TIDMINPP
RNS Number : 6861Y
International Public Partnerships
08 September 2022
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY,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 US PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE
AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
8 September 2022
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
('INPP', the 'Company')
HALF-YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2022
International Public Partnerships ('INPP', the 'Company'), the
FTSE 250-listed infrastructure investment company, is pleased to
announce its results for the six months to 30 June 2022.
HIGHLIGHTS FOR THE SIX MONTHS TO 30 JUNE 2022
-- NAV increased 18.9% to GBP3.0 billion (31 December 2021:
GBP2.5 billion) whilst NAV per share increased 6.1% to 157.3
pence(31 December 2021: 148.2 pence). The increases were driven by,
among other things, the portfolio's inflation-linkage, the
successful capital raise and the revaluation of the Company's
investment in Tideway during the period.
-- Despite an uncertain macroeconomic backdrop, the Company has
again delivered robust, predictable shareholder returns with a
c.2.5% increase in its H1 2022 dividend to 3.87 pence per share (30
June 2021: 3.78 pence per share). The Board has also reconfirmed
its full-year dividend targets for 2022 and 2023 at 7.74 pence per
share and 7.93 pence per share [i] , respectively. The Company
achieved cash dividend cover in the period of 1.2x [ii] (H1 2021:
1.3x).
-- The Company continued to perform well with the quality of the
portfolio's inflation-linked cash flows highlighted during the
period, and the overall inflation-linkage maintained at 0.7% (31
December 2021: 0.7%) [iii] .
-- The Company's active asset management approach of its
Investment Adviser has ensured all the portfolio's investment
performance objectives were met during the period, including asset
availability of 99.8% achieved against a target of over 98%. Strong
ongoing asset performance continues to create long-term value for
both investors and the local communities which our assets
serve.
-- The Investment Adviser continued to originate high-quality
investments, with the Company making new investments and investment
commitments of GBP56.1 million during the period, covering the
transport, digital, education and waste water sectors.
-- The Company has categorised itself as an 'Article 8'
financial product under the EU's Sustainable Finance Disclosure
Regulation ('SFDR'). This illustrates the Company's continued focus
on ESG and will support its approach to enhancing ESG data
collection to inform both SFDR and the Taskforce on Climate-Related
Financial Disclosures ('TCFD') reporting.
-- The successful completion of the Company's significantly
oversubscribed capital raise totalling GBP325 million (before issue
costs) indicated strong endorsement of the Company's investment
objectives from both existing and new shareholders.
-- The Company has delivered a total shareholder return ('TSR')
of 238.3% since IPO, equivalent to an annualised TSR of 8.1% [iv]
.
-- The Company's GBP250 million corporate debt facility ('CDF')
is undrawn in cash terms, with GBP16.4 million committed in respect
of support for the investment pipeline. The remaining proceeds of
the capital raise total GBP116.9 million, together with the CDF,
can be used to support the investment pipeline.
-- IFRS profit before tax was GBP219.2 million (H1 2021: GBP27.2
million), principally reflective of the unrealised fair value gain
on the portfolio in the period.
Mike Gerrard, Chair of International Public Partnerships, said:
"I am pleased to report another successful six-month period for the
Company, characterised by strong financial and operational
performance. The quality of the portfolio's inflation-linkage cash
flows and their positive impact on the Company's NAV demonstrates
the resilience of our investment case against a volatile economic
backdrop."
INVESTMENT ACTIVITY
The Company's GBP56.1 million of new cash investments and
investment commitments included:
-- Thames Tideway, UK: In June 2022, the Company conditionally
agreed to acquire a further shareholding in Tideway, London's new
"super sewer", increasing its stake to approximately 18% through
the investment of approximately GBP42.0 million of additional
capital. This investment completed on 7 September 2022. The project
remains a key investment for the Company, given its attractive
financial proposition, positive future impact on the environment
and strong engagement with local communities, which closely
reflects the Company's own values as a responsible investor.
-- Gold Coast Light Rail, Australia: The Company announced in
April 2022 that financial close had been reached on Stage 3 of the
Gold Coast Light Rail project, where it will make an additional
investment of c.GBP7.1 million in 2025. The Company's existing
investment into Stages 1 and 2 of the project has seen 60 million
passenger trips in total, with usage increasing by 43% across the
transport network. This has made an important contribution to the
reduction of reliance on car transport in the Gold Coast
region.
-- Other: Further investments totalling GBP7.0 million were made
during the period, including into several availability-based UK
public-private partnership ('PPP') schemes, the Diabolo Rail Link
('Diabolo') and the National Digital Infrastructure Fund
('NDIF').
OPERATIONAL PERFORMANCE AND ASSET STEWARDSHIP
Responsible investment is a core component of the Company's
ability to deliver essential public services, maintain
relationships with its clients and local communities, and preserve
and grow the long-term value of each investment. The references to
SDGs below refer to the contribution of each mentioned asset to
defined UN Sustainable Development Goals.
Social infrastructure | SDG 3, 4, 8 & 16: Good health and
wellbeing; quality education; decent work and economic growth;
peace, justice and strong institutions
Availability-based PPPs account for 29% of the Company's
portfolio by investment fair value with asset availability of 99.8%
achieved against a target of over 98% for those investments. The
Company's public sector clients commissioned and funded over 528
contract variations during the period, at a combined value of GBP7
million. The completed changes ranged from cleaning regimes to
supporting operational assets throughout the pandemic within the
education and healthcare facilities, to the delivery of significant
transport facility upgrades.
Energy transmission | SDG 7: Affordable and clean energy
-- OFTOs, UK: During the period, Ofgem released a second
consultation regarding the potential regulatory developments
underpinning an extension of the OFTO revenue stream. All parties
recognise that the life extension of renewable energy assets
(including offshore transmission assets) is required to meet the
UK's net zero emissions targets. Ofgem expects to publish summaries
of feedback received as well as its decisions in Autumn 2022; the
Investment Adviser continues to be actively engaged with all
relevant industry stakeholders and will keep investors informed of
forthcoming developments.
Transport | SDG 8, 9 & 11: Decent work and economic growth;
industry innovation and infrastructure; sustainable cities and
communities
-- Diabolo Rail Link, Belgium: Passenger numbers as of June 2022
had increased to approximately 85% of pre-Covid levels. Of the
EUR24 million committed to the project by the Company in December
2020, EUR6.7 million remains available to protect Diabolo's
liquidity position and ensure compliance with its debt covenants.
The extent and timing of any further cash injections is dependent
on the trajectory of the recovery in passenger numbers. Traffic
forecasts for Diabolo estimate a return of pre-Covid levels of
usage by 2024. Discussions are continuing with Infrabel, the
Belgian rail network owner, over the implementation of a passenger
fare adjustment which could partially mitigate the impact of lower
passenger numbers seen over the past couple of years.
-- Angel Trains, UK: Revenues have continued to be largely
unaffected by the Covid-19 pandemic, on account of the fact the
majority of the asset's revenues are generated from the contractual
leasing of rolling stock to TOCs. Unlike the TOCs, Angel Trains is
not involved in, or directly impacted by, any of the disputes
underpinning the industrial action that occurred during the period,
though the Company continues to monitor the situation. During the
period, Angel Trains successfully acquired the Readypower Group, a
specialist rail and infrastructure services provider specialising
in the supply of on and off-track plant equipment as well as other
maintenance and operating services to the UK rail sector. The
acquisition is evidence of Angel Trains' wider commitment to
investing in and supporting the enhancement of the UK rail
industry.
Gas distribution | SDG 8, 9 & 11: Decent work and economic
growth; industry innovation and infrastructure; sustainable cities
and communities
-- Cadent, UK: Whilst Cadent is largely insulated from changes
in gas prices and the associated energy price caps, aside from
where the changes can cause timing differences in certain cash
flows, the Company continues to closely monitor the implications of
changes in gas prices and other developments in the sector. During
the period, Cadent's proposal to convert 2,000 homes in Ellesmere
Port, Whitby, from natural gas to hydrogen was shortlisted by Ofgem
to be the UK's first ever 'hydrogen village'. Should the proposal
be successful, the 2,000 homes will be supplied with hydrogen for
cooking and heating fuel from 2025. The investment remains the
Company's largest by fair value, representing 15.1% of the
portfolio, and is evidence of the Company's ongoing support of the
UK Government in meeting its net zero targets through the
transition to cleaner fuels.
Wastewater | SDG 6, 8, 9 & 11: clean water and sanitation;
decent work and economic growth; industry innovation and
infrastructure; sustainable cities and communities
-- Tideway, UK: During the period, Tideway reached the end of
the primary tunnelling phase, which was a key milestone for the
project, and over half of the secondary lining had been completed
by the end of the period. Overall construction works were 80%
complete at the end of June 2022, with the focus now principally
being on the completion of the secondary lining as well as the
system commissioning phase. As reported above, an additional stake
was acquired on 7 September 2022.
OUTLOOK
The portfolio has demonstrated its resilience over its
approximately 16-year history by, among other things, consistently
meeting its published forward dividend guidance. The largely
regulated or availability-based nature of the underlying cash
flows, with high levels of inflation-linkage, means the portfolio
is well positioned despite the uncertainty in the wider market.
The outlook for infrastructure investment remains strong. There
continues to be a need for infrastructure investment across the
countries where the Company invests, and the sectors where its
activity is focused continue to drive the transition towards
climate goals. We remain confident in the ability of our Investment
Adviser to continue to generate a high-quality pipeline of future
investment opportunities that will deliver long-term benefits for
all stakeholders.
S
NOTES TO EDITORS
Amber Infrastructure
Erica Sibree / Amy Edwards
+44 (0) 7557 646 499 / (0) 7827 238 355
FTI Consulting
Ed Berry / Mitch Barltrop / Jenny Boyd
+44 (0) 7703 330 199 / (0) 7807 296 032 / (0) 7971 005 577
About International Public Partnerships ('INPP'):
INPP is a listed infrastructure investment company that invests
in global public infrastructure projects and businesses, which
meets societal and environmental needs, both now, and into the
future.
INPP is a responsible, long-term investor in over 140
infrastructure projects and businesses. The portfolio consists of
utility and transmission, transport, education, health, justice and
digital infrastructure projects and businesses, in the UK, Europe,
Australia and North America. INPP seeks to provide its shareholders
with both a long-term yield and capital growth.
Amber Infrastructure Group ('Amber') is the Investment Adviser
to INPP and consists of over 160 staff who are responsible for the
management of, advice on and origination of infrastructure
investments.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
Important Information
This announcement contains information that is inside
information for the purposes of the Market Abuse Regulation (EU)
No. 596/2014.
This announcement is an advertisement. It does not constitute a
prospectus relating to the Company and does not constitute, or form
part of, any offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for, any shares
in the Company in any jurisdiction nor shall it, or any part of it,
or the fact of its distribution, form the basis of, or be relied on
in connection with or act as any inducement to enter into, any
contract therefor.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These forward-looking statements speak only as at the
date of this announcement. The Company, Amber and Numis Securities
expressly disclaim any obligation or undertaking to update or
revise any forward-looking statements contained herein to reflect
actual results or any change in the assumptions, conditions or
circumstances on which any such statements are based unless
required to do so by the Financial Services and Markets Act 2000,
the Prospectus Rules of the Financial Conduct Authority or other
applicable laws, regulations or rules.
[i] Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
[ii] Cash dividend payments to investors are paid from net
operating cash flows before capital activity.
[iii] Calculated by running a 'plus 1.0%' inflation sensitivity
for each investment and solving each investment's discount rate to
return the original valuation. The inflation-linked return is the
increase in the portfolio weighted average discount rate.
[iv] Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
International Public Partnerships Limited
HALF-YEARLY FINANCIAL Report for the SIX MONTHS TO 30 JUNE
2022
Registered number: 45241
www.internationalpublicpartnerships.com
Note: Page references in this announcement refer to the full
formatted Half-Yearly Financial Report for the period ended 30 June
2022 that can be found on the Company's website. Certain charts
cannot be reproduced for the RNS format and can also be seen in the
PDF version of this document available on the Company's
website.
OUR PURPOSE
Our purpose is to invest responsibly in social and public
infrastructure that delivers long-term benefits for all
stakeholders.
We aim to provide our investors with stable, long-term,
inflation-linked returns, based on growing dividends and the
potential for capital appreciation.
We expect to achieve this by investing in a diversified
portfolio of infrastructure assets and businesses which, through
our active management, meets societal and environmental needs both
now and into the future.
COMPANY FACTS
- London Stock Exchange trading code: INPP.L
- Member of the FTSE 250 and FTSE All-Share indices
- GBP3.1 billion market capitalisation at 30 June 2022
- 1,911 million shares in issue at 30 June 2022
- Eligible for ISA/PEPs and SIPPs
- Guernsey incorporated company
- International Public Partnerships Limited ('the Company',
'INPP', the 'Group' (where including consolidated entities)) shares
are excluded from the Financial Conduct Authority's ('FCA')
restrictions, which apply to non-mainstream investment products,
and can be recommended by independent financial advisers to their
clients
RESPONSIBLE INVESMENT
In support of its purpose, the Company is committed to
responsible investment that is beneficial to its shareholders,
communities, society and wider stakeholders. The Company believes
that the financial performance of its investments is linked to
environmental and social success and, as such, the Company
considers issues that have the potential to impact the performance
of its investments, both now and in the future.
The Company draws on several frameworks and benchmarks to
provide direction. These frameworks are reviewed on an annual basis
to ensure that the Company remains at the forefront of sustainable
investment, operations and reporting. The Company has categorised
itself as an 'Article 8' financial product, which was communicated
in the Company's prospectus, published in April 2022. The Company
has also published a website disclosure in accordance with the
Level 1 requirements of the EU Sustainable Finance Disclosure
Regulation ('SFDR').
The Company's Investment Adviser, Amber Infrastructure Limited
('Amber') is a signatory of the UN-backed Principles for
Responsible Investment ('PRI').
The Company supports the 2030 Agenda for Sustainable Development
adopted by the UN Member States in 2015. Alignment with the UN
Sustainable Development Goals ('SDGs') is a key part of the
Company's approach to environmental, social and governance ('ESG')
integration. The Company contributes towards the SDGs in two main
ways: the positive impact investments have on sustainable
development and our aim to manage investments sustainably.
The Company has taken steps to strengthen the alignment of its
investment activity with the objectives of the Paris Agreement and
is a supporter of the recommendations of the Task Force on
Climate-related Financial Disclosures ('TCFD').
GLOSSARY
Certain words and terms used throughout this Half-yearly
Financial Report are defined in the glossary on page 67. Where
alternative performance measures ('APMs') are used, these are
identified by being marked with an * and further information on the
measure can be found in the glossary.
COVER IMAGE
Thames Tideway Tunnel, UK
Photo credit: Tideway
HALF-YEAR FINANCIAL HIGHLIGHTS
We aim to provide our investors with stable, long-term,
inflation-linked returns, based on growing dividends and the
potential for capital appreciation.
DIVIDS
3.87p - H1 2022 dividend per share(1)
7.74p - 2022 full-year dividend target per share(2)
7.93p - 2023 full-year dividend target per share(2)
c.2.5% - H1 2022 dividend growth
1.2x - H1 2022 cash dividend cover(3) (H1 2021: 1.3x)
NET ASSET VALUE ('NAV') (4)
GBP3.0bn - NAV at 30 June 2022 (4) (31 December 2021:
GBP2.5bn)
157.3p - NAV per share at 30 June 2022(4) (31 December 2021:
148.2p)
18.9% - Increase in NAV for the six months to 30 June 2022 (31
December 2021: 6.1%)
6.1% - Increase in NAV per share for the six months to 30 June
2022 (31 December 2021: 0.7%)
PORTFOLIO ACTIVITY
GBP56.1m - Cash investments and new commitments made during H1
2022 (31 December 2021: GBP252.7m)(5)
INFLATION-LINKAGE
0.7% - Portfolio inflation-linkage at 30 June 2022(6) (31
December 2021: 0.7%)
TOTAL SHAREHOLDER RETURN ('TSR')
238.3% - TSR since Initial Public Offering ('IPO')(7)
8.1% p.a. - Annualised TSR since IPO(7)
PROFIT
GBP219.2m - H1 2022 profit before tax (H1 2021: GBP27.2m)
1 The forecast date for payment of the dividend relating to the
six months to 30 June 2022 is 18 November 2022.
2 Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
3 Cash dividend payments to investors are paid from net
operating cash flow before capital activity* as detailed on pages
23 to 24.
4 The methodology used to determine the NAV is described in detail on pages 25 to 32.
5 As at 31 December 2021, this includes cash investments made only.
6 Calculated by running a 'plus 1.0%' inflation sensitivity for
each investment and solving each investment's discount rate to
return the original valuation. The inflation-linked return is the
increase in the portfolio weighted average discount rate.
7 Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
COMPANY OVERVIEW
CONSISTENT AND SUSTAINED RETURNS
INPP Dividend Payments
[Diagram can be found in PDF version of this document on the
Company's website].
PREDICTABLE portfolio performance
P rojected Investment Receipts
[Diagram can be found in PDF version of this document on the
Company's website].
Note: This chart is not intended to provide any future profit
forecast. Cash flows shown are projections based on the current
individual asset financial models and may vary in the future. Only
investments committed as at 30 June 2022 are included.
LOW RISK AND DIVERSIFIED PORTFOLIO
Sector Breakdown
Energy Transmission 21%
--------------------- ----
Transport 20%
--------------------- ----
Education 17%
--------------------- ----
Gas Distribution 15%
--------------------- ----
Waste Water 13%
--------------------- ----
Health 4%
--------------------- ----
Military Housing 3%
--------------------- ----
Digital 2%
--------------------- ----
Courts 2%
--------------------- ----
Other 3%
142 investments in infrastructure investments and businesses
across a variety of sectors(1)
Geographic Split
UK 76%
----------- ----
Australia 8%
----------- ----
Belgium 7%
----------- ----
Germany 4%
----------- ----
US 3%
----------- ----
Canada 2%
----------- ----
Ireland <1%
----------- ----
Denmark <1%
Invested in selected global regions that meet INPP's specific
risk and return requirements
Investment Type Risk Capital(2) 92%
----------------- ----
Senior Debt 8%
Invested across the capital structure, taking into account appropriate
risk-return profiles
Investment Ownership
100% 45%
--------- ----
50%-100% 6%
--------- ----
<50% 49%
Preference to hold majority stakes
Mode of Acquisition/Investment Status
Construction 13%
------------------------- ----
Operational 87%
------------------------- ----
Early Stage Investor(3) 66%
------------------------- ----
Later Stage Investor(4) 34%
Early stage investment gives first mover advantage maximises
capital growth opportunities
Investment Life
<20 years 46%
------------- ----
20-30 years 19%
------------- ----
>30 years 35%
Weighted average portfolio life of 37 years(5)
1 The majority of projects and businesses benefit from
availability-based or regulated revenues.
2 Risk Capital includes both investment and business level
equity and subordinated shareholder debt.
3 'Early Stage Investor' - investments developed or originated
by the Investment Adviser or predecessor team in primary or early
phase investments.
4 'Later stage investor' -investments acquired from a third
party investor in the secondary market.
5 Includes non-concession entities which have potentially a
perpetual life but assumed to have finite lives for this
illustration.
International Public Partnerships invests in high-quality
infrastructure assets and businesses that are resilient over the
long term
We have a long-standing relationship with Amber, the Company's
Investment Adviser
Amber has sourced and managed the Company's assets since IPO in
2006
- Amber is a specialist international infrastructure investment
manager and one of the largest independent teams in the sector with
over 160 employees working internationally. It is a leading
investment originator, asset and fund manager with a strong track
record
- Amber applies an active asset management approach to the
underlying investments to support environmental and social
characteristics of its investments
- The Company has first right of refusal over qualifying
infrastructure assets identified by Amber and for US investments,
by Amber's long-term investor, US Group, Hunt Companies LLC
('Hunt')
Relationship with the Investment Adviser
[Diagram can be found in PDF version of this document on the
Company's website].
OUR STRENGTHS
- Long-term alignment of interests between the Company, Amber and other key suppliers
- Amber has physical presence in all of the major countries in
which we invest, which provides local insights and
relationships
- A vertically integrated model with direct relationships with public sector authorities
- Experienced team in all aspects of infrastructure development, investment and management
- Active approach to investment stewardship which is the cornerstone of successful investment
- Consideration and integration of material ESG risks and
opportunities throughout the investment lifecycle
- Active engagement with all key stakeholders
- Strong independent Board (six of the seven Directors are
independent) with a diversity of experience and strong corporate
governance
BUSINESS MODEL
DELIVERING long-term benefits
OUR PURPOSE
Our purpose is to invest responsibly in social and public
infrastructure that delivers long-term benefits for all
stakeholders.
We aim to provide our investors with stable, long-term,
inflation-linked returns, based on growing dividends and the
potential for capital appreciation.
We expect to achieve this by investing in a diversified
portfolio of infrastructure assets and businesses which, through
our active management, meets societal and environmental needs both
now and into the future.
what we do
SOURCE
The Company operates a rigorous framework of governance,
incorporating a streamlined screening, diligence and execution
process. This includes substantive input from the Company's
Investment Adviser and, as appropriate, external advisers, with the
Company's Board providing robust challenge and scrutiny
INVEST
We seek new investments through our extensive relationships,
knowledge and insights to:
- Enhance long-term, inflation-linked cash flows*
- Provide opportunities to create long-term value and enhance returns
- Ensure ESG is core to the investment process
OPTIMISE
Using the Investment Adviser's highly experienced in-house asset
management team, we seek to actively manage the Company's
investments, balancing risk and return, and using detailed research
and analysis to optimise the Company's financial and ESG
performance
DELIVER
Together with our Investment Adviser's active asset management
of our investments, we aim to deliver strong ongoing asset
performance for stakeholders and achieve target returns from the
portfolio for investors
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
- We seek a portfolio of investments with no or low exposure to
market demand risks and for which financial, macroeconomic,
regulatory, ESG and country risks are well understood and
manageable
- The Investment Adviser has a strong investment team that
originates unique opportunities in line with the Company's
investment strategy
- We continually monitor opportunities to enhance the Company's existing investments
- The Company draws on the Investment Adviser's award-winning
sustainability programme, 'Amber Horizons', to inform areas for
future investment
ACTIVE ASSET MANAGEMENT
- The Investment Adviser has an in-house asset management team
dedicated to managing the Company's investments
- Where possible, through the Investment Adviser, we manage the
day-to-day activities of each of our investments internally
- We carry out extensive monitoring, including asset level board
and management meetings occur on a quarterly basis
- The Company works with public sector clients, partners and
service providers to ensure investments are being managed both
responsibly and efficiently to deliver the required outputs
- We focus on investment stewardship across the portfolio and
recognise the broader value created from our investments
efficient financial management
- Efficient financial management of investment cash flows and working capital
- Maintaining cash covered dividends
- Ensuring cost-effective operations
CONTINUOUS risk management
- Robust risk analysis during investment origination ensures strong portfolio development
- Integrated risk management throughout the investment cycle to support strategic objectives
- Ongoing risk assessment and mitigation ensures successful ongoing performance
RESPONSIBLE INVESTMENT
- Integrated ESG considerations across the investment lifecycle
- Robust ESG objectives to build resilience and drive environmental and social progress
- Upholding high standards of business integrity and governance
VALUE CREATION
investor returns
Continuing to deliver consistent financial returns for investors
through dividend growth* and inflation-linked returns* from
underlying cash flows and provide opportunities for capital
appreciation
PUBLIC SECTOR AND OTHER CLIENTS
Providing responsible investment in infrastructure to support
the delivery of essential public services and broader societal
objectives (e.g. supporting the path to net zero). Our ability to
deliver services and maintain relationships with our clients and
other key stakeholders is vital for the long-term prosperity of
each investment
communities
Delivering sustainable social infrastructure for the benefit of
local communities. The Company's investments provide vital public
assets which strengthen communities, and seek to provide additional
benefits through deploying investment in local economies, for
example via job creation
SUPPLIERS AND THEIR EMPLOYEES
The performance of our service providers, supply chain and their
employees is crucial for the long-term success of our investments.
The Company promotes a progressive approach to:
- Corporate social responsibility
- Safe, healthy, inclusive workplaces
- Opportunities for professional development
- Staff engagement
OBJECTIVES AND PERFORMANCE
The value we provide to our investors is monitored using our Key
Performance Indicators ('KPIs'). The delivery of value to both
investors and our wider stakeholders is achieved by carefully
monitoring our performance against related strategic
priorities.
INVESTOR RETURNS Delivering long-term, - Target an annual - c.2.5% Dividend increase
inflation-linked dividend increase achieved for H1 2022
returns to investors of 2.5% (H1 2021: 2.7%)
- Target a long-term - 7.9% p.a. IRR achieved
total return of since IPO to 30 June 2022(1)
at least 7.0% per (31 December 2021: 7.7% p.a.)
annum
- 0.7% Inflation-linked
returns on a portfolio basis
at 30 June 2022
- Inflation-linked (31 December 2021: 0.7%)
returns on a portfolio
basis
-------------------- ---------------------------- ------------------------ ------------------------------------
Value-focused Originate investments New investments 100% of the investments made
portfolio with stable, long-term meet at least three in H1 2022 met at least three
development cash flows and of six attributes: of the six attributes
potential growth 1. Stable, long-term (H1 2021: 100%)
attributes, whilst returns
maintaining a balanced 2. Inflation-linked
portfolio of assets investor cash flows
3. Early stage
investor
4. Investment secured
through preferential
access
5. Other capital
enhancement attributes
6. Positive SDG
contribution
-------------- ---------------------------------- ------------------------ ------------------------------------
ACTIVE ASSET Managing strong - Strong ongoing - 100% Forecast portfolio
MANAGEMENT ongoing asset performance asset performance distributions received for
as demonstrated H1 2022(2)
by: (H1 2021: 100%)
- 0.1% Asset performance
deductions achieved against
a target of <3% during H1
2022
(H1 2021: 0.1%)
- 99.8% Asset availability
achieved against a target
of >98% during H1 2022
(H1 2021: 99.7%)
Responsible Management of material - Robust integration - A+ The Company's Investment
Investment ESG factors(3) of ESG into investment Adviser's score for the UN-backed
lifecycle PRI 2020 assessment for both
the Strategy and Governance
and the Infrastructure modules(4)
- Positive SDG - 100% Percentage of investments
contribution for in the period that positively
new investments support targets outlined
by the SDGs(5)
-------------- ---------------------------------- ------------------------ ------------------------------------
efficient Making efficient - Cash covered - 1.2x Dividends fully cash
financial use of the Company's dividends covered for H1 2022
management finances and working (H1 2021: 1.3x)
capital - Competitive - 1.09% Ongoing charges
ongoing charges ratio for H1 2022
(H1 2021: 1.25%)
-------------- ---------------------------------- ------------------------ ------------------------------------
1 Calculated by reference to the November 2006 IPO issue price
of 100p and reflecting NAV* appreciation plus dividends paid.
2 Measured by comparing forecast portfolio distributions against
actual portfolio distributions received. In the current year,
actual portfolio distributions exceeded forecast.
3 Please refer to page 36 for additional ESG KPIs that are
linked to the Company's approach to asset management
4 In its first year of participation, the Company's Investment
Adviser achieved A+ in the UN-backed PRI 2020 assessment for both
the strategy and governance and the Infrastructure modules.
5 The Company aims to manage and monitor any potential adverse
impacts as outlined on page 36.
CHAIR'S LETTER
Dear Shareholders,
I am pleased to report another successful six-month period for
the Company to 30 June 2022. INPP has continued to deliver strong
financial and operational performance, with its portfolio of over
140 infrastructure projects and businesses demonstrating resilience
in an uncertain macroeconomic environment.
There have been a number of notable highlights during the
period, including:
(-) Delivering a TSR since IPO in November 2006 to 30 June 2022
of 238.3% or 8.1% on an annualised basis(1)
- The successful completion of a significantly oversubscribed
GBP325 million capital raising, exceeding the initial target of
GBP250 million, demonstrating strong support from both existing and
new shareholders
- Over GBP56 million of new investments and commitments
- Continued strong inflation linkage (0.7%)(2)
- Enhanced ESG considerations including the Company being
classified as an Article 8 financial product under SFDR
The portfolio continues to exhibit resilient cash flows and the
Company remains confident that its business model and investment
objectives remain attractive for its investors.
OPERATIONAL AND FINANCIAL UPDATE
CONSISTENT AND PREDICTABLE RETURNS
Over the six months to 30 June 2022, NAV per share increased by
9.1 pence to 157.3 pence (31 December 2021: 148.2 pence), with the
NAV increasing to GBP3.0 billion. The Company reported a profit for
the six months to 30 June 2022 of GBP219.2 million (30 June 2021:
GBP27.2 million) which reflects the increase in the fair value of
the Company's investments over the period driven by, among other
factors, the updated near-term inflation assumptions and the
revaluation of the Company's investment in Tideway (more
information on these changes can be found on page 17).
I am pleased to also announce that the Company has achieved cash
dividend cover of 1.2x(3) , while delivering further dividend
growth. As a result of the Company's performance, the Board has
declared a dividend of 3.87 pence per share(4) for the six months
to 30 June 2022, in line with its stated dividend target of 7.74
pence per share(5) for the 2022 financial year. This represents
c.2.5% growth on the prior corresponding period and is consistent
with the c.2.5% average annual dividend growth that has been
delivered since the Company's inception. The dividend will be paid
on 18 November 2022. The Board is also pleased to reaffirm its
dividend target for 2022 of 7.74 pence per share and reaffirm its
guidance of 7.93 pence per share for 2023.
INVESTMENT ACTIVITY
Since the beginning of 2022, the Company has made new
investments and investment commitments of GBP56.1 million covering
the transport, digital, education and waste water sectors.
During the period, the Company conditionally agreed to acquire a
further shareholding in Tideway, the London waste water project,
increasing its stake to approximately 18% through the investment of
approximately GBP42 million of additional capital. At the time of
writing, we expect this investment to complete on or around the
publication date of this report. We are very pleased to make this
additional investment in Tideway. The project is seen by the
Company as financially attractive and, moreover, its positive
impact on the environment and strong engagement with local
communities, are closely aligned with the Company's own values as a
responsible investor.
In addition, the Company has announced that financial close had
been reached on Stage 3 of the Gold Coast Light Rail project where
it will make an additional investment totalling c.GBP7.1 million.
The Company's existing investment into Stages 1 and 2 of the
project has seen over 60 million passenger trips, with combined
tram and bus usage increasing 43% across the Gold Coast transport
network since the light rail project opened in 2014, making an
important contribution to reduced reliance on car transport.
Further investments totalling GBP7.0 million were made during
the period, including in a UK public-private partnership ('PPP')
portfolio, Diabolo Rail Link ('Diabolo') and National Digital
Infrastructure Fund ('NDIF') which the Company committed to in July
2017. More information on these investments is available on pages
14 to 15.
Post-period end, minority interests in four Lancashire Building
Schools for Future ('BSF') projects were successfully sold, with
GBP8.5 million being realised, and aligned with the carrying value
on the disposal date. While the sales values were relatively minor
in the context of the overall portfolio, it was nevertheless a
reassuring demonstration of the continued quality of the portfolio.
As part of its active asset management approach and through the
lens of its divestment policy, the Company regularly reviews its
portfolio and, in these cases, determined that a sale was in the
best interests of the Company.
As previously reported, the Company is preferred bidder on two
more offshore transmission projects ('OFTOs') - Moray East and East
Anglia One - which will be the tenth and eleventh OFTO projects in
the Company's portfolio. These projects are progressing well and
continue to be in line with the Company's investment objectives,
with availability-based revenue streams, protected downside and
inflation-linkage. The Company's current OFTO portfolio has the
capacity to transmit enough renewable electricity to power c.2.1
million homes, in support of the UK's transition to net zero. This
will increase to 3.7 million once the two preferred bidder OFTOs
have been acquired. Please see more information on the Company's
investment activity on pages 14 to 15.
Following the successful capital raise, proceeds were partially
utilised to repay the drawn balance on the Corporate Debt Facility
('CDF'), and the remaining capital is earmarked to support the
current pipeline.
PORTFOLIO OVERVIEW
The priority for the Company's Investment Adviser, Amber
Infrastructure, is meeting or exceeding the Company's investment
performance objectives, and creating value for investors and
communities. Its active asset management approach has been
fundamental to the Company's successful performance since IPO in
2006. It is this performance that has enabled the Company to build
a reputation for delivering transparent, responsible stewardship of
public infrastructure assets that support essential services.
The following sets out some key updates over the six months to
30 June 2022.
The Company continues to monitor the energy regulator, Ofgem's,
further consultation on the OFTO regime that will apply once the
contracted revenue period comes to an end. In July 2021, Ofgem
released its first decision document, the contents of which were
consistent with our expectations and, in June 2022, Ofgem released
a second consultation document regarding the potential regulatory
developments underpinning an extension of the OFTO revenue stream.
The Investment Adviser continues to be actively engaged with all
relevant industry stakeholders. All parties recognise that the life
extension of renewable energy assets (including offshore
transmission assets owned by the Company) is required to meet the
UK net zero emissions targets. The consultation is the second in a
proposed multi-part consultation on the end of tender revenue
process and focuses on the regulatory financial arrangements. Ofgem
expects to publish summaries of the non-confidential feedback and
any updates on the issues covered in a further publication in
Autumn 2022. We will seek to keep investors informed of forthcoming
developments.
The Company's Investment Adviser continues to monitor Diabolo,
the strategic rail transportation asset linking Brussels Airport
with Belgium's national rail network, as it recovers from the
reduction in demand as a result of Covid-19 restrictions. Further
to the EUR24 million committed to the project in December 2020,
EUR6.7 million remains available to protect Diabolo's liquidity
position and ensure compliance with its debt covenants. Of the
EUR24 million, EUR17.3 million has been drawn to date, of which
EUR5.0 million(6) was drawn during the period. The extent and
timing of any further cash injections is dependent upon the
trajectory of the recovery in passenger numbers, which at the end
of June were approximately c.85% of pre-Covid levels. The latest
traffic forecast report for Diabolo assumes a return of pre-Covid
levels by 2024. Discussions are continuing with Infrabel, the
Belgian rail network owner, over the implementation of a passenger
fare adjustment which could partially mitigate the impact of lower
passenger numbers.
Cadent continues to actively support the UK Government in
meeting its net zero target, by working on various initiatives to
enable the transition to cleaner fuels, including being shortlisted
by Ofgem to develop the UK's first ever 'hydrogen village', which
is discussed further on page 39. Whilst Cadent is largely insulated
from changes in gas prices and the associated energy price caps,
aside from where the changes can cause timing differences in
certain cash flows, the Company continues to closely monitor the
implications of changes in gas prices and other developments within
the sector.
INVESTMENT STEWARDSHIP AND ESG
The Company considers sustainability and ESG integration to be
fundamental parts of its approach to investment risk management,
investment origination and value creation. During the period, the
Company chose to categorise itself as an Article 8 financial
product, following an internal assessment of the application of the
SFDR.
In line with this new commitment, the Company's Investment
Adviser is further refining its ESG data collection policies and
processes to support enhanced disclosures under SFDR and TCFD. The
aim of this will be to provide investors, and other key
stakeholders, with more granular information about the Company's
ESG risks and opportunities.
The Company's Investment Adviser continues to engage with its
public sector partners and key suppliers to ensure that the
projects and businesses in which the Company invests remain
available and operational to deliver for the communities which they
serve, to the greatest extent possible, whilst protecting the
health and safety of staff and users. For those investments
measured by both availability and performance standards, for the
six months to 30 June 2022, the availability of those assets was
99.8% (30 June 2021: 99.7%) and there were performance deductions
of no more than 0.1% (31 December 2021: 0.1%). Both of these
measures represent outperformance relative to the Company's targets
and are a testament to the Investment Adviser's active asset
management approach.
The social considerations implicit in ESG are as important as
the environmental considerations, recognising that there can be
much overlap between the two. A good example of this would be the
Investment Adviser's activities at one of the Company's social
accommodation investments, where it is working with a specialist
agent to donate equipment no longer required to good causes.
Through this one initiative, over GBP194,000 of in-kind donations
have been made to 10 charities, over 45 tonnes of waste has been
diverted from landfill, and over 61 tonnes of greenhouse gas
emissions have been avoided. Please refer to the Responsible
Investment section on pages 33 to 42 for more information
CORPORATE GOVERNANCE
At the Annual General Meeting ('AGM') in May, Claire Whittet
retired from the Board having completed nine years of service for
the Company, during which time she held various roles including
Senior Independent Director and Chair of the Management Engagement
Commitment. I and my fellow Directors, past and present, would like
to thank Claire for her commitment and highly valued contribution
to the success of the Company during these years.
As a result of her retirement and the importance of ongoing
Board rotation, the following changes in Board responsibilities
took place during the period:
- Meriel Lenfestey was appointed Chair of the Management Engagement Committee;
- John Le Poidevin was appointed to the role of Senior Independent Director; and
- Stephanie Coxon was appointed Chair of the Nomination and
Remuneration Committee, replacing Julia Bond who remains Chair of
the ESG Committee.
In addition, the Company's Board of Directors continue to
actively engage with the Company's portfolio companies and during
the period carried out a Cadent site visit as well as meeting with
Cadent colleagues.
CURRENT ENVIRONMENT AND OUTLOOK
The outlook for infrastructure investment remains strong, and I
am pleased to observe continued positive macro fundamentals that
support the Company's portfolio. Whilst the Company continues to
manage and mitigate risk, the portfolio has further demonstrated
its resilience in the current macroeconomic environment. The result
of the Company's capital raising activities during the period is a
strong indication of the attractiveness of the Company's investment
case and we were encouraged by the support from new and existing
investor groups.
The Company maintains a high-quality pipeline of future
investment opportunities. Through the Investment Adviser, we are
committed to ensuring new and existing investments remain focused
on the key characteristics required to meet the Company's
investment criteria, including yields that are attractive relative
to asset risk profile, the likelihood of long-term stable cash
flows, high barriers to entry to competition, strong ESG
credentials and opportunities to enhance the value of individual
investments and the portfolio overall.
There continues to be a need for infrastructure investment
across the countries in which the Company invests. Governments
internationally have acknowledged the key role infrastructure
spending will play in driving economic recovery, the creation of
jobs and our ability to address key challenges such as climate
change. The sectors in which the Company invests continue to drive
the transition towards climate goals, for example in energy
transition, digital connectivity and social infrastructure. The
Company is also well positioned to take advantage of any future
opportunities that may emerge. As at the current date, the
Company's GBP250 million revolving credit facility was undrawn in
cash terms, with GBP16.4 million committed in respect of letters of
credit to support our investment pipeline. The proceeds of the
capital raise, completed during the period, can be used to support
our current pipeline.
This year has seen rapidly increasing energy prices, growing
concerns about energy security and resurgent general inflation
across the geographies in which the Company invests, much of which
can be traced back to the war in Ukraine and, in the case of
inflation, also to the ongoing fall-out from the Covid-19 pandemic
and the associated global recovery. Whilst the Company is well
positioned to mitigate these risks, it is not insulated from their
effects especially as it relates to the staff of our projects and
investee businesses, their supply chains, users of these
infrastructure assets and their wider stakeholders. At such a time,
the importance of social aspects of our commitment to ESG best
practices, as described above, is clear. For more information
please see the current market and future opportunities section of
this report on pages 16 to 17.
I and my fellow Directors thank you for your continued
support.
Mike Gerrard
Chair
7 September 2022
1 Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
2 Calculated by running a 'plus 1.0%' inflation sensitivity for
each investment and solving each investment's discount rate to
return the original valuation. The inflation-linked return is the
increase in the portfolio weighted average discount rate. Please
refer to pages 29 to 30 for further detail.
3 Cash dividend payments to investors are paid from net
operating cash flow before capital activity as detailed on pages 23
to 24.
4 The forecast date for payment of the dividend relating to the
six months to 30 June 2022 is 18 November 2022.
5 Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
6 An additional EUR0.5 million was drawn post-period end in July 2022.
tOP 10 INVESTMENTS
The Company's top ten investments by fair value at 30 June 2022
are summarised below. A complete listing of the Company's
investments is available on the Company's website (
www.internationalpublicpartnerships.com ).
Status % holding % investment % investment
at at fair value fair value
Name of 30 June 30 June 30 June 31 December SDG
Investment Location Sector 2022 2022(1) 2022 2021 Supported
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Gas 7% Risk
Cadent UK distribution Operational Capital 15.1% 15.5% 9
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Cadent owns four of the UK's eight regional gas distribution networks
('GDNs') and in aggregate provides gas to approximately 11 million
homes and businesses.
----------------------------------------------------------------------------------------------------------------------
Waste Under 16% Risk
Tideway UK water Construction Capital(2) 13.0% 9.1% 6
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Tideway is the trading name of the company that was awarded the licence
to design, build, finance, commission and maintain a new 25km 'super-sewer'
under the River Thames.
----------------------------------------------------------------------------------------------------------------------
100% Risk
Diabolo Belgium Transport Operational Capital 7.3% 7.0% 11
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Diabolo integrates Brussels Airport with the national rail network
allowing passengers to access high-speed trains, such as Amsterdam-Brussels-Paris
and NS International trains.
----------------------------------------------------------------------------------------------------------------------
10% Risk
Angel Trains UK Transport Operational Capital 6.7% 7.1% 11
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Angel Trains is a rolling stock leasing company which owns more than
4,000 vehicles. Angel Trains has invested over GBP5 billion in new
rolling stock and refurbishment since 1994, and is the second largest
investor in the industry after Network Rail.
----------------------------------------------------------------------------------------------------------------------
Energy 100% Risk
Lincs OFTO UK transmission Operational Capital 6.6% 6.9% 7
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
The project connects the 270MW Lincs offshore wind farm, located 8km
off the east coast of England, to the National Grid. The transmission
assets comprise the onshore and offshore substations and under-sea
cables, 100km in length.
----------------------------------------------------------------------------------------------------------------------
100% Risk
Capital
and 100%
Ormonde Energy senior
OFTO UK transmission Operational debt 3.9% 4.2% 7
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
The project connects the 150MW Ormonde offshore wind farm, located
10km off the Cumbrian coast, to the National Grid. The transmission
assets comprise the onshore and offshore substations and under-sea
cables, 41km in length.
----------------------------------------------------------------------------------------------------------------------
Reliance 33% Risk
Rail Australia Transport Operational Capital 3.2% 3.7% 11
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Reliance Rail is responsible for financing, designing, delivering
and ongoing maintenance of 78 next-generation, electrified, 'Waratah'
train sets serving Sydney in New South Wales, Australia.
----------------------------------------------------------------------------------------------------------------------
100% Risk
BeNEX Germany Transport Operational Capital 2.8% 2.8% 11
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
BeNEX is both a rolling stock leasing company as well as an investor
in train operating companies ('TOCs'), providing approximately 42
million train km of annual rail transport.
----------------------------------------------------------------------------------------------------------------------
US Military Military 100% Risk
Housing(3) US housing Operational Capital 2.6% 2.5% 11
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
Two tranches of mezzanine debt underpinned by security over seven
operational PPP military housing projects, relating to a total of
19 operational military bases in the US and comprising c.21,800 individual
housing units.
----------------------------------------------------------------------------------------------------------------------
Beatrice Energy 100% Risk
OFTO UK transmission Operational Capital 1.8% 2.0% 7
-------------- ----------- -------------- -------------- ------------- ------------- ------------- ------------
The project connects the 588MW Beatrice offshore wind farm, located
13.5km off the Caithness coastline of Scotland, to the National Grid.
The transmission assets comprise the onshore and offshore substations,
20km of onshore export cables and 70km of offshore export cables.
----------------------------------------------------------------------------------------------------------------------
1 Risk Capital includes both project level equity and subordinated shareholder debt.
2 Upon completion of the Company's further investment in
Tideway, which was announced in June 2022, the Risk Capital will
increase to approximately 18%.
3 Includes two tranches of mezzanine debt into US military housing.
More detail on significant movements in the Company's portfolio
for the six months to 30 June 2022 can be found on pages 13 to 15
of the 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 that
complement the existing portfolio through enhancing long-term,
inflation-linked cash flows and/or to provide the opportunity for
higher capital growth. The Board regularly reviews the overall
composition of the portfolio to ensure it continues to remain
aligned with the Company's investment objectives and ensure it is
achieving a broad balance of risk in the Company's portfolio.
Desirable key attributes for the portfolio include:
1. Long-term, stable returns
2. Inflation-linked investor cash flows
3. Early stage investor (e.g. the Company is an early stage
investor in a new opportunity developed by our Investment
Adviser)
4. Investment secured through preferential access (e.g. sourced
through pre-emptive rights or through the activities of our
Investment Adviser)
5. Other capital enhancement attributes (e.g. potential for
additional capital growth through 'de-risking' or the potential for
residual/terminal value growth)
6. Positive SDG contribution
Performance against strategic priority KPIs: 100% of investments
made in H1 2022 met at least three of the six attributes (31
December 2021: 100%)
During the six months to 30 June 2022, the Company invested or
made investment commitments up to GBP56.1 million (30 June 2021:
GBP22.3 million). These opportunities were sourced by the
Investment Adviser through existing commitments or increasing its
interest in existing investments. These origination approaches
avoid bidding in the competitive secondary market and are preferred
routes to market for the Company. Details of investment activity
for the six months to 30 June 2022, and post-period end, are
provided below.
The investments made by the Company during the period, meet or
exceed the Company's performance indicator of having at least three
of the required six key investment attributes. Please refer to the
key performance indicators on pages 6 to 7. Further details for
each of these transactions are provided below.
INVESTMENTS LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
MADE DURING STATUS DATE
THE SIX
MONTHS
TO 30 JUNE
2022
1 2 3 4 5 6
-------------------------- ------- ------- ------- ------- ------- ------- ------------ ----------- -----------
UK PPP UK ü ü ü ü Operational GBP1.5 June 2022
Portfolio(1) million
-------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ----------- -----------
Diabolo Belgium ü ü ü Operational GBP4.3 June 2022
million(2,
3)
-------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ----------- -----------
NDIF UK ü ü ü ü Operational GBP1.2 Various
million
-------------- ---------- ------- ------- ------- ------- ------- ------- ------------ ----------- -----------
GBP7.0
million
---------------------------------------------------------------------------------------------- ----------- -----------
INVESTMENT LOCATION KEY ATTRIBUTES OPERATIONAL INVESTMENT INVESTMENT
COMMITMENTS STATUS DATE
MADE DURING
THE SIX
MONTHS
TO 30 JUNE
2022
1 2 3 4 5 6
-------------------------- ------- ------- ------- ------- ------- ------- ------------- ----------- -----------
Gold Coast Australia ü ü ü ü ü In GBP7.1 March 2022
Light construction million(2)
Rail -
Stage
3
Tideway(4) UK ü ü ü ü ü ü In c.GBP42.0 June 2022
construction million
c.GBP49.1
million
------------------------- ------- ------- ------- ------- ------- ------- ------------- ----------- -----------
1 Portfolio includes interests in Durham BSF and Nottingham BSF Phase 1 and Phase 2.
2 GBP translated value of investment.
3 A further GBP0.4 million (EUR0.5 million) was drawn in July
2022, post-period end. In addition, a contingent commitment of
GBP5.8 million (EUR6.7 million) is available, if required.
4 This investment is expected to complete on or around the
publication date of this report.
INVESTMENTS MADE DURING THE PERIOD
Uk PPP portfolio, uk
As previously reported, in December 2021, the Company acquired a
small portfolio of UK PPP investments, including initial interests
in Townlands Community Hospital in Henley, Eltham Community
Hospital and minority interests in BSF projects. Of those, STaG 1
and 2 were acquired in December 2021 with the remainder to be
acquired in 2022. In June 2022, the Company acquired an additional
8% of Durham BSF and an additional 18% of Nottingham BSF phase 1
and phase 2, taking the Company's ownership in each of those three
schemes to 100%. These investments totalled c.GBP1.5 million. The
portfolio was accretive to the Company's returns and provides
education facilities to over 3,880 pupils.
Primary SDG supported: 4
Diabolo, Belgium
Diabolo is a rail infrastructure investment which integrates
Brussels Airport with Belgium's national rail network. The majority
of the revenues generated by Diabolo are linked to passenger use of
either the rail link itself or the wider Belgian rail network.
Accordingly, Diabolo has been impacted by the restrictions on
international travel and national lockdowns implemented in Belgium
as a result of the Covid-19 pandemic and we see the timing of the
recovery of Diabolo as directly linked to the resumption of
pre-pandemic levels of use of Brussels Airport.
As previously disclosed, the Company committed a further EUR24.0
million to the Diabolo project in December 2020, and up to EUR6.7
million remains available to protect Diabolo's liquidity position
and ensure compliance with its debt covenants and, based on current
analysis, this is considered to be adequate. Of the EUR24 million,
EUR17.3 million has been drawn to date, of which EUR5.0 million(1)
was drawn during the period. The extent and timing of any further
cash injections is dependent upon the trajectory of the recovery in
passenger numbers, which at the end of June 2022 were at
approximately c.85% of pre-Covid levels.
Primary SDG supported: 11
DIGITAL INFRASTRUCTURE, UK
In July 2017, the Company agreed to invest up to GBP45 million
in UK digital infrastructure alongside the UK Government, through
NDIF. During the period, an additional GBP1.2 million was approved
for investment into one of NDIF's existing investments, toob. toob
is a UK full fibre broadband provider delivering broadband to
homes, businesses, public service and community groups in the South
of England.
The Company's commitment to digital infrastructure will
contribute to transition the UK to full-fibre at a time when
reliance on digital infrastructure and connectivity continue to be
of the utmost importance. There has been increased recognition that
digital infrastructure is becoming a more defensive asset class as
the critical nature of digital connectivity services has been
amplified by the number of people that are working from home.
Primary SDG supported: 9
INVESTMENT COMMITMENTS MADE DURING THE PERIOD
GOLD COAST LIGHT RAIL - STAGE 3, aUSTRALIA
In March 2022, the Company reached financial close on Stage 3 of
the Gold Coast Light Rail project. Under the terms of the
acquisition the Company will make an investment totalling
approximately A$12.5 million (c.GBP7.1 million at current exchange
rates) in addition to the Company's existing 30% interest. The
project extends the existing Gold Coast Light Rail network (known
as G:link) a further 6.7km south from Broadbeach to Burleigh Heads.
It will include eight new stations, five additional light rail
trams, new bus and light rail connections at Burleigh and Miami,
and an upgrade of existing depot and stabling facilities.
Queensland's only light rail system will have a route 27km long
from Helensvale to Burleigh Heads, stopping at 27 stations and
serviced by 23 trams, at completion of Stage 3 in 2025. This
further investment follows the success of Stages 1 and 2, in which
the Company is invested. Over 60 million passenger trips have taken
place to date and one of the many benefits of the rail system has
been an overall increase in public transport use on the Gold Coast
with a 43% uplift for combined tram and bus use since light rail
opened in 2014.
Primary SDG supported: 11
TIDEWAY, UK
In June 2022, the Company conditionally agreed to acquire a
further shareholding in Tideway. The investment opportunity arose
as a consequence of another existing investor having to dispose of
its stake, due to the maturing of an underlying investment fund.
The investment, which is expected to complete on or around the
publication date of this report, would result in the Company
increasing its stake in Tideway to approximately 18% and deploying
approximately GBP42 million of additional capital. The remainder of
the stake is being acquired by the other continuing investors in
Tideway. Tideway continues to be a successful investment for the
Company and will provide several significant environmental and
social benefits once operational. Please see more information on
pages 19 to 20.
Primary SDG supported: 6
1 An additional EUR0.5 million was drawn post-period end in July 2022.
Current market environment and future opportunities
The portfolio has continued to demonstrate its resilience in the
current macroeconomic environment. The year to date has seen
rapidly increasing energy prices, growing concerns about energy
security and growing inflation across the geographies in which the
Company invests, much of which can be traced back to the war in
Ukraine and, in the case of inflation, also a result of the
Covid-19 pandemic and the global recovery therefrom. Whilst the
Company has shown resilience, it continues to manage and mitigate
risk, whilst carefully monitoring the implications of a higher
inflationary environment and interest rates reaching the highest
level, since early 2009.
The nature of the Company's investments in long-term public and
social infrastructure assets and related businesses, provides its
investors with a stream of relatively predictable and long-term
cash flows; and whilst the duration of this high inflationary
period remains uncertain, we take comfort from the strong
inflation-linked returns of the Company's income streams (0.7%) and
its mitigated exposure to demand risks within the portfolio. Whilst
the Company is well positioned to mitigate these risks, it is not
insulated from their effects on our projects and investee
businesses, their supply chains, users of these infrastructure
assets, their staff and their wider stakeholders.
The need for infrastructure investment across the geographies in
which the Company invests remains strong and investor appetite
remains high for the type of infrastructure assets the Company
invests in. This was demonstrated by both the volume and pricing of
transactions in the market and further supported by the completion
of the Company's capital raise, which was significantly
oversubscribed, indicating strong support from both existing and
new shareholders.
Governments internationally have acknowledged the key role
infrastructure spending will play in driving economic recovery, the
creation of jobs and our ability to address key challenges such as
climate change. Developments in sustainable finance legislation,
including the EU's Taxonomy Regulation, will further guide
investment towards sustainable economic activities, including
infrastructure that supports the transition to net zero.
Initiatives in the geographies where the Company invests support
this, including in the UK, Europe, the US and Australia, for
instance:
- The UK Infrastructure Bank Bill was introduced in May 2022, to
establish a bank which supports the UK reaching its net zero
targets and that will have GBP22 billion of capital resources; the
UK Infrastructure Bank will also draw private sector finance to
invest into sectors the Company targets, including energy, water,
waste, transport and digital;
- The European Commission has announced a number of initiatives,
under the Connecting Europe Facility, including the EU committing
to invest EUR5.4 billion in sustainable, safe and efficient
transport infrastructure;
- The US Bipartisan Infrastructure Law has been secured and the
Biden-Harris Administration has announced over $110 billion to
rebuild roads and bridges, modernise ports and airports, replace
lead pipes to deliver clean water and expand high-speed internet.
The US has a poor infrastructure rating and will require state and
local governments, as well as alternative procurement models such
as Progressive Development, which leverages the expertise of the
private sector, in order to deliver this goal; and
- Australia has announced an additional A$18 billion for
infrastructure projects across the country, and the federal
government's rolling ten-year infrastructure investment has
increased investments from A$110 billion to over A$120 billion to
help drive economic recovery following Covid-19.
The Company maintains a high-quality pipeline of future
investment opportunities. Through the Investment Adviser, we are
committed to ensuring new and existing investments remain focused
on the key characteristics required to meet the Company's
investment criteria, including yields that are attractive relative
to asset risk profile, the likelihood of long-term stable cash
flows, high barriers to entry, strong ESG credentials and
opportunities to enhance the value of investments.
CURRENT PIPELINE
The Company's performance does not depend upon additional
investments to deliver current projected returns. Further
investment opportunities will be judged by their anticipated
contribution to overall portfolio returns relative to risk.
Selected commitments and future opportunities that may be
considered for investment in due course, as identified by the
Investment Adviser, are outlined below.
KNOWN/COMMITTED LOCATION ESTIMATED INVESTMENT(1) EXPECTED INVESTMENT INVESTMENT STATUS
OPPORTUNITIES PERIOD
-------------------- ---------- -------------------------- -------------------- ------------------------
Diabolo Belgium Up to GBP5.8 million(2) 26 years A further contingent
commitment available,
if required
-------------------- ---------- -------------------------- -------------------- ------------------------
Gold Coast Light Australia GBP7.1 million 5 years Investment commitment
Rail - Stage made. Expected
3 to be funded
in 2025
-------------------- ---------- -------------------------- -------------------- ------------------------
UK PPP Portfolio UK Up to GBP1.7m 12-13 years Investment expected
over the course
of 2022
-------------------- ---------- ------------------- ----- -------------------- ------------------------
Tideway(3) UK c.GBP42.0 million 120 years Conditionally
agreed to acquire
a further shareholding
-------------------- ---------- -------------------------- -------------------- ------------------------
Moray East OFTO UK Up to GBP75 million 24 years Preferred bidder.
Investment expected
Q4 2022 / Q1
2023
-------------------- ---------- -------------------------- -------------------- ------------------------
East Anglia UK Up to GBP90 million 21.5 years Preferred bidder.
One OFTO Investment expected
Q4 2022
-------------------- ---------- -------------------------- -------------------- ------------------------
Flinders University Australia GBP9.8 million 25 years Investment commitment
Health and Medical made. Expected
Research Building to be funded
('HMRB') in 2024
-------------------- ---------- -------------------------- -------------------- ------------------------
1 Represents the current commitment or preferred bidder
positions that meet the Company's investment criteria. There is no
certainty that potential opportunities will translate into actual
investments for the Company.
2 The Company has to date invested EUR17.3 million of funding
since making a contingent commitment of EUR24 million and a further
EUR6.7 million (GBP5.8 million) is available, if required.
3 This investment is expected to complete on or around the publication date of this report.
The Company has a longer-term pipeline of investments and has
identified over 30 opportunities across the UK, Europe, North
America and Australia. Future areas of investment may include:
KEY AREAS SOCIAL INFRASTRUCTURE REGULATED UTILITIES TRANSPORT OTHER ESSENTIAL
OF AND MOBILITY INFRASTRUCTURE
FOCUS
------------ --------------------------------- ------------------------------------ -------------------------------------------------- ---------------------------
Example
investments * Education * OFTOs * Government-backed transport including: * Digital connectivity
* Health * Distribution and transmission * Light rail * Energy management
* Justice * Direct procurement * Regional rail
* Other social accommodation
------------ --------------------------------- ------------------------------------ -------------------------------------------------- ---------------------------
ACTIVE ASSET MANAGEMENT
The Company's Investment Adviser has a highly experienced,
well-resourced, dedicated team of over 45 asset managers globally,
as part of the wider pool of over 160 infrastructure professionals
with a presence across 13 countries within the UK, Europe,
Australia and North America. The Company's Investment Adviser
operates a full-service approach to infrastructure, and this
includes day-to-day asset management, oversight and optimisation of
the Company's investments. The Investment Adviser's priority is to
meet or exceed asset performance, creating value for investors and
the communities in which the investments are based. This approach
has been fundamental to the Company's performance since IPO in
2006. It is this performance that has enabled the Company to build
a reputation of delivering transparent, responsible and sustainable
stewardship of public and social infrastructure assets that support
essential services.
OPERATIONAL PERFORMANCE
The Company's Investment Adviser adopts a hands-on approach to
monitoring asset performance, utilising robust internal processes
and the expertise of a dedicated global asset management team based
in the geographies in which the Company invests. Whilst the
Investment Adviser's involvement varies depending on each
investment type, each investment is actively managed to optimise
performance. During H1 2022, 100% of forecast investment portfolio
receipts were received (H1 2021: 100.0%)(1) .
The Company has a weighted average investment life of c.37 years
and for those assets where it is applicable, the Company's
Investment Adviser actively monitors investments within the
portfolio to ensure that conditions for the hand-back of
investments are met on completion of the project contract, or at
the end of the expected investment holding period.
Infrastructure projects and businesses inherently involve health
and safety risk both during construction and whilst operational.
The health and safety of the clients, delivery partners, employees
and members of the public who come into contact with our assets are
of the utmost importance to the Company, and we accord the highest
priority to health and safety. The Company's accident frequency
rate for occupational accidents that resulted in lost time was low
at 0.34 per 100,000 hours worked as at 30 June 2022(2) (30 June
2021: 0.34 per 100,000 hours worked). Health and safety data is
reported and evaluated on a quarterly basis, and includes hours
worked, minor injuries, near misses, critical incidents and the
number of lost time injuries which occurred as a result of work
activities.
Performance against strategic priority KPIs:
100% Forecast distributions received(1)
99.8% Asset availability achieved against a target of
>98%
PPP PROJECTS
PPP projects account for 39%(3) of the Company's portfolio (by
investment at fair value), and the Company's Investment Adviser has
extensive experience in this sector, having been responsible for
the development of the majority of the PPP projects in the
Company's portfolio. Key deliverables for the Company include
ensuring that the facilities are available for their intended use,
that areas are safe and secure, and that the performance standards
set out in the underlying agreements are achieved. The Company's
Investment Adviser works closely with its partners to ensure these
standards are met. For those investments, measured by both
availability and performance, for the six months to 30 June 2022
the availability of those assets was 99.8% (30 June 2021: 99.7%)
and across all projects there were performance deductions of 0.1%
(30 June 2021: 0.1%), both exceeding the Company's targets.
In addition, the Company's public sector clients commissioned
and funded over 528 contract variations during the period,
resulting in over GBP7.0 million of additional project work
conducted on behalf of the commissioning bodies. The completed
changes during the period ranged from cleaning regimes to
supporting operational assets throughout the pandemic within the
education and healthcare facilities, to the delivery of significant
transport facility upgrades.
1 Measured by comparing forecast portfolio distributions against
actual portfolio distributions received.
2 This includes UK social accommodation (where the Investment
Adviser provides oversight of the management services), BSF
minority, NDIF, Cadent, Tideway and all investments in Germany,
Australia and Canada.
3 This includes availability-based PPPs, Diabolo and US Military
Housing.
Diabolo
Diabolo is a rail infrastructure investment which integrates
Brussels Airport with Belgium's national rail network. The majority
of the revenues generated by Diabolo are linked to passenger use of
either the rail link itself or the wider Belgian rail network.
Accordingly, Diabolo has been impacted by the restrictions on
international travel and national lockdowns implemented in Belgium
as a result of the Covid-19 pandemic and we see the timing of the
recovery of Diabolo as directly linked to the resumption of
pre-pandemic levels of use of Brussels Airport.
As previously disclosed, the Company committed a further EUR24.0
million to Diabolo in December 2020, up to EUR6.7 million remains
available to protect Diabolo's liquidity position and ensure
compliance with its debt covenants and, based on current analysis,
this is considered to be adequate. The extent and timing of any
further cash injections is dependent upon the trajectory of the
recovery in passenger numbers, which at the end of June were
approximately c.85% of pre-Covid levels.
The latest traffic forecast report for Diabolo assumes a return
of pre-Covid levels by 2024. Discussions are continuing with
Infrabel, the Belgian rail network owner, over the implementation
of a passenger fare adjustment which could partially mitigate the
impact of lower passenger numbers.
More positively, the duration of our investment, with the
concession not expiring until 2047, the high levels of historic
passenger use, continued high levels of operational performance,
the positive and engaged relationship with the Belgian railway
authorities and our ability to influence revenues through the
passenger fare adjustment mechanism, all give us confidence for the
future recovery and performance of this investment.
Regulated investments
The Company invests in a number of regulated investments,
including OFTOs, Cadent and Tideway. The Company owns 100% of each
of its OFTO investments and whilst the Company does not hold
majority positions in Cadent or Tideway, the Company engages
through its Investment Adviser's board director positions and
membership of committees. The Company's Investment Adviser actively
works with respective boards to maintain alignment and focus on
strategic goals to drive financial and operational best practice
and ensure effective risk management.
OFTOs
In June 2022, Ofgem released a second consultation document
regarding the potential regulatory developments underpinning an
extension of the OFTO revenue stream. The Investment Adviser
continues to be actively engaged with all relevant industry
stakeholders. All parties recognise that the life extension of
renewable energy assets (including offshore transmission assets
owned by the Company) is required to meet the UK net zero emissions
targets. The consultation is the second in a proposed multi-part
consultation on the end of tender revenue process and focuses on
the regulatory financial arrangements. In particular, it seeks
stakeholders' views on the use of competition to determine future
OFTO licensees and revenues, the valuation of OFTO assets and
future period revenue incentive design. Ofgem expects to publish
summaries of the non-confidential feedback and any updates on the
issues covered in a further publication in Autumn 2022. The
Investment Adviser will seek to keep investors informed of
forthcoming developments.
Tideway
Tideway is building a 25km 'super sewer' under the River Thames
to create a healthier environment for London by cleaning up the
city's greatest natural asset. During the period, Tideway reached
the end of the primary tunnelling phase which was a key milestone
for the project and over half of the secondary lining had been
completed by the end of the period. Overall construction works were
80% complete at the end of June 2022 with the focus now principally
on completion of the secondary lining as well as the system
commissioning phase. The estimated cost of the project is currently
GBP4.3 billion representing a 2% increase since costs were last
reported but importantly, the cost to Thames Water customers
remains well within the initial estimate provided at the outset of
the project.
The amendments to Tideway's licence that were agreed with the
regulator in order to mitigate the impact of both Covid-19 related
cost overruns and the Financing Cost Adjustment Mechanism came into
effect in March 2022. These amendments provide greater certainty
for the business and have been reflected within the forecast cash
flows.
As announced in June 2022, the Company has conditionally agreed
to acquire a further shareholding in Tideway, and is expected to
complete on or around the publication date of this report. This
opportunity arose as a consequence of another existing investor,
DIF Capital Partners, having to dispose of its stake as an
underlying investment fund is approaching the end of its life. The
additional stake is being acquired together with the other
continuing investors in Tideway. The investment will result in the
Company increasing its stake in Tideway to approximately 18% and
deploying approximately GBP42 million of additional capital.
Cadent
Cadent is the UK's largest gas distribution network, serving 11
million homes and businesses, and is the Company's largest
investment by fair value, representing 15.1% of the Company's
portfolio by fair value. Cadent continues to actively support the
UK Government in meeting its net zero target by working on various
initiatives to enable the transition to cleaner fuels. During the
period, Cadent's proposal to convert 2,000 homes in Ellesmere Port,
Whitby, from natural gas to hydrogen, was shortlisted by Ofgem to
be the UK's first ever 'hydrogen village'. If Ellesmere Port is
confirmed as the preferred location, the 2,000 homes will be
supplied with hydrogen for heating and cooking fuel from 2025.
Whilst Cadent is largely insulated from changes in gas prices
and the associated energy price caps, aside from where the changes
can cause timing differences in certain cash flows, the Company
continues to closely monitor the implications of changes in gas
prices and other developments in the sector.
OTHER Operating businesses
The Company invests in a number of operating businesses
including BeNEX, Angel Trains and digital infrastructure
businesses. The Investment Adviser holds a board position on each
of its operating businesses and uses these positions to influence
and strengthen company policies and procedures; for example,
enhancing ESG credentials, ensuring health and safety is the top
priority, as well as protecting value and mitigating operational
risk.
BeNEX
BeNEX generates revenues through the contractual leasing of its
rolling stock to TOCs as well as through its investments in TOCs
themselves. Only a minority of BeNEX's annual revenues (currently
less than 20%) are linked to passenger numbers and therefore whilst
Germany, like many other countries, continued to see a reduction in
the number of people using public transport during H1 2022 as a
result of Covid-19, the financial impact on BeNEX was limited.
In addition, BeNEX continues to receive compensation from the
Federal Government and/or the relevant Federal State for the vast
majority of revenues lost as a result of the disruption caused by
Covid-19. By the end of H1 2022, passenger numbers observed by the
TOCs in which BeNEX is invested were broadly back to pre-pandemic
levels.
Angel Trains
Angel Trains generates the majority of its revenues from the
contractual leasing of its rolling stock to TOCs and therefore its
revenues have continued to be largely unaffected by Covid-19.
Unlike the TOCs, Angel Trains is not involved in or directly
impacted by any of the disputes underpinning the industrial action
that occurred during the period but will continue to monitor the
situation and support TOCs where possible.
During the period, Angel Trains successfully acquired the
Readypower Group - a specialist rail and infrastructure services
provider that supplies specialised on and off-track plant equipment
as well as other maintenance and operating services to the UK rail
sector. Readypower plays a crucial role in the maintenance and
modernisation of the UK rail network and is supporting various
infrastructure improvement projects across the UK. The acquisition
is evidence of Angel Trains' wider commitment to investing in and
supporting the UK rail industry.
Digital Infrastructure
The Company's Investment Adviser continues to actively monitor
the four businesses in which the Company is invested (via NDIF),
including Community Fibre, Airband, NextGenAccess and toob. During
H1 2022, these businesses have continued to capitalise on the
increased consumer and business demand for high bandwidth full
fibre connectivity, gaining momentum and market share in their
respective markets. Full fibre roll-out continues to ramp up for
several businesses in which NDIF is invested, with strong progress
being made in scaling their fibre deployment and commercialisation
capabilities.
COUNTERPARTY RISK
Counterparty risk exists to some extent across all investments;
however, the risk is particularly significant when considered in
relation to PPPs which have a long-term fixed-price contract with a
facilities management provider. The Company has a diverse exposure
to service providers across its portfolio and the Investment
Adviser's asset management team ensures counterparty risk is
actively managed and mitigated. The chart below illustrates the
Company's service providers (by investment fair value),
highlighting the diversification across the portfolio.
During the period, all of the Company's facilities have remained
operational and available for use, with no disruptions to normal
service delivery, aside from the Royal Melbourne Showgrounds. This
site, up until Q2 2022, had been used as a testing and vaccination
centre, but is currently temporarily closed upon instruction from
the public sector client. Events are expected to resume during Q3
2022.
In response to the challenges posed by Covid-19, and more
recently rising inflation and interest rates, the Company's
Investment Adviser has continued to monitor each counterparty at an
increased frequency to ensure that any issues are identified as
soon as possible such that, where necessary, corrective actions can
be undertaken in a timely manner.
INPP Service Providers
[Chart can be found within the PDF document of the report on the
company website.]
Two of the Company's counterparties (Equans and OCS) are,
separately, the subject of acquisitions. The proposed transactions
demonstrate that the UK facilities management sector continues to
be attractive. While it is anticipated that the completion of these
transactions should not affect the day-to-day operation of the
assets, the Company's Investment Adviser will closely monitor the
affected facilities during and after the transition period to
mitigate the risk of any disruptions.
The Investment Adviser takes a holistic approach to monitoring
counterparty risk. A key aspect of the Investment Adviser's risk
management activities is a focus on the early identification of
signs that a counterparty is encountering problems through regular
contract performance monitoring and internal performance
benchmarking of contracts, in-depth reviews of counterparty
financial and market data, information available in the trade press
and drawing upon the Investment Adviser's contacts in the industry
for other non-public information. Through contingency planning and
identifying any increased counterparty risk early, it allows for
corrective measures identified in the contingency plans to be taken
early, mitigating potential losses to the Company. Those measures
may include working more closely with the contractor to support it
in its efforts to improve contract performance or, ultimately, the
implementation of the full contingency plan designed to facilitate
the replacement of that contractor.
Ultimately, the Company's desire is to see its service providers
succeed and to deliver a high-quality service and the Investment
Adviser makes all efforts to ensure this is achieved. However,
where a subcontractor does fail, the Investment Adviser has the
necessary processes and procedures in place to mitigate and manage
the risk to the Company.
PROJECTS UNDER CONSTRUCTION
The Investment Adviser's asset management team has extensive
experience and possesses the key skillsets needed to successfully
deliver projects through construction and throughout the
operational phase. The Company has a strong track record of
delivering construction projects safely, on time, to budget and to
a high-quality by understanding the project environment and the
potential risks that may occur. The team works closely with the
contractors, technical advisers and management companies, where
applicable, throughout the construction in order to deliver the
expected project performance and create value for investors and
communities. As at 30 June 2022, there were three investments under
construction; Tideway, HMRB and Gold Coast Light Rail - Stage
3.
During the six months to 30 June 2022, Tideway made good
progress on the construction of the tunnel and the associated
infrastructure. Overall construction works were 80% complete at the
end of the period and, in April 2022, Tideway reached the end of
its tunnelling phase which was a key milestone for the project.
More than 90% of the excavated soil removed during the tunnelling
phase was transported from site by barge to disposal and beneficial
reuse sites, keeping lorries off the road and hence providing
substantial environmental and health and safety benefits. The
tunnel now constructed runs 25km from east to west London and
handover of operations to Thames Water is expected to occur in
March 2025 following the completion of the secondary lining and
system commissioning.
The HMRB is the flagship development of the Flinders Village
project, an integrated health and education precinct development at
Flinders University's Bedford Park campus, in Australia. The HMRB
will co-locate research, clinical and technological platforms to
further the University's longstanding contributions to the health,
education and medical sectors. The building of the HMRB commenced
in December 2021 and is expected to complete in 2024.
Gold Coast Light Rail - Stage 3 reached financial close during
the period. The project extends the existing Gold Coast Light Rail
network a further 6.7km south from Broadbeach to Burleigh Heads. It
will include eight new stations, five additional light rail trams,
new bus and light rail connections at Burleigh and Miami, and an
upgrade of existing depot and stabling facilities. Completion is
expected in 2025.
The Company has three projects under construction as at 30 June
2022, as set out in the table below.
ASSET LOCATION CONSTRUCTION DEFECTS COMPLETION STATUS AT PERIOD % OF INVESTMENT
COMPLETION DATE AT FAIR
DATE VALUE
------------------ ----------- -------------- ------------------- ------------------ ----------------
Behind original
Tideway UK 2025(1) 2028 schedule(2) 13.0%
------------------ ----------- -------------- ------------------- ------------------ ----------------
HMRB Australia 2024 N/A(3) On schedule 0.0%(4)
------------------ ----------- -------------- ------------------- ------------------ ----------------
Gold Coast Light
Rail - Stage 3 Australia 2025 2027 On schedule 0.0%(4)
------------------ ----------- -------------- ------------------- ------------------ ----------------
1 Scheduled handover date.
2 Handover is currently scheduled for March 2025, which is 12
months later than the original schedule. The delay can largely be
attributed to the impact of Covid-19.
3 This is not applicable as the authority is assuming all risk
associated with the construction work that is being undertaken.
4 The Company's investment is only due to be made following
construction completion. The valuation of the commitment is
currently immaterial.
efficient FINANCIAL MANAGEMENT
The Company aims to manage its finances efficiently, to provide
the financial flexibility to pursue new investment opportunities,
whilst minimising levels of unutilised cash holdings. Efficient
financial management is achieved through actively monitoring cash
held and generated from operations, ensuring cash covered dividends
and managed levels of corporate costs. This is supported by
appropriate hedging strategies and prudent use of the CDF.
During the period, the Company achieved its objective to
generate dividends paid to investors through its operating cash
flows. Cash dividends paid in the period of GBP62.0 million (H1
2021: GBP55.2 million), were 1.2 times (H1 2021: 1.3 times) covered
by the Company's net operating cash flows before capital activity*.
Cash receipts from investments were GBP91.4 million (H1 2021:
GBP87.1 million), reflecting the continued good operational
performance of the portfolio. The Company expects the current
higher levels of inflation to contribute to an increase in cash
flows from investments. However, there is typically a delay before
the impact of changes in inflation is seen in these cash flows,
owing to the timing of the indexation mechanisms within the
contracts held by the portfolio companies as well as the
distribution schedules adopted by such portfolio companies.
Corporate costs were effectively managed during the period and
ongoing charges were 1.09% for the six-month period ended 30 June
2022 (H1 2021: 1.25%), a decrease in part due to the increase in
average NAV over the period. Corporate costs include management
fees of GBP13.7 million for the period to 30 June 2022 (H1 2021:
GBP13.0 million).
As outlined on page 48 of the financial statements, IFRS profit
before tax of GBP219.2 million was reported (H1 2021: GBP27.2
million). The increase in profit in the year is principally
reflective of the unrealised fair value gain on the portfolio in
the year.
The Company's cash balance as at 30 June 2022 was GBP224.7
million, an increase on the year-end balance at 31 December 2021 of
GBP168.6 million underpinned by strong portfolio performance and
proceeds from capital raising. As detailed in note 12 of the
financial statements, as well as on page 13 of the Operating Review
earlier in this report, GBP7.0 million of new capital was invested
during the period (H1 2021: GBP22.3 million). Proceeds of capital
raisings in the period net of issue costs were GBP320.2m (H1 2021:
GBPnil). Proceeds were used in part to pay down the cash drawn
balance on the Company's CDF, with the remaining amount to be
deployed in the Company's investment pipeline (see page 17).
At 30 June 2022, the Company's CDF was nil cash drawn (31
December 2021: GBP156.2 million cash drawn), with GBP16.4 million
drawn under letter of credit (31 December 2021: GBP9.3 million
drawn under letter of credit). Net financing costs paid were GBP1.8
million, (H1 2021: GBP3.3 million) reflecting the level of
utilisation of the Company's CDF during the period. The facility is
structured to support the Company's near-term pipeline, with GBP250
million available on a fully committed basis, with a flexible
'accordion' component which will, subject to lender approval, allow
for a future extension by an additional GBP150 million. The
facility is available for drawdown until March 2024. The banking
group for the facility consists of National Australia Bank, the
Royal Bank of Scotland International, Sumitomo Mitsui Banking
Corporation and Barclays Bank.
Performance against strategic priority KPIs:
1.2x Dividends fully cash covered (H1 2021: 1.3x)
1.09% Ongoing charges ratio (H1 2021: 1.25%)
SUMMARY OF CASH FLOWS
SUMMARY OF CONSOLIDATED Six months Six months to YEAR TO 31 DECEMBER
CASH FLOW to 30 June 30 June 2021 2021
2022 GBP million GBP MILLION
GBP million
Opening cash balance 56.1 44.3 44.3
Cash from investments 91.4 87.1 167.9
Corporate costs (for ongoing
charges ratio) (15.1) (14.7) (28.5)
Net financing costs (1.8) (3.3) (4.8)
============================== ============= ============= ===================
Net operating cash flows
before capital activity(1) 74.5 69.1 134.6
============================== ============= ============= ===================
Cost of new investments (7.0) (22.3) (252.7)
Investment transaction costs (0.9) (0.1) (3.0)
Net movement of CDF (156.2) 17.6 117.8
Proceeds of capital raising
(net of costs) 320.2 - 133.6
Dividends paid (62.0) (55.2) (118.5)
Closing cash balance 224.7 53.4 56.1
============================== ============= ============= ===================
Cash dividend cover 1.2x 1.3x 1.1x
============================== ============= ============= ===================
1 Net operating cash flows before capital activity as disclosed
above of c.74.5 million (30 June 2021: c.GBP69.1 million) include
net repayments from Investments at Fair Value through profit or
loss of c.GBP25.2 million (30 June 2021: c.GBP30.8 million), and
finance costs paid of c.GBP1.8 million (30 June 2021: c.GBP3.3
million) and exclude investment transaction costs of c.GBP0.9
million (30 June 2021: c.GBP0.1 million) when compared to net cash
inflows from operations of c.GBP49.1 million (30 June 2021:
c.GBP41.9 million) as disclosed in the consolidated cash flow
statement on page 51 of the financial statements.
CASH FLOWS ASSOCIATED WITH ONGOING CHARGES RATIO
CORPORATE COSTS Six months to 30 Six months to YEAR TO 31 DECEMBER
June 2022 30 June 2021 2021
GBP million GBP million GBP MILLION
Management fees (13.7) (13.0) (25.7)
Audit fees (0.2) (0.4) (1.0)(1)
Directors' fees (0.2) (0.2) (0.4)
Other running costs (1.0) (1.1) (1.4)
===================== ================= ============= ===================
Corporate costs (15.1) (14.7) (28.5)
===================== ================= ============= ===================
ONGOING CHARGES RATIO Six months to 30 Six months to YEAR TO 31
June 2022 30 June 2021 DECEMBER 2021
GBP million GBP million GBP MILLION
Annualised ongoing
charges(1) (30.2) (29.4) (28.5)
Average NAV(2) 2,767.5 2,351.0 2,423.2
Ongoing charges (1.09%) (1.25%) (1.18%)
======================= ================= ============= ==============
1 The Ongoing Charges ratio was prepared in accordance with the
Association of Investment Companies' ('AIC') recommended
methodology, noting this excludes non-recurring costs.
2 Average of published NAVs for the relevant period.
INVESTOR RETURNS
DIVID GROWTH
The Company targets predictable and, where possible, growing
dividends. During the period, the Company paid a dividend of 3.77
pence per share in respect of the six months ended 31 December
2021. This brought the total dividends paid in respect of 2021 to
7.55 pence per share, consistent with forward guidance provided
previously. As illustrated in the chart on page 2, the Company has
delivered a c.2.5% average annual dividend increase since the IPO.
The Company is currently maintaining its previously announced
dividend targets of 7.74 pence and 7.93 pence per share in respect
of 2022 and 2023, respectively(1) .
TOTAL SHAREHOLDER RETURN ('TSR')
The Company's annualised TSR since the IPO to 30 June 2022 was
8.1%(2) . This compares to the annualised FTSE All-Share index TSR
over the same period of 5.1%. The total return based on the NAV
appreciation plus dividends paid since the IPO to 30 June 2022 is
7.9%(3) on an annualised basis compared to the Company's long-term
target of 7.0%(3) .
As shown in the share price performance graph below, the Company
has historically exhibited relatively low levels of correlation
with the market. Whilst the correlation in 2020 increased owing to
the impacts of Covid-19 on economies and financial markets
worldwide, it has since reduced to pre-pandemic levels. For
reference, the correlation with the FTSE All-Share index was 0.27
over the 12 months to 30 June 2022 which compares to 0.18 over the
12 months to 30 June 2019 (being the most recent comparable
12-month period prior to the outbreak of Covid-19).
Performance against strategic priority KPIs:
7.9% p.a. IRR achieved since IPO(3) (31 December 2021: 7.7%)
Share Price Performance
[Diagram can be found in PDF version of this document on the
Company's website].
Inflation-linked cash flows
In an environment where investors are focused on achieving
long-term real rates of return on their investments, inflation
protection is an important consideration for the Company. At 30
June 2022, the majority of assets in the portfolio had some degree
of inflation-linkage and, in aggregate, the weighted average return
of the portfolio (before fund-level costs) would be expected to
increase by 0.7% per annum in response to a 1.00% per annum
increase in all of the assumed inflation rates(4) .
1 Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in
future.
2 Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
3 Calculated by reference to the November 2006 IPO issue price
of 100 pence and reflecting NAV appreciation plus dividends
paid.
4 Calculated by running a 'plus 1.00%' inflation sensitivity for
each investment and solving each investment's discount rate to
return the original valuation. The inflation-linkage is the
increase in the portfolio weighted average discount rate.
VALUATIONS
NAV
The NAV represents the fair value of the Company's investments
plus the value of other net assets or liabilities held within the
Group. The fair values of the Company's investments are determined
by the Board, with the benefit of advice from the Investment
Adviser, and are reviewed by the Company's auditor on a sample
basis. The Company reports an 18.9% increase in NAV from GBP2,528.8
million at 31 December 2021 to GBP3,006.2 million at 30 June 2022.
Over the same period, the NAV per share increased by 6.1% from
148.2 pence to 157.3 pence. The key drivers of the change in NAV
are described in more detail below.
NAV Movements (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
The movements seen in the chart above are explained further
below:
- During the period, the Company raised additional equity
totalling GBP325.0 million (GBP320.2 million net of issuance costs)
by way of a Placing, Open Offer, Offer for Subscription and
Intermediaries Offer of Ordinary Share Capital
- The yields on the government bonds used as part of the
valuation process increased during the period, resulting in a net
GBP218.2 million decrease in the NAV
- The negative impact of the increase in government bond yields
was more than offset by changes to the investment risk premia
designed to ensure that the valuations continue to reflect recent
market-based evidence of pricing for infrastructure investments.
This includes a reduction in the discount rate used to value the
Company's investment in Tideway to ensure the valuation reflects
the price indicated by the transaction announced in June 2022 (see
page 15 for further details). The net impact of these adjustments
on the NAV was GBP231.7 million
- In line with forward guidance provided previously, a cash
dividend of 3.77 pence per share was paid to the Company's
shareholders during the six months to 30 June 2022, totalling
GBP62.0 million. This dividend was paid in respect of the six
months ended 31 December 2021
- During the period, Sterling weakened against the Australian
Dollar, Euro, US Dollar, Canadian Dollar and the Danish Krone
(these being the five foreign currencies the Company is exposed
to). Including the change in the value of the forward foreign
exchange contracts, the net positive impact on the NAV was GBP27.5
million with the most significant impact seen on the Company's
Australian Dollar-denominated investments
- Inflation assumptions across all applicable geographies were
increased in the near-term as inflation is expected to remain above
the Company's longer term inflation assumptions throughout 2022 and
2023. Further details of these changes to inflation assumptions can
be seen from the table on page 29 and in aggregate these had a
positive GBP95.4 million impact on the NAV; and
- Among other things, the NAV Return of GBP82.8 million captures the impact of the following:
- Unwinding of the discount rate
- Return generated from the portfolio's strong inflation-linkage
where actual inflation rates were higher than the Company's
assumptions for the period
- Updated operating assumptions to reflect current expectations of forecast cash flows
- Actual distributions received above the forecast amount due to
active management of the Company's portfolio; and
- Changes in the Company's working capital position
INVESTMENTS AT FAIR VALUE
The Investments at Fair Value represents the fair value of the
Company's investments without consideration of the other net assets
or liabilities held within the Group which are captured within the
NAV. The Company reports a 5.8% increase in the Investments at Fair
Value, from GBP2,579.4 million at 31 December 2021 to GBP2,728.2
million at 30 June 2022. The key drivers of the change in the
Investments at Fair Value are described in more detail below.
Investments at Fair Value Movements (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
The movements seen in the chart above are explained further
below.
- An increase of GBP7.0 million owing to new investments made during the period
- A decrease of GBP91.4 million due to distributions paid out
from the portfolio during the period
- The Rebased Investments at Fair Value of GBP2,495.0 million is
presented in order to allow an assessment of the Portfolio Return
assuming that the investments and distributions occurred at the
start of the relevant period
- The Portfolio Return of GBP93.2 million captures broadly the
same items as the NAV Return (set out in detail on page 26) with
the principal exception being the fund-level operating costs and
portfolio working capital movements
- The majority of the discount rates used by the Company to
value its investments were increased slightly during the period,
principally to reflect higher inflation expectations (the impact is
mitigated by the inflation-linked nature of the cash flows).
However, the impact of these movements was more than offset by the
accretive impact of a reduction in the discount rate used to value
the Company's investment in Tideway which was made to ensure the
valuation reflects the price indicated by the transaction announced
in June 2022 (see page 15 for further details). This adjustment
resulted in a c.GBP85.0 million increase in the valuation of
Tideway. The net positive impact of these movements on the
Investments at Fair Value is GBP13.5 million.
- During the period, Sterling weakened against the Australian
Dollar, Euro, US Dollar, Canadian Dollar and the Danish Krone
(these being the five foreign currencies the Company is exposed
to). The positive impact on the Investments at Fair Value was
GBP31.1 million with the most significant impact seen on the
Company's Australian Dollar-denominated investments and
- Inflation assumptions across all applicable geographies were
increased in the near-term as inflation is expected to remain above
the Company's longer term inflation assumptions throughout 2022 and
2023. Further details of these changes to inflation assumptions can
be seen from the table on page 29 and in aggregate these had a
positive GBP95.4 million impact on Investments at Fair Value
PROJECTED CASH FLOWS
The Company's investments are generally expected to continue to
exhibit predictable cash flows, owing to the principally contracted
or regulated nature of the underlying cash flows. As the Company
has a large degree of visibility over the forecast cash flows of
its current investments, the chart below sets out the Company's
forecast investment receipts from its current portfolio before
fund-level costs.
The majority of the forecast investment receipts are in the form
of dividends or interest and principal payments from subordinated
and senior debt investments. The Company's portfolio comprises both
investments with finite lives (determined by concession or licence
terms) and perpetual investments that may be held for a much longer
term. Over the term of investments with finite lives, the Company's
receipts from these investments effectively represent a return of
capital as well as income, and the fair value of such investments
is expected to reduce to zero over time.
Projected Investment Receipts (GBPm)
[Diagram can be found in PDF version of this document on the
Company's website].
Macroeconomic Assumptions
The Company reviews the macroeconomic assumptions underlying its
forecasts on a regular basis. Following a thorough market
assessment, it was resolved that certain adjustments should be made
to the inflation rates, and foreign exchange rates used to value
the Company's overseas assets. Inflation assumptions across all
applicable geographies were increased in the near-term as inflation
is expected to remain above the Company's longer term assumptions
throughout 2022 and 2023.
The key macroeconomic assumptions used as the basis for deriving
the Company's investment valuations are summarised below, with
further details provided in note 9 of the financial statements.
MACROECONOMIC ASSUMPTIONS 30 june 2022 31 December 2021
--------------------------- ----------- --------------------- -----------------
Inflation rates UK RPI: 9.00% (2022), 2.75% RPI
5.00% (2023), 2.75%
thereafter
CPIH: 7.00% (2022),
4.00% (2023), 2.00% 2.00% CPIH
thereafter
Australia 5.00% (2022), 2.50% 2.50%
thereafter
Europe 6.00% (2022), 2.00% 2.00%
thereafter
Canada 3.00% (2022), 2.00% 2.00%
thereafter
US(1) N/A N/A
--------------------------- ----------- --------------------- -----------------
Long-term deposit rates(2) UK 1.00% 1.00%
Australia 2.00% 2.00%
Europe 0.50% 0.50%
Canada 1.50% 1.50%
US(1) N/A N/A
--------------------------- ----------- --------------------- -----------------
Foreign exchange rates GBP/AUD 1.76 1.86
GBP/DKK 8.65 8.86
GBP/EUR 1.16 1.19
GBP/CAD 1.57 1.72
GBP/USD 1.21 1.35
--------------------------- ----------- --------------------- -----------------
Tax rates(3) UK 19.00%/25.00%(4) 19.00%/25.00%(4)
Australia 30.00% 30.00%
Europe Various (12.50% - Various (12.50%
Canada 32.28%) - 32.28%)
US(1) Various (23.00% - Various (23.00%
26.50%) - 26.50%)
N/A N/A
--------------------------- ----------- --------------------- -----------------
1 The Company's US investment is in the form of subordinated
debt and therefore not directly impacted by inflation, deposit and
tax rate assumptions.
2 The portfolio valuation assumes actual current deposit rates
are maintained until 31 December 2023 before adjusting to the
long-term rates noted in the table above from 1 January 2024.
3 Tax rates reflect those substantively enacted as at the
valuation date or those that could reasonably be expected to be
substantively enacted shortly after the valuation date.
4 The UK Government announced a corporate tax rate of 25%
applicable from 1 April 2023 at the Spring Budget 2021.
Discount Rates
The discount rate used to value each investment comprises the
appropriate long-term government bond yield plus an
investment-specific risk premium which reflects the risks and
opportunities associated with that particular investment and is
designed to ensure that the resulting valuation reflects prevailing
market conditions.
The majority of the Company's portfolio (92.2%) comprises Risk
Capital investments, while the remaining portion (7.8%) comprises
senior debt investments. To provide investors with a greater level
of transparency, the Company publishes both a Risk Capital weighted
average discount rate and a portfolio weighted average discount
rate - the latter of which captures the discount rates of all
investments including the senior debt interests.
The weighted average discount rates are presented in the table
overleaf.
31 DECEMBER
30 JUNE 2022 2021 MOVEMENT
------------------------------------- ------------- ------------ ---------
Weighted average government bond
yield - portfolio 1.82% 0.96% 86bps
------------------------------------- ------------- ------------ ---------
Weighted average investment premium
- portfolio 5.29% 6.01% (72bps)
------------------------------------- ------------- ------------ ---------
Weighted average discount rate
- portfolio 7.11% 6.97% 14bps
------------------------------------- ------------- ------------ ---------
Weighted average discount rate
- risk capital 7.40% 7.38% 2bps
------------------------------------- ------------- ------------ ---------
The Company is aware that there are differences in approach to
the valuation of investments among listed infrastructure funds
similar to the Company. In the Company's view, comparisons of
discount rates between different listed infrastructure funds are
only meaningful if there is a comparable level of confidence in the
quality of forecast cash flows (i.e. assumptions are homogenous);
the risk and return characteristics of different investment
portfolios are understood; and allowance is made for differences in
the quality of asset management employed to manage risk and deliver
returns. Any focus on average discount rates without an assessment
of these and other factors would be incomplete and could therefore
lead to misleading conclusions.
VALUATION SENSITIVITIES
This section indicates the sensitivity of the 30 June 2022 NAV
per share of 157.3 pence to changes in key assumptions. Further
details can be found in note 9.5 of the financial statements. This
analysis is provided as an indication of the potential impact of
these assumptions on the NAV per share on the unlikely basis that
the changes occur uniformly across the remaining life of the
portfolio. The movement in each assumption could be higher or lower
than presented. Further, forecasting the impact of these
assumptions on the NAV in isolation cannot be relied on as an
accurate guide to the future performance of the Company as many
other factors and variables will combine to determine what actual
future returns are available. These sensitivities should therefore
be used only for general guidance and not as an accurate prediction
of outcomes.
Estimated impact of changes in key variables on the 30 June 2022
NAV of 157.3 pence per Share
[Diagram can be found in PDF version of this document on the
Company's website].
DISCOUNT RATES
The chart above indicates the sensitivity of the NAV per share
to uniform changes to the discount rates applied to the forecast
cash flows from each individual investment.
INFLATION
The impact of inflation on the value of each investment depends
upon the extent to which the revenues and costs of that particular
investment are linked to an inflation index. On a portfolio basis,
there is a positive correlation to inflation with a 1.00% sustained
increase in the assumed inflation rates projected to generate a
0.7% increase in returns (31 December 2021: 0.7%). The returns
generated by the Company's non-UK investments are typically linked
to the relevant Consumer Price Index ('CPI') for that jurisdiction
whilst the Company's UK investments are typically linked to
variations of the Retail Price Index ('RPI') or CPIH (CPI including
owner occupied housing costs).
Given the ongoing higher-inflation environment, two additional
NAV sensitivities have now been prepared (as seen in the chart
opposite) to allow investors to understand the estimated impact,
other things being equal, of higher inflation rates sustained over
a three-year period of 100bps and 200bps above the Company's
current inflation assumptions as seen on page 30.
In anticipation of the UK Government's previously announced
intention to align the RPI to the CPIH from 2030 onwards, the
inflation assumption used for UK investments which are currently
linked to the RPI and do not benefit from protective contractual
agreements or regulatory precedents, was previously adjusted to
align with the Company's CPIH assumption from 2030. For the
avoidance of doubt, the impact of this approach on the NAV is
negligible. Furthermore, the inflation sensitivities by
geographical region are provided in note 9.5 of the financial
statements.
Short-term inflation sensitivities as at 30 June 2022
[Diagram can be found in PDF version of this document on the
Company's website].
FOREIGN EXCHANGE
The Company has a geographically diverse portfolio and forecast
cash flows from investments are subject to foreign exchange rate
risk in relation to Australian Dollars, Canadian Dollars, Danish
Krone, Euros and US Dollars. The Company seeks to mitigate the
impact of foreign exchange rate changes on near-term cash flows by
entering into forward contracts, but the Company does not hedge
exposure to foreign exchange rate risk on long-term cash flows. The
impact of a 10% increase or decrease in these rates is provided for
illustration.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across
the portfolio is 1.03% per annum. While operating cash balances
tend to be low given the structured nature of the investments,
project finance structures typically include reserve accounts to
mitigate certain costs and therefore variations to deposit rates
may impact valuations. The impact of a 1.00% increase or decrease
in these rates is provided for illustration.
TAX RATES
Post-tax investment cash inflows are impacted by tax rates
across all relevant jurisdictions. The impact of a 1.00% increase
or decrease in these rates is provided for illustration. Other
potential tax changes are not covered by this scenario.
LIFECYCLE SP
There is a process of renewal required to keep physical assets
fit for use and the proportion of total cost that represents this
'lifecycle spend' will depend on the nature of the asset.
PPPs will typically need to ensure that the assets are kept at
the standard required of them under agreements with relevant public
sector counterparties. To enhance the certainty around cash flows,
the majority of the Company's PPP investments, and all of the
Company's OFTO investments, are currently structured such that
lifecycle cost risk is taken by a subcontractor for a fixed price
(isolating equity investors from such downside risk). As a result,
the impact of changes to the forecast lifecycle costs for the
Company's PPP investments is relatively small.
The Company's investments in rolling stock leasing or operating
businesses, or businesses providing digital infrastructure, are
also distinct from PPPs which have fixed revenue streams from which
they need to pay lifecycle costs. These businesses will still
expect to incur lifecycle costs but will typically aim to recover
any changes in lifecycle costs through the prices they charge their
end-users.
Tideway and Cadent are treated differently due to the
protections offered by the regulatory regimes under which they
operate. Regulated assets have their revenues determined for a
known regulatory period and each settlement includes revenue
sufficient to allow the owner to undertake the efficient lifecycle
management of its assets due in that regulatory period. It is
common practice to employ reputable subcontractors to undertake
lifecycle work under contracts which include incentive and penalty
regimes aligned with the businesses' regulatory targets. This
approach ensures an alignment of interest and helps to mitigate the
risk of increased lifecycle costs falling on the equity investor.
Accordingly, no lifecycle sensitivity has been run in respect of
the Company's investments in Tideway and Cadent.
The impact of a 10% increase or decrease in the lifecycle costs
incurred by the Company's PPPs, OFTOs and operating businesses is
provided for illustration.
PRINCIPAL and emerging RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the
Company through continual review, policy setting and enforcement of
contractual obligations. It also regularly monitors the investment
environment and the management of the Company's portfolio. The
Company's approach to risk is set out in the Risk Report in the
2021 Annual Report and financial statements (pages 50 to 62), the
Risk Report includes an overview of the principal and emerging
risks and their mitigation. Risk factors are also detailed further
in the Company's last Prospectus (the Placing, Open Offer and Offer
for Subscription and Intermediaries Offer Prospectus published on 8
April 2022). As noted within the Annual Report, the war in Ukraine
has created geopolitical unrest as well as some volatility in
financial markets. Additionally, the implications from rising
inflation and higher interest rates are causing further
uncertainty. However, despite these developments, due to its risk
nature, the Company's portfolio continues to operate in line with
our expectations. Therefore, the assessment of the risk environment
for the Company remains unchanged and there have been no
significant changes in the nature or assessment of the principal
and emerging risks reported in the 2021 Annual Report and financial
statements. These risks and uncertainties are expected to remain
relevant to the Company for the next six months of
its financial year and include (but are not limited to):
- Political and regulatory risk - the businesses in which the
Company invests are subject to potential changes in policy and
legal requirements
- Asset performance and physical asset risk - the Company's
ability to meet investment return targets is affected by the
performance of the assets in its portfolio
- Counterparty risk - the Company's investments are dependent on
the performance of a series of counterparties to contracts
- Macroeconomic risk - the Company's ability to meet target
returns may be adversely or positively impacted by macroeconomic
changes including inflation, foreign exchange and interest rate
movements
- Contract risk - the ability of counterparties to operate
contracts to the detriment of the Company and the risk of default
under contract whether by the Company, its subsidiaries or their
counterparties
- Climate change - a risk which has the potential to impact
infrastructure assets through such effects as physical damage as a
result of extreme weather, change in demand and usage and impact
from new regulatory requirements; and
- Other risks - including other regulatory risks (including tax
and accounting policies and practices) associated with the Company
and its projects, financial forecasting, IT and cyber risks;
Covid-19-related risks; supply chain management; and changes in the
competitive environment which may have an adverse impacts on the
Company.
The Board considers and reviews, on a regular basis, the risks
to which the Company is exposed.
By order of the Board
Mike Gerrard John Le Poidevin
Chair Director
7 September 2022 7 September 2022
RESPONSIBLE INVESTMENT
RESPONSIBLE INVESTMENT
APPROACH
The Company believes that the financial performance of its
investments is linked to environmental and social success and, as
such, the Company considers issues that have the potential to
impact the performance of its investments, both now and in the
future.
Consideration of ESG drivers is an essential part of how the
Company assesses the long-term viability of the investments that it
makes and its associated asset management strategies. ESG drivers
are non-financial factors that can influence and be influenced by
the Company's business activities and include factors such as
climate change, demographics, resources, technology and social
values.
ESG is important to the Company for the following key
reasons:
- ESG drivers present an opportunity for new markets and investments;
- Incorporating ESG into the Company's management processes
supports its high standards of financial rigour and requirements
for long-term financial performance; and
- By investing in infrastructure and associated businesses, the
Company can meaningfully support sustainable development.
The Company's approach to sustainability and ESG integration is
described in more detail in its 2021 Sustainability Report(1) .
POLICY
The Company has a common ESG Policy(2) with its Investment
Adviser. It defines the objectives and approach to embedding ESG in
investments, operations, and the communities in which the Company's
investments operate.
GOVERNANCE
THE ROLE OF THE BOARD AND COMMITTEES
The Board has overall responsibility for ensuring ESG is fully
integrated into all aspects of the investment strategy. To support
it in this role, the Board established an ESG Committee in March
2021. The ESG Committee provides a forum for discussion, support
and challenge, with respect to ESG. This includes the policies
adopted by the Company in relation to both investments and
divestments and by its Investment Adviser regarding its asset
management and reporting activities on such matters that relate to
the Company. The ESG Committee meets quarterly, and its full Terms
of Reference can be found on the Company's website(3) .
In addition to the ESG Committee, ESG factors are considered
through the following committees:
- Investment Committee : The Company's Investment Committee
ensures ESG has been appropriately considered in the investment and
divestment processes and provides a robust challenge to the
Investment Adviser on such processes;
- Audit and Risk Committee : The Company's Audit and Risk
Committee oversees the Company's approach to ESG disclosures and
reporting to its stakeholders and ensures all risk management
frameworks consider material ESG risks (e.g. climate change);
and
- Management Engagement Committee : The Company's Management Engagement Committee reviews the effectiveness of ESG integration by the Investment Adviser.
For more information, please refer to the 2021 Company's
Sustainability Report, which can be found on the Company's
website(1) .
ROLE OF THE INVESTMENT ADVISER
The Company's Investment Adviser is responsible for implementing
the Company's ESG policies into the Company's activities on a
day-to-day basis. This includes the integration of ESG
considerations through investment origination and the management of
the Company's investments.
Amber's Executive Committee is responsible for the stewardship
of Amber's business and affairs. The Executive Committee discharges
its sustainability responsibilities directly through its internal
Risk Committee, ESG Steering Committee and Corporate Social
Responsibility ('CSR') Sub-Committee.
Amber's ESG Steering Committee also interfaces with the
Company's ESG Committee, ensuring the Company can monitor its ESG
performance, and is kept abreast of emerging ESG risks and
opportunities, such as climate change, to inform its strategy.
For more information, please refer to Amber's Global
Sustainability Report(4) .
1
https://www.internationalpublicpartnerships.com/media/2471/inpp-2021-sustainability-report.pdf
2 https://www.amberinfrastructure.com/media/2231/esg-policy_final.pdf.
3 https://www.internationalpublicpartnerships.com/media/2391/inp p-esgc-tor-march-21.pdf.
4 https://www.amberinfrastructure.com/media/2699/amber-2022-sustainability-report.pdf
SUSTAINABILITY AND ESG FRAMEWORKS
To deliver the ESG Policy and guide the Company's ESG strategy,
the Company draws on several frameworks and benchmarks to provide
direction. These frameworks are reviewed on an annual basis to
ensure that the Company remains fully transparent in its approach
to sustainable investment, operations and reporting.
Sustainable Finance Disclosure Regulation
The SFDR is the EU Regulation governing ESG disclosure obligations
for financial market participants ('FMPs') who market financial
products to clients in the European Union. The Company satisfies
the two-pronged criteria set out in the SFDR and therefore has obligations
under the Disclosure Regulation:
* As a self-managed alternative investment fund ('AIF'),
the Company is categorised as an Alternative
Investment Fund Manager ('AIFM') pursuant to the
Alternative Investment Fund Managers Directive,
thereby qualifying as an FMP for the purposes of SFDR
* The marketing in certain EU countries by the Company,
as part of its recent capital raise, qualifies as
marketing a financial product ('FP') into the
European Union, by virtue of the Company being an AIF
itself
Therefore, the Company has categorised itself as an 'Article 8'
financial product, which was communicated in the Company's prospectus,
published in April 2022(1) . The Company has also published a website
disclosure in accordance with the Level 1 requirements of the SFDR
regulation(2) . To align with the periodic reporting timeframes
for SFDR, the Company has elected to disclose all relevant sustainability
and ESG disclosures in line with the 2022 year-end financial reporting
cycle. This will include the Level 2 SFDR periodic reporting, alongside
updates against the sustainability and ESG frameworks listed below.
The Company's Investment Adviser is updating its ESG data collection
policies and processes on behalf of the Company, which will incorporate
the disclosure requirements of the SFDR regulation, metrics recommended
by the TCFD and other material ESG indicators . The finalised data
collection system will be rolled out at year-end, to collect ESG
performance data from the Company's investments for the 2022 reporting
period, to be included in the Company's 2023 Annual Report and updated
Sustainability Report.
Ambition
The Company believes that investing in infrastructure which
supports a sustainable, prosperous, equitable and resilient society
should deliver robust financial performance for its shareholders.
It is supportive of the 2030 Agenda for Sustainable Development
adopted by the UN Member States in 2015. Alongside the research of
its Investment Adviser into emerging trends and technologies, the
Company draws on the SDGs to help guide its approach to
sustainability.
ESG integration
The Company's Investment Adviser became a signatory of the PRI
in August 2019. The Company's investment-related activities, as
overseen by the Investment Adviser, are in line with commitments to
the PRI Principles.
The Company is pleased to report that its Investment Adviser
obtained an A+ ranking for both the Strategy and Governance and the
Infrastructure modules in 2020. There are continued delays to the
PRI reporting module, which means an update on scoring is now
expected in the Company's next Sustainability Report.
Climate change
Climate change presents both transitional and physical risks to
the Company's investments. As such, it continues to be a high
priority for the Company. The Company is aligning all new
investments with the objectives of the Paris Agreement and has
commenced the process of adopting the TCFD recommendations.
The Company is continuing efforts to enhance its approach and
disclosures according to the TCFD Guidelines. Please see more
information on pages 40 to 42.
Infrastructure performance standards
The Company recognises its biggest impact on sustainable
development is through its investments, which are wide-ranging in
their nature. The Company's priority is to ensure it focuses on
material issues for each sector in which it invests, and it draws
on international industry practice to help identify what is
important for each sector.
Where possible, the Company draws on recognised third-party
benchmarks to serve as a proxy for assessing whether an investment
meets or manages material sustainability factors.
1
https://www.internationalpublicpartnerships.com/news-media/press-releases/2021/placing-open-offer-and-offer-for-subscription-and-publication-of-prospectus-and-circular/
2
https://www.internationalpublicpartnerships.com/media/2629/amber-sfdr-website-disclosures.pdf
IMPACT
By investing in the 'right type' of infrastructure, the Company
believes its investments can significantly support the targets set
out by the SDGs. For each investment sector, the Company has
identified which SDGs its investments are positively supporting.
The Company's contribution to the SDGs at the macro level is
summarised below(1) .
SDG Contribution Impact SDG Portfolio
alignment(2)
---- ------------------------------------------- --------------------------------- --------------
Good Health and Wellbeing.
The Company has investments
in 38 health facilities, including >544,000
the award-winning Royal Children's Patients treated annually
Hospital in Melbourne, providing in healthcare facilities
access to quality essential developed and maintained
3 health-care services. by the Company 4%
---- ------------------------------------------- --------------------------------- --------------
37,000,000m(3)
Clean Water and Sanitation. The three components of
The Thames Tideway Tunnel is the London Tideway improvements
the biggest infrastructure work conjunctively to
project undertaken to date reduce discharges in a
by the privatised UK water typical year by about
6 industry. 37 million cubic metres(3) 13%
---- ------------------------------------------- --------------------------------- --------------
Industry, Innovation and Infrastructure.
Investing in resilient infrastructure
is at the heart of what we
do. The Company's portfolio 131,000km
is invested into quality, reliable, Length of gas transportation
9 sustainable and resilient infrastructure. pipeline 19%
---- ------------------------------------------- --------------------------------- --------------
Peace, Justice and Strong
Institutions. Through the provision
of high-quality judicial buildings,
the Company is supporting effective, 13
accountable, and transparent Police Stations and Judicial
16 institutions at all levels. buildings 4%
---- ------------------------------------------- --------------------------------- --------------
Quality Education. Good infrastructure
is at the base of quality education.
By investing directly in 269
education facilities, and maintaining >168,000
them sustainably, the Company Students attending schools
can support effective learning developed and maintained
4 environments for all. by the Company 16%
---- ------------------------------------------- --------------------------------- --------------
Affordable and Clean Energy. >2,100,000
Through the Company's investments Homes capable of being
in offshore transmission investments, powered by renewable energy
we are supporting the provision transmitted through offshore
7 of affordable and clean energy. transmission investments 21%
---- ------------------------------------------- --------------------------------- --------------
Sustainable Cities and Communities.
The Company's investments in >93,000,000
transport provide safe, affordable, Annual passenger journeys
accessible and sustainable through sustainable transport
11 transportation. investments(4) 23%
---- ------------------------------------------- --------------------------------- --------------
1 Data reflects performance for the year to 31 December 2021.
2 Investment at Fair Value.
3 https://www.tideway.london/media/5097/j0115_sustainable-finance-report-vis7a-2.pdf
4 Annual passenger journeys include those made on BeNEX, Diabolo,
Gold Coast and Reliance Rail.
SUSTAINABLE MANAGEMENT
The Company's metrics against the SDGs illustrate the breadth of
positive social impacts its portfolio of investments can deliver.
The Company seeks to improve the sustainability performance of its
investments and closely monitors and manages against any potential
adverse impacts. Further details on the Company's approach to
sustainable management, including its Sustainability Policy Aims
can be found in the Sustainability Report located on the Company's
website(1) .
The Company is in the process of significantly updating its ESG
data collection processes, to incorporate SFDR, the EU Taxonomy and
TCFD. The updated ESG data collection tool will be rolled out
across the Company's investment portfolio in the first quarter of
2023, to collect data for the 2022 reporting period. The Company's
next standalone Sustainability Report is due to be published in
2023, to incorporate these enhanced ESG metrics, including its
portfolio carbon footprint.
As previously reported, in 2021, the Company developed a set of
preliminary KPIs(2) , which support the Company in delivering its
ESG Policy Objectives and provide an important stepping-stone
towards enhanced KPIs that the Company will develop, following the
update to its ESG data collection processes. These KPIs, along with
case studies of the Company's approach to active management over
the period, are detailed below and on the following pages.
POLICY OBJECTIVE KPI TARGET 30 JUNE 2022 31 DEC 2021
---------------------------------- ----------------------------------------------- ------ ------------ -----------
The Company will use ESG drivers
to create investment 1. Contribution to Sustainable Development
opportunities in new and existing Goals. Positive SDG contribution for new
markets investments(3) 100% 100% 100%
---------------------------------- ----------------------------------------------- ------ ------------ -----------
The Company will identify and 2. Investment Adviser ESG Integration A+ A+ (2020) A+ (2020)
integrate ESG factors into all Performance . Investment Adviser PRI score
aspects of its investment,
development
and management decision making and
analysis to protect and enhance
value
---------------------------------- ----------------------------------------------- ------ ------------ -----------
3. Robust corporate governance. Investments
with appropriate policies and procedures
concerning:
* Health and safety
* Sustainability
* Equality, Diversity and Inclusion
* Modern Slavery and Human Rights
The Company will actively work * Conflicts of interest
towards improving the
environmental and social
performance * Anti-corruption and financial crime risk
of its investments by focusing on
material ESG issues and
Sustainable Development Goals * Tax and transparency 100% 99% 96%
---------------------------------- ----------------------------------------------- ------ ------------ -----------
4. Environmental performance. Investments with appropriate systems and processes
in place
to improve environmental performance. Specific indicators include:
4.1 Investments with an environmental management system
4.2 Investments with initiatives to improve environmental performance of material
issues 100% 98% 95%
---------------------------------------------------------------------------------- ------ ------------ -----------
100% 84% 79%
---------------------------------------------------------------------------------- ------ ------------ -----------
5. Health and safety performance. Investments with appropriate systems and
processes in place
to improve health and safety performance. Specific indicators include:
5.1 Investments with health and safety management system
5.2 Investments with initiatives to improve health and safety performance 100% 100% 97%
---------------------------------------------------------------------------------- ------ ------------ -----------
100% 99% 93%
---------------------------------------------------------------------------------- ------ ------------ -----------
6. Greenhouse gas management. Investments with appropriate systems and processes
in place
to support management of energy efficiency and greenhouse gases. Specific
indicators include:
6.1 Investments monitoring Scope 1 and 2 emissions
6.2 Investments with initiatives to improve energy efficiency and greenhouse gas
performance 100% 98% 94%
---------------------------------------------------------------------------------- ------ ------------ -----------
100% 90% 88%
---------------------------------------------------------------------------------- ------ ------------ -----------
1
https://www.internationalpublicpartnerships.com/media/2471/inpp-2021-sustainability-report.pdf.
2 KPIs apply to all investments where the Company has a majority
equity investment, or a minority equity holding over GBP2
million.
3 The Company aims to manage and monitor any potential adverse
impacts of investments as per KPIs 3, 4, 5 and 6.
Energy transmission
As the impacts of a changing climate become more apparent to our
society and the solutions more urgent, it has never been more
important to transition towards efficient, sustainable energy
systems. Offshore wind generation is a success story for the UK.
Long-term government support has underpinned innovation and
investment in the sector, helping to drive down costs while
contributing to decarbonisation of the economy.
impact
Homes capable of being powered by renewable >2.1 million SDG 7
energy transmitted by OFTOs
Transmission capacity 2.5GW SDG 7
case study
Sustainability aim - Encourage a zero-harm culture across all
investments.
Transmission Capital Services Limited ('TCSL') (a consortium
comprising the Company, the Company's Investment Adviser and
Transmission Capital Partners), acquire and manage Electrical
Infrastructure assets, including the nine OFTO investments it has
made on behalf of the Company. TCSL believes that all work-related
injuries and illnesses are preventable, and no activity should be
dangerous.
TCSL is committed to prevention of injury and ill health and
continual improvement in Operational Health and Safety ('OH&S')
management and performance. TCSL is committed to the protection of
the health, safety and welfare of its employees whilst they are at
work. This protection also extends to invited visitors and
contractors whilst on company premises or others who may be
affected by TCSL activities.
TCSL has a good safety record and since formal recording started
in 2018 and has not recorded any Lost time incidents incurred in
26,000 internal and 24,000 contractor site based working hours.
SOCIAL INFRASTRUCTURE
Social infrastructure is pivotal to the development of
sustainable communities. While the provision of housing, clean
water and electricity are vital for meeting basic human needs,
other services such as schools and healthcare facilities are
equally important for ensuring the long-term wellbeing of
people.
impact
Pupils >168,000 SDG 4
Patients >544,000 SDG 3
Police stations and judicial buildings 13 SDG 16
Full-time equivalent employees >3,700 SDG 8
CASE STUDY
Sustainability aim - Reduce consumption of natural resources,
work towards elimination of waste to landfill and move towards a
circular economy
The Company is committed to identifying ways to improve resource
efficiency and support the communities in which it works. During
the course of 2022, through its Investment Adviser, the Company has
worked with the specialist agent Collecteco to support local
communities through the donation of fixtures, fittings and
equipment no longer suitable for use in social infrastructure
investments.
Collecteco partners with companies across the UK to generate
social value, net zero and circular economy benefits by donating
furniture and equipment to charities, schools, community groups,
NHS trusts and other not for profit good causes.
During the period, this has resulted in the following positive
impacts through our approach to asset management:
- GBP194,070 value donated to the community
- 10 good causes supported
- 61,335kg CO(2) e avoided (61 tCO(2) e)
- 45,141kg diverted from landfill (45 tonnes)
TRANSPORT
Well-planned and coordinated transport infrastructure is
fundamental to the economic and social wellbeing of a community. It
is also becoming increasingly important to combat climate change
and has been identified as a crucial part of net zero carbon
strategies emerging internationally.
impact
Annual passenger journeys(1) >93 million SDG 11
Annual train km travelled >799 million SDG 11
Full time equivalent employees >2,300 SDG 8
CASE STUDY
Sustainability aim - Reduce consumption of natural resources,
work towards elimination of waste to landfill and move towards a
circular economy
Having categorised as an Article 8 Financial Product, the
Company has integrated these requirements into periodic reporting
at the investment level. This is well demonstrated through the
Company's BeNEX investment.
As a company that both leases rolling stock and invests in TOCs,
BeNEX provided a good opportunity to pilot the new SFDR and
Taxonomy regulatory frameworks on a complex investment.
The Company's Investment Adviser supported the BeNEX management
board to identify relevant ESG indicators to capture both positive
and potential adverse impacts of its business and to determine
potential compliance with the EU Taxonomy. Initial data from the
first half of 2022 is provided below. This includes positive impact
data, Principal Adverse Impact data (as defined by SFDR) and
Taxonomy alignment. Following a review of the delegated act, the
initial estimates are that 69% of BeNEX's revenues are from
activities that meet the EU Taxonomy's technical criteria for
making a 'substantial contribution to climate change mitigation',
with the remaining 31% being classified as 'transitional
activities' which support the transition towards a net zero
economy.
This exercise is being undertaken across the Company's
investments and will be used to disclose SFDR-aligned
portfolio-level disclosures in the next Sustainability Report.
WASTE WATER
Environmental infrastructure provides cities and towns with
water supply, waste disposal and pollution control services. These
municipal works serve two important purposes, including protecting
human health and safeguarding environmental quality.
impact
Diverted waste water discharges when >37m million SDG 6
operational m(3)
New public space following construction 3 acres SDG 11
Full-time equivalent employees >2,100 SDG 8
CASE STUDY
Sustainability aim - Consider biodiversity and enhance it where
possible
By reducing waste water flowing into the Thames, Tideway will
provide significant benefits for biodiversity once operational. As
part its legacy programme Tideway has funded research into the
ecology of the tidal Thames - the fish, seals and other species
that call the river home. Some of these reports establish baseline
data which will provide comparisons for future research into the
river and its wildlife. This programme was completed in the
period.
One of the studies which was funded includes The Zoological
Society for London ('ZSL') ongoing programme of marine mammal
monitoring and undertaking annual seal population surveys. In 2018,
Tideway contributed funds to enable a seal breeding survey to take
place that year for the first time since 2011. The survey showed
clear evidence that harbour seals are breeding in growing numbers
in the river - a total of 138 pups were recorded during the
pup-count, an increase at all sites compared with 2011. More
information is available on ZSL's website(2) .
1 Annual passenger journeys include those made on BeNEX,
Diabolo, Gold Coast and Reliance Rail.
2 https://www.zsl.org/conservation/regions/uk-europe/thames-marine-mammal-conservation
GAS DISTRIBUTION
Gas distribution infrastructure plays a critical role in
delivering energy to keep customers safe, warm and connected,
whether that is natural gas, biogas or hydrogen. Cadent's network
of gas pipes will play a vital role in meeting Britain's future
energy needs and delivering the UK's net zero strategy. The network
is a national asset consisting of over 130,000 km of pipework,
connected to 11 million homes; fuelling industrial sites and
supplying domestic gas turbines.
impact
Maximum energy throughput 5.7 million SDG 9
GJ/day
Homes and businesses connected to gas >11 million SDG 11
Full-time equivalent employees >5,000 SDG 8
CASE STUDY
Sustainability aim - Reduce carbon emissions to work towards
alignment with the goals of the Paris Agreement
Hydrogen will play an essential role in the UK's effort to
achieve net zero by 2050, as a low-carbon fuel for the
decarbonisation of heat, power and vehicles. UK homes currently
rely on natural gas for heating and cooking; however, hydrogen gas
is viable alternative with the potential to significantly reduce
domestic carbon emissions.
Over the period, the Company is pleased that Cadent's proposal
to convert Ellesmere Port into the UK's first hydrogen village has
made Ofgem's shortlist (of two). It will focus on the possibility
of converting around 2,000 homes in Whitby, Ellesmere Port to
hydrogen from natural gas. This is a key milestone in converting to
a low carbon hydrogen network to demonstrate how hydrogen can be
used at scale to cut emissions from heating and cooking. If
Ellesmere Port is confirmed as the preferred location, the project
will begin supplying Ellesmere Port with hydrogen in 2025.
DIGITAL INFRASTRUCTURE
Digital infrastructure underpins the potential of the internet.
Over the next few decades, digital networks will be the enabling
infrastructure that helps drive economic growth and productivity.
The recent Covid-19 crisis underlines this, where remote working
has been a financial and social lifeline to millions of businesses
and families.
impact
Premises passed >870,000 SDG 9
Premises connected >93,000 SDG 11
CASE STUDY
Sustainability aim - Ensure investments are accessible to the
widest group of users and available to serve local communities
In an increasingly digital age, those who are not engaging
effectively with the digital world are at risk of being left
behind. Technological change means that digital skills are
increasingly important for connecting with others, accessing
information and services and meeting the changing demands of the
workplace and economy.
As part of NDIF investment, Community Fibre's mission to bring
faster broadband to all Londoners, it offers 1 Gbps full fibre
broadband to some of the community centres and libraries in the
London boroughs it operates in for free. The hubs selected are the
heart of community life. A free high-quality connection means that
both work and leisure activities can happen seamlessly for the
centre's attendees.
So far Community Fibre has connected over 300 community centres
to London's fastest full fibre broadband network, providing access
to 1 Gbps Internet. Further connections are planned in the coming
months.
CLIMATE-RELATED FINANCIAL DISCLOSURES
Climate change presents both transitional and physical risks to
the Company's investments. As such, it continues to be a high
priority for the Company which, accordingly, is voluntarily working
to achieve alignment with the recommendations of the TCFD. As
previously reported, during 2020, the Company's Investment Adviser
commissioned an external third-party to undertake a review of the
Company's current practices and make recommendations as to how the
Company can enhance its approach and disclosures in accordance with
the TCFD Guidelines.
Climate change is considered alongside other ESG risks by the
Company's ESG Committee, Investment Committee and Audit and Risk
Committee. During the period, the Company commissioned an
additional third-party to support the enhancement of its approach
to assessing physical and transition climate risks and
opportunities across its portfolio, in line with TCFD
recommendations. The results of this analysis are due to be
published in the Company's 2023 Annual Report and updated
Sustainability Report.
Although there is no mandatory requirement for the Company to
adopt or explain areas of non-compliance with the framework, the
Company aims to integrate climate risk assessment consistently
within investment decision-making and risk management processes,
for existing and future investments.
The table below shows a summary of our progress to date against
the TCFD recommendations.
GOVERNANCE
Disclose the organisation's governance around climate-related risks
and opportunities.
a) Describe the board's The Board sets the strategy for the Company
oversight of climate-related and makes decisions on changes to the portfolio
risks and opportunities (including approval of acq uisitions, disposals
and valuations). Through Board committees ,
and the advice of external independent advisers,
it manages the governance and risks of the
Company.
The Board has overall responsibility for ESG
and ensuring it is integrated into the Company's
investment strategy, including in relation
to climate change. The Board maintains oversight
of climate risk in the following ways:
* Investment Committee: The Company's Investment
Committee ensures climate change risks and
opportunities have been appropriately considered
through the investment and divestment processes and
provides a robust challenge to the Investment Adviser
* Audit and Risk Committee: The Company's Audit and
Risk Committee oversees the Company's approach to ESG
disclosures and ensures all risk management
frameworks consider material climate change
disclosures. Risks are reviewed quarterly, including
climate change risks
* ESG Committee: The Company's ESG Committee monitors
its approach to climate cha nge, including
consideration of climate change strategy, disclosures
and targets
The Company's Investment Adviser is responsible
for implementing the Company's ESG policies
into the Company's activities on a day-to-day
basis. This includes the integration of ESG,
and specifically climate change, considerations
through investment origination and management
of the Company's investments.
b) Describe management's
role in assessing and
managing climate-related
risks and opportunities
STRATEGY
Disclose the actual and potential impacts of climate-related risks
and opportunities on the organisation's businesses, strategy, and
financial planning where such information is material.
a) Describe the climate-related Both the risks and opportunities presented
risks and opportunities by climate change are a key focus for the Board.
the organisation has The Company has strengthened the alignment
identified over the of its investment activity with the objectives
short, medium and long-term of the Paris Agreement. In practice the Company
has a greater formal emphasis on:
* Enhanced screening and due diligence processes to
ensure new investments are aligned, or can directly
support, the transition to net zero
* Fuller deployment of emerging policy and frameworks,
such as the UK ten-point plan and EU Taxonomy, to
help guide investment decision making; and
* Increased cooperation with public counterparties to
reduce emissions from existing investments, and to
ensure that all assets continue to help deliver on
international commitments.
The Company's investments are located in the
UK, Ireland, continental Europe, North America
and Australia. All these geographies are forecast
to experience a changing climate, including
increasing episodes of extreme heat, water
stress, flooding and extreme precipitation
to varying degrees. As an investor in infrastructure
projects and businesses, the Company's investments
are likely to be directly exposed to changes
in weather. These potential physical impacts
present the following risks to the Company:
* Unavailability of assets
* Property damage
* Insurance premiums
* Operational costs
* Maintenance costs
* Market value depreciation Capex for resilience; and
* Potential future liabilities.
The majority of the Company's investments generate
availability-based or regulated revenues, with
most costs contractually determined or compensated
for via a regulatory regime. The ability for
changes in revenues or costs to have a material
impact on the portfolio's net cash flows is
limited owing to the contracts and/or regulatory
frameworks under which the assets currently
operate.
The transition to a low-carbon economy will
largely depend on the right types of infrastructure
to allow communities to live net zero lifestyles.
The changes required are wide-ranging, including
decarbonisation of heat, increased electrification
of transportation and other systems previously
dependent on fossil fuels, and decarbonisation
of construction. Several of the geographies
in which the Company invests have set legally
binding net zero targets, although only a small
number of the Company's investments face transition
risks, due to the nature of contracted or regulated
frameworks.
The Company is focused on identifying current
risks and evolving its assessment and understanding
of longer-term risks, along with mitigation
of climate risks. The Company's Investment
Adviser is also working towards obtaining a
better understanding of the potential financial
impacts and the Company's and its investments'
resilience with regard to different climate
scenarios. This enhanced approach will directly
inform a suite of indicators, which will support
the Company's objectives and investors' understanding
of the physical and transition risks.
As an investor in infrastructure, the Company
will seek to support this transition and believes
it represents a significant opportunity and
this forms part of the work of the ESG Committee.
b) Describe the impact
of climate-related
risks and opportunities
on the organisation's
businesses, strategy
and financial planning
c) Describe the resilience
of the organisation's
strategy, taking into
consideration different
climate-related scenarios,
including a 2degC or
lower scenario
RISK
Disclose how the organisation identifies, assesses and manages climate-related
risks.
a) Describe the organisation's During the period, the Company commissioned
processes for identifying third-party climate modelling experts to support
and assessing climate-related it in enhancing its assessment of climate change
risks risks, including the physical risks posed to
the Company's investments in both the present
day and in future climate scenarios. The results
of this process will be disclosed in the Company's
next Sustainability Report in 2023, along with
greater detail on the tools, scenarios and
sensitivities that are in the process of being
implemented.
Climate risk identification and management
is integrated within the risk management process
as a subset of wider risk categories, including
political, financial, operational and strategic
risks.
The Board is ultimately responsible for risk
management. Oversight of the risk framework
and management process is delegated to the
Audit and Risk Committee. The risk framework
has been designed to manage, rather than eliminate,
the risk of failure to meet business objectives.
No system of control can provide absolute assurance
against the incidence of risk, misstatement
or loss. Regard is given to the materiality
of relevant risks in designing systems of risk
management and internal control. While responsibility
for risk management ultimately rests with the
Board, the aim is for the risk management framework
to be embedded as part of the everyday operations
and culture of the Company and its key advisers.
Although the Company is aligning with TCFD
recommendations voluntarily, the Company's
approach to climate change risk sits alongside
other requirements to which we are subject
under applicable law and the Company's internal
policies and procedures, such as the requirement
to have robust risk management policies and
procedures. Please refer to the Continuous
Risk Management section on pages 50 to 62 of
the 2021 Annual Report for more information
in relation to the Company's approach to risk
management.
b) Describe the organisation's
processes for managing
climate-related risks
c) Describe how processes
for identifying, assessing
and managing climate-related
risks are integrated
into the organisation's
overall risk management
METRICS
Disclose the metrics and targets used to assess and manage relevant
climate-related risks and opportunities where such information is
material.
a) Disclose the metrics The Company qualitatively assesses the risk
used by the organisation of all investments and is in the process of
to assess climate-related reviewing relevant climate-related metrics
risks and opportunities and targets at the portfolio level, which include
in line with its strategy the consideration of TCFD's supplementary guidance
and risk management on metrics. The Company is actively developing
process a carbon footprint across all its investments
to establish a baseline and will be developing
ways to enhance its consideration and disclosure
of transition and physical risks of climate
change. This baseline is focusing on Scope
1 and 2 emissions initially and will seek to
include Scope 3 emissions where available.
These metrics will be disclosed in the Company's
next Sustainability Report, due to be published
in 2023. To support the Company in developing
these overarching disclosures, it set an interim
target for 100% of investments to monitor and
disclose Scope 1 and Scope 2 emissions. During
the period, the Company is pleased to report
that 98% are monitoring these metrics.
b) Disclose Scope 1,
Scope 2, and, if appropriate,
Scope 3 GHG emissions,
and the related risks
c) Describe the targets
used by the organisation
to manage climate-related
risks and opportunities
and performance against
targets
CORPORATE GOVERANCE
BOARD OF DIRECTORS
The table below details all Directors of the Company during the
six month period ended 30 June 2022.
Mike Gerrard Julia Stephanie Sally-Ann Meriel John Le Claire Giles
Board Chair, Bond Coxon(1) David(1) Lenfestey(1) Poidevin(1) Whittet(1) Frost
Chair, (1) Chair, Chair, Chair, Chair, Senior
Investment ESG Committee Nomination Risk Management Independent
Committee and Sub-Committee Engagement Director
Remuneration Committee (with
Committee effect
(with from 25
effect May 2022);
from 25 Chair,
May 2022) Audit
and Risk
Committee
------------------- --------------- ---------------- ------------------- -------------- -------------- ----------------- ---------------
A resident A resident Stephanie A resident A resident A resident A resident A resident
in the in the is a Fellow of Guernsey, of Guernsey, of Guernsey, of Guernsey, in the
UK, Mike UK, Julia of the Sally-Ann Meriel John has Claire UK, Giles
has over has 27 Institute has over has 28 over 30 has over is a
30 years years' of Chartered 35 years years years 40 years' founder
of financial experience Accountants of experience of of business experience of Amber
and management of capital in England in infrastructure multi-sector experience. in the Infrastructure
experience markets and Wales projects business John is banking and has
in global in the and is in the experience. a Fellow industry worked
infrastructure financial a non-executive energy With of the with Bank in the
investment. sector director sector, a background Institute of Scotland, infrastructure
He has and held on several including in of Chartered Bank of investments
held a senior London international human-centred Accountants Bermuda sector
number positions listed offshore design in England and Rothschild for over
of senior within companies. transmission for and Wales and Co 20 years.
positions, Credit Prior systems technology, and a Bank Giles
including Suisse, to becoming and the she brings former International, is Chair
as an assistant including a non-executive challenges a strategic partner where she and a
director Head director, of the end-user of BDO was latterly director
of Morgan of One Stephanie energy focus LLP, where managing of Amber
Grenfell Bank led the transition. and a he held director Infrastructure
plc, a Delivery investment Having broad a number and co-head Group
director and Global trust held set of of leadership until May Holdings
of HM Treasury Head capital senior experiences roles, 2016 when Ltd,
Taskforce, of Sovereign markets positions encompassing including she became the ultimate
deputy Wealth team at within many Head of a non-executive holding
CEO and funds PwC for the power sectors Consumer director. company
later CEO activity. the UK utility and scales Markets, She is of the
of Partnerships and Channel arena, of where also a Investment
UK plc Islands. Sally-Ann organisation he developed non-executive Adviser
and, most During is currently ranging an extensive director to the
recently, her time the Chief from breadth of a number Company
a managing at PwC, Operating her own of experience of listed and various
director Stephanie Officer start-ups and knowledge and private of its
of Thames specialised of Guernsey through across equity subsidiaries.
Water Utilities in advising Electricity global the real investment
Limited. FTSE 250 Ltd. corporations estate, companies,
Mike has and premium She is and leisure none of
a breadth London a Chartered governmental and retail which is
of experience listed Engineer programmes. sectors a trading
across companies and Chartered in the company.
a range on accounting, Director. UK and Claire
of economic corporate overseas. is a member
and social governance, John is of the
infrastructure risk management a Chartered
sectors and strategic non-executive Institute
and has matters. director of Bankers
been involved on several in Scotland,
in some plc boards the Chartered
of the and chairs Insurance
largest a number Institute
infrastructure of audit and the
projects committees. Institute
in the of Directors
UK. He and is
is a Fellow a Chartered
of the Banker
Institution and holds
of Civil the Institute
Engineers. of Directors
Diploma
in Company
Direction.
DATE OF APPOINTMENT
------------------- ------------------------------------------------------
4 September 1 September 1 January 10 January 10 January 1 January 10 September 2 August
2018 2017 2022 2020 2020 2016 2012 2006
Date of
Retirement:
25 May
2022
------------------- --------------- ---------------- ------------------- -------------- -------------- ----------------- ---------------
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS
--------------- ------------- -----------------------------------------------------------------------------------------------------------------
Mike Gerrard Julia Stephanie Sally-Ann Meriel John Claire Giles
Mike holds Bond (1) Coxon(1) David(1) Lenfestey(1) Le Whittet(1) Frost
no other European PPHE Hotel Guernsey Bluefield Poidevin(1) BH Macro Giles
listed Assets Group Limited Electricity Solar BH Macro Ltd is also
company Trust ('EAT') JLEN Ltd Income Limited Eurocastle a director
positions NED of Environmental Channel Fund TwentyFour Investment of a number
but holds Foreign, Assets Islands Limited Income Ltd of the
several Commonwealth Group Limited Electricity Meriel Fund Limited Riverstone Company's
non-executive & Development Apax Global Grid sits Super Energy subsidiary
positions Office Alpha Limited European on a Group Ltd and investment
within and Strategic Marine number (SGHC) TwentyFour holding
boards Command Energy of other Limited Select entities
and committees Centre commercial Monthly and of
that oversee Ltd boards Income other
the development Sally-Ann including Fund Ltd entities
and delivery is also Gemserv, Third in which
of a director Jersey Point the Company
infrastructure of a Telecom Offshore has an
investments Guernsey and Aurigny Investors investment.
in the based Air Services Ltd He does
UK and health-related and is not receive
Europe. charity. a committee directors'
member fees from
for the such roles
Guernsey for the
Institute Company.
of Directors.
----------------- ------------------- ------------------ --------------- -------------- -------------- --------------- -------------------
1 All of the independent directors are members of all Committees
with the exception of Mr Gerrard, who is not a member of the Audit
and Risk Committee. Mr Frost is a non- independent director. Ms
Whittet retired from the Board on 25 May 2022.
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Half-yearly
Financial Report in accordance with applicable law and
regulations.
The Directors confirm to the best of their knowledge:
a) The condensed consolidated set of financial statements have
been prepared in accordance with UK-adopted International
Accounting Standard 34 'Interim Financial Reporting' as contained
within UK-adopted International Accounting Standards
b) The Interim Management Report 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 Management Financial Report includes a fair
review of the information required by DTR 4.2.8R (disclosure of
related parties' transactions and changes therein).
By order of the Board
Mike Gerrard John Le Poidevin
Chair Director
7 September 2022 7 September 2022
INDEPENT REVIEW REPORT TO INTERNATIONAL PUBLIC PARTNERSHIPS
LIMITED
OUR CONCLUSION
We have reviewed International Public Partnerships Limited's
interim condensed consolidated financial statements (the "interim
financial statements") in the Half-yearly Financial Report of
International Public Partnerships Limited for the 6-month period
ended 30 June 2022. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with UK-adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
WHAT WE HAVE REVIEWED
The interim financial statements comprise:
- the interim condensed consolidated balance sheet (unaudited) as at 30 June 2022;
- the interim condensed consolidated statement of comprehensive
income (unaudited) for the period then ended;
- the interim condensed consolidated cash flow statement (unaudited) for the period then ended;
- the interim condensed consolidated statement of changes in
equity (unaudited) for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-yearly
Financial Report have been prepared in accordance with UK-adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Half-yearly Financial Report, including the interim
financial statements, 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
UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Half-yearly Financial Report based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'
issued by the International Auditing and Assurance Standards Board.
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 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.
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 interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
7 September 2022
a) The maintenance and integrity of International Public
Partnerships Limited's website is the responsibility of the
directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to
the financial statements since they were initially presented on the
website.
b) Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
interim CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
SIX MONTHSED 30 JUNE 2022
Six months Six months
ended ended
30 June 30 June
2022 2021
Notes GBP'000s GBP'000s
---------------------------------------- ---- ----- ---------------- ----------
Interest income 4 45,336 39,377
Dividend income 4 27,911 18,032
Net change in investments at fair value
through profit or loss 4 166,934 (16,684)
---------------------------------------------- ----- ---------------- ----------
Total investment income 240,181 40,725
Other operating (expense) / income 5 (2,963) 2,785
============================================== ===== ================ ==========
Total income 237,218 43,510
Management costs 15 (13,999) (12,861)
Administrative costs (934) (1,132)
Transaction costs 15 (759) (335)
Directors' fees (242) (200)
---------------------------------------------- ----- ---------------- ----------
Total expenses (15,934) (14,528)
---------------------------------------------- ----- ---------------- ----------
Profit before finance costs and tax 221,284 28,982
Finance costs 6 (2,048) (1,765)
---------------------------------------------- ----- ---------------- ----------
Profit before tax 219,236 27,217
Tax credit 7 9 48
---------------------------------------------- ----- ---------------- ----------
Profit for the period 219,245 27,265
---------------------------------------------- ----- ---------------- ----------
Earnings per share
Basic and diluted (pence) 8 12.38 1.68
---------------------------------------------- ----- ---------------- ----------
All results are from continuing operations in the period.
All income is attributable to the equity holders of the parent.
There are no non-controlling interests within the consolidated
Group.
There are no other Comprehensive Income items in the current
period (30 June 2021: nil). The profit for the period represents
the Total Comprehensive Income for the period.
interim condensed CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited)
SIX MONTHSED 30 JUNE 2022
SHARE CAPITAL
and share OTHER DISTRIBUTABLE RETAINED
NOTES premium RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2021 1,908,849 182,481 437,470 2,528,800
-------------------------- ------ -------------- -------------------- ---------- ----------
Profit for the period
and total comprehensive
income - - 219,245 219,245
Issue of Ordinary Shares 13 327,273 - - 327,273
Issue costs applied to
new shares 13 (4,846) - - (4,846)
Dividends in the period 13 - - (64,320) (64,320)
Balance at 30 June 2022 2,231,276 182,481 592,395 3,006,152
-------------------------- ------ -------------- -------------------- ---------- ----------
SIX MONTHSED 30 JUNE 2021
SHARE CAPITAL
and share OTHER DISTRIBUTABLE RETAINED
NOTES premium RESERVE EARNINGS TOTAL
GBP'000s GBP'000s GBP'000s GBP'000s
-------------------------- ------ -------------- -------------------- ---------- ----------
Balance at 31 December
2020 1,769,582 182,481 432,373 2,384,436
-------------------------- ------ -------------- -------------------- ---------- ----------
Profit for the period
and total comprehensive
income - - 27,265 27,265
Issue of Ordinary Shares 13 4,413 - - 4,413
Dividends in the period 13 - - (59,650) (59,650)
Balance at 30 June 2021 1,773,995 182,481 399,988 2,356,464
-------------------------- ------ -------------- -------------------- ---------- ----------
INTERIM condensed CONSOLIDATED BALANCE SHEET (unaudited)
AS AT 30 june 2022
31 DECEMBER
30 june 2022 2021
NOTES GBP'000S GBP'000S
---------------------------------- ----- ------------ -----------
Non-current assets
Investments at fair value through
profit or loss 9 2,728,151 2,579,434
---------------------------------- ----- ------------ -----------
Total non-current assets 2,728,151 2,579,434
================================== ===== ============ ===========
Current assets
Trade and other receivables 9, 11 65,252 57,378
Cash and cash equivalents 9 224,730 56,090
Derivative financial instruments 9 - 2,713
Total current assets 289,982 116,181
================================== ===== ============ ===========
Total assets 3,018,133 2,695,615
---------------------------------- ----- ------------ -----------
Current liabilities
Trade and other payables 9, 12 10,634 10,597
Derivative financial instruments 9 1,347 -
---------------------------------- ----- ------------ -----------
Total current liabilities 11,981 10,597
---------------------------------- ----- ------------ -----------
Non-current liabilities
---------------------------------- ----- ------------ -----------
Bank loans 6, 9 - 156,218
---------------------------------- ----- ------------ -----------
Total non-current liabilities - 156,218
---------------------------------- ----- ------------ -----------
Total liabilities 11,981 166,815
Net assets 3,006,152 2,528,800
---------------------------------- ----- ------------ -----------
Equity
Share capital and share premium 13 2,231,276 1,908,849
Other distributable reserve 13 182,481 182,481
Retained earnings 13 592,395 437,470
---------------------------------- ----- ------------ -----------
Equity attributable to equity
holders of the Parent 3,006,152 2,528,800
---------------------------------- ----- ------------ -----------
Net assets per share (pence
per share) 14 157.3 148.2
---------------------------------- ----- ------------ -----------
The financial statements were approved by the Board of Directors
on 7 September 2022.
They were signed on its
behalf by:
Mike Gerrard John Le Poidevin
Chair Director
7 September 2022 7 September 2022
INTERIM condensed CONSOLIDATED CASH FLOW STATEMENT
(unaudited)
six months ended 30 june 2022
Six months Six months
ended ended
30 June 30 June
2021 2020
Notes GBP'000s GBP'000s
--------------------------------------------- ------ ------------- ------------
Profit before tax in the Interim Condensed
Consolidated Statement of Comprehensive
Income (unaudited)(1) 219,236 27,217
Adjusted for:
(Gain) / loss on investments at fair value
through profit or loss 4 (166,934) 16,684
Finance costs(2) 6 2,048 1,765
Fair value movement on derivative financial
instruments 5 4,059 (2,130)
Working capital adjustments
Increase in receivables (9,299) (1,437)
Increase / (decrease) increase in payables 38 (149)
Income tax paid (3) (95) (68)
--------------------------------------------- ------ ------------- ------------
Net cash inflow from operations (4) 49,053 41,882
--------------------------------------------- ------ ------------- ------------
Investing activities
Acquisition of investments at fair value
through profit or loss 10 (6,984) (22,343)
Net repayments from investments at fair
value through profit or loss 25,201 30,816
--------------------------------------------- ------ ------------- ------------
Net cash inflow from investing activities 18,217 8,473
--------------------------------------------- ------ ------------- ------------
Financing activities
Proceeds of issue of shares net of issue
costs 320,154 -
Dividends paid 13 (62,047) (55,237)
Finance costs paid(2) (1,691) (3,338)
Loan drawdowns(2) - 21,997
Loan repayments(2) (156,218) (4,400)
--------------------------------------------- ------ ------------- ------------
Net cash inflow / (outflow) from financing
activities 100,198 (40,978)
--------------------------------------------- ------ ------------- ------------
Net increase in cash and cash equivalents 167,468 9,377
Cash and cash equivalents at beginning
of period 56,090 44,263
Foreign exchange gain / (loss) on cash
and cash equivalents 1,172 (209)
Cash and cash equivalents at end of period 224,730 53,431
--------------------------------------------- ------ ------------- ------------
1 Includes interest received of GBP37.0 million (H1 2021:
GBP37.6 million) and dividends received of GBP27.9 million (H1 2021
GBP18.0 million).
2 These cash flows represent the changes in liabilities arising
from financing liabilities during the period, in accordance with
IAS 7, 44A-E.
3 Includes c ash flows received from unconsolidated subsidiary
entities in respect of surrender of tax losses.
4 Net cash flows from operations above are reconciled to net
operating cash flows before capital activity as shown in the
Operating Review on pages 23 to 24.
NOTES TO THE INTERIM condensed set of FINANCIAL STATEMENTS
(unaudited)
FOR THE six months ended 30 june 2022
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 4 to 5.
These interim condensed consolidated 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 2021
included in this half-yearly financial report is derived from the
31 December 2021 Annual Report and financial statements and does
not constitute statutory accounts as defined in the Companies
(Guernsey) Law, 2008. The auditors reported on those accounts:
their report was unqualified, did not draw attention to any matters
by way of emphasis, and did not contain a statement under section
263 (2) and (3) of the Companies (Guernsey) Law, 2008.
Accounting policies
The annual financial statements of the Company were prepared in
accordance with UK adopted International Accounting Standards. This
set of interim condensed consolidated financial statements included
in this Half-yearly Financial Report have been prepared in
accordance with UK adopted International Accounting Standard 34 -
'Interim Financial Reporting' and should be read in conjunction
with the consolidated financial statements for the year ended 31
December 2021, as they provide an update of previously reported
information. The same accounting policies, presentation and methods
of computation are followed in this set of interim condensed
consolidated financial statements as applied in the Group's latest
annual audited financial statements for the year ended 31 December
2021. The new and revised standards and interpretations becoming
effective in the period have had no material impact on the
accounting policies of the Group.
The Directors have determined that International Public
Partnerships Limited is an investment entity as defined by IFRS 10
on the basis that the Company:
a) obtains funds from one or more investor(s) for the purpose of
providing those investor(s) with investment management services
b) commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both; and
c) measures and evaluates the performance of substantially all
of its investments on a fair value basis.
Accordingly, these interim condensed consolidated financial
statements consolidate only those subsidiaries that provide
services relevant to its investment activities, such as management
services, strategic advice and financial support to its investees,
and that are not themselves investment entities. Subsidiaries that
do not provide investment-related services are required to be
measured at fair value through profit or loss in accordance with
IFRS 9 Financial Instruments.
New standards that the Group has applied from 1 January 2022
Standards and amendments to standards applicable to the Group
that became effective during the period are listed below. These
have no material impact on the reported performance or financial
statements of the Group.
- Annual improvements to IFRS Standards 2018-2020 (1 January 2022)
Going concern
The Directors have reviewed cash flow forecasts prepared by
management. Based on those forecasts and an assessment of the
Group's committed banking facilities, it has been considered
appropriate to prepare these interim condensed consolidated
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 GBP224.7 million as at 30 June 2022. The
Company continues to fully cover operating costs and distributions
from underlying cash flows from investments. The Company has access
to a corporate debt facility of GBP250 million on a fully committed
basis, and a flexible 'accordion' component which, subject to
lender consent, allows for a future extension by an additional
GBP150 million. At the date of this report, all of the fully
committed portion is available, with cash drawn amounts on the
facility being repaid following the GBP325 million capital raise
which took place in H1 2022. A GBP20 million portion of the
facility is available to be utilised for working capital purposes.
The facility is forecast to continue in full compliance with the
associated banking covenants. The facility is available for
investment in new and existing assets until March 2024.
2. CRITICAL Judgements and Estimates
Investment entity
In the judgement of the Directors, International Public
Partnerships Limited has been accounted for as an investment entity
as defined by IFRS 10, further details of which are given in note
1, Basis of preparation.
Fair valuation of investments at fair value through profit or
loss
Fair values are determined using the income approach, which
discounts the expected cash flows at a rate appropriate to the risk
profile of each investment. In determining the discount rate,
relevant long-term government bond yields, specific investment
risks and evidence of recent transactions are considered. Details
of the valuation process and key sensitivities are provided in note
9.
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating
decision makers of the Company (determined to be the Board), the
Group has identified four reportable segments based on the
geographical risk associated with the jurisdictions in which it
operates. The factors used to identify the Group's reportable
segments are centred on the risk-free rates and the maturity of the
infrastructure sector within each region. Further, foreign exchange
and political risk is identified, as these also determine where
resources are allocated. The four reportable segments are UK,
Europe (excl. UK), North America and Australia.
Six months ended 30 June 2022
---------- -------------------------------------------------------------
Europe
UK (Excl. UK) North America Australia Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
========================== ========== ============== ============== ========== ==========
Segmental results
Dividend and interest
income 47,297 5,379 4,547 16,024 73,247
Fair value gain /
(loss) on investments 142,678 16,153 10,524 (2,421) 166,934
========================== ========== ============== ============== ========== ==========
Total investment income 189,975 21,532 15,071 13,603 240,181
========================== ========== ============== ============== ========== ==========
Reporting segment
profit (1) 172,013 20,904 13,525 12,803 219,245
========================== ========== ============== ============== ========== ==========
Segmental financial
position
Investments at fair
value 2,073,467 327,890 115,954 210,840 2,728,151
Current assets 289,982 - - - 289,982
========================== ========== ============== ============== ========== ==========
Total assets 2,363,449 327,890 115,954 210,840 3,018,133
Total liabilities (11,981) - - - (11,981)
========================== ========== ============== ============== ========== ==========
Net assets 2,351,468 327,890 115,954 210,840 3,006,152
========================== ========== ============== ============== ========== ==========
Six months ended 30 June 2021
---------- -------------------------------------------------------------
UK Europe (EXCL. North America Australia Total
GBP'000s UK) GBP'000s GBP'000s GBP'000s
GBP'000s
------------------------- ---------- -------------- -------------- ---------- -----------
Segmental results
Dividend and interest
income 43,279 4,170 3,711 6,249 57,409
Fair value (loss)
/ gain on investments (14,916) (1,099) 1,189 (1,858) (16,684)
------------------------- ---------- -------------- -------------- ---------- -----------
Total investment income 28,363 3,071 4,900 4,391 40,725
------------------------- ---------- -------------- -------------- ---------- -----------
Reporting segment
profit (1) 12,119 4,632 4,933 5,581 27,265
------------------------- ---------- -------------- -------------- ---------- -----------
Segmental financial
position
Investments at fair
value 1,703,241 299,629 105,630 211,776 2,320,276
Current assets 101,352 - - - 101,352
------------------------- ---------- -------------- -------------- ---------- -----------
Total assets 1,804,593 299,629 105,630 211,776 2,421,628
Total liabilities (65,164) - - - (65,164)
------------------------- ---------- -------------- -------------- ---------- -----------
Net assets 1,739,429 299,629 105,630 211,776 2,356,464
------------------------- ---------- -------------- -------------- ---------- -----------
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
GBP22.4 million (30 June 2021: GBP5.8 million).
4. Investment Income
Six months Six months
ended ended
30 June 2022 30 June 2021
GBP'000s GBP'000s
---------------------------------------------- ------------- -------------
Interest income
Interest on investments at fair value through
profit or loss 45,336 39,377
Total interest income 45,336 39,377
Dividend income 27,911 18,032
---------------------------------------------- ------------- -------------
Net change in fair value of investments at
fair value through profit or loss 166,934 (16,684)
---------------------------------------------- ------------- -------------
Total investment income 240,181 40,725
---------------------------------------------- ------------- -------------
Dividend and interest income includes that from transactions
with unconsolidated subsidiary entities. Changes in investments at
fair value through profit or loss are also recognised in relation
to the Group's investments in unconsolidated subsidiaries.
5. Other Operating (expense) / Income
Six months Six months
ended ended
30 June 2022 30 June 2021
GBP'000s GBP'000s
-------------------------------------------------- ------------- -------------
Fair value movement on foreign exchange contracts (4,059) 2,130
Other foreign exchange movements 1,096 655
--------------------------------------------------- ------------- ---------------
Total other operating (expense) / income (2,963) 2,785
--------------------------------------------------- ------------- ---------------
6. Finance Costs and bank loans
Finance costs for the period were GBP2.0 million (30 June 2021:
GBP1.8 million). The Group has a corporate debt facility ('CDF')
available consisting of GBP250 million on a fully committed basis,
together with a flexible 'accordion' component which will, subject
to lender approval, allow for a future extension by an additional
GBP150 million. As at 30 June 2022, the facility was nil cash drawn
having been repaid following capital raising in the period (31
December 2021: GBP156.2 million). The interest rate margin on the
CDF is 170 basis points over SONIA. The facility matures in March
2024. The loan facility is provided by Royal Bank of Scotland
International, National Australia Bank, Barclays Bank and Sumitomo
Mitsui Banking Corporation, and is secured over the assets of the
Group.
7. Tax
Six months
Six months ended
ended 30 June
30 June 2022 2021
GBP'000s GBP'000s
------------------------------------------- ------------- ----------
Current tax:
UK corporation tax credit - current period - (2)
UK corporation tax credit - prior period - (1)
Other overseas tax credit - current period (9) (45)
------------------------------------------- ------------- ----------
Tax credit for the period (9) (48)
------------------------------------------- ------------- ----------
Reconciliation of effective tax rate
Six months
Six months ended
ended 30 June
30 June 2022 2021
GBP'000s GBP'000s
------------------------------------------------ --------------- -----------
Profit before tax 219,236 27,217
------------------------------------------------ --------------- -----------
Exempt tax status in Guernsey - -
Application of overseas tax rates (9) (45)
Group tax losses surrendered to unconsolidated
investee entities - (2)
Adjustment to prior period - (1)
------------------------------------------------ --------------- -----------
Tax credit for the period (9) (48)
------------------------------------------------ --------------- -----------
The income tax credit above does not represent the full tax
position of the entire Group as the investment returns received by
the Company are net of tax payable at the underlying investee
entity level. As a consequence of the adoption of the IFRS 10
investment entity consolidation exception, underlying investee
entity tax is not consolidated within these interim condensed
consolidated financial statements. To provide an indication of the
tax paid across the wider portfolio, total forecasted corporation
tax payable by the Group's underlying investments is in excess of
GBP1 billion (30 June 2021: GBP1 billion) over their full
concession lives.
8. Earnings Per Share
The calculation of basic and diluted earnings per share is based
on the following data:
Six months Six months
ended ended
30 June 30 June
2022 2021
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 219,245 27,265
-------------------------------------------------- ------------- -------------
Number Number
-------------------------------------------------- ------------- -------------
Weighted average number of Ordinary Shares for
the purposes of basic and diluted earnings per
share 1,770,401,054 1,621,326,795
-------------------------------------------------- ------------- -------------
Basic and diluted (pence) 12.38 1.68
-------------------------------------------------- ------------- -------------
The denominator for the purposes of calculating both basic and
diluted earnings per share is the same as the Group has not issued
any share options or other instruments that would cause
dilution.
9. Financial Instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised when the contractual
rights to the cash flows from the instrument expire or the asset is
transferred, and the transfer qualifies for derecognition in
accordance with IFRS 9 Financial Instruments. Financial liabilities
are derecognised when the obligation is discharged, cancelled or
expired. Specific financial asset and liability accounting policies
are provided below.
9.1 Financial assets
30 June 31 December
2022 2021
GBP'000s GBP'000s
-------------------------------------------------- --------- -----------
Investments at fair value through profit and loss 2,728,151 2,579,434
Financial assets at amortised cost
Trade and other receivables 65,252 57,378
Cash and cash equivalents 224,730 56,090
Derivative financial instruments at fair value
through profit or loss
Foreign exchange contracts - 2,713
Total financial assets 3,018,133 2,695,615
-------------------------------------------------- --------- -----------
9.2 Financial liabilities
31 December
30 June 2022 2021
GBP'000s GBP'000s
----------------------------------------------- ------------ -----------
Financial liabilities at amortised cost
Trade and other payables 10,634 10,597
Bank loans - 156,218
Derivative financial instruments at fair value
through profit or loss
Foreign exchange contracts 1,347 -
Total financial liabilities 11,981 166,815
----------------------------------------------- ------------ -----------
The carrying value of financial assets and liabilities held at
amortised cost is considered to approximate their fair value.
9.3 Financial risk management
The Group's objective in managing risk is the protection of
stakeholder value. Risk is inherent in the Group's activities and
is managed through a process of ongoing identification, measurement
and monitoring, subject to risk limits and other controls. The
Group is exposed to market risk (which includes currency risk,
interest rate risk and inflation risk), credit risk and liquidity
risk arising from the financial instruments it holds. The Board of
Directors is ultimately responsible for the overall risk management
of the Group, with delegation of oversight and activities
(including identifying and controlling risks) provided to the Audit
and Risk Committee and the Group's Investment Adviser. The Group's
risk management framework and approach is set out within the
Strategic Report (pages 49 to 62 of the 2021 Annual Report and
financial statements). The Board takes into account market, credit
and liquidity risks in forming the Group's risk management
strategy.
Market risk
Market risk is the risk that the fair value or future cash flows
of financial instruments will fluctuate due to changes in market
variables such as changes in inflation, foreign exchange rates and
interest rates.
Inflation risk
The majority of the Group's cash flows from underlying
investments are linked to inflation indices. Changes in inflation
rates can have a positive or negative impact on the Group's cash
flows from investments. The long-term inflation assumptions applied
in the Group's valuation of investments at fair value through
profit or loss are disclosed in the fair value hierarchy section
9.4.
The Group's portfolio of investments has been developed in
anticipation of continued inflation at or above the levels used in
the Group's valuation assumptions. Where inflation is at levels
below the assumed levels for a sustained period of time, investment
performance may be impaired. The level of inflation-linkage across
the investments held by the Group varies and is not consistent.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows from underlying
investments, therefore, impacting the value of investments at fair
value through profit or loss. The Group has limited exposure to
interest rate risk as the underlying borrowings within the
unconsolidated investee entities are either hedged through interest
rate swap arrangements, are fixed rate loans or the risk of adverse
movement in interest rates is limited through protections provided
by the regulatory regime. For example, it is generally a
requirement under a PFI/PPP concession that any borrowings are
matched to the life of the concession. Hedging activities are
aligned with the period of the loan, which also mirrors the
concession period, and are highly effective. However, particularly
in Australia, refinancing risk exists in a number of such
investments. The Group's corporate debt facility is unhedged on the
basis it is utilised as an investment bridging facility and
therefore drawn for a relatively short period of time. Therefore,
the Group is not significantly exposed to cash flow risk due to
changes in interest rates over its variable rate borrowings.
Interest income on bank deposits held within underlying investments
is included within the fair value of investments.
Foreign currency risk
The Group undertakes certain transactions denominated in foreign
currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated
in a foreign currency other than the functional currency in which
they are measured. The Group uses forward foreign exchange
contracts to mitigate the risk of short-term volatility in foreign
exchange on significant investment returns from overseas
investments. The Group doesn't hedge its exposure to foreign
exchange in relation to foreign currency denominated investment
balances. The carrying amounts of the Group's foreign currency
denominated monetary financial instruments at the reporting date
are set out in the table overleaf.
31 December
30 June 2022 2021
GBP'000s GBP'000s
------------------------------------------------- ------------ -----------
Cash
Euro 4,771 875
Canadian Dollar 877 250
Australian Dollar 12,468 6,220
US Dollar 962 1,603
------------------------------------------------- ------------ -----------
19,078 8,948
Current receivables
Euro receivables 27 712
US Dollar receivables 571 -
------------------------------------------------- ------------ -----------
598 712
Investments at fair value through profit or loss
Euro 318,269 299,262
Danish Krone 9,621 13,979
Canadian Dollar 43,364 39,439
Australian Dollar 210,840 213,261
US Dollar 72,590 66,492
------------------------------------------------- ------------ -----------
654,684 632,433
------------------------------------------------- ------------ -----------
Total 674,360 642,093
------------------------------------------------- ------------ -----------
Sensitivity analysis showing the impact of variations of the
above risks on the fair value of investments is shown in section
9.5.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Group. The Group has adopted a policy of dealing with creditworthy
counterparties and reviewing this on a regular basis at the
underlying entity level. The majority of underlying investments are
in public-private partnerships and similar concessions (which are
entered into with government, quasi government, other public,
equivalent low risk bodies), or in regulated businesses that
inherently exhibit low levels of credit risk. The maximum exposure
of credit risk over financial assets as a result of counterparty
default is the carrying value of those financial assets in the
balance sheet. In addition, the underlying investee entities
contract with third-party construction and facilities management
contractors. The Group seeks to mitigate this risk through using a
diverse range of sub-contractors and through at least quarterly
review of the credit position of major contractors.
Liquidity risk
Liquidity risk is defined as the risk that the Group would
encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or
another financial asset. The Group invests in relatively illiquid
investments (mainly non-listed equity and loans). As a closed-ended
investment vehicle there are no automatic capital redemption
rights. The Group manages liquidity risk by maintaining adequate
cash reserves, banking facilities and reserve borrowing facilities
and by continuously monitoring forecast and actual cash flows. Cash
flow forecasts assume full availability of underlying
infrastructure to the relevant public sector body or end-user.
Failure to maintain assets available for use or operating in
accordance with pre-determined performance standards or licence
conditions may lead to a reduction (wholly or partially) in the
investment income that the Group has projected to receive. The
Directors review the underlying performance of each investment on a
quarterly basis, allowing asset performance to be monitored. The
terms of public-private partnership contractual mechanisms also
allow for significant pass-down of unavailability and performance
risk to subcontractors. Regulated asset regimes allow for the pass
through of efficiently incurred costs to the purchaser. The Group's
financial liabilities comprise trade and other payables, payable
within 12 months of the year end, and bank loans, repayable in
March 2024 as disclosed in note 6.
9.4 Fair value hierarchy
All financial instruments for which fair value is recognised or
disclosed are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1 - Quoted market prices in an active market (that are
unadjusted) for identical assets or liabilities
Level 2 - Valuation techniques (for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable)
Level 3 - Valuation techniques (for which the lowest level input
that is significant to the fair value measurement is
unobservable)
During the period there were no transfers between Level 2 and
Level 3 categories.
Level 1:
The Group has no financial instruments classified as Level
1.
Level 2:
This category includes derivative financial instruments such as
interest rate swaps, RPI Swaps and currency forward contracts. As
at 30 June 2022, the Group's only derivative financial instruments
were currency forward contracts amounting to a liability of GBP1.3
million (31 December 2021: asset of GBP2.7 million).
Financial instruments classified as Level 2 have been valued
using models whose inputs are observable in an active market (spot
exchange rates, yield curves, interest rate curves). Valuations
based on observable inputs include financial instruments such as
swaps and forward contracts which are valued using market standard
pricing techniques where all the inputs to the market standard
pricing models are observable.
Level 3:
This category consists of investments in equity and loan
instruments in underlying unconsolidated subsidiary entities and
other non-controlled investments which are classified at fair value
through profit or loss. At 30 June 2022, the fair value of
financial instruments classified within Level 3 totalled GBP2,728
million (31 December 2021: GBP2,579.4 million).
Financial instruments are classified within Level 3 if their
valuation incorporates significant inputs that are not based on
observable market data (unobservable inputs). A valuation input is
considered observable if it can be directly observed from
transactions in an active market, or if there is compelling
external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The
valuation of unlisted equity and debt investments is performed on a
quarterly(1) basis by the Investment Adviser. The valuation is
reviewed by the senior members of the Investment Adviser, and
reviewed and approved by the Board.
Valuation methodology
The valuation methodologies used are primarily based on
discounting projected net cash flows at appropriate discount rates.
Valuations are also reviewed against recent market transactions for
similar assets in comparable markets observed by the Group or the
Investment Adviser and adjusted where appropriate.
Cash flow forecasts for the full-term of each underlying
investment are generated by detailed investment specific financial
models. These models forecast the dividend, shareholder loan
interest payments, capital repayments and senior debt repayments
(where applicable) expected from the underlying investments. The
cash flows included in the forecasts used to determine fair value
are typically fixed under contracts, however there are certain
variable cash flows which are based on management's estimations.
The significant unobservable inputs and assumptions used in
projecting the Group's net future cash flows are shown below.
(1 Indicative valuations are calculated in respect of each at 31
March and 30 September.)
Europe
30 June 2022 UK (Excl. UK) North America Australia
======================== ================== ==================== ==================== ====================
Inflation rates 7.00% until Dec 6.00% until 3.00% until 5.00% until
22, Dec 22, thereafter Dec 22, thereafter Dec 22, thereafter
4.00% until Dec 2.00% 2.00% 2.50%
23,
2.00% thereafter
(CPIH),
9.00% until Dec
22,
5.00% until Dec
23,
2.75% thereafter
(RPI)
12.50% -
Long-term tax 25.00% 32.28% 23.00% - 26.50% 30.00%
Foreign exchange
rates N/A 1.16 - 8.65 1.57 - 1.21 1.76
Long-term deposit
rates 1.00% 0.50% 1.50% 2.00%
======================== ================== ==================== ==================== ====================
Europe
31 December 2021 UK (Excl. UK) North America Australia
============================ ============ ============ ================ ==========
Inflation rates 2.75% RPI, 2.00% 2.00% 2.50%
2.00% CPIH
12.50% -
Long-term tax 25.00% 32.28% 23.00% - 26.50% 30.00%
Foreign exchange rates N/A 1.16 1.38 - 1.72 1.84
Long-term deposit rates 1.00% 1.00% 2.00% 2.00%
============================ ============ ============ ================ ==========
Discount rate
The discount rate used in the valuation of each investment is
the aggregate of the following:
- Yield on a government bond with a remaining term equivalent to
(or as close as possible to) the investment being valued, issued by
the national government for the location of the relevant investment
('government bond yield')
- A premium to reflect the inherent greater risk in investing in
infrastructure assets over government bonds
- A further premium to reflect the state of maturity of the
asset with a larger premium applied to immature assets and/or
assets in construction and/or to reflect any current asset specific
or operational issues. Typically, this risk premium will reduce
over the life of any asset as an asset matures, its operating
performance becomes more established, and the risks associated with
its future cash flows decrease. However, the rate may increase in
relation to investments with unknown residual values at the end of
the relevant concession life as that date nears
- A further adjustment reflective of market-based transaction
valuation evidence for similar assets
Over the period, the weighted average government bond yield
increased by 86bps. The weighted average investment premium
decreased, reflecting observable market-based evidence.
30 June 2022 31 December
Valuation assumptions 2021 Movement
============================= ============= ============ =========
Weighted Average Government
Bond Yield 1.82% 0.96% 86bps
Weighted Average Investment
Risk Premium 5.29% 6.01% (72bps)
============================= ============= ============ =========
Weighted Average Discount
Rate 7.11% 6.97% 14bps
============================= ============= ============ =========
Weighted Average Discount
Rate on Risk Capital(1) 7.40% 7.38% 2bps
============================= ============= ============ =========
1 Weighted average discount rate on Risk Capital only (equity and subordinated debt).
30 June 31 December
Reconciliation of Level 3 fair value measurements 2022 2021
of financial assets : GBP'000s GBP'000s
=================================================== ============= =============
Opening balance 2,579,434 2,345,433
Additional investments during the period 6,984 252,725
Net repayments during the period (25,201) (53,350)
Net change in fair value of investments at fair
value through profit or loss 166,934 34,626
=================================================== ============= =============
Closing balance 2,728,151 2,579,434
=================================================== ============= =============
9.5 Sensitivity analysis
The valuation requires management to make certain assumptions in
relation to unobservable inputs to the model. There are no
straightforward inter-relationships between the unobservable
inputs. A sensitivity analysis for reasonably possible alternative
assumptions is provided below:
Significant Change in Change in
assumptions Weighted average fair value fair value
at 30 June rate in base Sensitivity of investment Sensitivity of investment
2022 case valuations factor GBP'000s factor GBP'000s
================ =================== =========== ============== =========== ==============
Discount rate 7.11% +1.00% (265,821) -1.00% 324,489
================ =================== =========== ============== =========== ==============
Inflation rate
(overall) 2.34% +1.00% 272,088 -1.00% (234,871)
UK 2.00%/2.75% +1.00% 233,316 -1.00% (192,329)
Europe 2.00% +1.00% 38,212 -1.00% (32,946)
North America 2.00% +1.00% 947 -1.00% (1,117)
Australia 2.50% +1.00% 9,582 -1.00% (8,499)
================ =================== =========== ============== =========== ==============
FX rate N/A +10.00% 65,540 -10.00% (65,576)
================ =================== =========== ============== =========== ==============
Tax rate 25.47% +1.00% (14,078) -1.00% 13,059
================ =================== =========== ============== =========== ==============
Deposit rate 1.04% +1.00% 21,884 -1.00% (22,657)
================ =================== =========== ============== =========== ==============
Significant Change in Change in
assumptions Weighted average fair value fair value
at 31 December rate in base Sensitivity of investment Sensitivity of investment
2021 case valuations factor GBP'000s factor GBP'000s
================ =================== =========== ============== =========== ==============
Discount rate 6.97% +1.00% (245,454) -1.00% 295,025
================ =================== =========== ============== =========== ==============
Inflation rate
(overall) 2.37% +1.00% 231,029 -1.00% (197,787)
UK 2.00%/2.75% +1.00% 179,431 -1.00% (151,850)
Europe 2.00% +1.00% 40,393 -1.00% (35,843)
North America 2.00% +1.00% 738 -1.00% (1,218)
Australia 2.50% +1.00% 10,451 -1.00% (8,875)
================ =================== =========== ============== =========== ==============
FX rate N/A +10.00% 63,273 -10.00% (63,279)
================ =================== =========== ============== =========== ==============
Tax rate 25.47% +1.00% (13,757) -1.00% 13,541
================ =================== =========== ============== =========== ==============
Deposit rate 1.04% +1.00% 24,626 -1.00% (13,723)
================ =================== =========== ============== =========== ==============
10. Investments
Consideration % Ownership
Date of investment Description GBP'000's post investment
-------------------- ------------------------------------------- -------------- -----------------
The Group made further investments
April - June into the National Digital Infrastructure
2022 Fund, UK 1,205 45.0%
June 2022 The Group made follow on investments 1,477 Various
into a portfolio of Building Schools
for the Future assets, UK
The Group made a follow-on investment
into the Diabolo Rail Link project,
June 2022 Belgium 4,302 100.0%
Total capital spend on investments during the
period 6,984
----------------------------------------------------------------- -------------- -----------------
11. TRADE AND OTHER RECEIVABLES
30 June 2022 31 December
GBP'000s 2021
GBP'000s
----------------------------------- ------------- -------------
Accrued interest receivable 61,222 52,657
Other debtors 4,030 4,721
----------------------------------- ------------- -------------
Total trade and other receivables 65,252 57,378
----------------------------------- ------------- -------------
Other debtors included GBP2.0 million (31 December 2021: GBP1.2
million) of receivables from unconsolidated subsidiary entities for
the surrender of Group tax losses.
12. Trade and Other Payables
30 June 2022 31 December
GBP '000s 2021
GBP'000s
---------------------------------------------- ------------- -------------
Accrued management fee 8,649 8,308
Other creditors and accruals 1,985 2,289
---------------------------------------------- ------------- -------------
Total trade and other payables 10,634 10,597
---------------------------------------------- ------------- -------------
13. Share Capital and Reserves
30 June 2022 31 December
Shares 2021 Shares
Share capital '000s '000s
---------------------------------------- ------------ -------------
In issue 1 January 1,706,104 1,620,953
Issued for cash 203,762 81,818
----------------------------------------- ------------ -------------
Issued as a scrip dividend alternative 1,377 3,333
----------------------------------------- ------------ -------------
Closing balance 1,911,243 1,706,104
----------------------------------------- ------------ -------------
30 June 2022 31 December
GBP'000s 2021
Share capital GBP'000s
========================================== ============ ============
Opening balance 1,908,849 1,769,582
=========================================== ============ ============
Issued for cash (excluding issue costs) 325,000 135,000
Issued as a scrip dividend alternative 2,273 5,629
=========================================== ============ ============
Total share capital issued in the period 327,273 140,629
=========================================== ============ ============
Costs on issue of Ordinary Shares (4,846) (1,362)
=========================================== ============ ============
Closing balance 2,231,276 1,908,849
=========================================== ============ ============
The Company has one class of Ordinary Shares which carry no
right to fixed income.
On 4 May 2022, the Group raised additional capital of GBP325
million through an issue of 203,761,755 new Ordinary Shares.
On 13 June 2022, 1,377,796 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
2021.
30 June 2022 31 December
GBP'000s 2021
Other distributable reserve GBP'000s
---------------------------- ------------ ------------
Opening balance 182,481 182,481
Movement in the period - -
---------------------------- ------------ ------------
Closing balance 182,481 182,481
---------------------------- ------------ ------------
On 19 January 2007, the Company applied to the Royal Court of
Guernsey, following the initial placing of shares, to reduce its
share premium account. This was in order to provide a distributable
reserve to enable the Company to repurchase its shares if and when
the Board of Directors consider it beneficial to do so. Following
court approval, the distributable reserve account was created.
30 June 2022 31 December
GBP'000s 2021
Retained earnings GBP'000s
-------------------------- ------------ ------------
Opening balance 437,470 432,373
Net profit for the period 219,245 129,211
Dividends paid(1) (64,320) (124,114)
-------------------------- ------------ ------------
Closing balance 592,395 437,470
-------------------------- ------------ ------------
1 Includes scrip element of GBP2.3 million in 2021 (December 2021: GBP5.6 million).
Dividends
The Board is satisfied that, in every respect, the solvency test
as required by the Companies (Guernsey) Law, 2008 was satisfied for
the proposed dividend and the dividend paid in respect of the year
ended 31 December 2021. The Board has approved an interim
distribution of 3.87 pence per share (six months ended 30 June
2021: 3.78 pence per share).
Capital Risk Management
The Group seeks to efficiently manage its financial resources to
ensure that it is able to continue as a going concern while
providing improved returns to shareholders through the management
of the debt and equity balances. The capital structure consists of
the Group's CDF and equity attributable to equity holders of the
Parent, comprising issued capital, reserves and retained earnings.
The Group aims to deliver its objective by investing available cash
and using leverage whilst maintaining sufficient liquidity to meet
ongoing expenses and dividend payments.
The Group's Investment Adviser reviews the capital structure on
a semi-annual basis. As part of this review, the Investment Adviser
considers the cost of capital and the associated risks.
14. Net Assets per Share
30 June 2022 31 December
GBP'000s 2021
GBP'000s
---------------------------------------------- ------------- -------------
Net assets attributable to equity holders of
the parent 3,006,152 2,528,800
----------------------------------------------- ------------- -------------
Number Number
---------------------------------------------- ------------- -------------
Number of shares
Ordinary Shares outstanding at the end of the
period 1,911,243,132 1,706,103,581
----------------------------------------------- ------------- -------------
Net assets per share (pence per share) 157.3 148.2
----------------------------------------------- ------------- -------------
15. Related Party Transactions
During the period, Group companies entered into certain
transactions with related parties that are not members of the Group
but are related parties by reason of being in the same group as
Amber Infrastructure Group Holdings Limited, which is the ultimate
holding company of the Investment Adviser, Amber Fund Management
Limited ('AFML').
Under the Investment Advisory Agreement ('IAA'), AFML was
appointed to provide investment advisory services to the Group
including advising the Group as to the strategic management of its
portfolio of investments.
AFML and International Public Partnerships GP Limited are
subsidiary companies of Amber Infrastructure Group Holdings Limited
('Amber Group'), in which Mr. G Frost is a director and also a
shareholder.
Mr G Frost is also a director of International Public
Partnerships Limited (the 'Company'); International Public
Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Group);
and the majority of other companies in which the Group indirectly
has an investment. The transactions with the Amber Group are
considered related party transactions under IAS 24 'Related Party
Disclosures'.
The Director's fees for Mr. G Frost's directorship of the
Company are paid to his employer, Amber Infrastructure Limited (a
member of the Amber Group).
The amounts of the transactions in the period that were related
party transactions are set out in the table below:
Amounts owing to
Related party expense related parties in
in the Income Statement the Balance Sheet
------------------------------ ----------------------
For the
For the six
six months
months to to At At
30 June 30 June 30 June 31 December
2022 2021 2022 2021
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------------- -------------- ---------- ----------- -------------
International Public Partnerships
GP Limited 13,999 12,861 8,649 8,308
Amber Fund Management Limited(1) 759 335 759 217
----------------------------------- -------------- ---------- ----------- -------------
Total 14,758 13,196 9,408 8,525
----------------------------------- -------------- ---------- ----------- -------------
1 Represents amounts paid to related parties to acquire or make
investments or advisory fees associated with investments which are
subsequently recorded in the balance sheet.
Investment Advisory Arrangements
Investment advisory fees payable during the period are
calculated as follows:
For existing construction assets:
- 1.2% per annum of the Gross Asset Value ('GAV') of investments bearing construction risk
For existing fully operational assets:
- 1.2% per annum of the GAV (excluding uncommitted cash from
capital raisings) up to GBP750 million
- 1.0% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP750 million and GBP1.5 billion
- 0.9% per annum where GAV (excluding uncommitted cash from
capital raisings) is between GBP1.5 billion and GBP2.75 billion
- 0.8% per annum where GAV (excluding uncommitted cash from
capital raisings) value exceeds GBP2.75 billion
Asset origination fees in connection with new acquisitions are
charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group's
assets are available for use for certain periods and the Investment
Adviser fails to implement a remediation plan agreed with the
Group. The IAA may also be terminated by either party giving to the
other five-years notice of termination, expiring at any time after
10 years from the date of the IAA.
As at 30 June 2022, Amber held 8,002,379 (31 December 2021:
8,002,379) shares in the Company. The shares held by the Investment
Adviser in the Company helps further strengthen the alignment of
interests between the two parties.
During the period the Company acquired further interests in a
small portfolio of UK PPP investments from an affiliate of the
Company's Investment Adviser, Amber. The interests were acquired
for GBP1.4 million following an independent valuation of the
assets. Protocols provided in the Company's Investment Advisory
Agreement were followed with respect to the sale of the Projects
from Amber to INPP, including the establishment of separate buy
side and sell side teams within Amber.
Transactions with Directors
Director remuneration and shares held by each Director is
reported in the Company's December 2021 Annual Report and financial
statements. Shares acquired by Directors in the six-month period
ended 30 June 2022 are disclosed below:
Director Number of New Ordinary Shares
------------------ ------------------------------
Michael Gerrard 31,347
------------------ ------------------------------
Julia Bond 18,808
------------------ ------------------------------
Meriel Lenfestey 15,163
------------------ ------------------------------
John Le Poidevin 62,695
------------------ ------------------------------
Claire Whittet 37,854
------------------ ------------------------------
16. Contingent Liabilities and commitments
As at 30 June 2022, the Group has committed funding of up to
c.GBP89.7 million (31 December 2021: c.GBP44.7 million), which
includes committed investment amounts as noted in the Operating
Review on page 13.
There were no contingent liabilities at the date of this
report.
17. Events after THE Balance Sheet Date
Following the balance sheet date, in July 2022 the Company
divested of minority interests in 4 BSFI assets for consideration
of GBP8.5 million. In July 2022, further investments of GBP0.4m
were drawn on the Diabolo commitment. In September 2022, the
Company is expected to invest a further GBP42.0 million in Tideway,
increasing its interest to c.18% (see page 15 for more
information).
Glossary
AGM
The Company's Annual General Meeting
AIC
Association of Investment Companies
AFML
Amber Fund Management Limited, a member of the Amber Group
Amber / Amber Infrastructure
The Company's Investment Adviser (Amber Fund Management Limited
and its corporate group)
Amber Group
Amber Infrastructure Group Holdings Limited and its
subsidiaries
APMs
In accordance with ESMA Guidelines on Alternative Performance
Measures ('APMs') the Board has considered what APMs are included
in the Annual Report and financial statements which require further
clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the
Annual Report and financial statements are identified as non-GAAP
measures and are defined within this glossary.
ASCE
American Society of Civil Engineers
Average NAV
Average of published NAVs for the relevant periods
BEPS
Base Erosion and Profit Shifting
BSF
Building Schools for Future projects
Cash Dividend cover
Non-GAAP measure. Cash dividend payments to investors covered by
the Net operating cash flow before capital activity. This measure
shows the sustainability of the dividend payments made by the
Company. Net operating cash flows before capital activity include
net repayments from Investments at Fair Value through profit and
loss and finance costs paid and exclude investment transaction
costs when compared to net cash inflows from operations as
disclosed in the statutory cash flow statement in the financial
statements.
CDF
The Company's corporate debt facility
CMA
Competition and Markets Authority
CSR
Corporate Social Responsibility
CPI
Consumer Price Index
CPIH
CPI including owner occupied housing costs
Dividend Growth
Non-GAAP measure. Represents the growth in dividend per share
paid to shareholders compared to the prior year. This measure
provides information on the Company's dividend performance.
Dividends paid and number of issued shares can be found disclosed
in the financial statements and notes to the financial
statements.
Dividend per share
Non-GAAP measure. Represents dividends paid per Ordinary Share
issued, as disclosed in the financial statements. This measure
provides information on the Company's dividend performance.
Dividends paid and number of issued shares can be found disclosed
in the financial statements and notes to the financial
statements.
EAT
European Assets Trust
ESG
Environmental, Social and Governance
EU Taxonomy
EU Taxonomy for Sustainable Activities
FCA
Financial Conduct Authority
FRC
The Financial Reporting Council
GAV
Gross Asset Value
GDNs
Gas distribution networks
GFSC
The Guernsey Financial Services Commission
GHG
Greenhouse gas emissions
GRESB Infrastructure
The Infrastructure Asset Assessment assesses ESG performance at
the asset level for infrastructure asset operators, fund managers
and investors that invest directly in infrastructure.
HMRB
Flinders University Health and Medical Research Building
IAA
Investment Advisory Agreement
IFRS
International Financial Reporting Standards
International Public Partnerships
The 'Company', 'INPP', the 'Group' (where including consolidated
entities)
Investment Adviser
Amber (see above)
IPO
Initial Public Offering
IRR
The Internal Rate of Return
Hunt
Amber's long-term investor, US Group, Hunt Companies LLC
KPIs
Key Performance Indicators
NDIF
National Digital Infrastructure Fund
Net Asset Value ('NAV')
Non-GAAP measure. Represents the equity attributable to equity
holders of the Parent in the Balance Sheet. This terminology is
used as it is common investment sector terminology and so is the
most understandable to the users of the Annual Report. Components
of NAV are further discussed throughout the Annual Report,
including from page 30.
Net Asset Value ('NAV') per share
Non-GAAP measure. Represents the equity attributable per share
to equity holders of the Parent in the Balance Sheet. This
terminology is used as it is common investment sector terminology
and so is the most understandable to the users of the Annual
Report.
Net operating cash flows before capital activity
Non-GAAP measure. Represents the cash flows from the Company's
operations before capital activity relating to the acquisition of
new investments, issues of new capital or payment of dividends.
This approach is used to provide investors with an indication of
cash flows generated from operational activity and is used as part
of the cash dividend cover calculations. Components of net
operating cash flows before capital activity are further discussed
throughout the Annual Report, including from page 28.
Net Zero
Net Zero refers to balancing the amount of emitted greenhouse
gases with the equivalent emissions that are either offset or
sequestered. This should primarily be achieved through a rapid
reduction in carbon emissions, but where zero carbon cannot be
achieved, offsetting through carbon credits or sequestration
through rewilding or carbon capture and storage needs to be
utilised.
OECD
Organisation for Economic Co-operation and Development
OFTO
Offshore Electricity Transmission project
PFI
Projects and Private Finance Initiative
Portfolio Inflation-linked return / Inflation-linked cash
flows
Non-GAAP measure. 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-linked cash flows is the increase in the portfolio
weighted average discount rate. This measure provides an indication
of the portfolio's inflation protection. There is no near
comparable in the financial statements.
PPP
Public-Private Partnerships
PRI
The UN-backed Principles for Responsible Investment
PwC
The Company's independent auditor PricewaterhouseCoopers CI
LLP
RNS
Regulatory News Service
RPI
UK Retail Price Index
Scope 1 emissions
Direct emissions from owned or controlled sources
Scope 2 emissions
Indirect emissions from the generation of purchased energy
Scope 3 emissions
All indirect emissions (not included in scope 2) that occur in
the value chain of the reporting company, including both upstream
and downstream emissions
SDGs
Sustainable Development Goals
SDR
The proposed UK Sustainability Disclosure Requirements
SFDR
The EU Sustainable Finance Disclosure Regulation
SONIA
SONIA is the effective reference for overnight indexed swaps for
unsecured transactions in the Sterling market
SPV
Special Purpose Vehicle
TCFD
Task Force on Climate-related Financial Disclosures
The Company
International Public Partnerships Limited
TOCs
Train Operating Companies
Total Shareholder Return ('TSR')
Non-GAAP measure. Share price appreciation plus dividends
assumed to be reinvested since IPO. T he total return based on the
NAV appreciation plus dividends paid since the IPO. There is no
direct reconciliation to the financial statements, being a
calculation instead
derived from the Company's share price. However a nearest
comparison were this measure based on a figure in the financial
statements is provided in the Strategic Report, Investor Relations,
Total Shareholder Return paragraph.
Transition risk
Transition risks include policy changes, reputational impacts,
and shifts in market preferences, norms and technology. Transition
opportunities include those driven by resource efficiency and the
development of new technologies, products and services, which could
capture new markets and sources of funding.
KEY CONTACTS
Investment Adviser Auditor Corporate Brokers
Amber Fund Management PricewaterhouseCoopers Numis Securities Limited
Limited CI LLP 31 Gresham Street
3 More London Riverside Royal Bank Place London
London 1 Glategny Esplanade EC2V 7QA
SE1 2AQ St Peter Port
Guernsey
Channel Islands
GY1 4ND
Registered Office Legal Adviser Public Relations
PO Box 286 Carey Olsen FTI Consulting
Floor 2, Trafalgar Court PO Box 98, Carey House 200 Aldersgate
Les Banques Les Banques Aldersgate Street
St Peter Port Guernsey London
Guernsey Channel Island EC1A 4HD
Channel Islands GY1 4BZ
GY1 4LY
Administrator and Company
Secretary Corporate Banker
Ocorian Administration Royal Bank of Scotland
(Guernsey) Limited International
PO Box 286 1 Glategny Esplanade
Floor 2, Trafalgar Court St Peter Port
Les Banques Guernsey
St Peter Port Channel Islands
Guernsey GY1 4BQ
Channel Islands
GY1 4LY
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