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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Bbgi Global Infrastructure S.a. | LSE:BBGI | London | Ordinary Share | LU0686550053 | ORD NPV (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.80 | 1.28% | 142.20 | 142.00 | 142.20 | 142.40 | 140.60 | 140.60 | 1,592,744 | 16:35:09 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 107k | 40.29M | 0.0564 | 25.18 | 1.01B |
From May 2019 to May 2024
TIDMBBGI
RNS Number : 8131A
BBGI SICAV S.A.
29 March 2017
29 March 2017
BBGI SICAV S.A.
('BBGI' or the 'Company')
Annual Results for financial year ended 31 December 2016
This announcement contains inside information
COMPANY OVERVIEW
Key characteristics as at 31 December 2016
Hot Features
Premium
The Company BBGI SICAV S.A. ("BBGI", or the "Company" or, together with its consolidated
subsidiaries,
the "Group")
Regulator Commission de Surveillance du Secteur Financier ("CSSF")
Legal Form An investment company incorporated in Luxembourg in the form of a public limited
company (société
anonyme) with variable share capital (société d'investissement à
capital variable,
or "SICAV") and regulated by the CSSF under Part II of the Luxembourg law of 17
December 2010
on undertakings for collective investments with an indefinite life.
Shares Sterling denominated ordinary shares of no par value
* In issue 432,215,636
GBP1.38 per share
* Price at 31.12.16
Eligible for PEPs/ISAs inclusion (subject to applicable subscription limits)
* ISA, PEP and SIPP status provided they
are purchased in the open market. Permissible assets for SIPPs
Market Capitalisation GBP596.5 million at 31 December 2016
Investment Basis NAV 126.1 pence per share
Target Dividend Minimum 6.25 pence per share per annum dividend targeted from 2016 onwards1
Target IRR 7%-8% on the GBP1 IPO issue price([1])
Investment Policy
* Infrastructure assets - Public Private Partnership
(PPP)/Private Finance Initiative (PFI) or equivalent
* Largely operational assets and availability-based revenues
* Public sector or government-backed counterparties
with diverse risk profiles
* Single asset target limit of 20% of portfolio value,
subject to 25% maximum([2])
* Construction assets limited to maximum 25% of portfolio value
* Demand-based assets limited to maximum 25% of portfolio value
Portfolio
* Global, geographically diversified portfolio with
strong yield characteristics, contracted
government-backed revenue streams, inflation-linked
returns and long-term contracts
* 39 projects with a fair market value of GBP569.9
million independently reviewed
* Weighted average concession length of 22.6 years
* Weighted average debt maturity is 19.2 years
* Diverse asset mix with focus on lower risk,
availability-based road projects
* 100% of the portfolio assets by value are
operational([3]) . Mix of availability-based social
infrastructure, which represents 60% of the portfolio
value, and availability-based transport
infrastructure which represents 40%
* Assets by value located 39% UK, 28% Canada, 19%
Australia, 9% Continental Europe and 5% USA
* Stable cash flows with inflation-protection characteristics
* Potential for upside through active management of the portfolio
Management
* Internally managed with experienced PPP/PFI in-house
management team
* Experienced and independent Supervisory Board
* Strong governance model and alignment of interests
between management team and shareholders
* Management team remunerated through long-term and
short-term incentive plans that prioritise total
shareholder returns and net asset value per share,
rather than increasing assets under management
* Management team fully committed to the management of
the Company with no competing interests
* No fees payable to external manager (e.g. no fund
management or acquisition fees)
* Ongoing charges([4]) percentage of 0.98% of average
undiluted NAV for the year includes all internal and
external recurring costs
Gearing
* Prudent use of leverage with maximum ratio of 33% of
portfolio value
* No structural gearing
* GBP110 million credit facility in place with access
to a further GBP70 million accordion tranche
Discount Management
* Able to make discretionary share repurchases through
market purchases or tender offers
* Next continuation vote at 2017 annual general meeting
and every second year thereafter
Website www.bb-gi.com
--------------------------------- -----------------------------------------------------------------------------------
FINANCIAL AND OPERATIONAL HIGHLIGHTS
-- Investment Basis NAV([5]) ("NAV") per share up 13.1% at 126.1 pence as at 31 December 2016 (111.5 pence - 31 December 2015).
-- NAV up 13.6% at GBP545.0 million as at 31 December 2016 (GBP479.8 million - 31 December 2015).
-- Total shareholder return ("TSR") since listing in December 2011 to 31 December 2016 of 70.7%([6]) equating to a compound annual growth rate ("CAGR") of 11.2% which is well above the IRR target of 7% to 8% on the GBP1 IPO issue price.
-- During the year, the Board increased the annual dividend target by 4.2% to 6.25 pence per share. An interim dividend of 3.125 pence per share was paid on 26 October 2016 and a further dividend of 3.125 pence per share is proposed for the year ended 31 December 2016.
-- An Ongoing Charges ratio of 0.98% that we believe continues to be the lowest in the UK listed infrastructure sector.
-- Market capitalisation increased to GBP596.5 million at 31 December 2016, up 7.2% from GBP556.3 million at 31 December 2015.
-- Shares continue to trade at a premium to the NAV, and stood at a premium of 9.4% as at 31 December 2016([7]) .
-- Portfolio performance and cash receipts were ahead of business plan and underlying financial models.
-- At 31 December 2016, the Group had, on an Investment Basis, a net debt position of GBP21.4 million consisting of a total cash balance of GBP23.8 million and total borrowings outstanding of GBP45.2 million. In addition the Company has utilised a further GBP25.1 million of the debt facility to cover outstanding letters of credit.
-- The portfolio of 39 projects has a fair market value of c. GBP569.9 million at 31 December 2016, with additional equity of GBP23.4 million committed.
-- Average discount rate of 7.56% at 31 December 2016 compared with 7.86% at 31 December 2015.
-- The successful transitions of Women's College Hospital from ramp-up phase to full operations, and Ohio River Bridges from construction to ramp-up phase, have contributed to the reduction in the average discount rate.
-- Significant foreign exchange tailwind resulted in a GBP51.2 million uplift in the portfolio value. Put into context, since listing in December 2011 the net cumulative effect of foreign exchange movement on the portfolio value has been an uplift of GBP6.6 million or 1.2% of the NAV at 31 December 2016. The Company continues to hedge forward forecast project distributions on a four-year rolling basis in line with its hedging policy.
-- International Financial Reporting Standards NAV ("IFRS NAV") of GBP538.8 million as at 31 December 2016 (GBP482.4 million - 31 December 2015).
-- Net profit under IFRS of GBP80.2 million for the year ended 31 December 2016 (GBP35.6 million - year ended 31 December 2015).
-- Global demand for PPP infrastructure assets remains strong, with demand exceeding supply in most markets. This trend has continued to have a favourable impact on valuations, but also makes it more difficult to find new investment opportunities which are accretive.
-- We will pursue attractive primary development opportunities on a selective basis and will also continue to consider secondary acquisitions on an opportunistic basis.
CHAIRMAN'S STATEMENT
I am pleased to introduce this Annual Report for the year ended 31 December 2016.
The underlying performance for the year was robust with cash flows coming in ahead of the business model and discount rates continuing to edge down. Cost control has been rigorous and ongoing charges, which are largely Euro denominated, came in at 0.98%. Altogether, this performance has given the Board the confidence to propose raising the full year dividend to 6.25 pence per share, an increase of 4.2% for the year.
The financial numbers for the year to 31 December 2016 have been heavily influenced by the weakening of Sterling, the company's reporting currency, following the UK's EU membership referendum. Some 61% of the Company's assets are located outside the UK and denominated in major currencies other than Sterling. The resultant GBP51.2 million foreign exchange uplift on the portfolio value, together with the results of active asset management and the bringing into operation of assets previously under construction, have all contributed to a NAV increase of 13.6%. It is noteworthy that the net effect of foreign exchange movements since the Company was listed in December 2011 has been an increase in the portfolio value of GBP6.6 million, or 1.2% of the NAV at 31 December 2016.
With interest rates remaining low across the world, competition for infrastructure assets offering strong uncorrelated yields from secure counter-parties remains intense. As a result, your company has continued to bid for primary opportunities where better value for shareholders is perceived and only selectively bids for secondary opportunities. The Management Report sets out the status of our current pipeline of investment opportunities.
As previously advised legislation was scheduled to be tabled at the Luxembourg parliament which would enable the company to raise new capital without having to limit the price to within a 5% premium of the latest published NAV per share at the time of the issue. Although we are confident that the legislation will be passed, unfortunately the implementation is still in progress and the Company still has no clear line of sight as to when it will be approved. Consequently in order to raise the additional capital to progress our strategic plans, we are today announcing a 'tap issue' placing of new shares in the Company to raise c.GBP58.5 million, with the net proceeds to be utilised initially in paying down bank debt.
Better news is emerging from the exemptions which are likely to be available following the OECD project on Base Erosion and Profit Shifting (BEPS) on the limitation of interest deductibility. We believe, now, that any adverse effect on the Company's cash flows should not be material.
Since our launch in 2011, management has worked diligently to ensure the success of the company and has produced a compound annual total shareholder return of 11.2%. In accordance with our Articles, a motion to support the continuation of the Company will be tabled at the AGM and I encourage you to vote in favour.
The Management Team regularly meets with investors and the Supervisory Board receives investor feedback at each meeting both directly and from the Company's brokers. Additionally my colleagues and I are always available to meet with any investor who wishes to do so.
2016 has been a year where the outcome of democratic processes has surprised the experts not least in the UK referendum on the European Union and in the USA Presidential Election. The consequences of both are much speculated upon but remain uncertain. Your Board will continue to monitor events and take action to ensure that BBGI is as well placed as possible. Nonetheless we expect that your company's strong cash flows, long term contracts with sound counter-parties and diversified assets which underpin its ability to pay dividends will continue to offer a reassuring degree of certainty. We believe this proposition will continue to be attractive to investors.
David Richardson
Chairman
BBGI SICAV S.A.
28 March 2017
INVESTMENT POLICY AND OBJECTIVES
INVESTMENT POLICY
Introduction
The Company's investment policy is to invest in equity, subordinated debt and/or similar interests issued in respect of infrastructure projects that have been developed predominantly under the PPP/PFI or similar procurement models. The Company principally invests in projects that are operational and that have completed construction. Accordingly, investment in projects that are under construction will be limited to 25% of the portfolio value (calculated as at the time of investment).
Project revenue stream characteristics
The Company invests predominantly in projects whose revenue streams are public sector or government-backed, although the Company may invest in projects whose revenue streams are backed by non-governmental organisations that the Directors believe carry an appropriate credit risk and represent a low counterparty risk, for example as alternative infrastructure procurement models develop (such as private-private partnerships). Investment in projects whose revenue streams are not public sector or government-backed will be limited to 25% of the portfolio value, calculated as at the time of investment.
The Company primarily invests in projects where payments received by the project entities, and hence the revenue streams from the projects, do not generally depend on the level of use of the underlying project asset and as such are "availability-based". Projects are characterised as having an "availability-based" revenue stream if, on average, 75% or more of payments received by the relevant project entity do not depend on the level of use of the project asset. Investment in projects where, on average, 25% or more of payments received by the project entities depend on the level of use made of the project assets ("demand-based") will be limited to 25% of the portfolio value, calculated as at the time of investment.
Geographic focus
The Directors believe that attractive opportunities for the Company will continue to arise in jurisdictions where PPP/PFI is a practised route for delivering infrastructure investments. The Company intends to invest predominantly in projects that are located in Europe, North America, Australia and New Zealand. However, the Company may also invest in projects in other markets should suitable opportunities arise.
The Company will seek to mitigate country risk by concentrating predominantly on investment opportunities in countries where the Directors consider that project structures are reliable, where (to the extent applicable) public sector counterparties carry what the Management Board consider to be an appropriate credit risk or alternatively where insurance or guarantees are available for the sovereign credit risk, where financial markets are relatively mature and where a reliable judicial system exists to facilitate the enforcement of rights and obligations under project documentation.
Origination of investments
Each of the investments in the portfolio complies with the investment policy and further investments will only be acquired if they comply with the Company's investment policy.
Further investments will be subject to satisfactory due diligence and agreement on price which will be negotiated on an arm's length basis and on normal commercial terms. It is anticipated that any further investments will be acquired out of existing cash resources, borrowings including letters of credit, funds raised from the issue of new capital in the Company or any combination of the three.
Single investment limit and diversity of clients and suppliers
In order to ensure that the Company has a spread of investment risk, it is the Company's intention that when any new acquisition is made, the investment (or, in the event of an acquisition of a portfolio of investments, each investment in the portfolio) acquired does not have an acquisition value (or, if it is an additional stake in an existing investment, the combined value of both the existing stake and the additional stake acquired) is not greater than 20% of the portfolio value of the Company immediately post-acquisition (but subject always to a maximum limit of 25% of the portfolio value immediately post-acquisition). In order to avoid over-reliance on either a single client or a single contractor when selecting new investments to acquire, the Company will seek to ensure that the portfolio of project entities in which the Company invests has a range of clients and supply chain contractors.
Borrowing and leverage
The Company intends to make prudent use of leverage (and leverage in the context of the Company shall exclude indebtedness in place at project entity level) primarily to finance the acquisition of investments and for working capital purposes. The Company will ensure that the Company's outstanding borrowings, excluding intra-group borrowings and the debts of underlying project entities but including any financial guarantees to support subscription obligations, will be limited to 33% of the portfolio value. The Company may borrow in currencies other than Pounds Sterling ("Sterling") as part of its currency hedging strategy.
Currency and hedging policy
The Company will continue to invest in project entities that are located not just in the UK and, as a result, some of the Company's underlying investments will be denominated in currencies other than Sterling. For example, investments in the current portfolio are denominated in Australian dollars, Canadian dollars, euros, Norwegian kroner and US dollars as well as Sterling. However, any dividends declared and paid on the Company's ordinary shares will be made in Sterling, and the market price and net asset value of the ordinary shares will be reported in Sterling.
Any currency rate hedging transactions will only be undertaken for the purpose of assisting the Company in meeting its dividend distribution targets. Hedging transactions will not be undertaken for speculative purposes. Management will continue to review the hedging strategy on an annual basis.
Interest rate hedging may also be carried out to seek to provide protection against increasing costs of servicing any debt drawn down by the Company to finance investments. This may involve the use of interest rate derivatives and similar derivative instruments.
Potential disposals of investments
Whilst the Directors may elect to retain investments over the long term, they will regularly monitor the valuations of such project entities and any secondary market opportunities to dispose of investments. The Company only intends to dispose of investments where it is considered that appropriate value can be realised for the Company or where the Management Board otherwise believes that it is appropriate to do so. Proceeds from the disposal of investments will generally be reinvested, or may be distributed at the discretion of the Directors.
The Company will not be required to dispose of investments and to rebalance its investment portfolio as a result of a change in the respective valuations of investments, although in such circumstances the Management Board will review the composition of the investment portfolio as a whole and consider whether any rebalancing is in the interests of shareholders.
Amendments to and compliance with the investment policy
Changes to the investment policy may only be made with the approval of the CSSF and the shareholders by way of ordinary resolution, in accordance with the Luxembourg law of 17 December 2010 on undertakings for collective investments (the "Law") and (for as long as the ordinary shares are listed on the Official List) in accordance with the UK Listing Authority listing rules (the "Listing Rules"). The investment policy restrictions detailed above apply at the time of the acquisition of any new investment.
In the event of any breaches of the investment restrictions contained in the investment policy, the Company will inform shareholders through an announcement on a Regulatory Information Service.
INVESTMENT OBJECTIVES
Looking forward to 2017 and beyond, the Company will continue to seek to provide investors with secure and predictable long-term cash flows whilst actively managing the investment portfolio, with the intention of maximising the capital value over the longer term. The Company is currently targeting a dividend of 6.25 pence per share per annum with the aim to increase this distribution progressively over the longer term. The Company targets an IRR in the region of 7% to 8% on the GBP1 IPO issue price, to be achieved over the longer term.
INVESTMENT PORTFOLIO
As at 31 December 2016, BBGI's assets consisted of interests in 39 high-quality, availability-based, PPP/PFI infrastructure assets in the transport, healthcare, education, justice and other services sectors. Located in Australia, Canada, Continental Europe, the UK and the US, 100% of the assets by value are operational([8]) .
BBGI has equity and subordinated debt subscription obligations in Mersey Gateway Bridge ("MGB") and equity subscription obligations in North Commuter Parkway ("NCP"), collectively amounting to approximately GBP23.4 million at 31 December 2016. The subscription obligations are due for payment upon the scheduled construction completion of the respective projects. Assuming, for pro-forma purposes only, that the equity and/or subordinated debt subscription obligations for MGB and for NCP were paid down at 31 December 2016, the portfolio split would be 97% operational, 1% early-stage construction and 2% late-stage construction.
Portfolio Summary
Equity Equity
Stake Stake
Availability Roads Education
& Bridges
E18 Motorway, (Norway) 100.00% Bedford Schools, (UK) 100.00%
Golden Ears Bridge, 100.00% Belfast Metropolitan 100.00%
(Canada) College, (UK)
Clackmannanshire Schools, 100.00%
(UK)
Kicking Horse Canyon,
(Canada) 50.00% Cologne Schools, (Germany) 50.00%
Cologne-Rodenkirchen
M1 Westlink, (UK) 100.00% School, (Germany) 50.00%
M80 Motorway, (UK) 50.00% Coventry Schools, (UK) 100.00%
Mersey Gateway Bridge, East Down Colleges,
(UK) 37.50% (UK) 66.67%
North Commuter Parkway,
(Canada) 50.00%
Northeast Stoney Frankfurt Schools,
Trail, (Canada) 100.00% (Germany) 50.00%
Northwest Anthony
Henday Drive, (Canada) 50.00% Kent Schools, (UK) 50.00%
Ohio River Bridges/East
End Crossing, (USA) 33.33% Lagan College, (UK) 100.00%
Lisburn College, (UK) 100.00%
North West Regional
College, (UK) 100.00%
Scottish Borders Schools,
Healthcare (UK) 100.00%
Barking & Havering
Clinics (LIFT),
(UK) 60.00% Tor Bank School, (UK) 100.00%
Gloucester Royal 50.00% Justice
Hospital, (UK)
Kelowna & Vernon
Hospitals, (Canada) 50.00% Burg Prison, (Germany) 90.00%
Liverpool & Sefton Northern Territory
Clinics (LIFT), Secure Facilities,
(UK)([9]) 53.33% (Australia) 100.00%
Mersey Care Mental
Health Hospital,
(UK)[(10]) 76.20% Victoria Prisons, (Australia) 100.00%
North London Estates
Partnership (LIFT), Avon & Somerset Police
(UK) ([11]) 53.33% Headquarters, (UK) 64.93%
Royal Women's Hospital,
(Australia) 100.00%
Women's College
Hospital, (Canada) 100.00%
Other
Fürst Wrede Military
Base, (Germany) 50.00%
Stoke-on-Trent & Staffordshire
Fire and Rescue Service,
(UK) 85.00%
Unna Administrative
Centre, (Germany)([12]) 44.10%
========================== ========= =============================== =========
The concessions granted to project entities in the portfolio are predominantly granted by a variety of public sector clients or entities which are government backed. All project entities in the portfolio are located in countries which are highly rated (Aa1/AA for the UK; Aaa/AAA for Australia, Canada, Germany and Norway; Aaa/AA+ for the US) by Moody's and by Standard & Poor's.
PORTFOLIO BREAKDOWN at 31 December 2016
Overview of the portfolio as at 31 December 2016 is shown in the tables below:
Portfolio geographical 31 December split 2016 ------------------------ ------------ UK 39% Canada 28% Australia 19% Continental Europe 9% USA 5% ------------------------ ------------ Total 100% ------------------------ ------------
Global portfolio with 39 assets; all located in AA to AAA rated countries
31 December
Portfolio split by sector 2016
--------------------------- ------------
Roads and Bridges 40%
Justice 21%
Health 21%
Education 16%
Other 2%
--------------------------- ------------
Total 100%
--------------------------- ------------
Diversified sector exposure with a bias towards availability roads and bridges
31 December
Duration of concessions 2016
------------------------- ------------
> 25 years 31%
> 20 years and <= 25
years 34%
> 10 years and <= 20
years 35%
------------------------- ------------
Total 100%
------------------------- ------------
Weighted average concession life is 22.6 years and weighted average debt life is 19.2 years
31 December
Portfolio concentration 2016
-------------------------- ------------
Golden Ears Bridge 13%
Northern Territory 11%
Victoria Prisons 6%
M80 Motorway 6%
Women's College Hospital 6%
Other projects 58%
-------------------------- ------------
Total 100%
-------------------------- ------------
Well diversified portfolio with no major single asset exposure
31 December
Project status 2016
-------------------------- ------------
Operational 100%
Late-stage construction 0%
Early-stage construction 0%
-------------------------- ------------
Total 100%
-------------------------- ------------
The above only considers those projects where the equity commitments have been paid down.
31 December
Pro-forma Project status([13]) 2016
-------------------------------- ------------
Operational 97%
Late-stage construction 2%
Early-stage construction 1%
-------------------------------- ------------
Total 100%
-------------------------------- ------------
BBGI control of project 31 December
assets 2016
------------------------- ------------
>= 75% 65%
>= 50% and < 75% 31%
< 50% 4%
------------------------- ------------
Total 100%
------------------------- ------------
96% of portfolio owned 50% or more
31 December
Revenue type 2016
-------------- ------------
Availability 100%
-------------- ------------
Total 100%
-------------- ------------
100% availability based income; no demand risk
FIVE LARGEST PROJECTS
Golden Ears Bridge, Canada (Availability Road)
The Golden Ears Bridge in Vancouver is a 1 km, six-lane road that spans the Fraser River and connects Maple Ridge and Pitt Meadows to Langley and Surrey. The scheme, which opened in March 2009, also includes more than 3.5 km of structures including ramps, viaducts, minor bridges and underpasses, and more than 13 km of mainline roadway, a large part of which has been landscaped. The project consists of the design, construction upgrade, finance and operation for 32 years.
The project brought close to C$1 billion in construction-related activity to the area. Commuters using the new bridge can save up to 40 minutes per peak-hour round-trip from Maple Ridge to Langley.
Northern Territory Secure Facilities, Australia (Justice)
The facility, located near Darwin, includes three separate centres:
-- A 1,000 bed multi-classification men and women's correctional centre to replace the existing outdated facilities at Berrimah.
-- A 30 bed secure mental health and behavioural management centre, a first of its kind in the Territory.
-- A 48 bed supported accommodation and program centre for community-based offenders with facilities designed to support the government's goals of enhanced rehabilitation, education and reduced reoffending rates in the Territory.
BBGI acquired its initial interest in this project while it was still in construction and then subsequently acquired the remaining 50% stake in July 2015. The facility became operational in November 2014. The new facility allows Northern Territory Corrections to engage prisoners into structured daily programs in order to foster rehabilitation and stronger re-integration.
Victoria Prisons, Australia (Justice)
The Metropolitan Remand Centre accommodates up to approximately 950 male prisoners and is located approximately 20 km from the Melbourne city centre.
The second, smaller facility is the Marngoneet Correctional Centre that houses approximately 550 male prisoners, and is the State's major intensive treatment facility for male prisoners. It offers treatment programs to promote rehabilitation, reduce repeat offending and to prepare prisoners for transition back into the community.
Both prisons started operation in 2006. In 2013 and 2016, significant augmentation orders were undertaken to expand the prisoner capacity.
M80 Motorway, UK (Availability Road)
The section of road between Stepps and Haggs is an all-purpose dual carriageway and was the only non-motorway section of the A80 between Glasgow and the end of the M80 at Dunblane. The project involved construction of 18 km of dual two/three lane motorway with associated slip roads and infrastructure from Stepps in North Lanarkshire to Haggs in Falkirk. Traffic availability was achieved in August 2011, with the work undertaken reducing congestion for road users and improving journey times and reliability.
Women's College Hospital (Health)
This replacement hospital, in Toronto, Ontario, is a multi-storey building (approximately 430,000 square feet) consisting of ambulatory care, surgical research and educational facilities, as well as administrative, parking and other non-clinical space to support the Hospital's comprehensive and integrated approach to providing quality women's health care to patients with a need for diagnostics, extended treatments and chronic care. The project was delivered in two phases. The first phase became operational in May 2013. The second phase achieved substantial completion in September 2015 and final completion (which involved the integration of phases one and two) occurred in March 2016. Women's College Hospital was recognised as one of the best operational projects in Canada and North America, and received awards from the Canadian Counsel for Public Private Partnerships and the P3 Awards respectively.
Facility management
Management continually reviews the potential concentration risk in respect of facility management contractors. Management has not identified any significant exposure risk and therefore remains comfortable with the current contract allocation.
Representation at project level
With regard to the project entities acquired, the Management Board has taken, in most cases, two board seats within each portfolio asset. More information on the performance of the project entities is provided in the Valuation section of this report.
Relationship with clients
The Management Board continues to work hard to build and maintain a good dialogue with the Group's public sector clients and partners. We believe that having a regular dialogue with public sector clients is important for the partnership relationship and can help prevent issues from escalating, especially as some public sector clients are under increased fiscal constraints. The Management Board is engaged through its representation at the project level in actively resolving issues, proactively identifying efficiencies and facilitating variations that benefit both shareholders and public sector clients.
Across the entire portfolio, BBGI remains comfortable with the counterparty risk of the public sector clients, and the Management Board is not aware of any instances of financial distress that might lead to default. Facility management continues to be performed at a high level and, with the exception of the Burg prison project referred to below, there are no significant incidents to report.
In the event of poor performance by the facility manager, then the associated cost, typically a deduction from the unitary payment, will be passed on to the facility manager.
Burg Prison
There is a dispute between the client and a subcontractor on the Burg prison project. The dispute itself, which relates to the interpretation of the indexation mechanism, has resulted in the client making substantial retentions. Although the project company is a party to the formal dispute, it has not suffered any losses as the retentions incurred have all been passed on to the subcontractor. During 2016 the courts ruled in favour of the client. The dispute went to appeal and, in January 2017, the appeal court also ruled in favour of the client. The objective of the subcontractor is now to agree an invoicing procedure that provides sufficient evidence of the disputed indexation element. Due to this, a risk premium has been included in the valuation of the project. To date, deductions on the project have been minimal. The project itself makes up approx. 1% of the total portfolio value.
As a general rule, the public sector clients have been diligent in managing their infrastructure costs. The Company's representatives at the project level continue to work closely with all contracted parties, including the client, facility managers and managed service providers, the objective of which is to ensure that both a quality service and value for money is being delivered to the public client.
We are aware of situations, particularly in the UK, where the client has proactively sought to apply deductions to realise savings. There have been published reports on some PPP/PFI projects where material performance deductions have been levied through strict contractual interpretation by some clients for asset-wide defects, one example being breaches in fire-compartment walls in buildings. Efforts to realise savings have been largely focused on health care projects (often acute care hospitals) in response to pressure on NHS trust budgets and, in some cases, have resulted in significant deductions on concession payments and lock up of distributions under the loan agreements. As acute care UK hospital PPPs account for less than 1.5% of BBGI's portfolio value, this development does not present a material exposure to the Group. Notwithstanding this, BBGI will continue to monitor this development closely, in particular any potential knock-on effect it may have on other UK PPP sectors in which BBGI is invested. While the impact to the Group's portfolio is currently immaterial, if this situation migrates to other sectors and the issues are not resolved satisfactorily, it could affect the value of these projects.
REPORT OF THE MANAGEMENT BOARD
BUSINESS REVIEW
Business of the Company
The Management Board is very pleased to present the results for the year ended 31 December 2016. Both the management report for the consolidated financial statements and the standalone financial statements have been presented as one single report.
Highlights
BBGI's goals for 2016 remained consistent with those of previous years i.e. to actively manage the portfolio in order to enhance returns and to position the Company for continued selective growth. Certain key performance indicators for 2016 are highlighted below:
Key Performance Indicators ("KPIs")
31-Dec-13 31-Dec-14 31-Dec-15 31-Dec-16 Target
--------------------- ----------- ----------- -------------- ------------ --------------------------
Dividends 5.50 5.76 6.00 6.25 2013: 5.50 pence
declared for pence pence pence pence per share
the year per per per share per 2014: 5.76 pence
share share share per share
expected 2015: 6.00 pence
per share
2016: 6.25 pence
per share target([14])
--------------------- ----------- ----------- -------------- ------------
Investment GBP449.25m GBP465.29m GBP479.84m GBP545.0m Stable growth
Basis NAV
--------------------- ----------- ----------- -------------- ------------ --------------------------
Growth in
NAV per share Stable and consistent
in reporting NAV per share
period 2.04% 3.49% 2.05% 13.1% growth
--------------------- ----------- ----------- -------------- ------------ --------------------------
Total Shareholder
return in
year (share
price plus 7% to 8% on
dividends the GBP1 IPO
per share) 15.70% 10.79% 8.69% 11.2%([15]) issue price
--------------------- ----------- ----------- -------------- ------------ --------------------------
Total Shareholder
return since
listing in
December 2011
(share price 7% to 8% on
plus dividends the GBP1 IPO
per share) 29.00% 41.25% 53.53% 70.7%([16]) issue price
--------------------- ----------- ----------- -------------- ------------ --------------------------
Ongoing Charges
(using the
AIC recommended Seek to minimise
methodology)([17]) 1.11% 0.98% 0.96% 0.98% at all times
--------------------- ----------- ----------- -------------- ------------ --------------------------
To reflect the
risk associated
Weighted average with the underlying
discount rate 8.39% 8.21% 7.86% 7.56% investments
--------------------- ----------- ----------- -------------- ------------ --------------------------
Weighted average 24.6 24.2 23.7 22.6 Maintain/renew
PPP/PFI concession years years years years the longevity
life of the portfolio
--------------------- ----------- ----------- -------------- ------------ --------------------------
Weighted average 23.2 21.3 19.2 19.2 Maintain long-term
portfolio years years years years financing of
debt maturity the portfolio
--------------------- ----------- ----------- -------------- ------------ --------------------------
Five largest
investments
as a percentage
of the portfolio
by value 51% 40% 41% 42% Portfolio diversification
--------------------- ----------- ----------- -------------- ------------ --------------------------
Largest investment 17% 13% 12% (Northern 13% To be less than
as a percentage (Golden (Golden Territory (Golden 20% at time
of the portfolio Ears Ears Secure Ears of acquisition
by value Bridge) Bridge) Facilities) Bridge)
--------------------- ----------- ----------- -------------- ------------ --------------------------
Inflation Not Not Approx. Approx. To maintain
correlation reported reported 0.50% 0.50% a strong correlation
of the portfolio
(+/-1%)
--------------------- ----------- ----------- -------------- ------------ --------------------------
The Company's portfolio of investments performed well during the year, with cash flows ahead of the business plan. During the year, the investment portfolio enjoyed a significant uplift in valuation driven primarily by the weakening of Sterling against all major currencies in the wake of the UK EU membership referendum, and also as a result of continued active management, the construction completion effect on discount rates, disciplined cost control and the continued strong market demand for PPP infrastructure assets.
It is worth noting that whilst foreign exchange has played a significant part in contributing to the portfolio value growth during the year under review this should however be put into context. Since listing in December 2011 the cumulative net effect of foreign exchange movement on BBGI's portfolio valuation has been an uplift in value of GBP6.6 million or 1.2% of the NAV at 31 December 2016.
In light of the continued favourable portfolio performance, the Board resolved to increase its annual dividend target from 6.00 pence per share to 6.25 pence per share, which represents an increase of 4.2%.
Growth in the portfolio
Interest in PPP infrastructure assets once again remained robust throughout 2016. As reported last year there is more investment capital searching for PPP assets than there is supply, maintaining pressure on prices. While this environment has been positive from a portfolio valuation perspective, it has been more difficult to identify and acquire projects on terms that are accretive to shareholders.
New Secondary Acquisitions
In March, BBGI completed the acquisition of 100% of the equity and subordinated debt interests in the Belfast Metropolitan College ("BMC") project in Northern Ireland. BMC is an educational campus composed of two five-storey teaching facilities and a two-storey engineering facility with associated car parking and a landscaped courtyard. The project is operational and the concession runs until January 2026. The BMC acquisition was part of a transaction that included the North West Regional College ("NWRC") project, also in Northern Ireland, which transferred in December 2015. Because the Company has had previous dealings with the vendor, the acquisition of these projects was conducted on a directly negotiated basis without having to engage in a broad auction process. The combined acquisition cost for both projects was GBP11.7 million. BBGI will receive availability payments during the concession periods from the governing bodies of each of BMC and NWRC.
While only one acquisition completed during the year, it was not due to lack of interest, but rather adherence to our investing discipline. There were many investment opportunities presented to, and considered by, BBGI in 2016 but none of them was considered value accretive to shareholders. We came close to transacting on opportunities in Canada and Australia, but ultimately were either outbid or vendors sold to co-shareholders who exercised pre-emption rights. In addition, we have been heavily engaged in a number of consortia bids for primary projects, as described below.
We avoided the broad auction processes and incurred less than GBP100,000 in bid/pursuit costs. We also avoided "strategy drift" and have not altered our investment metric or relaxed our acquisition criteria in order to grow.
Despite a competitive acquisition environment, the Company still expects to grow the portfolio on favourable terms. We are currently considering a number of strategic opportunities which we believe to be attractive.
Primary Investment Activity - bidding on new PPP projects
As our portfolio grows, and projects currently in construction move into their operational phase, we will continue to add construction exposure to maintain an appropriate mix. As a number of senior members of our team have experience managing PPP bids and seeing assets through the construction phase, we believe some exposure (less than 25%) can be attractive. We see this as an opportunity to organically grow the NAV over time and will continue to ensure that the dividend target is not compromised. The substantial construction completion of the Ohio River Bridges project in the US in December 2016 once again demonstrated the value that can be generated by successfully taking a project from construction to operational phase.
We are continuing to actively build our pipeline of development opportunities ("primary investments") to replace those projects that have become operational.
Primary investment activities involve sourcing and originating, bidding for and winning new infrastructure development projects, typically as part of a consortium for PPP projects. Often these primary PPP bids are led by construction companies that are keen to secure the opportunity to construct the asset, but may be keen to have a partner like BBGI for a number of reasons:
-- consortia are attracted to BBGI because of our extensive project credentials that can assist with the shortlisting process;
-- having a financial partner is a pre-requisite for some construction companies so they can avoid consolidating the project company debt onto the balance sheet of the parent company;
-- BBGI's cost of capital is often lower than construction companies, so involving BBGI can make the bid more competitive;
-- BBGI is a long-term investor which is attractive to government and government-backed counterparties; and
-- BBGI is considered a reliable source of liquidity should a construction partner decide to sell in the future.
2016 has been a busy year for the Company in terms of building up a primary development pipeline, which saw BBGI join various consortia formed to pursue major transport infrastructure projects in North America, Australia and Europe:
Gordie Howe International Bridge (Can/US): BBGI is a member of one of three consortia short-listed to develop proposals for the Gordie Howe International Bridge with an expected cost in excess of C$2 billion. The bridge is a high profile project which will connect Michigan and Ontario and will be paid for by the Canadian federal government. The formal procurement process began in Q3 2016 and, if successful, financial close will occur in H2 2017.
Fargo-Moorhead Flood diversion project (US): BBGI is a member of one of four consortia which were short-listed for the approximately US$800 million Fargo-Moorhead flood diversion PPP opportunity in North Dakota, USA. The procurement process began in December 2016.
Outer Suburban Arterial Roads (AUS): BBGI is member of one of three consortia short-listed for an A$1.8 billion PPP project to upgrade and maintain eight arterial roads in the western suburbs of Melbourne, Australia. The project is the first of its kind in Australia and calls for duplication and widening as well as maintaining 700 km of roads between the suburbs of Werribee and Footscray. It is the first part of the Outer Suburban Arterial Roads program, and a larger package of motorway and suburban road upgrades worth A$6.2 billion (GBP3.8 billion).
Norwegian Pipeline: BBGI is a member of a consortium seeking to pre-qualify for an upcoming pipeline of PPP projects in Norway. The first road project is the RV3/RV25 Ommangsvollen-Grundset (Central Norway), the procurement process for which is expected to start in Q2 2017. The transaction size is expected to be approximately GBP360 million.
In addition, BBGI is in advanced discussions on various other transport projects, and is supporting consortia to pursue social infrastructure projects.
These primary investment opportunities are considered attractive to the Management Board because they are typically well priced on a risk-adjusted basis. Nevertheless, each opportunity will be subject to detailed due diligence on a case-by-case basis.
Although there is no certainty that BBGI and its consortia partners will be finally selected on any of the above- mentioned projects, the pipeline is attractive and we aim to continue to develop it further.
This primary investment activity demonstrates BBGI's ability to grow the portfolio of infrastructure investments not only by acquiring operational projects but also by partnering with construction companies in consortium bids on new PPP projects. BBGI will continue to selectively pursue further growth opportunities in both new and existing assets. Further information on construction risk can be obtained from the Company's prospectus which is available on the Company's website.
Future growth
Since going public in 2011, the Management Board has been able to grow the Company successfully from 19 assets to 39 assets as at 31 December 2016. The Company has benefitted from the Management Board's ability to source attractive investment opportunities from a variety of sources and in different geographies.
The Management Board has been very conscious of the need to exercise restraint and discipline in pursuing selective and accretive growth. To this extent our strategy has not changed, we will remain very selective and surgical in pursuing new investment opportunities and will only move forward with those opportunities which we believe will create shareholder value. There are a handful of core guidelines that we will continue to follow in 2017:
Remain disciplined on price: We will remain focused on pursuing opportunities that are accretive. We believe our internal management structure serves us well in this regard. As the only internally managed London-listed PPP Investment Company, the individuals making the investment decisions work directly for the Company and not for an external manager. Unlike the structure with a typical external manager, the management team is not rewarded for assets under management or paid acquisition fees. Therefore there is a clear alignment of interests between the Company's management and its shareholders with no bias for growth at BBGI unless it is beneficial to shareholders.
Follow through on integration and asset management initiatives: In an increasingly competitive acquisition environment, bidders are often requested to consider synergies and various savings as part of their bids to be successful. Synergies and savings will only be priced when management are confident they can be achieved. For an acquisition to be value accretive these enhancements need to be implemented post acquisition, so we will only price those enhancements we are comfortable to achieve post-acquisition.
Keep an eye on bid costs: While we will continue to examine and consider a wide variety of opportunities, we will remain focused on bid costs and will only incur due diligence costs for opportunities where we have a reasonable prospect of success. We will be careful in allocating our energy and budgets only to the best opportunities. In 2016, BBGI incurred less than GBP100,000 of broken bid costs. Additionally, we have kept our costs low over the reporting period by having a relatively modest credit facility (GBP110 million) which results in lower standby fees, while still retaining the flexibility to consider larger transactions by having a further GBP70 million accordion tranche for which no standby fees are paid.
While price is always a key consideration, BBGI has been able to differentiate itself in a number of transactions by being able to transact quickly and discreetly, having specific credentials and regional knowledge, or offering the best value by being able to consider synergies or efficiencies. We remain optimistic that we will be able to continue to grow the portfolio on attractive terms.
Construction exposure
The Company's investment policy is to invest principally in projects that are operational and that have completed construction. Accordingly, investment in projects that are under construction will be limited to 25% of the Portfolio Value. The rationale for this approach is to be able to produce a stable dividend for our shareholders, while at the same time gaining some exposure to the potential NAV uplift that occurs when projects move from a successful construction stage to the operational stage.
As at 31 December 2016, BBGI has two projects - Mersey Gateway Bridge and North Commuter Parkway - which are currently in construction. These projects account for 3% of portfolio value on a pro forma basis([18]) . Construction in each case is being carried out by experienced contractors with a proven track record for delivery. The monitoring and management of these projects will continue to be a key focus for the Management Board in 2017.
While there is some increased risk associated with investing in projects during the construction phase, we believe the higher returns afforded during the construction phase are attractive on a risk-adjusted basis. We also consider these risks to be manageable as the construction risk is generally passed down to creditworthy construction subcontractors. The typical construction contract is a fixed-price, date-certain contract where the construction contractor is responsible for any potential cost overruns or delays. Construction support packages typically consist of letters of credit or bonds from third parties and, to the extent necessary, parent company guarantees from the parents of the construction companies.
In addition, the Company's asset management team has several individuals with specific PPP construction experience to help identify, manage and, where possible, mitigate any potential risks relating to construction. The skills inherent in this team have given the Company the confidence to pursue primary development opportunities.
During the year, the Management Board oversaw the completion of the Ohio River Bridges project, which opened to traffic on time and on-budget on 18 December 2016. Despite cold weather, over 500 enthusiastic motorists participated in the opening ceremonies and then joined the public caravan in order to be among the first to cross the bridge and drive the 8 1/2 mile bridge and tunnel project. At the opening ceremony, the bridge was officially named the Lewis and Clark Bridge.
Over the past five years, BBGI has participated in several similar opening ceremonies and demonstrated its ability to successfully manage projects from the construction phase into the operational phase across three continents. Past projects which were successfully transitioned into the operational phase, and in doing so delivered NAV uplift, include Avon & Somerset Police Headquarters (UK), Mersey Care Mental Health Facility (UK), Finchley Memorial Hospital (UK), Women's College Hospital (Canada), and Northern Territory Secure Facilities (Australia).
The Management Board believes that the Company's ability to meet its dividend targets has not been compromised by this construction exposure and will continue to monitor this closely as the portfolio grows.
BBGI remains optimistic for further NAV growth, particularly once the two projects currently in construction within the Company's portfolio move closer to, and into, the operational phase. The ability to provide such organic growth in NAV as particular potential risks in assets reduce over time is an important and differentiating characteristic of the Company.
As we look forward to 2017 and beyond, we would hope that some of the primary development opportunities for which we have been short-listed or are considering (including those described in more detail in the 'Growth in the portfolio' section earlier in this report) will materialise into new investment opportunities, and will replace some of the current construction exposure as these projects complete and move towards the stable operational phase of their lifecycle.
Hedging
The Company's global portfolio of assets brings with it an inevitable exposure to foreign exchange movements on future portfolio distributions denominated in Australian dollars (AUD), Canadian dollars (CAD), euros (EUR), Norwegian kroner (NOK) and US dollars (USD). A review of the hedging strategy is carried out on an annual basis. The Management Board has implemented a policy of using forward contracts to hedge a portion of its anticipated foreign currency portfolio distributions. The Company seeks to provide protection for Sterling dividends that it aims to pay on the ordinary shares over the next four years, in order to reduce the risk of currency fluctuations and the volatility of returns that may result from such currency exposure.
While the Company tries to mitigate the impacts of foreign currency movements on the NAV by hedging a portion of the expected distributions coming from the portfolio over the next four years, it would not be economical to attempt to fully immunise the portfolio against any NAV changes due to foreign exchange movements.
The portfolio benefited from a foreign exchange gain of GBP51.2 million over the course of 2016. The net uplift in portfolio value from foreign exchange since listing in December 2011 has been GBP6.6 million or 1.2% on a NAV per share basis.
In March 2016, the Company, in accordance with its hedging policy, entered into a number of forward currency contracts in order to partially hedge the impact of currency fluctuations on portfolio distributions over the hedged period. The hedges were rolled for a period of four years. Also in July, the Company entered into a number of additional currency forwards, again in accordance with its hedging policy. By hedging in July it enabled the Company to lock in favourable exchange rates when compared to the closing rates used for the 31 December 2015 valuation. The Company does not currently hedge euro cash flows, as it currently forecasts that these cash flows will continue to be used to cover the Group's running costs which are largely euro denominated.
At 31 December 2016, 61% of the portfolio by value has cash flows denominated in currencies other than Sterling.
Investment performance
Share price
The Company's share price has performed well and has maintained a strong premium to NAV through the reporting period. We continue to believe that a key benefit of the portfolio is the high-quality cash flows derived from long-term government-backed contracts. As a result, the portfolio performance is largely uncorrelated to the many wider economic factors that may cause market volatility in other sectors.
The share price closed the year at GBP1.38, an increase of 6.7% in 2016 representing a 9.4% premium to the NAV per share at the year-end. TSR in calendar year 2016 was 11.2% whilst TSR from IPO to 31 December 2016 was 70.7% or a CAGR of 11.2%.
The shareholder return for the year ended 31 December 2016 was 18.6% on a growth in NAV per share and dividend paid basis([19]) .
Distribution policy
Distributions on the ordinary shares are planned to be paid twice a year, normally in respect of the six months to 30 June and the year ended 31 December. Subject to market conditions and to the level of the Company's available funds, it is intended that distributions will be paid twice per annum in May/June and in October.
Dividends
On 29 June 2016, the Company paid a final dividend of 3.00 pence per share for the year ended 31 December 2015. In August 2016, BBGI announced an increase in its annual dividend target from 6.00 pence per share to 6.25 pence per share, which represents an increase of 4.2%. The 2016 interim dividend of 3.125 pence per share was paid on 26 October 2016. The Board proposes a final dividend of 3.125 pence per share (with a scrip alternative) for the year ended 31 December 2016, which would result in a total distribution of 6.25 pence per share for the year.
Investor communications
The Company places great importance on communication with its shareholders and welcomes their views. It is the intention of the Company to remain at the forefront of disclosure and transparency in its asset class, and therefore the Boards regularly review the level and quality of the information that the Company makes public.
Formal reports are made by the Company twice a year through the annual and interim reports and financial statements. In addition, management statements and other current information on the Company provided through the Company's website pages and market announcements assist in keeping investors and other interested parties informed. At Shareholder General Meetings, each share is entitled to one vote; all votes validly cast at such meetings (including by proxy) are counted, and the results of such meetings are announced by the Company on the day of the relevant meeting.
The Boards are keen to develop and maintain positive relationships with the Company's shareholders. As part of this process, at the end of March and August each year immediately following release of the annual and interim results, the Co-CEOs present the results to analysts and subsequently conduct roadshows and offer shareholder visits to discuss the results, explain the ongoing strategy and receive feedback.
Outside of these formal visits, feedback from investors is received via the Management Board and the Corporate Brokers and, together with the feedback from results meetings, this is reported to the Supervisory Board. Throughout the year under review, Board members have made themselves available to major shareholders and key sector analysts, both collectively and on a one-to-one basis, for discussion of key issues and expectations around Company performance, and will continue to do so. Board members intend to continue to be available to meet with shareholders periodically to facilitate open two-way communication on the development of the Company. Shareholders may contact members of both the Management and Supervisory Boards at the registered office of the Company, which address can be found on the final page of the Annual Report or on the Company's website at www.bb-gi.com. Given this level of engagement with shareholders, the Boards consider therefore that they meet the requirements of AIC Code Principle 19.
Share capital
The issued share capital of the Company is 432,215,636 ordinary shares of no par value. All of the ordinary shares issued rank pari passu. There are no special voting or other rights attaching to any of the ordinary shares. During the year ended 31 December 2016 the Company issued 1,822,633 shares as a result of shareholder scrip elections.
Share Issue Price Restriction
As previously reported, under the Luxembourg law of 17 December 2010 on undertakings for collective investments, the Company is restricted from issuing shares at a price exceeding the NAV per share plus 5%. This same restriction is also referred to in the Company's Articles. At 31 December 2016 the Company's shares were trading at a premium of 9.4% to NAV per share.
A Bill of Law seeking to remove this NAV per share +5% limitation for closed-ended funds was approved by the Council of Government in December 2015 and tabled with the Luxembourg Parliament in January 2016. In anticipation of the change in law, the Company convened an EGM of its shareholders on 30 April 2016, the purpose being to request shareholders' approval to remove the reference to the 5% restriction from the Company's articles (subject to the Bill being enacted into law). This was successfully achieved with over half the Company's shareholders voting on the three resolutions proposed, and 100% of them voting in favour. It was anticipated that the Luxembourg parliament would enact the suggested amendments into law during the course of Q3 or Q4 2016, however this is still awaited and there is currently no indication as to when this might happen. Whilst the law remains unchanged ,the Company will continue to adhere to the current Luxembourg law and UK Listing Rules when setting the price of new issues.
Voting rights
There are no restrictions on the voting rights attaching to ordinary shares.
Discount management
Although the Company's shares have traded at a premium since flotation, the Management Board will actively monitor any discount to the NAV per ordinary share at which the ordinary shares may trade in the future. The Management Board will report to the Supervisory Board on any such discount and propose actions to mitigate this.
Purchases of ordinary shares by the Company in the market
In order to assist in the narrowing of any discount to the NAV at which the ordinary shares may trade from time to time and/or to reduce discount volatility, the Company may, subject to shareholder approval:
-- make market purchases of up to 14.99% p.a. of its issued ordinary shares; and
-- make tender offers for the ordinary shares.
No shares have been bought back during the year ended 31 December 2016. The most recent authority to purchase ordinary shares which may be held in treasury or subsequently cancelled was granted to the Company on 30 April 2016 and expires on the date of the next Annual General Meeting ("AGM") to be held on 28 April 2017 at which point the Company proposes that its authority to buy back shares be renewed.
Continuation vote
The Company's Articles of Association required the Boards to offer a continuation vote to the Company's shareholders at the AGM held on 30 April 2015 to allow the Company to continue in its current form, with a further vote every two years. In accordance with the Articles therefore, a further continuation vote will be offered to shareholders at the forthcoming AGM on 28 April 2017.
Details of substantial shareholders
As at 10 March 2017, being the latest available information, management are aware of the following shareholders holding more than 5% of the Company's ordinary shares.
% of total
Name Held share capital
----------------------- ------------------ -----------------------
M&G Investments 69,363,317 16.0
Newton Investment
Management 60,290,646 13.9
Schroder Investment
Management 40,432,673 9.4
London Stock Exchange
Listing Chapter 15 premium listing, closed-ended
investment company
Trading Main Market
ISIN LU0686550053
SEDOL B6QWXM4
Ticker BBGI
Indices FTSE All-Share and FTSE SmallCap
VALUATION
The Management Board is responsible for carrying out the fair market valuation of the Company's investments, which it then presents to the Supervisory Board. The valuation is carried out on a six-monthly basis as at 30 June and 31 December each year. An independent professional third party reviews this valuation.
The valuation is determined using the discounted cash flow methodology. The cash flows forecast to be received by the Company or its subsidiaries, generated by each of the underlying assets, and adjusted as appropriate to reflect the risk and opportunities, have been discounted using project-specific discount rates. The valuation methodology remains unchanged from previous reporting periods.
The Company uses the following macroeconomic assumptions for the cash flows:
Macroeconomic assumptions End of period 2017 2018-2020 2021 onwards -------------------- ---------------- ---------------- ---------------- UK Indexation (%) (1) 1.75 2.75 2.75 Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Corporate Tax (%) (9) 19.0 19.0 17.0 Canada Indexation (%) 1.00/1.35 2.00/2.35 2.00/2.35 (1,2) Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Corporate 27.0/26.0/26.5 27.0/26.0/26.5 27.0/26.0/26.5 Tax (%) (3) GBP/CAD as at 31 December 2016 (4) 1.659 1.659 1.659 Australia Indexation (%) (1,5) 1.50 2.50 2.50 Deposit Interest 3.50/4.50 3.50/4.50 3.50/4.50 Rate (%) (1,6) SPC Corporate Tax (%) 30.0 30.0 30.0 GBP/AUD as at 31 December 2016 (4) 1.714 1.714 1.714 Germany Indexation (%) (1) 1.00 2.00 2.00 Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Corporate Tax (%) (7) 15.8 15.8 15.8 GBP/EUR as at 31 December 2016 (4) 1.173 1.173 1.173 Norway Indexation (%) (1,8) 1.94 2.94 2.94 Deposit Interest Rate (%) (1) 1.8 1.8 3.5 SPC Corporate Tax (%) 25.0 25.0 25.0 GBP/NOK as at 31 December 2016 (4) 10.665 10.665 10.665 USA Indexation (%) (1,10) 1.50 2.50 2.50 Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Federal Tax (%) 35.0 35.0 35.0 GBP/USD as at 31 December 2016 (4) 1.234 1.234 1.234
(1 A lower inflation rate for 2017 is used in the project entities' financial models when compared to the previous valuation. This is applicable for projects for which the documentation does not prescribe the actual published rate, if available, to be used for the next 12 months from the date of the indexed being published. The short-term 1% transition deposit rate period has been extended by one additional year. 2 All Canadian projects have a long-term 2.0% indexation factor with the exceptions of North East Stoney Trail and Northwest Anthony Henday Drive, which have a slightly different indexation factor derived from a basket of regional labour, CPI and commodity indices. 3 Tax rate is 27% in Alberta and Saskatchewan, 26% in British Columbia and 26.5% in Ontario. 4 As published on www.oanda.com. 5 Long-term Consumer Price Index 2.50%/long-term Labour Price Index 3.50%. 6 Cash on Debt Service Reserve Accounts and Maintenance Service Reserve Accounts can be invested on a six-month basis. Other funds are deposited on a shorter term. 7 Including Solidarity charge, excluding Trade tax which varies between communities. 8 Indexation of revenue based on basket of four specific indices. 9 UK Corporate tax decreases from 19% to 17% in 2020. 10 80% of ORB indexation factor for revenue is contractual and is not tied to CPI.)
Other key inputs and assumptions include:
-- Any deductions or abatements during the operations period are passed down to subcontractors or are part of the planned lifecycle expenditures.
-- Cash flows to and from the Company's subsidiaries and the portfolio investments are received at the times anticipated.
-- Where the operating costs of the Company or portfolio investments are fixed by contract, such contracts are performed, and where such costs are not fixed, they are in line with the budget.
-- The contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated before their contractual expiry dates.
Over the 12-month period from 31 December 2015 to 31 December 2016, the Company's NAV increased from GBP479.8 million to GBP545.0 million. The increase in NAV per share from 111.5 pence to 126.1 pence or 13.1% is primarily a result of the key drivers listed below:
NAV movement 31 December 2015 to 31 December 2016
NAV movement 31 December 2015 GBP million
to 31 December 2016
---------------------------------------------------- -----------------------
Net asset value at 31 December
2015 479.8
---------------------------------------------------- -----------------------
Add: other net liabilities at
31 December 2015(1) 25.0
---------------------------------------------------- -----------------------
Portfolio value at 31 December
2015 504.8
---------------------------------------------------- -----------------------
Change in foreign exchange 51.2
---------------------------------------------------- -----------------------
Change in market discount rate 10.5
---------------------------------------------------- -----------------------
Change in macro-economic assumptions(2) (14.1)
---------------------------------------------------- -----------------------
Acquisitions/follow-on investments 9.5
---------------------------------------------------- -----------------------
Distributions from projects(3) (41.7)
---------------------------------------------------- -----------------------
Rebased opening portfolio value
at 1 January 2016 520.2
---------------------------------------------------- -----------------------
Construction completion change
in discount rate(4) 6.5
---------------------------------------------------- -----------------------
Unwinding of discount and value
enhancements 43.2
---------------------------------------------------- -----------------------
Portfolio value at 31 December
2016 569.9
---------------------------------------------------- -----------------------
Other net liabilities at 31 December
2016(1) (24.9)
---------------------------------------------------- -----------------------
Net asset value at 31 December
2016 545.0
---------------------------------------------------- -----------------------
(1) These figures represent the assets and liabilities of the Group's consolidated subsidiaries; they exclude the project investments and include, amongst other items, the Group's consolidated cash balances and borrowings.
(2) This represents the net effect of assumed lower deposit rates, lower inflation rate for 2017, lower UK tax rate and lower Norwegian tax rate.
(3) While distributions from projects reduce the portfolio value, they do not have an impact on the Company's NAV as the effect of the reduction in the portfolio value (investments at fair value through profit or loss) is offset by the receipt of cash (cash and cash equivalents) at the consolidated group level. These distributions are shown net of withholding tax.
(4) The uplift resulting from the transition of Women's College Hospital (Canada) project from ramp-up phase towards the stable operational phase, and the Ohio River Bridges project from construction to the ramp-up phase. In addition, the construction premiums on the Mersey Gateway Bridge project and the North Commuter Parkway project have been slightly reduced as we move closer to construction completion.
NAV per share growth December 2011 to 31 December 2016
The table below provides a breakdown of the component parts that contributed to the growth in the NAV per share from listing in December 2011 to 31 December 2016.
NAV per share growth December Pence per 2011 to 31 December 2016 share -------------------------------------- ----------------- NAV/share December 2011 97.9 -------------------------------------- ----------------- Change in market discount rate 8.0 -------------------------------------- ----------------- Portfolio change in FX 1.5 -------------------------------------- ----------------- Change in macro-economic assumptions (4.6) -------------------------------------- ----------------- Construction completion 3.6 -------------------------------------- ----------------- Value enhancements 11.1 -------------------------------------- ----------------- Other net cash effects (1) 8.6 -------------------------------------- ----------------- NAV/share December 2016 126.1 -------------------------------------- -----------------
(1) Includes amongst others the effect from the unwinding of discount and from capital increases.
Key drivers for NAV growth
Growth based on rebased valuation
During the year ended 31 December 2016 the Company recognised GBP43.2 million from the "unwinding of discounts" and value enhancements. As the Company moves closer to forecast project dividend payment dates, the time value of those cash flows increases on a net present value basis as a result of the "unwinding of discount". The portfolio value growth from the unwinding of discount during the year was approximately GBP41.1 million or 8.5% on a NAV per share basis.
The difference, GBP2.1 million, or 0.4% on a NAV per share basis, above the anticipated growth from unwinding of discount, represents a value enhancement made up of the net effect of value enhancements across the portfolio through active management, which include amongst others:
-- Renewal or change of service provider of Management Services Agreements for the Australian assets, and for some UK, German and Canadian assets on more favourable terms;
-- Lower forecast insurance costs;
-- Lower costs realised and forecast on some projects;
-- Earlier than forecast extraction of cash;
-- Additional income on variation orders;
-- A more favourable tax status on three assets;
-- The net result of the gain on the refinancing of the Staffordshire Fire and Rescue Service project, the loss realised on the refinancing of the Northern Territory Secure Facilities ("NTSF") project, and the estimated loss on the refinancing of the Royal Women's College Hospital ("RWH") project.
The net effect of inflation, against the 31 December 2015 modelled assumptions, on the portfolio value has been negative.
Discount rates and sensitivity
The discount rates used for individual assets range between 7.30% and 10.20%. The value weighted average rate is approximately 7.56% (7.86% at 31 December 2015). This methodology calculates the weighted average based on the value of each project in proportion to the total portfolio value, i.e. based on the net present value of their respective future cash flows.
An alternative methodology to calculate the weighted average discount rate would be to calculate the weightings based on the nominal future cash flows for each project. Based on that calculation, the rate is 7.68% (8.02% at 31 December 2015).
The discount rates used for individual project entities are based on BBGI's knowledge of the market, discussions with advisors and publicly available information on relevant transactions.
We have differentiated the asset classes with respect to discount rates. For stable operational projects, such as typical schools, hospitals and roads, we have applied discount rates at the lower end of the range mentioned above. Further adjustments have been applied to acute hospitals in the UK where a risk premium of 50bps continues to be applied. This risk premium reflects the special situation in the UK where public health clients are under cost pressure and are actively looking for savings. This drive for cost savings has resulted in some large deductions on UK acute hospitals and, consequently, distribution lock ups. To date BBGI has not been affected, with the only acute hospital in the BBGI portfolio being the Gloucester Royal Hospital. BBGI continues to apply a modest risk premium for complex prison projects to reflect the higher complexity of such projects, and also applied a risk premium to a limited number of projects to reflect the individual situations.
The following table shows the sensitivity of the NAV to a change in the discount rate:
Discount Rate Sensitivity Change in Net Asset
Value
31 December 2016
-------------------------------------- ------------------------
Increase by 1% to 8.56%(1) GBP(52.6) million, i.e.
(9.7)%
-------------------------------------- ------------------------
Decrease by 1% to 6.56%(1) GBP61.4 million, i.e.
11.3%
-------------------------------------- ------------------------
(1) Based on the average discount rate of 7.56%.
Foreign exchange and sensitivity
BBGI values its portfolio of assets by discounting anticipated future cash flows. The present value of these cash flows are converted to Sterling at either the hedged rate, for a predetermined percentage of cash flows forecast to be received over the next four years, or at the closing rate for unhedged future cash flows. Although the closing rate is the required conversion rate to use, it is not necessarily representative of future exchange rates as it reflects a specific point in time.
Other than the four-year contracted hedge rates, the Company has used the following exchange rates to value the portfolio:
F/X rates F/X rates
as at 31 December as at 31 December
2015 2016
-------------------- ------------------- -------------------
GBP/AUD 2.028 1.714
-------------------- ------------------- -------------------
GBP/CAD 2.053 1.659
-------------------- ------------------- -------------------
GBP/EUR 1.357 1.173
-------------------- ------------------- -------------------
GBP/NOK 13.042 10.665
-------------------- ------------------- -------------------
GBP/USD 1.480 1.234
-------------------- ------------------- -------------------
A significant proportion of the Company's underlying investments are denominated in currencies other than Sterling. The Company maintains its accounts, prepares the valuation and pays distributions in Sterling. Accordingly, fluctuations in exchange rates between Pounds Sterling and the relevant local currencies will affect the value of the Company's underlying investments. During 2016, the depreciation of Pounds Sterling against the AUD, CAD, NOK, EUR and USD accounted for an increase in the portfolio value of GBP51.2 million. Since listing in December 2011, the net cumulative effect of foreign exchange movement on the portfolio value has been an uplift of GBP6.6 million or 1.2% of NAV at 31 December 2016.
The following table shows the sensitivity of the net asset value to a change in foreign exchange rates:
Foreign Exchange Sensitivity Change in Net Asset
Value
31 December 2016
---------------------------------------- ------------------------
Increase by 10%(1) GBP(27.9) million, i.e.
(5.1)%
---------------------------------------- ------------------------
Decrease by 10%(1) GBP34.1 million, i.e.
6.3%
---------------------------------------- ------------------------
(1) Sensitivity in comparison to the foreign exchange rates at 31 December 2016 and taking into account the hedges in place, derived by applying a 10% increase or decrease to the GBP/foreign currency rate.
Inflation sensitivity
The project cash flows are positively correlated with inflation (e.g. RPI or CPI). The table below demonstrates the effect on the NAV of a change in inflation rates compared to the macroeconomic assumptions in the table above:
Inflation Sensitivity Change in Net Asset
Value
31 December 2016
--------------------------------- ------------------------
Inflation +1%(1) GBP31.5 million, i.e.
5.8%
--------------------------------- ------------------------
Inflation -1%(1) GBP(27.0) million, i.e.
(5.0)%
--------------------------------- ------------------------
(1) Compared to the assumptions set out in the macroeconomic assumptions above.
Deposit rate sensitivity
The project cash flows are positively correlated with the deposit rates. The table below demonstrates the effect on the NAV of a change in deposit rates compared to the macroeconomic assumptions above:
Deposit Rate Sensitivity Change in Net Asset
Value
31 December 2016
------------------------------------ ------------------------
Deposit rate +1%(1) GBP11.8 million, i.e.
2.2%
------------------------------------ ------------------------
Deposit rate -1%(1) GBP(11.7) million, i.e.
(2.2)%
------------------------------------ ------------------------
(1) Sensitivity in comparison to the assumptions set out in the macroeconomic assumptions above.
Lifecycle costs sensitivity
Of the 39 projects in the portfolio, 13 project companies retain the lifecycle obligations. The remaining 26 projects have this obligation passed down to the subcontractor. The table below demonstrates the impact on the NAV of a change in lifecycle costs:
Lifecycle Costs Sensitivity Change in Net Asset
Value
31 December 2016
--------------------------------------- ------------------------
Increase by 10%(1) GBP(13.4) million, i.e.
(2.5)%
--------------------------------------- ------------------------
Decrease by 10%(1) GBP13.2 million, i.e.
2.4%
--------------------------------------- ------------------------
(1) Sensitivity applied to the 13 projects in the portfolio which retain the lifecycle obligation, i.e. the obligation is not passed down to the subcontractor. These projects represent 49% of the total portfolio value as at 31 December 2016.
The Management and Supervisory Boards have approved the net asset value calculation on an Investment Basis as at 31 December 2016.
FINANCIAL RESULTS
BASIS OF ACCOUNTING
The Company has prepared its financial statements under IFRS. In accordance with IFRS 10, IFRS 12 and IAS 27, the Company (an Investment Entity) does not consolidate certain subsidiaries, in a similar manner to the Company's pro forma investment basis data, which continue to be included in this section of the Report of the Management Board. As an Investment Entity, the Company does not consolidate its investments in PPP assets that are subsidiaries on a line by line basis, but instead recognises them as investments at fair value through profit or loss.
INCOME AND COSTS
Pro forma Income Statement Year ended Year ended
31 Dec 31 Dec
16 15
GBP million GBP million
---------------------------------- ------------ ------------
Fair value movements 99.5 42.0
Other (expenses)/income -
net (10.4) 1.8
---------------------------------- ------------ ------------
Total profit before corporate
costs 89.1 43.8
Corporate costs (excluding
income tax) (8.0) (7.0)
Foreign exchange gains/(losses) 1.4 (0.6)
---------------------------------- ------------ ------------
Net earnings before taxes 82.5 36.2
Income tax (2.3) (0.6)
---------------------------------- ------------ ------------
Net earnings 80.2 35.6
Basic earnings per share (pence) 18.56 8.27
---------------------------------- ------------ ------------
The fair value movement on the portfolio was primarily
driven by the effect of foreign exchange movements
on the portfolio value, the unwinding of discount,
a decrease in discount rates and project level
cost optimisations resulting in an income of GBP99.5
million (31 December 2015: GBP42.0 million). One
notable component of the fair value movements was
the effect of foreign exchange movements on the
portfolio value during the year ended 31 December
2016 which resulted in a gain of GBP51.2 million
(31 December 2015: GBP24.1 million loss). A detailed
analysis of the movement in the fair value of the
portfolio is highlighted in the Valuation section
of this report.
The net Other expenses incurred in 2016 include
an amount of GBP10.9 million relating to the loss
resulting from the change in the fair valuation
of the derivative financial instruments i.e. the
forward currency contracts.
The Corporate costs are composed mainly of administration
costs of approx. GBP5.5 million inclusive of non-recoverable
VAT and net finance costs of approx. GBP2.3 million.
Net earnings for the year have increased by 125.3%
to GBP80.2 million (2015: GBP35.6 million).
Group Level Corporate Cost Analysis
The table below is prepared on an accruals basis.
Year ended Year ended
31 Dec 31 Dec
16 15
Corporate costs GBP million GBP million
---------------------------------- ------------ ------------
Interest expense and other
finance cost 2.3 1.9
Staff costs 3.2 2.7
Fees to non-executive directors 0.1 0.1
Professional fees 0.9 0.7
Office and administration 0.9 0.9
Acquisition related costs 0.2 0.5
Taxes (including non-recoverable
VAT) 2.7 0.8
Corporate costs 10.3 7.6
---------------------------------- ------------ ------------
The Company increased the corporate credit facility in May 2016 from GBP80 million to GBP110 million. The increase in interest and other finance costs is predominantly due to this larger facility.
The comparative increase in Staff Costs is mainly due to foreign exchange movements during the reporting period. The majority of the Groups employees receive payment in euros with all remuneration converted into the Company's functional currency, Sterling, for reporting purposes. During the year ended 31 December 2016, there was a notable strengthening of the euro against Sterling resulting in an increase in Staff Costs on a Sterling or functional currency basis only. The Company continues to utilise its euro denominated project distributions to partially fund the Company's euro denominated working capital requirements and therefore continues to benefit from the natural foreign exchange hedge that this offers. Further detail of staff costs is provided in the Remuneration section.
Of the acquisition costs incurred during the year, only GBP96,000 related to unsuccessful bid costs which did not result in a value accretive acquisition.
The comparative increase in taxes was primarily driven by the withholding tax applied on portfolio distributions throughout the year.
Ongoing Charges
The "Ongoing Charges" ratio was prepared in accordance with the AIC recommended methodology. The ratio represents the reduction in shareholder returns as a result of recurring operational expenses incurred in managing BBGI.
The Company is internally managed and, as such, is not subject to performance fees or acquisition-related fees.
2016 2015
Ongoing Charges GBP million GBP million
----------------------------- ------------ ------------
Ongoing Charges 5.1 4.5
Average undiluted net asset
value 515.6 471.8
Ongoing Charges (%) 0.98% 0.96%
----------------------------- ------------ ------------
For the year ended 31 December 2016, certain non-recurring costs have been excluded from the
Ongoing Charges, most notably acquisition-related advisory costs of GBP0.2 million (inclusive
of VAT), direct taxation of GBP2.3 million and finance costs of GBP2.3 million.
The ongoing charges ratio excludes all non-recurring costs, i.e. costs of acquisition/disposal
of investments, financing charges and gains/losses arising from investments. The ongoing charges
include an accrual for the Short-Term Incentive Plan ("STIP")/bonuses and the Long-Term Incentive
Plan ("LTIP").
BALANCE SHEET
Pro forma balance sheet
31 Dec 16 31 Dec 15
---------------------------------------- -------------------------------------
Investment Adjust Consolidated Investment Adjust Consolidated
Basis IFRS Basis IFRS
GBP million GBP GBP GBP GBP GBP
million million million million million
------------------------- -------------- --------- ------------- ----------- --------- -------------
Investment portfolio
at fair value 569.9 - 569.9 504.8 - 504.8
Adjustments to
investments - 1.7 1.7 - 0.3 0.3
Other assets and
liabilities (net) (3.5) 0.6 (2.9) (3.4) 0.3 (3.1)
Net cash/(borrowings) (21.4) (1.3) (22.7) (21.6) 0.3 (21.3)
Fair value of
derivative financial
instruments - (7.2) (7.2) - 1.7 1.7
-------------- --------- -------------
Net assets attributable
to ordinary shares 545.0 (6.2) 538.8 479.8 2.6 482.4
------------------------- -------------- --------- ------------- ----------- --------- -------------
Under IFRS, the derivative financial instruments, i.e. the forward currency contracts, are presented at fair value. Under the Investment Basis the contracted forward rates are applied to the hedged distributions with the unhedged distributions converted at the 31 December 2016 closing rate.
Summary net corporate cash flow
During the year ended 31 December 2016 the Company received, on a consolidated IFRS basis, GBP42.5 million of portfolio distributions (2015: GBP33.8 million) which was ahead of business plan and the underlying financial models. These distributions were recorded in the standalone financial statements of the recipient as dividends, interest payments, capital and subordinated debt principal repayments.
The net cash receipts for the year ended 31 December 2016, after deducting the net cash outflow for Group operating costs, finance costs, and realised losses on foreign exchange derivatives, were GBP32.6 million (2015: GBP27.9 million).
The table below summarises the cash received by the holding companies from the investments net of certain cash outflows for the Group level corporate costs. For further detail on corporate cash flows, refer to the Consolidated Statement of Cash Flows in the Group's Consolidated Financial Statements.
Year ended Year ended
31 Dec 16 31 Dec
15
-------------------------------------
GBP million GBP million
------------------------------------- ------------- -------------
Distributions from investments
- gross of withholding taxes 42.5 33.8
Net cash outflow from operating
activities before finance costs(1) (6.1) (5.6)
Cash outflow from finance costs
- net (1.8) (1.2)
Realised gain/(loss) on derivative
financial instruments (2.0) 0.9
-------------
Net cash flow 32.6 27.9
------------------------------------- ------------- -------------
(1) Includes the withholding tax deducted at source on the distributions from investments.
Three-year comparative of Investment Basis NAV
2016 2015 2014
----------------------- ------ ------ ------
NAV (millions) 545.0 479.8 465.3
NAV per share (pence) 126.1 111.5 109.2
The published NAV increased by 13.6% to GBP545.0 million at 31 December 2016 (2015: GBP479.8 million). This equates to a growth in NAV per share of 13.1% to 126.1 pence at 31 December 2016 (2015: 111.5 pence).
FINANCING
Tap issue
Following its 2016 AGM, the Company has the ability to issue up to 10% of its issued share capital via tap issues in order to finance further acquisitions or repay debt. The Company intends to ask shareholders to renew this authority at its forthcoming AGM.
The Company also announced today, 29 March 2017, an intended placing of new ordinary shares to raise c. GBP58.5 million at a placing price (equivalent to the 31 December 2016 NAV per share, adjusted for the unwinding of the discount, for foreign exchange movements and a 4.9% premium) of 136.00 pence per share. The proceeds of the placing will be used to substantially repay outstanding borrowings and thereby provide financing flexibility with respect to the Company's investment pipeline.
The Company does not use structural gearing.
Credit facility
The Company has a multi-currency Revolving Credit Facility ("RCF") with ING Bank and KfW IPEX-Bank, and in May 2016 utilised part of the accordion tranche provision, to increase the total commitment from GBP80 million to GBP110 million. The Company retains the ability, by utilising the accordion provision, to increase further the total commitment under the facility to GBP180 million. No commitment fees are paid on the unutilised segment of the accordion tranche.
The Company uses the facility primarily to fund acquisitions and to provide letters of credit for investment obligations. The intention is to repay the facility from time to time through equity fundraisings. The Company does not use structural gearing. The term of the facility is three years, expiring in January 2018. The borrowing margin is 185 bps over LIBOR. At 31 December 2016, the Company had utilised GBP70.3 million of the GBP110 million facility, of which GBP25.1 million has been used to cover letters of credit.
Management intend to commence the process of refinancing the RCF in Q2/Q3 2017.
Project refinancing
In April 2016, BBGI successfully closed the GBP45 million refinancing on the Stoke & Staffordshire Fire Stations ("SSFR") project, realising an attractive margin reduction of 115 bps. This refinancing was carried out on an opportunistic basis with the original loan not due to mature until 2035, further demonstrating BBGI's ability to create shareholder value by active asset management.
Management was pleased with the outcome given that the process concluded in a market where margins were beginning to rise and, consequently, quite a number of refinancings were put on hold or abandoned.
The refinancing of NTSF for a further 5 years concluded in July 2016. The refinancing resulted in a loss compared to our financial model. This loss was mainly due to the unexpected swap close out costs attributable to one lender who was no longer active in the Australian market and, as a result, executed their swap termination rights under the loan agreement.
The 31 December 2016 valuation of RWH was adjusted to reflect the new refinancing assumptions which if realised would result in a refinancing loss. The refinancing process itself commenced during the reporting period and Management expect the process to conclude during H1 2017.
Subject to a successful refinancing of RWH with long-term debt, only NTSF will have short-term debt in place. All other PPP/PFI projects in the BBGI portfolio have long-term amortising debt in place, which will not require refinancing.
It is expected that the long-term amortising debt of Women's College Hospital will be refinanced sometime before July 2019 when there is an increase in the lending margin and a cash sweep in favour of the lenders, both of which act as an incentive to refinance.
Management will actively seek to refinance projects on an opportunistic basis when there is a possibility that it will result in an uplift in the project value. As at 31 December 2016, the weighted average PPP project concession length remaining was 22.6 years and the weighted average portfolio debt maturity was 19.2 years. Debt financing at the project level is structured in a way that does not provide any recourse to the Company.
Status for taxation
As a SICAV, the Company is not subject to taxes on capital gains or income but is subject to an annual subscription tax of 0.05% on its NAV. All of the other Group consolidated companies are subject to taxation at the applicable rate in their respective jurisdictions.
The net income of the unconsolidated subsidiaries is taxed in their respective jurisdictions. As a consequence of the adoption of IFRS 10, the Company is classified as an Investment Entity (see Note 2 of the Consolidated Financial Statements), meaning the tax expenses of the unconsolidated subsidiaries are not included within the consolidated financial statements but are embedded in the present value of the project itself.
BEPS 4: Interest Deductions and Other Financial Payments
On 5 October 2015, the OECD published its final recommendations on its Base Erosion Profit Shifting ("BEPS") initiative. Action 4 under the initiative sets out recommendations regarding best practices in the design of rules to prevent base erosion through using interest expense. Specifically, it is recommended that member countries adopt a "fixed ratio rule" which would limit net deductions of interest to a percentage of EBITDA.
BBGI has continued to follow developments closely over the reporting period. In December 2016 the first draft of the UK Finance Bill 2017 was released with a further draft released post the balance sheet date in January 2017. The draft Bill provides some further clarity, particularly in the area of Public Benefit Exemption ("PBE"). Two of the more notable features are the following:
-- Increased clarity over the type of investment that should qualify for PBE, which appears to be somewhat broader than was expected from the earlier consultation stage, and;
-- It is now expected that 'Grandfathering' will be available for related party interest paid by qualifying companies where: (i) the loan has been in place since before May 2016; and (ii) the income is broadly fixed under long-term contracts (at least 10 years).
Based on the above updates, BBGI does not currently expect the implementation of BEPS Action 4 to have a material adverse impact on the Company's cash flows in the UK.
The advice received to date from the other relevant jurisdictions where BBGI invests is that, for the most part, the respective Governments believe that their existing rules, most notably thin capitalisation rules, continue to be an effective means to limit the scope for BEPS and as such, no significant changes are expected as a result of BEPS Action 4.
BBGI will however continue to monitor the initiative very closely across the various jurisdictions in which it is invested.
Other Tax Developments
BBGI continues to work closely with its global tax advisors to assess the impact, if any, which could result from the implementation of various other tax developments. In this context the Company is currently assessing amongst others the impact that certain tax measures could have on Group cash flows, specifically BEPS Action 2: neutralising the effect of hybrid mismatch arrangements and also the impact the latest Luxembourg taxation circular on intra group financing could have on the Group's cash flows.
BBGI will continue to review these developments and assess whether any structural changes are required.
Going concern basis of accounting
The Management Board has examined significant areas of possible financial risk including cash and cash requirements. It has not identified any material uncertainties which would cast significant doubt on the Company's ability to continue as a going concern for a period of not less than 12 months from the date of approval of the financial statements. The Management Board has satisfied itself that the Company has adequate resources to continue in operational existence for the foreseeable future. After due consideration, the Management Board believes it is appropriate to adopt the going concern basis in preparing the financial statements. Please see Note 2 to the financial statements.
Viability statement
As part of their ongoing process of monitoring risk, and as required by the UK Corporate Governance Code Provision C.2.2 and the AIC Code Principle 15, the Directors have considered the viability and prospects of the Company for a period of five years. This period is considered an appropriate and acceptable length of time in which to consider the Company continuing in existence from a risk perspective. In making this judgement, the Directors have considered detailed information provided at Board meetings, including: the Company's investment policy; project reviews; the risk matrix (including the principal risks and uncertainties); current relevant financial and economic information; long-term economic assumptions; scenario testing; and annual and semi-annual valuations. In addition, this five-year period aligns with the typical planning periods considered by the Boards during their periodic strategic reviews of the business.
The Company's investment policy is to invest in equity, subordinated debt and/or similar interests issued in respect of infrastructure projects developed mainly under PPP/PFI - or similar - procurement models, principally into already operational projects (construction completed), with public sector/government-backed revenue streams, and "availability-based" payments received from project entities. In addition, investments are only made into jurisdictions with: relatively mature financial markets; public sector counterparties with appropriate credit risk; and reliable legal systems. More detail on the Company's investment policy can be found in the relevant section of this annual report.
Each of the principal risks and uncertainties the Company faces, along with detailed descriptions of the areas and factors of the risks as well as explanations of the processes by which the Boards monitor, review and assess them, can be found in the Governance section of this annual report, under the heading "Risk and Risk Management". In order to maintain its viability, the Company has put in place a robust risk and internal controls framework with the objectives of reducing the likelihood and impact of: poor decision-making; risk-taking above agreed levels; human error; or deliberate bypassing of control processes. The Boards regularly review and assess the principal risks facing the Company - including and in particular those that could threaten its business model, strategy, solvency, liquidity and future performance - as well as the monitoring, management and mitigation of the exposure to these risks.
In addition to the risk management and mitigation in place, a valuation of each project is carried out every six months at each of the Company's financial half-year and year-ends (30 June and 31 December respectively). Such valuations are based on long-term discounted future cash flows that are themselves predominantly based on long-term contracts and other assumptions. Once complete, each valuation is independently reviewed by a professional valuer and is also subject to the audit/review of the Company's external auditor. A more detailed description of the valuations, assumptions and stress-testing applied can be found in the Valuation section of the Report of the Management Board.
Given the investment policy, risk management and valuation processes that are in place therefore, the Boards have the reasonable expectation that the Company can continue in operation and be able to meet its liabilities, commitments and dividend targets over the five-year period assessed, subject to world markets, no adverse unexpected event occurring and the global economy continuing to function within a range of stressed scenarios. The Company is also subject to a biennial shareholder continuation vote.
MARKET DEVELOPMENT
BBGI's growth strategy in the current market
In a low interest rate environment, PPP/PFI assets with stable, predictable, inflation-linked cash flows derived from creditworthy government or government-backed counterparties are seen as an attractive investment proposition by many investors. In addition, a greater acceptance and understanding of infrastructure as a mainstream asset class and key component of a well-diversified portfolio have caused more investors, especially those with long-dated liabilities to match, to increase their allocations to the sector.
As a result, there have been several investors including pension funds, insurance companies and infrastructure funds who are aggressively bidding on the limited supply of PPP/PFI products and causing prices to increase or remain at relatively high valuation levels.
The secondary market for social and transport infrastructure was very competitive in 2016, and we expect this trend to persist in 2017. As a result, discount rates in the sector are expected to remain at current levels or to show further but more moderate levels of tightening, with the corresponding positive effect on the valuation of our existing assets.
In this competitive environment, vendors often require prospective purchasers to price in lifecycle savings, refinancing gains, aggressive tax structures, portfolio efficiencies and other upsides to secure an acquisition. The result is that the margin for error has decreased and it is increasingly difficult to source acquisitions that will be accretive to shareholders. A recent survey of institutional investors in the sector by Preqin reported that there is US$137 billion of 'dry powder' held by infrastructure investment funds, and 53% of surveyed fund managers believe that asset pricing will be their biggest challenge in 2017.
A key component of our growth strategy has been to consider opportunities in creditworthy countries outside the UK. Often the competition is not quite as intense and more attractive pricing and terms can be obtained. During the year, we came close to selection as the preferred bidder on acquisition opportunities in Australia and Canada, and made one follow-on investment in the UK. We are committed to maintaining our pricing discipline in 2017 regardless of whether we are considering assets in construction or in operation.
Another key component of our growth strategy will be to consider projects in the bidding/construction stage, as we believe the pricing on construction projects is more attractive on a risk-adjusted basis. Often the competition for construction assets is less intense as some investors require current yield, do not have sufficient and adequate asset management staff to oversee construction assets, or have mandates that restrict investment at this stage. BBGI has also used its strong PPP credentials to make it an appealing partner to construction companies who sometimes lack long-term ownership credentials, which are often required as part of the pre-qualification processes run by procuring government authorities.
Using this approach, BBGI has been short-listed for a number of opportunities over the past two years and will continue with this strategy. In addition to the various opportunities listed in the 'Growth in the portfolio' section earlier in this report, the Company is also actively considering other attractive development opportunities, about which more details will be provided at the appropriate time.
The Management Board expects it will be able to secure construction assets at higher discount rates during the construction stage and will be well positioned to realise the potential value uplift when the assets become operational. In addition, projects acquired at this stage often have pre-emption rights, which can facilitate further investment on favourable terms.
In 2015, the Management Board oversaw the successful transition of three projects from construction phase into the operational/ramp-up phase. During 2016, the East End Crossing Project completed construction on time and on budget. In 2017 and 2018, the Management Board further expects both the Mersey Gateway and North Commuter Parkway projects to complete construction respectively, and it is actively looking to replenish some of this construction stage exposure by pursuing select primary projects at the bidding phase.
This development pipeline represents an exciting opportunity for BBGI and will provide an attractive alternative to only acquiring assets in the secondary market. BBGI intends to pursue the strategy further and will selectively consider development opportunities so long as, in aggregate, construction assets remain below 25% of the portfolio and they do not compromise the Company's ability to satisfy its dividend targets.
Currently we are evaluating a range of opportunities. These range by sector, geography, and/or stage of investment, but all fit the Company's stated investment objectives and growth strategy. We are confident the pipeline could result in new value-accretive investments for the Company.
REVIEW OF MARKETS
The Management Board believes that the geographic and political diversification offered by participation in numerous PPP markets is attractive to the Company, provided new investments have the appropriate balance of risk and return. BBGI has significant investment expertise in key infrastructure markets internationally, and its global portfolio provides a unique platform to access opportunities and build relationships with potential vendors.
PPP procurement and levels of competition vary from market to market. In most markets, infrastructure under-investment persists and budget constraints often necessitate the involvement of the private sector to finance and deliver much-needed infrastructure projects. Below is a review of BBGI's key markets.
UK
The UK PPP/PFI market was once considered the most vibrant and robust market in the world. Over 700 PFI projects delivering investments of over GBP60 billion have been signed since 1992. However, in recent years, the pace of primary activity has slowed.
Ever since 52% of the UK electorate voted to leave the EU in June 2016, BREXIT has dominated the UK's political and economic discourse. Since then the future of infrastructure spending has been a major source of economic debate. In the Autumn Statement Phillip Hammond, the Chancellor of the Exchequer, announced that the government would make a modest increase in its spending on infrastructure. This includes an additional GBP1.1 billion on local road networks and GBP450 million on the rail system over the next five years.
The Chancellor also stated that further new projects (including its PF2 initiative) would be announced in the coming months and that the government would extend its project guarantee scheme until 2026. Therefore, for the time being, the BREXIT vote has had a minimal negative impact on UK infrastructure.
InfraDeals, part of the Inframation Group, is currently tracking 20 PPP projects in active procurement in the UK. There are still good prospects to be found, even though investment opportunities in traditional primary project finance transactions have fallen compared with historic volumes. Attractive opportunities exist in the transport sector. Highways England may look to attract further investment in roads, as the government looks to boost productivity.
The UK market continues to be the largest source of secondary market transactions globally. There has been a reduction in secondary market PPP/PFI deal flow, reflecting the slowdown in public sector procurement since 2010. While supply has decreased, there has been no corresponding decrease in demand - more equity investors are chasing a similar or reduced number of transactions. This has resulted in a trend of lower discount rates for stable, mature secondary projects over a number of years.
BBGI will continue to participate cautiously and selectively in auctions but also actively look for negotiated transactions. Our focus will be on smaller, more opportunistic investments where the competition is less intense. BBGI will also continue to consider primary development opportunities in the UK.
Canada
Canada is the world's most prolific PPP market, and is one of the most mature and stable. To date 177 deals have reached financial close, of which 28 were in the last 12 months. Half a dozen provinces, at least 15 municipalities, and the federal government are the major drivers in this market.
Over the last number of years, the Canadian market has shifted from an emphasis on the healthcare and justice sectors, to transport. There is also now more activity in the wastewater and waste-to-energy sectors.
Provincial agencies such as Infrastructure Ontario, Partnerships BC, SaskBuilds, Alberta Infrastructure, Partnerships New Brunswick, and Société Québécoise des Infrastructures are at the heart of Canada's P3 program. These independent entities are responsible for the majority of projects in procurement.
Infrastructure Ontario is the biggest agency in terms of size, with over 450 employees and the numbers of deals (74) to reach financial close. However, in recent years the emergence of PPPs in provinces such as Saskatchewan and in new municipalities has been a major theme. In Saskatchewan, a total of six deals have closed: four projects delivered by SaskBuilds and two at a municipal level in the city of Saskatoon. The projects have been delivered across both the social and civil sectors.
While Canada has seen significant movements in terms of transportation infrastructure, there is still a robust pipeline of small and mid-sized social infrastructure projects.
The secondary market has great potential throughout Canada, considering the number of deals that have reached financial close since 2004. The Canadian secondary market is expected to be active in 2017 as projects developed over the last two or three years come into operation and may be offered for sale. Now with seven projects in Canada, BBGI is a well-known market participant and has very good exposure to deal flow.
BBGI expects to build on its recent success in the primary market with the North Commuter Parkway, and is actively bidding or considering a number of upcoming primary bids.
USA
The US will have to spend roughly US$3.6 trillion by 2020 in order to maintain its existing infrastructure, according to conservative estimates. While PPPs have been instrumental in getting a number of projects over the line, only a few states have used the procurement method to date.
Established market participants such as Virginia, Texas, Florida and Indiana retained their place as PPP market leaders in 2016. More recent entrants such as Pennsylvania, North Carolina and Ohio also reached financial close on their first PPPs. US states and municipalities have historically been much more reluctant to adopt PPPs than their Canadian counterparts. However the federal government, and an increasing number of state legislatures, have recently begun taking steps to make PPPs more acceptable for stakeholders.
As a presidential candidate, Donald Trump made an ambitious pledge to mobilise anywhere from half a trillion to a trillion dollars into upgrading the nation's aging roads, bridges and transportation hubs. Rather than rely solely on direct federal spending, Trump advisers have said they would probably use tax credits and public-private partnerships. During his first address to a joint session of Congress on 28 February 2017, Trump revealed the size of his planned infrastructure programme as US$1 trillion, some of which is to be funded by "private capital".
In anticipation of this promised major infrastructure initiative, the National Governors Association recently forwarded a list of 428 "shovel-ready" projects to the new administration. The list includes an array of transportation, water, energy and emergency-response projects. The sheer size of the list underscores the intense interest in the initiative from governors in both political parties. We await more detail on this ambitious proposal from the new president.
Going forward, we expect that the success of the Ohio River Bridges/East End Crossing project, which opened on time and on budget, will create opportunities for BBGI, as this project is one of a limited number of high-profile availability-style transportation projects to have reached construction completion.
In the medium term, we expect a modest number of mostly transportation assets to come to the secondary market, as projects that have reached financial close move into operations and construction companies consider recycling their equity.
Continental Europe
European infrastructure markets remain active with certain countries offering an attractive pipeline of new projects. We witnessed an increase in both primary and secondary deal flow and, accordingly, we believe these markets, in particular Holland, Germany and the Nordic states, are likely to provide investment opportunities over the medium term.
The German federal government has announced plans to procure EUR7.5 billion of new road projects under the PPP model. The programme, dubbed the "Neue Generation ÖPP" will see 10+ road PPPs launched, with two to three new road procurements each year until the end of 2019. The A3 PPP road in Bavaria was the most recent project announced to start procurement with more projects to follow. With six existing assets in Germany, and German language skills within our team, BBGI is well positioned to consider these upcoming opportunities.
The Norwegian highway PPP programme is providing investors with a pipeline of dealflow in 2017-2019. The first of those projects to be procured include the Rv3/Rv25 in March 2017, followed by the E10/RV85 and Rv555 projects in 2018. BBGI is hoping to leverage its experience with the E18 road project in Norway to secure participation in consortia bidding to deliver these new projects.
The Company is also actively considering opportunities in the Netherlands and Belgium, where a mix of transportation and social infrastructure opportunities are being considered. The Dutch market continues to be one of the most reliable markets in Europe, with a consistent pipeline of sizeable deals that regularly attract major international developers and financers.
In Spain, Portugal and Italy, assets procured under historic programmes are creating secondary market opportunities. BBGI has not focused much attention on the opportunities in Southern Europe given the weak credit ratings of these countries and the tendency of some public sector clients to renegotiate contracts.
Australia
The country is turning towards infrastructure investments as the next economic growth engine, as the commodities boom is winding down. Inexpensive capital and high demand for infrastructure assets is fuelling brownfield and greenfield transactions. A strong pipeline of greenfield PPP projects and state asset sales is on the horizon.
The current federal government, led by Malcolm Turnbull of the Liberal Party, has been a vocal supporter of increased investment in infrastructure, carrying on from Tony Abbott who dubbed himself as the "Infrastructure Prime Minister". One of this regime's flagship projects is the Asset Recycling Program. Under this, the central government pays out the equivalent of 15% of the proceeds from any regional government asset privatisation that is reinvested in new infrastructure projects.
In the PPP pipeline, there are still many rail and light rail projects that are due for tender. Sydney Metro Northwest and Southwest are set to receive funds from the electricity networks' sale, and the Parramatta Light Rail is scheduled to announce its preferred route by the end of this year.
Prison and social housing projects are also in the pipeline, with New South Wales looking to procure a new 600-bed prison at Grafton as a PPP. The region is also evaluating proposals for social housing projects from the private sector through the Premier's Innovation Initiative.
BBGI has three large operational assets in Australia and is widely viewed as one of the more active secondary investors in the market. We will continue to monitor the market and are hopeful that some select opportunities may emerge in 2016.
GOVERNANCE
Introduction
The Company is internally managed with a two-tier governance structure that comprises a Supervisory Board and a Management Board (together, the "Boards"), with the responsibilities of each as indicated in this report.
The Company is regulated by the CSSF under Part II of the Luxembourg law of 17 December 2010 on undertakings for collective investments and is subject to the Luxembourg law of 12 July 2013 on Alternative Investment Fund Managers ("AIFM Law") that implemented the EU Alternative Investment Funds Managers Directive ("AIFMD") into national legislation.
Since its IPO in December 2011, the Company's operating environment has become increasingly complex for both it and its stakeholders. A raft of regulations since then to which the Company must adhere have added to the Company's costs, and have brought new challenges to the complexity of oversight and management of the business. Good corporate governance is therefore becoming increasingly critical. Indeed, it lies at the heart of the Company's success, supporting better access to external finance and investment, and sending a message to the stakeholders that the Company is being well run and that they can have confidence in its long-term success.
Recent behaviour by a few organisations has, however, meant that changes may well be made to parts of the UK corporate governance regime, as evidenced by the UK Government's Corporate Governance Reform Green Paper published at the end of 2016. We will follow the discussions and developments arising out of this Green Paper closely, particularly where they are likely to affect BBGI.
The Company takes corporate governance matters seriously. The Boards recognise the importance of a strong corporate governance culture and have put in place a framework for corporate governance which they believe is appropriate for the Company. BBGI is a member of the Association of Investment Companies ("AIC") and as such reports against the AIC Code of Corporate Governance ("AIC Code"), which principles and recommendations are carefully considered, and follows the AIC Corporate Governance Guide for Investment Companies ("AIC Guide").
Although revised versions of both the UK Corporate Governance Code ("UK Code") and subsequently the AIC Code (to reflect the various changes to the UK Code) were published in early and mid-2016 respectively, applying to reporting periods beginning on or after 17 June 2016, the Company has followed the previous AIC Code dated February 2015 for the 2016 reporting period. The Company has worked throughout the year to ensure it complies with the AIC Code and, in the event that it does not, to explain why. The Boards consider that reporting against the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), provides appropriate information to shareholders.
AIFM
The Company is authorised by the CSSF to act as an Alternative Investment Fund Manager ("AIFM"). Being so authorised, the Company is subject to increased regulatory supervision from the CSSF. The recurring cost of such regulatory supervision costs the Company in the region of GBP100,000 per annum.
During the year under review, with the exception of the appointment of a new Risk Manager mentioned below in the section "Delegated functions", there have been no material changes in respect of Art. 20 Para. 2(d) of the AIFM Law that would warrant further disclosure to investors.
Internal controls - general
The Management Board is responsible for setting up the Company's system of internal control, and the Supervisory Board for reviewing its effectiveness. The Management Board has therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed.
In addition to the above, at each quarterly meeting the Supervisory Board monitors the Company's investment performance against its stated objective, and reviews its activities to ensure that the Management Board is adhering to the investment policy and guidelines. During these meetings, the Management Board (which has agreed on clearly defined investment criteria, returns targets and risk appetite) reports in detail on these issues including, but not limited to operating performance, cash projections, investment valuations and corporate governance matters.
The Company recognises that effective control systems can only seek to manage and mitigate the risks of failure to achieve business objectives; they cannot eliminate them. By their very nature, these procedures are not able to provide absolute assurance against material misstatement or loss.
Delegated functions
Amongst other requirements, the Company is required under the AIFM Law to have dedicated Risk Management, Compliance, and Internal Audit functions, each of which is required to be both functionally and hierarchically separate from the functions of the operating units. Accordingly, the following third party service providers, who are experts in their respective fields, are to these roles:
-- Compliance: 99 Advisory Luxembourg - ICE (previously The ICE
Breakers S.A.)
-- Custodian, Depository, Paying Agent, Transfer Agent: RBC Investor Services Bank S.A.
-- Internal Audit: Grant Thornton ABAX Consulting
-- Risk Management: SGG Fund Management S.A.
Notwithstanding these appointments, the Company's Management Board retains overall responsibility for the correct and effective operation of the delegated functions. Accordingly, the members of the Management Board have been appointed as Designated Board Members ("DBMs") with oversight and control responsibilities for their respective functions.
Material contracts
The following new material contracts relating to the governance of the Company were entered into during the year ended 31 December 2016:
-- Global IT Services PSF: IT Services Provider
-- SGG: Risk Management Services
During the year under review, the third party service provider for Risk Management, Grant Thornton ABAX Investment Services, informed the Company that Grant Thornton was unable to continue to provide both risk management and internal audit services. Accordingly, in June, the Management Board approved the appointment of SGG Fund Management S.A. ("SGG") to provide the full suite of risk management services to the Company, to take effect from 1 September 2016. There has been no increase in costs to the Company because of this change, nor was there any disruption during the handover. In addition, formal written regulatory approval of this appointment was received from the CSSF on 29 August 2016.
ADMINISTRATION
Incorporation and administration
The ordinary shares were created in accordance with Luxembourg law and conform to the regulations made thereunder, have all necessary statutory and other consents, and are duly authorised according to, and operate in conformity with, the Articles of Association (the "Articles").
Articles of Association
The Articles were approved and formalised before a Luxembourg notary public on 24 November 2011. The Articles are filed with the Luxembourg Registre de Commerce et des Sociétés and are published in the Mémorial. The Articles may be amended in accordance with the rules set out in article 32 of the Articles.
A copy of the Articles is available for inspection at the Company's registered offices during normal business hours.
REMUNERATION
Supervisory Board remuneration
The Supervisory Board members are the Company's Non-Executive Directors and are paid a fixed quarterly fee. These fees are considered annually by the Supervisory Board, acting as the Remuneration Committee, based on the advice and recommendations of the Management Board. No member of the Supervisory Board is entitled to vote on his own remuneration. Supervisory Board members are not entitled to any other fees, pension payments, incentive plans or any other form of compensation, with the exception of ex gratia fees that are considered in the event of exceptional and substantial increase in the members' workload.
During the year under review, the annual fee paid to the Chairman of the Supervisory Board was GBP55,000 (2015: GBP55,000) and the annual fees paid to both the Senior Independent Director and the Chairman of the Audit Committee were GBP42,500 (2015: GBP42,500).
The aggregate fee paid to the members of the Supervisory Board during 2016 was GBP140,000 (2015: GBP140,000). No additional fees were paid during the year.
Management and staff remuneration
The Company believes that an appropriate remuneration programme for each Manager and employee of the Group plays an important role in achieving the short and long-term business objectives that ultimately drive business success and alignment with long-term shareholder goals.
The level and structure of the remuneration to which the Management Board members and employees of the Group are entitled are reviewed on an annual basis by the Supervisory Board acting as the Company's Remuneration Committee. Appropriate benchmarking with comparable listed businesses is periodically undertaken with the intention of ensuring that the remuneration programme remains competitive. Other than the LTIP payment mechanism, which is subject to shareholder approval, the Supervisory Board is responsible for setting the remuneration levels and targets of the Management Board. It should be noted that the annual review may not result in any change in the levels of remuneration.
Remuneration programme objectives
The objectives of the remuneration programme are to:
-- attract and retain highly qualified Management and employees with a history of proven success;
-- align the interests of the Group's Management and employees with shareholders' interests, the execution of the Company's investment policy and the fulfilment of the Company's investment objectives;
-- establish performance goals that, if met, are expected to be accretive to long-term shareholder value; and
-- link compensation to performance goals and provide meaningful rewards for achieving these goals.
Under the programme, every employee of the Group receives an annual base salary payable monthly in arrears.
Management Board remuneration
Each member of the Management Board receives an annual base fee payable monthly in arrears and participates in a long-term incentive plan ("LTIP"). In addition, each member participates in a short-term incentive plan ("STIP"). No member of the Management Board receives an additional fee for acting as a member of the Management Board.
Both Mr Denny and Mr Schramm receive all cash entitlements under the remuneration programme in EUR. Mr Ball receives all cash entitlements in CAD. Payments in currencies other than Sterling, the reporting currency of the Group, can result in both positive and negative foreign exchanges movements.
Service/management contracts
BBGI Management HoldCo S.à r.l. has agreed separate service contracts with the Co-CEOS, Mr Schramm and Mr Ball. These contracts are on identical terms and conditions, save for the currency of payment as noted above. The key features of the service contracts are as follows:
-- the Threshold, Target and Maximum levels of the STIP are set at 50%, 100% and 125% of average annual salary respectively;
-- the Threshold, Target and Maximum levels of the LTIP awards are set at 50%, 100% and 150% of salary at the date of grant;
-- LTIPs granted with return periods commencing from December 2014 onwards will be settled in shares;
-- an expected shareholding of 150% of salary was set. This can be attained over a five-year period commencing May 2014;
-- Malus clauses enabling unpaid bonuses to be withdrawn are included for both the STIP and LTIP.
Notice periods to/from the Company of 12 months from May 2016 (previously 24 months' notice) apply in respect of Mr Ball and Mr Schramm. With respect to Mr Denny, a notice period to/from the Company of 6 months applies.
Fixed remuneration
The combined annual base fee entitlement of the members of the Management Board at 31 December 2016 is GBP832,663 (2015: GBP686,034). Of the GBP146,629 increase between 2015 and 2016, GBP132,792 is directly attributable to the impact of Sterling weakening against the CAD and EUR over the reporting period.
In addition to their base fees, both Mr Schramm and Mr Ball received a monthly car allowance during the year amounting to GBP26,053 (2015: GBP23,491) and a supplementary annual payment of 5% of their annual fee to provide pension, retirement or similar benefits.
Short-term incentive plan ("STIP")
Under the STIP, awards for Mr Ball and Mr Schramm are subject to the achievement of pre-determined performance objectives set by the Supervisory Board at the beginning of the relevant financial year. The maximum amount payable under the STIP is 125% of the relevant executive's annual fee, with a target performance to produce an entitlement of 100% of fee and a minimum performance threshold to produce 50%. The relevant annual fee is the total base fee paid in the year.
Mr Denny's 2016 target performance objectives entitle him to a maximum EUR90,000 payment.
The Supervisory Board is responsible for determining both whether the relevant performance objectives (which may be financial and non-financial) have been satisfied and the level of award under the STIP for the relevant year. If agreed, awards will be paid after the accounts have been audited.
During the year ended 31 December 2016, the combined amount accrued in respect of the 2016 STIP amounted to GBP709,459 (2015: GBP610,135). Payments under the STIP are made in CAD and EUR.
Long-term incentive plan ("LTIP")
During the year under review a combined amount of GBP262,612 (2015: GBP310,218) was accrued against those LTIPs which have been awarded but not vested.
As of 31 December 2016, the combined amount accrued but not yet paid to Mr Ball, Mr Denny and Mr Schramm with respect to the 2013, 2014 and 2015 LTIP award letters amounted to GBP834,114 (2015: GBP677,676). Further details on the individual awards are set out below.
Cash-based LTIP awards
2012 award
In December 2015, after the end of the Return Period, the Company made a payment of C$350,000 to Mr Ball based on the estimated amount due under the 2012 award. In January 2016, the Company made a payment of EUR250,000 to Mr Schramm under the 2012 award. Also in January, an adjusting payment of C$2,890 was made to Mr Ball. All awards were settled in cash.
2013 award
During the year ended 31 December 2016, an accrual of GBP54,612 (2015: GBP212,218) was recorded in respect of the 2013 award granted to Mr Ball, Mr Schramm and Mr Denny. The total combined amount outstanding under this award amounted to GBP527,114 at 31 December 2016. The award for Mr Ball and Mr Schramm was measured by reference to a threshold hurdle of a TSR of 16.50% achieved over the three-year return period, starting from the date of each individual annual award letter, with the maximum amount payable for achieving a 25% or greater TSR over the same return period.
In January 2017, Mr Ball and Mr Schramm each received the maximum amount payable under the 2013 award of C$366,123 and EUR259,375 respectively in full settlement of the Company's obligations.
The award granted to Mr Denny in May 2014 has a return period that commenced in December 2013. A TSR of 16.50%, the threshold, will pay EUR50,000; achieving a TSR of approximately 22.50% will earn the maximum amount of EUR100,000. Interim achievements will be interpolated. Payment of Mr Denny's award is scheduled for May 2017.
Share-based LTIP awards
A key feature of these awards is that they will be settled entirely by way of Company shares and not in cash as was the case with all previous awards granted. All awards which are to be settled by shares fall under the scope of IFRS 2 "Share-Based Payments" and its specific requirements. The Company has engaged EY to carry out the valuation of awards falling under the scope of IFRS 2 with the resulting valuation being used as the basis for the cost to be amortised over the return period. Refer to the Consolidated Financial Statements for further detail on share-based payments.
2014 award
The granting of the 2014 award was put on hold in order to await the result of the resolution put to shareholders at the April 2015 AGM. The LTIP awards were subsequently granted to the members of the Management Board in August 2015, noting however that the return period would commence from December 2014.
Half of the LTIP target award will be measured by reference to TSR. The other half will be measured by reference to the percentage increase in the Company's NAV per share).
As regards Mr Ball and Mr Schramm, the maximum award that may be made under the LTIP is 150% of the relevant executive's base salary in that financial year, with a target award of 100% and a minimum threshold of 50%.
With respect to Mr Denny, the maximum award that may be made under the LTIP is EUR100,000 with a threshold award of EUR50,000. Interim achievements will be interpolated.
During the year ended 31 December 2016, an expense of GBP98,000 (2015: GBP98,000) was accrued in respect of the 2014 awards.
2015 award
In December 2015, the Management Board members were each granted an LTIP award. Other than the return period, which runs from December 2015 to December 2018, all the other features remain identical to those in the 2014 award as outlined above.
During the year ended 31 December 2016, an expense of GBP108,000 was accrued in respect of the 2015 award.
2016 award
In December 2016, the Management Board members were each granted an LTIP award. Other than the return period, which runs from December 2016 to December 2019, all the other features remain identical to those in the 2014 award as outlined above.
No expense was accrued during the year ended 31 December 2016 under this award.
No loan has been granted to, nor any guarantee provided for the benefit of, any manager by the Company. There are no family relationships between Mr Ball, Mr Denny and Mr Schramm.
At no time will Mr Ball, Mr Denny and Mr Schramm acquire or have options over any shares in BBGI Management HoldCo S.à r.l., which is and is intended to be wholly owned by the Company.
As at the date of this Annual Report, there are no amounts set aside, needing to be set aside or accrued by the Company to provide pension, retirement or similar benefits to any member of the Management Board.
Remuneration and AIFM law
In 2013, the European Securities and Markets Authority ("ESMA") published its final guidelines on sound remuneration policies under the AIFMD. These guidelines indicate that remuneration disclosures may be made on a "proportional" basis and acknowledge that the application of proportionality may lead, exceptionally, to the "disapplication" of some requirements provided this is reconcilable with the risk profile, risk appetite and strategy of the AIFM and the AIFs it manages. According to the Guidelines, the different risk profiles and characteristics among AIFMs justify a proportionate implementation of the remuneration principles and, where a company chooses to disapply requirements, it must be able to explain the rationale to a competent authority.
The Company's position
As part of the AIFM authorisation application, the Company obtained the following derogations from the CSSF, on proportionate grounds, from three of the remuneration policy principles: i) to pay a substantial part of the variable remuneration in shares; ii) the ex post incorporation of risk for variable remuneration ("malus" or "clawback"); and iii) to establish a Remuneration Committee. Accordingly, the Company has technically disapplied these three remuneration policy principles. However, the Company has applied the spirit of the rules. LTIPs granted from the 2014 award onwards will be settled in Company shares. Furthermore, malus clauses are included in their STIP and LTIP contracts. As mentioned above, the Supervisory Board acts as the Company's Remuneration Committee.
Total basic and variable remuneration for the financial year
The total basic remuneration paid to all members of staff (including the Management Board members) during the year under review was GBP1.77 million (2015: GBP1.42 million). The total variable remuneration accrued for all members of staff for the financial year ending 31 December 2016 was GBP1.21 million. The total variable remuneration paid to all members of staff for the financial year ending 31 December 2015 was GBP1.12 million.
THE BOARDS OF DIRECTORS
Name Function Independence Age Original Next renewal
appointment date
----------------- ------------------------ ---------------- ---- ------------ -------------
Supervisory
Board
David Richardson Chairman of Supervisory Independent 65 3 October 30 April
Board 2011 2017
Colin Maltby Senior Independent Independent 66 3 October 30 April
Director 2011 2017
Howard Myles Director and Independent 67 3 October 30 April
Chairman of Audit 2011 2017
Committee
----------------- ------------------------ ---------------- ---- ------------ -------------
Management
Board
Duncan Ball Member of the Not independent 51 5 October 5 October
Management Board 2011 2017
Frank Schramm Member of the Not independent 48 5 October 5 October
Management Board 2011 2017
Michael Member of the Not independent 39 30 April 30 April
Denny Management Board 2013 2017
----------------- ------------------------ ---------------- ---- ------------ -------------
This table sets out the expiry dates of the current terms of the directors' appointments. All appointments may be renewed in accordance with the provisions of the Company's Articles.
Board members and other interests
Duncan Ball, Michael Denny and Frank Schramm, the members of the Management Board, are also BBGI Management HoldCo managers. Apart from Mr Ball and Mr Schramm who both hold service contracts and Mr Denny who holds a management contract, no other member of the Group held service or management contracts during the year under review.
No loan has been granted to, nor any guarantee provided for the benefit of, any director by the Company.
There are no family relationships between the members of the Boards. David Richardson, Colin Maltby and Howard Myles are all considered to be independent Board members as: (i) they have not been employees of the Company; (ii) have not had material business relationships with the Company; (iii) have not received performance-based remuneration from the Company; (iv) do not have family ties with any of the Company's advisers, directors or senior employees; (v) do not hold cross-directorships or have links with other directors through involvement on other companies; (vi) do not represent a significant shareholder; and (vii) have not served on the Board for more than nine years.
Board members' shareholdings
31 December % of 31 December
2016 issued 2015
share
capital
In thousands of shares
------------------------- ------------ --------- ------------
David Richardson 166 0.04 160
Colin Maltby 112 0.03 107
Frank Schramm 193 0.04 185
Duncan Ball 193 0.04 185
Michael Denny 39 0.01 38
703 0.16 675
------------------------- ------------ --------- ------------
Board diversity and tenure
The Boards have considered their diversity, as recommended by the AIC Code, along with the Davies Review "Women on Boards" Five Year Summary of October 2015. They concur that Board appointments must always be made on merit, that boards should have a balance of relevant skills, experience, length of service and knowledge of the Company, and that Independent Directors should take the lead in the appointment of new Directors.
The Company is currently 5 years old, with no new appointments made to the Supervisory Board since listing and admission to trading on the London Stock Exchange in December 2011. One appointment has been made on the Management Board over the same period where Michael Denny replaced Arne Speer as a member of the Board with effect from 30 April 2013. As stated later in this Governance section under "Committees of the Supervisory Board - Nominations Committee", the Supervisory Board, acting as the Nominations Committee, together with the Management Board reviewed the succession plans of the Company and concluded that their present composition embodies an appropriate diversity of perspectives and relevant skills, qualifications and experience. Accordingly, they agreed that at the current time no new appointments were required, and there continued to be no necessity for the formalisation of a policy on tenure. As the Company matures, however, it will become necessary to agree such a policy, and may become relevant to seek greater diversity by length of service, gender, ethnicity, nationality or other criteria. However, the Boards remain committed to conducting any evaluation of prospective candidates, as of their own members, without discrimination on grounds of gender, age, nationality, ethnicity, faith or sexual orientation. Their overriding objective is to select members on merit with relevant and complementary skills to help the Company maximise value for shareholders.
Management Board
General
The Management Board is responsible for the day-to-day management of the Company, including administration, preparation of semi-annual valuations, the statutory financial statements, the management accounts, business plans, presenting results and information to shareholders, coordinating all service providers to the Group, and giving the Supervisory Board general advice and feedback. The Management Board is responsible, inter alia, for undertaking the discretionary investment management of the Company's assets and those of the rest of the Group; it therefore carries out the function of investment manager. Accordingly, the Company has not engaged an external investment manager.
The Management Board comprises three members, each contractually engaged by BBGI Management HoldCo, a direct subsidiary of the Company, therefore none of them is deemed independent by AIC Code Principle 2. However, the Management Board's functions are overseen by the Supervisory Board which itself meets the independence criteria set out in Principle 2. Whilst this two-tier structure is not envisaged by the AIC Code, the Company considers that an independent Supervisory Board ensures the Company is compliant with Principle 2.
The Company's Articles require that the Management Board's members are elected on an annual basis by the Supervisory Board, not by shareholders; in itself therefore, this does not meet the requirements of AIC Code Principle 3, which requires that directors should be subject to election by shareholders. However, as the Management Board carries out the role of investment manager, the Supervisory Board deems it appropriate that it elects the members of the Management Board. The Articles also require that the members of the Supervisory Board themselves be subject to annual election by shareholders, who may also dismiss any such member; accordingly, the Company considers that this procedure satisfies the requirements of Principle 3.
Performance evaluation and reappointment
As stated above, the Management Board carries out the functions of the Company's investment manager, and its Directors are appointed by the Supervisory Board for a period of one year (renewable). Mr Ball and Mr Schramm were both originally appointed on 5 October 2011 with Mr Denny originally appointed on 30 April 2013.
The Supervisory Board evaluates the performance of the Management Board and its Directors annually to ensure that the Management Board collectively, and its Directors individually, continue to operate effectively and efficiently, and that the continued appointment of the individual Directors is in the best interests of the Company and its shareholders as a whole. The Supervisory Board, satisfied with the evaluations carried out in 2015 and latterly in 2016, resolved to renew Mr Denny's appointment for a further term of one year with effect from 30 April 2016, and those of Mr Ball and Mr Schramm for a further term of one year with effect from 5 October 2016.
Attendance at Management Board meetings during the financial year ended 31 December 2016
Name Scheduled Unscheduled Total
meetings and meetings meetings
attendance and attendance* and attendance
------------------ -------------- ----------------- ----------------
Management Board 10 4 14
Frank Schramm 10 4 14
Duncan Ball 10 4 14
Michael Denny 10 4 14
------------------ -------------- ----------------- ----------------
* From time to time there are unscheduled meetings of the Management Board, most of which are called at short notice to approve documents previously discussed or of a technical nature. Due to the generally short notice given, not all members are always able to attend; however, this has not been the case for the year under review.
Supervisory Board
General
The Supervisory Board consists of three members who are all Non-Executive Directors, each of whom is considered to be independent.
In accordance with the Articles, all members of the Supervisory Board are elected for a period ending at the Annual General Meeting of the Company in April every year, at which time they are required to retire. They may if they so wish offer themselves for re-election by shareholders; however, re-appointment is not automatic. Although the Company is not a member of the FTSE 350, the annual re-election requirement of the AIC Code Principle 3 is met by the Articles which provide for a more stringent process than that required for non-FTSE 350 companies.
The Supervisory Board believes that its members have an appropriate balance of skills and experience to enable them to fulfil their obligations. The Supervisory Board meets at least four times a year and between these formal meetings there is regular contact with the Management Board and the Company's brokers. The members of the Supervisory Board are kept fully informed of investment and financial controls, and other matters relevant to their remit. Both Supervisory and Management Board members also have access, where necessary in the furtherance of their duties, to independent professional advice at the expense of the Company. In the period under review, the Supervisory Board met five times. Attendance of individual Supervisory Board members can be found in the table below.
As previously mentioned, the Supervisory Board members have a breadth and diversity of experience relevant to the Company, and the Company believes that any future changes to the composition of the Supervisory Board can be managed without undue disruption. On appointment to the Supervisory Board, new members will be provided with an induction.
The Supervisory Board considers items laid out in the Notices and Agendas of meetings, which are formally circulated to its members in advance of the meeting as part of the Board papers; members may also request the addition of any agenda item they consider appropriate for Board discussion. At each meeting, the members are required to advise of any potential or actual conflicts of interest prior to discussion.
Annual performance evaluation
The Supervisory Board evaluates its performance and considers the term and independence of each member on an annual basis; for the year ended 31 December 2016, this process has now been completed. The evaluation performed comprised completion of a questionnaire followed by collation of all comments into a summary. The Supervisory Board considered the results of this evaluation process and agreed that the current composition of both the Supervisory Board and its Audit Committee reflected a suitable mix of skills and experience, that each body was functioning effectively, and that the performance of each individual member had been effective and appropriate. For the evaluation of the Chairman, the Senior Independent Director discussed the results of the questionnaire with the Chairman personally prior to further distribution to, and discussion with, the remaining member.
As the Company is not a FTSE 350 company, an externally facilitated evaluation of the Supervisory Board every three years (as proposed by AIC Code Principle 7) was not conducted. In addition, no independent third party has been appointed to manage the exercise as the Board considers the current process to be appropriate.
Attendance at Supervisory Board meetings during
the financial year ended 31 December 2016
Name Scheduled
meetings
and attendance
Supervisory Board 5
David Richardson 5
Colin Maltby 5
Howard Myles 5
--------------------------- ----------------------
From time to time there are unscheduled meetings of the Supervisory Board, most of which are called at short notice to approve documents previously discussed or of a technical nature. Due to the generally short notice given, not all members are always able to attend. However, no unscheduled meetings were called during 2016.
Other listed company directorships
David Richardson Howard Myles
Assura plc Aberdeen Private Equity Fund
Limited
Baker Steel Resources Trust Limited
The Forest Company Limited
Lazard World Trust Fund SICAF
JP Morgan Brazil Investment Trust
plc
Small Companies Dividend Trust
plc
Colin Maltby
BACIT Limited (resigned
31 July 2016)
BH Macro Limited
Ocean Wilsons Holdings
Limited
Re-election of Supervisory Board members
In accordance with the Articles, Supervisory Board members are elected for a period ending at the Company's next AGM, at which time they are eligible for reappointment. Each member of the Supervisory Board has decided to offer himself for re-election at the forthcoming AGM and, as a result of the successful performance evaluation described above, the Supervisory Board recommends the re-election of each member. The supporting biography of each member can be found immediately following the Chairman's Statement of this annual report.
Review/monitoring obligations/delegation of responsibilities of Supervisory Board
The primary focus at Supervisory Board meetings is a review of investment performance and associated matters such as risk management, marketing/investor relations, gearing, general administration and compliance, peer group information and industry issues. In addition, it is responsible for establishing and monitoring compliance with the Company's investment policy, providing general supervisory oversight to the operations of the Group as a whole, appointing (or dismissing) the members of the Management Board, and supervising and monitoring the appointment and performance of the Company's third-party service providers (and those of its subsidiaries). In the case of these latter two roles, the Board acts as Nominations Committee and Management Engagement Committee respectively, as described below.
The Supervisory Board will continue to regularly consider the Company's strategy taking account of market conditions and feedback from the Management Board, the Company's joint Brokers and shareholders. The investment strategy, as set out in the Company's prospectuses and this annual report, is reviewed regularly in conjunction with the Management Board.
COMMITTEES OF THE SUPERVISORY BOARD
There is only one constituted Committee of the Supervisory Board; that is, the Audit Committee. It operates under clearly defined terms of reference, and these are available from the company secretary upon request.
There are no other Committees as the Supervisory Board considers its size to be such that it would be unnecessarily burdensome to establish them. The Board as a whole therefore carries out the functions of Management Engagement, Nominations and Remuneration Committees, including inter alia making recommendations in relation to the Group's remuneration programme and on proposed changes of the Group's senior personnel. There are therefore no terms of reference in relation to such Committees. When acting in the capacity as these individual Committees, the meetings are chaired by Mr Richardson, the Independent Chairman of the Supervisory Board.
Other Committee functions
-- Remuneration Committee
Acting as Remuneration Committee, the Supervisory Board met four times during the financial year to review the levels and structure of the remuneration, compensation, and other benefits and entitlements for the directors, officers and employees of the Company and its subsidiaries. Further information in relation to both Executive and Non-Executive Directors remuneration can be found in the Remuneration section of this report.
-- Nominations Committee
During the financial year, the Supervisory Board met four times as Nominations Committee to consider the renewal of the appointments of the Management Board members (which appointments are renewable annually for one year only) and to review the succession plans for both Boards.
As stated under "Management Board - Performance Evaluation and Reappointment", each member of the Management Board was reappointed for a further year. In respect of succession planning, the detailed plans developed for all senior positions were reviewed. These plans are regularly updated by the Management Board and reviewed with the Supervisory Board at least annually.
-- Management Engagement Committee
In its role as Management Engagement Committee, the Supervisory Board met on four occasions during the year under review to consider, together with the Management Board, the performance and ongoing appointments of the Company's third-party service providers.
-- Audit Committee
The Audit Committee (the "Committee") has operated throughout the year in accordance with the AIC Code. As indicated above, it does so within clearly defined terms of reference including all matters indicated by Disclosure and Transparency Rule 7.1 and the AIC Code. It comprises the three independent Non-Executive Directors who are also members of the Supervisory Board: Howard Myles is Chairman of the Committee, with Colin Maltby and David Richardson the other members. Biographical details of each member can be found immediately following the Chairman's Statement.
The Committee's responsibilities are as follows:
-- Where requested, providing advice to the Supervisory Board on whether the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy;
-- monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group's financial performance and reviewing significant financial reporting judgements contained therein;
-- reviewing the Group's internal financial controls and, unless expressly addressed by the Board itself, the Group's internal control and risk management systems, including reviewing the Internal Auditors annual regulatory report;
-- monitoring and reviewing the effectiveness of the Company's internal audit function;
-- making recommendations to the Supervisory Board for resolutions to be put to shareholders for approval at the AGM on the appointment, re-appointment and removal of the external auditor, and for approval of the associated remuneration and terms of engagement;
-- reviewing and monitoring the external auditor's independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK and Luxembourg professional and regulatory requirements;
-- developing and implementing a policy on the engagement of the external auditor to supply non-audit services, taking into account relevant guidance and legislation regarding the provision of non-audit services by the external audit firm; and
-- reviewing the Group's Annual and Interim Reports and Financial Statements.
The Committee is required to report its findings to the Supervisory Board, identifying any matters on which it considers that action or improvement is needed, and make recommendations on the steps to be taken. In the event of any conflict between the provisions of the AIC Code and the provisions of the law on the Audit Profession, the Company will comply with the provisions of the law on the Audit Profession and will disclose any such conflict.
The external Auditor is invited to attend those Committee meetings at which the annual and interim financial statements are considered, and at other times if considered necessary by the Committee.
Meetings
The Committee is required to meet not less than twice a year, and at such other times as the Committee Chairman may require. Additional meetings may be requested by any other member of the Committee, or the external Auditor, if deemed necessary. Other Directors and third parties may be invited by the Committee to attend meetings as and when appropriate.
Attendance at Audit Committee meetings during
the financial year ended 31 December 2016
-------------------------------------------------
Name Scheduled
meetings
and attendance
------------------------- ----------------------
Audit Committee 2
Howard Myles 2
David Richardson 2
Colin Maltby 2
------------------------- ----------------------
From time to time there are unscheduled meetings of the Audit Committee, most of which are called at short notice meetings to approve documents previously discussed or of a technical nature. Due to the generally short notice given, not all members are always able to attend. However, no unscheduled meetings were called during 2016.
AGM
The Committee Chairman attends each AGM of the Company and is prepared to respond to any shareholder questions on the Committee's activities.
RISK AND RISK MANAGEMENT
The Board, with the support of the appointed Risk Manager, considers the process of identifying, evaluating and managing the significant risks faced by the Company on an ongoing basis. The Management Board has established internal controls to manage these risks by reference to a risk register, and reviews and monitors this register and the various risks on a quarterly basis. The Supervisory Board also reviews the key risks affecting the Company at each scheduled quarterly Board meeting, by reference to said risk register. If a new risk develops or the likelihood of a risk occurring increases, where appropriate and to the extent possible, a mitigation strategy is developed and implemented, together with enhanced monitoring. The Audit Committee also reviews the effectiveness of the Company's risk management and internal control systems at least annually.
The Management Board set out the material risks relating to the Company's portfolio in the Company's IPO prospectus dated 6 December 2011, and updated them in the two prospectuses that followed dated 26 June 2013 and 19 November 2013 respectively; each prospectus is available on the Company's website. General areas of risk and the processes are set out below within the relevant area of risk.
Areas of risk Risk factor
------------------------- ----------------------------------------
Economic, external 1. Currency fluctuation
and financial 2. Political and regulatory -
changes in law, policies, regulations,
directives and practice
3. Tax and accounting - changes
in law, policies and practice
4. Interest rate, deposit rate
and inflation rate movement, and
general economic impact
5. Liquidity and finance - no
or limited access to debt or equity
financing
------------------------- ----------------------------------------
Operational/asset 1. Re-financing risk
related 2. Construction: delays, defects,
insolvency
3. Counterparty risk
4. Termination of projects
5. Underperformance or performance
failures of project entities,
subcontractors or service providers
6. Lifecycle risk: timing and
costs of project refurbishments
where the risk is retained
7. Budgeting, control failings,
financial modelling and reporting
errors
8. IT systems failing / cyber
attack
9. Bribery, fraud, corruption,
conflicts of interests
------------------------- ----------------------------------------
Strategic and management 1. Share price discount or premium
to NAV
2. Poor project selection: overpaying
for assets
3. Inadequate due diligence resulting
in inaccurate risk assessment
4. Underperformance of Management
Board, key man risk
5. Counterparty risk: counterparty's
ability to pay
6. Bribery, fraud, corruption,
conflicts of interest
7. Contractual imperfections
8. Breach of investment policy
9. Concentration risk: over-reliance
on one jurisdiction, public client,
credit institution or service
provider
------------------------- ----------------------------------------
Economic, external and financial risks
-- A significant proportion of the Company's underlying investments, 61% of portfolio value at 31 December 2016, are denominated in currencies other than Sterling. The Company maintains its financial statements, prepares the valuation and pays distributions in Sterling. Accordingly, fluctuations in exchange rates between Sterling and the relevant local currencies will directly affect the value of the Company's underlying investments, the distributions and the ultimate rate of return realised by investors. The Company has implemented currency hedging arrangements in respect of the non-Sterling investments denominated in AUD, CAD, NOK and USD for a period of four years in order to mitigate some of this risk.
-- The Company has investments in project entities and business activities in different jurisdictions, and external, economic and financial factors have the capacity to affect these. In particular, the performance of the investments can be affected by changes in macroeconomic factors such as foreign exchange, inflation rates, interest rates and deposit rates.
-- Different laws and regulations apply within the jurisdictions where the Company and the project entities are located, and the Company and investments in such countries may be affected by changes in law, tax and accounting regimes, directives, political climate, and other changes that cannot be easily foreseen. The underlying financial models of project entities and the business model of the Company are based on assumptions regarding the prevailing tax, accounting and legal frameworks. Any change in those assumptions could affect the Company's ability to meet targets and its investment objectives. Where possible, this will be mitigated, but there may be instances where this will not be possible. The Company and the service providers for the underlying project entities continually monitor any potential or actual changes.
-- The project entities typically have some cash reserves and deposits. From a financial modelling perspective, an assumption is usually made that the deposits can be placed at a forecast rate that varies depending on country and historical long-term averages. The effect on investment returns if deposit rates exceed or fall below the projections for this long-term rate is dependent on the amount of deposits.
-- The revenues and expenditure of project entities developed under PPP/PFI are frequently partly or wholly subject to indexation. From a financial modelling perspective, an assumption is usually made that inflation will increase at a long-term rate (which may vary depending on country and prevailing inflation forecasts). The effect on investment returns if inflation exceeds or falls below the projections for this long-term rate is dependent on the nature of the underlying project earnings, the extent to which the project entity's costs are affected by inflation and any unitary charge indexation provisions agreed with the client on any project. The Company's ability to meet targets and its investment objectives may be adversely or positively affected by higher or lower than expected inflation. There is also a risk that general operating costs may be higher than forecast in the financial model. This may be due to, inter alia, inflation. Project entities typically mitigate that risk to some extent by seeking to match the indexation of the revenues to the indexation of the operational cost.
-- The Company's debt facility has a floating rate that is not hedged. The Company's performance may be affected by changes in interest rates. The underlying project entities have sought to hedge substantially all their floating rate interest liabilities against changes in underlying interest rates.
-- To the extent that the Company does not have cash reserves pending investment, the Company expects to bridge finance further investments by way of the credit facility or by issuing additional equity. Although the Company has had a credit facility in place since July 2012 (which was refinanced in January 2015), there can be no guarantee that this will always be the case or that it will be able to issue further shares in the market.
Operational/asset related risks
-- In some projects, a refinancing may be required to repay the project entity's obligations as they fall due. For the existing portfolio, in relation to senior debt financing, this applies to the Northern Territory Secure Facilities project, Royal Women's Hospital project (and only with respect to one of two tranches of bonds), and the Women's College Hospital project where the bond expires in 2019 and, in the event that no refinancing can be arranged, a cash sweep applies where all net operational cash will be used to repay the bond. Where a project carries a requirement to refinance, there is a risk that such refinancing cannot be secured at the forecast financing costs or at all. This could have an impact on the timing and/or amounts of distributions or other payments in respect of investment capital by such project entity. The Company believes that the current refinancing assumptions in the models are adequate.
-- Although it is intended that the main construction and operational risks will be passed on by the project entities contractually to the relevant subcontractor or service providers (including any penalty payments or deductions to the client), or covered by insurance, there continues to be some risk that the anticipated returns of the project entities will be adversely affected by underperformance or performance failures.
-- To the extent that the actual costs incurred by a project entity differ from the forecast costs, and cannot be passed on to subcontractors, e.g. insurance costs, the expected investment returns may be adversely affected.
-- If there is a subcontractor service failure or subcontractor insolvency which is sufficiently serious to cause a project entity to terminate or to be required by the client to terminate a subcontract, or the relevant subcontract expires prior to the end of the concession period (which is the case on some road projects), there may be a loss of revenue during the time taken to find a replacement subcontractor. In addition, the replacement subcontractor may levy a surcharge to assume the subcontract or charge more to provide the services. Despite available securities such as parent company guarantees and letters of credit, these losses and costs may not be recoverable from the defaulting subcontractor.
-- The client is generally given rights of termination under PPP/PFI contractual agreements. The compensation (if any) which the project entity is entitled to receive on termination will depend on the reason for termination and the terms of the project agreement. In some instances, the compensation will not include amounts designed specifically to repay the equity investment. Where termination is for client default, or the client voluntarily terminates the project agreement without fault on either side, the compensation is likely to extend to some of the lost equity returns, although this cannot be guaranteed. The Company has currently no indication that any of the clients intend to voluntarily terminate the agreement or of any potential client default.
-- During the life of an investment, components of the project assets (such as asphalt in the case of roads and elevators, roofs and air handling plants in the case of buildings) are likely to need inter alia to be replaced or undergo a major refurbishment. The timing and costs of such replacements or refurbishments is forecast, modelled and provided for by each project entity based upon manufacturers' data and warranties, and specialist advisers are usually retained by the project entities to assist in such forecasting of lifecycle timings, scope of work and costs. However, various factors such as shorter than anticipated asset lifespans, vandalism, or underestimated costs and/or inflation higher than forecast may result in lifecycle costs being higher than the financial model projections or occurring earlier than projected. The contractual matrix for the current portfolio is intended to pass this risk down to subcontractors (in particular for the social infrastructure projects), but where this risk is retained (generally on transport projects) or where it is not otherwise effectively passed down to subcontractors, any cost implication will generally be borne by the affected project entities.
-- Typically, the client will have the right to terminate the project agreement where the project entity or a shareholder or subcontractor (or one of their employees) has committed bribery, corruption or another fraudulent act. In these circumstances, it is likely that the majority, if not all, of the investment will be lost. The Company has a compliance system in place and is currently not aware of any such acts that could trigger that risk.
-- The costing of, and pricing for, infrastructure projects relies on large and detailed financial models. There is a risk that errors may be made in the assumptions, calculations or methodology used in a financial model. In such circumstances, the figures and/or the returns generated by the project entity may be different to those estimated or projected. The risk is mitigated for project entities where the models have been updated a number of times and/or operational model audits have been undertaken. The Company typically engages a third party advisor to carry out a model review as part of its acquisition due diligence process.
Strategic and management risks
-- To assist the Company in managing any share price premiums or discounts to NAV, the Company has the ability to make market purchases of up to 14.99% per annum of the ordinary shares in issue. In addition, a continuation vote is offered to shareholders every two years, the next of which will be proposed at the Company's AGM on 28 April 2017.
-- The Company seeks to provide its shareholders with a minimum 6.25 pence per share per annum target dividend and a 7% to 8% IRR on the GBP1 IPO issue price, based on long-term stable and contracted government-backed revenue streams that are partly inflation linked. The Company's portfolio value is prepared semi-annually by the Management Board in good faith; it is then independently reviewed by a professional valuer, and finally reviewed/audited by KPMG. However, there is a risk that the Company may fail to reach the return objectives. The ultimate realisation of the market value of an asset depends largely on judgements, economic conditions and other conditions beyond the control of the Company. Valuations do not necessarily represent the price at which an investment can be sold.
-- Further investments intended to be made by the Company comprise interests in project entities that are not publicly traded or freely marketable and often subject to restrictions on transfer; such investments may, therefore, be difficult to value. This could lead to an overpayment for investments during an acquisition. The Company has internal processes in place that seek to minimise these risks through regular review of the peer group, discussions with advisors, regular external confirmation of the portfolio value, and the annual audit process.
-- The due diligence process undertaken during an acquisition may not reveal all facts and circumstances relevant to a particular investment. The Company seeks to mitigate this risk where possible by a structured due diligence process, typically with the support of external advisors, market knowledge, site visits and contractual protections in the acquisition agreements.
-- The success of the Company will depend, inter alia, upon the skill and expertise of the Management Board and the individuals employed within the Group in identifying, selecting, acquiring and managing the investments. There is also no certainty that key investment professionals will continue to work for the Group in the long term.
-- The concessions granted to project entities are predominantly granted by a variety of public sector clients in the UK, Canada, Australia, Germany, Norway and the US. Although the Management Board believes such public sector clients generally represent a low counterparty risk, the possibility of a default remains and has increased in recent years, and may vary from country to country. This risk could increase if the Company has one public sector client that is the counterparty to more than one investment. The Company has a wide range of public clients.
-- The Company and its business may be impacted by bribery, fraud and corruption. The Company has a compliance system in place and is not aware of any such acts that could trigger that risk.
-- A single subcontractor may be responsible for providing services to various project entities in which the Company will invest, and the Company has set no limit as to the number of project entities to which a single subcontractor may provide services. In such instances, the default or insolvency of such single subcontractor could adversely affect a number of the Company's investments. A similar situation may apply with respect to default, impairment or insolvency relating to financial counterparties, such as banks and insurance companies. Any credit support provided in respect of the performance of the relevant obligation may not be sufficient and may not respond at all. This could have a material adverse effect on the project entity concerned and might not only reduce financial returns but could adversely affect the Company's reputation. Apleona (previously called Bilfinger Real Estate Asset Management or "BREAM") is the day-to-day management service provider for a substantial number of these project entities and as such there is some concentration risk from this relationship.
-- Where the project entities have made deposits with financial institutions, these are typically short or medium term. By monitoring the exposure across the portfolio, the Company seeks to mitigate any over-reliance on any single counterparty and ensure that these institutions have an acceptable credit rating.
Insurance
The Company has taken out both Directors and Officers ("D&O") liability insurance and Professional Indemnity ("PI") insurance. The cover provided under the PI policy is compliant with the requirements of the AIFM law.
Environmental, Social and Governance ("ESG")
As companies' influence on global economic activity increases, the resultant effect on the environment and society in general is much greater than before. Corporate Governance is therefore inextricably linked to both, so good corporate governance practices are essential to ensure that the impact a company can have in these areas is mitigated to the greatest extent possible. Adopting such good practices should also have the effect of reducing the possibility of more onerous legal/regulatory changes being imposed that could seriously affect relevant business activities.
As part of their corporate social responsibility, the Boards recognise the importance of ensuring that the Company develops appropriate environmental, social and ethical policies. The Company has implemented its ESG policies, which have been designed to ensure that the Company follows best practices in relation to corporate responsibility. The policies are monitored and updated on an ongoing basis. Furthermore, and allied to this ESG Policy, the Company strives to ensure that all the project companies within its portfolio have implemented effective ESG policies and processes.
In terms of employment, the Company is an Equal Opportunities Employer, committed to the principles of respect, fairness and loyalty, as well as equal treatment and pay between men and women. It has a strict Code of Conduct policy in place to ensure equal treatment of its entire staff, and to prevent any employee suffering any form of discrimination or harassment due to their nationality, gender, sexual orientation, ethnicity, religion, ethical beliefs, handicap or age, and it will not tolerate any such abuse.
Once the Company has acquired an investment in a project entity, through its representatives on the Board of the project company it then undertakes regular reviews of the environmental, social governance and ethical policies that the project entity has in place and its adherence to these policies in the delivery of its services. Health and Safety practices are also monitored across the Company's portfolio and any serious breaches or incidents are reported to the Management Board, which in turn reports these to the Supervisory Board.
An infrastructure project can have an immense impact on the local communities and the environment. Accordingly, the Company requires that its representatives within the various project companies strive to ensure that, firstly, said companies develop and maintain positive relationships with the communities affected by their particular project and secondly, that all necessary steps / mitigating actions (to the extent practical) are taken to lessen or, if at all possible, to nullify the impact on the environment. BBGI's vision is to promote the conservation, protection and improvement of the physical and natural environments surrounding its projects through careful monitoring, local engagement and management. The Mersey Gateway Bridge project in the UK is an example of such an initiative, further details of which can be found through the following link http://www.merseygateway.co.uk/mersey-gateway-environmental-trust/.
Donations
The Company made no political donations during the year. Total charitable donations for the year did not exceed GBP500.
AUDIT COMMITTEE REPORT
Introduction
I am pleased to present the Audit Committee's formal report to shareholders on how it has conducted its responsibilities for the year ended 31 December 2016.
Responsibilities and composition
The main responsibilities of the Audit Committee can be found within the Governance section of this Annual Report, under the heading "Committees of the Supervisory Board".
Each of the three Non-Executive Directors is a member of the Committee, which is chaired by me, and our biographies can be found immediately after the Chairman's Statement. The Board considers that at least one Committee member has recent and relevant financial experience for the Committee to discharge its functions effectively.
Due to the size of the Supervisory Board, the Chairman, David Richardson, is also a member of the Committee, and this enables him to not only bring his extensive accounting knowledge to the table but also keeps him fully informed of any issues that may arise.
2016: the year under review
The Audit Committee met twice in the year to 31 December 2016 and member attendance can be found within the Governance section of this Annual Report, under the heading "Committees of the Supervisory Board". At these meetings, the Committee considered, inter alia:
-- the 2015 Annual and 2016 Interim reports and financial statements;
-- the Reports of the external Auditor;
-- the implications of the 2016 Audit Reform Law([20]) on the governance of the Company and the responsibilities of the Audit Committee;
-- the external Auditor's terms of appointment and remuneration (including overseeing the independence of the Auditor particularly as it relates to the provision of non-audit services);
-- review/approval of the external Auditor's plan for the following financial year;
-- the appropriateness of the Company's accounting policies;
-- the risk register of the Company;
-- the adequacy of the internal control systems and standards; and
-- the Internal Auditor's Annual Report of the year under review.
Significant risks considered
During the year under review, the Audit Committee held discussions with both the Management Board, the external Auditor and the Company's internal auditor. The Committee concluded from these discussions that the most significant risk of material misstatement in the Company's financial statements continues to be the fair valuation of the investment portfolio, and in particular the discount rates applied and the key macro-economic assumptions used when valuing these investments. This risk of material misstatement is considered carefully when the Committee reviews the Company's annual and interim financial statements. The fair market valuation of the investments (which is carried out by the Management Board) is conducted every six months at 30 June and 31 December respectively; this is then reviewed by an independent third-party valuer, after which it is presented to the Supervisory Board. As outlined in Note 10 to the financial statements the total fair value of the investment portfolio at 31 December 2016 was GBP569.9 million.
The Management Board members were available during the Audit Committee review process to provide detailed explanations of the rationale used for the valuation of investments. The external Auditor was also invited to attend the Audit Committee meetings at which the annual and interim financial statements were considered in order to present the conclusion of its work, which included a review of the adequacy of the valuation.
Subsequent to the valuation and ensuing reviews, the Committee concluded that the valuation process of the Company's investments for the year ended 31 December 2016 had been properly carried out and the investments fairly valued.
Appointment of external Auditors
As stated above, the Committee annually reviews the performance of KPMG Luxembourg, Société coopérative ("KPMG"), the Company's external Auditor. In doing so, we consider a range of factors including the quality of service, specialist expertise and the level of audit fee. Following that review, the Committee remains satisfied with KPMG's effectiveness and therefore has not considered it necessary, to date, to require it to tender for the audit work. There are no contractual obligations restricting the choice of external Auditor. The reappointment of the external Auditor is subject to shareholder approval at the Annual General Meeting. In accordance with the new Audit Reform Law, a mandatory audit tendering process will be carried out in 2021 after the completion of a 10-year audit cycle by KPMG.
Non-Audit Services ("NAS")
Under the new Audit Reform Law, fees for permissible NAS provided by the external auditor to the Company or its controlled undertakings, where performed for three consecutive financial years, must not in any year exceed 70% of the average annual fees charged by the external auditor in the last three consecutive financial years for statutory audits of the Company and its controlled EU undertakings. These provisions are enforceable for periods beginning after 17 June 2019. During the year under review, the Company has put in place certain procedures to ensure continued compliance with these new provisions, amongst which is that, with immediate effect, the Audit Committee will approve all NAS to be performed by the external auditor that are not prohibited before such NAS are carried out.
As a result of its work during the period, the Audit Committee concludes that it has acted in accordance with its terms of reference and has ensured the independence and objectivity of the external Auditor. The Audit Committee has recommended to the Board therefore that KPMG Luxembourg, Société coopérative be re-appointed as the Company's external Auditor.
Conclusion
In conclusion, the Audit Committee is of the opinion that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
APPROVAL
On behalf of the Audit Committee
Howard Myles
Chairman of the Audit Committee
28 March 2017
MANAGEMENT BOARD RESPONSIBILITIES STATEMENT
The Management Board of the Company is responsible for ensuring proper preparation of the annual report and financial statements of the Company for each financial period in accordance with applicable laws and regulations, which require it to:
i) give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as of and at the end of the financial period, in accordance with International Financial Reporting Standards as adopted by the European Union and the Listing Rules;
ii) give a true and fair view of the development and performance of the business and the position of the Group; and
iii) give a true and fair description of the principal risks and uncertainties the Group may encounter, and put in place an appropriate control framework designed to meet the Group's particular needs and the risks to which it is exposed.
In addition, the Management Board is responsible for ensuring that the Company is in compliance with applicable company law and other UK or Luxembourg applicable laws and regulations, providing a description of the risks and uncertainties the Group may encounter, and putting in place an appropriate control framework designed to meet the Group's particular needs and the risks to which it is exposed.
In preparing such financial statements, the Management Board is responsible for:
-- selecting suitable accounting policies and applying them consistently;
-- making judgements and estimates that are reasonable and prudent;
-- stating whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
-- preparing the financial statements on a going concern basis, unless it is inappropriate to presume that the Group will continue in business;
-- maintaining proper accounting records which disclose with reasonable accuracy the financial position of the Group and enable them to ensure that the financial statements comply with all relevant regulations; and
-- safeguarding the assets of the Group and taking reasonable steps for the prevention and detection of fraud and other irregularities.
Management Board Responsibilities Statement
We confirm that to the best of our knowledge:
-- the financial statements have been prepared in accordance with the applicable set of accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and Group included in the consolidation as a whole.
-- the Chairman's Statement and the Report of the Management Board include a fair review of the development and performance of the business and the position of the Company and Group included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces.
Luxembourg, 28 March 2017
Signatures
Duncan Ball, Co-CEO Frank Schramm, Co-CEO Michael Denny, CFO
To the Shareholders of
BBGI SICAV S.A.
6E, route de Trèves
L-2633 Senningerberg
REPORT OF THE REVISEUR D'ENTREPRISES AGREE
Report on the consolidated financial statements and separate financial statements
Following our appointment by the Annual General Meeting of the Shareholders dated 29 April 2016, we have audited the accompanying consolidated financial statements of BBGI SICAV S.A. (the 'Company') and its subsidiaries (the 'Group'), which comprise the consolidated statement of financial position as at 31 December 2016, the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
We have also audited the accompanying separate financial statements of the Company, which comprise the statement of financial position as at 31 December 2016 and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory notes.
Management Board's responsibility for the consolidated financial statements and separate financial statements
The Management Board is responsible for the preparation and fair presentation of these consolidated financial statements and separate financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Management Board determines is necessary to enable the preparation of consolidated financial statements and separate financial statements that are free from material misstatement, whether due to fraud or error.
Responsibility of the Réviseur d'Entreprises agréé
Our responsibility is to express an opinion on these consolidated financial statements and separate financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements and separate financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and separate financial statements. The procedures selected depend on the judgement of the Réviseur d'Entreprises agréé, including the assessment of the risks of material misstatement of the consolidated financial statements and separate financial statements, whether due to fraud or error. In making those risk assessments, the Réviseur d'Entreprises agréé considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements and separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board, as well as evaluating the overall presentation of the consolidated financial statements and separate financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of BBGI SICAV S.A. as of 31 December 2016, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
In our opinion, the separate financial statements give a true and fair view of the financial position of BBGI SICAV S.A. as of 31 December 2016, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
Other information
The Management Board is responsible for the other information. The other information comprises the information included in the management report and the Corporate Governance Statement but does not include the consolidated financial statements, the separate financial statements and our report of réviseur d'entreprises agréé thereon.
Our opinion on the consolidated financial statements and the separate financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements and the separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements and the separate financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard.
Other matter
The Corporate Governance Statement includes information required by Article 68bis paragraph (1) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended.
Report on other legal and regulatory requirements
The management report, is consistent with the consolidated financial statements and the separate financial statements and has been prepared in accordance with the applicable legal requirements.
The information required by Article 68bis paragraph (1) letters c) and d) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings, as amended and included in the Corporate Governance Statement is consistent with the consolidated financial statements and the separate financial statements and has been prepared in accordance with applicable legal requirements.
Luxembourg, 28 March 2017 KPMG Luxembourg
Société coopérative
Cabinet de révision agréé
Frauke Oddone
Partner
Consolidated Income statement
---------------------------------------------------------------
Year ended Year ended
Note 31 December 31 December
2016 2015
In thousands of Pounds
Sterling
---------------------------- ----- ------------ ------------
Continuing operations
Income from investments
at fair value through
profit or loss 10 99,523 42,014
Other operating income 9 1,735 1,796
Operating income 101,258 43,810
---------------------------- ----- ------------ ------------
Administration expenses 5 (5,508) (4,682)
Other operating expenses 6 (11,053) (1,107)
---------------------------- ----- ------------ ------------
Operating expenses (16,561) (5,789)
---------------------------- ----- ------------ ------------
Results from operating
activities 84,697 38,021
---------------------------- ----- ------------ ------------
Finance cost 7 (2,252) (1,852)
Finance income 8 11 23
Net finance result (2,241) (1,829)
---------------------------- ----- ------------ ------------
Profit before tax 82,456 36,192
Tax expense 12 (2,254) (583)
---------------------------- ----- ------------ ------------
Profit from continuing
operations 80,202 35,609
---------------------------- ----- ------------ ------------
Profit from continuing
operations attributable
to
owners of the Company 80,202 35,609
---------------------------- ----- ------------ ------------
Earnings per share
Basic earnings per share
(pence) 14 18.56 8.27
Diluted earnings per
share (pence) 14 18.56 8.27
---------------------------- ----- ------------ ------------
The accompanying notes form an integral part of the consolidated financial statements.
Consolidated statement of comprehensive income
------------------------------------------------------------
Year ended Year ended
Note 31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------ ------ ------------ ------------
Profit for the year 80,202 35,609
Other comprehensive
income for the year - -
------------------------ ------ ------------ ------------
Total comprehensive
income for the year
attributable to the
owners of the Company 80,202 35,609
-------------------------------- ------------ ------------
The accompanying notes form an integral part of the consolidated financial statements.
consolidated statement of financial position
----------------------------------------------------------------------------------------------
Note 31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------------ ----- ------------- ----------------------------------------
Assets
Property plant and equipment 68 62
Investments at fair
value through profit
or loss 10 569,926 504,776
Derivative financial
asset 18 - 1,688
Non-current assets 569,994 506,526
------------------------------ ----- ------------- ----------------------------------------
Trade and other receivables 20 1,897 391
Other current assets 62 41
Cash and cash equivalents 11 22,113 23,243
Current assets 24,072 23,675
------------------------------ ----- ------------- ----------------------------------------
Total assets 594,066 530,201
------------------------------ ----- ------------- ----------------------------------------
Equity
Share capital 13 442,680 440,259
Additional paid-in capital 20 304 98
Translation reserves 13 (597) (597)
Retained earnings 13 96,397 42,610
------------------------------ ----- ------------- ----------------------------------------
Equity attributable
to owners of the Company 538,784 482,370
------------------------------ ----- ------------- ----------------------------------------
Liabilities
Loans and borrowings 15 44,755 44,504
Derivative financial
liability 18 4,327 -
Non-current liabilities 49,082 44,504
------------------------------ ----- ------------- ----------------------------------------
Loans and borrowings 15 45 57
Trade payables 145 97
Derivative financial
liability 18 2,868 -
Other payables 16 2,956 2,884
Tax liabilities 12 186 289
------------------------------ ----- ------------- ----------------------------------------
Current liabilities 6,200 3,327
------------------------------ ----- ------------- ----------------------------------------
Total liabilities 55,282 47,831
------------------------------ ----- ------------- ----------------------------------------
Total equity and liabilities 594,066 530,201
------------------------------ ----- ------------- ----------------------------------------
Net asset value attributable
to the owners of the
Company 538,784 482,370
Net asset value per
ordinary share (pence) 13 124.66 112.08
------------------------------ ----- ------------- ----------------------------------------
The accompanying notes form an integral part of the consolidated financial statements.
Consolidated statement of changes in equity
---------------------------------------------------------------------------------------------
Additional
Share paid-in Translation Retained Total
Note capital capital reserve earnings equity
In thousands of
Pounds Sterling
-------------------------- ----- --------- ----------- ------------ ---------- ---------
Balance at 1 January
2015 434,818 - (597) 32,115 466,336
-------------------------- ----- --------- ----------- ------------ ---------- ---------
Total comprehensive
income for the
year
ended 31 December
2015
Profit for the
year - - - 35,609 35,609
--------------------------
Total comprehensive
income for the
year - - - 35,609 35,609
-------------------------- ----- --------- ----------- ------------ ---------- ---------
Transactions with
owners of the
Company, recognised
directly in equity
Cash dividends 13 - - - (19,673) (19,673)
Scrip dividends 13 5,441 - - (5,441) -
Share-based payment 20 - 98 - - 98
Balance at 31 December
2015 440,259 98 (597) 42,610 482,370
-------------------------- ----- --------- ----------- ------------ ---------- ---------
Total comprehensive
income for the
year ended 31 December
2016
Profit for the
year - - - 80,202 80,202
--------------------------
Total comprehensive
income for the
year - - - 80,202 80,202
-------------------------- ----- --------- ----------- ------------ ---------- ---------
Transactions with
owners of the Company,
recognised directly
in equity
Cash dividends 13 - - - (23,994) (23,994)
Scrip dividends 13 2,421 - - (2,421) -
Share-based payment 20 - 206 - - 206
Balance at 31 December
2016 442,680 304 (597) 96,397 538,784
-------------------------- ----- --------- ----------- ------------ ---------- ---------
The accompanying notes form an integral part of the consolidated financial statements.
consolidated statement of cash flows
-------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds Note
Sterling
----------------------------------- ----- --------------- ------------
Cash flows from operating
activities
Profit for the year 80,202 35,609
Adjustments for:
- Depreciation expense 5 25 21
- Net finance cost 7,8 2,241 1,829
- Income from investments
at fair value through profit
or loss 10 (99,523) (42,014)
- Change in fair value
of derivative financial
instrument 6 10,870 (1,549)
- Foreign exchange loss
(gain) 9 (1,391) 616
- Share-based compensation 20 206 98
- Income tax expense 12 2,254 583
----------------------------------- ----- --------------- ------------
(5,116) (4,807)
Changes in:
- Trade and other receivables (122) 183
- Other assets (21) (108)
- Trade and other payables (257) 161
----------------------------------- ----- --------------- ------------
Cash generated from operating
activities (5,516) (4,571)
Interest paid (1,832) (1,202)
Interest received 11 23
Realised gain (loss) on
derivative financial instruments 18 (1,987) 993
Taxes paid (2,357) (662)
Net cash flows from operating
activities (11,681) (5,419)
----------------------------------- ----- --------------- ------------
Cash flows from investing
activities
Acquisition of/additional
investments at fair value
through profit
or loss 10 (9,525) (41,610)
Distributions received
from investments at fair
value through
profit or loss 42,514 33,788
Acquisition of other equipment (31) (17)
Net cash flows from investing
activities 32,958 (7,839)
----------------------------------- ----- --------------- ------------
Cash flows from financing
activities
Proceeds from issuance
of loans and borrowings 15 - 32,563
Dividends paid 13 (23,994) (19,673)
Debt issue cost 13 (180) (1,178)
Net cash flows from financing
activities (24,174) 11,712
----------------------------------- ----- --------------- ------------
Net increase (decrease)
in cash and cash equivalents (2,897) (1,546)
Impact of foreign exchange
gain/ (loss) on cash and
cash
equivalents 1,767 (475)
Cash and cash equivalents
at 1 January 11 23,243 25,264
Cash and cash equivalents
at 31 December 11 22,113 23,243
----------------------------------- ----- --------------- ------------
The accompanying notes form an integral part of the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2016
1. Reporting entity
BBGI SICAV S.A. ("BBGI", or the "Company" or, together with its consolidated subsidiaries, the "Group") is an investment company incorporated in Luxembourg in the form of a public limited company (société anonyme) with variable share capital (société d'investissement à capital variable, or "SICAV") and regulated by the Commission de Surveillance du Secteur Financier ("CSSF") under Part II of the Luxembourg law of 17 December 2010 on undertakings for collective investments with an indefinite life. The Company qualifies as an alternative investment fund within the meaning of Article 1 (39) of the law of 12 July 2013 on alternative investment fund managers ("2013 Law") implementing Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 and is authorised as an internal alternative investment fund manager in accordance with Chapter 2 of the 2013 Law. The Company was admitted to the official list of the UK Listing Authority (premium listing, closed-ended investment fund) and to trading on the main market of the London Stock Exchange on 21 December 2011.
The Company's registered office is EBBC, 6E, route de Trèves, L-2633 Senningerberg, Luxembourg.
The Company is a closed-ended investment company that invests principally in a diversified portfolio of Public Private Partnership ("PPP")/Private Finance Initiative ("PFI") infrastructure or similar assets. The Company has limited investment in projects that are under construction.
As at 31 December 2016, the Group employed 18 staff (31 December 2015: 14 staff).
Reporting period
The Company's reporting period runs from 1 January to 31 December each year. The Company's consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows include comparative figures as at 31 December 2015.
The amounts presented as "non-current" in the consolidated statement of financial position are those expected to be settled after more than one year. The amounts presented as "current" are those expected to be settled within one year.
These consolidated financial statements were approved by the Board on 28 March 2017.
2. Basis of preparation
Statement of compliance
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and the provisions of the Standard of Recommended Practices issued by the Association of Investment Companies ("AIC SORP").
All items presented in the consolidated income statement and consolidated statement of comprehensive income respectively are considered "capital" in nature.
Changes in accounting policy
The accounting policies, measurement and valuation principles applied by the Group in these consolidated financial statements are the same as those applied by the Group in its annual consolidated financial statements as of and for the year ended 31 December 2015.
Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments and investments at fair value through profit or loss ("FVPL investments") which are reflected at fair value.
Functional and presentation currency
These consolidated financial statements are presented in Pounds Sterling, the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise stated.
Use of estimates and judgements
The preparation of consolidated financial statements in conformity with IFRS requires the Management Board to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
In the process of applying the Group's accounting policies, the Management Board has made the following judgements that have the most significant effect on the amounts recognised in the consolidated financial statements.
The Company as an Investment Entity
The Management Board has assessed that the Company is an Investment Entity in accordance with the provisions of IFRS 10. The Company meets the following criteria to qualify as an Investment Entity:
a) Obtains funds from one or more investors for the purpose of providing those investors with investment management services:
The Group is internally managed with management focused solely on managing those funds received from its shareholders in order to maximise investment income/returns.
b) Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both:
The investment objectives of the Company are to:
- Provide investors with secure and highly predictable long-term cash flows whilst actively managing the investment portfolio with the intention of maximising the capital value over the long term.
- Target a dividend of 6.25 pence per share per annum. The Company will aim to increase this
distribution progressively over the longer term.
- Target an IRR in the region of 7% to 8% on the GBP1 IPO issue price of its ordinary shares, to be achieved over the longer term via active management, to enhance the value of existing investments.
The above-mentioned objectives support the fact that the main business purpose of the Company is to seek to maximise investment income for the benefit of its shareholders.
c) Measures and evaluates performance of substantially all of its investments on a fair value basis:
The investment policy of the Company is to invest in equity, subordinated debt or similar interests issued in respect of infrastructure projects that have been developed predominantly under the PPP/PFI or similar procurement models. Each of these PPP/PFI projects is valued at fair value. The valuation is carried out on a six-monthly basis as at 30 June and 31 December each year.
Based on the Management Board's assessment, the Company also meets the typical characteristics of an Investment Entity as follows:
a) it has more than one investment - as at 31 December 2016, the Company has 39 PPP/PFI investments;
b) it has more than one investor - the Company is listed on the London Stock Exchange with its shares held by a broad pool of investors;
c) it has investors that are not related parties of the entity - other than those shares held by the Supervisory Board and Management Board directors, and certain other employees, all remaining shares in issue (more than 99%) are held by non-related parties of the Company; and
d) it has ownership interests in the form of equity or similar interests - the Group holds interests in PPP/PFI projects in the form of equity interests, subordinated debt and similar instruments.
Fair valuation of financial assets and financial liabilities
The Group accounts for its investments in PPP/PFI entities ("SPC" or "Project Entities") as FVPL investments.
The valuation is determined using the discounted cash flow methodology. The cash flows forecasted to be received by the Company or its consolidated subsidiaries, generated by each of the underlying assets, and adjusted as appropriate to reflect the risk and opportunities, have been discounted using project specific discount rates. The valuation methodology is the same one used in previous reporting periods.
The fair value of other financial assets and liabilities, other than current assets and liabilities, is determined by discounting future cash flows at an appropriate discount rate and with reference to recent market transactions, where appropriate. Further information on assumptions and estimation uncertainties are disclosed in Note 18.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs in the valuation methodology, as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
-- Level 2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based on observable market data ("unobservable inputs").
If the inputs to measure fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety at the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of fair value hierarchy at the end of the reporting period in which the change has occurred.
Going concern basis of accounting
The Management Board has examined significant areas of possible financial risk including cash and cash requirements. It has not identified any material uncertainties which would cast significant doubt on the Company's ability to continue as a going concern for a period of less than 12 months from the date of approval of the consolidated financial statements. The Management Board has satisfied itself that the Company has adequate resources to continue in operational existence for the foreseeable future. After due consideration, the Management Board believes it is appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.
3. Significant accounting policies
The accounting policies set out below have been applied consistently by the Company and its subsidiaries.
Basis of consolidation
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to direct the relevant activities i.e. the activities that significantly affect the investee's returns and to obtain those returns. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.
The Group measures goodwill at the acquisition date as:
- the fair value of the consideration transferred; plus - the recognised amount of any non-controlling interests in the acquiree; plus
- if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less
- the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When there is an excess of value over consideration, a bargain purchase gain is recognised immediately in profit or loss.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in fair value of the contingent consideration are recognised in profit or loss.
Subsidiaries
Subsidiaries are investees controlled by the Company (directly or indirectly). The Company controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The Company is an Investment Entity and measures investments in certain subsidiaries at fair value through profit or loss. In determining whether the Company meets the definition of an Investment Entity, the management considered the Group structure as a whole (see also Note 2).
Although the Company qualifies as an Investment Entity and is required to value certain subsidiaries at fair value, the Company has a number of subsidiaries which provide services that relate to the Company's investment activities. These subsidiaries are consolidated on a line by line basis.
Acquisition of non-controlling interests (consolidated subsidiaries)
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to non-controlling interest arising from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary.
Loss of control (consolidated subsidiaries)
For subsidiaries which are consolidated on a line by line basis, upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, it is accounted for as an investment at fair value through profit or loss or as an available-for-sale financial asset depending on the level of influence retained.
Transactions eliminated on consolidation (consolidated subsidiaries)
Intra-group receivables, liabilities, revenue and expenses are eliminated in their entirety when preparing the consolidated financial statements. Gains that arise from intra-group transactions and that are unrealised from the standpoint of the Group on the balance sheet date are eliminated in their entirety. Unrealised losses on intra-group transactions are also eliminated in the same way as unrealised gains, to the extent that the loss does not correspond to an impairment loss.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into Pounds Sterling at the exchange rate at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into Pounds Sterling at the exchange rate at that date.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into Pounds Sterling at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on translation are recognised in profit or loss as a gain or loss on currency translation.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Pounds Sterling at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Pounds Sterling at the average exchange rates during the year, if such does not significantly deviate from the exchange rates at the date on which the transaction is entered into. If significant deviations arise then the exchange rate at the date of transaction is used.
Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity except for exchange differences from intragroup monetary items which are reflected in the profit and loss. However, if the foreign operation is a non-wholly owned consolidated subsidiary, then the relevant portion of the translations difference is allocated to non-controlling interest. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a consolidated subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such an item are considered to form part of a net investment in the foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity.
Financial instruments
Non-derivative financial assets
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the date that the Group becomes a party to the contractual provisions of the instrument and when the significant risk and rewards of ownership are transferred to the Group.
In general, the Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate financial asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables, and available-for-sale financial assets.
At balance sheet date, except for investments accounted for at fair value through profit or loss, all non-derivative financial assets of the Group have been classified as loans and receivables.
Investments at fair value through profit or loss
The Company is an Investment Entity and therefore values its investment in subsidiaries at fair value through profit or loss, except where the subsidiary provides investment related services or activities. The fair value of an investment in subsidiary includes the fair value of the equity, loans and interest receivable and any other amounts which are included in the discounted estimated cash flow (which is used to compute the fair value) from such subsidiary. The Company subsequently measures its investment in certain subsidiaries at fair value in accordance with IAS 39 and IFRS 13, with changes in fair value recognised in profit or loss in the period of change. The fair value estimation of investments in subsidiaries is described in Note 18.
In addition to valuing certain subsidiaries at fair value through profit or loss, the Company also values investments in associates and jointly controlled entities at fair value.
The Company meets the definition of IAS 28 paragraph 18 for a venture capital organisation or a similar entity and upon initial recognition has designated its investment in joint ventures and associates at fair value through profit or loss. The Group manages the performance of each of the joint ventures and associates on a fair value basis in accordance with the Group's investment strategy. The information about associates and joint ventures is provided internally on a fair value basis to the Group's Management Board and Supervisory Board. The Group therefore measures its associates and joint ventures at fair value in accordance with IAS 39 with changes in fair value recognised in profit or loss in the period of change. The fair value estimation of investments in joint venture and associates is described in Note 18.
Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Non-derivative financial liabilities
The Group classifies non-derivative financial liabilities into the "other financial liability" category. Such financial liabilities are recognised initially at fair value less any direct attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.
The Group derecognises a financial liability (or part of a financial liability) from the statement of financial position when, and only when, it is extinguished or when the obligation specified in the contract or agreement is discharged or cancelled or expired. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is considered in profit or loss.
Derivative financial instruments
The Group may hold derivative financial instruments to hedge its foreign currency, interest rate and other risk exposures.
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.
Impairment
Non derivative financial assets
A financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset or group of financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset(s), and that loss event(s) had an impact on the estimated future cash flows of the asset(s) that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to a liability. The unwinding of such discount is recognised as finance cost.
Intangible assets and goodwill
Goodwill that arises on the acquisition of consolidated subsidiaries is presented with intangible assets. For the measurement of goodwill at initial recognition, please see recognition policy on business combination. Goodwill is measured at cost less accumulated impairment losses and is tested at least annually for impairment.
Other intangible assets, if any, that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and term deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of change in their fair value, and are used by the Group in the management of its short-term commitments.
Share capital
Ordinary shares are classified as equity. Given that the Company has no contractual obligation to deliver cash or any other financial asset or to exchange financial assets or liabilities with another entity under conditions that are unfavourable, the Company classifies the issued shares to be equity rather than liability. Moreover, no shareholder has the right to request the redemption of issued shares.
Costs directly attributable to the issue of ordinary shares, or which are associated with the establishment of the Company, that would otherwise have been avoided are recognised as a deduction from equity net of any tax effects.
Dividend income
Dividend income is recognised in profit or loss on the date on which the right to receive payment is established. This is the date on which the payment of a dividend is authorised.
Finance income and finance costs
Interest income and expenses are recognised in profit or loss using the effective interest method.
The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial instrument (or, where appropriate, a shorter period) to the carrying amount of the financial instrument. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. Interest received or receivable and interest paid or payable are recognised in profit or loss as finance income and finance costs, respectively.
Operating expenses
All operating expenses are recognised in profit and loss on an accruals basis.
Tax
According to the Luxembourg regulations regarding SICAV companies, the Company itself is exempt from paying income and/or capital gains taxes in Luxembourg. It is, however, liable to annual subscription tax of 0.05% of its net asset value computed under investment basis (Investment Basis NAV), payable quarterly and assessed on the last day of each quarter.
Income tax on the consolidated subsidiaries' profits for the year comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
- Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
- Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future; and
- Taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Employee benefits
Short-term and other long-term employee benefits are expensed as the related services are provided. A liability is recognised for the amount expected to be paid, and discounted at present value if necessary, if the Group has present legal or constructive obligation to pay this amount as a result of a past service provided by the employee and the obligation can be estimated reliably.
For share-based payment arrangements, the grant-date fair value of the equity settled share-based payment arrangement is recognised as an expense, with a corresponding increase in additional paid in capital over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect related service and non-market performance conditions if revised. The market condition related to the award is measured at the date of grant and there is no adjustment of expense/income to the profit or loss for differences between expected and actual outcomes.
Segment reporting
Segment results that are reported to the Management Board include items directly attributable to segments as well as those that can be allocated on a reasonable basis.
New standards and interpretations not yet adopted
The IASB and IFRIC have issued a number of standards and interpretations with an effective date after the beginning of the year of these consolidated financial statements as follows:
-- In November 2009, the IASB issued IFRS 9 (Financial Instruments), containing rules for the classification and measurement of financial assets. In October 2010, it issued new requirements for the classification and measurement of financial liabilities, incorporating them into IFRS 9. The new standard defines two instead of four measurement categories for financial assets, with classification to be based partly on the company's business model and partly on the characteristics of the contractual cash flows from the respective financial asset. In the case of equity investments that are not held for trading, an entity may irrevocably opt at initial recognition to recognise future changes in their fair value outside profit or loss in the statement of comprehensive income. In November 2013, the IASB issued further amendments under the title "Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39". The focus of the amendments is on a thorough revision of hedge accounting rules with the aim of more appropriately reflecting risk management activities in the financial statements. This involves additional disclosures in the notes. In July 2014, the IASB published the new rules for the disclosure of financial instrument impairments. This new impairment model is based on the principle of accounting for expected losses. It also introduces a third measurement category "fair value through other comprehensive income" for certain debt instruments. IFRS 9 is to be applied for annual periods beginning on or after 1 January 2018. The Group is currently evaluating the impact the standard will have on the presentation of the Group's financial position and results of operations.
-- In April 2016, the IASB issued IFRS 15 (Revenue from contracts with customers). IFRS 15 replaces existing guidance and introduces a new model for revenue recognition that is based on the transfer of control. This affects the timing and amount of revenue in certain instances. IFRS 15 is applicable for annual periods beginning on or after 1 January 2017 but has not yet been endorsed by the European Union. The changes are not expected to have a material impact on the Group's financial position or results of operations.
-- In January 2016, the IASB issued IFRS 16 (Leases). IFRS 16 introduces a single, on-balance sheet accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. IFRS 16 is applicable for annual periods beginning on or after 1 January 2019 but has not yet been endorsed by the European Union. The changes are not expected to have a material impact on the Group's financial position or results of operations.
-- In September 2014, the IASB published the seventh set of "Annual Improvements to IFRSs". The amendments address details of the recognition, measurement and disclosure of business transactions and serve to standardise terminology. They consist mainly of editorial changes to existing standards. They are applicable for annual periods beginning on or after 1 July 2016. The changes are not expected to have a material impact on the presentation of the Group's financial position or results of operations.
-- In January 2016, the IASB published amendments to IAS 12 (Income Taxes) under the title "Recognition of Deferred Tax Assets for Unrealised Losses". These amendments clarify the accounting for deferred tax assets related to debt instruments measured at fair value. The amendments are to be applied for annual periods beginning on or after 1 January 2017. They have not yet been endorsed by the European Union. The Group is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.
-- In January 2016, the IASB published amendments to IAS 7 (Statement of Cash Flows) under its Disclosure Initiative. The following changes in liabilities arising from financing activities must be disclosed in the future: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; (v) other changes. The amendments are to be applied for annual periods beginning on or after 1 January 2017. They have not yet been endorsed by the European Union. The Group is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.
4. Segment reporting
IFRS 8 - Operating Segments adopts a "through the eyes of the management" approach to an entity's reporting of information relating to its operating segments, and also requires an entity to report financial and descriptive information about its reportable segments.
Based on a review of information provided to the Management Board, the Group has identified five reportable segments based on the geographical concentration risk. The main factor used to identify the Group's reportable segments is the geographical location of the projects. The Management Board has concluded that the Group's reportable segments are: (1) UK; (2) Mainland Europe; (3) Australia; (4) North America; and (5) Holding Activities. These reportable segments are the basis on which the Group reports information to the Management Board.
Segment information for the year ended 31 December 2016 is presented below:
North Mainland Holding Total
-----------------------
UK America Australia Europe Activities Group
In thousands
of Pounds Sterling
----------------------- --------- --------- ---------- --------- ----------- ---------
Income from FVPL
investments 19,783 52,412 16,047 11,281 - 99,523
Administration
expenses - - - - (5,508) (5,508)
Other operating
expense - (net) - - - - (9,318) (9,318)
----------------------- --------- --------- ---------- --------- ----------- ---------
Results from
operating activities 19,783 52,412 16,047 11,281 (14,826) 84,687
----------------------- --------- --------- ---------- --------- ----------- ---------
Finance cost - - - - (2,252) (2,252)
Finance income - - - - 11 11
Tax expense - - - - (2,254) (2,254)
----------------------- --------- --------- ---------- --------- ----------- ---------
Profit or loss
from continuing
operations 19,783 52,412 16,047 11,281 (19,321) 80,202
----------------------- --------- --------- ---------- --------- ----------- ---------
Segment information for the year ended 31 December 2015 is presented below:
North Mainland Holding Total
-----------------------
UK America Australia Europe Activities Group
In thousands
of Pounds Sterling
----------------------- ----------- ------------- --------------- --------------- -------------- --------
Income from FVPL
investments 28,914 5,598 7,988 (486) - 42,014
Administration
expenses - - - - (4,682) (4,682)
Other operating
income - (net) - - - - 689 689
----------------------- ----------- ------------- --------------- --------------- -------------- --------
Results from
operating activities 28,914 5,598 7,988 (486) (3,993) 38,021
----------------------- ----------- ------------- --------------- --------------- -------------- --------
Finance cost - - - - (1,852) (1,852)
Finance income - - - - 23 23
Tax expense - - - - (583) (583)
----------------------- ----------- ------------- --------------- --------------- -------------- --------
Profit or loss
from continuing
operations 28,914 5,598 7,988 (486) (6,405) 35,609
----------------------- ----------- ------------- --------------- --------------- -------------- --------
Segment information as at 31 December 2016 is presented below:
North Mainland Holding Total
-------------------
UK America Australia Europe Activities Group
In thousands of
Pounds Sterling
------------------- --------- --------- ---------- --------- ----------- ---------
Assets
FVPL investments 221,522 188,371 108,671 51,362 - 569,926
Other non-current
assets - - - - 68 68
Current assets - - - - 24,072 24,072
------------------- --------- --------- ---------- --------- ----------- ---------
Total assets 221,522 188,371 108,671 51,362 24,140 594,066
------------------- --------- --------- ---------- --------- ----------- ---------
Liabilities
Non-current - - - - 49,746 49,746
Current - - - - 5,536 5,536
------------------- --------- --------- ---------- --------- ----------- ---------
Total liabilities - - - - 55,282 55,282
------------------- --------- --------- ---------- --------- ----------- ---------
Segment information as at 31 December 2015 is presented below:
North Mainland Holding Total
-------------------
UK America Australia Europe Activities Group
In thousands of
Pounds Sterling
------------------- ------------- ------------- --------------- ------------- ------------- ----------
Assets
FVPL investments 207,272 149,463 103,349 44,692 - 504,776
Other non-current
assets - - - - 1,750 1,750
Current assets - - - - 23,675 23,675
------------------- ------------- ------------- --------------- ------------- ------------- ----------
Total assets 207,272 149,463 103,349 44,692 25,425 530,201
------------------- ------------- ------------- --------------- ------------- ------------- ----------
Liabilities
Non-current - - - - 44,504 44,504
Current - - - - 3,327 3,327
------------------- ------------- ------------- --------------- ------------- ------------- ----------
Total liabilities - - - - 47,831 47,831
------------------- ------------- ------------- --------------- ------------- ------------- ----------
The Holding Activities of the Group include the activities of the Group which are not specifically related to a certain project or region but to those companies which provide services to the Group. The total current assets classified under Holding Activities mainly represent cash and cash equivalents.
Transactions between reportable segments are conducted at arm's length and are accounted for in a similar way to the basis of accounting used for third parties. The accounting methods used for all the segments are similar and comparable with those of the Company.
5. Administration expenses
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
--------------------------- ----------------------------------- -----------------------------------
Personnel expenses 3,214 2,662
Office and other expenses 1,360 1,283
Legal and professional
fees 909 716
Depreciation expense 25 21
--------------------------- ----------------------------------- -----------------------------------
5,508 4,682
--------------------------- ----------------------------------- -----------------------------------
The Group has engaged certain third parties to provide legal, depositary, custodian, audit, tax and other services to the Group. The expenses incurred in relation to such services are treated as administration expenses. Depositary charges during the year amounted to GBP18,000 (2015: GBP15,000).
The legal and professional fees include audit, audit related and non-audit related fees charged by the Group's external auditor as follows:
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------ ------------ ------------
Audit fees 191 178
Audit related fees - -
Non-audit related fees - -
------------------------ ------------ ------------
191 178
------------------------ ------------ ------------
6. Other operating expenses
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------------ ------------ ------------
Loss on derivative financial
instruments (see Note
18) 10,870 -
Acquisition-related costs 183 491
Foreign currency exchange
loss - 616
------------------------------ ------------ ------------
11,053 1,107
------------------------------ ------------ ------------
7. Finance cost
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
--------------------------- ------------ ------------
Finance cost on loans
and borrowings (see Note
15) 2,252 1,852
2,252 1,852
--------------------------- ------------ ------------
8. Finance income
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------ ------------ ------------
Interest income from
bank deposits 11 23
11 23
------------------------ ------------ ------------
9. Other operating income
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------------ ------------ ------------
Foreign currency exchange
gain 1,391 -
Gain on derivative financial
instruments
(see Note 18) - 1,549
Other income 344 247
1,735 1,796
------------------------------ ------------ ------------
10. FVPL investments
The movements of FVPL investments are as follows:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------------ ------------ ------------
Balance at 1 January 504,776 454,940
Acquisitions of/additional
investment in FVPL
investments 9,525 41,610
Income from FVPL investments 99,523 42,014
Distributions received
from FVPL investments (42,514) (33,788)
Reclassification to other (1,384) -
receivables/payables
569,926 504,776
------------------------------ ------------ ------------
The impact of unrealised foreign exchange gains or losses on the income from FVPL investments for the year ended 31 December 2016 amounted to GBP51.2 million gain (year ended 31 December 2015: GBP24.1 million loss).
Distributions from FVPL Investments are received after: (a) financial models have been tested for compliance with certain ratios; (b) financial models have been submitted to the external lenders of the Project Entities; or (c) approvals of the external lenders on the financial models have been obtained.
As at 31 December 2016 and 2015, loan and interest receivable from unconsolidated subsidiaries is embedded within the FVPL Investments.
The valuation of FVPL Investments considers all cash flows related to individual projects.
Interest income, dividend income, project-related directors' fee income and other income, recorded under the accruals basis at the level of the consolidated subsidiaries for the year ended 31 December 2016, amounted to
GBP44,942,000 (31 December 2015: GBP33,228,000). The associated cash flows from these items were taken into account when fair valuing the projects.
In March 2016, BBGI completed the previously announced acquisition of 100% of the equity and subordinated debt interests in the Belfast Metropolitan College project in Northern Ireland.
Details of various PPP/PFI projects in the Company's portfolio and their respective acquisition dates are as follows:
Effective
Ownership
Country Interest Year
Project Name of Incorporation on the Acquired
SPCs Project
----------------------------- ----------------------- ------------------- ----------- -----------
RW Health Partnership Royal Women's Australia 100.0% 2012
Holdings Pty Limited* Hospital
----------------------------- ----------------------- ------------------- ----------- -----------
Victoria Correctional Victoria Australia 100.0% 2012
Infrastructure Partnership Prisons
Pty Ltd
----------------------------- ----------------------- ------------------- ----------- -----------
BBPI Sentinel Holdings Northern Australia 100.0% 2014
Pty Ltd* BBGI Sentinel Territory and
Holdings 2 Secure 2015
Pty Ltd*, and Sentinel Facilities
Financing Holdings
Pty Ltd*
----------------------------- ----------------------- ------------------- ----------- -----------
Golden Crossing Holdings Golden Ears Canada 100.0% 2012
Inc.* Bridge and
2013
----------------------------- ----------------------- ------------------- ----------- -----------
Trans-park Highway Kicking Horse
Holding Inc.* Canyon Canada 50.0% 2012
----------------------------- ----------------------- ------------------- ----------- -----------
NorthwestConnect Holdings Northwest Canada 50.0% 2012
Inc.* Anthony Henday
Drive
----------------------------- ----------------------- ------------------- ----------- -----------
BBGI KVH Holdings Kelowna and Canada 50.0% 2013
Inc.* Vernon Hospitals
----------------------------- ----------------------- ------------------- ----------- -----------
WCP Holdings Inc.* Women's College Canada 100.0% 2013
Hospital
----------------------------- ----------------------- ------------------- ----------- -----------
Stoney Trail Group Northeast Canada 100.0% 2013
Holdings Inc.* Stoney Trail
----------------------------- ----------------------- ------------------- ----------- -----------
BBGI NCP Holdings North Commuter Canada 50% 2015
Inc.* Parkway
----------------------------- ----------------------- ------------------- ----------- -----------
Kreishaus Unna Holding Unna Administrative Germany 44.1% 2012
GmbH* Centre
----------------------------- ----------------------- ------------------- ----------- -----------
PJB Beteiligungs - Burg Prison Germany 90.0% 2012
GmbH*
----------------------------- ----------------------- ------------------- ----------- -----------
Hochtief PPP 1 Holding Cologne Schools Germany 50% 2014
GmbH & Co.KG* Cologne-Rodenkirchen Germany
School
Frankfurt Germany
Schools Germany
Fürst
Wrede Military
Base
----------------------------- ----------------------- ------------------- ----------- -----------
Adger OPS Vegselskap E18 Norway 100.0% 2013
AS and
2014
----------------------------- ----------------------- ------------------- ----------- -----------
Kent Education Partnership Kent Schools UK 50.0% 2012
Holdings Ltd.*
----------------------------- ----------------------- ------------------- ----------- -----------
Healthcare Providers Gloucester UK 50.0% 2012
(Gloucester) Ltd.* Hospital
----------------------------- ----------------------- ------------------- ----------- -----------
Highway Management M80 UK 50.0% 2012
M80 Topco Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Bedford Education Bedford Schools UK 100.0% 2012
Partnership Holdings
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Lisburn Education Lisburn College UK 100.0% 2012
Partnership Holdings
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Clackmannanshire Schools Clackmannanshire UK 100.0% 2012
Education Partnership Schools
(Holdings) Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Primaria (Barking Barking Dagenham UK 60.0% 2012
& Havering) Limited* and
Havering
(LIFT)
----------------------------- ----------------------- ------------------- ----------- -----------
East Down Education East Down UK 66.7% 2012
Partnership (Holdings) Colleges
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Scottish Borders Education Scottish UK 100.0% 2012
Partnership (Holdings) Borders Schools
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Coventry Education Coventry UK 100.0% 2012
Partnership Holdings Schools
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Fire Support (SSFR) Staffordshire UK 85.0% 2012
Holdings Limited* Fire Stations
----------------------------- ----------------------- ------------------- ----------- -----------
GB Consortium 1 Ltd.* North London UK 53.3% 2012
Estates Partnership (both) and
Liverpool UK 2014
& Sefton
Clinics (LIFT)
----------------------------- ----------------------- ------------------- ----------- -----------
Mersey Care Development Mersey Care UK 76.2% 2013
Company 1 Limited* Hospitals and
2014
----------------------------- ----------------------- ------------------- ----------- -----------
MG Bridge Investments Mersey Gateway UK 37.5% 2014
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Tor Bank School Education Tor Bank UK 100.0% 2014
Partnership (Holdings) School
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Lagan College Education Lagan College UK 100.0% 2014
Partnership (Holdings)
Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Highway Management M1 Westlink UK 100.0% 2014
(City) Holding Limited*
----------------------------- ----------------------- ------------------- ----------- -----------
Blue Light Partnership Avon and UK 100.0% 2014,
(ASP) NewCo Limited* Somerset 2015
Blue Light Partnership Police and
(ASP) NewCo 2 Limited* Headquarters 2016
----------------------------- ----------------------- ------------------- ----------- -----------
Northwin Limited North West
Regional
College UK 100.0% 2015
----------------------------- ----------------------- ------------------- ----------- -----------
Northwin (Intermediate) Belfast Metropolitan
(Belfast) Limited* College UK 100.0% 2016
----------------------------- ----------------------- ------------------- ----------- -----------
BBGI East End Holdings, Ohio River USA 33.3% 2014
Inc. Bridges
----------------------------- ----------------------- ------------------- ----------- -----------
*and its subsidiary/ies
11. Cash and cash equivalents
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------ ------------ ------------
Bank deposits/balances 22,113 23,243
22,113 23,243
------------------------ ------------ ------------
12. Taxes
The composition of the Group's tax expense is as follows:
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------ ------------ ------------
Current tax expense 2,254 583
------------------------ ------------ ------------
Total tax expense 2,254 583
------------------------ ------------ ------------
The Company pays an annual subscription tax of 0.05% of its total net assets. For the year ended 31 December 2016 BBGI SICAV S.A. incurred a subscription tax expense of GBP248,000 (31 December 2015: GBP236,000). The Company as a SICAV is not subject to taxes on capital gains or income. All other consolidated companies are subject to taxation at the applicable rate in their respective jurisdictions (refer to Note 2 for further details).
The composition of the tax payable is as follows:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
----------------------------- ------------ ------------
Current tax
Corporation tax - current
year 115 186
Corporation tax - previous
year 71 103
Total current tax liability 186 289
----------------------------- ------------ ------------
A reconciliation of the tax expense and the tax at applicable tax rate are as follows:
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
--------------------------------- ------------ ------------
Profit before tax 82,456 36,192
--------------------------------- ------------ ------------
Income tax using the Luxembourg
domestic tax rate
(29.22%) 24,094 10,575
Difference between domestic
tax rate and applicable
tax rate 248 236
Reconciling difference
mainly due to fair valuation
of
projects net of loss on
derivatives (unrealised) (22,088) (10,228)
Tax charge for the year 2,254 583
--------------------------------- ------------ ------------
A significant portion of the profit before tax results from fair valuation of FVPL investments. The net income of the unconsolidated subsidiaries is taxed in their respective jurisdictions. As a consequence of the adoption of IFRS 10, the Company is classified as an Investment Entity (see Note 2), meaning the tax expenses of the unconsolidated subsidiaries are not included within these consolidated financial statements. Therefore the consolidated tax expense and tax assets/liabilities, if any, do not include those of the Project Entities. The tax liabilities of the Project Entities are reflected within the fair value calculation of the FVPL investments.
There are no unrecognised taxable temporary differences. The Group has tax losses carried forward amounting to GBP3,766,000. The Group did not recognise any deferred tax asset on tax losses carried forward.
13. Capital and reserves
Share capital
Changes in the Company's share capital are as follows:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
-------------------------- ------------ ------------
Share capital as at 1
January 440,259 434,818
Share capital issued
through scrip dividends 2,421 5,441
-------------------------- ------------ ------------
442,680 440,259
-------------------------- ------------ ------------
The changes in the number of ordinary shares of no par value issued by the Company are as follows:
31 December 31 December
2016 2015
In thousands of shares
------------------------ ------------ ------------
In issue at beginning
of the year 430,393 425,917
Shares issued through
scrip dividends 1,823 4,476
------------------------ ------------ ------------
432,216 430,393
------------------------ ------------ ------------
All shares rank equally with regard to the Company's residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at general meetings of the Company.
The Company meets the minimum share capital requirement as imposed under the applicable Luxembourg regulation.
Translation reserve
Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity except for exchange differences from intragroup monetary items which are reflected in the profit and loss. The translation reserve comprises foreign currency differences arising from the translation of the financial statements of foreign operations.
Dividends
The following final and interim dividends were declared and paid by the Company during the year ended
31 December 2016:
31 December
2016
In thousands of Pounds Sterling except
as otherwise stated
-------------------------------------------- ------------
Final dividend of 3.0 pence per qualifying
ordinary share - for the year ended
31 December 2015 12,912
Interim dividend of 3.125 pence per
qualifying ordinary share - for period
ended
30 June 2016 13,503
26,415
-------------------------------------------- ------------
The 31 December 2015 final dividend was paid in June 2016. The value of the scrip election was GBP2,245,000 with the remaining amount of GBP10,667,000 paid in cash to those investors that did not elect for the scrip.
The 30 June 2016 interim dividend was paid in October 2016. The value of the scrip election was GBP176,000 with the remaining amount of GBP13,327,000 paid in cash to those investors that did not elect for the scrip.
The following final and interim dividends were declared and paid by the Company during the year ended
31 December 2015:
31 December
2015
In thousands of Pounds Sterling except
as otherwise stated
--------------------------------------------- ------------
Final dividend of 2.88 pence per qualifying
ordinary share - for the year ended
31 December 2014 12,266
Interim dividend of 3.00 pence per
qualifying ordinary share - for period
ended
30 June 2015 12,848
25,114
--------------------------------------------- ------------
The 31 December 2014 final dividend was paid in July 2015. The value of the scrip election was GBP2,790,000 with the remaining amount of GBP9,476,000 paid in cash to those investors that did not elect for the scrip.
The 30 June 2015 interim dividend was paid in October 2015. The value of the scrip election was GBP2,651,000 with the remaining amount of GBP10,197,000 paid in cash to those investors that did not elect for the scrip.
Net Asset Value
The consolidated net asset value and net asset value per share as at 31 December 2016, 31 December 2015 and 31 December 2014 are as follows:
31 December 31 December 31 December
2016 2015 2014
In thousands of Pounds
Sterling/pence
------------------------------ ------------ ------------ ------------
Net asset value attributable
to the owners of the
Company 538,784 482,370 466,336
Net asset value per
ordinary share (pence) 124.66 112.08 109.49
------------------------------ ------------ ------------ ------------
14. Earnings per share
The basic and diluted earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding.
Year ended Year ended
31 December 31 December
2016 2015
In thousands of Pounds
Sterling/shares
------------------------------ ------------ ----------------------------------
Profit attributable to
owners of the Company 80,202 35,609
Weighted average number
of ordinary shares in issue 432,216 430,393
------------------------------ ------------ ----------------------------------
Basic and diluted earnings
per share (in pence) 18.56 8.27
------------------------------ ------------ ----------------------------------
The weighted average number of shares outstanding for the purpose of computation of earnings per share is computed as follows:
Year ended Year ended
31 December 31 December
2016 2015
In thousands of shares
-------------------------------- ------------ ------------
Shares outstanding as at
1 January 430,393 425,917
Effect of scrip dividends
issued 1,823 4,476
-------------------------------- ------------ ------------
Weighted average - outstanding
shares 432,216 430,393
-------------------------------- ------------ ------------
The denominator for the purposes of calculating both basic and diluted earnings per share is the same because the Company has not issued any share options or other instruments that would cause dilution.
15. Loans and borrowings
The Company has a three-year revolving credit facility from ING Bank and KfW IPEX-Bank ("RCF"). In April 2016, the Company utilised the accordion tranche provision, a commitment increase mechanism within the RCF, to increase the total commitment from GBP80 million to GBP110 million with effect from May 2016. The Company retains the ability, by utilising the accordion provision, to increase further the total commitment under the facility to GBP180 million. No commitment fees are paid on the unutilised segment of the accordion tranche. The term of the facility is three years expiring in January 2018. The borrowing margin is 185 basis points over LIBOR.
As at 31 December 2016, the Company had utilised GBP70.3 million of the GBP110 million Revolving Credit Facility, of which GBP25.1 million was being used to cover letters of credit.
As at 31 December 2015, the Company had utilised GBP69.6 million of the GBP80 million Revolving Credit Facility, of which GBP24.3 million was being used to cover letters of credit.
The interest payable under the credit facility as at 31 December 2016 amounted to GBP45,000 (31 December 2015: GBP57,000).
The unamortised debt issuance cost related to the above-mentioned credit facilities amounted to GBP466,000 as at 31 December 2016 (31 December 2015: GBP718,000). The unamortised debt issuance cost is netted against the amount withdrawn from the credit facility.
The finance cost incurred in relation to the above-mentioned loan(s) for the year ended 31 December 2016 amounted to GBP2,252,000 (31 December 2015: GBP1,852,000). The total finance cost for the year ended 31 December 2016 includes the amortisation of the debt issue cost of GBP432,000 (31 December 2015: 460,000).
Pledges and collaterals
As of 31 December 2016, and 31 December 2015, and as a result of the refinancing described above, the Group has pledged all the current and future assets held within the consolidated subsidiaries (see Note 19).
16. Other payables
Other payables are composed of the following:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------ ------------ ------------
Accruals 2,823 2,822
Others 133 62
2,956 2,884
------------------------ ------------ ------------
The 31 December 2016 accruals include additional project acquisition costs of GBP419,000 (31 December 2015: GBP677,000).
17. Financial risk review and management
The Group has exposure to the following risks from financial instruments:
-- Credit risk -- Liquidity risk -- Market risk
This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk and the Group's management of capital. This note also presents the result of the review performed by management on the above-mentioned risk areas.
Risk management framework
The Management Board has overall responsibility for the establishment and oversight of the Group's risk management framework.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group, resulting in:
1) impairment or reduction in the amounts recoverable from receivables and other current and non-current assets; and
2) non-recoverability, in part or in whole, of cash and cash equivalents deposited with banks.
Exposures to credit risks
The Group is exposed to credit risks on the following items in the consolidated statement of financial position:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
---------------------------------- ------------ ------------
Cash and cash equivalents 22,113 23,243
Trade and other receivables 1,897 391
Derivative financial instruments
(asset) - 1,688
24,010 25,322
---------------------------------- ------------ ------------
The maximum exposures to credit risk on receivables that are neither overdue nor impaired as of 31 December 2016, amounts to GBP1,897,000 (31 December 2015: GBP391,000).
As of 31 December 2016, the Group is also exposed to credit risk on the loan receivable and interest receivable component of FVPL investments (loans provided to Project Entities) totalling to GBP194,309,000 (2015: GBP171,994,000).
Recoverable amounts of receivables and other current and non-current assets
The Group establishes when necessary an allowance for impairment that represents its estimate of any potential losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that may have been incurred but are not yet identified. The collective loss allowance is determined based on historical data of payment related to such receivables. Currently there are no recorded allowances for impairment. All the Group's receivables are collectable and no significant amounts are considered as overdue or impaired.
Cash and cash equivalents and foreign currency forwards
The cash and cash equivalents and foreign currency forwards are maintained with reputable banks with ratings that are acceptable based on the established internal policy of the Group. Based on the assessment of the Management Board, there are no significant credit risks related to the cash and cash equivalents and foreign currency forwards maintained.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.
The Group's policy over liquidity risk is that it will seek to have sufficient liquidity to meet its liabilities and obligations when due.
The Group manages liquidity risk by maintaining adequate cash and cash equivalents and borrowing facilities to finance day-to-day operations and medium- to long-term capital needs. The Group also regularly monitors the forecast and actual cash requirements and matches the maturity profiles of the Group's financial assets and financial liabilities.
The following are the contractual maturities of the financial liabilities of the Group, including estimated interest payments:
31 December 2016 31 December 2015
----------------------------------------------------- -----------------------------------------------
More More
than than
1 year 1
year
Within but Within but
one less one less
Carrying Contractual year than Carrying Contractual year than
amount cash 5 years amount cash 5
flows flows years
In thousands
of Pounds
Sterling
-------------- ----------- ------------- -------- --------------- ----------- -------------- ------- ---------
Financial
liabilities
Loans and
borrowings
(see Note
15) 44,800 45,266 45 45,221 44,561 45,279 57 45,222
Trade
payables 145 145 145 - 97 97 97 -
Derivative
financial
liability 7,195 7,195 2,868 4,327 - - - -
Other
payables 2,956 2,956 2,956 - 2,884 2,884 2,884 -
-------------- ----------- ------------- -------- --------------- ----------- -------------- ------- ---------
55,096 55,562 6,014 49,548 47,542 48,260 3,038 45,222
-------------- ----------- ------------- -------- --------------- ----------- -------------- ------- ---------
At 31 December 2016 and 2015, the Company was not in breach of any of the covenants under the credit facility. The Company has operated and continues to operate comfortably within covenant limits.
The Company has the ability to issue up to 10% of its issued share capital via tap issues in order to finance further acquisitions or repay debt.
All external financial liabilities of the Company have maturities of less than one year except for loans and borrowings, which have a maturity of more than one year. The Company has sufficient cash and cash equivalents and sufficient funding sources to pay and/or refinance currently maturing obligations.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the returns.
The Group buys derivative financial instruments, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within certain internal guidelines. When circumstances allow, the Group seeks to apply hedge accounting in order to manage volatility in profit or loss.
Currency risk
The Group is exposed to currency risk as a result of its underlying FVPL investments and cash and cash equivalents being denominated in currencies other than Pounds Sterling. The currencies in which these items are primarily denominated are Australian dollars (AUD), Canadian dollars (CAD), euros (EUR), Norwegian kroner (NOK) and US dollars (USD).
From time to time the Group enters into forward currency contracts to fix the foreign exchange rates, in respect of a portion of future expected distributions to be received from the individual project entities which are not denominated in Pounds Sterling. Hedging transactions have not and will not be undertaken for speculative purposes. The management reviews the hedging strategy on an annual basis.
In respect of other monetary assets and liabilities denominated in currencies other than Pounds Sterling, the Group's policy is to ensure that its net exposure is kept at an acceptable level. The Company believes that foreign exchange exposure is part of an international portfolio, but believes the risk is partially mitigated by having exposure to a number of different currencies including the Australian dollar, Canadian dollar, US dollar, euro and Norwegian krone, all of which can provide diversification benefits. The Management Board spends considerable time reviewing its hedging policy and believes it remains both appropriate and cost effective to continue with its four-year rolling hedge policy.
There will be periods where the global nature of the Group's portfolio produces positive foreign exchange impacts on valuation and other times when the reverse is true. Overall, the Management Board believes that with the current hedging program in place, the global nature of the portfolio produces benefits (geographic diversification, no undue reliance on one market, increased counterparty diversification, etc.) which are greater than the potential downsides.
The summary of the quantitative data about the Group's exposure to foreign currency risk provided to the management is as follows:
31 December 2016
--------------------------------------------------
AUD CAD EUR NOK USD
In thousands of Pounds
Sterling
--------------------------- --------- --------- -------- -------- --------
Investments at fair
value through profit
or loss 108,671 159,913 20,346 31,016 28,458
Cash and cash equivalents 1,191 2,904 844 11 465
Trade payables - (2) (91) - -
Other payables (6) (9) (2,304) - -
--------------------------- --------- --------- -------- -------- --------
109,856 168,806 18,795 31,027 28,923
--------------------------- --------- --------- -------- -------- --------
31 December 2015
--------------------------------------------------------------
AUD CAD EUR NOK USD
In thousands of Pounds
Sterling
----------------------------- ------------- ----------- ---------- -------- ------------
Investments at fair value
through profit or loss 103,349 129,927 17,531 27,161 19,536
Trade and other receivables - - 87 - -
Cash and cash equivalents 157 910 1,761 6 150
Trade payables - (2) (42) - -
Other payables - (18) (2,344) - -
----------------------------- ------------- ----------- ---------- -------- ------------
103,506 130,817 16,993 27,167 19,686
----------------------------- ------------- ----------- ---------- -------- ------------
The significant exchange rates applied during the year ended 31 December 2016 and 31 December 2015 are as follows:
31 December 2016
------------------------
Average GBP Spot rate
GBP
AUD 1 0.551 0.584
CAD 1 0.559 0.603
EUR 1 0.819 0.853
NOK 1 0.088 0.094
USD 1 0.741 0.810
------ ------------ ----------
31 December 2015
------------------------
Spot rate
Average GBP GBP
------ ------------ ----------
AUD 1 0.492 0.493
CAD 1 0.513 0.487
EUR 1 0.726 0.737
NOK 1 0.081 0.077
USD 1 0.654 0.676
------ ------------ ----------
The impact of a strengthening or weakening of Pounds Sterling against the AUD, CAD, EUR, NOK and USD by 10% at 31 December 2016 and 2015 on FVPL investments is disclosed in Note 18 to the consolidated financial statements, a scenario that the Group considered to be reasonably possible at the reporting date. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted revenues, hedging instruments and other related costs.
Interest rate risk
Except for the loans and other receivables from Project Entities which are included as part of FVPL investments, the Group does not account for other fixed-rate financial assets and liabilities at fair value through profit or loss. For the years ended 31 December 2016 and 2015, the main variable interest rate exposure of the Group is on the interest rates applied to the Group's cash and cash equivalents, including deposit rates used in valuing the Project Entities and the borrowings of the Group. A change in the deposit rates used in valuing a Project Entity would have an impact in the value of such and a corresponding impact on the Group's FVPL investments and in the consolidated profit or loss during the year.
Investment risk
The valuation of FVPL investments depends on the ability of the Group to realise cash distributions from SPCs. The distributions to be received from the SPCs are dependent on cash received by a particular SPC from the service concession agreements. The service concession agreements are predominantly granted to the SPC by a variety of public sector clients including, but not limited to, central government departments and local, provincial and state government and corporations set up by the public sector.
The Group predominantly makes investments in countries where the Directors consider that project structures are reliable, where (to the extent applicable) public sector counterparties carry what the Directors consider to be an appropriate credit risk, or alternatively where insurance or guarantees are available for the sovereign credit risk, where financial markets are relatively mature and where a reliable judicial system exists to facilitate the enforcement of rights and obligations under the projects.
The management continuously monitors the ability of a particular SPC to make distributions to the Group. During the year, there have been no significant concerns raised in relation to current and future distributions to be received from any of the SPCs.
Capital risk management
The Company's objective when managing capital is to ensure the Group's ability to continue as a going concern in order to provide returns to shareholders and benefits for further stakeholders and to maintain an optimal capital structure. The Company, at a Group level, views the share capital (see Note 13) and the RCF (see Note 15) as capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to shareholders, return capital to shareholders, increase the current credit facility, pay down debt or issue new shares. The Company currently has targeted a minimum 6.25 pence dividend per share per annum. However, it is important to note that this is only a target and not a profit forecast. There can be no assurance that this target will be met.
The Group regularly reviews compliance with Luxembourg regulations regarding restrictions on minimum capital. During the year covered by these financial statements, the Group complied with all externally imposed capital requirements.
There were no changes in the Group's approach to capital management during the year.
Derivative financial assets and liabilities not designated as cash flow hedge
The Group has entered into foreign currency forwards to fix the foreign exchange rates on certain investment distributions that are expected to be received. The derivative financial instruments (asset/liability) in the consolidated statement of financial position represent the fair value of foreign currency forwards which were not designated as hedges. The movements in their fair value are directly charged/credited in the consolidated income statement.
18. Fair value measurements
The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of financial position are as follows:
31 December 2016
-------------------------------------------------------
Fair
value
through Loans Other Total
profit or and financial carrying Fair
loss receivables liabilities amount value
In thousands of Pounds Sterling
---------
Assets
FVPL investments 569,926 - - 569,926 569,926
Trade and other receivables - 1,897 - 1,897 1,897
Cash and cash equivalents 22,113 - - 22,113 22,113
Derivative financial instruments - - - - -
592,039 1,897 - 593,936 593,936
Liabilities
Loans and borrowings - - 44,800 44,800 45,266
Trade payables - - 145 145 145
Derivative financial instruments 7,195 - - 7,195 7,195
Other payables - - 2,956 2,956 2,956
---------
7,195 - 47,901 55,096 55,562
---------
31 December 2015
Fair
value
through Loans Other Total
profit or and financial carrying Fair
loss receivables liabilities amount value
In thousands of Pounds Sterling
---------
Assets
FVPL investments 504,776 - - 504,776 504,776
Trade and other receivables - 391 - 391 391
Cash and cash equivalents 23,243 - - 23,243 23,243
Derivative financial instruments 1,688 - - 1,688 1,688
529,707 391 - 530,098 530,098
Liabilities
Loans and borrowings - - 44,561 44,561 45,279
Trade payables - - 97 97 97
Other payables - - 2,884 2,884 2,884
---------
- - 47,542 47,542 48,260
---------
FVPL investments
The valuation of FVPL investments is carried out on a six-monthly basis as at 30 June and 31 December each year. An independent third-party valuer reviews the portfolio valuation.
During the valuation process, the Group uses certain macroeconomic assumptions for the cash flows as shown below :
Macroeconomic assumptions End of period 2017 2018-2020 2021 onwards -------------------- ---------------- ---------------- ---------------- UK Indexation (%) (1) 1.75 2.75 2.75 Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Corporate Tax (%) (9) 19.0 19.0 17.0 Canada Indexation (%) 1.00/1.35 2.00/2.35 2.00/2.35 (1,2) Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Corporate 27.0/26.0/26.5 27.0/26.0/26.5 27.0/26.0/26.5 Tax (%) (3) GBP/CAD as at 31 December 2016 (4) 1.659 1.659 1.659 Australia Indexation (%) (1,5) 1.50 2.50 2.50 Deposit Interest 3.50/4.50 3.50/4.50 3.50/4.50 Rate (%) (1,6) SPC Corporate Tax (%) 30.0 30.0 30.0 GBP/AUD as at 31 December 2016 (4) 1.714 1.714 1.714 Germany Indexation (%) (1) 1.00 2.00 2.00 Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Corporate Tax (%) (7) 15.8 15.8 15.8 GBP/EUR as at 31 December 2016 (4) 1.173 1.173 1.173 Norway Indexation (%) (1,8) 1.94 2.94 2.94 Deposit Interest Rate (%) (1) 1.8 1.8 3.5 SPC Corporate Tax (%) 25.0 25.0 25.0 GBP/NOK as at 31 December 2016 (4) 10.665 10.665 10.665 USA Indexation (%) (1,10) 1.50 2.50 2.50 Deposit Interest Rate (%) (1) 1.0 1.0 2.5 SPC Federal Tax (%) 35.0 35.0 35.0 GBP/USD as at 31 December 2016 (4) 1.234 1.234 1.234
1 A lower inflation rate for 2017 is used in the project entities' financial models when compared to the previous valuation. This is applicable for projects for which the documentation does not prescribe the actual published rate, if available, to be used for the next 12 months from the date of the indexed being published. The short- term 1% transition deposit rate period has been extended by one additional year.
2 All Canadian projects have a long-term 2.0% indexation factor with the exceptions of North East Stoney Trail and Northwest Anthony Henday Drive, which have a slightly different indexation factor derived from a basket of regional labour, CPI and commodity indices.
3 Tax rate is 27% in Alberta and Saskatchewan, 26% in British Columbia and 26.5% in Ontario.
4 As published on www.oanda.com.
5 Long-term Consumer Price Index 2.50%/long-term Labour Price Index 3.50%.
6 Cash on Debt Service Reserve Accounts and Maintenance Service Reserve Accounts can be invested on a six-month basis. Other funds are deposited on a shorter term.
7 Including Solidarity charge, excluding Trade tax which varies between communities.
8 Indexation of revenue based on basket of four specific indices.
9 UK Corporate tax decreases from 19% to 17% in 2020.
10 80% of ORB indexation factor for revenue is contractual and is not tied to CPI.
Other key inputs and assumptions include:
-- Any deductions or abatements during the operations period are passed down to subcontractors or are part of the planned lifecycle expenditures.
-- Cash flows to and from the Company's subsidiaries and the portfolio investments are received at the times anticipated.
-- Where the operating costs of the Company or portfolio investments are fixed by contract, such contracts are performed, and where such costs are not fixed, they are in line with the budget.
-- The contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated before their contractual expiry dates.
Discount rate sensitivity
The discount rates used for individual assets range between 7.30% and 10.20%. The value weighted average rate is approximately 7.56% (7.86% at 31 December 2015). This methodology calculates the weighted average based on the value of each project in proportion to the total portfolio value, i.e. based on the net present value of their respective future cash flows.
The discount rates used for individual project entities are based on the Company's knowledge of the market, discussions with advisors and publicly available information on relevant transactions.
The following table shows the sensitivity of the net asset value to a change in the discount rate:
+1% to 8.56 in 2016* -1% to 6.56 in 2016*
Profit
Equity or loss Equity Profit or loss
Effects in thousands of Pounds Sterling
31 December 2016 (52,649) (52,649) 61,377 61,377
31 December 2015 (45,547) (45,547) 53,244 53,244
*Based on the average discount rate of 7.56%.
Foreign exchange rate sensitivity
A significant proportion of the Company's underlying investments are denominated in currencies other than Pounds Sterling. The Company maintains its accounts, prepares the valuation and pays distributions in Pounds Sterling. Accordingly, fluctuations in exchange rates between Pounds Sterling and the relevant local currencies will affect the value of the Company's underlying investments.
The following table shows the sensitivity of the FVPL investments due to a change in foreign exchange rates compared to the macroeconomic assumptions above:
Increase by 10% Decrease by 10%
Profit
Equity or loss Equity Profit or loss
Effects in thousands of Pounds Sterling
31 December 2016 (27,913) (27,913) 34,116 34,116
31 December 2015 (23,144) (23,144) 28,286 28,286
Sensitivity in comparison to the foreign exchange rates at 31 December 2016 and taking into account the hedges in place, derived by applying a 10% increase or decrease to the GBP/foreign currency rate.
Inflation sensitivity
The project cash flows are correlated with inflation (e.g. RPI or CPI). The table below demonstrates the effect of a change in inflation rates compared to the macroeconomic assumptions above:
+1% -1%
Equity Profit or loss Equity Profit or loss
Effects in thousands of Pounds Sterling
31 December 2016 31,535 31,535 (27,022) (27,022)
31 December 2015 29,301 29,301 (25,077) (25,077)
Deposit rate sensitivity
The project cash flows are correlated with the deposit rates. The table below demonstrates the effect of a change in deposit rates compared to the macroeconomic assumptions above:
+1% -1%
Equity Profit or loss Equity Profit or loss
Effects in thousands of Pounds Sterling
31 December 2016 11,832 11,832 (11,749) (11,749)
31 December 2015 11,779 11,779 (11,790) (11,790)
Lifecycle costs sensitivity
Of the Group's 39 PPP/PFI projects, 13 project companies retain the lifecycle obligations. For the remaining 26 projects, this obligation is passed down to the subcontractors. The table below demonstrates the impact of a change in lifecycle costs:
Increase by 10% Decrease by 10%
Equity Profit or loss Equity Profit or loss
Effects in thousands of Pounds Sterling
31 December 2016 (13,445) (13,445) 13,200 13,200
31 December 2015 (10,773) (10,773) 10,464 10,464
Sensitivity applied to the 13 projects in the portfolio which retain the lifecycle obligation, i.e. the obligation is not passed down to the subcontractor. These projects represent 49% of the total portfolio value as at 31 December 2016.
Derivative financial instruments
The fair value of derivative financial instruments ("foreign exchange forwards") is calculated by discounting the difference between the contractual forward rate and the estimated forward exchange rates at the maturity of the forward contract. The foreign exchange forwards are fair valued periodically by counterparty banks. The fair value of derivative financial instruments as of 31 December 2016, amounted to a liability of GBP7,195,000 (31 December 2015: GBP1,688,000 - asset).
The loss on the valuation of foreign exchange forwards for the year ended 31 December 2016 amounted to
GBP10,870,000 (31 December 2015: GBP1,549,000 - gain). For the year ended 31 December 2016, the realised loss from these derivative financial instruments amounted to GBP 1,987,000 (31 December 2015: GBP 993,000 - realised gain).
Other items
The carrying amounts of cash and cash equivalents, receivables and payables that are payable within one year, or on demand, are assumed to be their respective fair values.
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table shows the grouping of assets/(liabilities) recognised at fair value under their respective levels as at 31 December 2016:
Level 1 Level 2 Level 3 Total
In thousands of Pounds Sterling
FVPL investment - - 569,747 569,747
Derivative financial asset/(liability) - (7,195) - (7,195)
The following table shows the grouping of assets/(liabilities) recognised at fair value in different levels as at 31 December 2015:
Level 1 Level 2 Level 3 Total
In thousands of Pounds Sterling
FVPL investment - - 504,776 504,776
Derivative financial asset/(liability) - 1,688 - 1,688
The following table shows a reconciliation of the movements in the fair value measurements in level 3 of the fair value hierarchy:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
------------------------------ ------------ ------------
Balance at 1 January 504,776 454,940
Acquisitions of/additional
investment in FVPL
investments 9,525 41,610
Income from FVPL investments 99,523 42,014
Distributions received
from FVPL investments (42,514) (33,788)
Reclassification to other (1,384) -
receivables/payables
569,926 504,776
------------------------------ ------------ ------------
The impact of unrealised foreign exchange gains or losses on the income from FVPL investments for the year ended 31 December 2016, amounted to GBP51.2 million gain (year ended 31 December 2015: GBP24.1 million loss).
19. Subsidiaries
During the year ended 31 December 2016, the Company had the following consolidated subsidiaries ("Holding Companies" if referred to individually) which are included in the consolidated financial statements:
Effective
Country of Ownership Year
Incorporation Interest Acquired/Established
BBGI SICAV S.A. Luxembourg Ultimate Parent 2011
BBGI Management Holdco S.à r. l. ("MHC") Luxembourg 100.0% 2011
BBGI Inv, S.à r. l. Luxembourg 100.0% 2012
BBGI Investments S.C.A. Luxembourg 100.0% 2012
BBGI Holding Limited UK 100.0% 2012
BBGI (NI) Limited UK 100.0% 2013
BBGI (NI) 2 Limited UK 100.0% 2015
BBGI CanHoldco Inc. Canada 100.0% 2013
BBGI Guernsey Holding Limited Guernsey 100.0% 2013
The Company's subsidiaries which are not consolidated, by virtue of the Company being an Investment Entity, are as follows:
Country of Effective Ownership Date
SPCs Project name Incorporation interest Acquired/controlled
RW Health Partnership Royal Women's Hospital Australia 100.0% 2012
Holdings Pty Limited
RWH Health Partnership Pty Royal Women's Hospital Australia 100.0% 2012
Limited
RWH Finance Pty Limited Royal Women's Hospital Australia 100.0% 2012
Victorian Correctional Victoria Prisons Australia 100.0% 2012
Infrastructure Partnership
Pty Ltd
BBPI Sentinel Holdings Pty Northern Territory Secure Australia 100.0% 2014
Ltd Facilities
BBPI Sentinel Holding Trust Northern Territory Secure Australia 100.0% 2014
Facilities
BBPI Sentinel Pty Ltd Northern Territory Secure Australia 100.0% 2014
Facilities
BBGI Sentinel Holdings 2 Pty Northern Territory Secure Australia 100.0% 2015
Ltd Facilities
BBGI Sentinel Holding Trust Northern Territory Secure Australia 100.0% 2015
2 Facilities
BBGI Sentinel 2 Pty Ltd Northern Territory Secure Australia 100.0% 2015
Facilities
BBGI Sentinel Trust 2 Northern Territory Secure Australia 100.0% 2015
Facilities
Sentinel Partnership Pty Ltd Northern Territory Secure Australia 100.0% 2014 and 2015
Facilities
Sentinel UJV Northern Territory Secure Australia 100.0% 2014 and 2015
Facilities
Sentinel Financing Holdings Northern Territory Secure Australia 100.0% 2014 and 2015
Pty Ltd Facilities
Sentinel Financing Pty Ltd Northern Territory Secure Australia 100.0% 2014 and 2015
Facilities
Sentinel Finance Holding Northern Territory Secure Australia 100.0% 2014 and 2015
Trust Facilities
Sentinel Finance Trust Northern Territory Secure Australia 100.0% 2014 and 2015
Facilities
BBPI Member Trust Northern Territory Secure Australia 100.0% 2014
Facilities
Golden Crossing Holdings Golden Ears Bridge Canada 100.0% 2012 and 2013
Inc.
Golden Crossing Finance Inc. Golden Ears Bridge Canada 100.0% 2012 and 2013
Golden Crossing Investments Golden Ears Bridge Canada 100.0% 2012 and 2013
Inc.
Golden Crossing Inc. Golden Ears Bridge Canada 100.0% 2012 and 2013
Global Infrastructure Golden Ears Bridge Canada 100.0% 2012 and 2013
Limited Partnership
Golden Crossing General Golden Ears Bridge Canada 100.0% 2012 and 2013
Partnership
BBGI KVH Holdings Inc. Kelowna and Vernon Hospitals Canada 100.0% 2013
BBGI KVH Inc. Kelowna and Vernon Hospitals Canada 100.0% 2013
WCP Holdings Inc. Women's College Hospital Canada 100.0% 2013
WCP Inc. Women's College Hospital Canada 100.0% 2013
WCP Investments Inc. Women's College Hospital Canada 100.0% 2013
Women's College Partnership Women's College Hospital Canada 100.0% 2013
Stoney Trail Group Holdings Northeast Stoney Trail Canada 100.0% 2013
Inc.
Stoney Trail LP Inc. Northeast Stoney Trail Canada 100.0% 2013
Stoney Trail Investments Northeast Stoney Trail Canada 100.0% 2013
Inc.
Stoney Trail Inc. Northeast Stoney Trail Canada 100.0% 2013
Stoney Trail Global Limited Northeast Stoney Trail Canada 100.0% 2013
Partnership
Stoney Trail General Northeast Stoney Trail Canada 100.0% 2013
Partnership
BBGI NCP Holdings Inc. North Commuter Parkway Canada 100.0% 2015
PJB Beteiligungs - GmbH Burg Prison Germany 100.0% 2012
Projektgesellschaft Burg Prison Germany 90.0% 2012
Justizvollzug Burg GmbH &
Co. KG
PJB Management GmbH Burg Prison Germany 100.0% 2012
Adger OPS Vegselskap AS E18 Norway 100.0% 2013 and 2014
Bedford Education Bedford Schools UK 100.0% 2012
Partnership Holdings
Limited
Bedford Education Bedford Schools UK 100.0% 2012
Partnership Limited
Lisburn Education Lisburn College UK 100.0% 2012
Partnership (Holdings)
Limited
Lisburn Education Lisburn College UK 100.0% 2012
Partnership Limited
Clackmannanshire Schools Clackmannanshire Schools UK 100.0% 2012
Education Partnership
(Holdings)
Limited
Clackmannanshire Schools Clackmannanshire Schools UK 100.0% 2012
Education Partnership
Limited
Primaria (Barking & Barking Dagenham and Havering UK 100.0% 2012
Havering) Limited (LIFT)
Barking Dagenham Havering Barking Dagenham and Havering UK 60.0% 2012
Community Ventures Limited (LIFT)
Barking & Havering LIFT Barking Dagenham and Havering UK 60.0% 2012
(Midco) Limited (LIFT)
Barking & Havering LIFT Barking Dagenham and Havering UK 60.0% 2012
Company (No.1) Limited (LIFT)
East Down Education East Down Colleges UK 66.7% 2012
Partnership (Holdings)
Limited
East Down Education East Down Colleges UK 66.7% 2012
Partnership Limited
Scottish Borders Education Scottish Borders Schools UK 100.0% 2012
Partnership (Holdings)
Limited
Scottish Borders Education Scottish Borders Schools UK 100.0% 2012
Partnership Limited
Coventry Education Coventry Schools UK 100.0% 2012
Partnership Holdings
Limited
Coventry Education Coventry Schools UK 100.0% 2012
Partnership Limited
Fire Support (SSFR) Holdings Staffordshire Fire Stations UK 85.0% 2012
Limited
Fire Support (SSFR) Limited Staffordshire Fire Stations UK 85.0% 2012
Highway Management M80 Topco M80 UK 100.0% 2012
Limited
Tor Bank School Education Tor Bank UK 100.0% 2013
Partnership (Holdings)
Limited
Tor Bank School Education Tor Bank UK 100.0% 2013
Partnership Limited
Mersey Care Development Mersey Care UK 76.2% 2013 and 2014
Company 1 Limited
MG Bridge Investments Mersey Gateway UK 100.0% 2014
Limited
Lagan College Education Lagan College UK 100.0% 2014
Partnership (Holdings)
Limited
Lagan College Education Lagan College UK 100.0% 2014
Partnership Limited
Highway Management (City) M1 Westlink UK 100.0% 2014
Holding Limited
Highway Management (City) M1 Westlink UK 100.0% 2014
Finance Plc
Highway Management (City) M1 Westlink UK 100.0% 2014
Limited
Blue Light Partnership (ASP) Avon and Somerset Police UK 100.0% 2014, 2015 and 2016
NewCo Limited Headquarters
Blue Light Partnership (ASP) Avon and Somerset Police UK 100.0% 2015
NewCo 2 Limited Headquarters
GT ASP Limited Avon and Somerset Police UK 100.0% 2015
Headquarters
Blue Light Partnership (ASP) Avon and Somerset Police UK 100.0% 2014, 2015 and 2016
Holdings Limited Headquarters
Blue Light Partnership (ASP) Avon and Somerset Police UK 100.0% 2015
Limited Headquarters
Northwin Limited North West Regional College UK 100.0% 2015
Northwin (Intermediate) Belfast Metropolitan College UK 100.0% 2016
(Belfast) Limited
Northwin (Belfast) Limited Belfast Metropolitan College UK 100.0% 2016
BBGI East End Holdings Inc. Ohio River Bridges USA 100.0% 2014
20. Related parties and key contracts
All transactions with related parties were undertaken on an arm's length basis.
Supervisory Board fee
The members of the Supervisory Board of the Company were entitled to a total of GBP140,000 in fees for the year ended 31 December 2016 (31 December 2015: GBP140,000). There are no outstanding amounts due as at 31 December 2016.
Directors' shareholding in the Company
31 December 31 December
2016 2015
In thousands of shares
David Richardson 166 160
Colin Maltby 112 107
Frank Schramm 193 185
Duncan Ball 193 185
Michael Denny 39 38
703 675
------------------------
Remuneration of the Management Board
Under the current remuneration program, all staff of BBGI Management HoldCo are entitled to an annual base salary payable monthly in arrears, which is reviewed annually by the Management Board. The Management Board members are entitled to a fixed remuneration under their contracts and are also entitled to participate in a short-term incentive plan/annual bonus and a long-term incentive plan. Compensation under their service/management contracts is reviewed annually by the Supervisory Board.
The total short-term and other long-term benefits recorded in the consolidated income statement for key management personnel are as follows:
31 December 31 December
2016 2015
In thousands of Pounds Sterling
Short-term benefits 1,550 1,347
Share-based payment 206 98
Other long-term benefits 55 212
1,811 1,657
--------------------------------
Share-based compensation
On 18 December 2015 and on 28 August 2015, each of the members of the Management Board received award letters ("2015 Award" and "2014 Award", respectively) under the Group's long-term incentive plan. The awards are to be settled by BBGI Management Holdco S.à r.l. in the Company's own shares. Of the awards granted, 50% vests by reference to a performance measure based on the Company's Total Shareholder Return ("TSR condition") over the Return Periods (December 2015 to December 2018 for the 2015 Award, and December 2014 to December 2017 for the 2014 Award), and the remaining vests by reference to a performance measure based on the increase in the Company's Investment Basis Net Asset Value per share over the 36 months ending 31 December 2018 for the 2015 Award and 31 December 2017 for the 2014 Award, immediately following the Return Periods ("NAV condition").
The maximum number of shares, which will vest in case of full achievement of the performance conditions, are 696,998 shares for the 2015 Award and 725,498 shares for the 2014 Award.
The fair value of the equity instruments awarded to employees was determined using a Monte Carlo model. The key parameters of which are listed in the following table:
2015 Award 2014 Award
Share price at grant date GBP 1.28 GBP 1.21
Maturity 3.04 years 2.34 years
Target Dividends (2015 to 2018) GBP0.06 -
Target dividends (2015 to 2017) - GBP 0.06
Volatility 10% 10%
Risk free rate 0.85 0.64
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the plan is indicative of future trends, which may not necessarily be the actual outcome.
At 31 December 2016, the fair value of the share-based payment amounted to GBP108,000 for the 2015 Award and GBP196,000 for the 2014 Award. The amount recognised as an expense in relation to the share-based payment during the year ended 31 December 2016 amounted to GBP206,000 (31 December 2015: GBP98,000). The amount recognised as additional paid-in capital in the Group's consolidated balance sheet as at 31 December 2016 amounted to GBP304,000 (31 December 2015: GBP98,000).
In December 2016, each of the members of the Management Board received an award letter ("2016 Award"). The terms of the 2016 Award are comparable to the 2014 and 2015 Awards.
Receivable component of FVPL Investments
As at 31 December 2016, the loan receivable and interest receivable component of FVPL investments, which is included in the FVPL investments, amounted to GBP194,309,000 (31 December 2015: GBP171,994,000). The fixed interest charged on the receivables ranges from 3.95% to 13.5% per annum. The receivables have expected repayment dates ranging from 2017 to 2045.
Trade and other receivables
As at 31 December 2016, trade and other receivables include a short-term receivable from a project amounting to GBP1,687,000 (31 December 2015: GBP304,000). The remaining amount pertains to third-party receivables.
21. Commitments and contingencies
The Group has engaged in the ordinary course of business the services of certain entities to provide legal, custodian, audit, tax and other services to the Company. The expenses incurred in relation to such are treated as legal and professional fees (see Note 5).
MHC leases its current office under a cancellable operating lease agreement. The expenses incurred in relation to such are treated as administration expenses (see Note 5).
The Group has equity and subordinated debt subscription obligations in Mersey Gateway Bridge ("MGB") and equity subscription obligations in North Commuter Parkway ("NCP"), collectively amounting to approximately GBP23.4 million at 31 December 2016 which are supported by letters of credit (see Note 15). The subscription obligations are due for payment upon the scheduled construction completion of the respective projects.
22. Service Concession Agreements
As at 31 December 2016, the Group has a portfolio of 39 projects (see also Note 10), with a weighted average concession length of 22.6 years. The weighted average debt maturity is 19.2 years. The Group has a diverse asset mix from which the service concession receivables are derived and which is composed entirely of lower risk availability-based projects.
The rights of both the concession provider and concession operator are stated within the specific project agreement. The standard rights of the provider to terminate the project typically include poor performance, in the event of force majeure and voluntary termination rights of the concession provider. The operator's rights to terminate the project include failure of the provider to make payments under the agreement, a material breach of contract, and relevant changes of law which would render it impossible for the service company to fulfil its requirements.
The following table summarises the main information about the Group's outstanding service concession agreements:
% Equity
Owned Short Description of Period of Concession (Operational Phase)
on Concession Start Date End Date Investment
Sector Project Name Project Arrangement Phase Volume
Design, build,
finance and operate a
26 km stretch of the
Trans-Canada Highway,
Availability a vital gateway
Roads Kicking Horse Canyon 50% to British Columbia. Operational September 2007 October 2030 CAD 148 million
Design, build,
finance and operate
the Golden Ears
Bridge that spans the
Fraser River and
connects Maple Ridge
and Pitt Meadows to
Langley and Surrey,
near Vancouver, CAD 1,117
Golden Ears Bridge 100% British Columbia. Operational June 2009 June 2041 million
Partly design, build,
finance and operate a
major transport
infrastructure
project in Canada,
a ring road through
Edmonton, capital of
Northwest Anthony the province of CAD 1,170
Henday Drive 50% Alberta. Operational November 2011 October 2041 million
Design, build finance
and operate 18 km of
dual two/three lane
motorway with
associated slip
roads and
infrastructure from
Stepps in North
Lanarkshire to Haggs
in Falkirk
M80 50% (Scotland). Operational July 2011 September 2041 GBP310 million
Design, build,
finance, operate and
maintain a 38 km dual
carriageway in
Norway, including
61 bridges and
structures and 75 km
of secondary roads,
carving through a
rugged and beautiful
landscape between
Grimstad and NOK 3,604
E18 Motorway 100% Kristiansand. Operational August 2009 August 2034 million
Operate and maintain
a 21 km section of
highway, forming part
of a larger ring road
developed
North East Stoney in Calgary, Alberta,
Trail 100% Canada. Operational November 2009 October 2039 CAD 424 million
Availability-fee DBFO
East End Bridge
Project entails a
cable-stay bridge, a
tunnel and the
connecting highway
with a total length
of 8 miles crossing
the Ohio river in the
greater
Louisville-Southern USD 1,175
Ohio River Bridges 33.33% Indiana region. Operational December 2016 September 2051 million
Construction of a new
circa 1 km long
six-lane toll
cable-stay bridge
(three towers) over
the Mersey river to
relieve the congested
and ageing Silver
Jubilee Bridge and
upgrading works
for 9.5 km of
existing roads and
associated In
Mersey Gateway Bridge 37.5% structures. Construction October 2017 March 2044 GBP650 million
DBFO project with
significant amount of
construction work
completed in 2009 to
upgrade key
sections of approx.
60 km of motorway
through Belfast and
its vicinity, incl.
O&M of the complete
M1 Westlink 100% motorway. Operational February 2006 February 2036 GBP161 million
Design, construct,
finance, operate and
maintain two new
arterial roadways and
a new river
crossing located in
the north area of
Saskatoon,
Saskatchewan, Canada,
and design,
construct,
finance, operate and
maintain a
replacement river
crossing located in
North Commuter Saskatoon's downtown In
Parkway 50% core. construction In construction October 2018 CAD 311 million
Design, build,
finance and operate,
for a period of 25
years, two new
correctional
facilities
for the State of March 2006
Victoria, Australia (MRC)/February 2006 AUD 244.5
Justice Victoria Prisons 100% (MCC and MRC). Operational (MCC) May 2031 million
Design, build,
finance and operate,
for a concession
period of 25 years,
a new prison for
the state of
Saxony-Anhalt,
Burg Prison 90% Germany. Operational May 2009 April 2034 EUR 100 million
Design, build,
finance and maintain
four new build
police and custody
facilities in the
Avon
Avon and Somerset and Somerset region
Police Headquarters 100% (UK). Operational July 2014/July 2015 March 2039 GBP83 million
New correctional
facility, located
near Darwin,
including three
separate centres of
the 1,048
bed
multi-classification
men's and women's
correctional centre
and 24-bed Complex
Northern Territory Behaviour
Secure Facilities 100% Unit. Operational November 2014 October 2044 AUD 620 million
Design, build,
finance and operate
the redevelopment of
two secondary
schools in the
County
Education Bedford Schools 100% of Bedfordshire. Operational June 2006 December 2035 GBP29 million
Design, build,
finance and operate
one new school and
community facilities
for the Coventry In stages from March
Coventry Schools 100% City Council. Operational 2006 to June 2009 December 2034 GBP27 million
Design, build,
finance and operate
the redevelopment
which included the
construction of new
build elements for
each school as well
as extensive
reconfiguration and
refurbishment of six
Kent Schools 50% schools. Operational June 2007 September 2035 GBP106 million
Design, build,
finance and operate
three new secondary
schools
Scottish Borders for the Scottish
Schools 100% Borders Council. Operational July 2009 November 2038 GBP92 million
Design, build,
finance and operate
the redevelopment of
three secondary
schools in
Clackmannanshire Clackmannanshire, In stages from
Schools 100% Scotland. Operational January to May 2009 March 2039 GBP77 million
Design, build,
finance and operate GBP73.8 million
East Down Colleges (with Lisburn
East Down College 66.67% in Northern Ireland. Operational June 2009 May 2036 College)
Design, build,
finance and operate GBP73.8 million
Lisburn College in (with East Down
Lisburn College 100% Northern Ireland. Operational April 2010 May 2036 College)
Develop, fund, build,
operate and manage a
new school for
pupils with special
education needs
Tor Bank School 100% in Northern Ireland. Operational October 2012 October 2037 GBP13 million
Construction and
redevelopment of one
school entity in
Lagan College 100% Northern Ireland Operational October 2013 September 2038 GBP33 million
Construction and
redevelopment of
five schools in
Cologne Schools 50% Cologne. Operational April 2005 December 2029 EUR 32 million
Construction of one
school for approx.
Cologne-Rodenkirchen 1200 pupils in
School 50% Cologne. Operational November 2007 November 2034 EUR 40 million
Construction and
redevelopment of
four schools in
Frankfurt Schools 50% Frankfurt. Operational August 2007 July 2029 EUR 89 million
Design, build,
finance and
maintain/operate of
the North West
Regional College
educational
North West Regional campus in Derry,
College 100% Northern Ireland Operational February 2001 January 2026 GBP9 million
Design, build,
finance and
maintain/operate of
the Belfast Met
educational campus
in Milfield,
Belfast Metropolitan Belfast, Northern
College 100% Ireland Operational September 2002 August 2027 GBP20 million
Design, build,
finance and operate
a hospital scheme in
Gloucester,
Health Gloucester Hospital 50% England. Operational April 2005 February 2034 GBP38 million
Design, build,
finance, operate and
manage primary
healthcare In 7 tranches
facilities in starting April 2005
Liverpool and Sefton Liverpool and and ending February In 7 tranches starting November
Clinics 53.33% Sefton. Operational 2013 2037 and ending February 2043 GBP91.5 million
Design, build,
finance and operate
primary healthcare
facilities of the In 4 tranches
Barnet, Enfield and starting February
North London Estates Haringey LIFT 2006 and ending In 4 tranches starting January
Partnership 53.33% programme. Operational June 2013 2031 and ending June 2043 GBP86 million
Design, build finance
and operate 10
facilities/clinics
in East London with In 3 tranches
project construction starting October
Barking Dagenham and completions between 2005 and ending In 3 tranches starting September
Havering Clinics 60.0% 2005 and 2009. Operational October 2008 2030 and ending September 2033 GBP88 million
Design, build,
finance and operate
a new nine-storey
Royal Women's
Royal Women's Hospital in
Hospital 100% Melbourne. Operational June 2008 June 2033 AUD 316 million
Design, build,
finance and operate
a new mental health
Mersey Care Hospitals in-patient facility
(part of Liverpool on the former Walton
Sefton Clinics hospital site in
above) 76.2% Liverpool, UK. Operational December 2014 December 2044 GBP24 million
Operate and maintain
a new Patient Care
Tower, a new
University of
British Columbia
Okanagan
Clinical Academic
Campus and car park
at Kelowna General
Hospital, and a new
Patient Care
Kelowna and Vernon Tower at Vernon CAD 432.9
Hospitals 50% Jubilee Hospital. Operational January 2012 August 2042 million
Design, build,
finance and operate May 2013 (Phase 1),
the new Women's September 2015
College Hospital in (Phase 2),
Women's College Toronto, Ontario, March 2016 (final
Hospital 100% Canada. Operational completion). May 2043 CAD 345 million
Design, build,
finance and operate
10 new community
fire stations in
Stoke-on-Trent and
Staffordshire Fire Staffordshire,
Others Stations 85% UK. Operational November 2011 October 2036 GBP47 million
Design, build,
finance and operate
the administration
building of the Unna
District in
Unna Administrative Rhine-Westphalia,
Centre 44.1% Germany. Operational July 2006 July 2031 EUR 24 million
Refurbishment and new
construction of a 32
Fürst Wrede hectare army
Military Base 50% barracks in Munich. Operational March 2008 March 2028 EUR 48 million
The following pages show the Company's standalone financial statements
cOmpany statement of comprehensive income
Year ended Year ended
Note 31 December 2016 31 December 2015
In thousands of Pounds Sterling
Administration expenses 4 (4,858) (4,424)
Other operating expenses 5 (244) (310)
Other operating income 17 5
Results from operating activities (5,085) (4,729)
Finance income 6 57,076 23,151
Finance costs 11 (2,252) (1,852)
Net finance income 54,824 21,299
Profit before tax 49,739 16,570
Tax expense 7 (248) (236)
Profit from continuing operations 49,491 16,334
Attributable to:
Owners of the Company 49,491 16,334
Earnings per share
Basic earnings per share 10 11.45 3.80
Diluted earnings per share 10 11.45 3.80
The accompanying notes form an integral part of the Company's financial statements.
company statement of financial position
Note 31 December 2016 31 December
2015
In thousands of Pounds Sterling
------------------------------
Assets
Loans receivable from subsidiary 13 465,150 456,237
Investment in subsidiary 14 2,000 2,000
Non-current assets 467,150 458,237
Other current assets 69 51
Cash and cash equivalents 8 18,720 13,854
Current assets 18,789 13,905
Total assets 485,939 472,142
Equity
Share capital 9 442,680 440,259
Retained earnings (3,573) (26,649)
Equity attributable to owners of the Company 439,107 413,610
Total equity 439,107 413,610
Liabilities
Loans and borrowings 11 44,755 44,504
Non-current liabilities 44,755 44,504
Loans and borrowings 11 45 57
Trade payables 13 1,193 13,280
Other payables 780 630
Current tax liabilities 7 59 61 Current liabilities 2,077 14,028 Total liabilities 46,832 58,532 Total equity and liabilities 485,939 472,142 Net asset value 9 439,107 413,610 Net asset value per ordinary share (pence) 9 101.59 96.10
The accompanying notes form an integral part of the Company's financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
Note Retained
Share capital earnings Total equity
In thousands of Pounds Sterling
Balance at 1 January 2015 434,818 (17,869) 416,949
Total comprehensive income for the year
Profit for the year - 16,334 16,334
Transactions with owners of the Company, recognised directly in
equity
Cash dividends 9 - (19,673) (19,673)
Scrip dividends 9 5,441 (5,441) -
Balance at 31 December 2015 440,259 (26,649) 413,610
Total comprehensive income for the year
Profit for the year - 49,491 49,491
Transactions with owners of the Company, recognised directly in
equity
Cash dividends 9 - (23,994) (23,994)
Scrip dividends 9 2,421 (2,421) -
Balance at 31 December 2016 442,680 (3,573) 439,107
The accompanying notes form an integral part of the Company's financial statements.
coMpany statement of cash flows
Year ended Year ended
31 December 2016 31 December
2015
In thousands of Pounds Sterling Note
-----------------------------
Cash flows from operating activities
Profit for the year 49,491 16,334
Adjustments for:
- Net finance cost (income) 6,11 (54,824) (21,299)
- Foreign exchange loss (gain) 9 40
- Tax expense 7 248 236
-----------------------------
(5,076) (4,689)
Changes in:
- Other current assets (18) 8
- Trade payables 3,582 3,461
- Other payables 150 (16)
Cash generated from operating activities (1,362) (1,236)
Interest paid (1,832) (1,202)
Taxes paid (250) (232)
Net cash flows from operating activities (3,444) (2,670)
Cash flows from investing activities
Interest received 42,018 23,151
Loans provided to subsidiary (9,525) (41,598)
Loan repayment from subsidiary - 2,887
Net cash flows from investing activities 32,493 (15,560)
Cash flows from financing activities
Proceeds from loans and borrowings 11 - 32,563
Payments of loans and borrowings 11 (180) (1,178)
Dividends paid 9 (23,994) (19,673)
Net cash flows from financing activities (24,174) 11,712
Net increase (decrease) in cash and cash equivalents 4,875 (6,518)
Impact of foreign exchange gain (loss) on cash and cash
equivalents (9) (40)
Cash and cash equivalents at 1 January 8 13,854 20,412
Cash and cash equivalents at 31 December 8 18,720 13,854
The accompanying notes form an integral part of the Company's financial statements.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
1. Reporting entity
BBGI SICAV S.A. ("BBGI", or the "Company") is an investment company incorporated in Luxembourg in the form of a public limited company (société anonyme) with variable share capital (société d'investissement à capital variable, or "SICAV") and regulated by the Commission de Surveillance du Secteur Financier ("CSSF") under Part II of Luxembourg law of 17 December 2010 on undertakings for collective investments with an indefinite life. The Company qualifies as an alternative investment fund within the meaning of Article 1 (39) of the law of 12 July 2013 on alternative investment fund managers ("2013 Law") implementing Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 and is authorised as an internal alternative investment fund manager in accordance with Chapter 2 of the 2013 Law. The Company's registered office is EBBC, 6E, route de Trèves, L-2633 Senningerberg, Luxembourg. The Company was admitted to the official list of the UK Listing Authority (premium listing, closed-ended investment fund) and to trading on the main market of the London Stock Exchange on 21 December 2011.
The Company is a closed-ended investment company that principally invests in a diversified portfolio of operational Public Private Partnership (PPP)/Private Finance Initiative (PFI) infrastructure assets or similar assets.
The Company had no employees as of 31 December 2016 and 2015, respectively.
Reporting period
The Company's reporting period runs from 1 January to 31 December each year. The Company's statement of financial position, income statement, statement of comprehensive income and statement of cash flows include comparative figures as at 31 December 2015.
The amounts presented as "non-current" in the Company statement of financial position are those expected to be settled after more than one year. The amounts presented as "current" are those expected to be settled within one year.
2. Basis of preparation
Statement of compliance
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the provisions of the Standard of Recommended Practices issued by the Association of Investment Companies (AIC SORP). These financial statements were approved by the Board on 28 March 2017.
Changes in accounting policy
The accounting policies, measurement and valuation principles applied by the Company in these financial statements are the same as those applied by the Company in its annual financial statements as of and for the year ended 31 December 2015.
Basis of measurement
These financial statements have been prepared on the historical cost basis, except for certain financial instruments that are valued at fair value, if applicable.
Functional and presentation currency
These financial statements are presented in Pounds Sterling, which is the Company's functional currency. All amounts have been rounded to the nearest thousand unless otherwise stated.
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
In the process of applying the Company's accounting policies, which are described in Note 3, the management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements.
Impairment testing for investments
Investment in subsidiary and loans receivable from subsidiary are measured at cost less accumulated impairment losses. Impairment is tested at least annually by comparing the cost of the loans and investments with the net present value of cash flows in relation to the investee (and its subsidiaries), based on internally generated models. The net present value of such assets are determined using future cash flows, using certain macroeconomic assumptions for the cash flows which include indexation rates, deposit interest rates, corporate tax rates and foreign currency exchange, related to the specific projects. The cash flows are discounted at the applicable discount rate for companies involved in service concession projects. A material change in the macroeconomic assumptions and discount rates used for such valuation could have a significant impact on the net present value of the cash flows. As of 31 December 2016, the Company believes that there is no impairment to be recorded on its investment in subsidiary and the loans and receivables from subsidiary.
Going concern basis of accounting
The Management Board has examined significant areas of possible financial risk including cash and cash requirements. They have not identified any material uncertainties which would cast significant doubt on the Company's ability to continue as a going concern for a period of not less than 12 months from the date of approval of the Company's financial statements. The Management Board has satisfied itself that the Company has adequate resources to continue in operational existence for the foreseeable future. After due consideration, the Management Board believes it is appropriate to adopt the going concern basis in preparing the Company's financial statements.
3. Significant accounting policies
The accounting policies set out below have been applied consistently by the Company.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into Pounds Sterling at the exchange rate at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into Pounds Sterling at the exchange rate at that date.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into Pounds Sterling at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on translation are recognised in profit or loss as a gain or loss on currency translation.
Financial instruments
Non-derivative financial assets
The Company initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument.
In general, the Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognised as a separate financial asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables, and available-for-sale financial assets.
At balance sheet date, except for the investment in subsidiary accounted for at cost, all non-derivative financial assets of the Company have been classified as loans and receivables.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.
Non-derivative financial liabilities
The Company classifies non-derivative financial liabilities into the other financial liability category. Such financial liabilities are recognised initially at fair value less any direct attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.
The Company derecognises a financial liability (or part of a financial liability) from the statement of financial position when, and only when, it is extinguished or when the obligation specified in the contract or agreement is discharged or cancelled or expired. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is considered in profit or loss.
Derivative financial instruments, including hedge accounting
The Company may hold derivative financial instruments to hedge its foreign currency, interest rate and other risk exposures.
When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.
Impairment
Non-derivative financial assets
A financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset or group of financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset(s), and that loss event(s) had an impact on the estimated future cash flows of the asset(s) that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Provisions
A provision is recognised if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to a liability. The unwinding of the discount is recognised as finance cost.
Investments in subsidiaries
Investments in subsidiaries are held at cost less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and term deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of change in their fair value, and are used by the Company in the management of its short-term commitments.
Share capital
Ordinary shares are classified as equity. Given that the Company has no contractual obligation to deliver cash or any other financial asset or to exchange financial assets or liabilities with another entity under conditions that are unfavourable, the Company classifies the issued shares to be equity rather than liability. Moreover, no shareholder has the right to request the redemption of issued shares.
Costs directly attributable to the issue of ordinary shares, or which are associated with the establishment of the Company, that would otherwise have been avoided are recognised as a deduction from equity, net of any tax effects.
Finance income and finance costs
Interest income and expenses are recognised in profit or loss using the effective interest method.
The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial instrument (or, where appropriate, a shorter period) to the carrying amount of the financial instrument. When calculating the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. Interest received or receivable and interest paid or payable are recognised in profit or loss as finance income and finance costs, respectively.
Operating expenses
All operating expenses are recognised in profit and loss on an accruals basis.
Tax
According to the Luxembourg regulations regarding SICAV companies, the Company itself is exempt from paying income and/or capital gains taxes in Luxembourg. It is, however, liable to annual subscription tax of 0.05% of its total net assets on an investment basis, payable quarterly and assessed on the last day of each quarter.
New standards and interpretations not yet adopted
The IASB and IFRIC have issued a number of standards and interpretations with an effective date after the beginning of the period of these financial statements. Management has set out below only those which may have an impact on the financial statements in future periods.
-- In November 2009, the IASB issued IFRS 9 (Financial Instruments), containing rules for the classification and measurement of financial assets. In October 2010, it issued new requirements for the classification and measurement of financial liabilities, incorporating them into IFRS 9. The new standard defines two instead of four measurement categories for financial assets, with classification to be based partly on the company's business model and partly on the characteristics of the contractual cash flows from the respective financial asset. In the case of equity investments that are not held for trading, an entity may irrevocably opt at initial recognition to recognise future changes in their fair value outside profit or loss in the statement of comprehensive income. In November 2013, the IASB issued further amendments under the title "Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39". The focus of the amendments is on a thorough revision of hedge accounting rules with the aim of more appropriately reflecting risk management activities in the financial statements. This involves additional disclosures in the notes. In July 2014, the IASB published the new rules for the disclosure of financial instrument impairments. This new impairment model is based on the principle of accounting for expected losses. It also introduces a third measurement category "fair value through other comprehensive income" for certain debt instruments. IFRS 9 is to be applied for annual periods beginning on or after 1 January 2018. The Company is currently evaluating the impact the standard will have on the presentation of the Company's financial position and results of operations.
-- In April 2016, the IASB issued IFRS 15 (Revenue from contracts with customers). IFRS 15 replaces existing guidance and introduces new model for revenue recognition that is based on the transfer of control. This affects the timing and amount of revenue on certain instance. IFRS 15 is applicable for annual periods beginning on or after 1 January 2017 but have not yet been endorsed by the European Union. The changes are not expected to have a material impact on the Company's financial position or results of operations.
-- In September 2014, the IASB published the seventh set of "Annual Improvements to IFRSs". The amendments address details of the recognition, measurement and disclosure of business transactions and serve to standardise terminology. They consist mainly of editorial changes to existing standards. They are applicable for annual periods beginning on or after 1 July 2016. The changes are not expected to have a material impact on the presentation of the Company's financial position or results of operations.
-- In January 2016, the IASB published amendments to IAS 7 (Statement of Cash Flows) under its Disclosure Initiative. The following changes in liabilities arising from financing activities must be disclosed in the future: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; (v) other changes. The amendments are to be applied for annual periods beginning on or after 1 January 2017. They have not yet been endorsed by the European Union. The Company is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.
4. Administration expenses
Year ended Year ended
31 December 31 December 2015
2016
In thousands of Pounds Sterling
Support agreement fees (see Note 13) 3,632 3,452
Legal and professional fees 591 466
Other administration expenses 635 506
------------
4,858 4,424
------------
Depositary charges during the year amounted to GBP18,000 (2015: GBP15,000).
The legal and professional fees include audit, audit related and non-audit related fees charged by the Company's external auditor as follows:
Year ended Year ended
31 December 31 December 2015
2016
In thousands of Pounds Sterling
Audit fees 165 149
Audit related fees - -
Non-audit related fees - -
------------
165 149
------------
5. Other operating expenses
Year ended Year ended
31 December 31 December 2015
2016
In thousands of Pounds
Sterling
------------------------------ -------------------
Acquisition related
costs 86 130
Foreign currency translation
loss 9 40
Others 149 140
244 310
6. Finance income
Year ended Year ended
31 December 31 December 2015
2016
In thousands of Pounds Sterling
Finance income from profit participating loans
(see Note 13) 55,027 21,700
Finance income from projects 750 570
Finance income from shareholder loan
(see Note 13) 1,294 870
Interest income from deposits 5 11
57,076 23,151
-------------------
7. Taxes
The composition of the current tax payables are as follows:
31 December 31 December 2015
2016
In thousands of Pounds Sterling
Current tax expense
Subscription tax 59 61
59 61
--------------------
A reconciliation of the tax expense and the tax at applicable tax rate are as follows:
Year ended Year ended
31 December 31 December 2015
2016
In thousands of Pounds Sterling
Profit before tax 49,739 16,570
Tax using the Company's domestic tax rate - -
Subscription tax expense 248 236
Tax charge for the year 248 236
The Company pays an annual subscription tax of 0.05% of its total net assets under investment basis. For the year ended 31 December 2016 BBGI SICAV S.A. incurred a subscription tax expense of GBP248,000 (31 December 2015: GBP236,000). All direct and indirect subsidiaries of the Company are subject to taxation at the applicable rate in their respective jurisdictions.
8. Cash and cash equivalents
31 December 31 December 2015
2016
In thousands of Pounds Sterling
------------
Bank balances/deposits 18,720 13,854
18,720 13,854
------------ ----------------
9. Capital and reserves
Share capital
Changes in the Company's share capital are as follows:
31 December 31 December
2016 2015
In thousands of Pounds
Sterling
-------------------------- ------------ ------------
Share capital as at 1
January 440,259 434,818
Share capital issued
through scrip dividends 2,421 5,441
-------------------------- ------------ ------------
442,680 440,259
-------------------------- ------------ ------------
The changes in the number of ordinary shares of no par value issued by the Company are as follows:
31 December 31 December
2016 2015
In thousands of shares
------------------------ ------------ ------------
In issue at beginning
of the year 430,393 425,917
Shares issued through
scrip dividends 1,823 4,476
------------------------ ------------ ------------
432,216 430,393
------------------------ ------------ ------------
All shares rank equally with regard to the Company's residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at general meetings of the Company.
The Company meets the minimum share capital requirement as imposed under the applicable Luxembourg regulation.
Dividends
The following final and interim dividends were declared and paid by the Company during the year ended 31 December 2016:
31 December
2016
In thousands of Pounds Sterling except
as otherwise stated
-------------------------------------------- ------------
Final dividend of 3.0 pence per qualifying
ordinary share - for the year ended
31 December 2015 12,912
Interim dividend of 3.125 pence per
qualifying ordinary share - for period
ended
30 June 2016 13,503
26,415
-------------------------------------------- ------------
The 31 December 2015 final dividend was paid in June 2016. The value of the scrip election was GBP2,245,000 with the remaining amount of GBP10,667,000 paid in cash to those investors that did not elect for the scrip.
The 30 June 2016 interim dividend was paid in October 2016. The value of the scrip election was GBP176,000 with the remaining amount of GBP13,327,000 paid in cash to those investors that did not elect for the scrip.
The following final and interim dividends were declared and paid by the Company during the year ended
31 December 2015:
31 December
2015
In thousands of Pounds Sterling except
as otherwise stated
--------------------------------------------- ------------
Final dividend of 2.88 pence per qualifying
ordinary share - for the year ended
31 December 2014 12,266
Interim dividend of 3.00 pence per
qualifying ordinary share - for period
ended
30 June 2015 12,848
25,114
--------------------------------------------- ------------
The 31 December 2014 final dividend was paid in July 2015. The value of the scrip election was GBP2,790,000 with the remaining amount of GBP9,476,000 paid in cash to those investors that did not elect for the scrip.
The 30 June 2015 interim dividend was paid in October 2015. The value of the scrip election was GBP2,651,000 with the remaining amount of GBP10,197,000 paid in cash to those investors that did not elect for the scrip.
Net asset value
The Company net asset value and net asset value per share as of 31 December 2016, 2015 and 2014 are as follows:
31 December 2016 31 December 2015 31 December 2014
In thousands of Pounds Sterling/pence
Net asset value attributable to the owners of the
Company 439,107 413,610 416,949
Net asset value per ordinary share (pence) 101.59 96.10 97.89
10. Earnings per share
The basic and diluted earnings per share at 31 December 2016 and 2015 are calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding.
Year ended Year ended
31 December 31 December 2015
2016
In thousands of Pounds Sterling/shares
------------
Profit attributable to ordinary shareholders 49,491 16,334
Weighted average number of ordinary shares in issue 432,216 430,393
------------
Basic and diluted earnings per share (in pence) 11.45 3.80
------------
The weighted average number of shares outstanding for the purpose of computation of earnings per share is computed as follows:
Year ended Year ended
31 December 31 December
2016 2015
In thousands of shares
-------------------------------- ------------ ------------
Shares outstanding as at
1 January 430,393 425,917
Effect of scrip dividends
issued 1,823 4,476
-------------------------------- ------------ ------------
Weighted average - outstanding
shares 432,216 430,393
-------------------------------- ------------ ------------
The denominator for the purposes of calculating both basic and diluted earnings per share is the same because the Company has not issued any share options or other instruments that would cause dilution.
11. Loans and borrowings
The Company has a three-year revolving credit facility from ING Bank and KfW IPEX-Bank ("RCF"). In April 2016, the Company utilised the accordion tranche provision, a commitment increase mechanism within the RCF, to increase the total commitment from GBP80 million to GBP110 million with effect from May 2016. The Company retains the ability, by utilising the accordion provision, to increase further the total commitment under the facility to GBP180 million. No commitment fees are paid on the unutilised segment of the accordion tranche. The term of the facility is three years expiring in January 2018. The borrowing margin is 185 basis points over LIBOR.
As at 31 December 2016, the Company had utilised GBP70.3 million of the GBP110 million Revolving Credit Facility, of which GBP25.1 million was being used to cover letters of credit.
As at 31 December 2015, the Company had utilised GBP69.6 million of the GBP80 million Revolving Credit Facility, of which GBP24.3 million was being used to cover letters of credit.
The interest payable under the credit facility as at 31 December 2016 amounted to GBP45,000 (31 December 2015: GBP57,000).
The unamortised debt issuance cost related to the above-mentioned credit facilities amounted to GBP466,000 as at 31 December 2016 (31 December 2015: GBP718,000). The unamortised debt issuance cost is netted against the amount withdrawn from the credit facility.
The finance cost incurred in relation to the above-mentioned loan(s) for the year ended 31 December 2016 amounted to GBP2,252,000 (31 December 2015: GBP1,852,000). The total finance cost for the year ended 31 December 2016 includes the amortisation of the debt issue cost of GBP432,000 (31 December 2015: 460,000).
Pledges and collaterals
The Company pledged all the current and future assets held in relation to the revolving credit facility.
12. Financial risk and capital risk management
The Company has exposure to the following risks from financial instruments:
-- Credit risk -- Liquidity risk -- Market risk
This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes for measuring and managing risk and the Company's management of capital.
Risk management framework
The Management Board has overall responsibility for the establishment and oversight of the Company's risk management framework.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company, resulting in:
1) impairment or reduction in the amounts recoverable from receivables and other current and non-current assets; and
2) non-recoverability, in part or in whole, of cash and cash equivalents deposited with banks.
Exposures to credit risks
The Company is exposed to credit risks on the following items in the Company's statement of financial position:
31 December 31 December 2015
2016
In thousands of Pounds Sterling
------------
Loans receivable from subsidiary 465,150 456,237
Cash and cash equivalents 18,720 13,854
483,870 470,091
------------
Recoverable amounts of receivables and other current and non-current assets
The Company establishes an allowance for impairment that represents its estimate of any potential losses in respect of receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment related to such receivables. Currently there are no recorded allowances for impairment. All the Company's receivables are collectible and no significant amounts are considered as overdue or impaired.
Cash and cash equivalents
The cash and cash equivalents are maintained with reputable banks with ratings that are acceptable based on the established internal policy of the Company. Based on the assessment of the Management Board, there are no significant credit risks related to the cash and cash equivalents maintained with banks.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.
The Company's policy over liquidity risk is that it will seek to have sufficient liquidity to meet its liabilities and obligations when due.
The Company manages liquidity risk by maintaining adequate cash and cash equivalents and borrowing facilities to finance day-to-day operations and long-term projects. The Company also regularly monitors the forecast and actual cash requirements and matches the maturity profiles of the Company's financial assets and financial liabilities.
At 31 December 2016 and 2015, the Company was not in breach of any of the covenants under the credit facilities. The Company has operated and continues to operate comfortably within covenant limits.
Following its 2015 AGM, the Company has the ability to issue up to 10% of its issued share capital via tap issues in order to finance further acquisitions or repay debt.
All external financial liabilities of the Company have maturities of less than one year except for loans and borrowings with maturity of more than one year. The Company has sufficient cash and cash equivalents and funding sources to pay currently maturing obligations.
Market risk
The Company is exposed to currency risk as a result of its cash and cash equivalents being denominated in currencies other than Pounds Sterling. The currencies in which these items are primarily denominated are Australian dollars (AUD), Canadian dollars (CAD), euros (EUR), Norwegian kroner (NOK) and US dollars (USD).
In respect of other monetary assets and liabilities denominated in currencies other than Pounds Sterling, the Company's policy is to ensure that its net exposure is kept at an acceptable level. The management believes that there is no significant concentration of currency risk in the Company.
The summary of the quantitative data about the Company's exposure to foreign currency risk provided to the management is as follows:
31 December 2016
AUD CAD EUR NOK USD
In thousands of Pounds Sterling
Cash and cash equivalents 1,131 2,237 365 3 373
31 December 2015
AUD CAD EUR NOK USD
In thousands of Pounds Sterling
Cash and cash equivalents 10 8 1,386 2 109
The significant exchange rates applied during the year ended 31 December 2016 and 31 December 2015 are as follows:
31 December 2016
Average GBP Spot rate GBP
AUD 1 0.551 0.584
CAD 1 0.559 0.603
EUR 1 0.819 0.853
NOK 1 0.088 0.094
USD 1 0.741 0.810
31 December 2015
Average GBP Spot rate GBP
------
AUD 1 0.492 0.493
CAD 1 0.513 0.487
EUR 1 0.726 0.737
NOK 1 0.081 0.077
USD 1 0.654 0.676
------
A strengthening (weakening) of Pounds Sterling against the AUD, CAD, EUR, NOK and USD, as applicable, by 10% at 31 December 2016 and 31 December 2015 would not have a significant impact on the Company's cash and cash equivalents and therefore in the profit and loss. This assumes that all other variables, in particular, interest rates, remain constant and ignores any impact of forecasted revenues, hedging instruments and other related costs.
Fair values versus carrying amounts
The below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying amounts of cash and cash equivalents, receivables and payables that are payable within one year, or on demand, are assumed to be their respective fair values (Level 3).
The fair value of loans receivable from subsidiary and investment in subsidiary, with a total carrying value of GBP467,150,000 (2015: GBP458,237,000), amounts to GBP572,337,000 (2015: GBP504,650,536). The fair value of these loans receivable and investment in subsidiary is determined by discounting the future cash flows to be received from such assets using applicable market rates (Level 3).
Capital risk management
The Company's objective when managing capital is to ensure the Company's ability to continue as a going concern in order to provide returns to shareholders and benefits for further stakeholders and to maintain an optimal capital structure. The Company views the share capital (see Note 9) and the revolving credit facility (see Note 11) as capital.
In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to shareholders, return capital to shareholders, increase the current credit facility, pay down debt or issue new shares. The Company currently targets a minimum 6.25 pence per share dividend per annum. However, it is important to note that this is only a target and not a profit forecast. There can be no assurance that this target will be met.
The Company regularly reviews compliance with Luxembourg regulations regarding restrictions on minimum capital. During the year covered by these financial statements, the Company complied with all externally imposed capital requirements. There were no changes in the Company's approach to capital management during the year.
13. Related parties and key contracts
All transactions with related parties were undertaken on an arm's length basis.
Supervisory Board fees
The aggregate remuneration of the directors of the Supervisory Board in their capacity as such was GBP140,000 (2015: GBP140,000). There are no outstanding amounts due as of 31 December 2016.
The Chairman of the Supervisory Board currently receives a fee of GBP55,000 (2015: GBP55,000) per annum, and both the Chairman of the Audit Committee and the Senior Independent Director each receive a fee of GBP42,500 (2015: GBP42,500) per annum.
Profit participating loan
The Company as lender and BBGI Management Holdco S.à r.l. (MHC), its wholly owned subsidiary, as borrower have entered into a profit participating loan (PPL) agreement. Pursuant to this agreement the Company has and will continue to make available an interest bearing loan to MHC for the purposes of funding its initial and subsequent acquisitions of interests in PPP/PFI infrastructure assets. As at 31 December 2016, GBP421,285,000 (2015: GBP411,760,000) was outstanding under the PPL. During 2016, the Company provided additional PPL to MHC amounting to GBP9,525,000 (2015: GBP9,937,000) and received no repayment (2015: GBP2,887,000 repayment). The interest income related to such loan for the year ended 31 December 2016 amounted to GBP55,027,000 (2015: GBP21,700,000).
There was no outstanding interest receivable as of 31 December 2016 and 2015. The outstanding balance of the PPL was classified as loans receivable from subsidiary in the Company's statement of financial position.
The drawdowns under the PPL will mature in 2041.
Shareholder loan
The Company as lender and MHC as borrower have entered into a shareholder loan (SHL) agreement which matures in January 2018. Pursuant to this agreement the Company has and will continue to make available an interest bearing loan to MHC for the purposes of funding certain acquisitions. During the year, the amounts outstanding under the SHL amounted to GBP43,865,000 (2015: GBP44,477,000) after a principal repayment of GBP612,000 during the year (offset against trade payables to MHC). During 2016, the Company did not provide any additional SHL (2015: GBP31,818,000 additional SHL), and there was no conversion of interest receivable to principal (2015: GBP158,000 conversion to principal).
The interest income related to the SHL for the year ended 31 December 2016 amounted to GBP1,294,000 (2015: GBP870,000). There was no outstanding interest payable as of 31 December 2016 and 2015.
The outstanding balance of the SHL was classified as non-current loans receivable from subsidiary in the Company's statement of financial position.
Support agreement with MHC
The Company and MHC have entered into a support agreement (Support Agreement) whereby MHC will, under the agreement, provide assistance and support to the Company with respect to the day-to-day operations. As at 31 December 2016 the Company recorded Support Agreement expenses amounting to GBP3,632,000 (2015: GBP3,452,000).
As of 31 December 2016, the Company's liability to MHC amounted in relation to the above amounted to GBP1,165,000 (2015: GBP13,259,000) and is included under trade payables in the Company's statement of financial position. During the year, the Company paid GBP15,670,000 of trade payable to MHC (non-cash movement) by offsetting interest receivable under the PPL above of GBP14,749,000, shareholder loan interest payable of 309,000 and shareholder loan principal of GBP612,000.
The remaining amount shown as trade payables in the Company's statement of financial position includes liabilities to third-party suppliers.
14. Subsidiary
MHC, the Company's sole direct subsidiary, is a Luxembourg domiciled entity. The Company's total equity investment in MHC amounted to GBP2,000,000 as at 31 December 2016 and 2015.
The Company's investments in PPP/PFI infrastructure assets, or similar assets, were made and will continue to be made through MHC.
15. Commitments and contingencies
The Company has engaged in the ordinary course of business, the services of certain entities to provide legal, custodian, audit, tax and other services to the Company. The expenses incurred in relation to such are treated as legal and professional fees (see Note 4).
The Company has equity and subordinated debt subscription obligations in two of its projects, collectively amounting to approximately GBP23.4 million at 31 December 2016, which are supported by letters of credit (see Note 11).
Cautionary Statement
The "Review Section" of this report, which includes the Company Overview, the Chairman's Statement and the Report of the Management Board, has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. This additional information should not be relied on by any other party or for any other purpose.
The Review Section may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "forecasts", "projects", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology.
These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Management and Supervisory Boards concerning, amongst other things, the investment objectives and investment policy, financing strategies, investment performance, results of operations, financial condition, liquidity, prospects, and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Management and Supervisory Boards expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
In addition, the Review Section may include target figures for future financial periods. Any such figures are targets only and are not forecasts.
This report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters that are significant to BBGI SICAV S.A. and its subsidiaries when viewed as a whole.
([1]) This is a target only and not a profit forecast. No assurances are given that targets will be met. The internal rate of return is the "annualized effective compounded return rate" or rate of return that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.
([2]) It is intended that when any new acquisition is made, the investment acquired does not have an acquisition value greater than 20% of the portfolio value of the Company immediately post-acquisition, but subject to an absolute maximum of 25%.
([3]) Refer to the Portfolio Breakdown for further detail.
([4]) The Ongoing Charges is a measure which shows the drag on performance caused by operational expenses at the consolidated Group level.
([5]) Refer to the Financial Results for further detail on Investment Basis NAV.
([6]) The TSR combines share price appreciation and dividends paid to show the total return to the shareholder expressed as a percentage. Based on share price at 31 December 2016 and after adding back dividends paid or declared since listing.
([7]) Calculated based on a closing share price of 138 pence at 31 December 2016.
([8]) The present value of the future distributions from the assets under construction, MGB and NCP, is offset by the future equity and/or sub debt subscription obligations to be paid upon construction completion.
([9]) 53.33% equity and 59.46% sub debt
([10]) 76.20% equity and 80% sub debt
([11]) 53.33% equity and 60% sub debt
([12]) Entitled to 100% of distributions
([13]) Revised project status calculation assuming, for pro-forma purposes only, that the equity and/or subordinated debt subscription obligations on the Mersey Gateway Bridge and North Commuter Parkway projects have been paid down at 31 December 2016. These subscriptions will be paid down upon scheduled construction completion and are backed by letters of credit during construction.
([14]) The Board proposes a final dividend for 2016 of 3.125 pence per share, which is in line with the 2016 dividend target. This final dividend proposal is subject to the shareholders' approval at the Company's AGM to be held on 28 April 2017.
([15]) Based on the share price at 31 December 2016 compared to the share price at 31 December 2015, and after adding back dividends paid during the year ended 31 December 2016.
([16]) The compound annual growth rate since listing in December 2011 to 31 December 2016 equates 11.2%.
([17]) The Association of Investment Companies
([18]) Refer to the Pro Forma Project Status table for further details.
([19]) Change in NAV per share over the year plus dividends paid in 2016 expressed as a percentage of the closing 31 December 2015 NAV of 111.5 pence per share.
([20]) The Luxembourg Law implementing the Audit Market Reform published on Mémorial A on 28 July 2016. The new requirements will impact Public Interest Entities (PIEs), their parent undertakings and controlled undertakings within the European Union.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKFDNOBKDPNB
(END) Dow Jones Newswires
March 29, 2017 02:01 ET (06:01 GMT)
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