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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| International Public Partnerships Ld | LSE:INPP | London | Ordinary Share | GB00B188SR50 | ORD 0.01P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.00 | 0.81% | 124.40 | 124.20 | 124.60 | 125.40 | 123.60 | 123.60 | 2,654,859 | 16:28:13 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 72.02M | 27.86M | 0.0163 | 76.32 | 2.12B |
From Apr 2019 to Apr 2024
TIDMINPP
RNS Number : 0453Q
International Public Partnership Ld
07 September 2017
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
7 September 2017
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2017
-- Invested GBP323.8 million across energy distribution, waste water and education sectors, either as primary or early-stage investor, or as part of a large investor consortium, with further commitments to invest in digital infrastructure and energy distribution
-- Recent acquisitions have strongly bolstered inflation linkage within the portfolio - a 0.83% p.a. projected increase in return for a 1.00% p.a. increase over assumed inflation rates (0.78% p.a. as at 31 December 2016)
-- Enhanced opportunities for capital growth with 11.7% of the portfolio currently under construction
-- Successful completion of significantly oversubscribed equity capital raising of GBP330 million used to fully repay the Company's cash drawn portion of existing debt facility
-- Highly visible and balanced future pipeline in regulated and other public infrastructure projects in developed OECD geographies, including U.K., Europe, North America and Australia
FINANCIAL HIGHLIGHTS(1)
Hot Features
Premium
-- Net Asset Value ('NAV') growth of 21.8% to GBP2.0 billion (31 December 2016: GBP1.6 billion)
-- NAV per share growth of 1.8% to 144.7 pence (31 December 2016: 142.2 pence)
-- IFRS profit before tax of GBP57.1 million (30 June 2016: GBP109.6 million)
-- Average annual dividend increase of 2.5% to 3.41 pence per share (30 June 2016: 3.325 pence per share); representing a 1.3x cash dividend cover
-- Minimum target 2017 and 2018 full-year dividend of 6.82 and 7.00 pence per share, respectively2
-- Total Shareholder Return of 162.5% since inception in November 2006, representing an average compound annual return of 9.5% per annum3
PORTFOLIO UPDATE
In the first six months of 2017, INPP continued to pursue its long-term strategy of value-focused portfolio development, active asset management and effective financial management in high quality, predictable, long-duration infrastructure projects. This activity included:
-- Expansion of regulated asset base
o GBP274.0 million investment for a 4.4% interest in Cadent (formerly National Grid's gas distribution networks), as part of a consortium acquisition which collectively acquired a 61% interest in the company;
o GBP48.3 million follow-on investment in the Thames Tideway Tunnel, leaving GBP30 million to be invested during the remainder of 2017 (currently supported by a letter of credit).
-- Exercise of pre-emption rights over existing investments
o GBP1.5 million follow-on investment in Wolverhampton Building Schools for the Future.
-- Maximisation of primary origination of emerging core infrastructure assets
o In July 2017, commitment of up to GBP45.0 million in UK fibre optic broadband connections through the National Digital Infrastructure Fund (NDIF) alongside HM Government and Amber Infrastructure
Rupert Dorey, Chairman of International Public Partnerships Limited, commented: "Following another strong period of operational and financial performance with substantial levels of new investment, I am pleased to report an interim dividend of 3.41 pence per share, bringing our total shareholder return to 162.5% since 2006."
"We continue to capitalise on our Investment Adviser's combination of primary origination capability, leading technical expertise and strong industry relationships to allow the Company to assess a wide variety of comparable investment opportunities, from multi-million pound regulated infrastructure transactions to emerging core infrastructure sectors like UK fibre optic broadband."
"We continue to see upward pressure on valuations from current market comparables which, if sustained, can be expected to filter through to future NAV increases over time. We also note that our NAV is calculated according to our published methodology, which for instance, assumes a sum-of-the-parts valuation and does not account for any value attributable to matters such as the size, scarcity and diversification of our portfolio."
"The significant oversubscription of a further capital raising reaffirms the broad confidence in this well-established strategy and the Company's future prospects. Owing to this confidence and the predictability of the Company's outlook, I am pleased to provide shareholders with additional visibility in targeting a full-year dividend distribution per share of 6.82p and 7.00p in 2017 and 2018, respectively."
OUTLOOK
Building on a strong track record in generating sustainable, long-term and inflation-linked returns to shareholders, the Company remains positive about its prospects regarding both the performance of its existing investments and the opportunity to add high-quality investments to the portfolio in the short-to-medium term. Based on an established and highly disciplined investment mandate, this includes:
-- Pursuing large-scale opportunities in UK regulated utility assets including offshore transmission and exercising the Company's commitment to acquire a share in conjunction with a consortium of investors of an additional 14% stake in Cadent (subject to a put and call option);
-- Assessing UK businesses and projects that own and build digital fibre-based network assets and related infrastructure through NDIF, a bespoke co-investment vehicle;
-- Leveraging the Investment Adviser's unique primary access to the North American P3 market, following the investments in the US military housing sector.
The market outlook for the Company remains positive as enhanced capital investment into the asset class continues to rank highly on government agendas globally as a key economic growth driver. The nature of INPP's portfolio and the active approach to asset and capital management undertaken continues to provide means to protect the Company from any emerging political and macroeconomic risks.
http://www.rns-pdf.londonstockexchange.com/rns/0453Q_-2017-9-6.pdf
SINPP will be holding an analyst and investor presentation and conference call at 9.30am on the day of announcement (7 September 2017).
For those investors and analysts wishing to join remotely, a conference call facility will also be available by dialling +44 (0)330 336 9105 and using the confirmation code 9053092. The analyst and investor presentation is not open to media or third-party representatives of.
A copy of the results presentation can be downloaded from the Company's website:
www.internationalpublicpartnerships.com
Enquiries:
Amber Infrastructure FTI Consulting Erica Sibree Mitch Barltrop +44 (0)20 7939 +44 (0)20 3727 0558 1039
About International Public Partnerships:
International Public Partnerships ('INPP') is a listed infrastructure investment company which invests in global public infrastructure projects developed under the public private partnerships ('PPP'), private finance initiative ('PFI'), regulated asset and other similar procurement methods.
Listed in 2006, INPP is a long-term investor in 127 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and utility and transmission projects in the UK, Europe, Australia and North America. INPP seeks to provide its shareholders with both a long-term yield and capital growth through investment across both construction and operational phases typically of 25-40 year concessions.
Amber Infrastructure Group ('Amber') is the Investment Adviser to INPP and has over 100 dedicated staff who manage, advise on and originate projects for INPP.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
1. As at 30 June 2017 unless otherwise stated
2. These are targets only and not profit forecasts. There can be no assurance that these targets will be met or that the Company will many any distributions at all.
3. Since inception (November 2006). Source: Bloomberg. Share price plus dividends assumed to be reinvested.
International Public Partnerships Limited
Interim Report and Financial Statements for the six months ended 30 June 2017
Registered number: 45241
www.internationalpublicpartnerships.com
CONTENTS
HIGHLIGHTS 02 COMPANY OVERVIEW 03 TOP 10 INVESTMENTS 05 CHAIRMAN'S LETTER 06
FINANCIAL AND OPERATING REVIEW
- BUSINESS MODEL 09 - PERFORMANCE AGAINST STRATEGIC PRIORITIES 11 - OPERATING REVIEW 13 - CURRENT MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES 15 BOARD OF DIRECTORS 29 DIRECTORS' RESPONSIBILITIES STATEMENT 31 INDEPENT REVIEW REPORT TO INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED 32 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 33 NOTES TO THE CONDENSED CONSOLIDATED SET OF FINANCIAL STATEMENTS (UNAUDITED) 37
CONTACTS 52
COMPANY FACTS
- London Stock Exchange trading code: INPP.L - Member of the FTSE 250 and FTSE All Share indices - GBP2.137 billion market capitalisation at 30 June 2017 - 1.350 billion shares in issue at 30 June 2017 - Eligible for ISA/PEPs and SIPPs
- The Company's shares are excluded from the Financial Conduct Authority's ('FCA') restrictions, which apply to non-mainstream investment products, and can be recommended by independent financial advisers to their clients
COVER IMAGE:
- Mernda Park Primary School, Victorian Schools PPP Project, Australia
Highlights
We aim to provide our investors with sustainable, long-term and inflation-linked returns.
We do this through growing dividends and by creating the potential for capital appreciation.
Our approach is supported by robust investment cash flows.
DIVIDS
3.41p 1H 2017 distribution(1) per share 6.82p 2017 full-year distribution target(2) per share 7.00p 2018 full-year distribution target(2) per share 2.5% Average annual dividend increase(2) 1.3x Cash dividend covered(3)
NET ASSET VALUE ('NAV')
GBP2.0bn NAV at 30 June 2017(4) (31 Dec 2016: GBP1.6bn) 144.7p NAV per share at 30 June 2017(4) (31 Dec 2016: 142.2p) 21.8% Increase in NAV 1.8% Increase in NAV per share
PORTFOLIO ACTIVITY
GBP323.8m Investment during 1H 2017
TOTAL SHAREHOLDER RETURN ('TSR')
162.5% TSR since inception(5) 9.5% Compound annual growth in TSR since inception(5)
PROFIT
GBP57.1m Profit before tax (1H 2016: GBP109.6m)(6)
(1 The forecast date for payment of the dividend relating to the half year ending 30 June 2017 is 9 November 2017.)
(2 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.)
3 Cash dividend payments to investors are paid from net operating cash flow (after taking into account financing costs) as detailed on pages 18-19.
(4 The methodology used to determine investment fair value is incorporated within the NAV as described in detail on pages 21-27.)
(5 Since inception November 2006. Source: Bloomberg. Share price plus dividends assumed to be reinvested.)
(6 1H 2016 result included one-off valuation impact as a result of the U.K. Referendum to leave the European Union.)
Company Overview
TRACK RECORD OF STABLE AND GROWING RETURNS TO INVESTORS
INPP Dividend Payments
[Chart can be found in PDF version of this document on the Company's website.]
Compound annual growth rate in TSR of 9.5% p.a.(1)
Over a decade INPP has grown from GBP300m market capitalisation to GBP2.1bn (June 2017)
Dividend growth has averaged 2.5% since inception(2)
High degree of inflation linkage
A WELL DIVERSIFIED PORTFOLIO
Sector Breakdown
Energy transmission 21% --------------------- ---- Education 20% --------------------- ---- Transport 17% --------------------- ---- Gas Distribution 15% --------------------- ---- Waste Water 10% --------------------- ---- Health 5% --------------------- ---- Courts 4% --------------------- ---- Military Housing 3% --------------------- ---- Other 5%
127 investments in infrastructure projects across a variety of sectors
Geographic Split
UK 75% ----------- ---- Belgium 10% ----------- ---- Australia 6% ----------- ---- US 3% ----------- ---- Germany 3% ----------- ---- Canada 2% ----------- ---- Ireland 1% ----------- ---- Italy <1%
Invested in selected global regions which meet the INPP's specific risk and return requirements
Investment Type
Investments with third party senior debt 90% --------------------- ---- Investments with no third party senior debt(1) 10%
Invested across the capital structure, taking into account appropriate risks to returns
Mode of Acquisition/Asset Status
Construction 12% -------------- ---- Operational 88% -------------- ---- Early Stage Investor(2) 88% -------------- ---- Later Stage Investor(3) 12%
Early stage investment gives first mover advantage and maximises primary capital growth opportunities
Project Ownership
100% 49% --------- ---- 50%-100% 8% --------- ---- <50% 43%
Preference to hold majority stakes
Investment Life
<20 years 40% ----------- ---- 20 - 30 years 32% ----------- ---- >30 years 28%
Weighted average portfolio life of 36 years
(1) Since inception November 2006. Source Bloomberg. Share price plus dividends assumed to be reinvested.
(2) Future dividends cannot be guaranteed. Projections based on current estimates and may vary in the future.
(3) There are many factors that may influence the actual achievement of long-term cash flows to the Company. These include both internal as well as external factors and investors should not treat the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will almost certainly be different and may be higher or lower than indicated.
INPP Projected Cash Flow Profile and Relationship with the Investment Advisor and its Group
[Chart can be found in PDF version of this document on the Company's website.]
TOP 10 INVESTMENTS
INPP's top ten investments by fair value at 30 June 2017 are summarised below. Further information about investments in the Group's portfolio is available on the Group's website (www.internationalpublicpartnerships.com).
NAME OF LOCATION SECTOR STATUS % HOLDING % INVESTMENT % INVESTMENT
INVESTMENT AT AT FAIR FAIR
30 JUNE 30 JUNE VALUE VALUE
2017 2017 30 JUNE 31 DECEMBER
2017 2016
Cadent(1) Various, Gas Distribution Operational 4% Risk 14.9% N/A
United Capital(2)
Kingdom
Thames London,
Tideway United Waste Under 16% Risk
Tunnel(1) Kingdom Water Construction Capital(2) 10.1% 9.1%
100%
Diabolo Brussels, Risk
Rail Link(1) Belgium Transport Operational Capital(2) 10.0% 11.5%
Lincolnshire, 100%
Lincs Offshore United Energy Risk
Transmission Kingdom Transmission Operational Capital(2) 9.7% 11.7%
100%
Risk
Capital(2)
Ormonde Cumbria, and 100%
Offshore United Energy senior
Transmission Kingdom Transmission Operational debt 7.0% 8.9%
Various,
United 5% Risk
Angel Trains(1) Kingdom Transport Operational Capital(2) 3.8% 4.5%
Various, 100%
U.S. Military United Military Risk
Housing(1,3) States Housing Operational Capital(2) 3.3% 4.0%
Royal 100%
Children's Victoria, Risk
Hospital(1) Australia Health Operational Capital(2) 2.4% 2.8%
Various, 49% Risk
BeNEX Rail(1) Germany Transport Operational Capital(2) 2.1% 2.5%
Northamptonshire, 100%
Northampton United Risk
Schools Kingdom Education Operational Capital(2) 1.7% 2.1%
1 These projects contain revenues that are not solely dependent on availability but also include an element of linkage to other factors such as passenger numbers, rolling stock releasing assumptions, occupancy and/or have regulatory periodic reviews. All other investments receive entirely availability based revenues.
2 Risk Capital includes both project level equity and subordinated shareholder debt. 3 Includes two tranches of investment into U.S. military housing.
Significant movements in the Group's portfolio for the half year ended 30 June 2017 can be found on pages 13-14 of the Financial and Operating Review.
Chairman's Letter
Dear Shareholders,
I am pleased to be able to report to you that INPP's performance for the first half of the 2017 financial year has been strong, with substantial levels of new investment during the period.
The infrastructure investment market remains buoyant, driven by increasing numbers of investors seeking access to long-duration, low-volatility, robust-yielding assets with inflation protection and low correlation to the broader market. These dynamics, and with the support of existing and new shareholders, allowed the Company to undertake a GBP330 million capital raising during the period which in turn contributed to an increase in INPP's market capitalisation to over GBP2.1 billion at 30 June 2017, up from GBP1.7 billion at the end of the previous year.
Over the period since the Company first listed in November 2006 we have generated a Total Shareholder Return of 162.5%. This is equivalent to an average annual return of 9.5% and ahead of our long-term target of 8%-9% returns1. We are positive about the Company's ability to continue to deliver predictable returns in the future, in line with our stated target.
GROWTH IN INVESTOR RETURNS
We are on track to meet our 2017 dividend target of 6.82 pence per share, having announced a dividend of 3.41 pence per share for the first six months to 30 June 2017, reflecting 2.6% growth on the previous period (30 June 2016: 3.325 pence).
The Board is pleased to reaffirm its minimum dividend target for 2017 and guidance of 7.00 pence per share for 2018. We have good forward visibility of investment cash flows and, given the predictable nature of the Company's investments, we are confident of our longer-term prospects to pay out a dividend linked to long-term average inflation. By providing two-year forward guidance, we hope to provide shareholders with additional visibility(2) .
INVESTMENT ACTIVITY
During the period since 1 January 2017, GBP323.8 million was invested across three investments.
Our largest investment in the first half of 2017 was GBP274.0 million for a share of a 61% stake in National Grid's U.K. gas distribution network (now known as Cadent) alongside a consortium of leading international investors. In addition, a further 14% interest in the networks has been negotiated by the consortium with National Grid and is subject to put and call options between National Grid and the consortium. This investment highlights INPP's and Amber's strong industry relationships and expertise and will augment the Company's high-quality, long-duration, inflation-linked returns.
We expect more regulated assets to come to the market, and as a well-established investor in this space, INPP is well positioned to capitalise on future opportunities.
As part of our commitment to make early stage investments that enhance prospects for future value growth within the portfolio, in July we agreed to invest up to GBP45 million into digital infrastructure through a co-investment vehicle alongside HM Government in the U.K. The vehicle will seek out investment opportunities in businesses and projects that own and build digital fibre-based network assets and related infrastructure which will generate stable returns consistent with INPP's investment mandate.
Further details on investments made during the period can be found on pages 13-14.
CAPITAL RAISING AND CORPORATE CREDIT FACILITY
In May, the Company successfully raised GBP330 million of capital (before costs) through a Placing, Open Offer and Offer for Subscription ('the Issue'). The Issue attracted significant interest from new and existing shareholders, with demand exceeding by three times the original targeted capital raising of GBP250 million.
The proceeds of the Issue were used to fully repay the Company's cash drawn portion of its existing debt facility. As at 6 September 2017 the Company has utilised GBP56.5 million of the credit available under its GBP400 million revolving credit facility, (taking into account its future investment obligations including its investment commitments to the Thames Tideway Tunnel project).
CHAIRMAN'S LETTER (CONTINUED)
PORTFOLIO PERFORMANCE
The Board believes that an active asset management approach taken by the Company and Amber, is fundamental to INPP's long-term performance. In this way we can ensure major activities such as construction schemes or project variations are tracking to schedule and budget and 'everyday' aspects of our projects are monitored, as well as ensuring we maintain strong relationships with partners and clients. Our focus continues to be ensuring that the existing portfolio meets or exceeds its performance metrics. This approach, together with the capital raising undertaken in May, supported robust performance during the period, with underlying growth in NAV increasing 21.8% to GBP2.0 billion by 30 June 2017.
We continue to see upward pressure on valuations from current market comparables which, if sustained, we will expect to filter through to future NAV increases over time. It is also to be remembered that our NAV is calculated according to our published methodology (which for instance assumes a sum-of-the-parts valuation and does not account for any value attributable to matters such as the size, scarcity and diversification of our portfolio).
An important aspect of our ongoing asset management is health and safety and we believe that our portfolio should conform to all applicable safety requirements. Following the tragic events of the Grenfell Tower fire in London in June, a review of the cladding materials used in our buildings was undertaken to identify whether any of the portfolio's buildings could be impacted by similar issues. We are pleased to report that we have not identified any issues with cladding or insulation used across the portfolio. In addition it should be noted that the INPP portfolio has other significant mitigating aspects in relation to fire safety, generally our buildings have multiple escape routes; the vast majority are not high rise; and, the vast majority are not residential and as such are only occupied during the day.
CORPORATE GOVERNANCE
INPP continues to comply with the Association of Investment Companies Code of Corporate Governance and the U.K. Corporate Governance Code as set out in the Corporate Governance Section of the 2016 Annual Report and financial statements.
I have also previously advised shareholders of my intention to retire from the Chairmanship of the Company at the 2018 Annual General Meeting. To ensure that there is continuity of Board oversight and sufficient resource, the Board undertook a search for an additional director, resulting in Ms Julia Bond being appointed to the Board on 1 September 2017. Ms Bond has 27 years' experience of capital markets in the financial sector and has held senior positions within Credit Suisse including Head of One Bank Delivery. After a successful career in financial services, Julia brings a wealth of board experience in Investment Trusts, the public sector, professional bodies as well as the voluntary sector. Julia's skills and knowledge are complementary to the current Board and will allow for an orderly process of Board succession in due course.
GOING CONCERN
We have reviewed comprehensive cash flow forecasts, which are based on market data and past experience, and continue to believe, based on those forecasts and an assessment of the Group's committed banking facilities and available headroom, that it is appropriate to prepare the financial statements of the Group on the going concern basis.
In arriving at our conclusion that the Group has adequate financial resources we were mindful that at the date of this report the Group has unrestricted cash balances of GBP20.5 million and undrawn banking facilities of GBP343.5 million. Forecasts indicate continuing full compliance with associated banking covenants. Further details can be found on pages 18-19.
OUTLOOK
The Company remains positive about its prospects, both in terms of the performance of its existing investments and the opportunity to add high quality investments to the portfolio in the short-to-medium term.
The Investment Adviser remains confident of a significant investment pipeline for the Company. In addition to its existing commitments including Tideway, the Investment Adviser has a pipeline of other potential investment opportunities that are at an earlier stage of development and, subject to further review, may be progressed as investment opportunities for the Company.
Key areas of current activity for the Company and/or its Investment Adviser (or associates) include:
- A continued focus on large-scale opportunities in the UK regulated asset sector including a further investment into Cadent gas distribution network;
- Further activities in the area of UK offshore transmission;
- U.S. P3 and similar opportunities, particularly through the relationship with Amber/Hunt;
- Other UK, European and Australian primary investment opportunities (for instance in the education, healthcare and digital infrastructure sectors);
- Acquisition of additional investments in projects where the Company already has an investment. Typically, these will arise under pre-emption and similar rights.
Rupert Dorey
Chairman
6 September 2017
1 Since inception. Source: Bloomberg. Share price plus dividends assumed to be reinvested.
2 Future dividends cannot be guaranteed. Projections are based on current estimates and many vary in the future.
FINANCIAL AND OPERATING REVIEW
BUSINESS MODEL - DELIVERING INVESTOR RETURNS
[Charts can be found in PDF version of this document on the Company's website.]
FINANCIAL AND OPERATING REVIEW
PERFORMANCE AGAINST STRATEGIC PRIORITIES
INPP's strategy covers three interlinked areas of focus. This three-pronged approach helps us to manage our assets and finances throughout the investment cycle and also to identify new opportunities that meet our investment objectives. We link Key Performance Indicators to these Strategic Priorities and review our performance against these KPIs twice a year. We also assess the risks relating to each KPI (as identified in the Risk Management section of the 2016 Annual Report and Financial Statements).
STRATEGIC PRIORITIES DESCRIPTION
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
INVEST IN ASSETS THAT
ENHANCE PORTFOLIO RETURNS * Make new primary/early stage investments that enhance
RELATIVE TO RISK AND prospects for future value growth
MAINTAIN A WELL-BALANCED
INVESTMENT PORTFOLIO
* Make additional acquisitions off-market or through
preferential access (e.g. sourced through pre-emption
rights or via Amber/Hunt)
* Manage portfolio composition with complementary
investments, in line with the Company's Investment
Policy and enhancing at least one of the following
aspects:
* Blend of risk to return
* Inflation linkage
* Cash flow profile
* Capital growth attributes (such as construction risk
and residual value growth potential)
ACTIVE ASSET MANAGMENT
ACTIVE AND EFFECTIVE
MANAGEMENT OF ASSETS * Focus on delivery of target returns from existing
investments
* Maintain high levels of public sector client
satisfaction and asset performance
* Deliver additional value from existing assets through
management of construction risk and delivery of
operational improvements to meet client requirements
* Enhance prospects for capital growth by investing in
construction phase assets where available
EFFECTIVE FINANCIAL MANAGEMENT
EFFECTIVE MANAGEMENT
OF COMPANY'S FINANCES * Provide efficient management of cash holdings and
debt facilities available for investment and
appropriate hedging policies
* Efficient management of INPP's overall finances, with
the intention to reduce ongoing charges where
possible
* Manage portfolio in a cost-efficient manner
KEY PERFORMANCE INDICATORS PERFORMANCE IN 1H 2017
* Value of new early stage investment * Continued investment into the Thames Tideway Tunnel
which is currently under construction
* Proportion of investments in construction * 11.8% of portfolio currently under construction
* Value of additional investments acquired off market * Acquisition of additional stake in the Wolverhampton
or through preferred access BSF project sourced through majority shareholder
pre-emptive position
* Improvement of risk/return, inflation linkage and * All assets acquired exhibited robust cash flow
diversification of cash flows, including geographical profiles
diversification
* Investment into Cadent and further investment into
Thames Tideway Tunnel complemented the capital
attributes of the portfolio
* Most investments are forecast to generate
inflation-linked cash flows. Overall portfolio
inflation linkage has increased to 0.83% for every
1.00% increase in the assumed inflation rates
(calculated by running a 'plus 1.00%' inflation
sensitivity for each investment and solving each
investment's discount rate to return the original
valuation. The inflation linkage is the increase in
the portfolio weighted average discount rate.)
* Availability for all controlled investments at 98% or * Achieved availability for investments at 98% or
above - returns from investments in line with greater in period
expectations
* Performance deductions below 3% for all projects
* Achieved performance reductions below 3% for all
projects in period
* Number of change requests from existing contracts
* Over 422 change requests undertaken
* Management of investments during the course of
construction projects in line with overall delivery
timetable * Majority of construction projects managed on time and
to budget. Costs of small project delays absorbed by
construction partners
* Number of investments in construction
* Six investments under construction
* Dividends paid to investors covered by operating cash * Cash dividends paid to investors 1.3 times covered by
flow net operating cash flow
* New investments made from available cash (after
payment of dividend) ahead of using corporate debt * All investments in the year to date funded through
excess cash in priority to the corporate debt
facility
* Competitive cash deposit rates
* Market tested cash deposit rates and reset where
* Use of appropriate hedging strategies possible
* GBP69.9 million of foreign exchange forward contracts
* Management of ongoing charges in place to mitigate short-term foreign exchange cash
flow volatility
* Ongoing charges 1.15%
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
New investments that meet the Company's Investment Policy are made after assessing their risk and return profile relative to the existing portfolio. In particular, we seek investments to complement the existing portfolio through enhancing long-term, predictable cash flows and/or to provide the opportunity for higher capital growth. Desirable key attributes include:
1. Long-term, stable returns 2. Inflation-linked investor cash flows
3. Primary/early stage investor (e.g. the Company is an early stage investor in a new asset developed by Amber)
4. Preferential access (e.g. sourced through pre-emptive rights or directly from Amber/Hunt)
5. Enhanced capital attributes (e.g. potential for additional capital growth through construction "de-risking" or the potential for residual / terminal value growth)
During the period to 30 June 2017, GBP323.8 million was invested across three investments. Details of investments made and their key attributes are provided below.
LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
STATUS DATE
------------------- ---------- ---------------------------- --------------- ------------- -----------------
------------------- ---------- ---- ---- ---- ---- ---- --------------- ------ ----- ---- -----------
1 2 3 4 5
------------------------------ ---- ---- ---- ---- ---- ----------------------- ----------- -----------
Thames Tideway U.K. X X X X Under construction GBP48.3 Various
Tunnel million
------------------- ---------- ---- ---- ---- ---- ---- ----------------------- ----------- -----------
Cadent (formerly U.K. X X X Operational GBP274.0 31 March
National Grid million 2017
Gas Distribution
Network)
------------------- ---------- ---- ---- ---- ---- ---- ----------------------- ----------- -----------
Wolverhampton U.K. X X X Operational GBP1.5 5 May 2017
Building Schools million
for the Future
------------------- ---------- ---- ---- ---- ---- ---- ----------------------- ----------- -----------
GBP323.8
million
------------------------------ ---- ---- ---- ---- ---- ----------------------- ----------- -----------
In addition, during the period, as part of a consortium, the Company committed to acquire a share of an additional 14% stake in Cadent subject to a put and call option. On 3 July 2017, the Company also committed to investment up to c.GBP45.0 million alongside HM Government into digital infrastructure in the U.K.
These projects were sourced by Amber, the Investment Adviser, either from the start of the project (i.e. primary / early stage developments in response to an initial government procurement process); through increasing its interest in existing assets; or as part of a larger consortium, building on the Company's experience and credibility to participate in multi-billion pound regulated infrastructure transactions.
CADENT
The Company is part of a consortium which includes other leading UK and international institutional investors which acquired a 61% interest in certain gas distribution networks (now known as Cadent) formerly fully owned by National Grid plc. The Company invested GBP274.0 million into the project for a 4.4% stake with the remaining risk capital funded by consortium partners.
The investment comprises four networks, each covering a geographic monopoly in the East and North West of England, North London, and the West Midlands, respectively. The networks distribute gas to approximately 50% of the country's connected households through 130,000 km of gas pipeline. Cadent is made up of well-established, predictable, and strong cash yielding businesses whose characteristics are consistent with and complementary to the other regulated and non-regulated assets in the Company's portfolio.
Additional to the 61% interest acquired by the consortium, a further 14% interest in the networks has also been negotiated with National Grid and is subject to put and call options between National Grid and the consortium. The consortium also has pre-emption arrangements over the residual 25% investment that National Grid would continue to hold after the exercise of either option.
THAMES TIDEWAY TUNNEL
The Tideway investment relates to the design, build and operation of a 25-kilometre 'super-sewer' under the River Thames in London. The Company is part of a consortium committed to investing GBP4.2 billion in developing this asset regulated by Ofwat. The project is currently under construction.
Since 31 December 2016, the Company has invested a further GBP48.3 million into the Tideway project leaving GBP30.0 million to be invested during the remainder of 2017 (currently supported by a letter of credit).
ADDITIONAL INVESTMENT IN WOLVERHAMPTON BUILDING SCHOOLS FOR THE FUTURE
Building Schools for the Future ('BSF') is a U.K. Government programme for the redevelopment of all secondary schools in the U.K. financed using a combination of design and build contracts and private finance initiative arrangements. The programme for new developments was cancelled in July 2010. Since August 2011, INPP has been increasing its minority stakes in the majority of these projects.
The Company acquired an additional interest in the Wolverhampton BSF project committing a further GBP1.5 million to acquire Carillion Private Finance's 8% indirect investment in each of phase I and phase II of the Wolverhampton BSF scheme. As a result, the Company's existing 82% investment in the project grew to 90%.
DIGITAL INFRASTRUCTURE CO-INVESTMENT
In July 2017, the Company agreed to invest up to GBP45 million into U.K. digital infrastructure alongside HM Government through a bespoke co-investment vehicle. The vehicle will seek out investment opportunities in businesses and projects that own and build digital fibre-based network assets and related infrastructure which will generate stable and lower returns consistent with INPP's investment mandate.
Digital infrastructure is a potentially exciting new asset class. Fibre broadband connections are likely to become essential infrastructure assets in the future. This commitment offers an early entry point for the Company into a sector with clear lineage to the long-term, stable, inflation linked returns of our utility-network assets.
Investments are expected to be made over the next four years and the HM Government commitment is for a ten-year period. It is intended that any investment opportunities within the fibre broadband sector that meet INPP's investment mandate will be made through the National Digital Infrastructure Fund structure.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
CURRENT MARKET ENVIRONMENT AND FUTURE OPPORTUNITIES
The market outlook for the Company remains positive. Infrastructure ranks highly on many Government agendas; this asset class is a key economic driver to growth and delivering positive social benefits. The global scale of the capital investment ambition of governments is significant and we anticipate this will generate more investment opportunities.
Political uncertainty and consequential economic risk present potential market-wide challenges, which need to be analysed and assessed as and when they materialise. The nature of INPP's investment portfolio and the active approach we have adopted to asset management both provide a firm foundation from which to react to any emerging risks.
The Company remains focussed on nearer term investment commitments including: 1) the completion of its investment into Tideway; 2) the successful deployment of projects into our new digital infrastructure co-investment vehicle; and, 3) the exercise of our put-call option for a further investment into the Cadent gas distribution network asset.
In addition, we continue to track and develop opportunities at various stages of development in regulated utilities (including offshore transmission), health, judicial, other accommodation and transport projects.
All opportunities are appraised on a case-by-case basis and pursued in a disciplined way. This ensures that INPP's strong platform, carefully developed over the past ten years, continues to be enhanced.
CURRENT PIPELINE
Selected opportunities identified by Amber are outlined below. INPP's performance does not depend upon additional investments to deliver projected returns. Further investment opportunities will be judged by their anticipated contribution to overall portfolio returns relative to risk.
CURRENT LOCATION ESTIMATED INVESTMENT EXPECTED INVESTMENT
INVESTMENTS OPPORTUNITY/PROJECT CONCESSION STATUS
OPPORTUNITIES CAPITAL COMMITMENT LENGTH
/SECTOR VALUE
Thames Tideway U.K. c.GBP30m investment 120 years The Company
Tunnel commitment remaining(1) is part of
the Bazalgette
consortium-awarded
a licence
to finance
and operate
the project.
Investment
is being made
in phases
until early
2018
Digital U.K. c.GBP45m(2) Various Commitment
to National
Digital Infrastructure
Fund, investment
opportunities
being reviewed
Cadent U.K. Commitment as Operational Subject to
part of a consortium business put and call
to acquire additional option expected
14% interest to be exercised
by 2019
Education Australia c.GBP70m(3) Various Opportunities
and U.K. through variations
to existing
PPP contracts
and through
Amber's wider
relationships
Health U.K. c.GBP10m(3) Various Currently
under construction
Police Germany c.GBP140m(3) 30 years One of two
bidders
Regulated U.K. c.GBP580m(3) Various OFTO and other
regulated
opportunities
at varying
stages
Transport Germany, c.4.4bn(3) Various Variety of
Australia larger-scale
projects.
INPP is typically
part of a
consortium
of investors.
Includes follow-on
opportunities
1 This project has reached financial close and the Company has committed to further investments of up to c.GBP30 million. The remaining value is supported by a letter of credit.
2 Represents the current estimated total future investment commitment by the Company.
3 Represents the estimated current unaudited capital value of the project and includes both debt and equity.
The above includes potential opportunities currently under review by the Investment Adviser including current bids, preferred bidder opportunities and the estimated value of opportunities to acquire additional investments including under pre-emption/first refusal rights. There is no certainty that these will translate to actual investment opportunities for the Company. The value referenced in relation to the pre-emption opportunities represents the estimated potential investment value which reflects the current estimate of the total likely acquisition value at that time. In relation to opportunities where the current estimated gross value of the relevant project is given (which includes an estimate of both debt and equity), the estimates provided are not necessarily indicative of the eventual acquisition price for, or the value of, any interest that may be acquired.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
ACTIVE ASSET MANAGEMENT
Ensuring that the Company's assets are available for use and are performing in accordance with contractual expectations is critical for INPP and its service providers. As the Investment Adviser acting on behalf of INPP, Amber closely monitors relationships between service providers and public sector clients. It is actively involved in managing assets to ensure performance standards are met, and works with public sector clients on variation projects as they arise. Amber has the flexibility and experience to quickly respond to the changing requirements of public sector clients.
OPERATIONAL PORTFOLIO DEVELOPMENT
During the half-year, INPP's public sector clients commissioned over 422 variations under PPP resulting in over GBP6.4 million of additional project work, with individual variations ranging in value from GBP31 to over GBP1.2 million. These project variations were overseen by Amber as part of its day-to-day asset management activities, in conjunction with the project facilities manager and each public sector client.
Across the portfolio, Amber works with its public sector counterparties and private sector service partners to deliver the operational facilities required to provide educational, custodial, and health services. Following the tragic events at the Grenfell Tower, where the cladding system appears to be a primary cause for the spread of fire, Amber has carried out a review of INPP's portfolio of assets. This review focussed on whether the INPP facilities were clad and insulated in the same materials as the Grenfell Tower. The findings of the review to date confirm that the specific combination of cladding and insulation material used at Grenfell Tower is not present on any of the assets managed on behalf of INPP. The review also considered the height of facilities, whether the facilities have more than one means of escape, times of use of the facilities, and whether the facilities had sprinklers.
PROJECTS UNDER CONSTRUCTION
Progress on the Thames Tideway Tunnel construction schedule is ahead of the regulatory baseline plan; the main tunnel drive sites in the West, Central and East sections of the tunnel have been mobilised three to five months early with all six tunnel boring machines on order from the manufacturer. The project team has continued its innovative approach to health and safety and are pleased to report no major injuries to date.
Construction work on the new Victorian Schools PPP project in Australia is progressing in line with the contractual timetable. The initial eight schools achieved construction completion in line with expectations, at the end of 2016. Of the remaining seven new buildings one has been completed on schedule and the final six are expected to complete in line with expectations by 1 January 2018.
The seven kilometre Gold Coast Phase 2 light rail project extension in Australia is progressing in line with programme with completion expected late 2017/early 2018.
Batch 3 (North West) and Batch 4 (Midlands) of the Priority School Building Aggregator Programme ('PSB') [experienced minor delays but were completed in early September 2017.] As INPP is a debt only provider (and not equity provider) to these PSB schemes, the programme is largely determined by the supply chain, which takes the risk for delivery. Given the nature of INPP's investment, the delay on one batch will not have an impact on INPP's returns. Batch 5 (Yorkshire) is on programme to complete in April 2018.
Projects under construction as at 30 June 2017 are set out in the table below.
ASSET LOCATION CONSTRUCTION DEFECTS STATUS % OF
COMPLETION COMPLETION FAIR
DATE DATE VALUE
OF INVESTMENT
Thames Tideway
Tunnel U.K. 2024 2027 On Schedule 10.1%
Priority School Modest delays.
Building Aggregator No financial
Programme (Batches impact on
3-5) U.K. 2018 2019 Company 1.5%
Victorian Schools
PPP Project Australia 2018 2019 On Schedule 0.1%
Gold Coast Light
Rail Phase Two Australia 2018 2019 On Schedule 0.0%
EFFECTIVE FINANCIAL MANAGEMENT
The Company aims for effective financial management through a strategy of minimising its unutilised cash holdings, while maintaining the financial flexibility and ability to pursue its growth targets. This is achieved through active monitoring of cash, both held and generated from operations, appropriate hedging strategies, and prudent use of the Company's corporate debt facility ('CDF').
SUMMARY OF CASH FLOWS
SUMMARY OF CONSOLIDATED SIX MONTHS SIX MONTHS YEAR TO 31 DECEMEBER
CASH FLOW TO 3O JUNE TO 30 JUNE 2016
2017 2016 GBP MILLION
GBP MILLION GBP MILLION
Opening cash balance 71.0 72.4 72.4
Cash from investments 55.0 46.2 94.7
Operating costs (recurring) (10.3) (7.7) (16.1)
Net financing costs (2.3) (1.2) (2.3)
Net cash before non-recurring
operating costs 42.4 37.3 76.3
Non-recurring operating
costs (7.9) (1.0) (4.0)
Net operating cash
flows(1) 34.5 36.3 72.3
Cost of new investments (323.8) (56.2) (209.9)
Net repayment of corporate - 23.7 -
debt facility
Proceeds of capital
raisings (net of costs) 325.1 - 198.1
Distributions paid (33.8) (29.2) (61.9)
Funds advanced to
affiliated entities (1.4) (17.8) -
Net cash at period
end 71.6 29.2 71.0
Cash dividend cover 1.3x 1.3x 1.2x
1 Net operating cash flows as disclosed above (c.GBP34.5 million) include net repayments from investments at fair value through profit and loss (c.GBP6.5 million), exchange gains and losses on cash and cash equivalents (c.GBP0.1 million) and finance costs paid (c.GBP2.3 million) which are not included in the net cash inflows from operations (c.GBP30.4 million) as disclosed in the cash flow statement on page 36 of the financial statements.
The Company's cash balance of GBP71.6 million at 30 June 2017 was consistent with the balance at 31 December 2016 of GBP71.0 million. Cash balances include GBP43.6 million of un-invested proceeds from a share issuance in May 2017. These funds will be used to finance the Company's committed investments during the six months to 31 December 2017.
Cash receipts from investments were GBP55.0 million for the six-month period, in comparison with GBP46.2 million for the corresponding period in 2016. The increase reflects the continued growth of the portfolio and recent investment activity. This increase was partially offset by higher recurring operating costs of GBP10.3 million (30 June 2016: GBP7.7 million), which include management fees paid to the Investment Adviser, reflecting continued growth in the value of the portfolio.
Higher net financing costs of GBP2.3 million compared with the corresponding period in 2016 (30 June 2016: GBP1.2 million), were due to cash amounts drawn on the corporate debt facility to fund the investment in Cadent in March 2017 and marginally higher fees in relation to the uncommitted portion of the facility following the expansion of the facility in November 2016.
Non-recurring costs include transaction fees of c. GBP4.7 million in respect of investments made in the period. In addition, during the period, management fee payments were aligned with the contractual quarterly payment cycle rather than the previous biannual payment practice. As a result, a GBP2.9 million fee payment has been brought forward into the period to accommodate this timing adjustment, which has been shown within non-recurring operating costs. If this amount were included within recurring operating costs at 30 June 2017 the Company would report a cash dividend cover ratio of 1.2x.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
The Company funded its acquisitions during the period using the proceeds from share capital issuances and through cash draw-downs on its corporate debt facility. All drawn amounts were subsequently repaid and there was therefore no overall movement in the cash drawn balance of the facility. It is the Company's policy not to have long-term corporate level debt - the facility is intended to be drawn only as a short-term arrangement to fund acquisitions, with equity funding by means of capital raising sought to repay outstanding debt balances as soon as practicable where market conditions allow.
Cash investments made in the six months to 30 June 2017 (detailed in note 11) totalled GBP323.8 million (30 June 2016: GBP209.9 million), with further amounts also being committed for future investment. Funds advanced to affiliated entities of GBP1.4 million was used to fund an investment in Gold Coast Light Rail 2 that closed immediately after the end of the period (30 June 2016: GBP17.8 million to fund an investment in Thames Tideway Tunnel shortly after the period end).
The cash dividend paid in the period of GBP33.8 million (30 June 2016: GBP29.2 million) was in respect of the six-month period ended 31 December 2016. INPP seeks to generate dividends paid to investors through its operating cash flows and in all periods presented above cash dividends were at least 1.2 times covered by net cash flow from operations before non-recurring operating costs. The Company remains confident of its ability to continue to grow dividends going forward.
SUMMARY OF OPERATING COSTS AND ONGOING CHARGES
Operating Costs SIX MONTHS SIX MONTHS TO YEAR TO 31 DECEMEBER
TO 30 JUNE 30 JUNE 2016 2016
2017 GBP MILLION GBP MILLION
GBP MILLION
Management fees (9.2) (7.0) (14.4)
Audit fees (0.2) (0.2) (0.3)
Directors' fees (0.2) (0.1) (0.3)
Other running costs (0.7) (0.4) (1.1)
Operating costs (recurring) (10.3) (7.7) (16.1)
ONGOING CHARGES SIX MONTHS SIX MONTHS YEAR TO
TO 30 JUNE TO 30 JUNE 31 DECEMEBER
2017 2016 2016
GBP MILLION GBP MILLION GBP MILLION
Annualised Ongoing Charges(1) (20.6) (15.4) (16.1)
Average NAV(2) 1,778.4 1,330.8 1,421.8
Ongoing Charges (1.15%) (1.16%) (1.13%)
1 The Ongoing Charges ratio was prepared in accordance with the Association of Investment Companies' ('AIC') recommended methodology, noting this excludes non-recurring costs.
2 Average of published NAVs for the relevant period.
INVESTOR RETURNS
INPP continues to deliver strong performance against all investor return benchmarks. The Company continues to deliver consistent dividend growth, NAV growth, Total Shareholder Return and inflation linkage from underlying cash flows.
DIVID GROWTH AND PERFORMANCE
INPP targets predictable and, where possible, growing dividends. During the period, the Company's performance enabled it to declare a dividend of 3.41 pence per share relating to the six months to 30 June 2017 (30 June 2016: 3.325 pence), in line with its forecasts to pay 6.82 pence per share for the 12 months to 31 December 2017. The Company has also indicated that it will target 7.00 pence per share for the 2018 financial year. Since inception, the Company has delivered a c.2.5% per annum average dividend increase. INPP's dividend growth is illustrated in the chart on page 3. Profit before tax was GBP57.1 million (30 June 2016: GBP109.6 million - which included foreign exchange valuation impacts as a result of the U.K. Referendum to leave the European Union) with Earnings per Share of 4.89 pence (30 June 2016: 11.14 pence).
Returns from portfolio investments (investment income) in the period were GBP75.1 million (30 June 2016: GBP124.5 million) including fair value movements, dividends and interest. These returns were partially offset by operating expenses (including finance costs) of GBP18.0 million (30 June 2016: GBP10.7 million) and a small amount of other operating expenses (June 2016 GBP4.3 million), as shown in the Condensed Consolidated Statement of Comprehensive Income.
TOTAL SHAREHOLDER RETURN
INPP's Total Shareholder Return (share price growth plus reinvested distributions) for investors since IPO in November 2006 to 30 June 2017 has been 162.5% (9.5% on an annualised basis). This compares to a FTSE All-Share index total return over the same period of 83.9% (5.9% on an annualised basis). INPP has exhibited relatively low levels of volatility compared to the market, as evidenced by the graph below showing the Company's share price since IPO against the price performance of the major FTSE indices.
INPP Share Price Performance
[Chart can be found in PDF version of this document on the Company's website.]
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INFLATION LINKED CASH FLOWS
In an environment where investors are increasingly focused on achieving long-term real rates of return on their investments, inflation protection is an important consideration for the Company. At 30 June 2017, the majority of assets in the portfolio had some degree of inflation linkage and, in aggregate, the weighted NAV return of the portfolio would be expected to increase by 0.83% per annum in response to a 1.00% per annum inflation increase over currently assumed rates across the entire portfolio1.
NET ASSET VALUATION AND NAV PER SHARE
The Company reported a 21.8% increase in NAV, up to GBP1,953.1 million at 30 June 2017 (31 December 2016: GBP1,603.7 million). This represented an increase of 1.8% in the NAV per share, increasing to 144.7 pence at 30 June 2017 (31 December 2016: 142.2 pence).
The NAV represents the fair value of the Company's investments plus the value of cash and other net assets held within the Company's consolidated group. The key drivers of the change to the NAV between 31 December 2016 and 30 June 2017 are highlighted in the graph that follows and are described in more detail below.
Net Asset Value Movements
[Chart can be found in PDF version of this document on the Company's website.]
1 Represents movements in the forward rates used: to translate forecast non-GBP investment receipts and the spot rates used to translate non-GBP cash balances.
2 The NAV Return represents, amongst other things, (i) variances in both realised and forecast investment cash flows, (ii) the unwinding of the discount factor applied to those future investment cash flows and (iii) changes in the Company's other net assets.
During the first half of 2017, approximately GBP325.1 million of new capital was raised (taking into account issue costs). Proceeds were used to repay the cash drawn balance of the corporate debt facility and acquire new investments.
For the six months to 30 June 2017, government bond yields increased in all countries in which INPP holds investments, with the exception of the U.S. and Italy, resulting in a net negative impact on the NAV. This was offset by a decrease in the project premium applied, reflecting a lack of observable market-based evidence to justify revaluing the Company's assets in line with the increase in bond yields.
Over the period, Sterling continued to be volatile relative to the currencies in which our investments are denominated - weakening against the Euro and Australian dollar but strengthening against the US and Canadian dollars. The net impact over the half-year to 30 June 2017 was a positive impact on NAV.
1 Calculated by running a 'plus 1.00%' inflation sensitivity for each investment and solving each investments' discount rate to return the original valuation. The inflation linkage is the increase in the portfolio weighted average discount rate.
In the first half of 2017, a cash dividend was paid to INPP shareholders totalling GBP33.8 million.
The NAV Return of GBP48.0 million captured the impact from the following:
- Unwinding of the discount factor - the movement of the valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received above the forecast amount due to active management of the Company's portfolio, including negotiating and optimising investment cash flows to ensure cash can be extracted from the underlying investments earlier than forecast and optimising utilisation of Group tax loss relief
- Updated cash flow forecasts - updated operating assumptions to reflect current expectations of future cash flows
- Movements in the Company's working capital position
INVESTMENT VALUATION
PROJECTED FUTURE CASH FLOWS
The Company's investments are expected to continue to exhibit predictable cash flows. As the Company has a large degree of visibility over the forecast cash flows of its current investments, the chart below sets out the Company's forecast investment receipts from its current portfolio.
The majority of the forecast investment receipts are in the form of dividends or interest, and principal payments from senior and subordinated debt investments.
The Company's portfolio comprises both investments with finite lives (determined by concession or licence terms) and perpetual investments (including, for example ownership interests in regulated trading companies).
Over the life of concession-based investments, the Company's receipts from these investments represent a return of capital as well as income. The fair value of the Company's concession-based investments is expected to reduce to zero over time.
INPP Projected Cash Flow
[Chart can be found in PDF version of this document on the Company's website.]
Note: There are many factors that may influence the actual achievement of long-term cash flows to the Company. These include both internal as well as external factors and investors should not treat the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will almost certainly be different and may be higher or lower than indicated. No new investments other than those committed as at 30 June 2017 have been included.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
PORTFOLIO PERFORMANCE AND RETURN
The valuation of the Company's investment portfolio is determined by the Board, with the benefit of advice from the Investment Adviser and is considered quarterly for approval by the Company's Directors. Investments at fair value as at 30 June 2017 were GBP1,864.9 million, an increase of 23.1% since 31 December 2016 (GBP1,515.2 million).
Investments at Fair Value Movements
[Chart can be found in PDF version of this document on the Company's website.]
1 The Portfolio Return represents, amongst other things, (i) variances in both realised and forecast investment cash flows and (ii) the unwinding of the discount factor applied to those future investment cash flows.
2 Represents movements in the forward rates used to translate forecast non-GBP investment receipts and the spot rates used to translate non-GBP cash balances.
The Portfolio Return of GBP69.4 million represents a 3.9% increase in the rebased Investments at Fair Value and can be attributed to:
- Unwinding of the discount factor - the movement of the valuation date and the receipt of forecast distributions
- Optimisation of cash flows - actual distributions received above the forecast amount due to active management of the Company's portfolio, including negotiating and optimising investment cash flows to ensure cash can be extracted from the underlying investments earlier than forecast and optimising utilisation of Group tax loss relief
- Updated cash flow forecasts - updated operating assumptions to reflect current expectations of future cash flows
In addition, there was:
- An increase of GBP323.8 million in the Investments held at Fair Value owing to new investments that were made during the period
- An increase of GBP1.4 million reflecting funds advanced to facilitate the Gold Coast Light Rail investment immediately following the balance sheet date
- A decrease of GBP55.0 million due to investment cash flows that were paid out of the portfolio
- A net decrease in the discount rates across jurisdictions in which the Company invests, leading to a GBP5.2 million increase in the fair value of investments
- A net increase of GBP4.9 million due to foreign exchange rate movements in all four currencies the Company has exposure to
MACROECONOMIC ASSUMPTIONS
The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis and, following a thorough market assessment during the period, certain adjustments have been made to some of the assumptions used to derive the Company's portfolio valuation.
The key assumptions used as the basis for deriving the Company's portfolio valuation are summarised below with further details provided in note 10. Across the portfolio, the weighted average long-term inflation assumption as at 30 June 2017 was 2.61% (31 December 2016: 2.58%) and the weighted average deposit rate assumption was 2.06% (31 December 2016: 2.07%). The Net Asset Valuation Section above provides further details on the impact of these assumptions on the valuation during the period.
VARIABLE BASIS 30 JUNE 2017 31 DECEMBER
2016
Inflation U.K. 2.75% 2.75%
Australia 2.50% 2.50%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
U.S.(2) N/A N/A
Long-term Deposit U.K. 2.00% 2.00%
Rates(1)
Australia 3.00% 3.00%
Europe 2.00% 2.00%
Canada 2.00% 2.00%
U.S.(2) N/A N/A
Foreign Exchange GBP/AUD 1.81 1.86
GBP/CAD 1.74 1.71
GBP/EUR 1.09 1.12
GBP/USD 1.36 1.30
Tax Rate U.K. 17.00%-19.00% 17.00%-20.00%
Australia 30.00% 30.00%
Europe Various (12.50%-33.99%) Various (12.50%-33.99%)
Canada Various (26.50%-27.00%) Various (26.50%-27.00%)
U.S.(2) N/A N/A
1 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2019 before adjusting to the long-term rates noted in the table above.2 The Company's U.S investments are in the form of subordinated debt and therefore not directly impacted by inflation, deposit and tax rate assumptions.
DISCOUNT RATES
The discount rate used to value each investment comprises the appropriate long-term government bond yield plus an investment-specific risk premium. The risk premiums take into account the perceived risks and opportunities associated with each investment.
The majority of the Company's portfolio (89.9%) is comprised of investments where the Company only holds the Risk Capital in the underlying investments. The remaining portfolio (10.1%) is comprised of investments where the Company holds both the Risk Capital and the senior debt or the senior debt has been fully repaid. In order to provide investors with a greater level of transparency, the Company publishes both a Risk Capital weighted average discount rate and a portfolio-weighted average discount rate, which captures the discount rates of all investments including the senior debt interests.
The weighted average discount rates are presented in the table below. These rates need to be considered against the assumptions and projections upon which the Company's forecast cash flows are based.
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
METRIC 30 JUNE 31 DECEMBER 30 JUNE MOVEMENT
2017 2016 2016 31 DECEMBER
2016 -
30 JUNE
2017
Weighted Average Government
Bond Rate (Nominal)
- Risk Capital and senior
debt 1.74% 1.55% 2.00% 0.19%
Weighted Average Investment
Premium over Government
Bond Rate - Risk Capital
and senior debt (Nominal) 5.72% 5.82% 5.37% (0.10)%
Weighted Average Discount
rate - Risk Capital
and senior debt 7.46% 7.37% 7.37% 0.09%
Weighted Average Discount
rate - Risk Capital
only(1) 7.86% 7.90% 7.88% (0.04)%
Weighted Average Discount 5.92%-11.66% 6.02%-17.80% 5.91%-14.23%(2) (0.10)%-(6.14)%
Rate Range - Risk Capital
only(2)
NAV per share 144.7p 142.2p 138.2p 2.5p
1 Risk Capital includes both equity and subordinated debt investments.
2 The reduction in the upper end of the discount rate range from 17.80% to 11.66% between 31 December 2016 and 30 June 2017 reflects the fact that the forecast cash flows used to value INPP's investment in Bootle now assume that the Authority exercises its option to end the concession in 2020. Bootle is a UK PFI project representing less than 0.4% of INPP's 30 June 2017 NAV.
For accurate comparison to peer group valuations, these rates need to be considered against the assumptions and projections upon which a company's anticipated cash flows are based.
In the Company's view, comparisons of average discount rates between competitor investment portfolios or funds are only meaningful if there is a comparable level of confidence in the quality of forecast cash flows (and assumptions) the rates are applied to; the risk and return characteristics of different investment portfolios are understood; and the depth and quality of asset management employed to manage risk and deliver expected returns are identical across the compared portfolios. As such, assumptions are unlikely to be homogenous, and any focus on average discount rates without an assessment of these and other factors would be incomplete and could therefore derive misleading conclusions. For transparency and to aid comparability, the Company's approach to such cash flows is set out below.
PORTFOLIO LEVEL CASH FLOW ASSUMPTIONS UNDERLYING NAV CALCULATION
The Company is aware that there are subtle differences in approach to the valuation of portfolios of investments among different infrastructure funds. INPP regards its key cash flow and broad valuation assumptions and principles as:
- Key macroeconomic variables (outlined in the section above) continue to be applicable
- Concession contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated before their contractual expiry date
- Any deductions suffered under such contracts are fully passed down to subcontractors
- Lifecycle costs/risks are either not borne by the Company and are passed down to a third party such as a facilities management contractor or where borne by the Company are incurred per current expectations
- Cash flows from and to the Company's subsidiaries and the infrastructure asset-owning entities in which it has invested will be made and are received at the times anticipated
- Where assets are in construction they are either completed on time or any costs of delay are borne by the contractors not the Company
- Where the operating costs of the Company or the infrastructure asset-owning entities in which it has invested are fixed by contracts, such contracts are performed, and where such costs are not fixed, that they remain within projected budgets
- Where the Company or the infrastructure asset-owning entities in which it has invested owns the residual property value in an asset, that the projected amount for this value is realised
- Foreign exchange rates remain consistent with 30 June 2017 four-year forward rates (set out in the section above)
- Hedging only applies in relation to short-term forecast cash flows, not NAV valuation
- There are no tax or regulatory changes in the future which negatively impact cash flow forecasts
- Perpetual investments are assumed to have a finite life and therefore residual/terminal value
SENSITIVITIES FOR KEY MACROECONOMIC ASSUMPTIONS AND DISCOUNT RATES
The Company's NAV is based on the factors outlined above. The Company has also provided sensitivity analysis showing an indication of the impact on NAV per share from changes in macroeconomic assumptions and discount rates, as set out below. Further details can be found in note 10. This analysis is provided as an indication of the likely impact of these variables on the NAV per share on the basis that they apply uniformly across the portfolio whereas in practice the impact is unlikely to be uniform. These sensitivities should be used only for general guidance and not as accurate predictors of outcomes.
IMPACT OF CHANGES IN KEY MACROECONOMIC VARIABLES TO 30 JUNE 2017 NAV 144.7P PER SHARE
[Chart can be found in PDF version of this document on the Company's website.]
FINANCIAL AND OPERATING REVIEW
OPERATING REVIEW (CONTINUED)
INFLATION
Forecasting the impact of possible future inflation/deflation on projected returns and NAV in isolation cannot be relied on as an accurate guide to the future performance of the Company as actual inflation is unlikely to follow any of these scenarios exactly and invariably, many other factors and variables will combine to determine what actual future returns are available. The analysis provided above should therefore be treated as being indicative only and not as providing any form of profit or dividend forecast.
FOREIGN EXCHANGE
The Company has a geographically diverse portfolio and therefore revenues are subject to foreign exchange rate risk. The impact of a 10% increase or decrease in these rates is provided for illustration. The Company does not hedge exposure to foreign exchange rate risk on long-term cash flows and therefore changes in NAV are to be expected from changes in the foreign exchange forward curve against Euros, Australian Dollars, Canadian Dollars and U.S. Dollars.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across the portfolio is 2.06% per annum. While operating cash balances tend to be low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and therefore variations to deposit rates may impact the portfolio. The impact of a 1% increase or decrease in these rates is provided for illustration.
TAX RATES
The Company has a geographically diverse portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all relevant jurisdictions. The impact of a 1% increase or decrease in these rates is provided for illustration. Other potential tax changes are not covered by this scenario.
PROJECT LIFECYCLE SP
Over a project's lifecycle there is a process of renewal required to keep the physical asset fit for use and at the standard required of it under the agreement with the occupying public sector body. The proportion of total cost that is lifecycle spend will depend on the nature of the asset although typically the Company's investors are insulated from downside risks associated with lifecycle costs and, as can be seen in the chart of page 26, the impact of any changes to the Company's lifecycle cost profile is relatively small.
FUTURE GROUP TAX LOSS RELIEF
Under current U.K. group tax loss relief rules, losses within the U.K. group companies can be, subject to U.K. tax law, offset against taxable profits in other U.K. group companies (including controlled project entities). This group tax loss relief can reduce the overall tax charge across the portfolio and potentially reduce taxable profits substantially below the levels currently modelled by the Company. The Company has taken a conservative approach to the valuation of future tax losses and, to date, has not incorporated these into the NAV. Changes to U.K. tax loss relief rules are expected to be enacted in the second half of 2017 (effective from April 2017), however, these are not expected to a have a significant impact on the portfolio valuation.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the Group through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group's portfolio.
The Group's approach to risk is set out in the Risk Report of the 31 December 2016 Annual Report and Financial Statements (pages 30-39), the Risk Report includes an overview of the principle risks and their mitigation. Risk Factors are also detailed further in the Company's last Prospectus (the Placing, Open Offer and Offer for Subscription and Placing Programme Prospectus published on 12 April 2017). These risks and uncertainties are expected to remain relevant to the Group for the next six months of its financial year and include (but are not limited to):
- Inflation risk - Revenues and expenditures of project entities with respect to infrastructure assets are generally partially or wholly subject to indexation and an assumption is made that inflation will increase at a long-term rate. The Group's ability to meet targets may be adversely or positively impacted by inflation
- Foreign exchange risk - The Group has exposures to foreign currencies and therefore exposure to exchange rate fluctuations
- Credit and counterparty risks - The risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group
- Liquidity risk - The ability to successfully access suitable financial resources in the debt, equity and related financial markets
- Contract risk - The ability of counterparties to operate contracts to the detriment of the Group and the risk of default under contract whether by the Group, its subsidiaries or it or their counterparties
- Other external risks - Includes the political and regulatory risks (including tax and accounting policies and practices) associated with the Group and its projects; IT and cyber risks; and changes in the competitive environment which may have an adverse impact on the Group.
The Board considers and reviews the risks that the Group is exposed to on a regular basis.
By order of the Board
Rupert Dorey John Whittle Chairman Senior Independent Director 6 September 2017 6 September 2017
BOARD OF DIRECTORS
The table below details all Directors of the Company as at 30 June 2017. As discussed in the Chairman's Letter on page 7, Ms Julia Bond was appointed to the Board on 1 September 2017.
BACKGROUND AND EXPERIENCE
Rupert John Whittle(1) John Le John Stares(1) Claire Giles Frost
Dorey(1) Senior Poidevin(1) Chairman, Whittet(1)
Chairman Independent Risk Sub-Committee Chairman,
Chairman, Director Chairman, Management
Investment Chairman, Nomination Engagement
Committee Audit and and Remuneration Committee
Risk Committee Committee
Aged 57 Aged 61, Aged 47, Aged 66 Aged 62 Aged 54
and a resident John is and a resident and a resident and a resident resident
of Guernsey, a resident of Guernsey, of Guernsey of Guernsey, in the
Rupert of Guernsey. John has since 2001, Claire United
has over John is over 25 John has has nearly Kingdom
30 years a Chartered years of over 40 40 years' and Giles
of experience Accountant business years' experience is a founder
in financial and holds experience. experience. in the and Director
markets, the Institute John is Before banking of Amber
including of Directors a Fellow moving industry. and has
17 years Diploma of the to Guernsey, In 2003, worked
at CSFB in Company Institute John worked Claire in the
where he Direction. of Chartered for 23 joined infrastructure
specialised John holds Accountants years as Rothschild investments
in credit-related non-executive in England a management Bank International sector
products. positions and Wales consultant Limited for over
Rupert's on a number and a former with Accenture as a director 20 years.
expertise of other partner where he and was Giles qualified
was principally boards. of BDO held a latterly, as a solicitor
in the John was LLP, where wide variety managing and partner
areas of previously as Head of leadership director in the
debt distribution, Finance of Consumer roles. and co-head law firm
origination Director Markets, He currently until May Wilde Sapte
and trading, of Close he developed holds 2016 when (now Dentons).
where he Fund Services, an extensive non-executive she became Giles is
held a a large breadth positions a non-executive a Director
number independent of experience on the director of Amber
of senior administrator. and knowledge boards of the Infrastructure
positions Prior to across of several bank. Claire Group Holdings
at CSFB, moving the leisure other companies. was previously Ltd, the
including to Guernsey, and retail John is with Bank ultimate
Fixed Income John was sectors a Fellow of Scotland holding
Credit at Price in the of the and was company
product Waterhouse U.K. and Institute then Global of the
coordinator in London overseas. of Chartered Head of Investment
for European before John is Accountants Private Adviser
offices embarking a non-executive in England Client to the
and head on a career director and Wales, Credit Company
of U.K. in business on several a member at Bank and various
Credit services, plc boards of the of Bermuda. of its
and Rates predominantly and chairs Worshipful Claire subsidiaries.
Sales. telecoms. a number Company is a non-executive
Since 2005 of Audit of Management Director
Rupert Committees. Consultants, of another
has been and a Freeman five listed
a non-executive of the funds,
director City of is a member
for a number London. of the
of Hedge Chartered
Funds, Institute
Private of Bankers
Equity in Scotland,
& Infrastructure a member
Funds. of the
He is a Chartered
member Insurance
of the Institute,
Institute a Chartered
of Directors. Banker,
a member
of the
Institute
of Directors
and holds
the Institute
of Directors
Diploma
in Company
Direction.
DATE OF APPOINTMENT
2 August 6 August 1 January 28 August 10 September 2 August
2006 2009 2016 2013 2012 2006
1 All of the Independent Directors are members of all Committees.
1 All of the Independent Directors are members of all Committees.
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS Rupert John Whittle John Le John Stares Claire Giles Frost Dorey Aberdeen Poidevin JT Group Whittet Giles is AP Alternative Frontier BH Macro (Chairman) BH Macro also a Assets Markets Ltd Terra Firma Ltd Director LP, AAA Investment Safecharge (Guernsey-based Eurocastle of a number Guernsey Company International entities) Investment of the Ltd. Ltd Group Ltd Governor Ltd Company's Cinven Globalworth Specialist of More Riverstone subsidiary Capital Real Estate Investment House School Energy and investment Management Investments Properties New Philanthropy Ltd holding IV, V, Ltd Plc Capital Third Point entities VI Ltd, GLI Finance Stride (Trustee) Offshore and of Cinven Ltd Gaming Investors other entities General India Capital plc Ltd in which Partner Growth TwentyFour the Company Ltd. Fund Ltd Select has an NB Global Starwood Monthly investment. Floating European Income He does Rate Income Real Estate Fund Ltd not receive Fund Ltd Finance Directors' M&G General Ltd fees from Partner Toro Ltd such roles Inc, Episode for the LLP & Episode Company. Inc. Partners Group Global Opportunities Ltd Tetragon Financial Group Ltd /Tetragon Financial Group Master Fund Ltd
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the half year Financial Report in accordance with applicable law and regulations. The Directors confirm to the best of their knowledge:
a) The condensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting';
b) The interim financial and operating review includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
c) The interim financial and operating review includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board
Rupert Dorey John Whittle 6 September 2017 6 September 2017 Chairman Director
INDEPENT REVIEW REPORT TO INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
INTRODUCTION
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly Financial Report for the six months ended 30 June 2017 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement and the related Notes 1 to 18. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
DIRECTORS' RESPONSIBILITIES
The half-yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the Annual Financial Statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly Financial Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Half-yearly Financial Report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly Financial Report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Guernsey
6 September 2017
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHSED 30 JUNE 2017
Notes Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Interest income 4 33,752 26,041
Dividend income 4 10,294 4,832
Net change in investments
at fair value through profit
or loss 4 31,023 93,669
Total investment income 75,069 124,542
Other operating expense 5 (45) (4,264)
Total income 75,024 120,278
Management costs 16 (9,683) (7,439)
Administrative costs (851) (538)
6,
Transaction costs 16 (4,735) (844)
Directors' fees (157) (134)
Total expenses (15,426) (8,955)
Profit before finance costs
and tax 59,598 111,323
Finance costs 7 (2,526) (1,748)
Profit before tax 57,072 109,575
Tax credit 8 1,103 818
Profit for the period 58,175 110,393
Earnings per share
From continuing operations
Basic and diluted (pence) 9 4.89 11.14
All results are from continuing operations in the period.
All income is attributable to the equity holders of the parent. There are no non-controlling interests within the Consolidated Group.
There are no other Comprehensive Income items in the current period (June 2016: nil). The profit for the period represents the Total Comprehensive Income for the period.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
SIX MONTHSED 30 JUNE 2017
Notes Share Other Retained Total
Capital Distributable Earnings
Reserve
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2016 1,029,387 182,481 391,785 1,603,653
Total comprehensive
income - - 58,175 58,175
Issue of Ordinary
shares 14 333,657 - - 333,657
Issue costs applied
to new shares 14 (4,923) - - (4,923)
Distributions in
the period 14 - - (37,487) (37,487)
Balance at 30 June
2017 1,358,121 182,481 412,473 1,953,075
SIX MONTHSED 30 JUNE 2016
Share Other Retained Total
Capital Distributable Earnings
Reserve
GBP'000s GBP'000s GBP'000s GBP'000s
Balance at 31 December
2015 825,362 182,481 282,359 1,290,202
Total comprehensive
income - - 110,393 110,393
Issue of Ordinary
shares 2,775 - - 2,775
Issue costs applied - - - -
to new shares
Distributions in
the period - - (31,948) (31,948)
Balance at 30 June
2016 828,137 182,481 360,804 1,371,422
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS AT 30 JUNE 2017
Notes 30 June 31 December
2017 2016
GBP'000s GBP'000s
Non-current assets
Investments at fair value
through profit or loss 10 1,864,843 1,515,163
Total non-current assets 1,864,843 1,515,163
Current assets
Trade and other receivables 10,12 27,800 32,506
Cash and cash equivalents 10 71,628 70,981
Total current assets 99,428 103,487
Total assets 1,964,271 1,618,650
Current liabilities
Trade and other payables 10,13 7,888 10,370
Derivative financial
instruments 10 3,308 4,627
Total current liabilities 11,196 14,997
Total liabilities 11,196 14,997
Net assets 1,953,075 1,603,653
Equity
Share capital 14 1,358,121 1,029,387
Other distributable reserve 14 182,481 182,481
Retained earnings 14 412,473 391,785
Equity attributable to
equity holders of the
parent 1,953,075 1,603,653
Net assets per share
(pence per share) 15 144.7 142.2
The financial statements were approved by the Board of Directors on 6 September 2017.
They were signed on its behalf by:
Rupert Dorey - John Whittle
Chairman - Director
6 September 2017
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
SIX MONTHSED 30 JUNE 2017
Notes Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Profit from operating activities
before tax 57,072 109,575
Adjusted for:
Gain on investments at fair value
through profit or loss 4 (31,023) (93,669)
Unrealised exchange gain (11) (596)
Finance costs 7 2,526 1,748
Fair value movement on derivative 5,
financial instruments 10 (1,319) 5,086
Working capital adjustments
Decrease / (increase) in receivables 3,072 (1,661)
(Decrease) / increase in payables (2,581) 263
27,736 20,746
Income tax received / (paid)(1) 2,632 (54)
Net cash flow from operations(2) 30,368 20,692
Investing activities
Acquisition of investments at
fair value through profit or
loss 11 (323,768) (56,162)
Funds advanced to affiliated
entities(3) (1,405) (17,849)
Net repayments from investments
at fair value through profit
or loss 6,516 16,393
Net cash flow from investing
activities (318,657) (57,618)
Financing activities
Proceeds from issue of shares 325,176 -
net of issue costs
Dividends paid 14 (33,829) (29,173)
Finance costs paid (2,343) (1,225)
Net loan repayments - 23,655
Net cash flow from financing
activities 289,004 (6,743)
Net increase / (decrease) in
cash and cash equivalents 715 (43,669)
Cash and cash equivalents at
beginning of period 70,981 72,391
Exchange (loss) / gain on cash
and cash equivalents (68) 453
Cash and cash equivalents at
end of period(4) 71,628 29,175
1 Cash flows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
2 Net cash flows from operations above are reconciled to operating cash flows as shown in the Finance and Operating Review on page 18.
3 Funds advanced to affiliated entities to facilitate an investment immediately following the balance sheet date.
4 Includes restricted cash of GBP43.6 million (June 2016: GBPnil) which can only be utilised for new investments.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHSED 30 JUNE 2017
1. BASIS OF PREPARATION
International Public Partnerships Limited is a closed ended authorised investment company incorporated in Guernsey under the Companies (Guernsey) Law, 2008. The address of the registered office is given on the inside back cover. The nature of the Group's ('Parent and consolidated subsidiary entities') operations and its principal activities are set out on pages 3 and 9 respectively.
These financial statements are presented in pounds Sterling as this is the currency of the primary economic environment in which the Group operates and represents the functional currency of the Parent and all values are rounded to the nearest (GBP'000), except where otherwise indicated.
The financial information for the year ended 31 December 2016 included in this Half-yearly Financial Report is derived from the 31 December 2016 Annual Report and Financial Statements and does not constitute statutory accounts as defined in The Companies (Guernsey) Law, 2008. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 263 (2) and (3) of The Companies (Guernsey) Law, 2008.
ACCOUNTING POLICIES
The annual financial statements of International Public Partnerships Limited are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The set of condensed consolidated financial statements included in this Half-yearly Financial Report have been prepared in accordance with International Accounting Standard 34 - 'Interim Financial Reporting' as adopted by the European Union and should be read in conjunction with the consolidated financial statements for the year ended 31 December 2016, as they provide an update of previously reported information.
The same accounting policies, presentation and methods of computation are followed in this set of condensed financial statements as applied in the Group's latest annual audited financial statements for the year ended 31 December 2016. The new and revised IFRS and interpretations becoming effective in the period have had no impact on the accounting policies of the Group.
The Directors have determined that International Public Partnerships Limited is an investment entity as defined by IFRS 10 on the basis that the Company:
a) obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services;
b) commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
c) measures and evaluates the performance of substantially all of its investments on a fair value basis.
Accordingly, these condensed consolidated financial statements consolidate only those subsidiaries that provide services relevant to its investment activities, such as management services, strategic advice and financial support to its investees, and that are not themselves investment entities. Subsidiaries that do not provide investment-related services are required to be measured at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement.
GOING CONCERN
The Directors have reviewed cash flow forecasts prepared by management. Based on those forecasts and an assessment of the Group's ('Parent and consolidated subsidiary entities') committed banking facilities, they have concluded that it is appropriate to prepare the financial statements of the Group on a going concern basis.
In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted cash of GBP28.0 million as at 30 June 2017. Of the Company's corporate debt facility of GBP400 million, GBP340.3 million was uncommitted as at 30 June 2017, and is available for investment in new and existing projects until November 2019. In addition, a portion of the facility can be utilised for working capital purposes. The facility is forecast to continue in full compliance with the associated banking covenants. The Company also continues to fully cover operating costs and distributions from underlying cash flows from investments.
2. Significant Judgements and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments, the consolidated financial statements incorporate the financial statements of the Company and service entities controlled by the Company up to 30 June 2017, that themselves do not meet the definition of an investment entity. Typically a service entity provides management services, strategic advice and financial support to investee entities. Judgement is therefore required in assessing which entities meet these definitional requirements. The Directors have reviewed and assessed the criteria applied in the assessment of services entities based on the guidance in place as at 30 June 2017 and are satisfied with the resulting conclusion.
Fair valuation of investments at fair value through profit or loss
Fair values are determined using the income approach which discounts the expected cash flows at a rate appropriate to the risk profile of each investment. In determining the discount rate, relevant long-term government bond yields, specific investment risks and evidence of recent transactions are considered. Details of the valuation process and key sensitivities are provided in note 10.
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating decision makers, the Group has identified four reportable segments based on the geographical risk associated with the jurisdictions in which the Group operates. The factors used to identify the Group's reportable segments are centered on the risk free rates and the maturity of the Infrastructure sector within each region. Further, foreign exchange and political risk is identified, as these also determine where resources are allocated. Management has concluded that the Group is currently organised into four operating segments being U.K., Europe (excl. U.K.), North America (incorporating U.S. and Canada) and Australia.
Six months ended 30 June 2017
U.K. Europe North Australia Total
GBP'000s (Excl. America GBP'000s GBP'000s
U.K.) GBP'000s
GBP'000s
Segmental results
Dividend and
interest income 33,544 4,136 4,397 1,969 44,046
Fair value gain
on investments 11,460 13,466 126 5,971 31,023
Total investment
income 45,004 17,602 4,523 7,940 75,069
Reporting segment
profit(1) 28,156 17,802 4,388 7,829 58,175
Segmental financial
position
Investments at
fair value 1,402,692 260,731 100,583 100,837 1,864,843
Current assets 99,428 - - - 99,428
Total assets 1,502,120 260,731 100,583 100,837 1,964,271
Total liabilities (11,196) - - - (11,196)
Net assets 1,490,924 260,731 100,583 100,837 1,953,075
1 Reporting segment results are stated net of operational costs including management fees.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHSED 30 JUNE 2017
3. SEGMENTAL REPORTING (continued)
Six months ended 30 June 2016
U.K. Europe North Australia Total
GBP'000s (Excl. America GBP'000s GBP'000s
U.K.) GBP'000s
GBP'000s
Segmental results
Dividend and
interest income 22,191 3,396 3,053 2,233 30,873
Fair value gain
on investments 44,069 27,115 10,788 11,697 93,669
Total investment
income 66,260 30,511 13,841 13,930 124,542
Reporting segment
profit(1) 56,374 28,851 12,870 12,298 110,393
Segmental financial
position
Investments at
fair value 953,469 227,916 77,375 93,633 1,352,393
Current assets 54,428 - - - 54,428
Total assets 1,007,897 227,916 77,375 93,633 1,406,821
Total liabilities (35,399) - - - (35,399)
Net assets 972,498 227,916 77,375 93,633 1,371,422
1 Reporting segment results are stated net of operational costs including management fees.
Revenue from investments which individually represent more than 10% of the Group's interest and dividend income approximates GBP6.0 million (June 2016: GBP6.0 million).
4. Investment Income
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Interest income
Interest on investments 33,748 26,009
Interest on bank deposits 4 32
Total interest income 33,752 26,041
Dividend income 10,294 4,832
Net change in fair value of investments
at fair value through profit or
loss 31,023 93,669
Total investment income 75,069 124,542
Dividend and interest income includes that from transactions with unconsolidated subsidiary entities. Changes in investments at fair value through profit or loss are also recognised in relation to the Group's investments in unconsolidated subsidiaries.
5. Other Operating Expense
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Fair value gain / (loss) on foreign
exchange contracts 1,319 (5,086)
Other (losses) / gains on foreign
exchange movements (1,364) 822
Total other operating expense (45) (4,264)
6. Transaction Costs
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Investment advisory costs 4,735 844
Total transaction costs 4,735 844
Details of total transaction costs paid are provided in note 16.
7. Finance Costs
Finance costs for the period were GBP2.5 million (June 2016: GBP1.7 million). The Group has a corporate debt facility of GBP400 million provided by Royal Bank of Scotland, National Australia Bank, Barclays Bank and Sumitomo Mitsui Banking Corporation ('SMBC'). The drawdowns in the period were in the form of cash drawdowns and issuance of letters of credit. Cash drawdowns were used to fund investments and the letter of credit drawdowns were used to back the Group's commitment to specific future cash investments.
Following an equity capital raise in May 2017, the outstanding cash drawn balance on the facility was fully repaid. As at 30 June 2017, the facility was notionally drawn via letters of credit supporting the Group's committed investments. The uncommitted balance of the facility as at 30 June 2017 was GBP340.3 million (June 2016: GBP116.9 million).
The interest rate margin on the corporate debt facility is 175 basis points over Libor. The loan facility matures in November 2019 and is secured over the assets of the Group.
8. Tax
Six months Six months
ended ended
30 June 2017 30 June
GBP'000s 2016
GBP'000s
Current tax:
U.K. corporation tax credit -
current period (1,316) (898)
Other overseas tax - current
period 213 80
Tax credit for the period (1,103) (818)
Reconciliation of effective tax rate
Six months Six months
ended ended
30 June 2017 30 June
GBP'000s 2016
GBP'000s
Profit before tax 57,072 109,575
Exempt tax status in Guernsey - -
Application of overseas tax rates 213 80
Group tax losses surrendered to
unconsolidated investee entities (1,316) (898)
Tax credit for the period (1,103) (818)
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHSED 30 JUNE 2017
8. tax (continued)
The income tax credit above does not represent the full tax position of the entire group as the investment returns received by the Company are net of tax payable at the underlying investee entity level. As a consequence of the adoption of IFRS 10 investment entity consolidation exception, underlying investee entity tax is not consolidated within these financial statements. Total forecasted corporation tax payable by the Group's underlying investments is in excess of GBP824 million over their full concession lives.
9. Earnings Per Share
The calculation of basic and diluted earnings per share is based on the following data:
Six months Six months
ended ended
30 June 30 June
2017 2016
GBP'000s GBP'000s
Earnings for the purposes of basic
and diluted earnings per share being
net profit attributable to equity
holders of the parent 58,175 110,393
Number Number
Weighted average number of Ordinary
shares for the purposes of basic and
diluted earnings per share 1,188,496,012 991,001,925
Basic and diluted (pence) 4.89 11.14
The denominator for the purposes of calculating both basic and diluted earnings per share is the same as the Group has not issued any share options or other instruments that would cause dilution.
10. Financial Instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'. Financial liabilities are derecognised when the obligation is discharged, cancelled or expired.
10.1 Financial assets
30 June 31 December
2017 2016
GBP'000s GBP'000s
Investments at fair value through profit
and loss(1) 1,864,843 1,515,163
Financial asset loans and receivables
Trade and other receivables 27,800 32,506
Cash and cash equivalents 71,628 70,981
Total financial assets 1,964,271 1,618,650
1 Includes fair value of investments in associates amounting to GBP2.4 million (December 2016: GBP2.3 million). Movements in the period represent additional fair value gains offset by net repayments from investments.
10. FINANCIAL INSTRUMENTS (CONTINUED)
10.2 FINANCIAL LIABILITIES
30 June 31 December
2017 2016
GBP'000s GBP'000s
Financial liabilities at amortised
cost
Trade and other payables 7,888 10,370
Derivative financial instruments
Foreign exchange contracts 3,308 4,627
Total financial liabilities 11,196 14,997
10.3 FINANCIAL RISK MANAGEMENT
The Group's objective in managing risk is the protection of shareholder value. Risk is inherent in the Group's activities and is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Group's continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and inflation risk), credit risk and liquidity risk arising from the financial instruments it holds. The Group's Investment Adviser is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Adviser and is ultimately responsible for the overall risk management of the Group.
The Group's risk management framework and approach is set out within the Strategic Report of the Annual Report. The Board takes into account market, credit and liquidity risks in forming the Group's risk management strategy.
Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as changes in inflation, foreign exchange rates and interest rates.
Inflation risk
The majority of the Group's cash flows from underlying investments are linked to inflation indices. Changes in inflation rates can have a positive or negative impact on the Group's cash flows from investments. The long-term inflation assumptions applied in the Group's valuation of investments at fair value through profit or loss are disclosed in the fair value hierarchy section 10.4.
The Group's portfolio of investments has been developed in anticipation of continued inflation at or above the levels used in the Group's valuation assumptions. Where inflation is at levels below the assumed levels for a sustained period of time, investment performance may be impaired. The level of inflation linkage across the investments held by the Group varies and is not consistent.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying borrowings within the unconsolidated investee entities are either hedged through interest rate swap arrangements or are fixed rate loans. It is generally a requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. Hedging activities are aligned with the period of the loan, which also mirrors the concession period and are highly effective. For certain regulated assets, the risk of adverse movements in interest rates is limited through protections provided by the regulatory regime. The Group's corporate debt facility is unhedged on the basis it is utilised as an investment bridging facility and therefore drawn for a relatively short period of time. Therefore, the Group is not significantly exposed to cash flow risk due to changes in interest rates over its variable rate borrowings.
Interest income on bank deposits held within underlying investments is included within the fair value of investments.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHSED 30 JUNE 2017
10. FINANCIAL INSTRUMENTS (CONTINUED) 10.3 FINANCIAL RISK MANAGEMENT (CONTINUED)
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations. Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant investment returns from overseas investments. The Group doesn't hedge its exposure to foreign exchange in relation to foreign currency denominated investment balances. The carrying amounts of the Group's foreign currency denominated monetary financial instruments at the reporting date are set out in the table below:
30 June 31 December
2017 2016
GBP'000s GBP'000s
Cash
Euro 1,003 791
Canadian Dollar 1,464 1,438
Australian Dollar 5 6
U.S. Dollar 5 3
2,477 2,238
Current receivables
Euro receivables 420 414
U.S. Dollar receivables 886 1,382
1,306 1,796
Investments at fair value through
profit or loss
Euro 260,731 247,388
Canadian Dollar 39,440 39,135
Australian Dollar 100,837 97,657
U.S. Dollar 61,143 61,586
462,151 445,766
Total 465,934 449,800
Sensitivity analysis showing the impact of variations of the above risks on the fair value of investments is shown in section 10.5.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of dealing with creditworthy counterparties and reviewing this on a regular basis at the underlying entity level. The majority of underlying investments are in PFI/PPP and similar concessions which are entered into with government, quasi government, other public or equivalent low risk bodies. The maximum exposure of credit risk over financial assets as a result of counterparty default is the carrying value of those financial assets in the balance sheet.
Liquidity risk
Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non-listed equity and loans). As a closed-ended investment vehicle there are no automatic capital redemption rights. The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows.
10. FINANCIAL INSTRUMENTS (CONTINUED) 10.3 FINANCIAL RISK MANAGEMENT (CONTINUED)
Cash flow forecasts assume full availability of underlying infrastructure to the public sector entities. Failure to maintain assets available for use or operating in accordance with pre-determined performance standards may entitle the public sector to stop (wholly or partially) paying which may impact the investment income that the Group has projected to receive.
The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored. Contractual mechanisms also allow for significant pass-down of unavailability and performance risk to sub-contractors.
10.4 FAIR VALUE HIERARCHY
All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities
Level 2 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)
Level 3 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable)
During the period there were no transfers between Level 2 and Level 3 categories.
Level 1:
The Group has no financial instruments classified as level 1.
Level 2:
This category includes derivative financial instruments such as interest rate swaps, RPI Swaps and currency forward contracts. As at 30 June 2017, the Group's only derivative financial instruments were currency forward contracts amounting to a liability of GBP3.3 million (December 2016: liability of GBP4.6 million).
Financial instruments classified as Level 2 have been valued using models whose inputs are observable in an active market (spot exchange rates, yield curves, interest rate curves).
Level 3:
This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities and other non-controlled investments which are classified at fair value through profit or loss. At 30 June 2017, the fair value of financial instruments classified within Level 3 totalled GBP1,864.8 million (December 2016: GBP1,515.2 million).
Financial instruments are classified within Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The valuation of unlisted equity and debt investments is performed on a quarterly1 basis by the Investment Adviser and reviewed by the senior members of the Investment Adviser. The Investment Adviser verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to relevant project financial models and market information. In addition, the accuracy of the computation is tested.
(1 Indicative valuations performed at 31 March and 30 September.)
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHSED 30 JUNE 2017
10. FINANCIAL INSTRUMENTS (CONTINUED) 10.4 FAIR VALUE HIERARCHY (CONTINUED)
Valuation process (continued)
The latest valuation is also compared with the valuations in the preceding semi-annual and annual reporting periods. The senior members of the Investment Adviser consider the appropriateness of the valuation methods and inputs. On a quarterly basis, after the checks above have been performed, the Investment Adviser presents the valuation results to the Audit and Risk Committee. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more significant investments. Any changes in valuation methods and assumptions are discussed and agreed with the Group's Audit and Risk Committee for recommendation to the Board.
In addition, any new investment acquisitions by the Group from related parties are subject to an independent valuation provided to the Board.
Valuation methodology
The valuation methodologies used are primarily based on discounting the underlying investee entities' future projected net cash flows at appropriate discount rates. Valuations are also reviewed against recent market transactions for similar assets in comparable markets observed by the Group or Investment Adviser and adjusted where appropriate.
Cash flow forecasts for each underlying investment are generated through detailed project specific financial models.
Financial models forecast the project related cash flows for the full term of the investment. The cash flows included in the forecasts used to determine fair value are typically fixed under contracts however there are certain variable cash flows which are based on management's estimation. These models also forecast the dividend, shareholder loan interest payments, capital repayments and senior debt repayments (where applicable) expected from the underlying investments. Key macroeconomic inputs and assumptions utilised in projecting the Group's net future cash flows include:
U.K. Europe North America(1) Australia
(Excl.
U.K.)
Inflation 2.75% 2.00% 2.00% 2.50%
Long-term tax 17.00%-19.00% 12.50%-33.99% 26.50% -27.00% 30.00%
Foreign exchange
rates n/a 1.09 1.36-1.74 1.81
Long-term deposit
rates 2.00% 2.00% 2.00% 3.00%
(1 Foreign exchange rate assumptions for North America relate to U.S and Canada. All other macroeconomic assumptions listed for North America relate to Canada only.)
Discount rate
The discount rate used for valuation of each investment is the aggregate of the following:
- Yield on government bonds with an average life equivalent to (or as close as available to) the weighted average concession length of the investments, issued by the national government for the location of the relevant investments ('government bond yield')
- A premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds
- A further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in construction and/or to reflect any current asset specific or operational issues. Typically this risk premium will reduce over the life of any asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash flows decrease. However, the rate may increase in relation to investments with unknown residual values at the end of the relevant concession life as that date nears
- A further adjustment reflective of market-based transaction valuation evidence for similar assets
10. FINANCIAL INSTRUMENTS (CONTINUED) 10.4 FAIR VALUE HIERARCHY (CONTINUED)
Discount rate (continued)
Over the period, the weighted average government bond yield increased by 0.19%. This was partly offset by a 0.10% decrease in the weighted average project premium reflecting observable market based evidence.
Valuation assumptions 30 June 2017 31 December Movement
2016
Weighted Average Government
Bond Rate 1.74% 1.55% 0.19%
Weighted Average Project
Premium 5.72% 5.82% (0.10%)
Weighted Average Discount
Rate 7.46% 7.37% 0.09%
Weighted Average Discount
Rate on Risk Capital(1) 7.86% 7.90% (0.04%)
1 Weighted average discount rate on Risk Capital only (equity and subordinated debt).
Reconciliation of Level 3 fair value measurements GBP'000s of financial assets: Balance at 1 January 2017 1,515,163 Additional investments during the period 323,768 Net repayments during the period (6,516) Funds advanced to affiliated entities 1,405 Net change in fair value of investments at fair value through profit or loss 31,023 Balance at 30 June 2017 1,864,843 10.5 SENSITIVITY ANALYSIS
The valuation requires management to make certain assumptions in relation to unobservable inputs to the model, the significant assumptions along with sensitivity analysis are provided below:
Significant Weighted Sensitivity Change Sensitivity Change
assumptions average factor in fair factor in fair
rate in value value
base case of investment of investment
valuations GBP'000s GBP'000s
Discount rate 7.46% +1.00% (190,333) -1.00% 229,325
Inflation
rate (overall) 2.61% +1.00% 214,724 -1.00% (181,023)
U.K. 2.75% +1.00% 160,818 -1.00% (134,944)
Europe 2.00% +1.00% 38,942 -1.00% (32,712)
North America 2.00% +1.00% 1,165 -1.00% (1,355)
Australia 2.50% +1.00% 13,799 -1.00% (12,012)
FX rate n/a +10.00% 48,362 -10.00% (48,368)
Tax rate 20.17% +1.00% (15,660) -1.00% 15,715
Deposit rate 2.06% +1.00% 22,577 -1.00% (18,410)
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHSED 30 JUNE 2017
11. INVESTMENTS
Date of Consideration % Ownership
investment Description GBP'000s post investment
============= ================================= ============== =================
The Group funded two further
March - tranches of investment in
June 2017 the Tideway project. 48,285 15.99%
The Group, as part of a
consortium, made an investment
31 March to acquire a share of 61%
2017 of Cadent. 273,947 4.40%
The Group made an investment
to acquire an additional
interest in the Wolverhampton
Building Schools for the
5 May 2017 Future project. 1,536 90.00%
============= ================================= ============== =================
Total capital spend on investments
during the period 323,768
================================================ ============== =================
12. TRADE AND OTHER RECEIVABLES
30 June 2017 31 December
GBP '000s 2016
GBP'000s
=================================== ============= =============
Accrued interest receivable 21,935 24,773
Other debtors 5,865 7,733
=================================== ============= =============
Total trade and other receivables 27,800 32,506
=================================== ============= =============
Other debtors included GBP4.7 million (December 2016: GBP6.2 million) of receivables from unconsolidated subsidiary entities for the surrender of Group tax losses.
13. Trade and Other Payables
30 June 2017 31 December
GBP '000s 2016
GBP'000s
================================ ============= =============
Accrued management fee 6,315 8,668
Other creditors and accruals 1,573 1,702
================================ ============= =============
Total trade and other payables 7,888 10,370
================================ ============= =============
14. Share Capital and Reserves
30 June 31 December
2017 2016 Shares
Shares '000s
Share capital '000s
======================================== ========= =============
In issue 1 January 1,127,421 990,634
Issued for cash 220,000 132,792
Issued as a scrip dividend alternative 2,372 3,995
========================================= ========= =============
Closing balance 1,349,793 1,127,421
========================================= ========= =============
14. Share Capital and Reserves (continued)
30 June 31 December
2017 2016
Share capital GBP '000s GBP'000s
======================================== ========== ============
Opening balance 1,029,387 825,362
========================================= ========== ============
Issued for cash (excluding issue
costs) 330,000 200,000
Issued as a scrip dividend alternative 3,657 5,869
========================================= ========== ============
Total share capital issued in the
period 333,657 205,869
========================================= ========== ============
Costs on issue of Ordinary Shares (4,923) (1,844)
========================================= ========== ============
Closing balance 1,358,121 1,029,387
========================================= ========== ============
At present, the Company has one class of Ordinary Shares which carry no right to fixed income.
On 11 May 2017, the Group raised an additional GBP330 million of equity through a Placing, Open Offer and Offer for Subscription of 220,000,000 Ordinary Shares at an issue price per share of 150.0 pence.
On 7 June 2017, 2,372,322 new Ordinary fully paid shares were issued as a scrip dividend alternative in lieu of cash for the interim dividend in respect of the six months ended 31 December 2016.
30 June 31 December
2017 2016
Other distributable reserve GBP '000s GBP'000s
============================ ========== ============
Opening balance 182,481 182,481
Movement in the period - -
============================ ========== ============
Closing balance 182,481 182,481
============================ ========== ============
On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share premium account. This was in order to provide a distributable reserve to enable the Company to repurchase its shares if and when the Board of Directors consider it beneficial to do so. Following court approval, the distributable reserve account was created.
30 June 31 December
2017 2016
Retained earnings GBP '000s GBP'000s
========================== ========== ============
Opening balance 391,785 282,359
Net profit for the period 58,175 177,158
Dividends paid(1) (37,487) (67,732)
========================== ========== ============
Closing balance 412,473 391,785
========================== ========== ============
1 Includes scrip element of GBP3.7 million in 2017 (December 2016: GBP5.9 million).
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHSED 30 JUNE 2017
14. SHARE CAPITAL AND RESERVES (CONTINUED)
DISTRIBUTIONS
The Board is satisfied that, in every respect, the solvency test as required by the Companies (Guernsey) Law, 2008, was satisfied for the proposed dividend and the dividend paid in respect of the year ended 31 December 2016. The Board has approved an interim distribution of 3.41 pence per share (six months to June 2016: 3.325 pence per share).
CAPITAL RISK MANAGEMENT
The Group seeks to efficiently manage its financial resources to ensure that it is able to continue as a going concern while providing improved returns to shareholders through the management of the debt and equity balances. The capital structure consists of the Group's corporate debt facility and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet on-going expenses and dividend payments.
The Group's Investment Adviser reviews the capital structure on a semi-annual basis. As part of this review, the Investment Adviser considers the cost of capital and the associated risks.
15. Net Assets per Share
30 June 31 December
2017 2016
GBP '000s GBP'000s
======================================= ============= =============
Net assets attributable to equity
holders of the parent 1,953,075 1,603,653
======================================== ============= =============
Number Number
======================================= ============= =============
Number of shares
Ordinary shares outstanding at the
end of the period 1,349,793,398 1,127,421,076
======================================== ============= =============
Net assets per share (pence per share) 144.7 142.2
======================================== ============= =============
16. Related Party Transactions
During the period, Group companies entered into certain transactions with related parties that are not members of the Group but are related parties by reason of being in the same group as Amber Infrastructure Group Holdings Limited, which is the ultimate holding company of the Investment Adviser, Amber Fund Management Limited ('AFML'). Under the Investment Advisory Agreement ('IAA'), AFML was appointed to provide investment advisory services to the Group including advising the Group as to the strategic management of its portfolio of investments.
16. RELATED PARTY TRANSACTIONS (CONTINUED)
AFML is a subsidiary company of Amber Infrastructure Group Holdings Limited ('Amber Group'), in which Mr. G Frost is a Director and also a substantial shareholder.
Mr. G Frost is also a Director of International Public Partnerships Limited (the 'Company'); International Public Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Group); and the majority of other companies in which the Group indirectly has an investment. The transactions with the Amber Group are considered related party transactions under IAS 24 'Related Party Disclosures'.
The Director's fees for Mr. G Frost's directorship of the Company are paid to his employer, Amber Infrastructure Limited (a member of the Amber Group).
The amounts of the transactions in the period that were related party transactions are set out in the table below:
Amounts owing
Related party to related parties
expense in the in the Balance
Income Statement Sheet
==================== ========================
For the For the
six six
months months
to to At At
30 June 30 June 30 June 31 December
2017 2016 2017 2016
GBP'000s GBP'000s GBP'000s GBP'000s
========================== ========= ========= ========= =============
International Public
Partnerships GP Limited 9,683 7,439 6,315 8,668
Amber Fund Management
Limited(1) 4,735 844 409 311
========================== ========= ========= ========= =============
Total 14,418 8,283 6,724 8,979
========================== ========= ========= ========= =============
1 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the balance sheet.
INVESTMENT ADVISORY ARRANGEMENTS
Investment advisory fees / profit share payable during the period are calculated as follows:
For existing construction assets:
-1.2% per annum of gross asset value of investments bearing construction risk
For existing fully operational assets:
-1.2% per annum of the gross asset value ('GAV') excluding uncommitted cash from capital raisings up to GBP750 million
-1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between GBP750 million and GBP1.5 billion
-0.9% per annum where GAV (excluding uncommitted cash from capital raisings) value exceeds GBP1.5 billion
Asset origination fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group's assets are available for use for certain periods and the Investment Adviser fails to implement a remediation plan agreed with the Group. The IAA may also be terminated by either party giving to the other five years notice of termination, expiring at any time after ten years from the date of the IAA.
As at 30 June 2017, Amber Infrastructure held 8,002,379 (December 2016: 8,002,379) shares in the Company. The shares held by the Investment Adviser's group in the Company helps further strengthen the alignment of interests between the two parties.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
SIX MONTHS ENDED 30 JUNE 2017
16. RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions with directors
Shares acquired by Directors in the six month period ended 30 June 2017 are disclosed below:
Number of New
Director Ordinary Shares
================== =================
Rupert Dorey 129,000
Giles Frost 304,589
John Whittle 6,666
Claire Whittet 14,325
John Le Poidevin 32,000
================== =================
Total purchased 486,580
================== =================
During the period, Rupert Dorey also disposed of 129,000 shares by way of a gift transfer for nil consideration.
17. CONTINGENT LIABILITIES AND COMMITMENTS
As at 30 June 2017, the Group had committed investments supported by letter of credit amounting to GBP59.7 million which were notionally drawn against the Group's corporate debt facility.
At financial close of the Group's investment in Cadent in March 2017, INPP entered into an agreement as part of a consortium to acquire a share of an additional 14% interest in Cadent, through a put and call arrangement. This additional investment, subject to the exercise of the option, is expected to reach financial close in 2019.
There were no contingent liabilities at the date of this report.
18. EVENTS AFTER BALANCE SHEET DATE
In July 2017, the Group committed jointly with HM Government to make an investment in digital infrastructure and particularly fibre optic broadband connections. The INPP committed to invest up to GBP45 million as part of the arrangement.
In the period since 30 June 2017, to the date of this report, the Group invested amounts totalling c.GBP3.2 million into the Gold Coast Light Rail - Phase 2 extension project, part of Group's investment commitment to the project.
Contacts
Registered Office Investment Adviser Corporate Brokers
Heritage Hall Amber Fund Management Numis Securities
PO Box 225, Le Marchant Limited Limited
Street 3 More London The London Stock
St Peter Port Riverside Exchange Building
Guernsey London 10 Paternoster
Channel Islands SE1 2AQ Square
GY1 4HY London
EC4M 7LT
Administrator and
Company Secretary Legal Adviser Public Relations
Heritage International Carey Olsen FTI Consulting
Fund Managers Limited PO Box 98, Carey 200 Aldersgate
Heritage Hall House Aldersgate Street
PO Box 225, Le Marchant Les Banques London
Street Guernsey EC1A 4HD
St Peter Port Channel Islands
Guernsey GY1 4BZ
Channel Islands
GY1 4HY
Auditor Corporate Banker
Ernst & Young LLP Royal Bank of
Royal Chambers Scotland International
St Julian's Avenue 1 Glategny Esplanade
St Peter Port St Peter Port
Guernsey Guernsey
Channel Island Channel Islands
GY1 4AF GY1 4BQ
This information is provided by RNS
The company news service from the London Stock Exchange
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