
Various, United Kingdom |
Transport |
Operational |
5% Risk Capital2 |
3.5% |
3.4% |
|
U.S. Military Housing1,3 |
Various, United States |
Military Housing |
Operational |
100% Risk Capital2 |
3.0% |
3.0% |
|
BeNEX Rail1 |
Various, Germany |
Transport |
Operational |
49% Risk Capital2 |
2.1% |
2.0% |
|
Royal Children's Hospital1 |
Victoria, Australia |
Health |
Operational |
100% Risk Capital2 |
1.9% |
2.0% |
1 These investments contain revenues that 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 have regulatory periodic reviews. Certain of these investments also include a residual value assumption.
2 Risk Capital includes both project level equity and subordinated shareholder debt.
3 Includes two tranches of investment into U.S. military housing.
Significant movements in the Group's portfolio for the half year ended 30 June 2018 can be found on pages 12-13 of the Financial and Operating Review.
Chairman's Letter
Dear Shareholders,
In this, my last letter to shareholders before my retirement from the Company's Board, I am pleased to report that in keeping with historical precedent, INPP's performance for the first half of the 2018 financial year has continued to be robust, with strong dividend growth and further Net Asset Value ('NAV') enhancement to shareholders.
This performance has been achieved despite some sector headwinds, notably the collapse of Carillion plc ('Carillion'), a contractor and facilities manager to a large number of businesses within the sector, but who provided services to only a small number of the Company's assets (c.3% by investment fair value). It is testament to the quality of the portfolio and the Investment Adviser's strong in-house asset and financial management team and portfolio risk management approach that there has been no material financial impact on the Company. Equally, the transition to new service providers was undertaken without disrupting asset availability and all on-site personnel, who formerly worked for Carillion, were offered continuity of employment on the same terms.
We remain positive about the underlying quality of the Company's portfolio and its ability to continue to deliver predictable long-term inflation-linked returns to shareholders.
GROWTH IN INVESTOR RETURNS
Since the Company first listed in November 2006 we have generated in the period to 30 June 2018 a Total Shareholder Return of 148.6%. This is equivalent to an average annual return of 8.1% and in line with our long-term annual return target of 8% to 9% returns1.
We are also on track to meet our 2018 dividend target of 7.00 pence per share, having announced a dividend of 3.50 pence per share for the first six months to 30 June 2018, reflecting 2.6% growth on the previous period (30 June 2017: 3.41 pence).
The Board is pleased to reaffirm its minimum dividend target for 2018 and guidance of 7.18 pence per share for 2019. We have good forward visibility of investment cash flows and, given the predictable nature of the Company's investments, we are confident of our longer-term prospects to pay out a dividend linked to long-term average inflation of c.2.5% per annum. By disclosing two-year forward guidance, we hope to provide shareholders with additional visibility of our future intentions2 and reiterate our confidence in the Company's future prospects.
PORTFOLIO PERFORMANCE
The Board believes that the pro-active, well-resourced and focused approach to asset management taken by the Company and its Investment Adviser has enabled INPP to develop a reputation as a responsible steward of public infrastructure assets. The Company, through its Investment Adviser, engages directly with its key stakeholders throughout the life of its investments, with limited outsourcing of asset and financial management to third parties. From construction through to the ongoing operations, this hands-on approach has been intrinsic to the portfolio's long-term performance.
In addition to traditional aspects of project construction, management and reporting, the Company also recognises the importance of the portfolio's environmental and social impact on the communities it serves. We believe that demonstrating this to stakeholders should be a priority and as such, we have enhanced our corporate, social and environmental responsibility reporting to provide greater transparency. Further details on our approach and activity during the period are available on pages 28-31.
INVESTMENT ACTIVITY
During the period from 1 January 2018 to 30 June 2018, the Company made new investments and investment commitments of c.£50.5 million.
This included the Company's third and final commitment to invest in the Cadent gas distribution business ('Cadent'), as part of a consortium. The exact amount of this final commitment will be determined by a number of factors, but it is expected to be between £35-40 million and is anticipated to offer improved commercial terms as a result of the consortium having an existing majority position in Cadent. This commitment arises through a put and call option agreement which, as with the previous put and call option agreed in March 2017, will be exercisable in 2019. Following the exercise of both of these sets of options, the Company expects to increase its Cadent stake to a level which also provides access to a permanent board seat and thus enhanced direct influence over the business (it currently has a joint appointed seat with another co-investor).
Chairman's Letter (CONTINUED)
The Company has continued to be active in the digital infrastructure sector. In July 2017, INPP agreed to invest up to £45 million into digital infrastructure via the National Digital Infrastructure Fund ('NDIF'), alongside HM Government in the U.K., as part of its commitment to accelerate the rollout of ultra-fast connectivity across the U.K. In April 2018 the Company, through NDIF, made its first investment of c.£8.2 million into Community Fibre, a company aiming to make full-fibre internet service available to around a further 100,000 homes by 2019, covering social and private housing estates across London. Since the period end, the Company announced a further investment in August 2018, as part of its commitment into digital infrastructure - this time into Airband Community Internet Limited ('Airband'), a leading wireless and fibre internet service provider that has benefited from government subsidies for rural and isolated areas in England and Wales with an investment commitment of up to £8.5 million.
In addition, during the period, the Company completed two refinancings of projects within its portfolio - one being a Building Schools for Future ('BSF') project and the other being the senior debt of the Liverpool Central Library Project. As well as bringing modest financial benefits to the Company these refinancings delivered financial savings to our local authority clients. The Company is optimistic that further refinancings completing later in 2018 will result in similar shared benefits.
Further details on investments made during the period can be found on pages 12-13.
RENEWAL OF CORPORATE CREDIT FACILITY AND BALANCE SHEET POSITION
The Company successfully renewed and extended its corporate debt facility in July 2018 for a further three years. The existing facility which was due to expire in November 2019, has been extended to July 2021 on improved terms, including a reduction in the margin on drawn amounts of the facility of 10bps and the introduction of an additional 'accordion' facility. This provides INPP with additional flexibility to increase the facility during the term, if required.
The renewed corporate debt facility is intended to support the Company's existing pipeline of committed investment and to provide the Company with flexibility to invest in appropriate opportunities.
At 30 June 2018, the Company had utilised £26 million of the credit available under its corporate debt facility, leaving £374 million of the £400 million facility available. Of this c.£250 million is currently earmarked to meet existing and future investment commitments including Dudgeon Offshore Transmission project ('OFTO'), on which the Company is currently the preferred bidder, and further committed investments into Cadent, digital infrastructure and the Offenbach Police Headquarters in Germany.
CORPORATE GOVERNANCE
INPP complies with the Association of Investment Companies Code of Corporate Governance and the U.K. Corporate Governance Code as set out in the Corporate Governance Section of the 2017 Annual Report and financial statements.
As noted earlier, this is my last report as Chairman before my retirement from the Board on 31 December 2018. In preparation for my departure, a rigorous, externally facilitated selection process has been undertaken to identify an additional Non-Executive Director to join the Board, concluding in the appointment of Mike Gerrard with effect from 4 September 2018. Mike has extremely strong infrastructure experience and has been involved in some of the largest infrastructure projects in the U.K. and has led the implementation of public private partnerships across a wide-range of sectors. The Board of Directors and I are very pleased that Mike has agreed to join the Board and our expectation is that he will assume the role of Chairman of the Board upon my retirement. We believe his experience will be complementary to the existing members and his background is very much in the best interests of the Company.
In addition, John Le Poidevin has been appointed as Chairman of the Audit and Risk Committee with effect from 1 July 2018. John Le Poidevin is a qualified accountant and has been a Board member since 2016. The Board and I would like to thank the outgoing Chair of the Audit and Risk Committee, John Whittle, for his services over the past four years. Mr. Whittle will remain the Senior Independent Director of the Board.
Chairman's Letter (CONTINUED)
GOING CONCERN
The Company has 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 £35.3 million and undrawn banking facilities of £374 million. Forecasts indicate continuing full compliance with associated banking covenants. Further details can be found on pages 18-19.
CURRENT MARKET ENVIRONMENT AND OUTLOOK
The market for the type of assets in which the Company invests remains buoyant and governmental and regulatory environments in which we operate continue to be supportive of long-term investment into public infrastructure. Whilst in the U.K. the issues surrounding the collapse of Carillion, noted above, and the Labour Party's proposed policy shift away from the use of private finance in public infrastructure generally, in particular the Private Finance Initiative, has negatively impacted sentiment towards the sector; it is important to remember that the Company's exposure to such projects is relatively modest.
Through its active asset and financial management approach, the Company has very good relationships with its public sector stakeholders across all the projects the Company is invested in. The Company continues to focus heavily on ensuring that it maintains good customer relations with its public-sector clients and always seeks to maximise value for money. The Company endeavours to build on this foundation of good relationships, alongside its Investment Adviser, to enhance both the communication and demonstration of the value for money created. We will continue to work with our public-sector partners to this end.
The Board consistently monitors developments as Brexit negotiations progress. While we see obvious risks in possible market and other dislocations arising from anything other than an orderly Brexit, as previously outlined, we do not anticipate that the Company is unusually exposed to such risks or that there will necessarily be a significant impact on the Company's existing investments. More information is detailed in the Current Market Environment and Future Opportunities section on page 14.
The Company remains focused on the completion of its existing commitments including Cadent, Dudgeon OFTO, Offenbach Police Headquarters, further investments into digital infrastructure as well as the ongoing construction of the Thames Tideway Tunnel ('Tideway'). Amber has identified a pipeline of additional opportunities that are currently under review by the Investment Adviser, including current bids, preferred bidder opportunities and opportunities to acquire additional investments include pre-emption / first refusal rights, that meet the Company's risk-return profile.
I would like to take this opportunity to thank all shareholders for your support of the Company during my Chairmanship and wish Mike Gerrard well in his new role and INPP's continued success.
Rupert Dorey
Chairman
5 September 2018
1 Since inception. Source: Bloomberg. Share price plus dividends assumed to be reinvested.
2 Future dividends cannot be guaranteed. Projections are based on current estimates and many vary in the future.
FINANCIAL AND OPERATING REVIEW
BUSINESS MODEL - DELIVERING INVESTOR RETURNS
[Charts can be found in PDF version of this document on the Company's website.]
FINANCIAL AND OPERATING REVIEW
PERFORMANCE AGAINST STRATEGIC PRIORITIES
INPP's strategy covers three interlinked areas of focus. This three-pronged approach helps us to manage our assets and finances throughout the investment cycle and also to identify new opportunities that meet our investment objectives. We link Key Performance Indicators ('KPIs') to these Strategic Priorities and review our performance against these KPIs twice a year. We also assess the risks relating to each KPI (as identified in the Risk Management section of the 2017 Annual Report and Financial Statements).
|
STRATEGIC PRIORITIES |
DESCRIPTION |
|
VALUE-FOCUSED PORTFOLIO DEVELOPMENT |
|
|
INVEST IN ASSETS THAT ENHANCE PORTFOLIO RETURNS RELATIVE TO RISK AND MAINTAIN A WELL-BALANCED INVESTMENT PORTFOLIO |
- Make new investments that enhance prospects for future value growth |
|
|
- Make additional acquisitions off-market or through preferential access (e.g. sourced through pre-emption rights or via Amber/Hunt)
|
|
|
- Manage portfolio composition with complementary investments, in line with the Company's Investment Policy and enhancing at least one of the following aspects: · Blend of risk to return · Inflation linkage · Cash flow profile · Capital attributes (such as construction risk and residual value growth potential) |
|
ACTIVE ASSET MANAGMENT |
|
|
ACTIVE AND EFFECTIVE MANAGEMENT OF ASSETS
|
- Focus on delivery of target returns from existing investments - Maintain high levels of public sector client satisfaction and asset performance - Deliver additional value from existing assets through management of construction risk and delivery of operational improvements to meet client requirements - Enhance prospects for capital growth by investing in construction phase assets where available |
|
EFFECTIVE FINANCIAL MANAGEMENT |
|
|
EFFECTIVE MANAGEMENT OF COMPANY'S FINANCES |
- Provide efficient management of cash holdings and debt facilities available for investment and appropriate hedging policies - Efficient management of INPP's overall finances, with the intention to reduce ongoing charges where possible - Manage portfolio in a cost-efficient manner |
|
KEY PERFORMANCE INDICATORS |
PERFORMANCE IN H1 2018 |
|
|
- Value of new early stage investment
- Proportion of investments in construction |
- Continued investment into Gold Coast Light Rail which completed construction during the period
- 11.5% of portfolio currently under construction |
|
|
- Value of additional investments acquired off-market or through preferred access |
- Acquisitions totalling c.£2.3 million secured through pre-emption rights including additional stakes in the Hertfordshire BSF and Gold Coast Light Rail (Phase 2) projects - Preferred bidder for the Dudgeon Offshore Transmission Project ('OFTO') in the U.K. - Additional commitment into Cadent, U.K. |
|
|
- Improvement of risk/return, inflation linkage and diversification of cash flows, including geographical diversification
|
- All assets acquired exhibited robust cash flow profiles - Overall portfolio value inflation linkage1 increased from 0.79% to 0.81% for every 1.00% p.a. increase over assumed inflation rates (calculated by running a 'plus 1.00%' inflation sensitivity for each investment and solving each investment's discount rate to return the original valuation. The inflation linkage is the increase in the portfolio weighted average discount rate) |
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- Availability for all controlled investments at 98% or above - returns from investments in line with expectations - Performance deductions below 3% for all projects - Number of change requests from existing contracts - Management of investments during the course of construction projects in line with overall delivery timetable |
Availability for investments at 99.6%
- Performance deductions of 1.62% for all projects
- Over 446 change requests undertaken
- Majority of construction projects managed on time and to budget. Costs of small project delays absorbed by construction partners
|
|
|
|
|
|
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- Dividends paid to investors covered by operating cash flow - New investments made from available cash (after payment of dividend) ahead of using corporate debt - Competitive cash deposit rates - Use of appropriate hedging strategies
- Management of ongoing charges |
- Cash dividends paid to investors 1.2 times covered by net operating cash flow - All investments in the year to date funded through excess cash in priority to the corporate debt facility - Market tested cash deposit rates - £40.0 million of foreign exchange forward contracts in place to mitigate short-term foreign exchange cash flow volatility - Ongoing charges 1.21% |
|
1 Projected increase in portfolio return for a 1.00% p.a. increase in the inflation rate assumed in the current valuation analysis for each asset in the portfolio.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
New investments that meet the Company's Investment Policy are made after assessing their risk and return profile relative to the existing portfolio. In particular, we seek investments to complement the existing portfolio through enhancing long-term, predictable cash flows and/or to provide the opportunity for higher capital growth. Desirable key attributes include:
1 Long-term, stable returns
2 Inflation-linked investor cash flows
3 Early stage investor (e.g. the Company is an early stage investor in a new asset developed by Amber)
4 Preferential access (e.g. sourced through pre-emptive rights or through the activities of our Investment Adviser)
5 Enhanced capital attributes (e.g. potential for additional capital growth through construction "de-risking" or the potential for residual / terminal value growth)
During the period to 30 June 2018, c.£50.5 million was invested across three investments including a further investment commitment into the Cadent gas distribution network. Details of investments made, and their key attributes are provided below.
|
|
LOCATION |
KEY ATTRIBUTES |
OPERATIONAL STATUS |
INVESTMENT |
INVESTMENT DATE |
||||||
|
|
|
1 |
2 |
3 |
4 |
5 |
|
|
|
||
|
National Digital Infrastructure Fund |
U.K. |
|
|
X |
X |
X |
Operational |
£8.2 million |
20 April 2018 |
||
|
BSF Hertfordshire Project |
U.K. |
X |
X |
|
X |
|
Operational |
£1.7 million |
28 March 2018 |
||
|
Gold Coast Light Rail 2 |
Australia |
X |
X |
X |
X |
|
Operational |
£0.6 million |
2 January 2018 |
||
|
|
|
|
|
|
|
|
|
£10.5 million |
|
||
|
INVESTMENT COMMITMENTS MADE DURING THE SIX MONTHS TO 30 JUNE 2018 |
|||||||||
|
|
|
1 |
2 |
3 |
4 |
5 |
|
|
|
|
Cadent gas distribution network |
U.K. |
X |
X |
|
X |
X |
Operational |
c. £35-40 million |
1 May 2018 |
These investments were sourced by Amber, the Investment Adviser, either from the start of the project (i.e. primary / early stage developments in response to an initial government procurement process); through increasing its interest in existing assets; or as part of a larger consortium, building on the Company's experience and credibility to participate in multi-billion pound regulated infrastructure transactions.
CADENT GAS DISTRIBUTION NETWORK, U.K.
The Company is part of the Quad Gas consortium ('consortium') which includes other leading U.K. and international institutional investors who acquired a 61% interest in certain gas distribution networks ('GDNs') (now known as Cadent), which were previously owned by National Grid plc. In 2017, the Company invested £272.5 million into Cadent for a 4.4% stake with the remaining Risk Capital funded by consortium partners.
In addition to the 61% interest acquired by the consortium, a further 14% interest in the networks was negotiated with National Grid and is subject to put and call options between National Grid and the consortium. INPP's latest commitment arises as the consortium has entered into a second put and call option agreement allowing for National Grid to dispose of its remaining 25% holding in Cadent and for the Consortium to acquire 100% ownership of the business.
Cadent spans over four GDNs, each covering a geographic monopoly in the East and North West of England, North London, and the West Midlands, respectively. The networks distribute gas to approximately 50% of the country's connected households through 130,000km of gas pipeline. The GDNs are well-established, predictable, and strong cash yielding businesses whose characteristics are consistent with and complementary to the other regulated and non-regulated assets in the Company's portfolio.
DIGITAL INFRASTRUCTURE CO-INVESTMENT, U.K.
In July 2017, the Company committed jointly with HM Government to invest in digital infrastructure and particularly the development of fibre optic broadband connections through NDIF, a vehicle managed by Amber. INPP has agreed to invest up to £45 million into U.K. digital infrastructure alongside HM Government through NDIF. The vehicle seeks out investment opportunities in businesses and projects that own and build digital fibre-based network assets and related infrastructure which aim to generate stable returns consistent with INPP's investment mandate. The Company recognises the prospect of long-term parallels between the essential nature of broadband connectivity to the home and workplace, and the long-term stable, inflation-linked returns of our utility network assets.
In April 2018, the Company invested £8.2 million as part of its £45 million commitment to NDIF. The investment has been made into Community Fibre, a company aiming to make ultra-fast full-fibre internet service available to around a further 100,000 homes by 2019, covering social and private housing estates across London.
In August 2018, INPP made a further investment commitment, through NDIF, of up to c.£8.5 million into Airband, a leading wireless and fibre internet service provider who has been successful in securing government subsidies for the rollout of super-fast broadband to rural and isolated areas in England and Wales. This recent investment will help connect more rural homes and business with high-speed broadband.
ADDITIONAL INVESTMENT IN BUILDING SCHOOLS FOR FUTURE PROGRAMME ('BSF'), U.K.
BSF is a former U.K. Government programme for the redevelopment of secondary schools in the U.K. financed using a combination of design and build contracts and private finance type arrangements.
In March 2018, the Company acquired an additional 20% interest in the Hertfordshire BSF project investing a further £1.7 million. As a result, the Company's existing 80% investment in the project was brought to 100% following the secondary investment in the scheme.
ADDITIONAL INVESTMENT IN GOLD COAST LIGHT RAIL - PHASE 2 AUSTRALIA
In January 2018, the Company made its final investment of £0.6 million into the second stage of the Gold Coast Light Rail PPP concession project in Queensland, Australia. This follows the completion of the construction of the 7.3km extension which opened for passenger services in December 2017, in time for the opening of the Gold Coast Commonwealth Games in April 2018.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
CURRENT MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES
The Investment Adviser remains well placed to deliver and originate potential investments that match the Company's risk-return profile. We continue to track and develop opportunities at various stages of development, including regulated utilities (including offshore transmission), health, judicial, other accommodation and transport projects. All opportunities are appraised on a case-by-case basis and pursued in a disciplined way, ensuring investment opportunities contribute towards inflation linkage, yield and/or enhanced capital attributes and offer attractive risk adjusted returns. This ensures that INPP's strong platform, carefully developed since 2006, will continue to be enhanced.
As mentioned in the Chairman's letter, there have been recent headwinds to these longer-term positive trends. The increased political focus on the sector, together with the collapse of Carillion, saw the share prices of the U.K. listed infrastructure sector come under pressure during the period to 30 June 2018. However, towards the end of the period following the successful transition of the Carillion services to new contractors, the market sentiment improved. Recent transactions for comparable public private partnerships ('PPP') assets in the U.K. also reflected the underlying value of high-quality portfolios, with the takeover bid for John Laing Infrastructure Fund Limited ('JLIF'), by a consortium of private infrastructure investors, recommended at a bid price well in excess of JLIF's NAV.
The Company continues to closely monitor the market reaction during the U.K.'s planned withdrawal from the European Union ('E.U.'). As outlined in previous reports, we do not anticipate that there will be significant impact on the Company's existing investments. However, given the high degree of uncertainty about the true impact of Brexit on the U.K. economy we continue to monitor developments as the Brexit negotiations progress.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
CURRENT PIPELINE
Selected opportunities identified by Amber are outlined below. INPP's performance does not depend upon additional investments to deliver projected returns. Further investment opportunities will be judged by their anticipated contribution to overall portfolio returns relative to risk.
|
CURRENT INVESTMENT OPPORTUNITIES / COMMITMENTS |
LOCATION |
ESTIMATED PROJECT CAPITAL / COMMITMENT VALUE |
EXPECTED CONCESSION LENGTH |
INVESTMENT STATUS |
|
Dudgeon OFTO |
U.K. |
c.£50 million1 |
c.20 years |
Preferred bidder |
|
Digital |
U.K. |
c.£28.3 million1 |
Operational businesses |
Investment commitments totalling up to c.£16.7 million made as part of up to £45 million commitment to NDIF |
|
Cadent |
U.K. |
Commitment as part of a consortium to acquire residual interest from National Grid |
Operational business |
Subject to put and call option anticipated to be executed in 2019 |
|
Offenbach Police Headquarters |
Germany |
c.£8.6 million2 |
c.30 years |
Investment commitment made. Expected to be funded mid 2021 |
|
SECTOR OF INVESTMENT OPPORTUNITY |
LOCATION |
ESTIMATED PROJECT CAPITAL VALUE |
EXPECTED CONCESSION LENGTH |
INVESTMENT STATUS |
|
Other Regulated |
U.K. |
£7.0 billion |
Various, including operational businesses |
Regulated opportunities at varying stages of consideration |
|
OFTO |
U.K. |
c.£3.5 billion3 |
c.20 years |
Shortlisted on three future OFTOs |
|
Education |
U.K., Europe |
c.£817 million3 |
Various |
Opportunities through variations to existing PPP contracts and through Amber's wider relationships |
|
Health |
Australia |
c.£730 million3 |
Various |
|
|
Transport |
Australia, Europe |
c.£387 million3 |
Various |
Includes possible follow-on opportunities |
|
Accommodation |
U.S . |
c.£950 million3 |
Various |
Variety of opportunities mainly PPP-style investments under review |
1 Represents the current estimate of total future investment commitment by the Company.
2 Project has reached financial close. Commitment to invest once construction has completed, expected to be mid-2021.
3 Represents the estimated current unaudited value of the project and includes both debt and equity.
The table above notes potential opportunities currently under review by the Investment Adviser encompassing 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 that 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.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
ACTIVE ASSET MANAGEMENT
It is critical for INPP, and its service providers, that the Company's assets are available for use and are performing in accordance with contractual expectations as a minimum. We are not a passive investor and through our Investment Adviser and Asset Manager, Amber, we closely monitor relationships between our service providers and clients, the regulator, the operating business and the end user. Amber has the flexibility, resource, and experience to quickly respond to the changing requirements of all its clients and counterparties.
Amber actively uses the contractual requirement as a framework to deliver on its projects' expected outcomes. It does this by engaging with, and encouraging feedback, from clients and stakeholders; whether a facilities management partner, lender, regulatory authority or local authority representative. Amber's knowledge of the project, combined with frequent site visits, and interactions with management and customer contact, allows it to carefully ascertain the risks and opportunities that each project entails.
OPERATIONAL PORTFOLIO performance
As noted in the Chairman's letter, during the period, the Company has focused resource on the 24 projects representing c.3.0% of the portfolio by investment fair value at 31 December 2017, where subsidiaries of Carillion provided construction and/or facilities management services. Since the collapse of Carillion in January this year the Company's Investment Adviser has successfully transitioned all 24 projects to new facilities managers on substantially the same terms as the existing contracts and all on-site ex-Carillion personnel were offered continuity of employment on the same terms; in the case of 23 of these locations this is on a permanent basis and in the case of one facility this is on an interim basis, but with the expectation that the transferee will take a permanent transfer shortly. The cost of transitioning will be immaterial (less than £1.5 million), and overall there will be minimal impact on the Company's valuation.
While the Carillion transition was a resource-intensive exercise for Amber's Asset Management team, its oversight of day-to-day project management continued. Over the period Amber continued to engage with its public-sector clients to manage variations to the existing schemes to support positive business change. During the half year, INPP's public-sector clients commissioned over 446 contract variations in projects resulting in over c.£5.3 million of additional project work, with individual variations ranging in value from £174 to over £2.2 million. Amber assesses each case on its individual merits and ensures there is no material change to the risk profile or financial return, whilst assisting their client to achieve their objectives.
In January, the £5.0m sixth form centre variation to the Stepney Green School, part of the Tower Hamlets Schools project, opened. The variation was managed by Amber and involved the design and construction of a standalone sixth form building comprising general classrooms, information technology rooms, science labs, an art studio, study centre and recreational facilities, and greatly enhances this prominent urban site.
Amber seeks to actively manage and add value to the portfolio where it is able to do so, and it is in the best interests of its clients and the end-user. For instance, the Company undertook two debt refinancings, including one of its education assets under the BSF programme and Liverpool Library, with others planned over the second half of 2018. The two refinancings are part of a series across the Company's portfolio that have been conducted with the aim of delivering savings to the projects and the local authorities which commission the public services each project provides. A refinancing generates improved financial returns which are shared with the public-sector counterparty and demonstrate an important pillar of our active asset management and financial approach - delivering benefits to our clients and the end-users, whilst not increasing the charge paid by the public sector.
Amber works with its public-sector counterparties to deliver ongoing value and operational savings. During the period, two benchmarking exercises were performed in its social accommodation projects, which included reviewing facilities management services delivered on the projects in order to assess value for money for the public sector. Amber also continued to focus on energy efficiency, resulting in savings to public sector counterparties.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
Following the successful delivery of £1.3 million of savings on the Northampton Schools Project in 2017, Amber continued to seek further savings opportunities in 2018. Working in partnership with the authority, Amber identified and successfully delivered further £1.1 million per annum savings through amendments to an insurance review procedure, window cleaning, malicious damage contingency sharing arrangements and by transferring elements of maintenance to the authority. Amber continues to support the authority in identifying further savings opportunities or efficiencies in facilities management services.
PROJECTS UNDER CONSTRUCTION
Three projects, representing approximately 11.5% of the Company's portfolio, were under construction at 30 June 2018.
Construction on four of the five 'batches' of schools under the Priority Schools Building Programme have completed although some post completion works remain. A sports hall at one of the schools in the remaining batch is due to be completed in April 20191.
Tideway continued to make good progress in line with its scheduled construction programme. Construction progress is on schedule with c.27% of construction now completed. Two tunnel boring machines have now been positioned and will commence horizontal tunnelling later in the year.
First ground work activities for Offenbach Police Headquarters started in line with the construction schedule. The first stone laying ceremony took place on 27 August 2018 and was overseen by the Interior Minister and the Undersecretary to the Finance Minister of the German federal state of Hesse. In addition, the commissioning Public Authority requested an extension of the building to accommodate an additional 130 working places,. This c.€30 million variation to the scheme was successfully agreed in July 2018.
Projects under construction as at 30 June 2018 are set out in the table below.
|
ASSET |
LOCATION |
CONSTRUCTION COMPLETION DATE |
DEFECTS COMPLETION DATE |
STATUS |
% OF FAIR VALUE OF INVESTMENT
|
|
Priority School Building Programme - Aggregator |
U.K. |
2019 |
2020 |
Modest delays. No financial impact on the Company2 |
0.6% |
|
Offenbach Police Headquarters |
Germany |
20213 |
2026 |
On schedule |
0.00% |
|
Thames Tideway Tunnel |
U.K. |
20244 |
20275 |
On schedule |
10.9% |
|
|
|
|
|
|
|
1 Subject to a new construction provider being appointed to replace Carillion.
2 Batch 4 was behind schedule at 30 June 2018. INPP is a debt only provider and the programme is largely determined by equity providers and their management supply chain.
3 Prior to the additional working places being agreed the completion date was mid-2020.
4 Scheduled handover date, source: Tideway Annual Report 2017/18
5 Scheduled system acceptance date, source: Tideway Annual report 2017/18
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
EFFECTIVE FINANCIAL MANAGEMENT
The Company aims to manage its finances effectively by minimising its unutilised cash holdings, while maintaining the financial flexibility to pursue new investment opportunities. This is achieved through active monitoring of cash held and generated from operations, appropriate hedging strategies, and prudent use of the Company's corporate debt facility ('CDF').
SUMMARY OF CASH FLOWS
|
SUMMARY OF CONSOLIDATED CASH FLOW |
SIX MONTHS TO 3O JUNE 2018 £ MILLION |
SIX MONTHS TO 30 JUNE 2017 £ MILLION |
YEAR TO 31 DECEMBER 2017 £ MILLION |
|
Opening cash balance |
33.9 |
71.0 |
71.0 |
|
Cash from investments |
71.7 |
55.0 |
118.9 |
|
Operating costs (recurring) |
(12.4) |
(10.3) |
(21.5) |
|
Net financing costs |
(1.5) |
(2.3) |
(4.1) |
|
Net cash before non-recurring operating costs |
57.8 |
42.4 |
93.3 |
|
Non-recurring operating costs |
(0.5) |
(7.9) |
(10.3) |
|
Net operating cash flows1 |
57.3 |
34.5 |
83.0 |
|
Cost of new investments |
(10.5) |
(323.8) |
(464.0) |
|
Net movement of corporate debt facility |
7.0 |
- |
17.8 |
|
Proceeds of capital raisings (net of costs) |
- |
325.1 |
404.4 |
|
Distributions paid |
(47.9) |
(33.8) |
(76.2) |
|
Funds advanced to affiliated entities |
- |
(1.4) |
(2.1) |
|
Net cash at period end |
39.8 |
71.6 |
33.9 |
|
Cash dividend cover |
1.2x |
1.3x |
1.2x |
1 Net operating cash flows as disclosed above (c.£57.3 million) include net repayments from investments at fair value through profit and loss (c.£21.5 million), and finance costs paid (c.£1.5million) which are not included in the net cash inflows from operations (c.£37.4 million) as disclosed in the statutory cash flow statement on page 39 of the financial statements.
SUMMARY OF OPERATING COSTS AND ONGOING CHARGES
|
CORPORATE EXPENSES |
SIX MONTHS TO 30 JUNE 2018 £ MILLION |
SIX MONTHS TO 30 JUNE 2017 £ MILLION |
YEAR TO 31 DECEMEBER 2017 £ MILLION |
|
Management fees |
(11.4) |
(9.2) |
(19.4) |
|
Audit fees |
(0.2) |
(0.2) |
(0.3) |
|
Directors' fees |
(0.2) |
(0.2) |
(0.3) |
|
Other running costs |
(0.6) |
(0.7) |
(1.5) |
|
Operating costs (ongoing) |
(12.4) |
(10.3) |
(21.5) |
|
ONGOING CHARGES |
SIX MONTHS TO 30 JUNE 2018 £ MILLION |
SIX MONTHS TO 30 JUNE 2017 £ MILLION |
YEAR TO 31 DECEMEBER 2017 £ MILLION |
|
Annualised Ongoing Charges1 |
(24.8) |
(20.6) |
(21.5) |
|
Average NAV2 |
2,047.3 |
1,778.4 |
1,865.0 |
|
Ongoing Charges |
(1.21%) |
(1.15%) |
(1.15%) |
1 The Ongoing Charges ratio was prepared in accordance with the Association of Investment Companies' ('AIC') recommended methodology, noting this excludes non-recurring costs.
2 Average of published NAVs for the relevant period.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
The Company's cash balance of £39.8 million at 30 June 2018 reflects a small increase in the operating cash balance since 31 December 2017, when the cash balance was £33.9 million. Cash receipts from investments were £71.7 million for the six-month period, in comparison with £55.0 million for the corresponding period in 2017, an increase resulting from the recent investment activity in the portfolio. This increase was partially offset by higher recurring operating costs of £12.4 million (30 June 2017: £10.3 million), primarily attributable to the continued growth in value of the portfolio and associated management fees paid to the Investment Adviser.
Financing costs paid during the period decreased to £1.5 million (30 June 2017: £2.3 million) reflecting lower levels of cash drawdowns in the current period compared to the corresponding period in 2017, a direct result of the levels of investment activity seen in the two periods. At 30 June 2018 the credit facility was cash drawn by £24.8 million. At June 2017 there were no cash drawn amounts on the facility due to a capital raise in May 2017 enabling full repayment of the cash drawn balance before the comparative interim balance sheet date.
During the period to 30 June 2018 the cost of new investments was £10.5 million (2017: £323.8 million) with further investments made in the NDIF and BSF Hertfordshire, as well as the final investment being made into Gold Coast Light Rail Phase 2.
The marked reduction in non-recurring operating costs (£0.5 million compared to £7.9 million at 30 June 2017) is predominately due to lower investment activity resulting in lower one-off transaction costs. In addition, non-recurring operating costs in the corresponding period in 2017 included £2.9 million in connection with a one-off adjustment aligning management fee payments to the contractual quarterly payment cycle, rather than the previous practice of bi-annual payments. Fees have since been paid in accordance with the quarterly mechanism. A high level of investment activity was seen in 2017, which included a number of assets under construction. The impact of this investment activity flowing through average NAV and ongoing charges calculations have resulted in an increase in the ongoing charges ratio compared to the corresponding period to June 2017.
The cash dividend paid in the period of £47.9 million was in respect of the six-month period ended 31 December 2017. The increase in comparison with the six months to 30 June 2017 is due to capital raising activity increasing the shareholder base entitled to dividends, the increase in the dividend per share amount, and the fact a scrip alternative was not offered in the current period (the dividend being fully settled in cash). The Company seeks to generate dividends paid to investors through its operating cash flows. Cash dividends were 1.2 times covered by the Company's net cash flows from operations before non-recurring operating costs. The Company remains confident of its ability to continue to grow dividends going forward.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INVESTOR RETURNS
INPP has continued to deliver consistent dividend growth, NAV growth and inflation linkage from underlying cash flows.
DIVIDEND GROWTH AND PERFORMANCE
INPP targets predictable and, where possible, growing dividends. During the period, the Company paid a dividend of 3.41 pence per share relating to the six months ended 31 December 2017. This dividend brings the total dividends paid in respect of 2017 to 6.82 pence per share. The Company forecasts to pay 7.00 pence per share and 7.18 pence per share for 2018 and 2019 respectively. Since inception, the Company has delivered a c.2.50% per annum average dividend increase. INPP's dividend growth is illustrated in the chart on page 2.
Investment income in the period was £79.5 million (30 June 2017: £75.1 million) including fair value movements, dividends and interest. These returns were partially offset by operating expenses (including finance costs) of £14.2 million (30 June 2017: £18.0 million), as shown in the Condensed Consolidated Statement of Comprehensive Income.
Profit before tax was £65.9 million, an increase from the comparable period in 2017 (H1 2017: £57.1 million) due to increased investment income as a result of the growing portfolio. Earnings per share were 4.70 pence (H1 2017: 4.89 pence).
TOTAL SHAREHOLDER RETURN
INPP's Total Shareholder Return (share price growth plus reinvested distributions) for investors since IPO in November 2006 to 30 June 2018 has been 148.6% (8.1% on an annualised basis). This compares to a FTSE All-Share index total return over the same period of 100.4% (6.2% on an annualised basis). INPP has historically exhibited relatively low levels of volatility compared to the market, as evidenced by the graph below showing the Company's share price since IPO against the price performance of the major FTSE indices. As flagged in the Market Environment section, during the current period the Company's share price performance came under pressure as part of a sector-wide shift to the otherwise positive sentiment towards the U.K. listed infrastructure funds. This change in sentiment was driven by increased public attention paid to the assessment of the value for money private sector investment in U.K. public infrastructure provides - and specifically a selection of historical investments unrelated to the Company procured under the Private Finance Initiative - together with the impact of the collapse of Carillion on the sector as a whole.
INPP Share Price Performance
[Chart can be found in PDF version of this document on the Company's website.]
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INFLATION LINKED CASH FLOWS
In an environment where investors are increasingly focused on achieving long-term real rates of return on their investments, inflation protection is an important consideration for the Company. At 30 June 2018, the majority of assets in the portfolio had some degree of inflation linkage and, in aggregate, the weighted average return of the portfolio (before fund-level costs) would be expected to increase by 0.81% per annum in response to a 1.00% per annum increase in the currently assumed inflation rates across the whole portfolio1.
NET ASSET VALUATION AND NAV PER SHARE
The Company reported a 0.89% increase in NAV and NAV per share to £2,056.4 million and 146.3 pence respectively at 30 June 2018 (31 December 2017: £2,038.3 million and 145.0 pence).
The NAV represents the fair value of the Company's 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 2017 and 30 June 2018 are highlighted in the graph that follows and are described in more detail below.
Net Asset Value Movements
[Chart can be found in PDF version of this document on the Company's website.]
1 Represents movements in the forward rates used to translate forecast non-GBP investment receipts and the spot rates used to translate non-GBP cash balances.
2 The NAV return represents, amongst other things, (i) variances in investment cash flows, (ii) the unwinding of the discount factor applied to those cash flows and (iii) changes in the Company's other net assets.
For the six months to 30 June 2018 the majority of government bond yields used in the valuations increased, resulting in a net negative impact on the NAV. This was more than offset by a decrease in the investment risk premia, reflecting market-based evidence of prevailing pricing for the Company's investments.
The reduction in construction risk premia has a positive impact on the NAV and reflects the progression of certain investments through the construction and defects liability periods.
Over the period, sterling weakened against the euro and the U.S. dollar but strengthened against the Australian and Canadian dollars. The net impact over the six months to 30 June 2018 was a small negative impact on the NAV.
The July 2018 takeover bid for JLIF, by a consortium of private infrastructure investors, will be considered at the next valuation date and if deemed necessary, appropriate changes will be made to ensure the valuations continue to reflect the latest market-based evidence of pricing for the Company's investments.
1 Calculated by running a 'plus 1.00%' inflation sensitivity for each investment and solving each investments' discount rate to return the original valuation. The inflation linkage is the increase in the portfolio weighted average discount rate.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
In the first half of 2018, a cash dividend was paid to INPP shareholders totalling £47.9 million.
The NAV Return of £61.3 million captured the impact of the following:
- Unwinding of the discount factor - the movement of the valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received above the forecast amount due to active management of the Company's portfolio, including negotiating and optimising investment cash flows to ensure cash can be extracted from the underlying investments earlier than forecast and optimising utilisation of Group tax loss relief
- Updated cash flow forecasts - updated operating assumptions to reflect current expectations of future cash flows
- Movements in the Company's working capital position
INVESTMENT VALUATION
PROJECTED FUTURE CASH FLOWS
The Company's investments are expected to continue to exhibit predictable cash flows. As the Company has a large degree of visibility over the forecast cash flows of its current investments, the chart below sets out the Company's forecast investment receipts from its current portfolio before fund-level costs.
The majority of the forecast investment receipts are in the form of dividends or interest, and principal payments from senior and subordinated debt investments.
The Company's portfolio comprises both investments with finite lives (determined by concession or licence terms) and perpetual investments that may be held for much longer.
Over the term of investments with finite lives, the Company's receipts from these investments represent a return of capital as well as income, and the fair value of such investments is expected to reduce to zero over time.
Projected Investment Receipts and Investment Valuation
[Chart can be found in PDF version of this document on the Company's website.]
Note: This chart is not intended to provide any future profit forecast. Cash flows shown are projections based on the current individual asset financial models and may vary in the future. Only investments committed as at 30 June 2018 are included.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
PORTFOLIO PERFORMANCE AND RETURN
The valuation of the Company's investment portfolio is determined by the Board, with the benefit of advice from the Investment Adviser and is reviewed by the Company's auditors. It is considered quarterly for approval by the Company's Directors. Investments at fair value as at 30 June 2018 were £2,025.4 million, an increase of 1.0% since 31 December 2017 (£2,005.3 million).
Investments at Fair Value Movements
[Chart can be found in PDF version of this document on the Company's website.]
1 The Portfolio Return represents, amongst other things, (i) variances in both realised and forecast investment cash flows and (ii) the unwinding of the discount factor applied to those future investment cash flows.
2 Represents movements in the forward rates used to translate forecast non-GBP investment receipts and the spot rates used to translate non-GBP cash balances.
The Portfolio Return of £77.3 million represents a 4.0% (8.1% annualised) increase in the rebased Investments at Fair Value and can be attributed to:
- Unwinding of the discount factor - the movement of the valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received above the forecast amount due to active management of the Company's portfolio, including optimising investment cash flows and utilisation of Group tax loss relief
- Updated cash flow forecasts - updated operating and macroeconomic assumptions to reflect current expectations of future cash flows
In addition, there was:
- An increase of £10.5 million in the Investments at Fair Value owing to new investments that were made during the period
- A decrease of £71.7 million due to investment distributions paid out from the portfolio
- A net decrease in the weighted average discount rates across jurisdictions in which the Company invests, leading to a
- £6.3 million increase in the fair value of investments
- A net decrease of £2.3 million due to foreign exchange rate movements in all four currencies the Company is exposed to
MACROECONOMIC ASSUMPTIONS
The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis. Following a thorough market assessment, it was resolved that no adjustments should be made other than to the foreign exchange rates used to value the Company's overseas investments.
The key assumptions used as the basis for deriving the Company's portfolio valuation are summarised overleaf with further details provided in note 9. Across the portfolio, the weighted average long-term inflation assumption as at 30 June 2018 was 2.60% (31 December 2017: 2.60%) and the weighted average deposit rate assumption was 2.11% (31 December 2017: 2.11%). The NAV section above provides further details on the impact of these assumptions on the valuation during the period.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
|
VARIABLE |
BASIS |
30 JUNE 2018 |
31 DECEMBER 2017 |
|
Inflation |
U.K. Australia Europe Canada U.S.1 |
2.75% 2.50% 2.00% 2.00% N/A |
2.75% 2.50% 2.00% 2.00% N/A |
|
Long-term Deposit Rates2 |
U.K. Australia Europe Canada U.S.1 |
2.00% 3.00% 2.00% 2.00% N/A |
2.00% 3.00% 2.00% 2.00% N/A |
|
Foreign Exchange |
GBP/AUD GBP/CAD GBP/EUR GBP/USD |
1.88 1.82 1.07 1.41 |
1.85 1.78 1.08 1.43 |
|
Tax Rate |
U.K. Australia Europe Canada U.S.1 |
17.00% - 19.00%3 30.00% Various (12.50% - 29.58%) Various (26.50% - 27.00%) N/A |
17.00% - 19.00%3 30.00% Various (12.50% - 29.58%) Various (26.50% - 27.00%) N/A |
1 The Company's U.S investments are in the form of subordinated debt and therefore not directly impacted by inflation, deposit and tax rate assumptions.
2 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2019 before adjusting to the long-term rates noted in the table above.
3 The reduction in U.K. tax rates reflects the latest substantively enacted rates at 30 June 2018.
DISCOUNT RATES
The discount rate used to value each investment comprises the appropriate long-term government bond yield plus an investment-specific risk premium. The risk premiums take into account the perceived risks and opportunities associated with each investment.
The majority of the Company's portfolio (91.1%) comprises Risk Capital investments (comprising equity and subordinated debt investments), with the remaining portfolio (8.9%) comprising senior debt investments. To provide investors with a greater level of transparency, the Company publishes both a Risk Capital weighted average discount rate and a portfolio weighted average discount rate, which captures the discount rates of all investments including the senior debt interests.
The weighted average discount rates are presented in the table below. These rates need to be considered against the assumptions and projections upon which the Company's forecast cash flows are based.
|
METRIC |
30 JUNE 2018 |
31 DECEMBER 2017 |
30 JUNE 2017 |
MOVEMENT |
|
Weighted Average Government Bond Yield (Nominal) - Portfolio |
1.85% |
1.83% |
1.74% |
0.02% |
|
Weighted Average Investment Premium over Government Bond Yield (Nominal) - Portfolio |
5.69% |
5.69% |
5.72% |
- |
|
Weighted Average Discount Rate - Portfolio |
7.54% |
7.52% |
7.46% |
0.02% |
|
Weighted Average Discount Rate - Risk Capital only1 |
7.88% |
7.87% |
7.86% |
0.01% |
|
NAV per share |
146.3p |
145.0p |
144.7p |
1.3p |
1 Risk Capital includes both equity and subordinated debt investments.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
In the Company's view, comparisons of average discount rates between competitor investment portfolios or funds are 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. As such, assumptions are unlikely to be homogenous, and any focus on average discount rates without an assessment of these and other factors would be incomplete and could therefore derive misleading conclusions. For transparency and to aid comparability, the Company's approach to such cash flows is set out below.
PORTFOLIO LEVEL CASH FLOW ASSUMPTIONS UNDERLYING NAV CALCULATION
- The Company is aware that there are subtle differences in approach to the valuation of portfolios of investments among different listed infrastructure funds similar to INPP. INPP regards its key cash flow and broad valuation assumptions and principles as:
- Key macroeconomic variables (outlined in the section above) continue to be applicable
- Concession contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated before their contractual expiry date
- Any deductions suffered under such contracts are fully passed down to subcontractors
- Lifecycle costs/risks are either not borne by the Company and are passed down to a third party such as a facilities management contractor or where borne by the Company are incurred per current expectations
- 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 contracts, 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, or where a residual value is assumed for perpetual investments, that the projected amount for this value is realised
- There are no tax or regulatory changes in the future which negatively impact cash flow forecasts
SENSITIVITIES FOR KEY MACROECONOMIC ASSUMPTIONS AND DISCOUNT RATES
The Company's NAV is based on the factors outlined above including discount rates. The Company has also provided sensitivity analysis showing an indication of the impact on NAV per share from changes in key assumptions and discount rates, as set out below. Further details can be found in note 9. This analysis is provided as an indication of the likely impact of these variables on the NAV per share on the basis that they apply uniformly across the portfolio whereas in practice the impact is unlikely to be uniform. These sensitivities should be used only for general guidance and not as accurate predictors of outcomes.
IMPACT OF CHANGES IN KEY MACROECONOMIC VARIABLES TO 30 JUNE 2018 NAV 146.3P PER SHARE
[Chart can be found in PDF version of this document on the Company's website.]
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INFLATION
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 invariably, 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. Additional inflation sensitivities (by region) are provided in note 9.5 of the financial statements.
FOREIGN EXCHANGE
The Company has a geographically varied portfolio and therefore revenues are subject to foreign exchange rate risk. The impact of a 10% increase or decrease in these rates is provided for illustration. The Company does not hedge exposure to foreign exchange rate risk on long-term cash flows and therefore, changes in NAV are to be expected from changes in the foreign exchange forward curve against euros, Australian dollars, Canadian dollars and U.S. dollars.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across the portfolio is 2.11% per annum. While operating cash balances tend to be low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and therefore variations to deposit rates may impact portfolio valuations. The impact of a 1% increase or decrease in these rates is provided for illustration.
TAX RATES
The Company has a geographically diverse portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all relevant jurisdictions. The impact of a 1% increase or decrease in these rates is provided for illustration. Other potential tax changes are not covered by this scenario.
LIFECYCLE SPEND
There is a process of renewal required to keep physical assets fit for use and at the standard required of them under the agreements with the relevant public sector bodies. The proportion of total cost that represents this 'lifecycle spend' will depend on the nature of the asset. To enhance the certainty around cash flows, and excluding the Company's regulated investments, around 81% of the Company's assets (by value) are currently structured such that lifecycle cost risk is taken by a subcontractor for a fixed price (isolating equity investors from such downside risk). As a result, the impact of any changes to the Company's lifecycle cost profile is relatively small.
Regulated assets, such as Tideway and Cadent are treated differently, due to the protections offered by the regulatory regime under which they operate. Regulated assets have their revenues determined for a known regulatory period and each settlement includes revenue sufficient to allow the owner to undertake the efficient lifecycle of its assets due in that regulatory period. It is common practice to employ reputable subcontractors to undertake lifecycle work under contracts which include incentive and penalty regimes aligned with equity's own regulatory targets. This approach ensures an alignment of interest and helps to mitigate the risk of increased lifecycle costs falling on the equity investor.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
PRINCIPAL RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the Group through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group's portfolio.
The Group's approach to risk is set out in the Risk Report of the 31 December 2017 Annual Report and Financial Statements (pages 31 - 41), the Risk Report includes an overview of the principal risks and their mitigation. Risk Factors are also detailed further in the Company's last Prospectus (the Placing, Open Offer and Offer for Subscription and Placing Programme Prospectus published on 12 April 2017). These risks and uncertainties are expected to remain relevant to the Group for the next six months of its financial year and include (but are not limited to):
- Inflation risk - Revenues and expenditures of project entities with respect to infrastructure assets are generally partially or wholly subject to indexation and an assumption is made that inflation will increase at a long-term rate. The Group's ability to meet targets may be adversely or positively impacted by inflation
- Foreign exchange risk - The Group has 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 Group and the risk of default under contract whether by the Group, its subsidiaries or it or their counterparties
- Other external risks - Includes the political and regulatory risks (including tax and accounting policies and practices) associated with the Group and its projects; IT and cyber risks; and changes in the competitive environment which may have an adverse impact on the Group
The Board considers and reviews the risks that the Group is exposed to on a regular basis.
By order of the Board
Rupert Dorey John Le Poidevin
Chairman Director
5 September 2018 5 September 2018
CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
OUR APPROACH
Social responsibility and corporate citizenship are core to our business. As part of our commitment to being good stewards of the public infrastructure assets that we own and help manage, we aim to create value for clients, investors, shareholders, communities and society alike. This is achieved by taking responsibility for our actions, outcomes and reputation; a philosophy which is embedded into the Company's objectives and, through its Investment Adviser, Amber Fund Management Limited ('Amber'), its day-to-day business culture and operations.
As part of its overall approach to corporate governance, which is set out in detail in the Company's 2017 Annual Report, the Company, and Amber, promote best practice and continuous improvement in environmental management and social responsibility across the portfolio. In particular, the Investment Adviser's Sustainability Policy looks beyond merely legislative and regulatory requirements and has three principles at its core. These are:
1. Supporting projects which contribute to long-term sustainable development;
2. Ensuring analysis of the socio-economic and the environmental impact of its assets and their supply chain is embedded in its development, investment and management decision making, and;
3. Encouraging and promoting sustainable practices for all stakeholders at the businesses and facilities in which INPP invests and in the communities that it serves.
The Company seeks to maintain a high standard of project stewardship across its portfolio. The most material impacts of our sustainability approach are evident through the environmental and social performance of the construction and operation of the buildings and infrastructure that the Company invests in.
To illustrate our approach, we have identified five key areas of impact across the portfolio recognising the broader contribution of the Company's investments and the social value delivered to the public end users.
[Chart can be found within the PDF document of the report on the company website.]
COMMITMENT TO PROTECTING THE ENVIROMENT
· 93.5% of major subcontractors comprised (by NAV) are
ISO 14001 Accredited
· 1 GW Offshore wind energy transported
· 61% Greenhouse Gas ('GHG') reduction achieved at Cadent]1
The Company actively works with commissioning authorities and construction partners to ensure that the environmental impact of the Company's assets are considered from the outset, and equally importantly areas for improvement are regularly assessed throughout the operational phase of the projects.
Throughout the Company's period of ownership of its investments, the Company seeks to encourage innovative initiatives that can be developed and promoted to reduce an investment's environmental impact. For example, Cadent, the gas distribution business that the Company is invested in, has taken an active role in exploring options to decarbonise transport. Last year, Cadent commissioned a project in Leyland to convert the Waitrose transport fleet to compressed natural gas ('CNG'), alongside the John Lewis Partnership and CNG Fuels. This pilot project demonstrated a reduction in carbon emissions and is a substantially better alternative in terms of air quality, in comparison to diesel. Demand at Leyland has risen as other retail and logistics firms recognise the mileage that a modern CNG fleet can achieve between refuelling. The cost is comparable to diesel, however, with significantly better environmental benefits. This also contributes to Cadent's aim to reduce its greenhouse gas emissions ('GHG'); noting it has achieved a 61% GHG reduction ahead of its target of 45% by 2020.
The Company also recognises that it is equally important that a project's environmental impact is considered at the outset of the construction phase to ensure high standards of energy efficiency. For example, where our schools are certified BREEAM, they are all rated 'Very Good' or above. BREEAM is an internationally recognised environmental management standard which monitors factors such as reduction in energy consumption, waste disposal and material use throughout the supply chain of individual buildings and infrastructure projects. In Canada, all assets have achieved Leadership in Energy and Environmental Design ('LEED') Silver certification or above.
The commitment to environment is demonstrated by the Company's approach to the selection of its construction and facilities management partners. Of the major subcontractors delivering services to INPP's assets 93.5% (by NAV) are ISO 14001 Environment Management accredited, providing assurance that environmental impact is being measured and improved.
Many of our investments support renewable technologies. The most significant examples of these are the offshore transmission projects, which transport the energy generated by U.K. offshore wind farms. These projects, in aggregate, deliver around 1 GW per annum of green energy powering the equivalent of around 650,000 homes and hence contributing to the ongoing decarbonisation of the grid and reducing the U.K.'s dependence on fossil fuels.
Through the Company's investment in the Tideway project, which aims to reduce an estimated 39 million4 tonnes p.a. of storm sewerage that currently enters the River Thames, the Company is involved in one of the largest environmental rectification projects in the U.K. It will reduce the sewage related litter in the river helping to clean the river and encourage new habitats for wildlife in and around the River Thames.
In addition to the initiatives being undertaken in the Company's portfolio, Amber is focused on reducing its impact on the environment. Amber is certified to the Planet Mark, an internationally recognised accreditation scheme which allows Amber to measure and manage the carbon footprint of Amber as an organisation. As part of the scheme Amber is committed to reducing its carbon emissions.
SUPPORTING PUBLIC SECTOR CLIENTS
· >150,000 number of pupils being educated at schools within the portfolio
· 99.6% asset availability3
The Company's investments by their very nature support the public sector and the wider communities in which they operate. Working for the benefit of the communities in which we invest is fundamental to the ongoing success of each of our investments.
Stakeholder engagement is a key part of supporting our public-sector clients and the Company's 'hands-on' approach facilitates a strong collaborative relationship that generates mutual benefits. During the first half of 2018, 4153 management meetings were held with the public sector equating to one meeting a month for each asset. By maintaining an intimate understanding of the projects and engaging extensively with the public sector that uses them, the Company is better positioned to determine the risks and opportunities that may occur.
Ensuring that the facilities the Company provides are available for their intended use, that areas are safe and secure, and that the performance standards set out in the underlying agreements are achieved is critically important for the Investment Adviser. The availability and performance data for the Company's investments are monitored and appraised regularly to assess the overall performance of each investment. For those assets that are measured by availability, the asset availability was 99.6%3, equating to over 269,0003 operating hours over the first half of 2018, demonstrating the Company's hands-on approach positively impacts the service that is delivered to the end-user.
Education assets within the portfolio represent c.20% of the Company by value and these provide accommodation to over 150,000 pupils, bringing social value to the local communities in which they are based. Catering facilities are provided to 20 U.K. based schools through the supply chain, and since the beginning of the year, our supply chain has prepared in excess of 222,000 free school meals. By ensuring that eligible children receive a healthy and balanced meal, students' wellbeing is enhanced, and a positive learning environment created. Across the INPP U.K. school estate, 79% of the portfolio achieved an OFSTED rating of 'Good' or above.
COMMITMENT TO SKILLS AND EMPLOYMENT
· 2,396 people in full-time equivalent ('FTE') employment in managing the assets3
· >26,000 training days provided to Cadent4
The socio-economic impact of the Company's assets and its supply chain are a key factor of the projects long-term success. As a result of the Company operating its accommodation-based assets, it indirectly provides 2,3963 full time jobs.
We actively engage with our partners and subcontractors to promote a high level of employee satisfaction within the underlying businesses. A key indicator of employee satisfaction is staff retention - our facilities managers' subcontractors have a high level of employee retention.
The professional development of staff and providing skills training is essential. For instance, Cadent, delivered around 26,0001,4 training days in 2017 / 2018 across its total workforce. Training and professional development can increase staff motivation and efficiency, leading to improved operational performance and strong employee retention and development.
The Company also commits to specific initiatives where they demonstrate a strong business case. As an example, INPP and Amber contributed $A15,000 to support a YMCA programme in Melbourne, Australia. The programme helps recently released youth offenders return to work with the aim of substantially reducing their risk of recidivism by directly employing them in the YMCA's own skilled maintenance company ReBuild or alternatively, through employment with supportive third parties. Through the training and support that YMCA also provides these programmes make a significant positive impact to these young men, women, their families and the wider community.
HEALTH, SAFETY & WELLBEING
· 36%3,5 below the Health & Safety Executive's ('HSE') Accident Incident Rate ('AIR') industry benchmark
· 90% of material excavated from tunnels will be exported by river in the Tideway project2
Health, safety and wellbeing are a priority for the Company through the supply chain, the operating facilities and the construction sites that the Company invests in. Amber reports on the health and safety of the Company's assets on a quarterly basis.
The Company promotes a pro-active approach to ensuring that all parties are aware of their health and safety obligations. The Company's Accident Incident Rate for facilities in which the Company invests is 2093,5 per 100,000 full-time equivalent ('FTE') employees, which is below the Health & Safety Executive's benchmark for comparable industries of 328, this is the equivalent to 36% reduction to the benchmark.
As part of Tideway's commitment to creating value for its stakeholders, one of its identified targets is delivering transformational health, safety and wellbeing for its workforce and the public they work amongst. To demonstrate this, Tideway achieved second place for a medium-sized organisation in the new entrant category for Vitality's Britain's Healthiest Workplace 20176 competition and won the Evening Standard's Corporate Citizen of the Year award7.
In addition, Tideway aims to use the river where possible to rejuvenate London's 'river economy'. This includes utilising the river as a transport artery, by transporting 200,0003 tonnes of excavated spoil and 130,0004 tonnes of material by barge. In turn, this also reduces congestion and creates a safer environment for road users.
Ensuring that its customers are safe is a core component of Cadent's business, and this can be seen being delivered with its teams issuing safety advice to 116,4391 customers, warning them of the dangers and signs of carbon monoxide. As well as working with individuals, they work closely with Fire and Rescue services, council, housing associations and other groups to reach Cadent's customers.
INVESTING IN THE COMMUNITY
· 83,000 hours of additional community use provided
· 72% staff employed at our facilities live in the local community3
Through our investments, the Company seeks to work with the local communities where it invests and deliver additional socio-economic benefits where possible.
72.1%3 of those employed on the Company's projects live within an 8km radius of the project sites, providing local employment within the wider community. This provides reinvestment and opportunities in the areas and jurisdictions where the projects are situated.
Across the Company's investments, 83,000 additional hours of community use have been facilitated to support local groups. For example, the Company's schools in Calderdale and Derby offer a central hub that is used by the wider community outside school hours. The facilities used by local community groups, businesses and charities include:
· The main hall at Outwood Academy is used by the local church for its Sunday services, with over 250 users attending
· Halifax High in Calderdale engages with the 'Unique Community Hub', a local charity which is part of a local mosque that often uses the facilities.
Similarly, the Victorian Schools project in Melbourne, Australia, provides an additional 2,200 sqm of internal space to serve as community hubs across the 11 sites developed. These areas provide flexible, multipurpose spaces for the school, but can also be utilised by the community outside of school hours. Community use includes sports, recreational activities, adult learning and child care for over 10,000 hours in 2017. As a long-term investor, it is important that the Company's investments bring benefits to the areas that it is invested.
Volunteering, supporting charities and community-based initiatives are a priority at a number of the Company investments. For example, staff across the Tideway project volunteered a total of over 7,012 hours in 2017 / 2018. Volunteering activities included fish sampling with the Zoological Society of London to on-water rowing sessions for children with London Youth Rowing contributing over 13.92 community volunteer hours per project staff (including both Tideway and the Main Works Contractors).
Please note that all metrics exclude the digital infrastructure investments (held in a fund structure), Brescia Hospital, Italy, (where we do not provide asset management services) and U.S. Military Housing (where only senior debt is held).
1. Source: Cadent Annual Report (2017 / 2018), various pages.
2. Source: Tideway Annual Report (2017 / 2018), various pages.
3. Only applicable for projects where the Investment Adviser provides oversight of the management services. Where applicable, jobs referred to are employees of the Company's facilities management subcontractors and not of the Company or its subsidiaries.
4. Cadent alone provided over 26,000 training days (source: Cadent Annual Report 2017 / 2018) and additional training was provided at the Company's other assets and investments.
5. Applicable to non-fatal accidents resulting in absence of 7 days and over for INPP's facilities management -subcontractors (per 100,000) FTE employees.
6. http://www.vitality.co.uk/business/healthiest-workplace/results.
BOARD OF DIRECTORS
The table below details all Directors of the Company as at 30 June 2018.
|
BACKGROUND AND EXPERIENCE |
|
|
||||
|
Rupert Dorey1 Chairman Chairman, Investment Committee |
John Whittle1 Senior Independent Director Chairman, Audit and Risk Committee (until 30 June 2018 |
John Le Poidevin1 Chairman, Audit and Risk Committee (from 1 July 2018)
|
John Stares1 Chairman, Risk Sub-Committee Chairman, Nomination and Remuneration Committee |
Claire Whittet1 Chairman, Management Engagement Committee |
Giles Frost |
Julia Bond OBE1
|
|
Aged 58 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 U.K. Credit and Rates Sales. Since 2005 Rupert has been a non-executive director for a number of hedge funds, private equity and infrastructure funds. He is a member of the Institute of Directors. |
Aged 63, John is a resident of Guernsey. John is a Fellow of the Institute of Chartered Accountants in England and Wales 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 administrator. Prior to moving to Guernsey, John was at Price Waterhouse in London before embarking on a career in business services, predominantly telecoms. |
Aged 48, and a resident of Guernsey, John has over 25 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 he held a number of leadership roles, including Head of Consumer Markets, where he developed an extensive breadth of experience and knowledge across the real estate, leisure and retail sectors in the U.K. and overseas. John is a non-executive director on several plc boards and chairs a number of audit committees. |
Aged 67 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 63 and a resident of Guernsey, Claire has 40 years' experience in the banking industry with Bank of Scotland, Bank of Bermuda and Rothschild Bank International where she was latterly, Managing Director and co-Head until May 2016 when she became a non-executive director of the bank. She is also non-executive director of five other listed funds. Claire is a member of the Chartered Institute of Bankers in Scotland, the Chartered Insurance Institute, is a Chartered Banker, a member of the Institute of Directors and holds the Institute of Directors Diploma in Company Direction. |
Aged 55 and a resident in the United Kingdom, Giles is a founder and Director of Amber Infrastructure 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 Ltd, the ultimate holding company of the Investment Adviser to the Company and various of its subsidiaries. |
Aged 59 and a resident in the United Kingdom, Julia has 27 years' experience of capital markets in the financial sector and held senior positions within Credit Suisse including Head of One Bank Delivery and Global Head of Sovereign Wealth funds activity. Julia is currently a non-executive director and trustee of several governmental bodies and charities including the Supervisory and Management Board of the British Foreign and Commonwealth Office and a non-executive advisor to the CEO of the Association of Certified Chartered Accountants. |
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DATE OF APPOINTMENT |
|
|||||
|
2 August 2006 |
6 August 2009 |
1 January 2016 |
28 August 2013 |
10 September 2012 |
2 August 2006 |
1 September 2017 |
1 All of the Independent Directors are members of all Committees.
|
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS |
|
|||||
|
Rupert Dorey AP Alternative Assets LP Cinven Capital Management V, VI Ltd and Cinven General Partner Ltd. NB Global Floating Rate Income Fund Ltd M&G General Partner Inc. Tetragon Financial Group Limited |
John Whittle Aberdeen Frontier Markets Investment Company Ltd Globalworth Real Estate Investments Ltd GLI Finance Ltd India Capital Growth Fund Ltd Starwood European Real Estate Finance Ltd Chenavari Toro Income Fund Ltd |
John Le Poidevin Aurigny Air Services Ltd BH Macro Ltd Safecharge International Group Ltd Stride Gaming plc |
John Stares Terra Firma (Guernsey-based entities) Governor of More House School New Philanthropy Capital (Trustee) |
Claire Whittet BH Macro Ltd Eurocastle Investment Ltd Riverstone Energy Ltd TwentyFour Select Monthly Income Fund Ltd Third Point Offshore Investors Ltd |
Giles Frost Giles is also a Director of a number of the Company's subsidiary and investment holding entities and of other entities in which the Company has an investment. He does not receive Directors' fees from such roles for the Company. |
Julia Bond OBE European Assets Trust ('EAT')
|
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the half year Financial Report in accordance with applicable law and regulations. The Directors confirm to the best of their knowledge:
a) The condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting';
b) The interim financial and operating review includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
c) The interim financial and operating review includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board
Rupert Dorey John Le Poidevin
5 September 2018 5 September 2018
Chairman Director
INDEPENDENT REVIEW 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 2018 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement and the related notes 1 to 18. We have read the other information contained in the half-yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (U.K. 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 International Financial Reporting Standards ('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 (U.K. 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 (U.K. 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 2018 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
5 September 2018
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2018
|
|
|
Notes |
Six months ended £'000s |
Six months ended £'000s |
|
Interest income |
|
4 |
35,224 |
33,752 |
|
Dividend income |
|
4 |
13,161 |
10,294 |
|
Net change in investments at fair value through profit or loss |
|
4 |
31,115 |
31,023 |
|
Total investment income |
|
|
79,500 |
75,069 |
|
Other operating income / (expense) |
|
5 |
673 |
(45) |
|
Total income |
|
|
80,173 |
75,024 |
|
|
|
|
|
|
|
Management costs |
|
15 |
(11,278) |
(9,683) |
|
Administrative costs |
|
|
(761) |
(851) |
|
Transaction costs |
|
15 |
(168) |
(4,735) |
|
Directors' fees |
|
|
(169) |
(157) |
|
Total expenses |
|
|
(12,376) |
(15,426) |
|
Profit before finance costs and tax |
|
|
67,797 |
59,598 |
|
|
|
|
|
|
|
Finance costs |
|
6 |
(1,858) |
(2,526) |
|
Profit before tax |
|
|
65,939 |
57,072 |
|
|
|
|
|
|
|
Tax credit |
|
7 |
55 |
1,103 |
|
Profit for the period |
|
|
65,994 |
58,175 |
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
From continuing operations |
|
|
|
|
|
Basic and diluted (pence) |
|
8 |
4.70 |
4.89 |
All results are from continuing operations in the period.
All income is attributable to the equity holders of the parent. There are no non-controlling interests within the consolidated Group.
There are no other Comprehensive Income items in the current period (June 2017: 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 2018
|
|
Notes |
Share Capital |
Other Distributable Reserve |
Retained Earnings |
Total |
|
|
|
£'000s |
£'000s |
£'000s |
£'000s |
|
Balance at 31 December 2017 |
|
1,441,048 |
182,481 |
414,769 |
2,038,298 |
|
|
|
|
|
|
|
|
Total comprehensive income |
|
- |
- |
65,994 |
65,994 |
|
|
|
|
|
|
|
|
Issue of Ordinary shares |
13 |
- |
- |
- |
- |
|
Issue costs applied to new shares |
13 |
- |
- |
- |
- |
|
Distributions in the period |
13 |
- |
- |
(47,925) |
(47,925) |
|
Balance at 30 June 2018 |
|
1,441,048 |
182,481 |
432,838 |
2,056,367 |
SIX MONTHS ENDED 30 JUNE 2017
|
|
|
Share Capital |
Other Distributable Reserve |
Retained Earnings |
Total |
|
|
|
£'000s |
£'000s |
£'000s |
£'000s |
|
Balance at 31 December 2016 |
|
1,029,387 |
182,481 |
391,785 |
1,603,653 |
|
|
|
|
|
|
|
|
Total comprehensive income |
|
- |
- |
58,175 |
58,175 |
|
|
|
|
|
|
|
|
Issue of Ordinary shares |
|
333,657 |
- |
- |
333,657 |
|
Issue costs applied to new shares |
|
(4,923) |
- |
- |
(4,923) |
|
Distributions in the period |
|
- |
- |
(37,487) |
(37,487) |
|
Balance at 30 June 2017 |
|
1,358,121 |
182,481 |
412,473 |
1,953,075 |
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 30 JUNE 2018
|
|
Notes |
|
|
30 June 2018 |
31 December 2017 |
|
Non-current assets |
|
|
|
|
|
|
Investments at fair value through profit or loss |
9 |
|
|
2,025,443 |
2,005,292 |
|
Total non-current assets |
|
|
|
2,025,443 |
2,005,292 |
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
9,11 |
|
|
25,073 |
26,963 |
|
Cash and cash equivalents |
9 |
|
|
39,827 |
33,850 |
|
Total current assets |
|
|
|
64,900 |
60,813 |
|
Total assets |
|
|
|
2,090,343 |
2,066,105 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
9, 12 |
|
|
8,521 |
8,303 |
|
Derivative financial instruments |
9 |
|
|
664 |
1,704 |
|
Total current liabilities |
|
|
|
9,185 |
10,007 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Bank loans |
6, 9 |
|
|
24,791 |
17,800 |
|
Total non-current liabilities |
|
|
|
24,791 |
17,800 |
|
Total liabilities |
|
|
|
33,976 |
27,807 |
|
Net assets |
|
|
|
2,056,367 |
2,038,298 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Share capital |
13 |
|
|
1,441,048 |
1,441,048 |
|
Other distributable reserve |
13 |
|
|
182,481 |
182,481 |
|
Retained earnings |
13 |
|
|
432,838 |
414,769 |
|
Equity attributable to equity holders of the parent |
|
|
|
2,056,367 |
2,038,298 |
|
Net assets per share (pence per share) |
14 |
|
|
146.3 |
145.0 |
The financial statements were approved by the Board of Directors on 5 September 2018.
They were signed on its behalf by:
Rupert Dorey - John Le Poidevin
Chairman - Director
5 September 2018
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2018
|
|
Notes |
|
Six months ended £'000s |
Six months ended £'000s |
|
Profit from operating activities before tax1 |
|
|
65,939 |
57,072 |
|
Adjusted for: |
|
|
|
|
|
Gain on investments at fair value through profit or loss |
4 |
|
(31,115) |
(31,023) |
|
Unrealised foreign exchange gain |
|
|
(3) |
(11) |
|
Finance costs2 |
6 |
|
1,858 |
2,526 |
|
Fair value movement on derivative financial instruments |
5 |
|
(1,039) |
(1,319) |
|
Working capital adjustments |
|
|
|
|
|
Decrease in receivables |
|
|
1,717 |
3,072 |
|
Increase / (decrease) in payables |
|
|
217 |
(2,581) |
|
|
|
|
37,574 |
27,736 |
|
Income tax (paid) / received3 |
|
|
(204) |
2,632 |
|
Net cash flow from operations4 |
|
|
37,370 |
30,368 |
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
Acquisition of investments at fair value through profit or loss |
10 |
|
(10,504) |
(323,768) |
|
Funds advanced to affiliated entities5 |
|
|
- |
(1,405) |
|
Net repayments from investments at fair value through profit or loss |
|
|
21,468 |
6,516 |
|
Net cash flow from investing activities |
|
|
10,964 |
(318,657) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Proceeds from issue of shares net of issue costs |
|
|
- |
325,176 |
|
Dividends paid |
13 |
|
(47,925) |
(33,829) |
|
Finance costs paid2 |
|
|
(1,458) |
(2,343) |
|
Loan drawdowns2 |
|
|
6,991 |
- |
|
Net cash flow from financing activities |
|
|
(42,392) |
289,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
5,942 |
715 |
|
Cash and cash equivalents at beginning of period |
|
|
33,850 |
70,981 |
|
Exchange gain/ (loss) on cash and cash equivalents |
|
|
35 |
(68) |
|
|
|
|
|
|
|
Cash and cash equivalents at end of period6 |
|
|
39,827 |
71,628 |
1 Includes interest received of £36.3 million and dividends received of £13.2 million.
2 These are cash flows and non-cash flows for financing liabilities in accordance with IAS 7, 44A-E.
3 Cash flows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
4 Net cash flows from operations above are reconciled to operating cash flows as shown in the Finance and Operating Review on pages 18 and 19.
5 Funds advanced to affiliated entities to facilitate financial close of investments around the balance sheet date.
6 Includes restricted cash of £nil (June 2017: £43.6 million) which can only be utilised for new investments.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED 30 JUNE 2018
1. BASIS OF PREPARATION
International Public Partnerships Limited ('INPP') is a closed ended authorised investment company incorporated in Guernsey under the Companies (Guernsey) Law, 2008. The address of the registered office is given on the inside back cover. The nature of the Group's ('Parent and consolidated subsidiary entities') operations and its principal activities are set out on pages 3 and 9 respectively.
These financial statements are presented in pounds Sterling as this is the currency of the primary economic environment in which the Group operates and represents the functional currency of the Parent and all values are rounded to the nearest (£'000), except where otherwise indicated.
The financial information for the year ended 31 December 2017 included in this half-yearly Financial Report is derived from the 31 December 2017 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 INPP 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 2017, 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 2017. The new and revised IFRS and interpretations becoming effective in the period (including IFRS 9 and IFRS 15) have had no material impact on the accounting policies of the Group.
The Directors have determined that INPP is an investment entity as defined by IFRS 10 on the basis that the Company:
a) obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services;
b) commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
c) measures and evaluates the performance of substantially all of its investments on a fair value basis.
Accordingly, these 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, and that are not themselves investment entities. Subsidiaries that do not provide investment-related services are required to be measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments.
GOING CONCERN
The Directors have reviewed cash flow forecasts prepared by management. Based on those forecasts and an assessment of the Group's ('Parent and consolidated subsidiary entities') committed banking facilities, they have concluded that it is appropriate to prepare the financial statements of the Group on a going concern basis.
In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted cash of £39.8 million as at 30 June 2018. The Company continues to fully cover operating costs and distributions from underlying cash flows from investments. Of the Company's corporate debt facility of £400 million, £374.0 million was uncommitted as at 30 June 2018, and is available for investment in new and existing projects until July 2021. In addition, a portion of the facility can be utilised for working capital purposes. The facility is forecast to continue in full compliance with the associated banking covenants.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
2. Significant Judgements and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments, the consolidated financial statements incorporate the financial statements of the Company and service entities controlled by the Company up to 30 June 2018, that themselves do not meet the definition of an investment entity. Typically, a service entity provides management services, strategic advice and financial support to investee entities. Judgement is therefore required in assessing which entities meet these definitional requirements. The Directors have reviewed and assessed the criteria applied in the assessment of services entities based on the guidance in place as at 30 June 2018 and are satisfied with the resulting conclusion.
Fair valuation of investments at fair value through profit or loss
Fair values are determined using the income approach which discounts the expected cash flows at a rate appropriate to the risk profile of each investment. In determining the discount rate, relevant long-term government bond yields, specific investment risks and evidence of recent transactions are considered. Details of the valuation process and key sensitivities are provided in note 9.
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating decision makers, the Group has identified four reportable segments based on the geographical risk associated with the jurisdictions in which the Group operates. The factors used to identify the Group's reportable segments are centred on the risk free rates and the maturity of the Infrastructure sector within each region. Further, foreign exchange and political risk is identified, as these also determine where resources are allocated. Management has concluded that the Group is currently organised into four operating segments being U.K., Europe (excl. U.K.), North America (incorporating U.S. and Canada) and Australia.
|
|
|
Six months ended 30 June 2018 |
||||
|
|
U.K. £'000s |
Europe (Excl. U.K.) £'000s |
North America £'000s |
Australia £'000s |
Total £'000s |
|
|
Segmental results |
|
|
|
|
|
|
|
Dividend and interest income |
36,265 |
3,283 |
4,090 |
4,747 |
48,385 |
|
|
Fair value gain / (loss) on investments |
23,725 |
8,719 |
(21) |
(1,308) |
31,115 |
|
|
Total investment income |
59,990 |
12,002 |
4,069 |
3,439 |
79,500 |
|
|
Reporting segment profit1 |
45,812 |
12,310 |
4,129 |
3,743 |
65,994 |
|
|
Segmental financial position |
|
|
|
|
|
|
|
Investments at fair value |
1,443,639 |
279,336 |
97,988 |
204,480 |
2,025,443 |
|
|
Current assets |
64,900 |
- |
- |
- |
64,900 |
|
|
Total assets |
1,508,539 |
279,336 |
97,988 |
204,480 |
2,090,343 |
|
|
Total liabilities |
(33,976) |
- |
- |
- |
(33,976) |
|
|
Net assets |
1,474,563 |
279,336 |
97,988 |
204,480 |
2,056,367 |
|
1 Reporting segment results are stated net of operational costs including management fees.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
3. SEGMENTAL REPORTING (continued)
|
|
|
Six months ended 30 June 2017 |
||||
|
|
U.K. £'000s |
Europe (Excl. U.K.) £'000s |
North America £'000s |
Australia £'000s |
Total £'000s |
|
|
Segmental results |
|
|
|
|
|
|
|
Dividend and interest income |
33,544 |
4,136 |
4,397 |
1,969 |
44,046 |
|
|
Fair value gain on investments |
11,460 |
13,466 |
126 |
5,971 |
31,023 |
|
|
Total investment income |
45,004 |
17,602 |
4,523 |
7,940 |
75,069 |
|
|
Reporting segment profit1 |
28,156 |
17,802 |
4,388 |
7,829 |
58,175 |
|
|
Segmental financial position |
|
|
|
|
|
|
|
Investments at fair value |
1,402,692 |
260,731 |
100,583 |
100,837 |
1,864,843 |
|
|
Current assets |
99,428 |
- |
- |
- |
99,428 |
|
|
Total assets |
1,502,120 |
260,731 |
100,583 |
100,837 |
1,964,271 |
|
|
Total liabilities |
(11,196) |
- |
- |
- |
(11,196) |
|
|
Net assets |
1,490,924 |
260,731 |
100,583 |
100,837 |
1,953,075 |
|
1 Reporting segment results are stated net of operational costs including management fees.
Revenue from investments which individually represent more than 10% of the Group's interest and dividend income approximates £10.8 million (June 2017: £6.0 million).
4. Investment Income
|
|
Six months ended |
Six months |
|
Interest income |
|
|
|
Interest on investments |
35,224 |
33,748 |
|
Interest on bank deposits |
- |
4 |
|
Total interest income |
35,224 |
33,752 |
|
|
|
|
|
Dividend income |
13,161 |
10,294 |
|
Net change in fair value of investments at fair value through profit or loss |
31,115 |
31,023 |
|
Total investment income |
79,500 |
75,069 |
Dividend and interest income includes that from transactions with unconsolidated subsidiary entities. Changes in investments at fair value through profit or loss are also recognised in relation to the Group's investments in unconsolidated subsidiaries.
5. Other Operating INCOME / (Expense)
|
|
Six months ended |
Six months |
|
|
|
|
|
|
|
Fair value gain) on foreign exchange contracts |
1,039 |
1,319 |
|
|
Other losses on foreign exchange movements |
(366) |
(1,364) |
|
|
Total other operating income / (expense) |
673 |
(45) |
|
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
6. Finance Costs
Interest bearing loans and overdrafts are initially recorded as the proceeds received net of any directly attributable issue costs. Subsequent measurement is at amortised cost, with borrowing costs recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred, using the effective interest rate method. Arrangement fees are amortised over the term of the corporate debt facility.
Finance costs for the period were £1.9 million (June 2017: £2.5 million). The Group has a corporate debt facility of £400 million provided by Royal Bank of Scotland, National Australia Bank, Barclays Bank and Sumitomo Mitsui Banking Corporation ('SMBC'). The drawdowns in the period were in the form of cash drawdowns and issuance of letters of credit. Cash drawdowns were used to fund investments and the letter of credit drawdowns were used to back the Group's commitment to specific future cash investments. As at June 2018 the facility was £24.8 million cash drawn. The uncommitted balance of the facility which was not cash drawn or notionally drawn via letters of credit, was £374.0 million.
The facility was renewed in July 2018 on improved terms. The interest rate margin on the corporate debt facility is 165 (previously 175) basis points over Libor. The loan facility matures in July 2021 and is secured over the assets of the Group.
7. Tax
|
|
Six months ended |
Six months |
|
Current tax: |
|
|
|
U.K. corporation tax credit - current period |
(216) |
(1,316) |
|
U.K. corporation tax credit - prior period |
(2) |
- |
|
Other overseas tax - current period |
43 |
213 |
|
Other overseas tax - prior period |
120 |
- |
|
Tax credit for the period |
(55) |
(1,103) |
Reconciliation of effective tax rate
|
|
Six months ended |
Six months |
|
Profit before tax |
65,939 |
57,072 |
|
Exempt tax status in Guernsey |
- |
- |
|
Application of overseas tax rates |
43 |
213 |
|
Group tax losses surrendered to unconsolidated investee entities |
(216) |
(1,316) |
|
Adjustment to prior year |
118 |
- |
|
Tax credit for the period |
(55) |
(1,103) |
The income tax credit above does not represent the full tax position of the entire Group as the investment returns received by the Company are net of tax payable at the underlying investee entity level. As a consequence of the adoption of IFRS 10 Investment Entity Consolidation Exception, underlying investee entity tax is not consolidated within these financial statements. Total forecasted corporation tax payable by the Group's underlying investments is in excess of £1 billion (June 2017: £824 million) over their full investment lives.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
8. Earnings Per Share
The calculation of basic and diluted earnings per share is based on the following data:
|
|
Six months ended |
Six months |
|
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent |
65,994 |
58,175 |
|
|
Number |
Number |
|
Weighted average number of Ordinary shares for the purposes of basic and diluted earnings per share |
1,405,420,125 |
1,188,496,012 |
|
Basic and diluted (pence) |
4.70 |
4.89 |
The denominator for the purposes of calculating both basic and diluted earnings per share is the same as the Group has not issued any share options or other instruments that would cause dilution.
9. Financial Instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IFRS 9 Financial Instruments. Financial liabilities are derecognised when the obligation is discharged, cancelled or expired.
9.1 Financial assets
|
|
30 June 2018 £'000s |
31 December 2017 £'000s |
|
Investments at fair value through profit and loss1 |
2,025,443 |
2,005,292 |
|
Financial asset loans and receivables |
|
|
|
Trade and other receivables |
25,073 |
26,963 |
|
Cash and cash equivalents |
39,827 |
33,850 |
|
Total financial assets |
2,090,343 |
2,066,105 |
1 Includes fair value of investments in associates amounting to £2.3 million (December 2017: £2.4 million). Movements in the period represent additional fair value gains offset by net repayments from investments.
9.2 FINANCIAL LIABILITIES
|
|
30 June 2018 £'000s |
31 December 2017 £'000s |
||
|
Financial liabilities at amortised cost |
|
|
||
|
Trade and other payables |
8,521 |
8,303 |
||
|
Bank loans |
24,791 |
17,800 |
||
|
Derivative financial instruments |
|
|
|
|
|
Foreign exchange contracts |
664 |
1,704 |
||
|
Total financial liabilities |
33,976 |
27,807 |
||
9. FINANCIAL INSTRUMENTS (CONTINUED)
9.3 FINANCIAL RISK MANAGEMENT
The Group's objective in managing risk is the protection of shareholder value. Risk is inherent in the Group's activities and is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Group's continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and inflation risk), credit risk and liquidity risk arising from the financial instruments it holds. The Group's Investment Adviser is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Adviser and is ultimately responsible for the overall risk management of the Group.
The Group's risk management framework and approach is set out within the Strategic Report, part of the Annual Report. The Board takes into account market, credit and liquidity risks in forming the Group's risk management strategy.
Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as changes in inflation, foreign exchange rates and interest rates.
Inflation risk
The majority of the Group's cash flows from underlying investments are linked to inflation indices. Changes in inflation rates can have a positive or negative impact on the Group's cash flows from investments. The long-term inflation assumptions applied in the Group's valuation of investments at fair value through profit or loss are disclosed in the fair value hierarchy section 9.4.
The Group's portfolio of investments has been developed in anticipation of continued inflation at or above the levels used in the Group's valuation assumptions. Where inflation is at levels below the assumed levels for a sustained period of time, investment performance may be impaired. The level of inflation linkage across the investments held by the Group varies and is not consistent.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying borrowings within the unconsolidated investee entities are either hedged through interest rate swap arrangements or are fixed rate loans. For example, it is generally a requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. However, particularly in Australia, refinancing risk exists in a number of such investments. Hedging activities are aligned with the period of the loan, which also mirrors the concession period and are highly effective. For certain regulated assets, the risk of adverse movements in interest rates is limited through protections provided by the regulatory regime. The Group's corporate debt facility is unhedged on the basis it is utilised as an investment bridging facility and therefore drawn for a relatively short period of time. Therefore, the Group is not significantly exposed to cash flow risk due to changes in interest rates over its variable rate borrowings.
Interest income on bank deposits held within underlying investments is included within the fair value of investments.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
9. FINANCIAL INSTRUMENTS (CONTINUED)
9.3 FINANCIAL RISK MANAGEMENT (CONTINUED)
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations. Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant investment returns from overseas investments. The Group doesn't hedge its exposure to foreign exchange in relation to foreign currency denominated investment balances. The carrying amounts of the Group's foreign currency denominated monetary financial instruments at the reporting date are set out in the table below:
|
|
30 June 2018 £'000s |
31 December 2017 £'000s |
|
Cash |
|
|
|
Euro |
4,697 |
204 |
|
Canadian Dollar |
1,650 |
1,486 |
|
Australian Dollar |
2,333 |
196 |
|
U.S. Dollar |
1,195 |
405 |
|
|
9,875 |
2,291 |
|
Current receivables |
|
|
|
Euro receivables |
871 |
1,650 |
|
U.S. Dollar receivables |
231 |
329 |
|
|
1,102 |
1,979 |
|
Investments at fair value through profit or loss |
|
|
|
Euro |
279,336 |
277,489 |
|
Canadian Dollar |
37,597 |
38,287 |
|
Australian Dollar |
204,480 |
207,835 |
|
U.S. Dollar |
60,391 |
60,062 |
|
|
581,804 |
583,673 |
|
Total |
592,781 |
587,943 |
Sensitivity analysis showing the impact of variations of the above risks on the fair value of investments is shown in section 9.5.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of dealing with creditworthy counterparties and reviewing this on a regular basis at the underlying entity level. The majority of underlying investments are in public-private partnerships and similar concessions which are entered into with government, quasi government, other public, equivalent low risk bodies or in regulated businesses that inherently exhibit low levels of credit risk. The maximum exposure of credit risk over financial assets as a result of counterparty default is the carrying value of those financial assets in the balance sheet. In addition, the underlying investee entities contract with third-party construction and facilities managements contractors. The Group seeks to mitigate this risk through using a diverse range of subcontractors and through at least quarterly review of the credit position of major contractors.
Liquidity risk
Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non-listed equity and loans). As a closed-ended investment vehicle there are no automatic capital redemption rights. The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows. The Group can use a portion of its corporate debt facility for working capital purposes.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
9. FINANCIAL INSTRUMENTS (CONTINUED)
9.3 FINANCIAL RISK MANAGEMENT (CONTINUED)
Cash flow forecasts assume full availability of underlying infrastructure to the relevant public sector body or end user. Failure to maintain assets available for use or operating in accordance with pre-determined performance standards or licence conditions may lead to a reduction (wholly or partially) in the investment income that the Group has projected to receive. The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored. The terms of public-private partnership contractual mechanisms also allow for significant pass-down of unavailability and performance risk to subcontractors.
9.4 FAIR VALUE HIERARCHY
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities
Level 2 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)
Level 3 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable)
During the period there were no transfers between Level 2 and Level 3 categories.
Level 1:
The Group has no financial instruments classified as Level 1.
Level 2:
This category includes derivative financial instruments such as interest rate swaps, RPI Swaps and currency forward contracts. As at 30 June 2018, the Group's only derivative financial instruments were currency forward contracts amounting to a liability of £0.7 million (December 2017: liability of £1.7 million). Valuations based on observable inputs include financial instruments such as swaps and forward contracts which are valued using market standard pricing techniques where all the inputs to the market standard pricing models are observable.
Level 3:
This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities and other non-controlled investments which are classified at fair value through profit or loss. At 30 June 2018, the fair value of financial instruments classified within Level 3 totalled £2,025.4 million (December 2017: £2,005.3 million).
Financial instruments are classified within Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The valuation of unlisted equity and debt investments is performed on a quarterly1 basis by the Investment Adviser and reviewed by the senior members of the Investment Adviser. The Investment Adviser verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computations to relevant project financial models and market information. In addition, the accuracy of the computation is tested.
1 Indicative valuations performed at 31 March and 30 September.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
9. FINANCIAL INSTRUMENTS (CONTINUED)
9.4 FAIR VALUE HIERARCHY (CONTINUED)
Valuation process (continued)
The latest valuation is also compared with the valuations in the preceding semi-annual and annual reporting periods. The senior members of the Investment Adviser consider the appropriateness of the valuation methods and inputs. On a quarterly basis, after the checks above have been performed, the Investment Adviser presents the valuation results to the Audit and Risk Committee. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more significant investments. Any changes in valuation methods and assumptions are discussed and agreed with the Group's Audit and Risk Committee for recommendation to the Board.
In addition, any new investment acquisitions by the Group from related parties are subject to an independent valuation provided to the Board.
Valuation methodology
The valuation methodologies used are primarily based on discounting the underlying investee entities' future projected net cash flows at appropriate discount rates. Valuations are also reviewed against recent market transactions for similar assets in comparable markets observed by the Group or Investment Adviser and adjusted where appropriate.
Cash flow forecasts for each underlying investment are generated through detailed project specific financial models (see also page 25). Financial models forecast the project related cash flows for the full -term of the investment. The cash flows included in the forecasts used to determine fair value are typically fixed under contracts, however, there are certain variable cash flows which are based on management's 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:
|
30 June 2018 |
U.K. |
Europe (Excl. U.K.) |
North America1 |
Australia |
|
Inflation |
2.75% |
2.00% |
2.00% |
2.50% |
|
Long-term tax |
17.00% - 19.00% |
12.50% - 29.58% |
26.50% - 27.00% |
30.00% |
|
Foreign exchange rates |
N/A |
1.07 |
1.41 - 1.82 |
1.88 |
|
Long-term deposit rates |
2.00% |
2.00% |
2.00% |
3.00% |
|
31 December 2017 |
U.K. |
Europe (Excl. U.K.) |
North America1 |
Australia |
|
Inflation |
Inflation |
2.75% |
2.00% |
2.00% |
|
Long-term tax |
Long-term tax |
17.00% - 19.00% |
12.50% - 29.58% |
26.50% - 27.00% |
|
Foreign exchange rates |
Foreign exchange rates |
N/A |
1.08 |
1.43-1.78 |
|
Long-term deposit rates |
Long-term deposit rates |
2.00% |
2.00% |
2.00% |
1 Foreign exchange rate assumptions for North America relate to U.S. and Canada. All other macroeconomic assumptions listed for North America relate to Canada only.
Discount rate
The discount rate used for valuation of each investment is the aggregate of the following:
- Yield on government bonds with an average life equivalent to (or as close as available to) the weighted average concession length of the investments, issued by the national government for the location of the relevant investments ('government bond yield')
- A premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds
- A further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in construction and/or to reflect any current asset specific or operational issues. Typically, this risk premium will reduce over the life of any asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash flows decrease. However, the rate may increase in relation to investments with unknown residual values at the end of the relevant concession life as that date nears
- A further adjustment reflective of market-based transaction valuation evidence for similar assets
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
9. FINANCIAL INSTRUMENTS (CONTINUED)
9.4 FAIR VALUE HIERARCHY (CONTINUED)
Discount rate (continued)
Over the period, the weighted average government bond yield increased by 0.02%. The weighted average project premium remained comparable reflecting observable market-based evidence.
|
Valuation assumptions |
30 June 2018 |
31 December 2017 |
Movement |
|
Weighted Average Government Bond Rate |
1.85% |
1.83% |
0.02% |
|
Weighted Average Project Premium |
5.69% |
5.69% |
- |
|
Weighted Average Discount Rate |
7.54% |
7.52% |
0.02% |
|
|
|
|
|
|
Weighted Average Discount Rate on Risk Capital1 |
7.88% |
7.87% |
0.01% |
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 2018 £'000s |
31 December 2017 |
|
Opening balance |
2,005,292 |
1,515,163 |
|
Additional investments during the period |
10,504 |
464,027 |
|
Net repayments during the period |
(21,468) |
(25,759) |
|
Funds advanced to affiliated entities |
- |
2,053 |
|
Net change in fair value of investments at fair value through profit or loss |
31,115 |
49,808 |
|
Closing balance |
2,025,443 |
2,005,292 |
9.5 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 at 30 June 2018 |
Weighted average rate in base case valuations |
Sensitivity factor |
Change in fair value of investment £'000s |
Sensitivity factor |
Change in fair value of investment £'000s |
|
Discount rate |
7.54% |
+1.00% |
(205,847) |
-1.00% |
248,664 |
|
Inflation rate (overall) |
2.60% |
+1.00% |
235,094 |
-1.00% |
(204,994) |
|
U.K. |
2.75% |
+1.00% |
181,255 |
-1.00% |
(159,431) |
|
Europe |
2.00% |
+1.00% |
43,345 |
-1.00% |
(36,679) |
|
North America |
2.00% |
+1.00% |
1,132 |
-1.00% |
(964) |
|
Australia |
2.50% |
+1.00% |
9,376 |
-1.00% |
(7,905) |
|
FX rate |
N/A |
+10.00% |
58,765 |
-10.00% |
(58,752) |
|
Tax rate |
19.81% |
+1.00% |
(16,037) |
-1.00% |
16,855 |
|
Deposit rate |
2.11% |
+1.00% |
23,116 |
-1.00% |
(20,229) |
|
Significant assumptions at 31 December 2017 |
Weighted average rate in base case valuations |
Sensitivity factor |
Change in fair value of investment £'000s |
Sensitivity factor |
Change in fair value of investment £'000s |
|
Discount rate |
7.52% |
+1.00% |
(199,454) |
-1.00% |
240,577 |
|
Inflation rate (overall) |
2.60% |
+1.00% |
215,094 |
-1.00% |
(181,979) |
|
U.K. |
2.75% |
+1.00% |
160,216 |
-1.00% |
(135,020) |
|
Europe |
2.00% |
+1.00% |
44,149 |
-1.00% |
(37,210) |
|
North America |
2.00% |
+1.00% |
1,055 |
-1.00% |
(1,224) |
|
Australia |
2.50% |
+1.00% |
9,685 |
-1.00% |
(8,515) |
|
FX rate |
N/A |
+10.00% |
58,876 |
-10.00% |
(58,882) |
|
Tax rate |
19.85% |
+1.00% |
(13,625) |
-1.00% |
13,715 |
|
Deposit rate |
2.11% |
+1.00% |
22,433 |
-1.00% |
(22,429) |
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
10. INVESTMENTS
|
Date of investment |
Description |
Consideration £'000s |
% Ownership post investment |
|
2 January 2018 |
The Group funded a final tranche of investment in the Gold Coast Rapid Transport project, Australia. |
575 |
30.00% |
|
28 March 2018 |
The Group made an investment to acquire an additional interest in the Hertfordshire Phase 1 Building Schools for the Future project. |
1,745 |
100.00% |
|
20 April 2018 |
The Group made an investment as part of its commitment to the National Digital Infrastructure Fund. |
8,184 |
45.00% |
|
Total capital spend on investments during the period |
10,504 |
|
|
11. TRADE AND OTHER RECEIVABLES
|
|
30 June 2018 £ '000s |
31 December 2017 £'000s |
|
Accrued interest receivable |
20,465 |
22,295 |
|
Other debtors |
4,608 |
4,668 |
|
Total trade and other receivables |
25,073 |
26,963 |
Other debtors included £4.1 million (December 2017: £3.8 million) of receivables from unconsolidated subsidiary entities for the surrender of Group tax losses.
12. Trade and Other Payables
|
|
30 June 2018 £ '000s |
31 December 2017 £'000s |
||
|
Accrued management fee |
6,894 |
7,056 |
||
|
Other creditors and accruals |
1,627 |
1,247 |
||
|
Total trade and other payables |
8,521 |
8,303 |
||
13. Share Capital and Reserves
|
Share capital |
|
30 June 2018 Shares '000s |
31 December 2017 Shares '000s |
|
In issue 1 January |
|
1,405,420 |
1,127,421 |
|
Issued for cash |
|
- |
273,333 |
|
Issued as a scrip dividend alternative |
|
- |
4,666 |
|
Closing balance |
|
1,405,420 |
1,405,420 |
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
13. Share Capital and Reserves (continued)
|
Share capital |
|
30 June 2018 £ '000s |
31 December 2017 £'000s |
|
Opening balance |
|
1,441,048 |
1,029,387 |
|
|
|
|
|
|
Issued for cash (excluding issue costs) |
|
- |
410,000 |
|
Issued as a scrip dividend alternative |
|
- |
7,283 |
|
Total share capital issued in the period |
|
- |
417,283 |
|
Costs on issue of Ordinary Shares |
|
- |
(5,622) |
|
Closing balance |
|
1,441,048 |
1,441,048 |
At present, the Company has one class of Ordinary Shares which carry no right to fixed income.
|
Other distributable reserve |
30 June 2018 £ '000s |
31 December 2017 £'000s |
|
Opening balance |
182,481 |
182,481 |
|
Movement in the period |
- |
- |
|
Closing balance |
182,481 |
182,481 |
On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share premium account. This was in order to provide a distributable reserve to enable the Company to repurchase its shares if and when the Board of Directors consider it beneficial to do so. Following court approval, the distributable reserve account was created.
|
Retained earnings |
30 June 2018 £ '000s |
31 December 2017 £'000s |
|
Opening balance |
414,769 |
391,785 |
|
Net profit for the period |
65,994 |
106,499 |
|
Dividends paid1 |
(47,925) |
(83,515) |
|
Closing balance |
432,838 |
414,769 |
1 Includes scrip element of £nil million in 2018 (December 2017: £7.3 million).
DISTRIBUTIONS
The Board is satisfied that, in every respect, the solvency test as required by the Companies (Guernsey) Law, 2008, was satisfied for the proposed dividend and the dividend paid in respect of the year ended 31 December 2017. The Board has approved an interim distribution of 3.5 pence per share (six months to June 2017: 3.41 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 debt facility and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet 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 associated risks.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
14. Net Assets per Share
|
|
|
30 June 2018 £ '000s |
31 December 2017 £'000s |
|
Net assets attributable to equity holders of the parent |
|
2,056,367 |
2,038,298 |
|
|
|
|
|
|
|
|
Number |
Number |
|
Number of shares |
|
|
|
|
Ordinary shares outstanding at the end of the period |
|
1,405,420,125 |
1,405,420,125 |
|
Net assets per share (pence per share) |
|
146.3 |
145.0 |
15. Related Party Transactions
During the period, Group companies entered into certain transactions with related parties that are not members of the Group but are related parties by reason of being in the same group as Amber Infrastructure Group Holdings Limited, which is the ultimate holding company of the Investment Adviser, Amber Fund Management Limited ('AFML'). Under the Investment Advisory Agreement ('IAA'), AFML was appointed to provide investment advisory services to the Group including advising the Group as to the strategic management of its portfolio of investments.
AFML is a subsidiary company of Amber Infrastructure Group Holdings Limited ('Amber Group'), in which Mr. G Frost is a Director and also a substantial shareholder.
Mr. G Frost is also a Director of International Public Partnerships Limited (the 'Company'); International Public Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Group); and the majority of other companies in which the Group indirectly has an investment. The transactions with the Amber Group are considered related party transactions under IAS 24 'Related Party Disclosures'.
The Director's fees for Mr. G Frost's directorship of the Company are paid to his employer, Amber Infrastructure Limited (a member of the Amber Group).
The amounts of the transactions in the period that were related party transactions are set out in the table below:
|
|
Related party expense in the Income Statement |
Amounts owing to related parties in the Balance Sheet |
|||
|
|
For the six months to 30 June 2018 |
For the six months to 30 June 2017 |
At 30 June 2018 |
At 31 December 2017 |
|
|
|
£'000s |
£'000s |
£'000s |
£'000s |
|
|
International Public Partnerships GP Limited |
11,278 |
9,683 |
6,894 |
7,056 |
|
|
Amber Fund Management Limited1 |
168 |
4,735 |
99 |
103 |
|
|
Total |
11,446 |
14,418 |
6,993 |
7,159 |
|
1 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the balance sheet.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
15. RELATED PARTY TRANSACTIONS (CONTINUED)
INVESTMENT ADVISORY ARRANGEMENTS
Investment advisory fees / profit share payable during the period are calculated as follows:
For existing construction assets:
-1.2% per annum of gross asset value of investments bearing construction risk
For existing fully operational assets:
-1.2% per annum of the 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
Asset origination fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group's assets are available for use for certain periods and the Investment Adviser fails to implement a remediation plan agreed with the Group. The IAA may also be terminated by either party serving other five years notice of termination, expiring at any time after ten years from the date of the IAA.
As at 30 June 2018, Amber Infrastructure held 8,002,379 (December 2017: 8,002,379) shares in the Company. The shares held by the Investment Adviser's group in the Company helps further strengthen the alignment of interests between the two parties.
Transactions with directors
Shares acquired by Directors in the six month period ended 30 June 2018 are disclosed below:
|
Director |
Number of New Ordinary Shares |
|
Julia Bond |
14,020 |
|
Total purchased |
14,020 |
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
SIX MONTHS ENDED 30 JUNE 2018
16. CONTINGENT LIABILITIES AND COMMITMENTS
As at 30 June 2018, the Group had committed funding up to c.£210 million, including amounts supported by letter of credit which were notionally drawn against the Group's corporate debt facility.
There were no contingent liabilities at the date of this report.
17. EVENTS AFTER BALANCE SHEET DATE
In July 2018, the Company renewed its £400 million corporate debt facility on improved terms, extending the expiry of the facility to July 2021.
In August 2018, the Group made a further tranche of investment of c.£3.4 million as part of its £45 million investment commitment to the National Digital Infrastructure Fund.
18. OTHER MANDATORY DISCLOSURES
New standards that the Group has applied from 1 January 2018. Standards and amendments to standards that became effective during the period are listed below. These have no material impact on the reported performance or financial statements of the Group.
- IFRS 9 'Financial Instruments' (1 January 2018)
- IFRS 15 'Revenue from Contracts with Customers' (1 January 2018)
- Clarifications to IFRS 15 'Revenue from Contracts with Customers' (1 January 2018)
- Amendments to IFRS 2 'Classification and Measurement of Share-based Payment Transactions' (1 January 2018)
- Amendments to IAS 40 'Transfers of Investment Property' (1 January 2018)
- Amendments to IFRS 4 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' (1 January 2018)
- IFRIC Interpretation 22 'Foreign Currency Transactions and Advance Consideration' (1 January 2018)
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Contacts
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Registered Office |
Investment Adviser |
Corporate Brokers |
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Heritage Hall PO Box 225, Le Marchant Street St Peter Port Guernsey Channel Islands GY1 4HY |
Amber Fund Management Limited 3 More London Riverside London SE1 2AQ
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Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT
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Administrator and Company Secretary |
Legal Adviser |
Public Relations |
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Estera International Fund Managers Limited 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
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FTI Consulting 200 Aldersgate Aldersgate Street London EC1A 4HD |
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Auditor |
Corporate Banker |
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Ernst & Young LLP Royal Chambers St Julian's Avenue St Peter Port Guernsey Channel Islands GY1 4AF
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Royal Bank of Scotland International 1 Glategny Esplanade St Peter Port Guernsey Channel Islands GY1 4BQ
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