INTERNATIONAL
PUBLIC PARTNERSHIPS
Annual Report and Financial Statements
for the year ended 31 December 2014
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Contents
Investment Policy and Objectives
1 Key Points
2 Company Overview
2 About the Company
3 Key Portfolio Facts as at 31 December 2014
4 Top Ten Investments
5 Chairman’s Letter
8 Strategic Report
8
10 Strategy
12 Operating Model
16 Case Study: Investment Characteristics
17 2014 Financial and Operating Review
17 Key Performance Indicators
19
27 Active Asset Management
28 Value-focused Portfolio Development
29 Efficient Financial Management
30 Case Study: Investment Entity – Active Asset Management
32 Outlook
35 Principal Risks and Mitigation
Investor Returns
39 Corporate Governance Report
49 Audit and Risk Committee Report
52 Board of Directors
54 Directors’ Report
55 Directors’ Responsibilities Statement
Financial Statements
57 Independent Auditor’s Report
59 Financial Statements
63 Notes
www.internationalpublicpartnerships.com
International Public Partnerships Limited
Registered number: 45241
Cover image: Federal Ministry of Education and Research, Berlin, Germany.
For more details refer to page 30.
Key Points
6.30pps
2014 Full Year Distribution
6.45pps
2015 Full Year Distribution Target
6.65pps
2016 Full Year Distribution Target
127.0pps
NAV Per Share
£71.2m
Profit Before Tax
Net Asset Value
> Net Asset Value (‘NAV’)1 per share of 127.0 pence as at
31 December 2014 (123.0 pence – 31 December 2013)
> NAV of £1,062.1 million as at 31 December 2014, up
£126.7 million (£935.4 million – 31 December 2013)
Shareholder Returns
> 2014 fully covered cash dividend2 of 6.30 pence per share3
(6.15 pence per share - 31 December 2013)
> Two year forward looking fully covered minimum cash dividend
target for the years ended 31 December 2015 and 2016 of 6.45 and
6.65 pence per share respectively – maintaining a long-term average
increase of c.2.5% per annum
> Significant degree of inflation linkage within the portfolio - 0.85%
per annum projected increase in return for a 1% increase over
anticipated average portfolio inflation4
> Total Shareholder Return since listing in 2006 to 31 December
2014 of 98.5%5 compared to 47.7% on the FTSE All Share over that
same period or 8.8% and 4.9% (respectively) on an annualised basis
Earnings
> Profit before tax of £71.2 million for the year ended
31 December 2014 (£56.1 million – 31 December 2013)
Highlights
> Increase in fully or majority owned investments from 79.4% to
84.8% of portfolio
> Underlying investments with external debt6 represent 81.9% of the
investment portfolio
> Underlying investments with no external debt7 represent 18.1% of
the investment portfolio
> £188.2 million of additional investments made during the year and
a further £18.2 million since 31 December 2014
> Divested £22.3 million of stakes in non-strategic, minority projects
substantially in excess of the carrying value for these stakes at the
time of their disposal
> £95.0 million (before issue costs) of new equity capital raised from
shareholders
> Strong set of international and UK investment opportunities
1 The methodology used to determine investment fair value is incorporated within the Net Asset
Value (‘NAV’) as described in detail on pages 20–24.
2 Cash dividend payments to investors are paid from net operating cash flow (after taking into
account financing costs).
3 The forecast date for payment of the full year dividend is June 2015.
4 See pages 24 and 25 for information relating to the Company’s use of sensitivity analysis.
5 Source: Bloomberg. Share price plus dividends assumed to be reinvested.
6 Represent investments in equity and/or subordinated debt in underlying projects (‘Risk Capital’).
7 Represent investments in Risk Capital and senior debt in underlying projects.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 01
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Company Overview
About the Company
International Public Partnerships Limited
(the ‘Company’), in accordance with
its Investment Policy, invests in equity,
subordinated/mezzanine debt and
senior loans made to entities owning
or operating infrastructure concessions,
assets or related businesses.
> The Company’s shares are excluded
from the Financial Conduct Authority
restrictions which apply to non-
mainstream investment products and
can therefore be recommended by
independent financial advisers to their
clients (see page 48 for details)
Investment Adviser Fees
> Competitive fee structure
> 1.2% per annum of gross asset value
(‘GAV’) of investments bearing
construction risk
> For fully operational assets:
• 1.2% per annum of the GAV
(excluding uncommitted cash from
capital raisings) up to £750 million
• 1.0% per annum where GAV
(excluding uncommitted cash
from capital raisings) is between
£750 million and £1.5 billion
• 0.9% per annum where GAV
(excluding uncommitted cash from
capital raisings) value exceeds
£1.5 billion
> 1.5% asset origination fee of the value
of new investments to cover acquisition
due diligence
> Investment Adviser bears the risk of
abortive transaction origination cost
> No incentive or performance fees
> Further details can be found in the
Strategic Report on pages 13 and 15
Investments have included schools,
courthouses, health facilities, police stations,
and other public sector buildings, rail
operations, rolling stock leasing entities and
offshore electricity transmission asset
owning entities. The Company’s investments
are located in the UK, Europe, Australia and
Canada.
Whilst the Company is able to invest in
regulated infrastructure and other forms of
economic infrastructure projects, to date
it has primarily invested in entities holding
physical infrastructure and associated
services procured under Public Private
Partnerships (‘PPP’)/Private Finance
Initiative (‘PFI’) and similar processes. The
Case Study on page 16 provides more
detail on these structures.
Features of International Public Partnerships
Limited and its investment portfolio are:
Portfolio
> Geographically diversified with a
portfolio across seven countries in a
variety of sectors
> A focus on yielding operational
investments but with some ‘in
construction’ with prospects for future
capital appreciation
> A significant degree of inflation linkage
to investment returns – a 1% per annum
increase in the anticipated rate of
inflation across the portfolio would imply
a 0.85% per annum increase in return
across the portfolio
> The Investment Adviser has historical
success in originating and developing
investment opportunities in new sectors
with low risks relative to returns
> A high degree of management and
control of underlying investments to
support sustained performance
> Access to a pool of pre-emptive and
other preferred rights to increase
investment in assets that have proven
performance within the existing portfolio
> Operational performance and income
from underlying investments is
predominantly founded on asset
availability, not demand, usage or
other non-controllable variables
> A significant portion (14.3%) of the
portfolio is investment in secured senior
debt (where no other debt ranks in
preference to the Company’s investment
in the asset)
Shareholder Returns
> Strong track record of delivering
consistent dividend growth and
capital appreciation
> Share liquidity through listing and trading
on the London Stock Exchange
> Target internal rate of return equal to or
greater than 8% per annum, set at the
time of initial public offering in 2006
Governance
> Experienced independent leadership
and strong corporate governance
> Long-term alignment of interest with the
Investment Adviser and asset manager
Market Information
> FTSE listed since November 2006
with an initial market capitalisation
of £300 million
> Member of the FTSE 250 and FTSE All
Share indices
> £1,132 million market capitalisation as at
31 December 2014 (2013: £972.9 million)
> 836.2 million shares in issue as at
31 December 2014 (2013: 760.6 million)
> The Company’s shares are eligible for
ISA/PEPs and SIPPs transfers
02 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Key Portfolio Facts as at 31 December 2014
Sector Breakdown
Geographical Split
■ Energy transmission
■ Education
■ Transport
■ Health
■ Courts
■ Police Authority
■ Custodial
■ Other
33%
22%
20%
9%
7%
4%
1%
4%
■ UK
■ Belgium
■ Australia
■ Germany
■ Canada
■ Ireland
■ Italy
67%
13%
9%
5%
4%
2%
<1%
112 investments in infrastructure projects1 across a
variety of sectors
Invested in selected jurisdictions which meet the
Company’s risk and return requirements
Investment Type
Mode of Acquisition/Asset Status
■ Risk Capital only
■ Company owns
Risk Capital and
Senior Debt
82%
18%
■ Construction
■ Operational
■ Primary Investor2
■ Later Stage Investor3
<1%
99%
90%
10%
Invested across the capital structure taking into
account appropriate risks to returns
Early stage investor to maximise capital
growth opportunities
Project Ownership
Concession Length
■ 100%
■ 50%–100%
■ <50%
79%
6%
15%
■ <20 years
■ 20–30 years
■ >30 years
47%
35%
18%
Preference to hold majority stakes
Weighted average portfolio life of 22 years
1
Information provided in charts above is based on 31 December 2014 portfolio investment fair value. Unless otherwise stated the Company and its subsidiaries hold
investments in equity, subordinated debt and senior loans made to entities owning or operating infrastructure concessions, assets or related businesses most of which
are investment subsidiaries.
2 Primary stage investor – asset developed or originated by the Investment Adviser or predecessor team.
3 Later stage investor – asset acquired from another investor in the secondary market.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 03
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Top 10 Investments
For more information go to:
www.internationalpublicpartnerships.com
A complete listing of the Group’s investments can be found in note 23 of the financial statements and further information about each of
these investments is available on the Company’s website.
Significant movements in the Group’s portfolio for the year ended 31 December 2014 can be found on page 28 of the Strategic Report.
Name of Project
Lincs Offshore
Transmission1
Location
Lincolnshire,
England
Sector
Energy
Transmission
Status at
31 December
2014
Operational
% Holding at
31 December
2014
100% Risk
Capital2
% Investment
Fair Value
31 December
2014
16.29%
% Investment
Fair Value
31 December
2014
N/A
Diabolo Rail Link3 Brussels,
Transport
Operational
Belgium
Ormonde Offshore
Transmission
Cumbria,
England
Energy
Transmission
Operational
Royal Children’s
Hospital
Victoria,
Australia
Health
Operational
100% Risk
Capital2
100% Risk
Capital2 and
100% senior
debt
100% Risk
Capital2
13.80%
15.55%
12.52%
14.90%
4.47%
5.18%
BeNEX Rail
Various,
Germany
Transport
Operational
49% Risk
Capital2
3.52%
4.18%
Hereford &
Worcester Courts
Worcestershire,
England
Courts
Operational
Northampton
Schools
Northamptonshire,
England
Education
Operational
100% Risk
Capital2 and
100% senior
debt
100% Risk
Capital2
3.20%
4.09%
3.18%
3.91%
Alberta Schools
Alberta,
Canada
Education
Operational
100% Risk
Capital2
2.65%
3.45%
Strathclyde Police
Training Centre
Strathclyde,
Scotland
Police
Authority
Operational
Tower Hamlets
Schools
London,
England
Education
Operational
100% Risk
Capital2 and
100% senior
debt
100% Risk
Capital2
2.34%
2.99%
1.99%
2.46%
1 Lincs OFTO was acquired by the Group in November 2014.
2 Risk Capital includes both project level equity and subordinated shareholder debt.
3 Northern Diabolo project revenues are dependent on availability but also include an element of linkage to passenger numbers. All other investments receive entirely availability
based revenues.
04 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Chairman’s Letter
Investment Activity and Capital Raising
The markets in which the Company operates continue to be
very buoyant. This is positive for our existing assets as the rates
at which comparable assets are traded provide evidence of the
value of our own assets. However, as we have previously noted,
the strength in the market also provides a challenge for sourcing
value-enhancing investments on an ongoing basis. This is
particularly the case for assets which are traded in the ‘secondary
market’ where competition for such assets has pushed pricing to
levels that we believe would not be accretive to our portfolio.
The Company believes that its differentiated strategy of preferring
to acquire investments off-market, by exercising pre-emption
rights in existing investments and via the origination activities of its
Investment Adviser, Amber Fund Management Limited (‘Amber’)
continues to be the most effective way to secure new assets for the
portfolio – these avenues often have reduced levels of competition
and through these better value can be achieved for shareholders.
Indeed the five investments made during the period, representing
investment of £188.2 million (2013: £36.5 million), were all made on
this basis. A further £18.2 million has been committed to the first
two of five batches of schools being delivered through the Priority
Schools Building Programme’s ‘Aggregator’ funding vehicle earlier
this month.
This preferred access to new opportunities should be further
enhanced through the recently announced link-up between Amber
and the Hunt Companies (more details of which are referred to
below). This has resulted in the grant to the Company of additional
rights of first look in respect of certain new investments, of a type
consistent with our existing portfolio, within the United States and
we look forward to an enhanced flow of projects from this source
in the medium term.
New investments in 2014 were funded through a mix of the
Company’s existing resources, including its corporate debt facility,
together with share capital raised (by means of a tap issue) in
November 2014. This capital issuance was extremely well
supported and closed oversubscribed with a mix of existing and
new investors, raising £95 million, well in excess of the £70 million
originally targeted. The capital was immediately fully deployed
in reducing the balance of the Company’s revolving debt facility.
We would like to thank all those shareholders who participated in
the offer for their support.
Despite the record level of investment in 2014 the Company
remains very focused on adding to its portfolio in a measured
way, choosing to do so only where it considers an investment
represents good value. The addition of such a large volume of
investment in 2014 contrasts with the position in 2013 and is
reflective of the many years of work that are often required to
develop and execute these transaction opportunities. The timing
of the completion of these projects is often difficult to predict.
Rupert Dorey
Chairman
Dear Shareholders,
It is with great pleasure that I am able to report to you on another
successful year for the Company.
The year has been an active one with all our assets performing well
and record levels of new investment being made. The Company’s
market capitalisation at year end of over £1.1 billion very much
reflects the ongoing positive development of our portfolio of
infrastructure projects.
Dividend Growth
The Board understands that the Company’s ability to deliver
consistent and growing dividends is a key factor in many of our
shareholders’ decisions to invest in the Company. It is therefore
pleasing to report to you that the Company was again able to
deliver its dividend target for the year of 6.30 pence per share or
c.2.5% growth, a rate of growth that has been consistent since the
Company’s inception eight years ago.
We remain focused on the ability of the Company to continue to
grow fully covered cash dividends and we are confident that this
can be achieved. The Board have therefore once again published a
minimum dividend target being 6.45 pence per share for 2015 and
new guidance of 6.65 pence per share for the 2016 dividend, an
average increase of c.2.5% per annum, to give additional clarity
to shareholders as to our intentions in the future.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 05
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements
Chairman’s Letter continued
In addition to the acquisitions made during the period, the
Company disposed of a number of minority interests within its
portfolio generating proceeds of £22.3 million (being substantially
in excess of the carrying value of these stakes at the time of their
disposal). While the Company does not expect to trade assets
regularly, preferring instead to retain the long-term income
generation potential of its holdings, these ‘secondary market’
pricing levels validate the increased popularity and attractions of
the asset class in which the Company is invested.
Portfolio Performance
The operational performance of the Company’s portfolio continues
to be excellent. Significant progress was made during the year in
the ongoing management of the portfolio where we continue to
focus on delivering our expected returns, managing our public
sector customer relationships and enhancing the investments
through efficient management and contract variations requested
by our public sector clients.
Corporate Governance and Regulation
The Board is required by the UK Corporate Governance Code to
commission periodic external assessment of its procedures and
corporate governance. The first such formal review took place in
2014 and I am pleased to advise that the Board was found to be
performing extremely well. Only minor improvements were
suggested and all have been implemented.
Two new Board committees were formed during the period – the
Investment Committee and the Nominations and Remuneration
Committee. Previously these functions were performed by the full
Board (absent the representative of the Investment Adviser as
appropriate). However, the new committees reflect the increased
importance the Board believe should be given to the process
governing these matters and to provide additional transparency
to shareholders. Further details of all the Board’s committees
can be found in the Corporate Governance section and terms
of references are available on the Company’s website.
Our control over the operational performance of our investments
is a key point of differentiation – other investment vehicles in
the sector often outsource responsibility for such asset level
management activity to unrelated third party construction/facilities
management contractor parties. However, we believe that strong
asset-level relationships with public sector clients are a key factor
in both protecting our reputation and safeguarding investment
performance. The Company continues to benefit from our
relationship with Amber in this respect, particularly for the majority
of investments where Amber is responsible for the detailed
day-to-day delivery of management services and relationships
with our public sector clients. Evidence of this is the successful
conclusion of a number of construction projects, which were
finished on budget and on time, in part because of Amber’s
oversight of key contractors.
The macroeconomic environment continues to be of relevance to
our performance. Long-term inflation expectations continue to run
at levels above our base case assumptions but short-term inflation
rates are low and the prospect of deflation exists in some Eurozone
countries. We receive regular enquiries from investors as to how
we estimate our portfolio would perform in various inflationary or
deflationary scenarios. To assist shareholders we have provided
some additional sensitivity forecasts focusing on this point in this
report (refer page 25). I am pleased to say we estimate our
performance is likely to remain robust in such scenarios.
We are very aware that most of our investors hold our stock with
a view to the long-term income that we expect to generate and
we continue to focus on improving the certainty and quality of this
income as much as we can.
The Audit and Risk Committee has also spent time with the
Investment Adviser performing a detailed review of existing and
emerging risks affecting the Company. The results of this have
been captured where relevant within the Principal Risks and
Mitigation section of this Annual Report. Of particular note is the
current OECD coordinated effort to align certain tax rules with the
aim of preventing ‘tax base erosion and profit shifting’ but which
may inherently expose the Company and the sector as a whole
to potential unintended consequences. For example, during the
period, the OECD issued a consultation paper setting out its
proposals for national legislators to consider ‘best practice’ rules
for the restriction of tax relief for debt interest. The OECD paper
specifically seeks feedback as to whether the infrastructure sector
should benefit from a carve-out from such proposals. However, it is
currently uncertain to what extent the proposals will be amended
or accepted and it remains to be seen the extent to which they
will be adopted by national legislators. The OECD action is set to
conclude in September 2015. The Board and Investment Adviser
are actively engaging with the relevant industry bodies and advisers
and will continue to monitor and report back to shareholders on
significant developments as they evolve.
The other major regulatory change that affected the Company in
the period was the European Union’s Alternative Investment Fund
Managers Directive (‘AIFMD’) which came into force. I am pleased
to report that the Company has notified the Financial Conduct
Authority in the UK that, as a Guernsey domiciled self-managed
Alternative Investment Fund, in accordance with the National
Private Placement Regime, the Company is able to market within
the UK. We hope, over time, that this will also improve the ability of
the Company to market its shares across the EU although this is
highly dependent on the differing degrees to which various EU
countries facilitate this.
06 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Investment Adviser
As noted above, earlier this month, Amber our Investment Adviser
agreed to the Hunt Companies (‘Hunt’), a privately owned US
group with similar activities to those of the Amber group of
Companies, becoming a 50% shareholder in the holding company
of the Investment Adviser with existing director and management
shareholders continuing to hold the remaining shares.
The transaction offers the potential to expand the activities of both
the Investment Adviser and the Company into the United States
which is widely seen as one of the largest growth markets for
infrastructure investment in the developed world. The Company
believes that this is an exciting and forward looking transaction with
an experienced and well-established partner who benefits from
strong links to the public sector in the United States.
As part of this transaction the Company has been granted a right
of ‘first look’ in similar terms to the right it already enjoys with
Amber which will extend to such of Hunt’s activities in public
infrastructure projects which meet the Company’s investment
criteria in the United States.
The terms of the transaction between management and Hunt
prohibit any sale of shares by either Hunt or Amber’s management
for a minimum term of four years and there will be no changes to
management personnel within Amber or the way in which the
Investment Adviser and the Company interact. The transaction is
subject to FCA approval.
Outlook
The Company’s performance in the first few months of 2015
has continued to offer promise for the future both in terms of
the performance of existing investments and new opportunities.
We continue to have a high degree of confidence in the existing
portfolio’s ability to generate increasing returns for investors in
line with published expectations. We are also encouraged by the
number of new opportunities which we see.
While there is undoubtedly increased competition for the types of
assets in which the Company invests, we remain confident in the
ability of the Company and its Investment Adviser to continue to
identify and execute new investments in core markets to strengthen
the Company’s portfolio further.
Where new investment opportunities do arise we will continue
to be selective in those acquisitions which we bring into the
portfolio to ensure that they bring long-term value to shareholders.
Further details are provided within the Outlook section of the
Strategic Report.
I thank all shareholders for their support of the Company in 2014
and look forward to continuing to serve them in 2015.
Rupert Dorey
25 March 2015
Chairman
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 07
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
Investment Policies and Objectives
Investment Objectives
The Company seeks to provide shareholders with a predictable,
attractive and sustainable investment yield in addition to the
potential for capital appreciation of the investment portfolio.
The Company targets a minimum annual dividend (which for 2015
is targeted to be 6.45 pence per Ordinary Share and for 2016
is targeted to be 6.65 pence per Ordinary Share or a minimum
average increase of c.2.5% per annum) and seeks to continue to
increase this annually by a similar rate where sustainable to do so.
The Company also targets an internal rate of return (‘IRR’) equal
to or greater than 8% per annum on the Initial Public Offer issue
price of 100 pence per Ordinary Share to be achieved over the
long-term. The Directors seek to achieve this through asset
development, future acquisitions, active management and prudent
use of gearing. The 2014 Financial and Operating Performance
Review section provides further information relating to performance
during the year.
Investment Policy
The Company’s investment policy is to invest directly or indirectly
in public or social infrastructure assets (usually via entities which
have been granted a concession to operate and manage those
assets) and related businesses located in the UK, Australia,
Europe, North America and, it is anticipated, in due course, in
other parts of the world where the risk profile meets the Company’s
risk and return requirements.
The Company intends to continue to acquire operational and
construction phase assets and hold them for the long-term or life
of the asset (or concession), unless there is a strategic rationale for
earlier realisation. The Company will seek to enhance the capital
value and the income derived from its investments. The full
Investment Policy is available on the Company’s website
www.internationalpublicpartnerships.com.
Investment parameters
The Company intends to acquire further investments within the
following parameters:
> investments with characteristics similar to the existing portfolio
> investment in other assets or concessions having a public or
social infrastructure character and in respect of which:
• availability based payments are or will become payable
• a property rental is or will become payable, or
• user paid charges (or payments related to amount of use)
are or will become payable
> investments in infrastructure assets or concessions characterised
by high barriers to entry and expected to generate an attractive
total rate of return over the life of the investment
Portfolio composition
The Company may make investments in any location or jurisdiction
where the investment meets the parameters set out above,
although the Company does not currently expect to invest in
projects in non-OECD countries.
The Company will, over the long-term, seek a spread of investments
both geographically and across industry sectors in order to achieve
a broad balance of risk in the Company’s portfolio.
The actual asset allocation will depend on the maturity of
development of the local infrastructure investment market, wider
market conditions and the judgement of the Investment Adviser
and the Board as to the suitability of the investment from a risk and
return perspective. Key Portfolio Facts on page 3 has details of the
current composition of the investment portfolio.
Investment restrictions
The Company’s investment policy restricts it from making any
investment of more than 20% of the Company’s total assets in
any one investment at that time.
This policy does not however oblige the Company to rebalance
its investment portfolio subsequently as a result of a change in
the net asset value of any investment or the Company as a whole.
However, its purpose is to limit the risk of any one investment to
the overall portfolio.
The Company is also subject to certain restrictions pursuant to
the UKLA Listing rules, i.e. to invest and manage assets with
a view to spreading or otherwise managing investment risk in
accordance with the Investment Policy; to not conduct a trading
activity which is significant to the Group; to not hold more than
10% of its total assets in other listed closed-ended investment
funds. Currently the Company has no investment in any listed
closed-ended investment funds.
Managing conflicts of interest
It is expected that further investments will continue to be sourced
by the Investment Adviser, Amber Fund Management Limited.
It is likely that some of these investments will have been originated
and developed by, and in certain cases may be acquired from,
members of the Amber Infrastructure Group.
The Company has established detailed procedures to deal with
conflicts of interest that may arise and manage conduct in respect
of any such acquisition. The Company’s Board is required, in
accordance with the UKLA Listing Rules, to have a majority of
independent members and a Chairman who is independent from
the Investment Adviser. The Operating Model section within this
Strategic Report sets out the operating model for the Company
and the Corporate Governance Report sets out more details on
the conflicts management process.
08 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Financial management
The Company may hold derivative or other financial instruments
designed for efficient portfolio management or to hedge interest,
inflation or currency risks.
Subject to the strategy approved by the Board, the Investment
Adviser manages such hedging activities for the purpose of
efficient portfolio management to enhance returns from the
portfolio. Hedges are not entered into for speculative purposes.
Further details on the Company’s use of hedges are provided in
the financial statements in note 13.
The underlying entities into which the Company invests often are
leveraged. Any debt assumed by these vehicles is non-recourse to
the Company and variable interest rate debt is swapped to fixed
rates at that project’s inception to ensure that the cost of the debt
is known over the life of the project concession.
The Company may make prudent use of leverage to enhance
returns to investors, to finance the acquisition of investments
in the short-term and to satisfy working capital requirements.
Under the Company’s Articles, outstanding borrowings at the
Company level, including any financial guarantees to support
subscription obligations in relation to investments, are limited to
50% of the Gross Asset Value of the Company’s investments
and cash balances. The Company has the ability to borrow in
aggregate up to 66% of such Gross Asset Value on a short term
basis (i.e. less than 365 days) if considered appropriate. Currently,
the Company’s corporate debt facility, which was increased
to £175 million in January 2014, as at the date of this report is
£27.2 million drawn (see page 29 for further details).
The Company and Group may borrow in currencies other than
GBP as part of its currency hedging strategy.
Operating cash surpluses and funds pending investment are held
in cash, cash equivalents, near cash instruments, money market
instruments and money market funds and cash funds.
Changes to investment policy
Material changes to the investment policy summarised in
this section may only be made by ordinary resolution of
the shareholders in accordance with the UK Listing Rules.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 09
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements
Strategic Report
Strategy
The Company’s strategy, which is determined by and reviewed by
the Board, can be divided into three different but inter-linked areas
of focus. In combination, these areas of focus assist the Company
to manage its investments and finances throughout the investment
cycle and, where justified, identify new investment opportunities
which meet its investment objectives. The Company’s 2014
performance is measured against these as summarised on
pages 8 and 9.
1. Active Asset Management
2. Value-focused Portfolio Development
3. Efficient Financial Management
Strategy
> Focus on delivery of anticipated returns
from existing assets
> Maintain high levels of public sector
satisfaction and asset performance
> Deliver additional capital value from
existing assets through management of
construction risk and delivery of operational
improvements to meet client requirements
> Through relationships with co-shareholders and
pre-emptive rights where applicable increase
individual investment holdings to 100% where
beneficial
> Efficient financial management of cash
holdings and debt facilities available for
investment and appropriate hedging strategies
> Make additional acquisitions where possible, ideally
off market, at prospective returns that are beneficial
in risk/return terms
> Enhance prospects for capital growth by investing
as primary investor and/or in construction phase
assets where available
> Identify complementary investment sectors within
the Company’s investment policy offering better
returns with a similar risk profile
> Take advantage of infrastructure opportunities
internationally where investments have an
appropriate risk profile and contractual structures are
reliably enforceable to enhance diversification
> Undertake ongoing review of portfolio composition to
ensure a suitable blend of risk/return, inflation
linkage, yield versus capital characteristics, level of
diversification and opportunistic enhancements
1. Active Asset Management
The delivery of returns anticipated to be received from the
Company’s investments is fundamental to the Company’s
performance. The Company takes an active approach to asset
management, encouraging the Investment Adviser and its
associates to maximise cash flow from its investments in ways
that are consistent with delivering high levels of service to the
underlying assets’ public sector clients. These relationships and
the Company’s overall approach are described in more detail in
the Operating Model section below. The success of the Company’s
policy of active asset management can be seen through a
combination of the Company’s record in receiving investment cash
flows in line with projections and the level of satisfaction that public
sector clients have with the facilities which they occupy.
2. Value-focused Portfolio Development
The second aspect of the Company’s strategy is to seek out
further attractive investments that can improve the overall quality
of projected returns from the Company’s portfolio. To this end
the Company works closely with its Investment Adviser to seek
out new opportunities which meet the Company’s desired risk
and return profile. Historically this has included both ‘primary’
investments where the Company (or its Investment Adviser) have
originated a new project and ‘secondary’ investments where an
existing investment is acquired from a third party.
The Company does not have a preference as to whether the
investments it acquires are characterised as senior debt,
subordinated debt or equity (or a combination of any of these).
What is relevant to the Company is the risk adjusted return
available to it from such investment.
The Company’s preference is to own majority or 100% holdings in
its investments, where possible, in order to have full oversight and
control over underlying investment performance. The Company’s
strategy during the year has therefore been to continue to make
incremental investments in existing projects where available and
beneficial to the overall risk/return profile of the Company.
The Company has also targeted, and expects to continue to
target, overseas markets where it has experience from existing
investments and client relationships, and where it and its
Investment Adviser have operational experience of the
effectiveness of contractual structures, to mitigate risks.
In recent times, the level of market competition for assets sold
through open auction processes has led the Company to focus
its strategy particularly on identifying niche, off-market, secondary
opportunities and continuing to develop its access to primary
market transactions. The Company continues to see such
opportunities offering attractive returns for the level of risk.
10 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
> Delivery of returns
> Public sector client satisfaction
> Management of risk
> Capital and cash management
> Treasury and hedging
ctive
set
em e n t
A
.
1
s
A
g
a
n
a
M
3
.
F
M
i
E
a
n
n
a
ffi
a
n
c
g
c
i
i
e
e
a
n
l
t
m
e
n
t
d
2. Value fo c u s
Portfo l i o
Developm e n t
e
> Build controlling stakes
> Off-market preferred opportunities
> Optimise risk versus return
> Diversification
> Inflation linked yield
> Capital growth prospects
The Company considers that it has sector differentiation and a
competitive advantage in being able to take this approach through
the strong record of its Investment Adviser (and its associated
group) in developing new opportunities and gaining early-mover
competitor advantage in relatively new growth sectors such as
OFTOs1.
As a consequence, the Directors believe that the Company will
continue to be well placed to take advantage of similar off-market
and emerging sector opportunities in the future as well as
on-market opportunities that may emerge. For further details,
refer to the Operating Model section of this Strategic Report.
3. Efficient Financial Management
The Board seeks to manage returns on operating cash surpluses
and efficiently manage cash available for investment through
prudent use of a corporate debt facility. The Company also seeks
to use foreign exchange derivatives, interest rate swaps and other
appropriate hedging strategies to protect investment returns where
appropriate to do so, in accordance with the Investment Policy (see
Investment Policy section). Currently the Company only has foreign
exchange forward contracts in place (excluding hedging
arrangements at the underlying investment entity level).
1 Offshore electricity transmission owner licensed entities.
Portfolio development also includes realisation of value for investors
through divestment, particularly where investments are no longer
core or are minority holdings and where the acquisition of further
investment to a majority position is considered unlikely.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 11
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements
Strategic Report
Operating Model
Investment
fund
Investment
entities
INTERNATIONAL
PUBLIC PARTNERSHIPS
Board and Committees
> Setting strategy
> Independent investment
decision making
> Risk management, governance and
oversight
AMBER
Investment Advisers
> Investment Management
> Portfolio investment advice
> Management of fund level activity,
tax and accounting
> Detailed fund and investment
level reporting
INVESTMENT
ENTITIES
AMBER
Board Representatives
> Direction and governance of all
underlying investment entities
> Focus on key issues, risks to deliver
agreed client outcomes and
shareholder value
Integrated service provision
Key Aspects of the Operating Model
The diagram above illustrates the Company’s operating model,
which is founded upon:
> Strong independent Board leadership and governance
> A long-term alignment of interest with its Investment Adviser
and other key suppliers
> Consistent communication and delivery of strategy throughout
the Group
> A vertically integrated model which gives the Company visibility
of and a relationship with its public sector customers
> An experienced Investor Adviser team, expert in all aspects
of infrastructure development, investment and management
> A disciplined approach to asset selection and country risk
> A focus on acquiring controlling stakes (or minority positions
where strategically beneficial to do so)
Board and Committees
The Board sets the strategy for the Company and makes decisions
on changes to the portfolio (including approvals of acquisitions,
disposals and valuations). Through committees and the use of
external independent advisers it manages risk and governance of
the Company. The Board has a majority of Independent Directors
– currently four of the five Directors are independent. See the
Corporate Governance Report for further details.
Investment Adviser
The Company’s Investment Adviser is Amber Fund Management
Limited (a member of the Amber Infrastructure Group Holdings
Limited group of companies).
12 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Investment
entities
Public Sector Client
Construction Contractor
AMBER
Asset Management
> Day-to-day investment entity
management
> Close relationship with public sector
client maintained throughout project life
> Key management interface between
client and all service/debt providers to
underlying investments
> Skilled and experienced treasury,
finance, project management personnel
> Entity level tax, accounting
and reporting
Debt Providers
Facilities Management Contractor
Contractual arrangements and fees
The contractual arrangements allow for the provision of investment
advisory and certain other financial services to the Board. In return,
the Investment Adviser receives fees based on the gross asset value
and composition of the investment portfolio as well as a contribution
to expenses. The annual base fees are detailed in note 19 to the
financial statements and calculated at the following rates:
> 1.2% for that part of the portfolio that bears construction risk
(i.e. the asset has not fully completed all construction stages
including any relevant defects period and achieved certification
by the relevant counterparty and senior lender)
> For fully operational assets:
• 1.2% for the first £750 million of gross asset value of the
portfolio
• 1.0% for that part of the portfolio that exceeds £750 million
in gross asset value but is less than £1.5 billion
• 0.9% for that part of the portfolio that exceeds £1.5 billion
in gross asset value
The Company has a long-standing relationship with the Investment
Adviser and the Board believes that the continuation of this
relationship, on a long-term basis, is in the Company’s best
interest. The current Investment Advisory Agreement (‘IAA’) was
renegotiated in 2013 and has a ten year fixed term with a five year
notice period. The Board consider that given the long-term nature
of the Company’s investments and its responsibility for the detailed
day-to-day delivery of management services and relationships
with public sector clients, it is important that it benefits from the
continuity of service provided by a long-term advisory partner.
In order to ensure that shareholder interests are protected,
termination provisions have been put in place to ensure that, in the
event of poor investment performance, the Company has flexibility
to remove the Investment Adviser.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 13
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
Operating Model continued
The Investment Adviser is also entitled to receive an asset origination
fee of 1.5% of the value of new investments acquired by the Group.
It should be noted that, generally, the Investment Adviser bears the
risk of abortive transaction origination costs and that this fee has
been waived or reduced by agreement in the past where it has
been deemed appropriate to do so for the transaction in question.
No other transaction fees may be paid to the Investment Adviser
(otherwise than at the absolute discretion of the Board). No such
fees were paid in 2014 or are anticipated to be paid.
For the avoidance of doubt, cash receipts from capital raisings
and tap issuances from the gross asset value are not within the
calculation of base fees until such receipts are invested for the
first time.
Further information and details of the Board’s process for
independent management and review of the relationship between
the Investment Adviser and the Company are set out within the
Corporate Governance Report.
Group Structure
The Company holds its investments through a number of holding
entities including an English law limited partnership of which
one of its subsidiaries is the sole limited partner and a company
associated with the Investment Adviser is the general partner.
Beneath these holding entities the Company’s investments are held
in special purpose investment entities so that, as far as possible,
each investment is held in a separate entity to avoid cross
collateralisation between investments.
Investment entity asset management
Underlying investment entities (particularly PPP/PFI entities) do not
typically have their own employees, although there are exceptions
to this. Instead, normal practice is for such services to be
subcontracted at the time of project inception to specialist asset
management entities. The role of the asset manager is to manage
all interfaces between the investment entity, the client, financiers
and supply chain sub-contractors.
Such services are generally provided directly to each investment
under asset management contracts specific to that investment
entity. Services typically include day-to-day management, issue
resolution, monitoring and reporting for the entity and can cover
operational, regulatory, compliance, accounting, tax, company
secretarial and other related services specific to each entity.
Under typical PFI/PPP structures such services are generally
provided in return for a fixed fee to third party service providers
under contracts put in place at the inception of the PFI/PPP
project after a period of competition.
The Company’s preference for the majority of its investments is
for associates of the Investment Adviser to provide such services
to the relevant entity. This ensures that financial and operational
aspects are performed in house by Amber rather than
subcontracted to other third party service providers who have less
incentive to focus on delivery of desired outcomes. The contracts
and fees payable for such asset management services (whether
with third parties or, where Amber provides these services,
associates of the Investment Adviser) are generally set in real terms
for the life of the project and agreed at the time of documentation
of the project with the public sector (which in many cases will be
prior to the Company’s investment). These form part of the project
costs along with other project service related costs (and are thus
outside the Company’s direct control) but the Company’s projected
investment returns are calculated after taking account of all such
project costs.
A breakdown of typical project costs in the operational stage of an
investment appears on page 16. Following the adoption of IFRS 10
(Investment Entity – Consolidation Exemption) all underlying
project level costs (and project level revenues) are now excluded
from the Group’s financial statements. Instead and consistent
with other investment funds, the financial statements present
investment returns received from underlying investments (received
out of investment entity net cash flows).
Investment origination
The Investment Adviser plays a key role in identifying, developing
and originating investment opportunities that meet the Company’s
requirements and putting these forward to the Board of Directors
for initial consideration and, where appropriate, final approval.
These opportunities may lead to the Company investing in such
projects and/or acquiring investments from associates of the
Investment Adviser. Where investments are acquired from
associates of the Investment Adviser, such investment
consideration is undertaken in accordance with detailed
procedures designed to ensure the fair treatment of the Company
and to ensure the valuation is approved independently by a suitably
experienced third party valuer. More details are set out in the
Corporate Governance Report.
Where associates of the Investment Adviser undertake project
origination and development activity (e.g. bidding for new primary
projects) they do so at their own risk and bear the risks of lack of
success and associated abortive costs (which on large projects
can be substantial). The Company does however have a
contractual right of first look at such investment opportunities either
on financial close or, if originally invested in by an associate of the
Investment Adviser, upon disposal of that investment. Following
success in project origination and development activity, fees and
costs will in the normal course be payable on financial close of the
opportunity to a range of service providers (including associates of
the Investment Adviser) relating to matters such as reimbursement
of bid costs, and in respect of legal, technical, development and
financial advisory work. For the avoidance of doubt, such amounts
are not paid by the Company but by the project entity formed to
carry on that project and any such amounts form part of the overall
capital or project costs bid and agreed with the public sector (and
are thus outside the Company’s control). The Company’s projected
investment return from any prospective investment is calculated
after taking account of all such costs.
14 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Relationship with the Investment Adviser and its group
> Enhance returns through hands-on management of
contractual variations and additional service requirements
> Align day-to-day operational management, financial
management, tax and accounting, issue resolution
and contract management with investment objectives
(not just board representation)
> Avoid conflicts of interest between asset and finance
management and the subcontractor supply chain
The Company’s operating model is also differentiated through
the capability of the Company’s Investment Adviser to originate
new primary market transactions which provide the Company
with access to off-market opportunities not afforded to other
infrastructure investment funds. These opportunities typically take
three years or more to gestate and are regularly reviewed between
the Company and its Investment Adviser. Under the terms of
the Investment Advisory Agreement the Company has a right of
‘first look’ at investments fitting its investment mandate that are
being realised by Amber. This has been extended to include
opportunities by the Investment Adviser with Hunt (as described
in the Chairman’s Letter). The access that the Company has had
to such ‘primary’ opportunities (alongside the access that the
Company has, in common with other funds, to ‘secondary’
opportunities) broadens the Company’s opportunity set for
new investments.
This allows the Company to benefit from:
> Primary investment opportunities developed with the
Company’s long-term strategy and objectives in mind
> A greater ability to structure new projects to meet returns
and inflation linkage requirements
> Transactions structured to be low risk based on direct
asset management and contract management experience
> Experienced finance, accounting, legal, construction and
facilities management expertise familiar with developing
new investments and managing them. This leads to the ability
to perform due diligence analysis on investments offered
for sale in the secondary market based on greater hands-on
experience
> Access to senior debt as well as equity and subordinate debt
investment opportunities
International Public Partnerships Limited
Experienced Independent Board
> Consistent
communications
> Vertically integrated
> Alignment of
interest
AMBER
> Experienced team >80 people
> Selective and disciplined investment approach
> Integrated model
Originate
and Develop
Invest
Asset
Management
Differentiation of Operating Model
The operational structure of the Company and the investment
entities it invests in and through is designed to align the interests
of those entities with the Company. The Company’s preferred
operational structure and the structure of the Investment Adviser
and its associates (acting as investment adviser, operator and
asset manager) effectively extends the Board’s oversight to the
underlying asset management and finance teams enabling it to
be an active rather than a passive investor.
The Investment Adviser and its associates employ more than
80 personnel, the majority to support the Company and its
investment entities in the provision of financial and asset
management services. This operating model contrasts with
competitor models that have tended to employ smaller teams
and instead outsourced some or all of such services (often to
associates of the construction/facilities management firms already
providing potentially conflicting services to the investment entities).
The Company believes its operating structure differentiates it within
the market and provides it with greater control of the performance
of its underlying investments (for example management of lifecycle
cost risk or control of contract variations). The Investment Adviser
acts on the Company’s behalf, managing the day-to-day issues
and interfaces between public sector client and subcontractor
supply chain partners. This enables the Company, without
additional cost, to:
> De-risk the investment entity through managing the pass-down
of risk to subcontractor supply chain
> Oversee service and availability level
> Have greater confidence in the deliverability of forecast cash flow
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 15
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Case Study
Investment Characteristics
Public Private Partnerships/Private Finance Initiative
Public Private Partnerships (‘PPP’) and projects procured in the UK
under the Private Finance Initiative (‘PFI’) regime typically have the
following characteristics although individual transactions may
exhibit some variations. Offshore transmission assets have similar
characteristics but to date have been acquired by the Company
with all construction works complete at the time of investment.
> Open competitive process to appoint infrastructure provider
> Concession contracts or license based long-term revenue
> Income based on availability of the infrastructure asset and
provision of services to specification with deductions for poor
performance/availability
> Income fully or partially linked to inflation
> Procured by the public sector as a purchaser of services – the
public sector determines the performance standards it requires
(e.g. number and area of classrooms, standard of cleanliness
etc) but does not determine how this is achieved
> The public sector passes substantially all the risks associated
with cost overruns or construction delay to the Investment
Entity, which in turn passes these on to construction/facilities
management firms (subject to liability caps); or puts in place
suitable insurances to manage its own exposure
> The asset manager is the party responsible for managing the
interface between the various parties for the benefit of the
investment entity
During construction, equity investment, shareholder loans and
senior loans are used to finance construction activity, relevant
insurances and entity administration costs. Once the infrastructure
asset is available for use, the investment entity receives revenues
from the public sector.
Illustrative PFI/PPP structure
During the operational phase, the investment entity makes payments
for the provision of operations and maintenance services by facilities
management companies and pays insurance premiums.
PFI/PPP entities generally do not have their own employees.
Instead a sub-contracted asset manager is normally engaged to
provide financial and physical management of the asset and act as
the key interface between stakeholders and contracting parties.
The asset manager role is often performed by an associate of
the construction company or facilities management company
although in projects where the Company invests this role is usually
performed by an associate of the Investment Adviser which serves
to reduce conflicts of interest and increase alignment between the
Company and its Investment Adviser.
Within a PFI/PPP project, the breakdown of project costs in the
operational stage will vary depending on the nature of the services
required (e.g. a school typically being less service intensive than a
hospital) but in a typical UK school PFI project approximately 64%
of project revenues are applied to financing (both debt and equity),
about 32% to services (building maintenance, cleaning, lifecycle
replacements) and approximately 4% to other costs such as
insurance etc.
Highly predictable long-term return through shareholder loans and dividends
Investor Returns
Investment Entity
Public Sector
Client
Construction
Contractor
Debt
Providers
Facilities Management
Contractor
Revenue fixed plus inflation
(subject to operations and
maintenance re-pricing)
Fixed price turn-key
construction contract
Calculated to cover all
costs, financing and
investor return
Damages to Investment
Entity for loss of revenue for
delay in completion
Fixed term fixed rate
financing (or variable with
interest rate swap to fix)
Financing non-recourse to
rest of the Group or other
investment entities
Contract for operations
and maintenance. Typically
fixed term plus some five
year repricing (pass
through to client)
Contractor makes up loss
for poor performance
16 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Typical UK School
PFI costs
> Revenues are received for asset
availability and related performance,
calculated to cover costs and
investor returns
> Cost risks are largely mitigated through
>
insurance and sub-contract
arrangements
The Asset Manager manages all
interfaces for the benefit of
the Investment Entity (which does not
have its own employees) and its
investors
Costs breakdown1
■ Senior and subordinated
debt service
■ Facilities Management costs
■ Other costs
64%
32%
4%
1 Illustrative example of a typical
UK School PFI project
Strategic Report
2014 Financial and Operating Review
Key Performance Indicators
The Company has identified ten priorities to assist in meeting its Key Objectives. In order to assess annual performance in meeting these
objectives the Company reviews semi-annually its performance against the following key performance indicators (‘KPIs’). The KPIs and
the relative performance for the 2014 financial year are summarised below and further details of each of these elements are provided in
the sections that follow:
Key Objectives
Key Performance Indicator
2014 Performance
Investor Returns
Deliver sustainable long-term returns to
shareholders
Page
Reference
> Focus on providing shareholders with
> Maintain and enhance distributions
> Achieved targeted fully covered cash
18–27
predictable, and where possible growing
dividends
to shareholders
dividend of 6.30p/share, a c.2.5% increase
on 2013 dividend
> Deliver capital value enhancement
> Total shareholder return
> Achieved. The total shareholder return
where possible
> NAV and NAV p/share
since IPO is 98.5%
> NAV of £1,062.1 million and NAV per share
of 127.0p/share an increase of 3.25%
Strategic Priorities
Key Performance Indicator
2014 Performance
Active Assset Management
1. Focus on delivery of anticipated
returns from existing investments
> Actively manage investments to ensure that
> Availability for all controlled investments
> Achieved
they meet financial and other targets
at 98% or above
> Met 2014 net revenue generation
> Returns from investments in line
and dividend goals
with expectations
2. Maintain high levels of public sector
satisfaction and asset performance
> Performance deductions below 3% for
> Achieved
all projects
3. Deliver additional capital value from
> Number of change requests from
> Around 900 variation requests representing
existing assets through management
of construction risk and delivery of
operational improvements to meet client
requirements
existing contracts
£34 million of the additional capital
investment at the project level
> Management of investments in the course
of construction projects in line with overall
delivery timetable
> Completed Stage 2 construction works at
the Royal Children’s Hospital in Melbourne
Australia three months ahead of schedule
Page
Reference
27
27
27
> Construction completion achieved on the
Gold Coast Rapid Transit project in
Queensland Australia and Federal German
Ministry of Education and Research in
Berlin (‘BMBF’) Project in July
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 17
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements
Strategic Report
2014 Financial and Operating Review continued
Strategic Priorities
Key Performance Indicator
2014 Performance
Value-focused Portfolio Development
4. Through relationships with co-
> Value enhancing follow-on
shareholders and pre-emptive rights,
where applicable, increase individual
investment holdings to 100% where
beneficial
investments made
> £10.4 million follow-on investment made in
a UK schools PPP project procured under
the Building Schools for the Future
framework
> During the year, additional acquisitions in
two BSF projects resulted in INPP
acquiring controlling shares
Page
Reference
28 and 29
5. Make additional acquisitions where they
can be acquired on or off-market at
prospective returns that are beneficial in
risk/return terms
6. Enhance prospects for capital growth by
investing in construction phase assets
where available
7.
Identify complementary investment
sectors within the Company’s investment
policy offering better returns with a similar
risk profile
> Value of additional investments acquired
> As above. All investments in the year
28 and 29
off-market
were acquired outside secondary market
auction processes
> INPP invested £168.1 million in Lincs OFTO
through a primary market acquisition
> Number of investments in construction
> Appointed to fund Priority School Building
28 and 29
Programme
> Progressed a number of primary bids
to the final shortlist stage
> Value of investments in complementary
investment sectors
> Continued to progress further opportunities
within the offshore transmission sector
28 and 29
> Investor behind a consortia to bid a large
waste water project in the UK
8. Take advantage of infrastructure
> Number of new opportunities in
> During the year, an investment of £9.7
28 and 29
opportunities internationally where
investments have an appropriate risk
profile and contractual structures
are reliably enforceable to enhance
diversification
9. Undertake continuing review of portfolio
composition to ensure suitable blend
of risk/return, inflation linkage, yield
versus capital characteristics, level
of diversification and opportunistic
enhancements
international markets
million was made in an accommodation
project in Germany
> Improvement of risk/return, inflation
linkage, return, diversification
characteristics
> Realisation of £22.3 million of strategically
insignificant stakes at prices in excess of
carrying value
28 and 29
Efficient Financial Management
10. Provide efficient management of cash
> Dividends paid to investors covered by
holdings and debt facilities available for
investment and appropriate hedging
policies
operating cash flow
> Dividends paid to investors 1.2 times
covered by net operating cash flow1
29
> New investments made from available
> All investments in the period funded
cash (after payment of dividend) in priority
to use of corporate debt
through excess cash2 before utilising the
corporate debt facility
> Competitive cash deposit rates
> Benchmarked market cash rates and
> Use of appropriate hedging strategies
re-allocated based on risk/return profile
where possible
> £2.9 million of foreign exchange forward
contracts in place at the balance sheet
date to mitigate short-term foreign
exchange cash flow volatility
1 Cash dividends to shareholders are paid from net operating cash flow (including financing costs) before one off operating costs.
2 Residual cash after payment of dividend and corporate costs over the next 12 months.
The information required to be included in the Strategic Report relating to environmental and social matters is set out in the Corporate
Governance Report on pages 46 and 47.
18 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Performance against key objectives during the year – Investor Returns
Profits and Distributions
Profit before tax was £71.2 million (2013: £56.1 million) with earnings per share of 9.49 pence (2013: 7.82 pence).
Returns from portfolio investments (investment income) in the year were £90.1 million (2013: £77.2 million) including fair value
movements, dividends and interest. These returns were partially offset by operating expenses (including finance costs) of
£18.3 million (2013: £25.3 million), of which £2.9 million (2013: £11.9 million) was non-recurring.
These results allowed the Company to deliver a dividend of 6.30 pence per share for the year (2013: 6.15 pence per share).
Total Shareholder Return
The Company’s Total Shareholder Return (share price growth plus reinvested distributions) for investors since the initial public offer
of the Company in November 2006 to 31 December 2014 has been 98.5%, compared to a total return on the FTSE All-Share index
over the same period of 47.7%1. The Company has exhibited relatively low levels of volatility compared to the market, as evidenced
by the graph below which shows the Company’s share price since IPO against the price performance of the major FTSE indices
and the Company’s NAV.
INPP Share Price Performance
% change
60
50
40
30
20
10
0
-10
-20
-30
-40
-50
-60
Jun 06 Dec 06
Jun 07 Dec 07
Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11
Dec 11 Jun 12
Dec 12
Jun 13 Dec 13
Jun 14
Dec 14
INPP
FTSE 250
FTSE All-Share INPP NAV
Source: Bloomberg
1 Bloomberg – share price appreciation plus income.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 19
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
2014 Financial and Operating Review continued
Net Asset Valuation
The Company reported a 13.5% increase in NAV, up to £1,062.1 million at 31 December 2014 from £935.4 million at 31 December 2013.
This represented an increase of 3.3% of NAV per share, increasing to 127.0 pence per share at 31 December 2014 from 123.0 pence per
share at 31 December 2013.
The build-up of NAV is derived from a discounted cash flow calculation to determine the fair value of investments plus the value of cash
and other net assets held within the Company’s consolidated group.
The key drivers of the change to the NAV between 31 December 2013 and 31 December 2014 are highlighted in the graph below and
described in more detail below.
NAV Change (£m)
1,200
1,100
1,000
900
800
700
600
500
95.0
Capital
Raising
(before
costs)
935.4
91.0
844.4
NAV at
31 December
2013
69.5
(58.1)
13.5
(14.3)
(40.7)
Change in
Government
Bond Yields
Change in
Project Risk
Premia
Change in
Construction
Risk Premia
Change in
FX Rates1
Cash
Distributed
to INPP
Shareholders
61.8
NAV
Return2
Fair value of investments
Cash and other net assets
1,062.1
29.2
1,032.9
NAV at
31 December
2014
1 Represents movements in the forward foreign exchange curves used to forecast future international project distributions.
1 Represents movements in the forward foreign exchange curves used to forecast future international project distributions.
2 The NAV Return represents, amongst other things, (i) variances in both realised and forecast project cash flows, (ii) the unwinding of the discount factor applied
2 The NAV Return represents, amongst other things, (i) variances in both realised and forecast project cash flows, (ii) the unwinding of the discount factor applied to those future
to those future project cash flows and (iii) changes in the Company’s other net assets (see also more detail below).
project cash flows and (iii) changes in the Company’s other net assets (see also more detail below).
During the period a total of £95.0 million of new capital was raised (before costs) from investors by means of tap issuance to partly repay
the Company’s corporate debt facility following the Lincs offshore transmission acquisition.
During the period, government bond yields substantially decreased in all countries the Company holds investments in, resulting in a
positive impact on the NAV. The portfolio also benefited from a reduction in discount rate risk premia as assets moved out of the
construction or defects liability phase and towards full operations. This was partly offset by an increase in the project premium reflecting
observable market based evidence which does not support the full reduction in government bond yields, especially in Europe which has
seen some of the largest negative bond yield movements.
In addition, the Company experienced a weakening of all the currencies in which it holds investments outside the UK which had a
£14.3 million negative impact on the NAV. The most significant impact was in the Company’s Euro denominated investments although
there was also a strengthening of Sterling against both the Australian and Canadian Dollars.
20 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Cash distributions reached £40.7 million during the year and represent the cash elements of two dividends made to INPP shareholders.
The NAV Return of £61.8 million captures the following:
> Unwinding of the discount factor – the movement of the valuation date and the corresponding realisation of distributions received
> Optimisation of cash flows – actual distributions received above the forecast amount due to active management of the Company’s
portfolio, including initiatives such as negotiating and optimising project cash flows to ensure cash can be extracted from the
underlying investments earlier than forecast and optimising Group tax losses
> Value generated through accretive divestments – value accretion from the realisation of divestments above their carrying value
> Movements in the Company’s working capital position – the net movement of the Company’s working capital position increased
the NAV
> Updated project forecasts – refinement of project model assumptions to reflect current expectations of future cash flows
Investment Valuation
Forecast future cash flows
The Company’s investments are expected to exhibit (and historically have exhibited) predicable cash flows. As the Company has a
large degree of visibility over expected income from its current investments the chart below sets out the Company’s expectation for
the evolution of investment receipts from its current portfolio (over the remaining life of current investments).
The majority of the receipts over the life of the concessions are investment income in the form of dividends or interest and principal
payments from senior and subordinated debt investments.
The Company generally invests in infrastructure entities with finite lives (determined by concession or licence terms). As the remaining life
of each of the Company’s investments reduces, the Company’s receipts in respect of that investment will represent return of capital as
well as income. The line in the chart below illustrates how, in the event that the Company never acquires any additional assets, nor raises
any additional capital and other things being equal, the NAV of the Company would reduce to zero over time. Equally however, any future
acquisitions (or disposals) or changes to the projected cash flows of any investment (or the assumptions upon which they are based) will
change this projection from time to time (although it can be expected to retain the same general amortising profile).
Projected Cash Flow Profile
£m
160
140
120
100
80
60
40
20
0
Income Phase
Capital Repayment Phase
NPV £m
1,200
1,000
800
600
400
200
0
2
0
1
5
2
0
1
6
2
0
1
7
2
0
1
8
2
0
1
9
2
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
2
0
2
5
2
0
2
6
2
0
2
7
2
0
2
8
2
0
2
9
2
0
3
0
2
0
3
1
2
0
3
2
2
0
3
3
2
0
3
4
2
0
3
5
2
0
3
6
2
0
3
7
2
0
3
8
2
0
3
9
2
0
4
0
2
0
4
1
2
0
4
2
2
0
4
3
2
0
4
4
2
0
4
5
2
0
4
6
2
0
4
7
Forecast income
Forecast NAV
Note: There are many factors that may influence the actual achievement of long-term cash flows to the Company. These include both internal as well as external factors
Note: There are many factors that may influence the actual achievement of long-term cash flows to the Company. These include both internal as well as external factors and
and investors should not treat the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will
investors should not treat the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will almost certainly
almost certainly be different and may be higher or lower than indicated.
be different and may be higher or lower than indicated.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 21
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
2014 Financial and Operating Review continued
Macroeconomic assumptions
The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis and, following a thorough market
assessment during the period, certain adjustments have been made to some of the assumptions used to derive the Company’s portfolio
valuation.
The key assumptions used as the basis for deriving the Company’s portfolio valuation are summarised in the following table with further
details provided in note 13. Across the portfolio the weighted average long-term inflation assumption as at 31 December 2014 was 2.55%
(2013: 2.52%) and the weighted average deposit rate assumption was 3.47% (2013: 3.47%). The Net Asset Valuation Section above
provides further details on the impact of these assumptions on the valuation during the period.
Variable
Inflation
Long-term Deposit Rates1
Foreign Exchange
Tax Rate
Basis
UK
Australia
Europe
Canada
UK
Australia
Europe
Canada
GBP/AUD
GBP/CAD
GBP/EUR
UK
Australia
Europe
Canada
31 December 2014
31 December 2013
2.75%
2.50%
2.00%
2.00%
3.50%
4.50%
3.00%
3.00%
2.03
1.84
1.23
2.75%
2.50%
2.00%
2.00%
3.50%
4.50%
3.00%
3.00%
2.01
1.78
1.16
20%2
30%
Various (no change)
Various (no change)
20%2
30%
Various (no change)
Various (no change)
1 The portfolio valuation assumes current deposit rates are achieved until 31 December 2017 before adjusting to the long-term rates noted in the table above.
2 The corporation taxation rate will reduce to 20% from 1 April 2015.
Discount rates
The discount rate used for valuing each investment is based on the appropriate long-term government bond rate plus a risk premium.
The risk premium takes into account risks and opportunities associated with each project (including location, phase of operation/
construction etc).
The majority of the Company’s portfolio (81.9%) is comprised of investments where the Company only holds the Risk Capital in the
underlying projects. The remaining portfolio (18.1%) is comprised of investments where the Company holds both the Risk Capital and
the senior debt. In order to provide investors with a greater level of transparency, the Company publishes both a Risk Capital weighted
average discount rate and a portfolio weighted average discount rate across all investments including senior debt interests.
The current discount rates used by the Company are provided in the table below. These rates need to be considered against the
assumptions and projections upon which the Company’s anticipated cash flows are based.
The average blended discount rates need to be interpreted with care. In the Company’s view they are relevant only in the context of
the cash flows (and cash flow assumptions) they are applied to in calculating the fair value of investments. Comparison of discount
rates across competitor investment portfolios or funds is only meaningful if there is a comparable level of confidence in the quality of
forecast cash flows (and assumptions) the rates are applied to; the risk and return characteristics of different investment portfolios
are understood; and the depth and quality of asset management employed to manage risk and deliver expected returns are identical
across the compared portfolios.
22 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Metric
31 December 2014
30 June 2014
31 December 2013
Movement
31 December
2013 –
31 December
2014
Weighted Average Government Bond
Rate (Nominal) – portfolio basis – Risk
Capital and senior debt
Weighted Average Project Premium over
Government Bond Rate – Risk Capital
and senior debt (Nominal)
Weighted Average Discount rate –
Portfolio basis – Risk Capital and senior
debt
Weighted Average Discount rate –
Risk Capital only1
NAV per share
1 Risk Capital is equity and subordinated debt investments.
2.79%
3.38%
3.46%
(0.67%)
4.69%
4.37%
4.26%
0.43%
7.48%
7.75%
7.72%
(0.24%)
7.90%
127.0p
8.21%
124.8p
8.20%
123.0p
(0.30%)
4.0p
The change in the weighted average discount rate in the period is principally due to substantial reductions in the average government
bond rates. However, this was partly offset by an increase in the weighted average project premium which took into account (i) an
increase in the project premium reflecting observable market based evidence which does not support the full reduction in government
bond yields, especially in Europe which has seen some of the largest negative bond yield movements and (ii) assets moving out of the
construction or defects liability phase and towards full operations.
Government bond rates
In the table above the Company has provided an analysis of the weighted average government bond rate used in calculating the discount
rate. It should be noted that the nominal (i.e. non inflation linked) bond rate has been used in this calculation. The Company considers,
however, that investors may also find a comparison with inflation adjusted government bond rates helpful. This is the case due to the
significant level of inflation linkage inherent in the Company’s anticipated cash flows.
Real (i.e. inflation adjusted) bond rates are included in the table overleaf. Using these real rates on a weighted average basis leads to a
‘real’ portfolio rate of (0.05%) with the difference between the ‘real’ and ‘nominal’ rates reflecting in theory the implied rates of future
expected inflation. In some countries this is higher than those currently being assumed to calculate the Company’s estimate of NAV. This
information is provided to enable investors to make approximate comparisons of the projected return of the Company with that available
from government index linked bonds. It should be noted that any such comparison can only be estimated due in part to the fact that the
Company’s cash flows are not fully linked to inflation and the Company’s cash flows already assume a core level of inflation as set out in
the section headed Macroeconomic assumptions on page 22.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 23
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
2014 Financial and Operating Review continued
Country
UK
Australia
Europe1
Canada
Portfolio weighted average
31 December 2014
31 December 2013
Movement (2013–2014)
Nominal
Real
Nominal
Real
Nominal
2.85%
3.80%
2.17%
2.56%
2.79%
(0.36%)
1.41%
0.25%
0.57%
(0.05%)
3.34%
4.48%
3.39%
3.03%
3.46%
0.01%
1.91%
1.32%
0.96%
0.53%
(0.49%)
(0.68%)
(1.22%)
(0.47%)
(0.67%)
Real
(0.37%)
(0.50%)
(1.07%)
(0.39%)
(0.58%)
1
Includes Belgium, Germany, Ireland, and Italy. Note estimates only for Belgium and Ireland as no index linked bonds available.
Portfolio level assumptions underlying NAV calculation
The Company is aware that there are subtle differences in approach to the valuation of portfolios of investments among different
infrastructure funds. To clarify the Company’s position in this regard its key cash flow inputs and broad valuation principles include:
> That key macroeconomic variables (outlined in the section above) continue to be applicable
> That the contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated
before their contractual expiry date
> That where deductions are suffered under such contracts they are fully passed down to subcontractors
> That where possible lifecycle costs are not borne by the Company but are passed down to a third party such as a facilities
management contractor
> That cash flows from and to the Company’s subsidiaries and the infrastructure asset owning entities in which it has invested will be
made and are received at the times anticipated
> That where assets are in construction they are either completed on time or any costs of delay are borne by the contractors not the
Company
> That where the operating costs of the Company or the infrastructure asset owning entities in which it has invested are fixed by contract
such contracts are performed, and where such costs are not fixed, that they remain within projected budgets
> That where the Company or the infrastructure asset owning entities in which it has invested owns the residual property value in an
asset that the projected amount for this value is realised
> That where assets in which the Company invests are not GBP assets that foreign exchange rates remain consistent with current four
year forward looking projections
Impact of Changes in Key Macroeconomic Variables to 31 December 2014 NAV of 127.0p per Share
Discount rates +/-1%
-11.0
Inflation +/-1%
-9.1
12.8
10.4
Foreign exchange +/-10%
-3.7
4.6
Deposit rates +/-1%
Tax rates +/-1%
Lifecycle +/-10%
-1.5
1.6
-0.9
0.9
-0.5
0.4
-15
-12
-9
-6
-3
0
3
6
9
12
15
■ – change ■ + change
Pence per share
Sensitivities for key macroeconomic assumptions and discount rates
The Company’s NAV is based on the factors outlined above. The Company has also provided sensitivity analysis showing an indication of
the impact on NAV per share from changes in macroeconomic assumptions and discount rates, as set out below. Further details can be
found in note 13. This analysis is provided as an indication of the likely impact of these variables on the NAV per share on the basis that
they apply uniformly across the portfolio whereas in practice the impact is unlikely to be uniform. These sensitivities should be used only
for general guidance and not as accurate predictors of outcomes.
Discount rates
The Company’s approach to determining the discount rate is described in detail above. Assuming all other things are equal, a reduction of
1% per annum to the underlying project discount rates would increase the 31 December 2014 NAV per share by 12.8 pence. Should the
underlying project discount rates increase by 1% per annum the NAV per share would decrease by 11.0 pence.
24 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Inflation
In an environment where investors are increasingly focused on achieving long-term real rates of return on their investments, inflation
protection is an important consideration for the Company. At 31 December 2014 the majority of assets in the portfolio had some degree
of inflation linkage and, in aggregate, the weighted return of the portfolio would be expected to increase by 0.85% per annum in response
to a 1% per annum inflation increase across the whole portfolio over the currently assumed rates.
Where actual inflation is higher or lower than the assumed levels, it can be expected to impact on the Company’s actual future cash flow
in a correspondingly positive or negative manner other things being equal. If the underlying project inflation rates were to increase by 1%
per annum evenly across the portfolio there would be a 10.4 pence increase to the NAV per share. Conversely, if the rates were to
decrease by 1% per annum there would be a 9.1 pence decrease to the NAV per share.
Given recent macroeconomic conditions in Europe, the Company is cognisant of the risk of low inflation on short-term coverage dividend.
Therefore it has also analysed the impact of other inflationary and deflationary scenarios on the portfolio.
1. Inflation of 0% per annum for the remaining concession life
2. Inflation of 0% per annum for the next four years and then reverting back to the current day assumptions
3. Inflation of -1% per annum for four years and then reverting back to current day assumptions
Analysis above has been performed on the 20 largest investments by value covering c.78% of the portfolio. The analysis indicates the
resilience of the portfolio and demonstrates that the Company retains the ability to meet its dividend growth and coverage targets. Full
details of the analysis undertaken and assumptions made can be found on the Company’s website.
Forecasting the impact of possible future inflation/deflation on projected returns and NAV in isolation cannot be relied on as an accurate
guide to the future performance of the Company as actual inflation is unlikely to follow any of these scenarios exactly and in any case,
many other factors and variables will combine to determine what actual future returns are available. The analysis provided above should
therefore be treated as being indicative only and not as proving any form of profit or dividend forecast.
Foreign exchange
The Company has a geographically diverse portfolio and therefore GBP revenues are subject to foreign exchange rate risk. Should the
assumed exchange rates increase by 10% per annum this could be anticipated to lead to a 4.6 pence increase in the NAV per share while
a 10% per annum reduction in the exchange rates would result in a 3.7 pence decrease in NAV per share. Short-term fluctuation in foreign
exchange rates are managed through currency forward contracts.
Deposit rates
The long-term weighted average future deposit rate across the portfolio is 3.47% per annum. While operating cash balances tend to be
low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs
and therefore variations to deposit rates may impact the portfolio. All else being equal, a 1% per annum increase in the underlying deposit
rates could be anticipated to lead to a 1.6 pence increase in the NAV per share and a 1% per annum decrease in deposit rate to a 1.5 pence
reduction in the NAV per share.
Tax rates
The Company has a geographically diverse portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all
relevant jurisdictions. Should the assumed tax rates increase by 1% per annum this could be anticipated to lead to a 0.9 pence decrease in
the NAV per share while a 1% per annum reduction in the tax rates could be anticipated to lead to a 0.9 pence increase in NAV per share.
Project Lifecycle Spend
Over a project’s lifecycle there is a process of renewal required to keep the physical asset fit for use and at the standard required of it
under the agreement with the occupying public sector body. The proportion of total cost that is lifecycle spend will depend on the nature
of the asset. In order to enhance the certainty around cash flows, around 95% of the Company’s assets (by value) are structured such that
lifecycle cost risk is taken by a subcontractor for a fixed price (isolating equity investors from such downside risk). As a result, the impact of
any changes to the Company’s lifecycle cost profile is relatively small. A 10% increase in lifecycle costs would lead to a 0.5 pence
reduction in NAV per share. A 10% decrease in lifecycle costs would lead to a 0.4 pence increase in NAV per share.
Future group tax relief
Under UK group tax loss relief rules, losses within the UK group companies can be, subject to UK tax law, offset against taxable profits
in other UK group companies (including controlled project entities). This group tax loss relief can reduce the overall tax charge across
the portfolio and potentially reduce taxable profits substantially below the levels currently modelled by the Company. The Company has
taken a conservative approach to the valuation of future tax losses and, to date, has not incorporated these into the NAV.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 25
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
2014 Financial and Operating Review continued
Cash flow movements in the period
Summary of consolidated cash flow
Opening cash balance
Cash from investments
Operating costs (recurring)
Net financing costs
Net cash before one off operating costs
One-off operating costs
Net cash flow from operations
Cost of new investments
Net drawdown on corporate debt facility
Proceeds of capital raisings (net of costs)
Disposal proceeds
Distributions paid
Net cash at period end
Year to
31 December
2014
£ million
Year to
31 December
2013
£ million
80.6
64.0
(12.2)
(1.9)
49.9
(5.0)
44.9
(188.2)
16.3
94.2
22.3
(40.7)
29.4
65.8
59.7
(11.7)
(0.5)
47.5
(5.4)
42.1
(36.5)
–
46.1
–
(36.9)
80.6
The Company’s net cash at 31 December 2014 was £29.4 million (31 December 2013: £80.6 million), a decrease of £51.2 million reflecting
substantial new investments in the year partially offset by proceeds from capital raising, positive investment cash flows and drawdown on
the corporate debt facility.
Cash inflow from the Company’s investment portfolio was £64.0 million (31 December 2013: £59.7 million). The increased cash flow was
mainly due to the timing of receipt of distributions from underlying investments.
Recurring operating costs have increased from £11.7 million to £12.2 million, in line with the increase in the Company’s NAV although, as
detailed in the ‘ongoing charges’ table above right, other operating costs have remained largely consistent. Net financing costs increased
from £0.5 million to £1.9 million mainly due to the drawdown on the corporate debt facility and the increase in facility size to £175 million
(2013: £100 million). One-off operating costs of £5.0 million (31 December 2013: £5.4 million) mainly represent costs associated with the
refinancing of the corporate debt facility in the period and one-off transaction costs on new investments.
The Company funded its acquisitions during the period by drawing down on its corporate debt facility which was subsequently partly
repaid using the proceeds from capital issuance. Disposal proceeds of £22.3 million (31 December 2013: nil) have resulted from strategic
divestments designed to optimise the investment portfolio specifically where the Company holds minority shares without expectation of
gaining control.
Cash dividends paid in the period of £40.7 million (31 December 2013: £36.9 million) were in respect of the six month period ended
31 December 2013 and 30 June 2014.
Corporate expenses and ongoing charges
A breakdown of corporate operating costs paid is provided below:
Corporate Expenses
Management fees
Audit fees
Directors’ fees
Other running costs
Operating costs (ongoing)
Year to
31 December
2014
£ million
Year to
31 December
2013
£ million
(11.1)
(0.1)
(0.2)
(0.8)
(12.2)
(10.6)
(0.1)
(0.2)
(0.8)
(11.7)
The increase in management fees paid to the Investment Adviser is in line with the growth in managed investments and the growth of the
Company’s portfolio.
26 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Ongoing Charges
Annualised Ongoing Charges1
Average NAV2
Ongoing Charges
Year to
31 December
2014
£ million
Year to
31 December
2013
£ million
(12.2)
983.5
(11.7)
905.9
(1.24%)
(1.29%)
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.
Performance against Strategic Priorities – Active Asset Management
Investment cash flow from the Company’s portfolio of 112 investments has continued to perform at least in line with the Company’s
forecasts. Ensuring that the Company’s assets are available for use and are performing in accordance with contractual expectations
is a critical task for the Company and its service providers.
The Investment Adviser, on behalf of the Company, closely monitors the relationship between service providers and public sector clients.
It is actively involved in the ongoing management of assets to ensure that performance standards are being met. In addition to these
day-to-day activities, the Investment Adviser works with public sector clients on assignments as they arise. For example, during 2014, the
Investment Adviser worked with a number of schools in the Company’s portfolio who wished to convert to ‘Academy’ status. In assuming
Academy status the schools are given more control over their own finances as they receive funding directly from the ‘Education Funding
Agency’ (a government department) rather than via their local authority. The Investment Adviser has assisted these schools to navigate a
complex set of processes between the school and the various providers who are party to the underlying PFI contract to help ensure that
they are not disadvantaged by the change in status. To date the Investment Adviser has assisted ten schools through the transition to
Academy status.
The Company also takes an active role in assisting its public sector clients to achieve savings from existing concession arrangements.
As a signatory to the Code of Conduct for Operational PFI/PPP Contracts the Investment Adviser has worked with its public sector
counterparties to identify and deliver efficiencies and savings in operational PFI and PPP contracts. Across the portfolio a number of
benchmarking exercises have been undertaken that have resulted in reduced costs to the public sector. In addition, other projects within
the portfolio have seen benchmark reports submitted or the benchmarking process commenced. As part of this initiative the Investment
Adviser has focused on opportunities to reduce energy consumption within the projects including the installation of LED lighting and
motion sensors to help reduce energy spend over time. The Investment Adviser is also currently assisting one of its public sector clients
to assess the benefits of installing a large solar rooftop array on its buildings in order to reduce energy charges over the longer term.
During 2014 our public sector clients commissioned c.900 variations resulting in over £34 million of additional works at the project level.
All variations were overseen by the Investment Adviser as part of the day-to-day asset management activities it undertakes in conjunction
with the project facilities manager and the public sector client. Variations ranged in size from a few hundred pounds to over £17 million
and demonstrate the value and flexibility of PFI/PPP contracts to respond to the changing requirements of public sector clients.
A number of key construction milestones were also reached on portfolio projects during the period: Stage 2 of the Royal Children’s
Hospital reached completion in late 2014 some three months in advance of the contractual completion date; the Federal Ministry of
Education and Research, Berlin reached construction completion on time and budget at the beginning of August 2014; and, the Gold
Coast Rapid Transit also reached completion in July 2014.
Projects under construction as at 31 December 2014, all of which are currently on schedule for operational commencement are set out
in the table below.
Asset
Construction
Completion
Date
Defects
Completion
Year
Location
% of Fair
Value of
Investment
Status
Building Schools for the Future portfolio
UK
August 2015
2016
On schedule
0.1%
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 27
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements
Strategic Report
2014 Financial and Operating Review continued
Performance against Strategic Priorities – Value-focused Portfolio Development
During the year the Company made further investment of £188.2 million across five projects. The projects acquired were either sourced
by the Investment Adviser from project inception (i.e. in response to an initial government procurement process) or were acquired by
way of further investment into the Company’s existing assets. These methods of procurement remain the Company’s preferred route to
market as they necessarily avoid investment in the open secondary market which remains very competitive. Details of acquisitions are
provided below.
Asset
Federal German Ministry of
Education and Research
Location
Acquisition/
Divestment
Operational
Status
Berlin, Germany
Acquisition
Operational but still
in ‘defects period’
Investment/
realisation
value
Acquisition/
Divestment
date
£9.6 million
January 2014
Building Schools for the Future
Kent, UK
Acquisition
Operational
£7.2 million
January 2014
Building Schools for the Future Wolverhampton, UK
Acquisition
Under construction
£0.5 million
January 2014
Building Schools for the Future
Nottingham, UK
Acquisition
Operational but still
in ‘defects period’
£2.8 million
June 2014
Lincs Offshore Transmission
Project
Total acquisitions
Lincolnshire, UK
Acquisition
Operational
£168.1 million November 2014
£188.2 million
Building Schools for the Future
Various, UK
Divestment
Operational
£18.8 million
February 2014
Amiens Hospital PPP
France
Divestment
Operational
£0.3 million
July 2014
Building Schools for the Future
Sheffield, UK
Divestment
Operational
£3.2 million September 2014
Total disposals
£22.3 million
In January, the Company acquired a 98% equity interest and 100% subordinated debt of the headquarters of the Federal German Ministry
of Education and Research in Berlin (‘BMBF’). The Ministry provides funding for research projects and institutions and sets general
educational policy, including providing student loans, in Germany.
The BMBF interests were acquired by an investment subsidiary of the Company from an associate of the Investment Adviser for
approximately €11.9 million (£9.6 million). The acquisition process was managed in accordance with the Company’s policy on dealing with
conflicts of interest in such circumstances. This process, which is documented further on page 44, included the Company obtaining an
independent valuation which valued the asset at a price slightly higher than the price at which it was acquired.
The Company also invested further in its Building Schools for the Future (‘BSF’) portfolio. Three investments were made in existing
BSF projects:
> The acquisition of 60% of Kier Project Investments’ 80% interest in the Kent BSF (UK PFI schools) project for £7.2 million, taking the
Company’s ownership in this project to 58%
> A follow-on investment of £0.5 million in the Wolverhampton BSF (UK PFI schools) project where the Company had the opportunity
to invest on a minority basis. The project involves the design, construction, financing and operation of two high schools in the second
phase of the Wolverhampton BSF programme delivered using a PFI structure
> An additional £2.8 million investment in the second phase of the Nottingham BSF from Carillion Private Finance, taking the Company’s
interest from 10% to 82%
28 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
The Company also reached financial close on a £168.1 million investment in the Lincs OFTO project. The project links the 270MW
Lincolnshire wind farm via transmission cables to the National Grid via 100km of subsea cables and other related infrastructure including
substations. The Company will take no exposure to electricity production or price risk, rather is paid a pre-agreed revenue stream over
20 years which is fully linked to UK inflation (RPI).
In addition, in July the Company announced that it had been selected as the winning bidder to fund the Priority School Building
Programme, a centrally managed UK government scheme designed to address schools most in need of urgent repair. The funding
programme, known as the ‘Aggregator’ will see c.£700 million of investment directed into 46 schools across five batches. The Company’s
commitment will be up to £79 million, with the residual funding being provided by consortium partners the European Investment Bank
and Aviva. The investment will be made progressively over a twelve month period, as each batch of schools reaches financial close.
The first two batches reached financial close earlier this month with the Company committing £18.2 million of funding. In recognition of
the innovative nature and importance of the transaction it was awarded IJ Global’s 2014 European Social Infrastructure Deal of the Year.
The Company made a number of divestments during the period. Minority interests in the Hull, Leeds, Newcastle, Rochdale, Sandwell and
Leicester BSF projects were disposed, with £18.8 million being realised. In a separate transaction, the Company’s stake in Sheffield BSF
was also divested for £3.2 million. The divestments were agreed as the Company had determined that it had no realistic scope to increase
its holdings in these particular projects to majority controlling holdings and therefore considered that, based on the price offered, a sale
would be in the best interests of the Company. The proceeds of sale are substantially in excess of the price paid for the same stakes on
acquisition in August 2011, offering a significant premium to the Company.
In addition, the Company divested a further asset, the Amiens Hospital PPP project in France, realising a total of £0.3 million. The sale
achieved a price in excess of the Company’s valuation and was opportunistic. Consistent with the sales conducted in January of this year,
this was a non-strategic, subscale project, thereby, this divestment further streamlined the portfolio.
Performance against Strategic Priorities – Efficient Financial Management
The Company seeks to generate dividends to investors that are paid from operating cash flow. For the year ended 31 December 2014 the
cash dividend paid to investors was 1.2 times covered by net operating cash flow and the Company remains confident that it will be able
to grow dividends in the future.
During the year, the Company has renewed its corporate debt facility. On 20 January 2014 the term of the facility was extended until
December 2016 on broadly the same terms as the existing facility but with an increase in the size of the facility to £175 million (previously
£100 million) in light of a growing trend in the size of investment opportunities available.
It remains the Company’s policy not to have long-term corporate level debt and it is anticipated that to the extent that the corporate facility
is drawn to fund acquisitions, this would be a short-term arrangement and equity funding, by means of a capital raising, would be sought
to repay outstanding debt as soon as practicable. As at the date of this report, the corporate debt facility was £27.2 million drawn.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 29
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Case Study
Investment Entity – Active Asset Management
Federal Ministry of Education and
Research in Berlin (‘BMBF’)
Project summary
The €120 million BMBF project involved the design, construction,
operation and financing of the new headquarters of the Federal
Ministry of Education and Research in Berlin (‘the Ministry’) and
comprised two connected buildings on a c.13,400 sqm piece of
land owned by the German Government Agency for Real Estate
(‘the Authority’). The new building has a gross area of c.55,000
sqm and provides space for around 1,000 employees.
The Ministry provides funding for research projects and institutions
and sets general educational policy in Germany, including providing
student loans. The project was the first civil construction project
developed under a PPP model by the Federal German Government
and is a pioneering project for the German PPP market. It was
awarded Project Finance ‘Deal of the Year’ in 2011.
The Investment Adviser was involved in the project since its
inception and in conjunction with its consortium partners was the
successful bidder in the Authority’s procurement process.
Construction on the project commenced on 1 August 2011 and
was effectively delivered through a turn-key contract with BAM
Deutschland AG as scheduled and to budget on 1 August 2014.
Since then the project has been operated in conjunction with
the facilities management (‘FM’) partner BAM Immobilien-
Dienstleistungen GmbH with the Investment Manager engaged to
provide ongoing asset management (‘AM’) services to the project
until July 2041.
In January 2015, following the completion of construction (and
consequent reduction in the project’s risk profile), the Company
acquired a 98% equity interest and 100% of subordinated debt
from an associate of the Investment Adviser.
Project highlights – ‘Green credentials’
The Ministry used the development of BMBF as an opportunity to
showcase research and development in sustainable practice and
one of the main characteristics of the new building is its ‘green
footprint’ focusing on green energy and energy efficiency.
The building achieved Gold Status under the Valuation System
for Sustainable Construction of Ministries in Germany which
represents the highest possible evaluation for sustainability.
Key features include:
> ‘Smart Grid’ technology, an intelligent heating and cooling
system which provides the most efficient air circulation and
optimal working conditions while removing the need for heating
radiators and air conditioning ventilators
> The roof and building façade incorporate solar panels and the
building also contains a fuel cell and a combined heat/power
unit to supply the electrical and thermal power. The fuel cell is
the first to be used in a German public office building
> The materials used during construction include natural stone
and recycled glass elements as well as sustainable wooden
window frames
30 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
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Structuring the project to minimise risks
The structure of the project is designed to minimise risks and
includes the following features:
> Availability based revenue stream – a standard availability
payment mechanism is supported by the Federal Republic
of Germany
> Limited construction risk – all construction milestones were
achieved within schedule and on budget
> Limited FM/lifecycle risk – all key operational risks, including
lifecycle and hard/soft FM are passed through to the FM partner
> No refinancing or interest rate risk – project debt is matched to
the project life and hedging is in place
> Strong yield contribution – the project has been operational
since August 2014
Key asset management activities
In addition to structuring and financing the project, the project
partners provide services to the Authority and the Ministry as
well as the financing banks on an ongoing basis. The Investment
Adviser takes a proactive approach to managing relationships with
all project partners and minimising associated risks. Key asset
management services provided by the Investment Adviser include:
> Close coordination with the technical adviser and monthly
review of construction progress to ensure that the project’s
building works were successfully delivered
> Lead partner in all negotiations with the Authority/Ministry
and its advisers as well as with the banks ensuring proper
documentation and efficient project progression
> Project company management including tax filing and financial
> Long project life – 27 year contract following practical
statements preparation
completion in August 2014
> Project agreement negotiations and documentation and
financial model adjustments
> Ensuring distributions from the project are paid to the Company
in line with expectations
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 31
Strategic Report
Outlook
Current Market Environment and Future Opportunities
During 2014 the Company benefited from the significant level
of preparatory development work the Investment Adviser had
undertaken in previous periods resulting in a record level of
investment of £188.2 million in the year. In addition to its willingness
to invest in such new ‘greenfield’ opportunities the Company’s
ability to increase the value of its investment portfolio also depends
on the following market factors:
> The number and quality of new ‘greenfield’ infrastructure
opportunities being procured by public sector bodies (known as
the ‘primary market’)
> The number and quality of investments being sold by existing
owners (known as the ‘secondary market’)
> The level of competition for primary or secondary opportunities
and the impact this has on pricing and level of returns
> The macroeconomic environment (e.g. the impact of inflation,
interest rates, and the pricing of risk and return for alternative
investments)
The Company continues to have a very positive outlook with good
opportunities to make further investments in the infrastructure
markets and sectors where it is most focused. Public finances
continue to be stretched and many governments see private sector
finance as an enabler of investment in this space.
However, competition in the secondary market for assets such as
those in which the Company invests is intense. While the Company
is always keen to review mature secondary market investment
opportunities being sold by third party developers, many of these
opportunities are less likely to be accretive to the portfolio.
The Company is also selective to ensure an appropriate risk and
return balance within the overall portfolio. These trends have also
resulted in the Company taking opportunities to divest smaller,
non-strategic assets where there is little prospect of increasing
stakes to controlling positions and where market pricing is higher
than book value.
The Company has an international focus and the current market
environment in each of the major jurisdictions in which it operates
and the potential for future investment within each is outlined in
more detail below:
United Kingdom
The UK Government continues to view high-quality infrastructure
as a means to increase productivity and competitiveness. Its 2014
edition of the National Infrastructure Plan indicates a programme of
over £460 billion in investment until 2020 and a priority list of its top
40 projects. It also notes that over 80% of the investment will either
be full or partly financed by the private sector.
Much of the emphasis of the Plan is on energy and transport. It
also identifies key projects in other sectors in which the Company
is active. For example some of the larger projects are likely
to be completed on a PPP-like profile which, while procured
under a different regulatory basis, bear similar risk and return
characteristics to other assets within the existing portfolio.
It is also actively supporting innovation in private sector
infrastructure finance. For example, as an alternative to traditional
bank or government financing, the Education Funding Agency
procured a funding scheme which aggregated the financing of five
batches of schools being delivered through the Priority Schools
Building Programme. As noted elsewhere in this report, the
Company was the successful bidder on the scheme, and is
pleased that it played a lead role in this ‘aggregated’ model of
financing which has the potential to be replicated across other
centrally procured government projects.
We have highlighted for some time the attractive characteristics of
the offshore transmission (‘OFTO’) sector – where investment is
made into the cables that link offshore wind farms to the national
electricity grid. These projects continue to be amongst some of
the most attractive in our sector as they provide long-term income
without demand risk i.e. no exposure to volume of electricity
generated by the wind farm. In most cases these have historically
also provided full inflation linkage. The Company has, to date, been
a market leader in investment into this space. Given the barriers
to entry for non-participants, the Company expects to continue
to benefit from sizeable new ‘primary market’ opportunities that
will come to market over the coming years; the regulator, Ofgem,
has reaffirmed its estimates of a further £8 billion of investment
in OFTOs by 2020 with the prospect of significantly more in the
years thereafter.
Although there is a UK general election in May 2015, all main UK
political parties appear to currently support the ongoing investment
in UK infrastructure.
Australia
Australia has long involved private sector organisations in the
provision and financing of its public sector infrastructure. It also
has a well developed market for investment, not only by local
superannuation funds and similar investors but it has also
developed a large pool of international investors who have invested
widely there on the basis of the attractive market dynamics.
While each state government also has its own long-term
infrastructure strategy delivery organisation there is a unified
method for the delivery of PPP Projects, the National PPP Policy
Framework which provides a consistent approach and streamlined
procedures that encourage private sector investment in public
infrastructure.
Currently Australia’s infrastructure priorities include multi-billion
Australian Dollar transport projects such as improvements and
developments to highways and rail rebuilding and modernisation
together with water and communications infrastructure.
While there are attractive opportunities in the Australian market,
until more recently the Australian Dollar (‘AUD’) had been trading
at a substantial premium to Sterling compared to longer-term
rates. As a result it was less attractive for the Company to consider
investing in that market. However, over the past 12 months Sterling
has appreciated against the AUD thus potentially making Australian
investments more attractive again and the Company will continue
to assess opportunities in this market.
32 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
The Investment Adviser is currently shortlisted as one of two bidders
on both a courts project in Canberra and a grouped schools project
in The State of Victoria.
Europe – excluding UK
The Company remains very positive about prospects for further
investment in Northern Europe.
New Zealand continues to also be of interest to the Company.
The government in that market has been pursuing a privatisation
process of several state-controlled energy and infrastructure
businesses. While relatively small, the Investment Adviser continues
to monitor projects as they come to market, resourcing these
opportunities from its Australian offices and is currently bidding for
one such opportunity.
Jurisdictions including Belgium, the Netherlands, Germany
and Scandinavia continue to offer new primary market PPP
opportunities across a range of sectors including accommodation
and transportation which are attractive to the Company. Ireland
has an active PPP programme where the Company’s Investment
Adviser is currently bidding on a range of primary market
opportunities.
Elsewhere in Europe, austerity measures and fiscal constraint have
limited the capacity of governments to fund infrastructure projects,
particularly in southern Europe. These areas where there is a less
stable track record of PPP investment are not currently an area of
focus for the Company.
Currently, in the addition to the Irish bids mentioned above the
greatest focus is being directed to pursue opportunities in
Germany (where the Company acquired the BMBF asset during
2014 and also currently invests in two other projects); Belgium
(where the Company has an existing investment and further
investment opportunities are being reviewed) and the Netherlands
(where the Company’s Investment Adviser is participating in three
separate primary market tender processes).
United States
The PPP (or P3) market in the United States is seen as one of the
largest growth markets for infrastructure in the developed world,
notwithstanding the additional complexities arising from slightly
different procurement processes in the different states.
As highlighted in the Chairman’s Letter, the Investment Adviser
has agreed to the Hunt group of companies taking a 50% interest
in the holding company of the Investment Adviser. A key element
in this has been the right of ‘first look’ that the Company has been
granted as part of the transaction. Hunt are significant participants
in public sector infrastructure in the US and the Company is
optimistic that as a result it will see an enhanced flow of attractive
investment opportunities from North America in future years
including those which are being reviewed currently with Hunt.
Other Countries
PPP in Canada is well established and the Company holds two
existing Canadian investments. The Company’s Investment
Adviser remains active in the Canadian market. However, the
market is dominated by domestic pension funds making entry into
new investment opportunities more challenging. The Investment
Adviser continues to believe that there will be attractive investment
opportunities in the longer-term as infrastructure is upgraded. In
the short term investment is more likely to be secondary market
opportunities rather than primary investments.
The Company keeps a watching brief on opportunities in other
international markets but will only consider deals in other markets
where it is satisfied that the combination of sovereign credit and
rule of law makes such investment comparable with the
Company’s existing investments.
Current Pipeline
Overall, the Company remains positive about its prospects, both
in terms of the performance of its existing investments and the
opportunity to add high quality investments to the portfolio during
2015.
Currently, the Investment Adviser has identified a significant
investment pipeline for the Company. In addition to these potential
investments the Company and its Investment Adviser have a larger
number of transactions, which are at an earlier stage of
development, under review.
Key areas of current activity within the Company and/or its
Investment Adviser (or associates) include:
> Continued activities in the area of UK offshore transmission
where the Company has recently closed its fifth project, Lincs
OFTO, and is actively bidding each new opportunity as it comes
to market
> Enhanced access to US P3 opportunities
> Other UK and European primary investment opportunities
(for instance in the healthcare and judicial sectors)
> Acquisition of additional investments in projects where the
Company already has an investment. Typically these will arise
under pre-emption and similar rights
> The growing range of opportunities in Ireland, Northern Europe
and Australia and New Zealand which conform to the existing
risk profile within the Company’s portfolio
> Appropriately priced proposals from third parties seeking to
dispose of projects meeting the Company’s investment criteria
which have synergies with the Company’s existing portfolio
Current opportunities identified by the Investment Adviser are
outlined in the table on the next page. It should be noted that given
these are predominantly new ‘primary’ market investments, it can
take a number of months for such opportunities to be awarded to a
preferred bidder and many more again to reach financial close.
Notwithstanding the opportunities listed overleaf, it should be
noted that the Company’s performance is not dependent upon
making additional investments in order to deliver its projected
returns. Further investment opportunities will be judged by their
anticipated contribution to overall portfolio returns.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 33
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements
Strategic Report
Outlook continued
Current Projects
Location
Priority School Building
Aggregator Programme
Education
UK
UK
Waste water
Judicial
Australia
UK
Ireland
Australia
HUB framework
UK
Estimated
Investment
Opportunity
Expected
Concession
Length
Up to £79m1
25 years
c.£100m1
c.25 years
Up to c.£30m1
c.25 years
Project Status
Consortium including the Company
named preferred bidder
Investment in existing projects, some
pre-emptive positions
One of two shortlisted
c.£200m1
Perpetual
Consortium one of two shortlisted
c.£20m1
c.£15m1
c.£35m1
25 years
25 years
25 years
One of four shortlisted
One of two shortlisted
HUB framework for various Scottish
social community projects. Preferred
bidder status for both short and longer-
term projects
Follow-on investment in existing asset
One of three shortlisted for maritime
transport project
One of four shortlisted for third
tender round OFTOs with successful
consortium
The Company has the benefit of
medium and long-term development
opportunities as well as pre-emption
opportunities in respect of a number of
projects within the existing portfolio
Transportation
Australia
The Netherlands
c.£25m1
c.£15m1
15 years
25 years
OFTOs – Westermost
Rough, Humber
Gateway
UK
c.£100m1
20 years
Other/medium-term opportunities
Judicial
Belgium, Germany,
The Netherlands
c. £190m2
c. 25 years
Healthcare
Education
Accommodation
New Zealand
Austria
Germany, Australia
c. £30m2
c. £60m2
c. £230m2
The above represents potential opportunities currently under review by the Investment Adviser (and its associates) including current bids, preferred bidder opportunities and the
estimated value of opportunities to acquire additional investments including under pre-emption/first refusal rights. There is no certainty these will translate to actual investment
opportunities for the Company. The value referenced in relation to the pre-emption opportunities represents the estimated potential investment value which reflects the current
estimate of the total likely acquisition value at that time. In relation to the remaining medium-term opportunities, the figure represents the current estimated gross value of the
relevant project and therefore includes both debt and equity and is not necessarily indicative of the eventual acquisition price for, or the value of, any interest that may be acquired.
1 Represents current estimated total investment committed by the Company.
2 Represents the estimated current unaudited capital value of the project and includes both debt and equity.
Rupert Dorey
25 March 2015
Chairman
John Whittle
25 March 2015
Director
34 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Strategic Report
Principal Risks and Mitigation
The key risks affecting the Company and the investment portfolio
have not materially changed year to year, largely due to the highly
contractual and long-term nature of the investments with similar
risk profiles. Changes in the macroeconomic environment and
broader global regulatory and tax environment can impact on fund
returns and are a permanent feature of the risk appraisal process.
highlight all the potential risks to the business. There may be other
risks that are currently unknown or regarded as less material which
could turn out to be material. Any of these could have the potential
to impact the performance of the Company, its assets, capital
resources and reputation.
The Company’s approach to risk management is set out within the
Corporate Governance Report.
A description of broader risk factors relevant to investors is
disclosed in the latest Company prospectus available on the
Company’s website www.internationalpublicpartnerships.com.
The following table summarises the Board’s views on the principal
risks and uncertainties for the Company and the relevance of these
risks to meeting the Company’s objectives. This is not intended to
Whilst the Company has applied mitigation processes as
highlighted below it is unlikely that the techniques applied will
entirely eliminate the risk.
Risk
Description
Macroeconomic Risks
Mitigation/Approach
Inflation
Inflation may be higher or lower than expected. Investment cash flows
are positively correlated to inflation therefore increases/decreases
to inflation would impact positively or negatively on Company cash
flows. Negative inflation (deflation) will reduce the Company’s cash
flows in absolute terms.
The Company monitors the effect of inflation on its portfolio through
its twice yearly valuation process and reports on this to investors.
The Company also provides sensitivities to investors indicating the
projected impact on the Company’s NAV of a number of alternative
inflation scenarios, offering investors an ability to anticipate the likely
effects of some inflation scenarios on their investment.
The Company’s portfolio has been developed in anticipation of
continued inflation at or above the levels used in the Company’s
valuation assumptions. Where inflation is at levels below the assumed
levels investment performance may be impaired. The level of inflation
linkage across the investments held by the Company varies and is
not consistent. Some investments have no inflation linkage and some
have a geared exposure to inflation. The consequences of higher or
lower levels of inflation than that assumed by the Company will not
be uniform across its portfolio. The Company is also exposed to the
risk of changes to the manner in which inflation is calculated by the
relevant authorities.
The Company indirectly holds part of its investments in entities
in jurisdictions with currencies other than Sterling but borrows
corporate level debt, reports its NAV and pays dividends in Sterling.
Changes in the rates of foreign currency exchange are outside the
control of the Company and may impact positively or negatively on
Company cash flows and valuation.
Foreign
Exchange
Movements
The Company uses forward foreign exchange contracts to mitigate
the risk of short-term volatility in foreign exchange on significant
investment returns from overseas investments. These may not be
fully effective and rely on the strength of the counterparties to those
contracts to be enforceable.
The Company monitors the effect of foreign exchange on its
portfolio through its twice yearly valuation process and reports this
to investors. The Company also provides sensitivities to investors
indicating the projected impact on the Company’s NAV of a limited
number of alternative foreign exchange scenarios, offering investors
an ability to anticipate the likely effects of some foreign exchange
scenarios on their investment.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 35
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
Principal Risks and Mitigation continued
Risk
Description
Macroeconomic Risks – continued
Interest Rates Changes in market rates of interest can affect the Company in a
variety of different ways:
Mitigation/Approach
Valuation Discount Rate
The Company, in valuing its investments, uses a discounted cash
flow methodology. Changes in market rates of interest (particularly
government bond rates) will directly impact the discount rate used
to value the Company’s future projected cash flows and thus its
valuation. Higher rates will have a negative impact on valuation while
lower rates will have a positive impact.
Corporate Debt Facility
The Company has a corporate level debt facility that may be drawn
from time to time. Interest is charged on a floating rate basis, so
higher than anticipated interest rates will increase the cost of
this facility potentially adversely impacting on cash flow and the
Company’s valuation.
Cash Holdings
The Company and underlying investment entities typically choose or
can be required to hold various cash balances, including contingency
reserves for future costs (such as major lifecycle maintenance or
debt service reserves). These are generally held on interest bearing
accounts and under the contractual terms applicable to certain
investments which in many cases are projected to be held for the
long term. The Company assumes that it will earn interest on such
deposits over the long term. Changes in interest rates may mean that
the actual interest receivable by the Company is less than projected.
If the Company receives less interest than it projects this will impact
cash flows and NAV adversely.
Change in Legislation
Changes in tax legislation across the multi-jurisdictions in which
the Company has investments can reduce returns impacting on the
Company’s cash flow and valuation.
Change in Tax Rates
Most recently the Company has benefited from reductions in the
headline rates of UK corporation tax positively impacting its UK based
investments, however there is a risk that this could be reversed if
there were a change in government or policy. Such changes may
occur in all jurisdictions in which the Company operates.
Base Erosion and Profit Shifting
The OECD’s Action Plan on Base Erosion and Profit Shifting (‘BEPS’),
published in 2013, seeks to address perceived flaws in international
tax rules. It sets out 15 actions to counter BEPS in a comprehensive
and coordinated way. These actions may result in fundamental
changes to the international tax standards and potentially have
unintended consequences for domestic tax standards too. If widely
drawn they may have negative implications for the Company.
Accounting changes may have either a positive or adverse effect on
cash flows available for distribution to the Company and therefore the
value of the investments. Accounting changes that have the effect
of reducing distributable profits in investment entities and holding
entities may impact the Company’s cash flows and thus valuation
adversely.
In determining the discount rate used to value the Company’s
investments the Company generally uses nominal interest rates.
Where the Company’s cash investment inflows are linked to inflation,
higher interest rates can often be precipitated by higher inflation
expectations, and therefore any inflation linkage may partly mitigate
the effect of interest rate changes.
In the event that the interest rate increases then the Company has
the option of repaying that facility at any time with minimal notice,
providing sufficient funds are available.
Interest rate risks cannot be fully mitigated against. In respect of
deposit interest rates the Company monitors the effect of historical
and projected interest rates on its portfolio through its twice yearly
valuation process and reports this to investors. The Company also
provides sensitivities to investors indicating the projected impact
on the Company’s NAV of a limited number of alternative scenarios,
offering investors an ability to anticipate the likely effects of some
deposit interest rate scenarios on their investment.
The diversified jurisdictional mix of the Company’s investments may
provide some mitigation to tax changes in any one jurisdiction.
The Company believes it takes a conservative approach to tax
planning. The Board monitors changes in tax legislation and takes
advice as appropriate from external, independent, qualified advisers.
Whilst the Board and the Company’s Investment Adviser seek to
minimise the impact of adverse changes in tax requirements, its
ability to do so is naturally limited.
The Company’s Investment Adviser has responded to the OECD
BEPS consultation process but there can be no guarantee that any
enactment of BEPS into national legislation within those countries
where the Group operates will not have a negative impact, whether
direct or indirect, on the Company’s performance.
A significant portion of the Company’s income is received in the form
of shareholder debt interest income i.e. from pre-tax cash flows and
therefore not constrained by distributable profits tests.
Taxation
Accounting
36 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Risk
Description
Mitigation/Approach
Market Risk
Political and
Regulatory
The nature of the businesses in which the Company invests exposes
the Company to potential changes in policy and legal requirements.
All investments have a public sector infrastructure service aspect.
Some are subject to formal regulatory regimes. All are exposed
to political scrutiny and the potential for adverse public sector or
political criticism. Moreover all are dependent ultimately on public
sector expenditure for most of their revenues. The Company is
therefore potentially highly exposed to changes in policy, law or
regulations including adverse or punitive changes of law.
Termination of Contracts
Typically contracts between public sector bodies and the
Company’s investment entities contain rights for the public sector
to voluntarily terminate contracts in certain situations. Whilst the
contracts typically provide for compensation in such cases, this
could be less than required to sustain the Company’s valuation
causing loss of value to the Company. There have been instances
of contracts being voluntarily terminated in the UK health sector
recently (although not affecting the Company).
Change in Law/Regulation
Changes in law or regulation may increase costs of operating
and maintaining facilities or impose other costs or obligations
that indirectly adversely affect the Company’s cash flow from its
investments and/or valuation of them.
Change in Political Policy
Political policy and financing decisions may also impact on the
Company’s ability to source new investments at attractive prices
or at all.
Change in Regulations
The Company is subject to changes in regulatory policy that relate
to its business and that of its Investment Adviser. The Company
is supervised by the Guernsey Financial Services Commission
and is required to comply with the UK Listing Rules applicable
to ‘Premium’ listings. The Investment Adviser is regulated by the
Financial Conduct Authority in the UK in accordance with the
Financial Services and Markets Act 2000.
Recent Regulatory Changes
Recent regulatory changes have included the transposition of the
European Union’s Alternative Investment Fund Managers Directive
(‘AIFMD’) into UK and other EU countries national laws which will
impact the Company by increasing its regulatory burden.
The Company’s existing investments benefit from long-term service
and asset availability based pricing contracts and the countries in
which the Company operates do not tend to have a tradition of penal
retrospective legislation. The countries where the Company operates
tend to be long-term supporters of PPP frameworks and similar
procurements and recognise the risk of deterring future investment in
the event that penal or disproportionate steps are taken in respect of
existing contractual engagements.
The Company maintains strong and positive relationships with its
public sector clients where it can. The Company engages with
its public sector clients in developing cost saving initiatives and
acting as a ‘good partner’ where it can. None of the Company’s
investments have been identified, by any government audit or
public sector report as being poor value-for-money or not in the
public interest.
The Investment Adviser is a signatory to the Code of Conduct
for Operational PFI/PPP contracts in the UK. The voluntary code
of conduct sets out the basis on which public and private sector
partners agree to work together to make savings in operational
Public PPP contracts.
Compensation on termination clauses within such contracts serve
to partially mitigate the risk of voluntary termination. Furthermore
in the current financial climate where voluntary termination leads to
a requirement to pay compensation such compensation is likely to
represent an unattractive immediate call on the public finances for
the public sector.
Some investments maintain a reserve or contingency designed to
meet change in law costs and/or have a mechanism to allow some
change in law costs (typically building maintenance related) to be
passed back to the public sector.
Current policy trends in the UK and elsewhere continue to support
the use of private sector capital to finance public infrastructure.
The Company and its Investment Adviser monitor regulatory
developments and seek independent professional advice in order
to manage compliance with changing regulatory requirements.
The Board considers the Company is self-managed (i.e. it is its
own Alternative Investment Fund Manager (‘AIFM’)). It is therefore
subject to a lighter regulatory regime than if it were to appoint
an AIFM from within the EU. However it is not possible to entirely
mitigate the risk the Company may be deemed or choose to be
managed by an EU AIFM in the future.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 37
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Strategic Report
Principal Risks and Mitigation continued
Risk
Description
Operational and Valuation Risk
Asset Performance Asset Availability
Mitigation/Approach
The Company’s investments’ entitlement to receive income from
their public sector clients is generally dependent on the underlying
physical assets remaining available for use and continuing to meet
certain performance standards. Failure to maintain assets available
for use or operating in accordance with pre-determined performance
standards may entitle the public sector to stop (wholly or partially)
paying the income that the Company has projected to receive.
The Board reviews underlying investment performance of each
investment quarterly allowing asset performance to be monitored
in close to real time.
Historically the Company has seen very high levels of asset
performance which suggests a positive trend for the future.
Contractual mechanisms also allow for significant pass-down of
unavailability and performance risk to sub-contractors in many cases.
Counterparty Risk
Termination
In serious cases where the terms of the underlying contract with
the public sector are breached due to default or force majeure then
that contract can usually be terminated without compensation.
Failure to receive the amount of revenue projected or termination
of a contract will have a consequential impact on the Company’s
cash flow and value.
The Company’s investments are dependent on the performance
of a series of counterparties to contracts including public sector
bodies, construction contractors, facilities management and
maintenance contractors, asset and investment managers
(including the Investment Adviser), banks and lending institutions
and others. Failure by one or more of these counterparties to
perform their obligations fully or as anticipated could adversely
affect the performance of affected investments. Replacement
counterparties where they can be obtained may only be obtained
at a greater cost. These risks would negatively impact the
Company’s cash flows and valuation.
Where borrowings exist in respect of the Company’s investments,
interest rates are generally fixed through the use of interest rate
swaps. The Company is therefore exposed if the counterparties
of these swaps were to default or the swaps otherwise become
ineffective.
Physical Asset Risk The Company indirectly invests in physical assets used by the
public and thus is exposed to possible risks, both reputational
and legal, in the event of damage or destruction to such assets
and their users including loss of life, personal injury and property
damage. While the assets the Company invests in benefit from
insurance policies these may not be effective in all cases.
Contract Risk
The performance of the Company’s investments is dependent on the
complex set of contractual arrangements specific to each investment
continuing to operate as intended. The Company is exposed to the
risk that such contracts do not operate as intended, are incomplete,
contain unanticipated liabilities, are subject to interpretation contrary
to the Company’s expectation or otherwise fail to provide the
protection or recourse anticipated by the Company.
Financial Forecasts The Company’s projections depend on the use of financial models
Sensitivities
to calculate future projected investment returns for the Company.
These are in turn dependent on the outputs from other financial
model forecasts at the underlying investment entity level. There
may be errors in any of these financial models including calculation
errors, incorrect assumptions, programming, logic or formulaic
errors and output errors. Once corrected such errors may lead to
a revision in the Company’s projections for its cash flows and thus
impact on its valuation.
The Company publishes information relating to its portfolio
including projections of how portfolio performance and valuation
might be impacted by changes in various factors e.g. interest rates,
inflation, deposit rates etc. The sensitivity analysis and projections
are not forecasts and actual performance is likely to differ (possibly
significantly) from that projection as in practice the impact of
changes to such factors will be unlikely to apply evenly across the
portfolio or in isolation from other factors.
38 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
In the event of significant and continuing unavailability across
the Company’s portfolio the Company is able to terminate
the Investment Advisory Agreement. This serves to reinforce
alignment of interest between the Company and the Investment
Adviser.
The Company has a broad range of suppliers and believes that
supplier counterparty risk is diversified across its investments.
All contracts include the provision of a security package from
counterparties to mitigate the impact of supplier failure. In addition,
generally payments are made in arrears to service providers giving
the Company some protection against failures in performance.
The credit quality of supplier counterparties is reviewed as part of
the Company’s due diligence at the time of making its investments.
Most of the services provided to the Company’s investments are
reasonably generic and therefore there can be expected to be a pool
of potential replacement supplier counterparties in the event that a
service counterparty fails albeit not necessarily at the same cost.
The credit risk of such swap counterparties is considered at
the time of entering into these arrangements and are regularly
reviewed. However, there is a risk of credit deterioration which
could impact affected investments.
The Company’s investments benefit from regular risk reviews and
external insurance advice which is intended to ensure that those
assets continue to benefit from insurance cover that is standard
for such assets.
Such contracts have been entered into usually only after lengthy
negotiations and with the benefit of external legal advice. A legal
review of contract documentation is undertaken as part of the
Company’s due diligence at the time of making new investments.
Financial forecasts are generally subject to model audit by
external accountancy firms which is a process designed to
identify errors. The comparison of past actual performance of
investments against past projected performance also gives
confidence in financial models where actual performance has
closely matched projected performance. However there can
be no assurance that forecast results will be realised.
Sensitivities are produced for the information of investors and are
accompanied by disclaimers and guidance explaining that limited
reliance can be placed upon them.
Corporate Governance Report
Introduction
The Board of Directors is committed to high standards of
corporate governance and has put in place a framework for
corporate governance which it believes is appropriate for an
investment company.
Compliance with Corporate Governance Codes
All companies with a Premium Listing on the London Stock
Exchange are required to confirm their compliance with (or
explain departures from) the UK Corporate Governance Code
(‘UK Code’). This requirement applies regardless of where the
company is incorporated.
The Company is a member of the Association of Investment
Companies (the ‘AIC’). The UK Code acknowledges that the
AIC Corporate Governance Code (‘AIC Code’) can assist
externally managed companies in meeting their obligations
under the UK Code in areas that are of specific relevance to
investment companies.
The Guernsey Financial Services Commission has also confirmed
that companies that report against the UK Code or AIC Code are
deemed to meet the Guernsey Code of Corporate Governance.
The AIC Code is available from the Association of Investment
Companies (www.theaic.co.uk). The UK Code is available from
the Financial Reporting Council website (www.frc.co.uk).
The Company has complied throughout the year with all the
provisions of the AIC Code and as such also meets the
requirements of the UK Code except to the extent highlighted
below. In particular the Company notes the following departures
from the code (for part or all of the year) for the reasons as set
out below:
1. The role of the Chief Executive and Executive Directors’
remuneration
As an investment company, most of the Company’s day-to-day
responsibilities are delegated to third parties. The Company does
not have any Executive Directors. The UK Code’s two separate
principles of setting out the responsibilities of the Chief Executive
and disclosing the remuneration of executive directors (Section 12
– A.2 of the UK Code) are therefore not applicable.
2. Re-election of all Directors
The Board notes the AIC Code and UK Code suggest it would
be good practice for all Directors to be offered for re-election at
regular intervals subject to continued satisfactory performance. In
accordance with the Company’s articles of incorporation, at least
one third of the Independent Directors and Mr Frost (treated for
the purposes of the AIC Code as a Non-Independent Director) will
retire at each Annual General Meeting (Principle 3 – AIC Code). The
Company considers that putting forward all Independent Directors
for re-election more frequently would not be in the best interests of
shareholders, given the long-term nature of the Company’s assets
that benefit from a consistent approach across years both in terms
of management and independent Board supervision.
As such the Company takes the view that the benefits to
shareholders arising from the Directors’ long-term knowledge and
experience of these underlying assets and their management
(including their ongoing ability to review the performance of the
Investment Adviser and other advisers) outweighs the benefit of
more frequent re-election being applied to all Directors.
However, as detailed in the ‘Board Tenure and Re-election’
section below as Mr Dorey will have been a Director for over nine
years from August 2015, the Board determined that it would be
appropriate that he offer himself for re-election on an annual basis.
Other Directors seeking re-election this year are detailed in the
sections below.
3. Nomination of candidates to join the Board
As noted in the sections that follow, the Board formed a
Nomination and Remuneration Committee in September 2014
which, among other things, considers the appointment of
candidates to the Board.
Prior to the establishment of this Committee, nomination of
candidates to join the Board was considered by the full Board.
This approach was in compliance with Principle 9 of the AIC Code,
recommending that the Independent Directors take the lead in the
appointment of new Directors. Following the establishment of the
Committee the Company now also meets the requirement of the
UK Code (Section 12 – B.2.4).
The table below details all Directors of the Company at the date of this report.
Name
Position
Independent
under Code
Rupert Dorey1
Giles Frost
John Whittle1
Claire Whittet1
John Stares1
Non-Executive Chairman (Chairman, Investment Committees)
Non-Executive Director
Non-Executive Director (Senior Independent Director and Chairman,
Audit and Risk Committee)
Non-Executive Director (Chairman, Management Engagement
Committee)
Non-Executive Director (Chairman, Risk Sub-Committee and
Chairman, Nomination and Remuneration Committee)
Yes
No
Yes
Yes
Yes
1 All of the Independent Directors are members of all committees.
Date Appointed
2 August 2006
2 August 2006
6 August 2009
10 September 2012
28 August 2013
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 39
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Corporate Governance Report continued
The Board of Directors
The Board of Directors currently consists of five Non-Executive
Directors, whose biographies, on pages 51–52, demonstrate a
breadth of investment and business experience.
The Board consists solely of Non-Executive Directors and is
chaired by Mr Dorey who is responsible for leadership of the Board
and ensuring its effectiveness in all aspects of its role. Mr Dorey
met the independence criteria of the AIC Code and UK Code
upon appointment and has continued to meet this condition
throughout his term of service. Mr Whittle was appointed as Senior
Independent Director on 31 December 2013 and as such, is an
alternative point of contact for shareholders and leads in matters
where it is not appropriate for the Chairman to do so.
For the purposes of the AIC Code Mr Frost is treated as not being
an Independent Director, due to his relationship with the Company’s
Investment Adviser. In accordance with the AIC Code all other
non-executives are independent of the Company’s Investment Adviser.
Board Tenure and Re-election
Recognising the importance of the composition and function of the
Board, a Nomination and Remuneration Committee was formally
established in September 2014. It is formally charged by the Board
for considering the structure, size, remuneration and composition of
the Board. It also oversees the appointment or re-appointment of
directors, taking into account the expertise of the candidates and
their independence (see page 43 for more detail on the Committee).
Directors do not have service contracts. Directors are appointed
under letters of appointment, copies of which are available at
the registered office of the Company. The Board considers its
composition and succession planning on an ongoing basis.
In accordance with the UK Listing Authority Rules, Mr Frost will
retire and stand for re-election at the 2015 AGM.
In accordance with the AIC Code, when and if any Director shall
have been in office (or on re-election would at the end of that
term of office) for more than nine years the Company will consider
further whether there is a risk that such a Director might reasonably
be deemed to have lost independence through such long service.
Mr Dorey has been a Board member since August 2006 and in
August 2015 will have been a Board member for over nine years.
The Board is confident that Mr Dorey remains independent. However,
as a further measure it has been decided that he will now offer himself
for re-election on an annual basis. He also intends to retire from the
Board at the Company’s 2018 Annual General Meeting.
One third of the remaining Directors retire by rotation at every AGM
and will therefore be subject to annual re-election by shareholders.
Any Directors appointed to the Board since the previous AGM also
retire and stand for re-election.
Board Diversity
The Board is committed to maintaining the appropriate balance
of skills, gender, knowledge and experience among its members
to ensure strong leadership of the Company. When appointing
Board members, its priority will always be based on merit, but
will be influenced by the strong desire to maintain Board diversity,
including gender. The Board currently has one female Director.
All new Directors receive introductory support and education about
the infrastructure sector and the Company from the Investment
Adviser on joining the Board and, in consultation with the Chairman
all Directors are entitled to receive other relevant ongoing training
as necessary.
Board Performance Evaluation
During the period, the Board engaged external consultants
to conduct an external review of the Company’s corporate
governance processes. This is in accordance with the UK
Corporate Governance Code which states that evaluation of the
Board of FTSE 350 companies should be externally facilitated at
least every three years.
The evaluation process was facilitated by Trust Associates,
an independent consultant specialising in board advisory and
corporate governance services with no other connections to
the Company. Interviews were held with the Board, directors of
the Investment Adviser, Company Secretary and the Company’s
Corporate Brokers. The review considered a wide variety of areas
including: overall strategy; supervision of investment activities; risk
management, shareholder accountability; Board composition and
process; committee structure; composition and effectiveness;
overall governance; support and relationship with suppliers; and
performance of the Chairman.
Only minor recommendations were made in the course of that
review of which over 90% had already been implemented prior
to delivery of their final report and those remaining have been
implemented subsequently. For example, two new Board
committees were established during the period: the Nomination
and Remuneration Committee and the Investment Committee.
While these functions had previously been undertaken by
the independent Board members, the new committees will
formalise the processes around each of these areas and provide
shareholders with greater visibility of the process and decisions
taken by each.
Directors’ Duties and Responsibilities
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
These duties cover the following areas of responsibility:
> Statutory obligations and public disclosure
> Approval of investment decisions
> Strategic matters and financial reporting
> Board composition and accountability to shareholders
> Risk assessment and management, including reporting,
Mr Whittle will make himself available for re-election at the 2015
AGM on this basis.
compliance, monitoring, governance and control
> Other matters having material effects on the Company
Taking this into account Mr Dorey, Mr Frost and Mr Whittle will all
retire and stand for re-election at the 2015 AGM.
40
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
These reserved powers of the Board have been adopted by the
Directors to demonstrate clearly the importance with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions.
The Board monitors the Company’s share price and NAV and
regularly considers ways in which future share price performance
may be enhanced. These may include implementing marketing
and investor relations activities, appropriate management of
share price premium/discount and the relative positioning and
performance of the Company to its competitors. The Board is
also responsible for safeguarding the assets of the Company and
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Individual Directors may, at the expense of the Company, seek
independent professional advice on any matter that concerns
them in the furtherance of their duties. The Company maintains
appropriate Directors’ and Officers’ liability insurance in respect
of legal action against its Directors on an ongoing basis and the
Company has maintained appropriate cover throughout the period.
The Board has established four committees consisting of the
independent Non-Executive Directors. The responsibilities of these
Committees are described below. Terms of reference for each
Committee have been approved by the Board and are available in
full on the Company’s website.
Board
Responsibilities
> Statutory obligations and public disclosure
> Approval of investment decisions
> Strategic matters and financial reporting
> Board composition and accountability to shareholders
> Risk assessment and management including reporting compliance, monitoring,
governance and control
> Responsible for financial statements
Audit and Risk Committee
Management Engagement Committee
Delegated Responsibilities
> Monitor the integrity of financial statements
> Review the effectiveness and internal control policies and procedures over
financial reporting and identification, assessment and reporting of risk
> Review the effectiveness of the Company’s risk management framework,
including in relation to the investment policy and the risk management
procedures of Investment Manager and other third party providers
> Review the Company’s financial and accounting policies
> Advise the Board on appointment of the external auditors and is responsible
for oversight and remuneration of the external auditor
Delegated Responsibilities
> Review on a regular basis the performance of the Investment Adviser and the
Company’s other advisers and major service suppliers to ensure that
performance is satisfactory and in accordance with the terms and conditions of
the respective appointments
Investment Committee
Nomination & Remuneration Committee
Delegated Responsibilities
> Review Investment Proposals including ensuring that proposals are properly
prepared and that the investment approval process has been followed
> Ensure proposals are compliant with Company’s investment policy and strategy
> Ensure that proposals do not breach Articles of Incorporation, Prospectus or
other constitutional documents
> Determine whether proposals are appropriate for investment and then,
assuming the investment is approved, authorise the Investment Adviser to
make the investment
Delegated Responsibilities
> Review, and change as necessary, structure, size and composition of the Board
> Identify and appoint suitable Board candidates as vacancies arise and ensure
succession planning is in place
> Articulate the roles of the Chairman and Non-Executive Directors
> Conduct induction training for new Board members
> Undertake annual Board performance evaluation
> Review remuneration of the Board and its committees having regard to maximum
aggregate remuneration including benchmarking to third parties
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 41
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Corporate Governance Report continued
Board Remuneration
The Nomination and Remuneration Committee is comprised
only of Independent Directors. Prior to the establishment of the
Committee in September 2014, these matters were considered
by the Independent Directors alone.
The Committee considers matters relating to the Directors’
remuneration, taking into account benchmark information and
based upon the amount of work performed by the Board
members. No advice or services were provided by any external
persons in respect of its consideration of Directors’ remuneration.
All fees payable to the Directors should reflect the time spent by the
Directors on the Company’s affairs and the responsibilities borne
by the Directors and be sufficient to attract, retain and motivate
Directors of a quality required to run the Company successfully.
The Chairman of the Board is paid a higher fee in recognition
of additional responsibilities, as is the Chairman of the Audit and
Risk Committee. The Chairmen of the new Nomination and
Remuneration and Investment Committees, respectively do
not receive additional fees for these roles. The Nomination
and Remuneration Committee reviews Director remuneration
periodically, taking into account fees paid to directors of
comparable companies, although such a review will not necessarily
result in any changes to the rates.
There are no long-term incentive schemes provided by the
Company and no performance fees, or bonuses paid to Directors.
Any changes to Directors remuneration are considered at the
Annual General Meeting of the Company.
During the year, serving Directors were paid the following emoluments:
Director
Keith Dorrian1
Rupert Dorey2
Giles Frost3
John Whittle4
Claire Whittet
John Stares5
2014
Fees paid
£
26,122
60,000
32,000
50,000
37,500
37,500
2013
Fees paid
£
56,750
46,750
32,000
36,125
36,125
3,465
1 Mr Dorrian retired from the Board on 12 June 2014.
2 Mr Dorey became Chairman of the Board on 31 December 2013 for which he
receives a higher fee.
3 The emoluments for Mr Frost are paid to his employer Amber Infrastructure
Limited, a related company of the Company’s Investment Adviser.
4 Mr Whittle become Chairman of the Audit and Risk Committee on 31 December
2013 for which he receives a higher fee.
5 Mr Stares joined the Board on 28 August 2013.
Directors’ Interests
Directors, who held office at 31 December 2014, had the following
interests in the shares of the Company:
Director
Keith Dorrian2
Rupert Dorey3
Giles Frost
John Whittle4
Claire Whittet
John Stares5
31 December
2014
Number of
Ordinary
Shares1
31 December
2013
Number of
Ordinary
Shares1
n/a
643,687
298,745
40,256
–
–
51,467
593,687
298,745
38,393
–
–
1 All shares are beneficially held.
2 Mr Dorrian retired from the Board on 12 June 2014. Previously shares held
indirectly through a Retirement Annuity Trust Scheme.
3 Shares owned by Mr Dorey’s spouse.
4 Holds shares through a Retirement Annuity Trust Scheme
5 Mr Stares joined the Board on 28 August 2013.
There have been no changes to any of the above holdings between
31 December 2014 and the date of this report.
Mr Frost is also a Director of International Public Partnerships Lux 1
Sarl a wholly-owned subsidiary undertaking of the Company, and a
director of a number of other companies in which the Company
directly or indirectly has an investment, although he does not
control or receive remuneration in relation to these entities.
Committees of the Board
Audit and Risk Committee
The Audit and Risk Committee is comprised of the full Board
with the exception of Mr Frost as the Non-Independent Director.
Mr Whittle is Chairman of the Audit and Risk Committee and
Mr Stares has lead responsibility for Risk. As a consequence, the
Company Chairman is a member of the Audit and Risk Committee,
which the Board believes is appropriate as Mr Dorey brings
significant independent expertise in investment trusts and finance
for the benefit of that Committee.
The duties of the Audit and Risk Committee in discharging its
responsibilities are outlined in the chart on page 41. The Audit and
Risk Committee is also responsible for monitoring the objectivity
and effectiveness of the audit process, with particular regard to
terms under which the auditor is appointed to perform non-audit
services. In advance of non-audit work being undertaken by the
Company’s Auditors, any potential threats to independence are
identified and if they cannot be suitably dealt with an alternative
audit firm would be engaged.
42
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
In respect to its risk management function, the Audit and Risk
Committee is also responsible for reviewing the Company’s
risk management framework including in connection with the
acquisition and disposal of assets, the valuation of assets and
ensuring that the risk management function of the Investment
Adviser, Administrator and other third party service providers are
adequate and to seek assurance of the same.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee is comprised of the
full Board with the exception of Mr Frost as the Non-Independent
Director, and will be chaired by Mr Stares. As noted earlier the
Committee was established in September 2014 to formalise the
arrangements that had previously existed to consider matters
relating to Board appointments, structure and remuneration.
The Audit and Risk Committee, having reviewed the performance of the
Auditor, has recommended to the Board that the Auditor be proposed
for re-appointment at the Annual General Meeting of the Company.
The Audit and Risk Committee spent time performing a more
detailed risk review of the Company during the period, focussed on
identification of new emerging risks that could affect the Company
and the robustness of processes in place to mitigate those risks.
During this review, the Committee identified and discussed a
number of emerging global risks, for example those driven by
technological advances (such as Cybercrime) and new industry
risks as a result of increased external regulation. Of significance the
committee considered it important to more specifically raise with
shareholders the new emerging risk of OECD proposals to restrict
the tax deductibility of interest payments. More detail is provided
within the Risk and Mitigation section of this Annual Report. The
Audit and Risk Committee were satisfied that the key risks that
could impact the Company and its investments were effectively
mitigated and were also in line with the Company’s peer group.
Management Engagement Committee
The Management Engagement Committee is comprised of the full
Board, with the exception of Mr Frost, and is chaired by Ms Whittet.
The duties of the Management Engagement Committee in
discharging its responsibilities are outlined in the table above.
The Management Engagement Committee carries out its review
of the Company’s advisers through consideration of a number
of objective and subjective criteria and through a review of the
terms and conditions of the advisers’ appointments with the
aim of evaluating performance, identifying any weaknesses and
ensuring value for money for the Company’s shareholders.
The Management Engagement Committee formally reviewed
the performance of Investment Adviser and other key service
providers to the Company. During the 2014 review, no material
weaknesses were identified. Overall the Committee confirmed its
satisfaction with the services and advice received. The external
evaluation of the Board referred to above also considered the
effectiveness of the Board’s relationship with the Company’s
advisers including the Investment Adviser and concluded
positively on the these relationships.
The Committee intends to hold its first meeting during 2015.
Investment Committee
The Investment Committee is comprised of the full Board with
the exception of Mr Frost as the Non-Independent Director,
and is chaired by Mr Dorey. The Committee was established
in September 2014 to formalise the arrangements that had
previously existed to consider items relating to the acquisition
and disposal of investments by the Company. Previously such
decisions were taken by the full Board (excluding Mr Frost who is
not independent) and therefore the Committee was not required to
meet during 2014.
The Committee will meet as necessary when new investment
or divestment opportunities are recommended by the
Investment Adviser.
Board and Committee Meeting Attendance
The full Board meets at least four times per year and in addition
there is regular contact between the Board, the Investment Adviser,
the Administrator and the Company Secretary. The agenda and
supporting papers are distributed in advance of quarterly Board
and Committee meetings to allow time for appropriate review and
to facilitate full discussion at the meetings.
As part of its ongoing oversight of the Company’s portfolio in June
2014 the Board visited the Federal German Ministry of Education
and Research facility in Berlin. It also met with the German-based
members of the Investment Adviser’s team together with the
construction partner on that project, BAM Deutschland. In
conjunction with the Investment Adviser, the Board also took the
opportunity to take a step back from its usual tasks to spend time
considering the Company’s broader strategic approach including
its position within the markets and future areas of focus for growth.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 43
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Corporate Governance Report continued
The table below lists Directors’ attendance at Board and
Committee meetings during the year, to the date of this report.
Directors
Max no.
Rupert Dorey
Keith Dorrian1
Giles Frost2
John Whittle
Claire Whittet
John Stares
Quarterly
Board
Ad-hoc
Board
Audit
and Risk
Committee
Management
Engagement
Committee
4
4
1
4
4
4
4
6
5
3
–
6
5
6
5
5
–
–
5
5
5
1
1
1
–
1
1
1
1 Mr Dorrian retired from the Board on 12 June 2014.
2 Mr Frost is not a member of the Audit and Risk Committee or Management
Engagement Committee. Mr Frost does not attend Ad-hoc Board Meetings
as a Director where recommendations from the Investment Adviser are under
consideration.
The Nomination and Remuneration Committee was established on
3 September 2014 and intends to hold its first meeting during 2015.
The Investment Committee was also established on 3 September
2014 but no matters came forward that needed to be considered
by the Committee during the period.
Relationship with Administrator and Company Secretary
Heritage International Fund Managers Limited acts as Administrator
and Company Secretary and is responsible to the Board under
the terms of the Administration Agreement. The Administrator
is also responsible for ensuring compliance with the Rules and
Regulations of Guernsey Law, London Stock Exchange listing
requirements, anti-money laundering regulations and observation
of the Reserved Powers of the Board and in this respect the Board
receives detailed quarterly reports.
The Directors have access to the advice and services of the
Company Secretary who is responsible to the Board for ensuring
that Board procedures are followed and that it adheres to
applicable legislation, rules and regulations under Guernsey Law,
the Guernsey Financial Services Commission and the London
Stock Exchange.
Relationship with the Investment Adviser
The Directors are responsible for the overall management and
direction of the affairs of the Company. Under the Investment
Advisory Agreement, Amber Fund Management Limited acts
as Investment Adviser to the Company to review and monitor
investments and advise the Company in relation to strategic
management of the investment portfolio. Details of the Investment
Adviser’s relationship with the Company are provided within the
Strategic Report.
In accordance with its normal practice the Board continues to hold
discussions relating to the future strategy of the Company with the
Investment Adviser and regular formal and informal discussions
are held on this subject. The Directors confirm that they believe
that it is in shareholder’s best interests to continue the appointment
of Amber Fund Management Limited (‘AFML’) as the Company’s
Investment Adviser.
Making New Investments
The Investment Committee, comprised only of independent
Directors of the Company, make investment decisions with respect
to new investments after reviewing recommendations made by
the Company’s Investment Adviser. The Investment Adviser has
a detailed set of procedures and approval processes in relation
to the recommendation of new investments to the Board.
It is expected that further investments will be sourced by the
Investment Adviser. It is likely that some of these investments will
have been originated and developed by, and in certain cases
may be acquired from other members of the Investment Adviser’s
group. Where that is the case the conflicts management process
summarised below is followed.
Managing Conflicts of Interest
The Company has established detailed procedures to deal with
conflicts of interest that may arise on investments acquired from
the Investment Adviser’s group, and manage conduct in respect of
any such acquisitions. As previously mentioned, the Company’s
Board has a majority of independent members and a Chairman
who is independent of the Investment Adviser. Each Director is
required to inform the Board of any potential or actual conflicts of
interest prior to Board discussions.
The potential conflicts of interest that may arise include when an
Amber entity is an existing investor in the target entity while an
associated company, AFML, acts on the ‘buyside’ as Investment
Adviser to the Company. The Investment Advisory Agreement
contains procedures with the intention of ensuring that the terms
on which the vendors of such assets dispose of their assets are fair
and reasonable to the vendors; and on the ‘buyside’ the Company
as Investment Adviser must be satisfied as to the appropriateness
of the terms for and the price of, the acquisition.
Key features of these procedures include:
> The creation of separate committees representing the interests
of the vendors on the one hand (the ‘Sellside Committee’)
and the Company on the other (the ‘Buyside Committee’), to
ensure arm’s length recommendation and approval processes.
The membership of each committee is restricted in such a way
as to ensure its independence and to minimise conflicts of
interest arising
> A requirement for the Buyside Committee to conduct and report
to the Company on an independent due diligence process on
the assets proposed to be acquired prior to making an offer
> A requirement for any offer made for the assets to be supported
by advice on the fair market value for the transaction from an
independent expert
44
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
> The establishment of ‘information barriers’ between the Buyside
and Sellside Committees to ensure information is kept
confidential to one or the other side
Risk management process
The Company’s risk management process as overseen by the
Board can be summarised as:
> The provision of a ‘release letter’ to each employee of the
relevant associate of the Investment Adviser who is a
member of the Buyside and Sellside Committees. The
release letter confirms that the employee shall be treated
as not being bound by his/her duties as an employee to the
extent that such duties conflict with any actions or decisions
which are in the employee’s reasonable opinion necessary
for him/her to carry out as a member of the Buyside
Committee or Sellside Committee
> Individuals with material direct or indirect economic interests in
the relevant assets will not participate in Buyside Committee
and Sellside Committee discussions regarding the relevant
assets
> A requirement that the financial statements, policies and
records of any such asset offered to the Company be compliant
with the Company’s accounting policies and procedures
The acquisition of all assets, including those from any associate of
the Investment Adviser is considered and approved in advance by
the Investment Committee. In considering any such acquisition, the
Committee will, as it deems necessary, review and ask questions
of the Buyside Committee of the Investment Adviser and the
Group’s other advisers and the acquisition will be approved by
the Committee on the basis of this advice. The purpose of these
procedures is to ensure that the terms upon which any investment
is acquired from a member of the Amber group is on an arm’s
length basis.
Risk Management and Internal Controls
The Board is responsible for overall risk management with
delegation provided to the Audit and Risk Committee. The system
of risk management and internal control has been designed to
manage, rather than eliminate, the risk of failure to meet the
business objectives. Regard is given to the materiality of relevant
risks and therefore the system of internal control cannot provide
absolute assurance against material misstatement or loss.
The Company has in place a detailed risk management framework,
with a comprehensive risk register that is reviewed and updated
as necessary by the Board and Audit and Risk Committee on a
quarterly basis. The Audit and Risk Committee considers the risks
facing the Company and controls and other measures in place to
mitigate the impact of risks.
There is an ongoing process for identifying, evaluating and
managing the significant risks faced by the Company. The process
has been in place for the year under review and up to the date of
approval of the Annual Report and financial statements.
Risk
Identification
Risk
Reassessment
Risk
Assessment
Mitigation Plan
Risk framework and systems of internal control
The Board recognises the importance of identifying and actively
monitoring the financial and non-financial risks facing the business.
Whilst responsibility for risk management rests with the Board, the
management of risk is embedded as part of the everyday business
and culture of the Company and its principal advisers.
The Board has considered the need for an internal audit function
but because of the internal controls systems in place at the key
service providers, and the independent controls process reviews
performed it has decided instead to place reliance on those control
and assurance processes.
The overall risk governance framework is the responsibility of the
Board, overseen by the Audit and Risk Committee with input from
the Management Engagement Committee. It is implemented
through the following risk control processes:
Risk identification
The Board and Audit and Risk Committee identify risks with
input from the Company’s Investment Adviser and Administrator.
The Board also receives detailed quarterly asset management
reports highlighting performance and potential risk issues on an
investment-by-investment basis.
Risk assessment
Each identified risk is assessed in terms of probability of
occurrence, potential impact on financial performance and
movements in the relative significance of each risk from period
to period.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 45
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Corporate Governance Report continued
Action plans to mitigate risk
Where new risks are identified or existing risks increase in terms
of likelihood or impact, the Audit and Risk Committee assists the
Company in developing an action plan to mitigate the risk and put
in place enhanced monitoring and reporting.
Re-assessment and reporting of risk
Such risk mitigation plans are reassessed by the Audit and Risk
Committee, where applicable with the relevant key service
providers and reported to the Board on a quarterly basis.
Board
Audit and Risk; Management Engagement;
Investment; Nomination and Remuneration Committees
Principal Advisers
Risk Control Levels
Investment Adviser
Asset Manager
Company Secretary
Fund Administrator
Legal Adviser
Corporate Broker
Corporate Bankers
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The direct communication between the Company and its
Investment Adviser and the entity level asset manager is regarded
as a key element in the effective management of risk (and
performance) at the underlying investment level. The Company
benefits from a strong alignment of risk and management
performance approach at the Company and underlying investment
levels through the provision of services from a vertically integrated
Investment Adviser and investment level Asset Manager.
The risk framework is applied holistically across the Company and
the underlying investment portfolio through vertically integrated
service support as illustrated in the Operating Model diagram on
pages 12 and 13.
Relations with Shareholders
The Board welcomes shareholders’ views and places great
importance on communication with shareholders. It has
responsibility for communication with the investor base and is
directly involved in major communications and announcements.
The Board receives regular reports on the views of shareholders
and the Chairman and other Directors are available to meet
shareholders as required.
The Investment Adviser conducts the day-to-day investor relations
activities for the Company. It meets with major shareholders on a
regular basis and reports to the Board on these meetings. During
2014 the Investment Adviser and members of the Board held
formal meetings with over 85 individual shareholders in addition
to day-to-day interaction including calls and other forms of
correspondence. The Board is also informed on a regular basis of
all relevant market commentary on the Company by the Investment
Adviser, Administrator and the Company’s Broker.
The Annual General Meeting of the Company provides a forum for
shareholders to meet and discuss issues with the Directors and
with the Investment Adviser of the Company.
To promote a clear understanding of the Company, its objectives
and financial results, the Board aims to ensure that information
relating to the Company is disclosed in a timely manner. The
Company has an investor relations section on its website
(www.internationalpublicpartnerships.com) where it makes available
all its publicly disclosed documents including Annual Reports
and RNS announcements together with additional background
information on its assets and corporate practices. Investors can
register to receive notification (via email) of RNS announcements
the Company issues. The Board encourages investors to utilise
this useful online resource.
Any shareholder issues of concern including on corporate
governance or strategy can be addressed in writing to the
Company at its registered office address (see back cover).
Corporate Social and Environmental Responsibility
Introduction
The Company is committed to its responsibility to the environment
and having a positive role in the local and global community in
which it operates. The Company encourages high standards in
sustainability through an integrated approach to managing and
influencing our indirect environmental and social impacts. The
Company recognises the value of active management in delivering
quality services, risk management and resource efficiency.
The Company’s most material impacts are indirect, relating to the
environmental and social performance of the construction and
operation of the buildings and infrastructure which make up its
portfolio. Additionally, it recognises the importance of managing
its relationship with its Investment Adviser (and associated asset
management operations) including the energy and resources
used within its operations and their contribution to the local and
global community.
The Company’s Investment Adviser focuses on sustainability
commitments, both within its operations and through the
management of the projects and assets within the Company’s
portfolio. The Investment Adviser operates a Sustainability Policy
which looks beyond legislative and regulatory requirements to
promote best practice and continual improvement in environmental
management and social responsibility.
The Investment Adviser is certified to The Planet Mark and is
committed to measuring and reducing its carbon footprint and
wider sustainability metrics. As a member of the UK Sustainable
Investment and Finance Association, it supports best practice in
responsible investment.
46
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
The Company sees its key sustainability stakeholders as its
Investment Adviser and its employees, and the service providers
it works with to deliver and manage infrastructure projects.
As a result, the Company encourages its partners to report
on sustainability performance.
Many investment entities in which the Company holds investments
achieve high standards in sustainability, including building
certifications such as BREEAM, LEED and Green Star.
Project highlights:
German Ministry of Education and Research (‘BMBF’),
Germany – Following the completion of construction in August
2014 the project was awarded ‘Gold Status’ for the Evaluation
Scheme for Sustainable Construction of Federal Buildings in
Germany by the German Federal Ministry of Environment,
Nature Conservation, Building and Nuclear Safety.
Pforzheim Schools, Germany – The project was designed for
resource efficiency, cost effectiveness and sustainability over the
concession term. Since the commencement of operations in 2008
the innovative low energy heating, cooling and ventilation system
has resulted in significant savings for the public sector.
Police Scotland, Recruitment and Training Centre, UK –
Motion sensors have been installed to operate lights in the
stairwells reducing energy consumption.
Durham Schools, UK – Two combined heat and power plants
operate to serve two secondary and one primary school. Pure
plant oil verified as being obtained from sustainable sources is
used as the fuel source. Surplus electricity that is not used is fed
back into the national electricity grid.
South Tyneside and Gateshead Schools, UK – Rainwater
harvesting is operational and the water re-used within the building
with ground water being directed into a lagoon where plant and
insect life has developed.
Moray Schools, UK – Elgin Academy, situated at the base of the
Cairngorm Mountains is designed in a unique shape providing
protection within the inner playground courtyard from the elements
whilst helping to retain heat within the school. Despite harsh
conditions utility savings of 10% have been achieved with a ‘gain
share’ for using less than the target consumption of utilities.
Highfields/Pennfields Schools, UK – The project incorporates
a renewable combined heat and power unit (‘CHP’) which meets
62-67% of the schools’ total energy requirements and saves
620 tonnes per annum in carbon emissions. The CHP unit is
fuelled by sustainable rapeseed oil that is cultivated and crushed
in the UK and generates both renewable heat and power for the
schools. Excess ‘green’ electrical energy is supplied onto the grid
network benefiting both the schools and the associated local
authority. The system also attracts additional revenue streams
from the sale of renewable obligations certificates for every unit of
electricity generated.
Royal Children’s Hospital, Australia – Following successful
completion of Stage 2 of the project an energy committee was
established with representation from all major stakeholders including
the Department of Health for the State Government of Victoria, with
the objective of delivering financial savings. Over the past two years
various energy efficiency initiatives have been implemented resulting
in annual savings of A$300,000 and a 6% reduction in carbon
emissions. Following the success in achieving these financial and
environmental savings the Authority has earmarked an additional
A$100,000 for investment in additional efficiency schemes.
Derby Courts, UK – Energy saving initiatives have included the
fitting of LED lights to the office area together with passive infrared
sensors in all retiring and interview rooms. The facilities are utilised
to provide a venue for the Court’s Magistrates’ Court Mock Trial
competition, held in conjunction with Derbyshire Secondary
Schools, which aims to introduce the legal system to young people
in an innovative and exciting way, giving them the opportunity to
gain hands on experience.
North Wales Police, UK – In 2014 the car park lights on the project
were re-lamped with LED lights in order to improve lighting conditions,
enhance CCTV coverage whilst also delivering energy savings and
reducing carbon emissions. Future initiatives include assessing the
project for its suitability for photo voltaic panels to be installed.
Bootle PFI, UK – During 2014 the project was able to provide
four work experience places for local school children in conjunction
with the Sefton Council Education Department. In addition compost
is being produced from kitchen waste which is then used to grow
vegetables on site. Such initiatives have led to the project being
declared a zero to landfill by Sita the project’s waste removal
company. Energy saving measures have included the replacement of
58 standard lights with LED equivalents resulting in a 60% reduction
in energy and a CO2 saving of 74% in comparison to standard lights.
Northampton Schools, UK – The Project Company, through its
designers and contractors has worked with Northamptonshire
County Council and the Building Research Establishment to
optimise systems and introduce energy efficient and low carbon
technologies to the construction of new classrooms at eleven
of the project sites. An apprenticeship programme has seen
three apprentices taken on with commitment to award two
apprenticeships and one graduate place in 2015. Locally 50%
of orders are with suppliers and subcontractors based in
Northamptonshire and a minimum of 13 days of free time will
be given under the ‘Give a Day of Your Time’ programme.
Long Bay Forensic & Prison Hospitals, Australia – During 2014
a Honeywell Attune Energy Management Service became fully
operational and there was an upgrade to new LED down lights
across the project. These initiatives provide better light quality
together with a reduction in light and power consumption of 15%
and lower carbon emissions.
Orange and Associated Health Services PPP, Australia –
Operational efficiency improvements and controls optimisation has
been the focus of energy efficiency initiatives across the project’s
three facilities during 2014. Further energy optimisation is expected
following the installation of the ’EnteliWEB energy management
system’ which will allow for real time reporting.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 47
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Corporate Governance Report continued
Changes in Regulation
The Board actively monitors and responds to changes in regulation
as it impacts the Company and its policies. A number of significant
changes to regulation occurred during the year.
The Company’s response to these and significant other policies are
set out below:
Alternative Investment Fund Management Directive (‘AIFMD’)
AIFMD was transposed into law in European Union (‘EU’) member
states on 22 July 2013 with mandatory compliance on expiry of a
one year transition period. The Board considers the Company to
be an internally managed non-EU fund. A non-EU fund (i.e. it is
the AIFM) which is internally managed is outside the full scope
of AIFMD and is the subject of lighter AIFMD requirements at the
point of marketing within the EU. The Company registered as a
non EU-AIF with FCA in 2014 and commenced quarterly reporting
from 31 December 2014.
Foreign Account Tax Compliance Act (‘FATCA’)
FATCA became effective on 1 January 2014 and is being gradually
implemented internationally. The legislation is aimed at determining
the ownership of US assets in foreign accounts and improving
US Tax compliance with respect to those assets. The Board in
discussion with the Company’s service providers and advisers
ensured that the Company will comply with the Act’s requirements
to the extent relevant to the Company. The Company was
registered with IRS in 2014.
Non-Mainstream Pooled Investment (‘NMPI’)
On 1 January 2014 FCA rules relating to the restrictions on the
retail distribution of unregulated collective investment schemes
and close substitutes came into effect. The Board believes
that the Company and its shareholders will not be affected by
these changes.
Having taken legal advice, the Company confirms that its shares
will qualify as an ‘excluded security’ under these new rules and will
therefore be excluded from the FCA’s restrictions which apply to
non-mainstream investment products. As such, the Company’s
shares can continue to be recommended by independent financial
advisers (‘IFAs’) to ordinary retail investors in accordance with the
FCA’s rules.
The Company is advised that the basis of being excluded from
these restrictions is principally due to the Company conducting
its affairs in such a manner that it would have qualified for approval
by HMRC as an investment that had been resident in the UK in its
previous accounting periods. The Company intends to conduct
its affairs so that this remains the case for the foreseeable future.
48
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Audit and Risk Committee Report
The Audit and Risk Committee (the ‘Committee’) is an essential
part of the Company’s governance framework to which the Board
has delegated oversight of the Company’s financial reporting,
internal controls, compliance and external audit. This report
provides an overview of the work of the Committee and details
how it has discharged its duties during the year.
The terms of reference for the Committee, together with details of
the standard business considered by the Committee, have been
approved by the Board and are available on the Company’s website.
Committee Meetings
Meetings of the Committee were attended by the Investment
Adviser and Administrator by invitation during the year. A
representative of the Group’s external auditors, Ernst and Young
LLP, also attended by invitation those meetings at which the
financial reporting planning and the Annual and Interim Reports
and financial statements were considered.
All of the Committee’s members are considered to be appropriately
experienced to fulfil their role, having significant, recent and relevant
financial experience in line with the AIC Code. Biographies of the
Committee members can be found on pages 52 and 53.
Committee Agenda
The Committee’s agenda during the year included:
> Review of the final and interim financial statements and matters
raised by management and external auditors (including
significant financial reporting judgements therein)
> Review of the appropriateness of the Company’s accounting
policies
> Review of the effectiveness of the Group’s internal control
systems
> Review of the effectiveness, objectivity and independence of
the external auditors and the terms of engagement, cost
effectiveness and the scope of the audit
> Approving the external auditor’s plan for the current year end
> Review of the policy on the provision of non-audit services by
the external auditor
> Consideration and challenge of the draft valuation of the
Group’s investments prepared by the Investment Adviser and
recommendations made to the Board on the appropriateness
of the valuation
> Review of the Company’s risk profile, specific risks and
mitigation practices
> Review of the Company’s controls over cash forecasting
Key Activities Considered During the Year
The Committee undertook the following activities in discharging
its responsibilities during the year:
Financial reporting
The Committee reviewed the Company’s financial statements,
interim reports and interim management statements prior to
approval by the Board and advised the Board with respect to
meeting the Company’s financial reporting obligations. The
Committee reviewed accounting policies and practices, including
approval of the critical accounting policies; considered the
appropriateness of significant judgements and estimates; and
advised the Board that the annual report and the financial
statements, taken as a whole, is fair, balanced and understandable.
The Committee considered the key accounting judgements
exercised in preparing the financial statements continued to be
related to the application of investment entity amendments as
required by IFRS 10 and the basis for determining the fair value of
the Company’s investments:
Investment Entity and Service Entities
Accounting Considerations
A company which qualifies as an investment entity in accordance
with IFRS 10 is required to prepare financial statements on an
investment basis, that is carry underlying investments at fair value.
Service entities that provide services in connection with the investment
entity’s activities but that are not themselves investment entities under
IFRS 10 continue to be consolidated within the investment entity’s
group accounts rather than accounted for at fair value.
The Committee considered reports from the Investment Adviser
setting out the basis on which the Company continues to meet
the investment entity definition and certain subsidiary entities
continue to meet the service entity definition of IFRS 10 (but
are not themselves investment entities), and agreed this with
the Company’s auditors. The Committee has accordingly
recommended that the Board approves the financial statements on
this basis (i.e. that investments are accounted for at fair value and
service entities consolidated). Further details on the application of
investment entity amendments and service entity considerations
are detailed in note 1 to the financial statements.
Fair Value of Investments
The Company’s investments are typically in unlisted securities,
hence market prices for such investments are not typically readily
available. Instead the Company uses a discounted cash flow
methodology and benchmarks to market comparables to derive
the Director’s valuation of investments.
This methodology requires a series of judgements to be made as
explained in note 13 to the financial statements.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 49
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Audit and Risk Committee Report continued
The valuation process and methodology were discussed with the
Investment Adviser regularly during the year and with the auditor as
part of the year-end audit planning and interim review processes.
The Committee also challenged the Investment Adviser on the
year-end fair value of investments as part of its consideration of the
audited financial statements.
Objectivity and Independence
In assessing the objectivity of the auditor, the Committee considered
the terms under which the external auditor may be appointed to
perform non-audit services. Work expected to be completed by an
external auditor includes formal reporting for shareholders, regulatory
assurance reports and work in connection with new investments.
During the period, the Committee reviewed the Investment
Adviser’s quarterly valuation reports, reports on the performance of
the underlying assets and the Investment Adviser’s assessment of
macroeconomic assumptions. The Investment Adviser confirmed
that the valuation methodology has been applied consistently with
the prior years. The Committee also reviewed and challenged the
valuation assumptions (discount rates, deposit rates, foreign
exchange rates, inflation rates and tax rates).
The auditor explained the results of their review of the
valuations, including their challenge of management’s underlying
cash flow projections and assumptions; macroeconomic
assumptions; and discount rate methodology and output. On
the basis of their audit work the auditor confirmed no material
adjustments were proposed.
The Committee, having considered the major assumptions applied
especially on larger investments, recommended its
appropriateness to the Board.
Internal controls over financial reporting
The Committee satisfied itself that the system of internal control
and compliance over financial reporting was effective, through
regular reports from the Investment Adviser and Administrator.
The Committee also considered the adequacy of resources,
qualifications and experience of staff in the finance function.
The Committee Chairman had direct access and independent
discussions with the external auditor during the course of the year.
Controls and process reviews
Throughout 2014 the Company’s governance and assurance
functions have continued to be enhanced as set out within the
Corporate Governance Report. As part of the Company’s rolling
annual controls and processes review, an independent assessment
of internal controls over the cash flow forecasting process was
commissioned. The review confirmed adequate controls were in
place and operating in relation to the cash flow forecast process.
External auditors
The Committee recommended to the Board the scope and terms of
engagement of the third party auditors. The Committee considered
auditor objectivity and independence, audit tenure and audit
tendering, and auditor effectiveness.
Under the policy there is a specific list of services for which the
external auditor cannot be engaged as the Committee considers that
the provision of such services would impact their independence. Any
potential services to be provided by the external auditor that have an
expected value of up to £50,000 and which are not prohibited by the
policy must be pre-approved by the Chairman of the Committee; any
services above this require pre-approval by the full Committee.
Non-audit fees represented 11% of total audit fees, reflecting the
relatively low level of non-audit work conducted.
In order to maintain Ernst and Young’s (‘EY’) independence and
objectivity, EY undertook its standard independence procedures in
relation to those engagements and confirmed compliance with these
to the Committee. Further details on the amounts of non-audit fees
paid to EY are set out in note 9 to the financial statements. These
were reported to and considered by the Committee as not being so
significant so as to risk impacting objectivity and independence.
Audit Tendering and Tenure
In October 2010, the Company put the audits of the Company
and controlled investment entities out to tender. In addition to
complying with good practice and satisfying new corporate
governance requirements, the tender enabled the Board to
benchmark competitiveness and value for money.
A number of firms were approached to tender for the audit. The list
was based upon their experience, industry skills and knowledge, their
ability to perform the audit to a high standard and any pre-existing
business relationships that might affect their independence. Following
a review of the proposals received, a recommendation was made to
the Board to appoint EY as the new auditor (previously Deloitte LLP).
In accordance with the relevant Corporate Governance Code
principles the Committee will continue to review the effectiveness of
the external auditor and seek to retender in line with best practice.
Review of Auditor Effectiveness
For the year ended 31 December 2014 the Committee reviewed
the effectiveness and independence of the external auditor.
This was facilitated through the completion of a questionnaire by
relevant stakeholders (including members of the Committee and
senior members of the Investment Adviser’s finance team), review
and challenge of the audit plan for consistency with the Group’s
financial statement risks, and review of the audit findings report.
50
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Risk review
During 2014, the Committee carried out an in depth review of
the key risks faced by the Company. The exercise was aimed at
identifying possible gaps in the current risk framework. The review
resulted in identification of certain additional risks as well as the
alignment of internal and external reporting of risk. The Company’s
risk register was updated to reflect the results of the deliberations.
The Committee was satisfied with the robustness of the risk
management framework in place.
Regulatory environment
The Committee received regular reports from the Administrator and
Investment Adviser on regulation and regulatory developments.
Key regulatory actions taken during the year related to the US
Foreign Account Tax Compliance Act (‘FATCA’) and the European
Union Alternative Investment Fund Management Directive (‘AIFMD’).
As a non EU-Alternative Investment Fund (‘AIF’) marketing in the
United Kingdom, the Company registered with the FCA under
the National Private Placement Regime (‘NPPR’) and carries out
periodic reporting on the Company’s activities. During the year,
the Company has also been registered for FATCA.
Fair, balanced and understandable
The Committee introduced a new process in 2014 for the review of the
2013 Annual Report and Financial Statements in order to support it in
making the statement that it considers them to be ‘fair, balanced and
understandable’. This process has continued to apply and included a
thorough review of the corporate governance best practice guidance
and putting in place processes to ensure consistency, clarity, fairness
and balance within the Annual Report and Financial Statements. This
also takes into account comments provided by the Company’s
Investment Adviser, Administrator and external auditor.
The Committee has reviewed the Company’s 2014 Annual Report
and Financial Statements and has advised the Board that, in its
opinion, the Annual Report and Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the
information necessary to assess the Company’s performance,
operating model and strategy.
John Whittle
25 March 2015
Chairman, Audit and Risk Committee
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 51
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Board of Directors
Rupert Dorey
Chairman
John Whittle
Senior Independent Director
John Stares
Background and Experience
Aged 59, John is a resident of Guernsey.
John is a Chartered Accountant and
holds the Institute of Directors Diploma in
Company Direction. John chairs the NED
sub-committee of the Guernsey Investment
Fund Association.
John was previously Finance Director of
Close Fund Services, a large independent
fund administrator.
Prior to moving to Guernsey, John was at
Price Waterhouse in London before
embarking on a career in business
services, predominantly telecoms.
Date of Appointment
6 August 2009
Listed Company and Other Relevant
Directorships
Starwood European Real Estate Finance
Limited
Globalworth Real Estate Investments Ltd
India Capital Growth Fund Ltd and Advance
Frontier Markets Fund Ltd
Committee Membership
Chairman – Audit and Risk Committee
Member – Management Engagement,
Investment and Nomination and
Remuneration Committees
Background and Experience
Aged 63 and a resident of Guernsey
since 2001, John has 40 years business
experience.
Before moving to Guernsey John worked
for 23 years as a management consultant
with Accenture where he held a wide
variety of leadership roles.
John is a Fellow of the Institute of Chartered
Accountants in England and Wales, a
member of the Worshipful Company of
Management Consultants and a Freeman
of the City of London.
Date of Appointment
28 August 2013
Listed Company and Other Relevant
Directorships
JT Group (Chairman)
Terra Firma (Guernsey-based entities)
Governor of More House School (Chair)
New Philanthropy Capital (Trustee)
Committee Membership
Chairman – Risk Sub Committee
Chairman – Nomination and Remuneration
Committee
Member – Audit and Risk, Management
Engagement, and Investment Committees.
Background and Experience
Aged 54 and a resident of Guernsey, Rupert
has over 30 years of experience in financial
markets, including 17 years at CSFB where
he specialised in credit related products.
Rupert’s expertise was principally in the
areas of debt distribution, origination and
trading, where he held a number of senior
positions at CSFB, including Fixed income
Credit product coordinator for European
offices and head of UK Credit and Rates
Sales.
Since 2005 Rupert has been a Non-
Executive Director for a number of Hedge
Funds, Private Equity & Infrastructure
Funds.
Rupert is a member of the Institute
of Directors.
Date of Appointment
2 August 2006
Listed Company and Other Relevant
Directorships
M&G General Partner Inc, Episode LLP &
Episode Inc.
Tetragon Financial Group Ltd /Tetragon
Financial Group Master Fund Ltd
AP Alternative Assets LP, AAA Guernsey
Ltd
Partners Group Global Opportunities Ltd
NB Global Floating Rate Income Fund Ltd
Cinven Capital Management III, IV Ltd,
V General Partner Ltd, Cinven Ltd.
Committee Membership
Chairman – Investment Committee
Member – Audit and Risk, Management
Engagement, Nomination and
Remuneration Committees
52
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Claire Whittet
Giles Frost
Background and Experience
Aged 52, resident in the United Kingdom,
Giles has worked in the infrastructure
investments sector for over 20 years.
He was previously employed at Babcock &
Brown and prior to that a partner in the law
firm Wilde Sapte (now Dentons).
Giles is a founder and director of Amber
Infrastructure Group Holdings Limited, the
ultimate holding company of the Investment
Adviser to the Company and various of
its subsidiaries.
Date of Appointment
2 August 2006
Listed Company and Other Relevant
Directorships
Giles is also a Director of a number of the
Company’s subsidiary and investment
holding entities and of other entities in
which the Company has an investment.
Neither he nor Amber Infrastructure Limited
receives directors’ fees from such roles for
the Company.
Background and Experience
Aged 59 and a resident of Guernsey,
Claire has over 35 years’ experience in
the banking industry. Since 2003 Claire
has been a Director and, more recently,
Managing Director and Co-Head of
Rothschild Bank International Ltd and
Director of Rothschild Bank (CI) Ltd. Claire
was previously with Bank of Scotland and
was latterly Global Head of Private Client
Credit at Bank of Bermuda.
Claire is a member of the Chartered
Institute of Bankers in Scotland, a member
of the Chartered Insurance Institute, a
Chartered Banker, a member of the Institute
of Directors and holds the Institute of
Directors Diploma in Company Direction.
Date of Appointment
10 September 2012
Listed Company and Other Relevant
Directorships
TwentyFour Select Monthly Income Fund
Limited
BH Macro Limited
Committee Membership
Chairman – Management Engagement
Committee
Member – Audit and Risk, Investment and
Nomination and Remuneration Committees
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 53
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Directors’ Report
Introduction
The Directors present their Annual Report on the performance of
the Company and Group for the year ended 31 December 2014.
Principal Activity
The Company is a limited liability, Guernsey incorporated
authorised closed-ended investment company under Companies
(Guernsey) Law, 2008. The Company shares have a premium
listing on the Official List of the UK Listing Authority and are traded
on the main market of the London Stock Exchange.
The Chairman’s Statement and Strategic Report contain a review
of the business during the year. A Corporate Governance Report is
provided on pages 39–48.
Directors’ Indemnities
The Company has made qualifying third-party indemnity provisions
for the benefit of its Directors which were made during the period
and remain in force at the date of this report.
Substantial Shareholdings
As at 31 December 2014, the Company had been notified, in
accordance with chapter 5 of the Disclosure and Transparency
Rules, of the following interests in 5% or more of the Company’s
Ordinary Shares to which voting rights are attached:
Name of holder
% Issued Capital
No. of Ordinary
Shares
Date notified
Schroder plc
13.97% 116,774,275
4 Dec 2014
Purchases of Ordinary Shares will only be made through the
market at prices below the prevailing NAV of the Ordinary Shares
(as last calculated) where the Directors believe such purchases will
enhance shareholder value. Such purchases will also only be made
in accordance with the Listing Rules of the UK Listing Authority
which provide that the price to be paid must not be more than 5%
above the average of the middle market quotations for the Ordinary
Shares for the five business days before the shares are purchased
(unless previously advised to shareholders). In accordance with the
Company’s Articles of Association up to 10% of the Company’s
shares may be held as treasury shares.
Going Concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out
in the Strategic Report on pages 8–38. The financial position of the
Group, its cash flows, liquidity position and borrowing are
described in the financial statements from page 59.
The Directors have considered significant areas of possible financial
risk and comprehensive financial forecasts have been prepared and
submitted to the Board for review. The Directors have, based on the
information contained in these forecasts and the assessment of the
committed banking facilities in place, formed a judgement, at the
time of approving the financial statements, that the Group and the
Company have adequate resources to continue in operational
existence for the foreseeable future.
After consideration, the Directors are satisfied that it is appropriate to
adopt the going concern basis in preparing the financial statements.
Investec Wealth
& Investment
Limited
10.99% 83,946,298
21 Oct 2014
Each of the persons who is a Director at the date of approval of this
Annual Report confirms that:
As at 25 March 2015, being the most current information available,
the following notification had been received:
So far as the Director is aware, there is no relevant audit information
of which the Company’s auditor is unaware.
Name of holder
% Issued Capital
No. of Ordinary
Shares
Date notified
Investec Wealth
& Investment
Limited
11.05% 92,358,612
2 Feb 2015
Each Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information. This confirmation is given and
should be interpreted in accordance with the provisions of Section
249 of the Companies (Guernsey) Law, 2008.
Directors’ Authority to Buy Back Shares and Treasury Shares
The Company did not purchase any shares for treasury or
cancellation during the year.
By order of the Board
The current authority of the Company to make market purchases
of up to 14.99% of the issued Ordinary Share Capital expires on
9 June 2015. The Company will seek to renew such authority at
the Annual General Meeting to take place on 9 June 2015. Any buy
back of Ordinary Shares will be made subject to Guernsey law and
within any guidelines established from time to time by the Board
and the making and timing of any buy backs will be at the absolute
discretion of the Board.
Rupert Dorey
25 March 2015
Chairman
John Whittle
25 March 2015
Director
54
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Directors’ Responsibilities Statement
Directors’ Statement under the UK Corporate
Governance Code
The Board as advised by the Audit and Risk Committee has
considered the Annual Report and Financial Statements and, taken
as a whole, consider them to be fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
By order of the Board
Rupert Dorey
25 March 2015
Chairman
John Whittle
25 March 2015
Director
The Directors are responsible for preparing financial statements
for each year which give a true and fair view, in accordance with
applicable Guernsey law and International Financial Reporting
Standards as adopted by the European Union, of the state of
affairs of the Group and of the profit or loss of the Group for that
year. In preparing those financial statements, the Directors are
required to:
> Select suitable accounting policies and then apply them
consistently
> Make judgements and estimates that are reasonable
> State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements
> Prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group will
continue in business
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time,
the financial position of the Group and to enable them to ensure
that the financial statements comply with The Companies (Guernsey)
Law, 2008. They are also responsible for safeguarding the assets
of the Group and hence for taking reasonable steps for the
prevention and detection of fraud, error and non-compliance with
law and regulations.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors; the work carried out by the auditor
does not involve considerations of these matters and, accordingly,
the auditor accept no responsibility for any change that may
have occurred to the financial statements since they were initially
presented on the website. Legislation in Guernsey governing the
preparation and dissemination of the financial statements may
differ from legislation in other jurisdictions.
Responsibility Statement of the Directors’ in respect of the
Consolidated Annual Report and Financial Statements
The Directors each confirm to the best of their knowledge that:
> The Consolidated Financial Statements, prepared in
accordance with IFRSs as adopted by the European Union give
a true and fair view of the assets, liabilities, financial position and
net return of the Group
> The Annual Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties faced.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 55
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Financial Statements
56 Contents
57 Independent Auditor’s Report to the Members of
International Public Partnerships Limited (“INPP”)
59 Consolidated Statement of Comprehensive Income
60 Consolidated Statement of Changes in Equity
61 Consolidated Balance Sheet
62 Consolidated Cash Flow Statement
63 Notes to the Financial Statements
Basis of Preparation
Significant Judgements and Estimates
Segmental Reporting
Investment Income
Gain on Disposal of Investments
Other Operating expense/(income)
63
63
64
65
65
65
66 Management Costs
66
66
66
67
68
68
73
74
74
74
75
76
77
77
77
80
Transaction Costs
Auditor’s Remuneration
Finance Costs
Tax
Earnings Per Share
Financial Instruments
Investment Acquisitions
Trade and Other Receivables
Trade and Other Payables
Share Capital and Reserves
Net Assets Per Share
Related Party Transactions
Contingent Liabilities
Events after Balance Sheet Date
Other Mandatory Disclosures
Service Concession Arrangements
56 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Independent Auditor’s Report to the Members
of International Public Partnerships Limited
Opinion on financial statements
In our opinion the group financial statements:
> give a true and fair view of the state of the group’s affairs as at
31 December 2014 and of its profit for the year then ended;
> have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
> have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008
What we have audited
We have audited the financial statements of International Public
Partnerships Limited (the Group) for the year ended 31 December
2014 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Changes
in Equity, the Consolidated Balance Sheet, the Consolidated Cash
Flow Statement and related notes 1 to 23. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (‘IFRS’s) as
adopted by the European Union.
This Report is made solely to the Company’s members, as a body,
in accordance with Section 262 of Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 55, the Directors are responsible for the
preparation of the financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of whether the accounting policies are
appropriate to the Group’s circumstances and have been
consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the Annual Report and Financial Statements to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware
of any apparent material misstatements or inconsistencies we
consider the implications for our Report.
Our assessment of risks of material misstatement
We identified the following risk that has had the greatest effect on
the overall audit strategy and scope:
> The assessment of the fair value of investments relies on a number
of macro assumptions which are subjective, as well as projected
cash flows which are based on estimates made by management.
For details of the valuation process followed by management
please refer page 71 note 13.4. There is a risk that errors in the
assumptions and projected cash flows result in a misstatement of
the investment balance in the consolidated balance sheet and the
corresponding gain/loss on revaluation of investments recorded in
the consolidated statement of comprehensive income
Our response to the risk identified
In assessing the risk of material misstatement to the consolidated
financial statements, our Group audit scope as noted above,
focused on the valuation of investments at fair value through profit
or loss. Our response to the risk of material misstatement identified
above included the following procedures:
> we reviewed the valuation process and assessed the
effectiveness of controls and tested the controls that related to
model integrity; and
> we challenged the Board’s assumptions underpinning the fair
value of investments, including the key inputs of the forecast
cash flows, the discount rates used, and the historical accuracy
of forecasts. We used a valuation specialist to assist us with our
audit of the discount rates, foreign exchange rates and inflation
rates used, by benchmarking to data available in the market
Our application of materiality
We determined materiality for the Group to be £10.6 million (2013:
£9.0), which is approximately 1% (2013: 1%) of equity. This provided
a basis for determining the nature, timing and extent of risk
assessment procedures, identifying and assessing the risk of
material misstatement and determining the nature, timing and
extent of further audit procedures. We used equity as the basis for
determining planning materiality because the Company’s primary
performance measures for internal and external reporting are
based on net asset value. On the basis of our risk assessments,
together with our assessment of the Group’s overall control
environment, our judgement is that overall performance materiality
for the Group should be 50% of materiality, namely £5.3 million
(2013: £4.5 million). A lower materiality of £1.9 million (2013:
£1.2 million) has been applied to Interest income, Dividend income
and Management costs to be responsive to the expectations of the
users of the financial statements with regard to misstatements in
these balances of a lesser amount than the Group materiality.
Performance materiality for these balances has been determined to
be 50% of materiality, namely £0.95 million (2013: £0.65 million).
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of £0.53 million (2013
£0.45 million), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 57
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Independent Auditor’s Report to the Members of International
Public Partnerships Limited continued
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if,
in our opinion, information in the Director’s report is:
> Materially inconsistent with the information in the audited
financial statements; or
> Apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
> Is otherwise misleading
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the
audit and the directors’ statement that they consider the annual
report is fair, balanced and understandable and whether the annual
report appropriately discloses those matters that we
communicated to the audit committee which we consider should
have been disclosed.
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
> proper accounting records have not been kept; or
> the financial statements are not in agreement with the
accounting records; or
> we have not received all the information and explanations we
require for our audit
Under the Listing Rules we are required to review:
> The directors’ statement, set out on page 54, in relation to going
concern; and
> The part of the Corporate Governance Statement relating to the
company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review
Michael Bane
for and on behalf of Ernst & Young LLP,
Guernsey
Channel Islands
25 March 2015
58 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Consolidated Statement of
Comprehensive Income
Year ended 31 December 2014
Interest income
Dividend income
Net change in fair value of investments at fair value through profit or loss
Realised gain on disposal of investments
Total investment income
Other operating (expense)/income
Total income
Management costs
Administrative expenses
Transaction costs
Directors’ fees
Total expenses
Profit before finance costs and tax
Finance costs
Profit before tax
Tax credit
Profit for the year
Earnings per share
From continuing operations
Basic and diluted (pence)
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
32,200
23,605
32,187
2,104
90,096
(599)
89,497
(11,608)
(930)
(2,874)
(248)
28,858
17,669
30,697
–
77,224
4,143
81,367
(21,675)
(1,378)
(596)
(245)
Notes
4
4
4
4,5
6
7
8
(15,660)
(23,894)
73,837
57,473
10
(2,668)
(1,390)
71,169
56,083
11
2,042
2,551
73,211
58,634
12
9.49
7.82
All results are from continuing operations in the year.
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 year (2013: nil). The profit for the year represents the Total Comprehensive
Income for the year.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 59
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Consolidated Statement of Changes in Equity
As at 31 December 2014
Balance at 31 December 2013
Total comprehensive income
Issue of Ordinary Shares
Issue fees applied to new shares
Distributions in the year
Balance at 31 December 2014
As at 31 December 2013
Balance at 31 December 2012
Total comprehensive income
Issue of Ordinary Shares
Issue fees applied to new shares
Distributions in the year
Balance at 31 December 2013
Notes
Share capital
£’000s
Other
distributable
reserve
£’000s
Retained
earnings
£’000s
Total
£’000s
524,393
182,481
228,517
935,391
–
17
17
17
101,688
(792)
–
–
–
–
–
73,211
73,211
–
–
(47,430)
101,688
(792)
(47,430)
625,289
182,481
254,298
1,062,068
Notes
Share capital
£’000s
Other
distributable
reserve
£’000s
Retained
earnings
£’000s
Total
£’000s
463,054
182,481
215,419
860,954
–
61,754
(415)
–
17
17
17
–
–
–
–
58,634
58,634
–
–
(45,536)
61,754
(415)
(45,536)
524,393
182,481
228,517
935,391
60 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Consolidated Balance Sheet
As at 31 December 2014
Non-current assets
Investments at fair value through profit or loss
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Bank loans
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Other distributable reserve
Retained earnings
Equity attributable to equity holders of the parent
Net assets per share (pence per share)
The financial statements were approved by the Board of Directors on 25 March 2015.
They were signed on its behalf by:
Rupert Dorey
25 March 2015
Chairman
John Whittle
25 March 2015
Director
31 December
2014
£’000s
31 December
2013
£’000s
Notes
13
1,032,941
844,382
1,032,941
844,382
15
13
13
16
10,13
19,529
29,391
2,948
51,868
13,020
80,609
3,664
97,293
1,084,809
941,675
6,414
6,414
16,327
16,327
22,741
6,284
6,284
–
–
6,284
1,062,068
935,391
17
17
17
18
625,289
182,481
254,298
524,393
182,481
228,517
1,062,068
935,391
127.0
123.0
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 61
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Consolidated Cash Flow Statement
Year ended 31 December 2014
Profit from operations
Adjusted for:
Gain on investments at fair value through profit or loss
Unrealised exchange (loss)/gain
Share settled performance fee
Finance costs
Net income tax credit
Fair value movement on derivative financial instruments
Realised gain on disposal of investments
Working capital adjustments
Increase in receivables
Increase/(decrease) in payables
Income tax received1
Net cash inflow from operations
Investing Activities
Acquisition of investments at fair value through profit or loss
Net repayments from investments at fair value through profit or loss
Cash received from disposal of investments
Net cash outflow from investing activities
Financing Activities
Proceeds from issue of shares net of issue costs
Dividends paid
Finance costs paid
Net loan drawdowns
Net cash provided by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gain/(loss) on cash and cash equivalents
Cash and cash equivalents at end of year2
1 Cashflows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
Includes restricted cash of nil (2013: £30.9 million) which can only be utilised for new investments.
2
Notes
4
19
10
11
13
5
14
5
17
17
10,13
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
73,211
58,634
(32,187)
(528)
–
2,668
(2,042)
716
(2,104)
(5,830)
80
33,984
1,033
35,017
(30,697)
45
6,584
1,390
(2,551)
(3,950)
–
(564)
(257)
28,634
1,049
29,683
(188,228)
11,628
22,332
(36,476)
13,455
–
(154,268)
(23,021)
94,208
(40,742)
(1,879)
16,327
67,914
(51,337)
80,609
119
46,080
(36,860)
(1,005)
–
8,215
14,877
65,776
(44)
29,391
80,609
62 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Notes to the Financial Statements
For the year ended 31 December 2014
1. Basis of Preparation
International Public Partnerships Limited is a closed ended authorised investment company incorporated in Guernsey under Companies
(Guernsey) Law, 2008. The address of the registered office is given on the inside back cover. The nature of the Group’s operations and its
principal activities are set out in pages 2 and 8–11 respectively.
These financial statements are presented in pounds Sterling as this is the currency of the primary economic environment in which the
Group (‘Parent and consolidated subsidiary entities’) operates and represents the functional currency of the Parent and all values are
rounded to the nearest (£’000), except where otherwise indicated.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’), adopted by the
European Union; interpretations issued by the International Financial Reporting Interpretations Committee; applicable legal and regulatory
requirements of Guernsey; and the Listing Rules of the UK Listing Authority. The financial statements follow the historical cost basis,
except for financial assets held at fair value through profit or loss and derivatives that have been measured at fair value. The principal
accounting policies adopted are set out in relevant notes to the financial statements.
The Directors have determined that International Public Partnerships Limited is an investment entity as defined by IFRS 10 on the
basis that:
a) it obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services;
b) it commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income,
or both; and
c) it measures and evaluates the performance of substantially all of its investments on a fair value basis.
Accordingly, these financial statements consolidate only those subsidiaries that provide services relevant to its investment activities, such
as management services, strategic advice and financial support to its investees. Subsidiaries that do not provide investment-related
services are required to be measured at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition
and Measurement.
Going concern
As set out in the Directors’ Report, the Directors have reviewed cash flow forecasts prepared by management. Based on those forecasts
and an assessment of the Group’s committed banking facilities, they have concluded that it is appropriate to prepare the financial
statements of the Group on a going concern basis.
In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted
cash of £29.4 million as at 31 December 2014. The Group has access to an undrawn corporate debt facility balance of £158.1 million,
which is available for investment in new and existing projects and is committed until December 2016. The Group can utilise a portion of
the undrawn corporate debt facility for working capital purposes. The new facility is forecast to continue in full compliance with the
associated banking covenants. The Group also continues to fully cover cost and distributions from underlying operational investment
cash flows.
During the year, the Group completed a tap issuance of £95 million which was used to partly repay the drawn down balance of the
corporate debt facility. There was also a scrip issuance as disclosed in note 17.
Accounting Policies
The annual financial statements of International Public Partnerships Limited are prepared in accordance with IFRS as adopted by the
European Union.
The same accounting policies, presentation and methods of computation are followed in this set of annual financial statements as applied
in the previous financial year. The new and revised IFRS and interpretations becoming effective in the period have had no impact on the
accounting policies of the Group. Note 22 sets out a comprehensive listing of all new standards applicable from 1 January 2014.
2. Significant Judgements and Estimates
Service entities and consolidation group
Following the adoption of IFRS 10 Investment Entity Amendments, the consolidated financial statements incorporate the financial
statements of the Company and service entities controlled by the Company up to 31 December 2014, that themselves do not meet the
definition of an investment entity. Typically a service entity provides management services, strategic advice and financial support to
investee entities. Judgement is therefore required in assessing which entities meet these definitional requirements. The Directors have
reviewed and assessed the criteria applied in the assessment of services entities based on the guidance in place as at 31 December 2014
and are satisfied with the resulting conclusion.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 63
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
2. Significant Judgements and Estimates continued
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, the relevant long-term government bond yields, specific investment risks and the
evidence of recent transactions are considered. Details of the valuation process and key sensitivities are provided in note 13.
3. Segmental Reporting
Based on a review of information provided to the chief operating decision makers of International Public Partnerships Limited, the
Group has identified four reportable segments based on the geographical risk associated with the Group. The factors used to identify
the Group’s reportable segments are centered on the risk free rates and the maturity of the Infrastructure sector (particularly PFI/PPP)
within each region. Further, foreign exchange and political risk is identified, as these also determine where resources are allocated.
Management has concluded that the Group is currently organised into four reportable segments being UK, Europe (non UK), Australia
and North America.
Segmental results
Dividend and interest income
Fair value gain/(loss) on investments
Realised gain on disposal of investments
Total investment income
Reporting segment profit1
Segmental financial position
Investments at fair value
Current assets
Total assets
Total liabilities
Net assets
Segmental results
Dividend and interest income
Fair value gain/(loss) on investments
Total investment income
Reporting segment profit/(loss)1
Segmental financial position
Investments at fair value
Current assets
Total assets
Total liabilities
Net assets
Year ended 31 December 2014
UK
£’000s
47,798
8,272
2,103
58,173
41,336
Europe
Non UK
£’000s
1,178
16,994
1
18,173
17,792
690,071
51,868
741,939
(22,741)
210,962
–
210,962
–
719,198
210,962
North
America2
£’000s
1,906
(1,787)
–
119
184
38,858
–
38,858
–
38,858
Australia
£’000s
Total
£’000s
4,923
8,708
–
13,631
13,899
93,050
–
93,050
–
55,805
32,187
2,104
90,096
73,211
1,032,941
51,868
1,084,809
(22,741)
93,050
1,062,068
Year ended 31 December 2013
Europe
Non UK
£’000s
North
America2
£’000s
Australia
£’000s
Total
£’000s
UK
£’000s
36,763
36,195
72,958
51,020
1,555
10,761
12,316
12,436
525,060
97,293
622,353
(6,284)
187,104
–
187,104
–
616,069
187,104
2,965
(2,122)
843
1,389
41,659
–
41,659
–
41,659
5,244
(14,137)
(8,893)
(6,211)
90,559
–
90,559
–
46,527
30,697
77,224
58,634
844,382
97,293
941,675
(6,284)
90,559
935,391
1 Reporting segment results are stated net of operational costs including management fees.
2 North American segment currently relates entirely to projects in Canada.
Revenue from investments which represents more than 10% of the Group’s interest and dividend income approximates £17.0 million
(2013: £18.04 million).
64 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
4. Investment Income
Accounting policy
Interest Income
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be
measured reliably. Interest income is accrued on a time-apportioned basis, using the effective interest rate of the instrument concerned as
calculated at the acquisition or origination date. Interest income is recognised gross of withholding tax, if any.
The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of
the financial instrument (or, when appropriate, a shorter period). When calculating the effective interest rate, the Group estimates future
cash flows considering all contractual terms of the financial instrument, but not future credit losses.
Dividend Income
Dividend income is recognised gross of withholding tax in the Consolidated Statement of Comprehensive Income on the date the right to
receive payment is established. This is the date when the Directors of the underlying project entity approve the payment of a dividend.
Net Gain from Financial Instruments at Fair Value through Profit or Loss
Net gain from financial instruments at fair value through profit or loss includes all realised and unrealised fair value changes (including
foreign exchange movements) other than interest and dividend income recognised separately.
Interest income
Interest on investments
Interest on bank deposits
Total interest income
Dividend income
Net change in fair value of financial assets at fair value through profit or loss
Realised gain on disposal of investments (see note 5)
Total investment income
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
31,862
338
32,200
23,605
32,187
2,104
90,096
28,309
549
28,858
17,669
30,697
–
77,224
All dividend and interest income has resulted from transactions with unconsolidated subsidiary entities. Gains on investments at fair value
through profit or loss are also recognised on the Group’s investments in unconsolidated subsidiaries.
5. Gain on Disposal of Investments
During the year, the Group disposed of a number of non-strategic minority investments where there was no realistic scope to increase the
investment in the future. The divestments predominantly relate to a small number of minority interests in the Group’s Building Schools for
the Future (BSF) project portfolio. The aggregate gains realised in the period are shown in the table below:
Divestment
Aggregate divestments
No disposals were carried out by the Group during the year ended 31 December 2013.
6. Other Operating expense/(income)
Fair value loss/(gain) on foreign exchange contracts
Unrealised gain on foreign exchange movements
Total operating expense/(income)
Fair value of
investment at
disposal
£’000s
Cash received
at disposal
£’000s
Net Realised
gain on
disposal
£’000s
20,228
22,332
2,104
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
716
(117)
599
(3,833)
(310)
(4,143)
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 65
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
7. Management Costs
Recurring
Base fee
Non recurring
Incentive fee
Total management costs
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
11,608
10,702
–
11,608
10,973
21,675
In 2013, the Investment Adviser was entitled to an additional incentive fee. This was the final incentive fee paid following the amendments
made to the Investment Advisory Agreement and Partnership Deed on 28 August 2013.
8. Transaction Costs
Investment advisory costs
Legal and professional costs
Total transaction costs
Details of investment advisory costs paid are provided in note 19.
9. Auditor’s Remuneration
Fees payable to the Group’s auditor for the audit of the Group’s financial statements
Fees payable to the Group’s auditor and their associates for other services to the Group
– The audit of the Group’s consolidated subsidiaries
– The audit of the Group’s unconsolidated subsidiaries
– Audit related assurance services
Total audit fees
Other fees
– Regulatory reporting
– Other services
Total non-audit fees
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
2,818
56
2,874
548
48
596
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
93
148
9
339
20
461
49
9
58
7
438
20
613
55
18
73
10. Finance Costs
Accounting policy
Borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred using
the effective interest rate method. Arrangement fees are amortised over the term of the corporate borrowing facility.
Interest bearing loans and overdrafts are recorded as the proceeds received net of any directly attributable issue costs.
Commitment fees and other charges
Issue cost amortisation
Total finance costs
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
1,879
789
2,668
1,005
385
1,390
66 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
10. Finance Costs continued
On 24 January 2014, the Group renewed the corporate debt facility with the existing providers, Royal Bank of Scotland and National Australia Bank
Limited and increased the facility from £100 million to £175 million. On 20 October 2014, the Group made a drawdown of £110.6 million from the
corporate debt facility in relation to the acquisition of TC Lincs OFTO Limited. The Group repaid £94.3 million of the drawn balance on 29 November
2014, utilising proceeds of equity issued on 14 November 2014. As at 31 December 2014, £16.3 million is payable under the corporate debt facility.
The interest rate margin on the corporate debt facility is 225 basis points over Libor. The loan facility matures in December 2016 and is
secured over the assets of the Group.
11. Tax
Accounting policy
Current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the Consolidated Statement of
Comprehensive Income as it excludes items of income or expense that are taxable or deductible in past or future years and it further
excludes items that are never taxable or deductible. The Group’s asset/liability for current tax is calculated using tax rates that have
been enacted or substantively enacted at the balance sheet date. The current tax charge/credit in the Consolidated Statement of
Comprehensive Income is recognised net of receivables recognised for losses surrendered to unconsolidated group subsidiary entities.
Under the current system of taxation in Guernsey, the Company itself is exempt from paying taxes on income, profits or capital gains.
Dividend income and interest income received by the Consolidated Group may be subject to withholding tax imposed in the country of
origin of such income.
Current tax:
UK corporation tax – current year
UK corporation tax – prior year
Overseas tax – current year
Overseas tax – prior year
Tax credit for the year
Reconciliation of effective tax rate
Profit before tax
Expected tax on profit at Guernsey corporation rate – 0% (2013: 0%)
Application of overseas tax rates
Group tax losses surrendered to unconsolidated investment entities
Adjustments to previous year’s assessment
Tax credit for the year
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
(2,189)
(63)
210
–
(2,042)
(2,447)
–
66
(170)
(2,551)
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
71,169
56,083
–
210
(2,189)
(63)
(2,042)
–
66
(2,447)
(170)
(2,551)
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 IFRS10 investment entity
consolidation exemption, underlying investment entity tax is not consolidated within these financial statements. Total forecasted
corporation tax payable by the Group’s underlying investments is £759 million over their full concession lives.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 67
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
12. Earnings Per Share
The calculation of basic and diluted earnings per share is based on the following data:
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to
equity holders of the parent
Number of shares
Weighted average number of Ordinary Shares for the purposes of basic and diluted
earnings per share
Basic and diluted (pence)
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
73,211
58,634
Number
Number
771,578,934 749,629,388
9.49
7.82
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.
13. Financial Instruments
Financial assets and financial liabilities are recognised when contractual provisions of the instrument are entered into. Financial assets are
derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies
for derecognition in accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’. Financial liabilities are derecognised
when the obligation is discharged, cancelled or expired. Specific financial asset and liability accounting policies are provided below.
13.1 Financial assets
Investments at fair value through profit and loss1
Financial asset loans and receivables
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Currency swaps
Total financial assets
31 December
2014
£’000s
31 December
2013
£’000s
1,032,941
844,382
19,529
29,391
13,020
80,609
2,948
3,664
1,084,809
941,675
1
Includes fair value of investments in associates amounting to £1.7 million (2013: £1.8 million). Movements in the period represent additional fair value gains offset by net
repayments from investments.
Accounting Policy
The Group classifies its financial assets as at fair value through profit or loss or as loans and receivables. The classification depends on
the purpose for which the financial assets were acquired, with investments in unconsolidated subsidiaries (other than those providing
investment-related services) being designated at fair value through profit and loss as required by IFRS 10.
Investments at Fair Value through Profit or Loss
Investments in underlying unconsolidated subsidiaries are designated upon initial recognition as financial assets at fair value through
profit or loss. The Group’s policy is to fair value both the equity and debt investments in PPP assets together. All transaction costs
relating to the acquisition of new investments are recognised directly in profit or loss. Subsequent to initial recognition, equity and debt
investments are measured at fair value with changes in fair value recognised within operating income in the Consolidated Statement of
Comprehensive Income.
Financial Assets Loans and Receivables
Trade receivables, loans and other receivables that are non-derivative financial assets and that have fixed or determinable payments and
are not quoted in an active market are classified as ‘loans and other receivables’. Loans and other receivables are measured at amortised
cost using the effective interest method, less any impairment. When calculating the effective interest rate, the Group estimates cash flows
considering all contractual terms of the financial instruments, but does not consider future credit losses. Financial assets with maturities
less than 12 months are included in current assets, financial assets with maturities greater than 12 months after the balance sheet date
are classified as non-current assets.
68 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
13. Financial Instruments continued
13.1 Financial assets continued
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments with an original
maturity of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes
in value.
Derivative Financial Instruments
Derivatives are recognised initially, and are subsequently remeasured at fair value. Derivatives are classified as assets when their fair value
is positive or as liabilities when their fair value is negative. Derivative assets and liabilities arising from different transactions are offset only if
the transactions are with the same counterparty, a legal right of offset exists, and the parties intend to settle the cash flows on a net basis.
Fair value movements on derivative financial instruments held for trading are recognised in the Consolidated Statement of Comprehensive
Income. The method of recognising fair value gains or losses depends on whether derivatives are held for trading or are designated as
hedging instruments, and if the latter, the nature of the risks being hedged.
Impairment of Financial Assets
Financial assets, other than those classified as at fair value through profit or loss are assessed for indicators of impairment at each
balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred
after the initial recognition of the financial asset, the estimated future cash flows of the investment have been adversely impacted.
13.2 Financial liabilities
Financial liabilities at amortised cost
Trade and other payables (excluding deferred income)
Bank loans
Total financial liabilities
31 December
2014
£’000s
31 December
2013
£’000s
6,414
16,327
22,741
6,284
–
6,284
Accounting Policy
Trade and other payables
Financial liabilities, other than those specifically accounted for under a separate policy, are stated based on the amounts which are
considered to be payable in respect of goods or services received up to the financial reporting date. The cost of other liabilities is
considered to approximate their fair value.
13.3 Financial risk and management objectives
The Group’s objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Group’s activities and is
managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process
of risk management is critical to the Group’s continuing profitability. The Group is exposed to market risk (which includes currency risk,
interest rate risk and inflation risk), credit risk and liquidity risk arising from the financial instruments it holds. The Group’s Investment
Adviser is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Adviser and is ultimately
responsible for the overall risk management of the Group.
The Group’s risk management framework and approach is set out within the Strategic Report (pages 35–38). The Board’s considerations
of key risks impacting the business are set out within the Strategic Report. The Board takes into account market, credit and liquidity risks
in forming the Group’s risk management strategy.
Market risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such
as changes in inflation, foreign exchange rates and interest rates.
Inflation risk
The majority of the Group’s cash flows from underlying investments are linked to inflation indices. Changes in inflation rates can have a
positive or negative impact on the Group’s cash flows from investments. The long-term inflation assumptions applied in the Group’s
valuation of investments at fair value through profit or losses are disclosed in the fair value hierarchy section 13.4.
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, investment performance may be impaired. The level of
inflation linkage across the investments held by the Group varies and is not consistent.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 69
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
13. Financial Instruments continued
13.3 Financial risk and management objectives continued
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore
impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying
borrowings within the unconsolidated investee entities are either hedged through interest rate swap arrangements or are fixed rate loans.
It is generally a requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. Hedging activities
are aligned with the period of the loan, which also mirrors the concession period and are highly effective. The Group’s corporate 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 at underlying investment level is included within the fair value of investments. Sensitivity analysis
showing the impact of variations in interest income deposit rates on the fair value of investments is shown in section 13.5.
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are
measured. The carrying amounts of the Group’s foreign currency denominated monetary financial instruments at the reporting date are
set out in the table below:
Cash
Euro
Canadian Dollar
Australian Dollar
Current receivables
Euro receivables
Investments at fair value through profit or loss
Euro
Canadian Dollar
Australian Dollar
Total
31 December
2014
£’000s
31 December
2013
£’000s
2,263
824
1
3,088
407
407
1,367
489
1
1,857
455
455
210,962
38,858
93,050
187,104
41,659
90,559
342,870
319,322
346,365
321,634
The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant
investment returns from overseas investments.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The
Group has adopted a policy of dealing only with creditworthy counterparties at the underlying entity level. PFI/PPP and similar
concessions are entered into with government, quasi government, other public or equivalent low risk bodies.
Liquidity risk
Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations associated with financial liabilities that
are settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non-listed equity and
loans). As a closed-ended investment vehicle there are no automatic redemption of capital rights. The Group manages liquidity risk by
maintaining adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring the forecast and
actual cash flows. Cash flow forecasts assume full availability of underlying infrastructure to the public sector entities. Failure to maintain
assets available for use or operating in accordance with pre-determined performance standards may entitle the public sector to stop
(wholly or partially) paying the income that the Group has projected to receive.
The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored.
Contractual mechanisms also allow for significant pass-down of unavailability and performance risk to sub-contractors.
70 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
13. Financial Instruments continued
13.4 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
31 December 2014, the Group’s only derivative financial instruments were currency forward contracts amounting to an asset of
£2.9 million (2013: asset of £3.7 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 which are classified
at fair value through profit or loss. At 31 December 2014, the fair value of financial instruments classified within Level 3 totalled £1,032.9
million (2013: £844.4 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
quarterly1 basis by the Investment Adviser and reviewed by the senior members of the Investment Adviser. The valuations are also subject
to quality assurance procedures performed by the Investment Adviser. The Investment Adviser verifies the major inputs applied in the
latest valuation by agreeing the information in the valuation computation to relevant project financial models and market information. In
addition, the accuracy of the computation is tested. The latest valuation is also compared with the valuations in the preceding semi-annual
and annual reporting periods. The senior members of the Investment Adviser consider the appropriateness of the valuation methods and
inputs. On a quarterly basis, after the checks above have been performed, the Investment Adviser presents the valuation results to the
Audit and Risk Committee. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more
significant investments. Any changes in valuation methods and assumptions are discussed and agreed with the Group’s Audit and Risk
Committee for recommendation to the Board. In addition, any investment acquisitions by the Group from related parties are also subject
to an independent valuation provided to the Board.
Valuation methodology
The valuation methodologies used are primarily based on discounting the underlying investee entities future projected net cash flows at
appropriate discount rates. Valuations are also reviewed against recent market transactions for similar assets in comparable markets
observed by the Group or Investment Adviser and adjusted where appropriate.
1
Indicative valuations performed at 31 March and 30 September where cash flows are updated for asset performance. Macroeconomic assumptions are updated at 30 June
and 31 December.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 71
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
13. Financial Instruments continued
13.4 Fair value hierarchy continued
Projected net future cash flows
Cash flow forecasts for each underlying investment are generated through detailed project specific financial models. Financial models
forecast the project related cash flows for the full term of the underlying service concession. The cash flows included in the forecasts used
to determine fair value are typically fixed under contracts however there are certain variable cash flows which are based on management
estimation. These models also forecast the dividend, shareholder loan interest payments, capital repayments and senior debt repayments
(where applicable) expected from the underlying investments. Key macroeconomic inputs and assumptions utilised in projecting the
Group’s net future cash flows include:
UK
Europe Non UK
North America
Australia
Inflation
Long-term tax
Foreign exchange rates
Long-term deposit rates
2.75%
2.00%
2.00%
20.00% 12.50% – 34.00% 25.00% – 26.50%
1.84
3.00%
N/A
3.50%
1.23
3.00%
2.50%
30.00%
2.03
4.50%
Discount rate
The discount rate used for valuation of each investment is the aggregate of the following:
> yield on government bonds with an average life equivalent to the weighted average concession length of the Group, issued by the
national government for the location of the asset (‘government bond yield’)
> a premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds
> a further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in
construction and/or to reflect any current asset specific or operational issues. Typically this risk premium will reduce over the life of
any asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash
flows decrease
> a further adjustment reflective of market based transaction valuation evidence for similar assets
Over the period, the weighted average government bond decreased by 0.67%. This was offset by a 0.43% increase in the weighted
average project premium to reflect the transactions observed in the market and the decrease in risk premia relating to construction assets
nearing or that have reached completion. Further details are provided within the Strategic Report (page 23).
Valuation Methodology
Weighted Average Government Bond Rate
Weighted Average Project Premium
Weighted Average Discount Rate
31 December
2014
31 December
2013
2.79%
4.69%
7.48%
3.46%
4.26%
7.72%
Movement
(0.67%)
0.43%
(0.24%)
Weighted Average Discount Rate1
7.90%
8.20%
(0.30%)
1 Weighted average discount rate on risk capital only (equity and subordinated debt).
Reconciliation of Level 3 fair value measurements of financial assets:
Balance at 1 January 2014
Additional investments during the year
Net repayments during the year
Investments disposed of during the year
Net change in fair value of investments at fair value through profit or loss
Balance at 31 December 2014
£’000s
844,382
188,228
(11,628)
(20,228)
32,187
1,032,941
72 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
13. Financial Instruments continued
13.5 Sensitivity analysis
The valuation requires management to make certain assumptions in relation to unobservable inputs to the model, the significant
assumptions along with sensitivity analysis are provided below:
Weighted
average rate
applied in base
case valuations
Change in
fair value of
investment
£’000s
Sensitivity
factor
Change in
fair value of
investment
£’000s
Sensitivity
factor
7.48%
+ 1.00%
(91,756)
- 1.00%
107,077
2.55%
+ 1.00%
2.75% + 1.00%
2.00% + 1.00%
2.00% + 1.00%
2.50% + 1.00%
87,136
40,111
34,838
1,176
11,011
- 1.00%
- 1.00%
- 1.00%
- 1.00%
- 1.00%
(76,039)
(37,599)
(28,664)
(1,032)
(8,745)
n/a
+ 10.00%
38,106
- 10.00%
(31,180)
23.39% + 1.00%
(7,112)
- 1.00%
7,878
3.47% + 1.00%
13,774
- 1.00%
(12,726)
Significant assumptions
Discount rate
Inflation rate (overall)
UK
Europe
North America
Australia
FX rate
Tax rate
Deposit rate
14. Investment Acquisitions
2014
Date of acquisition
Description
Consideration
£’000s
7,200
453
% Equity
stake post
acquisition
58%
10%
31 January 2014
The Group acquired an additional 48% interest in the Kent BSF education project
15 January 2014
The Group acquired 10% of the share capital in Inspiredspaces Wolverhampton
(Project Co 2) Ltd
27 January 2014
The Group acquired a controlling interest in the new office building of the Federal
German Ministry of Education and Research in Berlin (BMBF)
9,687
97%
27 June 2014
The Group acquired an additional 72% interest in BSF Nottingham phase 2
2,777
82%
4 November 2014
The Group acquired 100% of the equity in the Lincs offshore transmission project
Total capital spend on new acquisitions during the year
168,111
188,228
100%
The BMBF interests were acquired by an unconsolidated subsidiary entity of the Group from an associate of the Investment Adviser on
27 January 2014.
2013
Date of acquisition
Description
3 April 2013
11 April 2013
The Group acquired the remaining 25% interest in the Alberta Schools project in
Canada
The Group acquired an additional 39.6% of the issued share capital of Inspiredspaces
STaG (Holdings 1) Limited
1,000
90.10%
Consideration
£’000s
% Equity
stake post
acquisition
7,476
100.00%
24 September 2013
The Group acquired an additional 25% of the share capital in Northern Diabolo
Holdings Sarl (which owns 100% of the shares in Northern Diabolo NV) from Feronia
GmbH
28,000
100.00%
Total capital spend on new acquisitions during the year
36,476
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 73
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
15. Trade and Other Receivables
Accrued interest receivable
Other debtors
Total trade and other receivables
31 December
2014
£ ‘000s
31 December
2013
£‘000s
13,045
6,484
19,529
8,659
4,361
13,020
Other debtors included £4.9 million (2013: £3.7 million) of receivables from unconsolidated subsidiary entities for surrender of Group tax losses.
16. Trade and Other Payables
Accrued management fee
Other creditors and accruals
Total trade and other payables
17. Share Capital and Reserves
Share capital
In issue 1 January
Issued for cash
Issued as a scrip dividend alternative
Issued to the Investment Adviser as part settlement of an incentive fee
In issue at 31 December – fully paid
Opening balance
Issued for cash (excluding issue costs)
Issued as a scrip dividend alternative
Issued to the Investment Adviser as an incentive fee alternative
Total share capital issued in the year
Costs on issue of Ordinary Shares
Balance at 31 December
31 December
2014
£ ‘000s
31 December
2013
£ ‘000s
5,980
434
6,414
5,446
838
6,284
31 December
2014
shares
‘000s
31 December
2013
shares
‘000s
760,642
70,370
5,147
–
711,582
37,258
6,791
5,011
836,159
760,642
31 December
2014
£’000s
31 December
2013
£’000s
524,393
463,054
95,000
6,688
–
101,688
46,495
8,675
6,584
61,754
(792)
(415)
625,289
524,393
At present, the Company has one class of Ordinary Shares which carry no right to fixed income.
On 13 June 2014, 2,516,479 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 2013.
On 24 October 2014, 2,630,909 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 30 June 2014.
On 14 November 2014, the Group raised an additional £95 million of equity through its Placing and Offer for Subscription of 70,370,370
Ordinary Shares at an issue price per share of 135p (ex-dividend).
Other distributable reserve
Opening balance
Movement in the year
Balance at 31 December
31 December
2014
£’000s
31 December
2013
£’000s
182,481
–
182,481
–
182,481
182,481
74 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
17. Share Capital and Reserves continued
Other distributable reserve continued
On 19 January 2007 the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share
premium account. This was in order to provide a distributable reserve to enable the Company to repurchase its shares if and when the
Board of Directors consider it beneficial to do so. Following court approval, the distributable reserve account was created.
Retained earnings
Opening balance
Net profit for the year
Dividends paid1
Closing balance
1
Includes scrip element of £6.7 million in 2014 (2013: £8.7 million).
31 December
2014
£’000s
31 December
2013
£’000s
228,517
73,211
(47,430)
215,419
58,634
(45,536)
254,298
228,517
Distributions
The Board is satisfied that, in every respect, the solvency test as required by the Companies (Guernsey) Law, 2008, was satisfied for the
proposed dividend and the dividend paid in respect of the year ended 31 December 2014.
The Board has approved interim distributions as follows:
Amounts recognised as distributions to equity holders for the year ended 31 December
Declared
Interim distribution for the period 1 January to 30 June 2014 was
3.15 pence per share (2013: 3.075 pence per share)
Interim distribution for the period 1 July to 31 December 2014 was
3.15 pence per share (2013: 3.075 pence per share2)
Year ended
31 December
2014
£’000s
Year ended
31 December
2013
£’000s
47,4301
45,536
24,040
23,155
26,339
23,390
Includes the 2013 interim distribution for the period 1 July to 31 December 2013.
1
2 The distribution for the period 1 July to 31 December 2014 was approved by the Board on 25 March 2015 and therefore has not been included as a liability in the balance
sheet for the year ended 31 December 2014.
Capital risk management
The Group seeks to efficiently manage its financial resources to ensure that it is able to continue as a going concern while providing
improved returns to shareholders through the management of the debt and equity balances. The capital structure consists of the Group’s
corporate facility and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The
Group aims to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet on-going
expenses and dividend payments. The Group’s investment policy is set out in the Strategic Report (pages 8 and 9).
The Group’s Investment Adviser reviews the capital structure on a semi-annual basis. As part of this review, the Investment Adviser
considers the cost of capital and the risks associated with each class of capital.
18. Net Assets per Share
Net assets attributable to equity holders of the parent
Number of shares
Ordinary shares outstanding at the end of the year
Net assets per share (pence per share)
31 December
2014
£’000s
31 December
2013
£’000s
1,062,068
935,391
Number
Number
836,159,373 760,641,615
127.0
123.0
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 75
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
19. Related Party Transactions
During the period, Group companies entered into certain transactions with related parties that are not members of the Group but are
related parties by reason of being in the same group as Amber Infrastructure Group Holdings Limited, which is the ultimate holding
company of the Investment Adviser, Amber Fund Management Limited (‘AFML’).
Under the Investment Advisory Agreement (‘IAA’), AFML was appointed to provide investment advisory services to the Group including
advising the Group as to the strategic management of its portfolio of investments.
AFML is a subsidiary company of Amber Infrastructure Group Holdings Limited (‘Amber Group’), in which Mr. G Frost is a Director and
also a substantial shareholder.
Mr. G Frost is also a Director of International Public Partnerships Limited (the ‘Company’); International Public Partnerships Lux 1 Sarl; (a
wholly owned subsidiary of the Group); and the majority of other companies in which the Group indirectly has an investment. The
transactions with the Amber Group are considered related party transactions under IAS 24 ‘Related Party Disclosures’.
The Director’s fees of £32,000 (2013: £32,000) 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 year that were related party transactions are set out in the table below:
Investment advisory fee
Incentive fee1
International Public Partnerships GP Limited
Amber Fund Management Limited2
Total
Related party expense in the
Income Statement
Amounts owing to related
parties in the Balance Sheet
For the year
ended
31 December
2014
£’000s
For the year
ended
31 December
2013
£’000s
At
31 December
2014
£’000s
At
31 December
2013
£’000s
11,608
–
11,608
2,818
14,426
10,702
10,974
21,676
548
22,224
5,980
–
5,980
–
5,980
5,446
–
5,446
–
5,446
1 60% settled in shares.
2 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
AFML, the Investment Adviser, is a related party of the Group. Up to 28 August 2013, the Investment Adviser fee arrangement included
incentive fees, this was removed as part of the rebased Investment Advisory fee agreement. The amount paid to AFML for the year ended
31 December 2014 was £2,818,747 (2013: £548,096) and relates to advisory fees on new acquisitions.
Investment advisory fees paid/payable during the year are calculated as follows:
For construction assets
> 1.2% per annum of gross asset value of investments bearing construction risk
For fully operational assets
> 1.2% per annum of the gross asset value (‘GAV’) excluding uncommitted cash from capital raisings up to £750 million
> 1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between £750 million and £1.5 billion
> 0.9% per annum where GAV (excluding uncommitted cash from capital raisings ) value exceeds £1.5 billion
> 1.5% asset origination fee of the value of new investments
76 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
19. Related Party Transactions continued
Changes to the Investment Advisory Agreement
> Up to 30 June 2013, AFML was also entitled to an Incentive Fee in respect of each Incentive Period equal to 20% of the excess (if any)
of the Ordinary Share Return over the Benchmark Return (as defined in the IAA) in the Incentive Period, provided that the Incentive Fee
was only payable if and to the extent that the change in the Ordinary Share Return Index in the relevant Incentive Period was greater
than the change in the Benchmark Return Index
> The incentive fee was removed as part of the rebased IAA which was approved by the Board on 28 August 2013.
> At the same time:
• The Group and the Investment Adviser agreed that retrospectively from 30 June 2013, the Base Fee payable to the Investment
Adviser would reduce to 1% per annum in respect of the Gross Asset Value of the Group’s operational projects that exceeds £750
million. For GAV’s less than £750 million and for non-operational projects the Base Fee payable to the Investment Adviser remains
unchanged at 1.2% per annum
• Provisions in relation to the termination of the Investment Adviser in the IAA were amended to replace the existing mechanism for
early termination which was linked to the relative performance of the Group’s shares to UK gilts, with (i) new mechanism allowing for
early termination if 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, and (ii) enhanced rights for the Group to monitor and manage Amber in
order to reflect certain changes to the Listing Rules that were effective from 1 August 2013. The IAA may also be terminated by
either party giving to the other five years notice of termination, expiring at any time after ten years from the date of the Investment
Advisory Agreement
Transactions with directors
Shares acquired by Directors in the financial year ended 31 December 2014 are disclosed below:
Director
John Whittle
Rupert Dorey (including spouse)
Total purchased
None of the Directors disposed of any shares during the year (2013: nil).
Remuneration paid to the Non-Executive Directors is disclosed on page 42.
20. Contingent Liabilities
There were no contingent liabilities at the date of this report.
Number of
New
Ordinary
Shares
1,863
50,000
51,863
21. Events after Balance Sheet Date
In March 2015, the Group reached financial close providing finance to two batches (out of a total of five) being delivered through the
Priority Schools Building Programme (‘PSBP’). The batches are funded through Aggregator Plc, a 100% subsidiary of the Group. To date,
the Group has invested a total of £18.2 million to the underlying batches.
22. Other Mandatory Disclosures
Adoption of new and revised standards
In the current period the Group has adopted the following ‘new and amended’ accounting standards and interpretations:
> Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
> Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting
> Amendments to IAS 36: Recoverable Amount Disclosures for Non-financial Assets
> IFRIC 21, ‘Levies’
The adoption of the standards above did not have a material impact on the consolidated financial statements.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 77
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
22. Other Mandatory Disclosures continued
Standards issued but not yet effective
Standards issued and not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing is of
standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt
those standards when they become effective, management are currently assessing the impact of those new standards and
interpretations.
> IFRS 9 Financial Instruments (Issued on 24 July 2014) (1 January 2018)
> IFRS 15 Revenue from Contracts with Customers (1 January 2017)
> IFRS 14 Regulatory Deferral Accounts (1 January 2016)
> Amendments to IFRS 10 and IAS 28: Sale or Contribution of assets between an Investor and its Associate or Joint Venture
(1 January 2016)
> Amendments to IAS 27: Equity Method in Separate Financial Statements (1 January 2016)
> Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (1 January 2016)
> Amendments to IAS 16 and IAS 41: Bearer Plants (1 January 2016)
> Amendments to IFRS 11: Accounting for Acquisitions of interests in Joint operations (1 January 2016)
> Amendments to IFRS10, IFRS12 and IAS28: Investment entities: Applying the Consolidation Exception (1 January 2016)
> Amendments to IAS 19: Defined Benefit Plans: Employee Contributions (no later than 1 February 2015)
> Annual Improvements to IFRSs 2010-2012 Cycle (no later than 1 February 2015)
> Annual Improvements to IFRSs 2011-2013 Cycle (1 July 2014)
> Annual Improvements to IFRSs 2012-2014 Cycle (1 January 2016)
> Amendments to IAS 1 Disclosure Initiative (1 January 2016)
78 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
22. Other Mandatory Disclosures continued
Unconsolidated subsidiaries
A list of the significant investments in unconsolidated subsidiaries, including the name, country of incorporation as at 31 December 2014
and proportion of ownership is shown below:
Name
Abingdon Limited Partnership
Access Justice Durham Limited
AKS Betriebs GmbH & Co. KG
BBPP Alberta Schools Limited
BPSL No. 2 Limited Partnership
Building Schools for the Future Investments LLP
Calderdale Schools Partnership
CHP Unit Trust
Derbyshire Courts Limited Partnership
Derbyshire Schools
Derbyshire Schools Phase Two Partnership
H&W Courts Limited Partnership
INPP Infrastructure Germany GmbH & Co. KG
Inspire Partnership Limited Partnership
IPP CCC Limited Partnership
Inspiredspaces Durham (Project Co 1) Limited
Inspiredspaces Kent (Project Co 1) Limited
Inspiredspaces Nottingham (Project Co 1) Limited
Inspiredspaces Nottingham (Project Co 2) Limited
Inspiredspaces STaG (Project Co 1) Limited
Inspiredspaces STaG (Project Co 2) Limited
Inspiredspaces Wolverhampton (Project Co 1) Limited
IPP (Moray Schools) Holdings Limited
Maesteg School Partnership
Norfolk Limited Partnership
Northampton Schools Limited Partnership
Northern Diabolo N.V.
Pinnacle Healthcare (OAHS) Trust
Plot B Partnership
St Thomas More School Partnership
PPP Solutions (Long Bay) Partnership
PPP Solutions (Showgrounds) Trust
Strathclyde Limited Partnership
TH Schools Limited Partnership
TC Robin Rigg OFTO Limited
TC Barrow OFTO Limited
TC Gunfleet Sands OFTO Limited
TC Ormonde OFTO Limited
TC Lincs OFTO Limited
Place of incorporation
(or registration)
and operation
Proportion
of ownership
interest %
UK
Canada
Germany
Canada
UK
UK
UK
Australia
UK
UK
UK
UK
Germany
UK
Ireland
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Belgium
Australia
UK
UK
Australia
Australia
UK
UK
UK
UK
UK
UK
UK
100
100
98
100
100
100
100
100
100
100
100
100
100
80
100
91
58
82
82
90
90
82
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
The entities listed above in aggregate represent 85% (2013: 91.32%) of investments at fair value through profit or loss. The remaining fair
value is driven from joint ventures, associate interests and minority stakes held by the Group.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 79
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
22. Other Mandatory Disclosures continued
Consolidated subsidiaries
The principal subsidiary undertakings of the Company, all of which have been included in these consolidated financial statements are
as follows:
Name
International Public Partnerships Limited Partnership
International Public Partnerships Lux 1 Sarl
International Public Partnerships Lux 2 Sarl
IPP Bond Limited
IPP Investments Limited Partnership
Place of
incorporation
(or registration)
and operation
UK
Luxembourg
Luxembourg
UK
UK
Proportion
of ownership
interest %
100
100
100
100
100
23. Service Concession Arrangements
The Group holds investments in 112 service concession arrangements in the Accommodation, Custodial, Energy and Transport sectors.
The concessions typically require the construction and operation of an asset during the concession period. The concession may require
the acquisition or replacement of an existing asset or the construction of a new asset. The operation of the accommodation based
assets normally includes the provision of facilities management services such as cleaning, catering, caretaking, security, maintenance,
and lifecycle. At the end of the concession period the majority of the underlying concessions’ assets are returned back to the
concession provider.
The rights of both the concession provider and concession operator are stated within the specific project documentation. The standard
rights of the provider to terminate the project include poor performance and in the event of force majeure. The operator’s rights to
terminate include the failure of the provider to make payment under the agreement, a material breach of contract and relevant changes of
law which would render it impossible for the operator to fulfil its obligations.
The table overleaf sets out the Group’s investment in PFI concessions that are recorded at fair value through profit or loss.
80 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Project
Short description of concession arrangements
Start date
End date No. of years
Construction Value1
‘millions
Abingdon –
Thames Valley
Police
Design, construction, financing and
provision of facilities management services
to a police facility including HQ, station
and training base for Thames Valley Police
Authority, UK
25 March 2000
09 March 2030
30
£6.90
Alberta Schools Design, construction, financing and
02 March 2007 30 November 2039
30
CAD490.00
provision of facilities management services
for a new courthouse facility in Durham,
Ontario, Canada
Angel Trains owns a mixture of passenger
and freight trains, and leases them to train
operating companies over a five to ten
year lease term
Design, redevelop, financing and
provision of facilities management services
to schools in Barnsley PFI SPV 1, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Barnsley PFI SPV 2, UK
26 January 2005 30 December 2033
29
£34.95
26 May 2011
26 April 2036
25
£105.87
03 January 2012 31 December 2036
25
£58.54
Design, redevelop, financing and
provision of facilities management services
to schools in Barnsley PFI SPV 3, UK
03 September 2012 02 September 2036
25
£141.72
Angel Trains
Barnsley PFI
SPV 1
Barnsley PFI
SPV 2
Barnsley PFI
SPV 3
Barking &
Dagenham PFI
SPV 1
Design, redevelop, financing and provision
of facilities management services to
schools in Barking and Dagenham, UK
BeNEX
BeNEX invests in companies holding rail
and bus operating concessions as well as
rolling stock for its operating subsidiaries
in Germany
Birmingham PFI
SPV 1
Design, redevelop, financing and provision
of facilities management services to
schools in Birmingham PFI SPV 1, UK
01 April 2012
19 March 2037
25
£30.68
01 December 2000 01 December 2031
312
€360.10
05 January 2011 30 September 2036
27
£56.58
Blackburn PFI
SPV 1
Blackburn PFI
SPV 2
BMBF
Bootle
Bradford PFI
SPV 1
Design, redevelop, financing and
provision of facilities management services
to schools in Blackburn PFI SPV 1, UK
01 September 2011
31 August 2036
25
£28.85
Design, redevelop, financing and provision
of facilities management services to
schools in Blackburn PFI SPV 2, UK
Design, construction, financing and
provision of facilities management
services to the Headquarters of the
German Federal Ministry of Education and
Research in Berlin, Germany
Design, construction, financing and
provision of facilities management services
to fully serviced accommodation in Bootle
for the occupation of HM Revenue &
Customs, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Bradford PFI SPV 1, UK
20 August 2012
19 August 2037
25
£47.04
31 July 2014
31 July 2041
27
€96.00
17 July 2000
16 July 2025
25
£4.10
19 August 2006
18 August 2033
27
£90.73
1 Represents the full construction value of the underlying projects.
2 Benex acts as a holding company for a portfolio of rail and bus concessions. The start and end dates above represent the earliest and latest dates of operation of the portfolio
of concessions.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 81
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For the year ended 31 December 2014
Project
Short description of concession arrangements
Start date
End date No. of years
Construction Value1
‘millions
Bradford PFI
SPV 2
Design, redevelop, financing and
provision of facilities management services
to schools in Bradford PFI SPV 2, UK
01 January 2011
14 March 2036
25
£181.55
Brescia Hospital Refurbish, extend and provide facilities
01 December 2002 07 November 2021
19
EUR24.00
Bristol PFI
SPV 1
Calderdale
management services to the Brescia
Hospital Campus, Italy
Design, redevelop, financing and
provision of facilities management services
to schools in Bristol PFI SPV 1, UK
Design, construction, financing and
provision of facilities management services
to five schools in Calderdale, UK
Cambridgeshire
PFI SPV 1
Design, redevelop, financing and provision
of facilities management services to
schools in Cambridgeshire PFI SPV 1, UK
31 December 2008 30 September 2034
26
£47.79
31 August 2004
17 March 2030
26
£44.60
29 October 2012
03 January 2037
25
£36.90
Derby City PFI
SPV 1
Derby Courts
Derbyshire PFI
SPV 1
Derby Schools
Design, redevelop, financing and
provision of facilities management services
to schools in Derby City PFI SPV 1, UK
01 September 2012
31 August 2037
25
£38.17
Design, construction, financing and
provision of facilities management services
to two courthouses in Derbyshire, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Derbyshire PFI SPV 1, UK
Design, construction, financing and
provision of facilities management
services to two secondary schools
in Derbyshire, UK
04 June 2003 02 September 2028
25
£21.30
01 June 2011
31 October 2035
23
£38.52
28 March 2003
28 March 2029
26
£25.30
Derby Schools 2 Design, construction, financing and
13 February 2006
12 February 2032
26
£28.30
provision of facilities management
services to two secondary schools
in Derbyshire, UK
Diabolo (T2 & T3
& T5)
Design, construction, financing and
subsequent operation of a rail link, Belgium
02 October 2007
30 June 2047
Dublin Courts
Design, construction, financing and
subsequent provision of facilities
management services to a courthouse
in Dublin, Ireland
18 April 2007
30 June 2035
40
25
£285.00
£105.00
Durham Courts Design, construction, financing and
02 March 2007 30 November 2039
30
CAD98.00
provision of facilities management services
for a new courthouse facility in Durham,
Ontario, Canada
Design, redevelop, financing and provision
of facilities management services to
Durham county, UK
Design, redevelop, financing and provision
of facilities management services to
schools in Essex PFI SPV 1,UK
Design, redevelop, financing and provision
of facilities management services to
schools in Essex PFI SPV 2, UK
Durham PFI
SPV 1
Essex PFI
SPV 1
Essex PFI
SPV 2
14 August 2009
03 January 2036
27
£42.10
01 October 2011 31 December 2036
25
£75.55
01 April 2014 31 December 2036
23
£29.11
1 Represents the full construction value of the underlying projects.
82 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Project
Short description of concession arrangements
Start date
End date No. of years
Construction Value1
‘millions
Gold Coast
Light Rail
Hereford &
Worcester
Islington PFI
SPV 1
Islington PFI
SPV 2
Kent PFI
SPV 1
Design, construction, financing, operation
and provision of facilities management
services to a light rail public transportation
system between Gold Coast University
Hospital and Broadbeach in Queensland,
Australia
Design, construction, financing and
subsequent operation of four courthouses
in Hereford & Worcester, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Islington PFI SPV 1, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Islington PFI SPV 2, UK
05 May 2011
31 May 2029
18
AUD578.00
03 March 2003
05 March 2025
22
£23.50
22 December 2009
31 August 2034
25
£42.36
05 November 2012 31 December 2037
26
£30.95
Design, redevelop, financing and
provision of facilities management services
to Kent PFI SPV 1, UK
30 September 2010 30 September 2037
27
£82.00
Lancashire PFI
SPV 1
Lancashire PFI
SPV 2
Lancashire PFI
SPV 2A
Design, redevelop, financing and
provision of facilities management services
to schools in Lancashire PFI SPV 1, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Lancashire PFI SPV 2, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Lancashire PFI SPV 2A, UK
Lancashire PFI
SPV 3
Design, redevelop, financing and provision
of facilities management services to
schools in Lancashire PFI SPV 3, UK
Lewisham PFI
SPV 1
Lewisham PFI
SPV 2
Lewisham PFI
SPV 3
LIFT – Bexley,
Bromley,
Greenwich 1
LIFT – Bexley,
Bromley,
Greenwich 2
LIFT – BBG
Lakeside
LIFT – BHH Mt
Vernon
Design, redevelop, financing and
provision of facilities management services
to schools in Lewisham PFI SPV 1, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Lewisham PFI SPV 2, UK
Design, redevelop, financing and
provision of facilities management services
to schools in Lewisham PFI SPV 3, UK
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
1 Represents the full construction value of the underlying projects.
31 December 2006
31 August 2033
27
£71.05
31 December 2007
31 August 2034
27
£39.21
31 July 2008
31 March 2035
27
£55.05
30 June 2009
31 August 2035
26
£36.79
01 January 2009 31 December 2034
26
£67.91
01 January 2011
31 August 2037
27
£24.10
01 October 2012
31 August 2037
25
£33.65
26 January 2005 30 December 2033
31 August 2005 10 December 2031
19 May 2006
30 June 2031
15 December 2006
30 June 2032
29
26
25
26
£34.95
£3.23
£6.98
£16.87
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 83
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
Project
Short description of concession arrangements
Start date
End date No. of years
LIFT – BHH
Sudbury
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
LIFT – Brent,
Harrow, Hillingdon
Design, construction, financing and
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
LIFT – Bristol
Fishponds &
Hampton House
Design, construction, financing and
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
LIFT – Bristol
Shirehampton &
Whitchurch
Design, construction, financing and
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
LIFT – Dudley
Brierly Hill
LIFT – Dudley
Ridge Hill &
Stourbridge
LIFT – ELLAS
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of 4 LIFT hospital projects, UK
05 May 2006
30 June 2031
22 December 2004
29 June 2031
31 May 2004
31 March 2031
30 November 2005
31 March 2032
15 June 2007
31 March 2031
31 May 2004
30 June 2034
29 May 2003
31 March 2032
LIFT – ELLAS 2 Design, construction, financing and
16 December 2005 30 September 2034
subsequent operation of the redevelopment
of 3 LIFT hospital projects, UK
LIFT – ELLAS 3 Design, construction, financing and
10 September 2010
07 May 2037
subsequent operation of the redevelopment
of LIFT hospital projects, UK
LIFT – ELLAS 4 Design, construction, financing and
12 February 2010
03 October 2036
LIFT – Goscote
LIFT – Harrow
NRC
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
Design, construction, financing and
subsequent operation of the redevelopment
of 3 LIFT hospital projects, UK
LIFT – Oxford
Dunnock Way
& East Oxford
Design, construction, financing and
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
LIFT – South
Bristol Community
Hospital
Design, construction, financing and
subsequent operation of the redevelopment
of LIFT hospital projects, UK
LIFT –
Wolverhampton
& Walsall
Design, construction, financing and
subsequent operation of the redevelopment
of 2 LIFT hospital projects, UK
06 October 2009 30 November 2035
26 March 2008
23 June 2034
30 November 2004 30 September 2031
12 February 2010
13 February 2042
29 October 2004
08 April 2031
25
27
27
26
24
30
29
29
27
27
26
26
27
32
26
Construction Value1
‘millions
£7.59
£11.90
£11.43
£8.00
£32.94
£13.82
£39.56
£34.99
£5.61
£8.19
£5.43
£7.76
£16.95
£43.79
£12.38
Liverpool Library Design, construction, financing and
19 July 2010 07 November 2037
27
£40.80
Long Bay
provision of facilities management services
for the Central Library and Archive facility
in Liverpool, UK
Design, construction, financing and
subsequent operation of a prison and
a forensic hospital in Sydney, Australia
1 Represents the full construction value of the underlying projects.
01 August 2006
31 May 2034
28
AUD 147.0
84 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Project
Short description of concession arrangements
Start date
End date No. of years
Construction Value1
‘millions
01 January 2011 31 December 2035
25
£28.46
29 July 2008 30 September 2033
25
£17.60
26 February 2012
26 February 2042
30
£35.00
01 January 2011
06 August 2035
25
£59.44
17 December 2001 16 December 2036
35
£22.50
31 December 2005 31 December 2037
32
£191.30
01 March 2004 08 December 2028
24
£13.20
13 June 2008
31 August 2034
26
£35.30
01 January 2013 30 September 2038
26
£20.47
01 March 2006 31 December 2035
29
AUD124.3
02 March 2011
02 March 2031
20
£65.00
19 July 2011
19 July 2031
20
£49.00
Luton PFI
SPV 1
Maesteg
Moray Schools
Newham PFI
SPV 1
Norfolk
Northampton
Schools
North Wales
Police Authority
Design, redevelop, financing and provision
of facilities management services to
schools in Luton PFI SPV 1, UK
Design, construction, financing and
provision of facilities management services
for new build schools in Maesteg, UK
Development, construction and provision
of facilities management services including
related financing arrangements to two
schools (Elgin Academy and Keith Primary
School) under a 30 year non-profit
distribution PPP concession agreement
with The Moray Council, UK
Design, redevelop, financing and provision
of facilities management services to
schools in Newham PFI SPV 1, UK
Design, construction, financing and
subsequent provision of facilities
management services for serviced
accommodation for a new HQ and
ancillary facilities to the Norfolk Police
Authority, UK
Design, construction (being a mixture of
new build and refurbishment), financing
and provision of facilities management
services in respect of 30 existing
schools and 11 new build schools in
Northamptonshire, UK
Design, construction, financing
and subsequent supply of facilities
management services to the North Wales
Police HQ, UK
Nottingham PFI
SPV 1
Design, redevelop, financing and provision
of facilities management services to
Nottingham, UK
Nottingham PFI
SPV 2
Design, redevelop, financing and provision
of facilities management services to
Nottingham, UK
NSW Schools
OFTO – Robin
Rigg
OFTO – Gunfleet
Sands
Design, construction, financing, operation,
and maintenance of 10 new schools for
the NSW Department of Education and
Training (DET), Australia
Finance, operate and maintain onshore
substations, onshore and under-sea
cables connecting the mainland electricity
grid network to offshore wind-farms, UK
Finance, operate and maintain onshore/
offshore substations, onshore and under-
sea cables connecting the mainland
electricity grid network to offshore wind-
farms, UK
1 Represents the full construction value of the underlying projects.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 85
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes to the Financial Statements continued
For the year ended 31 December 2014
Project
Short description of concession arrangements
Start date
End date No. of years
Construction Value1
‘millions
OFTO – Barrow
Finance, operate and maintain onshore/
offshore substations, onshore and under-
sea cables connecting the mainland
electricity grid network to offshore wind-
farms, UK
27 September 2011
27 March 2030
19
£33.50
OFTO – Ormonde Finance, operate and maintain onshore/
10 July 2012
09 July 2032
20
£103.90
OFTO – Lincs
offshore substations, onshore and under-
sea cables connecting the mainland
electricity grid network to offshore wind-
farms, UK
Finance, operate and maintain onshore
substations, onshore and under-sea
cables connecting the mainland electricity
grid network to offshore wind-farms, UK
11 July 2014
10 July 2032
20
£307.70
Orange Hospital Design, construction, financing and
21 December 2007 21 December 2035
28
AUD170.0
provision of facilities management services
to the Orange Hospital, Australia
Pforzheim
Schools
Reliance Rail
Construction, financing and provision
of facilities management services in
respect to two new secondary schools
buildings and outside facilities in the City
of Pforzheim, Germany
Finance, design, manufacture and
maintain 78 eight-car, air-conditioned
suburban electric trains, plus two spare
carriages with Sydney Trains, Australia
11 September 2009 11 September 2039
30
£47.10
31 December 2006
29 February 2044
30
AUD2,081.0
Royal Children’s
Hospital
Design, construction, financing and
provision of facilities management services
to the Royal Children’s Hospital, Australia
20 December 2007 31 December 2036
29
AUD1,400.0
Salford PFI
SPV 1
Salford PFI
SPV 2
Showgrounds
Somerset PFI
SPV 1
Southwark PFI
SPV 1
Southwark PFI
SPV 2
Design, redevelop, financing and
provision of facilities management services
to schools in Salford PFI SPV 1, UK
11 September 2011
31 August 2036
25
£64.17
Design, redevelop, financing and provision
of facilities management services to
schools in Salford PFI SPV 2, UK
Design, construction, financing
and subsequent operation of
the redevelopment of Melbourne
showgrounds, Australia
Design, redevelop, financing and
provision of facilities management services
to schools in Somerset PFI SPV 1, UK
Design, redevelop, financing and provision
of facilities management services to
Southwark PFI SPV 1, UK
01 April 2012 01 September 2038
26
£81.17
01 July 2005
01 August 2031
26
AUD 103.0
01 November 2012
29 October 2037
25
£48.90
10 January 2011
09 January 2036
24
£20.30
Design, redevelop, financing and
provision of facilities management
services to Southwark PFI SPV 2, UK
01 September 2014 31 December 2036
25
£39.57
1 Represents the full construction value of the underlying projects.
86 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Project
Short description of concession arrangements
Start date
End date No. of years
Construction Value1
‘millions
STaG PFI
SPV 1
STaG PFI
SPV 2
Strathclyde
Design, redevelop, financing and
provision of facilities management
services to South Tyneside & Gateshead
County, UK
Design, redevelop, financing and
provision of facilities management
services to South Tyneside & Gateshead
County, UK
Design, construction, financing and
provision of facilities management
services to the Strathclyde Police Training
Centre, UK
St Thomas More
School
Design, construction, financing and
provision of facilities management services
to St Thomas More School, UK
Tameside PFI
SPV 1
Tameside PFI
SPV 2
Tower Hamlets
Schools
Design, redevelop, financing and provision
of facilities management services to
Tameside, UK
Design, redevelop, financing and provision
of facilities management services to
Tameside, UK
Design, construction (mix of new build and
refurbishment) and provision of facilities
management services in respect of 27
schools in Tower Hamlets, UK
Waltham Forest
PFI SPV 1
Design, redevelop, financing and provision
of facilities management services to
Waltham Forest PFI SPV 1, UK
Wolverhampton
PFI SPV 1
Design, redevelop, financing and provision
of facilities management services to
Wolverhampton PFI SPV 1, UK
21 December 2009 04 September 2036
27
£21.40
21 December 2009 04 September 2036
27
£28.00
17 October 2001
16 October 2026
25
£18.90
28 March 2003
28 March 2028
25
£12.90
01 January 2009
30 August 2036
27
£46.00
01 April 2010
31 August 2037
27
£75.00
28 June 2002
27 August 2027
25
£74.10
31 August 2008
31 August 2033
25
£21.90
30 April 2010 04 September 2037
27
£43.50
Wolverhampton
PFI SPV 2
Design, redevelop, financing and
provision of facilities management services
to Wolverhampton PFI SPV 2, UK
01 September 2015
31 August 2040
25
£44.00
1 Represents the full construction value of the underlying projects.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014 87
Key PointsStrategic ReportCompany OverviewCorporate GovernanceChairman’s LetterFinancial Statements Notes
88 INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2014
Contacts
Investment Adviser
Amber Fund Management Limited
1st Floor
Two London Bridge
London
SE1 9RA
Registered Office
Heritage Hall
PO Box 225, Le Marchant Street
St Peter Port
Guernsey
Channel Islands
GY1 4HY
Administrator and Company Secretary
Heritage International Fund Managers Limited
Heritage Hall
PO Box 225, Le Marchant Street
St Peter Port
Guernsey
Channel Islands
GY1 4HY
Auditor
Ernst & Young LLP
Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
Channel Islands
GY1 4AF
Legal Adviser
Carey Olsen
PO Box 98, Carey House
Les Banques
Guernsey
Channel Islands
GY1 4BZ
Corporate Banker
Royal Bank of Scotland International
1 Glategny Esplanade
St Peter Port
Guernsey
Channel Islands
GY1 4BQ
Corporate Brokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Public Relations
FTI Consulting
200 Aldersgate
Aldersgate Street
London
EC1A 4HD
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