INTERNATIONAL
PUBLIC PARTNERSHIPS
Annual Report and Financial Statements
for the year ended 31 December 2015
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Contents
Contents
Overview
01 Key Points
02 Company Overview
03 Key Portfolio Facts as at 31 December 2015
04 Top Ten Investments
05 Chairman’s Letter
Strategic Report
08 Investment Policy and Objectives
10 Strategy
12 Operating Model
16 2015 Financial and Operating Review
16 Key Performance Indicators
18
26 Active Asset Management
27 Value-Focused Portfolio Development
29 Efficient Financial Management
30 Case Study: Thames Tideway Tunnel
32 Outlook
36 Risk Report
Investor Returns
Corporate Governance
46 Board of Directors
48 Corporate Governance Report
56 Audit and Risk Committee Report
59 Directors’ Report
60 Directors’ Responsibilities Statement
Financial Statements
61 Independent Auditor’s Report
66 Consolidated Statement of Comprehensive Income
67 Consolidated Statement of Changes in Equity
68 Consolidated Balance Sheet
69 Consolidated Cash Flow Statement
70 Notes to the Financial Statements
www.internationalpublicpartnerships.com
International Public Partnerships Limited
Registered number: 45241
Cover image:
Machinery being transported down the River Thames, London,
to support the enabling works at Blackfriars Bridge for the Tideway project.
Image courtesy of Tideway.
Overview
Key Points
NAV Per Share
130.2pps
Net Asset Value
– Net Asset Value (‘NAV’)1 per share of 130.2 pence as at
31 December 2015 (2014: 127.0 pence)
– NAV of £1,290.2 million as at 31 December 2015, up
£228.1 million (2014: £1,062.1 million)
2015 Full Year Distribution
6.45pps
2016 Full Year Distribution Target
6.65pps
2017 Full Year Distribution Target
6.82pps
£79.9m
Profit Before Tax
Shareholder Returns
– 2015 fully covered cash dividend2 of 6.45 pence per share3
(2014: 6.30 pence)
– Two year forward looking fully covered cash dividend target
for the years ended 31 December 2016 and 2017 of 6.65 and
6.82 pence per share respectively – maintaining a long-term
average increase of c.2.5% per annum4
– Total Shareholder Return since listing in 2006 to 31 December
2015 of 115.0%5 compared to 49.2% on the FTSE All-Share
over that same period or 8.7% and 4.5% (respectively) on an
annualised basis
Earnings
– Profit before tax of £79.9 million for the year ended
31 December 2015 (2014: £71.2 million)
Highlights
– £311.7 million of additional investment commitments made during
the year and a further £26.8 million since 31 December 2015
– £198 million (before issue costs) of new equity capital raised
from shareholders
– Significant degree of inflation linkage within the portfolio –
0.76% per annum projected increase in return for a
1% increase over anticipated average portfolio inflation6
– Majority ownership of investment for 72% of portfolio
– Underlying investments with external debt7 represent
84% of the investment portfolio
– Underlying investments with no external debt8 represent
16% of the investment portfolio
– Strong set of international and UK investment opportunities
1 The methodology used to determine investment fair value is incorporated within the NAV as described in detail on
pages 18 to 26.
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 May 2016.
4 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may
vary in future.
to find out more
please visit our website
www.internationalpublicpartnerships.com
5 Source: Bloomberg. Share price plus dividends assumed to be reinvested.
6 See pages 23 to 24 for information relating to the Company’s use of sensitivity analysis.
7 Represent investments in equity and/or subordinated debt in underlying projects (‘Risk Capital’).
8 Represent investments in Risk Capital and senior debt in underlying projects.
International Public Partnerships Annual Report and Financial Statements 2015 01
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Overview
Company
Overview
International Public Partnerships Limited (the ‘Company’),
in accordance with its Investment Policy, invests in equity,
subordinated/mezzanine debt and senior loans to entities
owning or operating infrastructure concessions, assets or
related businesses.
Governance
– Experienced independent leadership and
strong corporate governance
– Long-term alignment of interest with the
Investment Adviser and asset manager
Market Information
– Member of the FTSE 250 and FTSE All
Share indices
– Listed since November 2006 with an
initial market capitalisation of £300 million
and current market capitalisation of
£1.38 billion as at 31 December 2015
(2014: £1.13 billion)
– 990.6 million shares in issue as at
31 December 2015 (2014: 836.2 million)
– The Company’s shares are eligible for
ISA/PEPs and SIPPs transfers
– The Company’s shares are excluded
from the Financial Conduct Authority
(‘FCA’) restrictions which apply to
non-mainstream investment products
and can therefore be recommended
by independent financial advisers to
their clients
Investment Adviser Fees
– Competitive fee structure
– For investments bearing construction risk:
1.2% per annum of gross asset value
(‘GAV’)
– 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 and more time/cost intensive
primary market new origination activities
– Investment Adviser bears the risk of
abortive transaction origination costs
– No incentive or performance fees
Investments include schools,
courthouses, health facilities, police
stations, and other public sector
buildings, rail operations, rolling
stock leasing entities, waste water
and offshore electricity transmission
asset owning entities. The Company’s
investments are located in the UK,
Europe, Australia and North America.
Whilst the Company is able to invest in a
variety of infrastructure projects, to date
it has primarily invested in entities holding
physical infrastructure and associated
services which are regulated or procured
under Public Private Partnerships (‘PPP’)/
Private Finance Initiative (‘PFI’) and similar
public procurement processes.
Features of International Public Partnerships
Limited and its investment portfolio are:
– The Investment Adviser has historical
success in originating and developing
new ‘primary market’ 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 (12.3%) of the
portfolio is invested in secured senior debt
(where no other debt ranks in preference
to the Company’s investment in the asset)
Portfolio
– Geographically diversified with a portfolio
across eight countries in a variety of
sectors
Shareholder Returns
– Strong track record of delivering
consistent dividend growth and
capital appreciation
– A focus on yielding operational
investments but with an element ‘in
construction’ offering prospects for future
capital appreciation
– Total Shareholder Return since listing in
2006 to 31 December 2015 of 8.7% on
an annualised basis
– Share liquidity through listing and trading
– A significant degree of inflation linkage
on the London Stock Exchange1
to investment returns – a 1% per annum
increase in the anticipated rate of inflation
across the portfolio would imply a 0.76%
per annum increase in return across
the portfolio
– Target internal rate of return equal to or
greater than 8% per annum set at the
time of Initial Public Offering in 2006
1 Source: Bloomberg. Share price plus dividends
assumed to be reinvested.
02 International Public Partnerships Annual Report and Financial Statements 2015
Key Portfolio Facts
as at 31 December 2015
Sector Breakdown
Geographic Split
8 9
1
7
6
5
4
3
1 Energy Transmission
2 Education
3 Transport
4 Health
5 Courts
6 Waste Water
7 Police
8 Military Housing
9 Other
2
29%
23%
20%
7%
6%
5%
4%
3%
3%
4 5 6
1
78
3
2
1 UK
2 Belgium
3 Australia
4 Germany
5 Canada
6 US
7 Ireland
8 Italy
71%
11%
7%
4%
3%
3%
1%
<1%
120 investments in infrastructure projects1 across
a variety of sectors
Invested in selected jurisdictions which meet the
Company’s risk and return requirements
Investment Type
1
2
Stage of Investment/Asset Status
3
2
4
1
1 Risk Capital only
2 Company owns Risk Capital
and Senior Debt
84%
16%
1 Construction
2 Operational
3 Primary Investor2
4 Later Stage Investor3
8%
92%
87%
13%
Invested across the capital structure taking into
account appropriate risks to returns
Primary/early stage investor2 to maximise primary capital
growth opportunities
Project Ownership
Investment Life
1
3
2
3
1
2
1 100%
2 50%–100%
3 <50%
68%
4%
28%
1 <20 years
2 20–30 years
3 >30 years
52%
24%
24%
Preference to hold majority stakes
Preference to hold majority stakes
Weighted average portfolio life of 27 years 4
Weighted average portfolio life of 27 years4
1
Information provided in the charts above is based on 31 December 2015 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 Early stage investor – asset developed or originated by the Investment Adviser or predecessor team in the primary market as a new investment opportunity.
3 Later stage investor – asset acquired from a third party investor in the secondary market.
4 Once the Company has fully invested in the Tideway project the average investment life will, other things being equal, be c.40 years. Twenty seven years represents the current
weighted average investment life based on the £58.9 million invested in Tideway as at 31 December 2015.
International Public Partnerships Annual Report and Financial Statements 2015 03
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Overview
Top Ten
Investments
A complete listing of the Group’s investments can be found in
note 22 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 2015 can be found on page 27 of the Strategic Report.
Lincs Offshore Transmission
Diabolo Rail Link2
Location
Sector
Lincolnshire, England
Energy Transmission
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
100% Risk Capital1
14.1%
16.3%
Ormonde Offshore Transmission
Angel Trains2
Location
Sector
Status
% Holding
Cumbria, England
Energy Transmission
As of 31 December 2015
Operational
100% Risk Capital1
and 100% senior debt
11.0%
12.5%
% Investment Fair Value December 2015
% Investment Fair Value December 2014
Location
Sector
Brussels, Belgium
Transport
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
100% Risk Capital1
11.4%
13.8%
Location
Sector
Various, United Kingdom
Transport
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
5% Risk Capital1
4.9%
1.9%
Thames Tideway Tunnel2
Royal Children’s Hospital
Location
Sector
London, United Kingdom
Waste Water
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Under construction
16% Risk Capital1
4.9%
N/A
Location
Sector
Victoria, Australia
Health
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
100% Risk Capital1
3.4%
4.5%
BeNEX Rail
Hereford & Worcester Courts
Location
Sector
Various, Germany
Transport
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
49% Risk Capital1
2.9%
3.5%
Location
Sector
Status
% Holding
Worcestershire, England
Courts
As of 31 December 2015
Operational
100% Risk Capital1
and 100% senior debt
2.7%
3.2%
% Investment Fair Value December 2015
% Investment Fair Value December 2014
Northampton Schools
US Military Housing2
Location
Sector
Northamptonshire, England
Education
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
100% Risk Capital1
2.7%
3.2%
Location
Sector
Various, United States
Military Housing
Status
% Holding
% Investment Fair Value December 2015
% Investment Fair Value December 2014
As of 31 December 2015
Operational
100% Risk Capital1
2.7%
N/A
1 Risk Capital includes both project level equity and subordinated shareholder debt.
2 These projects contain revenues which are not solely dependent on availability but also include an element of linkage to other factors such as passenger numbers, rolling stock
releasing assumptions, occupancy and/or are regulated assets. All other investments receive entirely availability-based revenues.
04 International Public Partnerships Annual Report and Financial Statements 2015
Chairman’s Letter
Chairman’s
Letter
The infrastructure assets
in which the Company
invests continue to be
highly sought after by
UK and international
investors alike
Rupert Dorey
Chairman
Dear Shareholders,
2015 was a very successful year for the
Company with record levels of investment
into a number of projects including Thames
Tideway Tunnel (‘Tideway’) in London.
Through the period, your Company
continued to deliver strong underlying
returns from the portfolio.
The combination of portfolio growth and
the subscription of new capital saw the
Company’s market capitalisation reach nearly
£1.4 billion at the close of the year, up from
c.£1.1 billion at the equivalent time last year.
Dividend Growth
The Company was once again able to
deliver its dividend target, which for 2015
was 6.45 pence per share or c.2.4%
growth over that in 2014, a rate of growth
that has been delivered to investors since
the Company’s inception nine years ago.
Against the backdrop of continuing market
volatility, our ability to continue to deliver
steady, predictable but growing returns to
investors remains our prime objective.
The Board have once again published a
minimum dividend target, being 6.65 pence
per share for 2016, and new guidance of
6.82 pence per share for the 2017 dividend,
an average increase of c.2.5% per annum,
to give additional clarity to shareholders of
our future intentions.1
Investment Activity and Capital Raising
The infrastructure assets in which the
Company invests continue to be highly
sought after by UK and international investors
alike, resulting in continued strong demand
for mature assets in the infrastructure sectors
in which we operate. Amidst this sustained
demand for infrastructure investment, we
believe our ability to originate and structure
transactions so that the Company is an
early stage investor into the majority of its
investments is a major differentiating
factor which creates real added value for
our shareholders. The majority of our new
investments in 2015 were opportunities
originated by our Investment Adviser
through direct dialogue with public sector
and regulatory procuring bodies or
through opportunities arising outside
of auction processes.
While we will not ignore future auction-based
opportunities this self-origination strategy
delivered a particularly successful year in
2015 with commitments made to nine
infrastructure investments totalling over
£311.7 million (2014: £188.2 million); the most
capital that the Company has committed in
any twelve-month period to date. In addition,
since the end of the period the Company has
invested £26.8 million in Westermost Rough
offshore transmission project, its sixth of
these projects. The investment decisions
on all project opportunities are made by
the Board and are closely scrutinised for
their appropriateness and their risk and
return profile.
Of special note during the year was the
Company’s investment commitment into the
Tideway project, the £4.2 billion, 25-kilometre
‘super-sewer’ to be built under the River
Thames in London. The Company’s
Investment Adviser had a significant role in
originating and developing this opportunity
which allowed the project to be structured
in a way that suited the cash flow profile,
risk/return and longevity requirements of the
Company. Of particular attraction was the
especially long-term duration of cash flows
from the Tideway asset which can be
expected to result in a near doubling of the
projected duration of the Company’s cash
flows. This project is also anticipated to
support the inflation linkage within the
portfolio (more information can be found in
the Case Study on pages 30 to 31 of this
Report). As at 31 December 2015 £58.9
million has been invested into the project.
In October 2015, the Company also made
its first investment in the United States,
investing approximately US$48 million
(£32 million) into an interest-bearing
subordinated debt instrument underpinned
by security over seven operational PPP
military housing projects. The opportunity
was identified as a consequence of the
relationship between the Investment Adviser
and its 50% shareholder Hunt Companies
Inc. (‘Hunt’), a US corporation specialising
in construction and management of
infrastructure assets.
1 Future profit projection and dividends cannot be
guaranteed. Projections are based on current
estimates and may vary in future.
International Public Partnerships Annual Report and Financial Statements 2015 05
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Chairman’s Letter
Chairman’s
Letter
Chairman’s Letter continued
The capital required to fund the new
investments came from a mix of the
Company’s existing cash resources, its
corporate debt facility and the proceeds from
share issuances in the period. In May 2015,
the Company revised the terms of its
corporate debt facility, increasing the facility
from £175 million to £300 million on more
favourable terms including securing a
reduction in the interest margin by 50 basis
points to 175 basis points and allowing for
the option of letters of credit in support of
future capital commitments. The new facility
will become due for renewal in May 2018.
Further details of the renewed facility can be
found on page 29.
Share issuances undertaken during the
year included an £18 million tap issue and
a major capital raising in November 2015
which was significantly oversubscribed and
raised £180 million from a mix of existing
and new investors. This new capital was
immediately used to reduce the drawn
balance of the Company’s revolving
credit facility and to invest into committed
investment opportunities. We would like to
thank all shareholders who participated in
the offer for their support and welcome all
of our new shareholders to the register.
Operational Highlights and Portfolio
Performance
I am pleased to report that the portfolio has
performed very strongly during the period.
While considerable attention has been paid
to new investments during the year, the
cash flow and valuation performance of
the Company’s existing portfolio has also
remained very robust. Net Asset Value
growth was strong during the period,
increasing 21.5% to £1,290.2 million or 2.5%
to 130.2 pence on a NAV per share basis.
The existing portfolio has continued to
perform in line with expectations with strong
asset management of investments being
fundamental to the Company’s overall
long-term success. This approach not only
encompasses larger-scale project issues
such as ensuring that major construction
schemes or project variations are tracking to
schedule and budget, but the effective
management of day-to-day relationships,
such as ensuring that the head teachers in
our schools are satisfied with the facility
services being delivered and the terms of the
concession contracts are being fulfilled.
In addition, the Company’s investment in
Angel Trains has been positively impacted
in 2015 by recent market activity involving
all main rolling stock companies in the UK
rail sector. The market-based evidence that
these transactions produced resulted in
the Company making a substantial positive
revision to its valuation of Angel Trains,
currently our fourth largest asset. As reported
at the Company’s 2015 interim result this
investment has, taking into account its new
carrying value, generated a total return
of 3.6 times since acquisition in 2008.
Corporate Governance and Regulation
In December 2015 we were pleased to
announce the appointment, effective
1 January 2016, of John Le Poidevin as a
Non-Executive Director to the Board. John
brings broad financial experience to the role.
He is Audit Committee Chair for a number of
listed companies and serves as a non-
executive director on several plc boards.
He was previously a partner of BDO LLP,
where as Head of Consumer Markets, he
developed an extensive breadth of financial,
commercial and accounting experience.
The Board continues to monitor a number
of possible changes to the regulatory
environment. Of particular note is the current
Organisation for Economic Co-operation and
Development’s (‘OECD’) coordinated effort
to align certain international tax rules with
the aim of preventing tax ‘base erosion and
profit shifting’ (‘BEPS’). The OECD delivered
its final recommendations in October 2015
in relation to a number of its areas of focus.
It is now for individual countries to decide
the extent to which they implement these
recommendations into local legislation.
Of particular relevance to the infrastructure
sector are proposed rules aimed at limiting
the tax deductibility of interest charges
on related and third party debt. We are
encouraged by the OECD’s proposals that
allow room for individual country authorities
to exempt third party debt in relation to
public benefit entities as well as proposing
the potential for grandfathering of existing
transactions. However, the finer detail of
how the proposals will be implemented
will be decided by individual countries and
whilst this is being considered the potential
impact remains unknown. In the UK, Her
Majesty’s Treasury has invited consultation
on these recommendations to which the
Company and its Investment Adviser have
in conjunction with industry participants and
forums submitted responses. In last week’s
UK annual Budget, Her Majesty’s Treasury
announced planned implementation of
these proposals consistent with the OECD
guidance on interest deductibility. Further
consultation is expected in May 2016 with
the intention to legislate in time for 1 April
2017. We will continue to work with our
professional advisers and engage with
wider industry groups as well as the relevant
authorities throughout the consultation and
implementation stage with an aim to mitigate
unintended consequences, where possible.
It should be noted though that until detailed
rules are finalised in each jurisdiction there
will remain a degree of uncertainty over any
potential future impact on the Company.
The Board also notes the ‘in-out’ referendum
in respect of UK EU Membership on 23 June
2016. It is possible that there may be
market-related volatility (including but not
limited to currency, credit and stock markets)
in the months preceding the referendum due
to uncertainty with respect to the outcome.
The full impact of UK exit is extremely difficult
to forecast and we will continue to monitor
the outcome and potential impacts which
are also outlined in more detail in the
Risk Report.
06 International Public Partnerships Annual Report and Financial Statements 2015
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 2015 and look forward
to continuing to serve them in 2016.
Rupert Dorey
23 March 2016
Chairman
The Board has also considered the
requirements imposed on the Company
under the Common Reporting Standard
(‘CRS’). The CRS calls on jurisdictions
to obtain information from their financial
institutions and automatically exchange that
information with other jurisdictions on an
annual basis. It sets out the financial account
information to be exchanged, the financial
institutions required to report, the different
types of accounts and taxpayers covered, as
well as common due diligence procedures
to be followed by financial institutions. The
Company is working with its registrar, Capita,
to ensure that it is meeting its obligations.
In addition to its usual review of risks, during
the year the Board has considered in more
detail the cyber-risks that the Company may
face – an increasingly topical area of risk
for many businesses. The Board has also
commissioned a review of the Company’s
security protocols in this respect.
As of the date of this report, the Board
is required to assess the viability of the
Company in light of potential material
risks. The Board is of the view that the
Company is viable over the period selected
for viability assessment. The Viability
Statement is included in the Risk Report.
Outlook
Performance of the portfolio in the early
stages of 2016 has continued to be
positive and 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. This includes both infrastructure
assets within the primary PPP/PFI space
and regulated infrastructure assets.
International Public Partnerships Annual Report and Financial Statements 2015 07
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance 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 growth of c.2.5%. The target annual
dividend per share for 2016 and 2017 is 6.65
pence and 6.82 pence respectively. The
Company seeks 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 Offering
(‘IPO’) 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 2015 Financial and Operating 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,
maintain 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 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 NAV 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 UK Listing
Authority (‘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
(‘AFML’). 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 2015
Strategic Report 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.
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 12.
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 GAV
of the Company’s investments and cash
balances. The Company has the ability to
borrow in aggregate up to 66% of such
GAV on a short-term basis (i.e. less than
365 days) if considered appropriate. As
at the date of this report the Company’s
corporate debt facility, which was increased
to £300 million in May 2015, was £169 million
drawn via letters of credit and the remaining
undrawn (see page 29 for further details).
International Public Partnerships Annual Report and Financial Statements 2015 09
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Strategic
Report
Strategy
The Company’s strategy, which is determined and reviewed by
the Board, covers 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 key objectives in each
area are set out below and the Company’s 2015 performance
measured against these is summarised on pages 16 and 17.
1. Active Asset Management
— 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
The Investment Cycle
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 overleaf.
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.
e
anag e m
et M
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A
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Effi cient Financial M a n a g
e m e nt
1 Active Asset Management
– Delivery of returns
– Public sector client satisfaction
– Management of risk
2 Value-Focused Portfolio Development
– Build controlling stakes
– Off-market preferred opportunities
– Optimise risk versus return
– Diversification
– Inflation-linked yield
– Capital growth prospects
3 Efficient Financial Management
– Capital and cash management
– Treasury and hedging
10 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report
2. Value-Focused Portfolio Development
3. Efficient Financial Management
— Through relationships with co-
shareholders and pre-emptive rights
where applicable increase individual
investment holdings to 100% where
beneficial
— 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
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.
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
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
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.
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 and through innovative structures
including Tideway and the Priority Schools
Scheme Aggregator programme.
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.
Portfolio development may also include
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.
— Efficient financial management of
cash holdings and debt facilities
available for investment and
appropriate hedging strategies
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.
International Public Partnerships Annual Report and Financial Statements 2015 11
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Report
Operating Model
Key Aspects of the Operating Model
The diagram below 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 five of the six Directors
are independent. See the Corporate
Governance Report for further details.
Investment Adviser
The Company’s Investment Adviser is AFML
(a member of the Amber Infrastructure Group
Holdings Limited group of companies).
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 GAV and composition of the
investment portfolio as well as a contribution
to expenses. The annual base fees are
detailed in note 18 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)
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
12 International Public Partnerships Annual Report and Financial Statements 2015
Investee 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
Strategic Report – For fully operational assets:
• 1.2% for the first £750 million of
GAV of the portfolio
• 1.0% for that part of the portfolio that
exceeds £750 million in GAV but is less
than £1.5 billion
• 0.9% for that part of the portfolio
that exceeds £1.5 billion in GAV
In addition, GAV excludes uncommitted cash
from capital raisings.
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 considers 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.
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
Public Sector Client
Construction Contractor
Debt Providers
Facilities Management
Contractor
International Public Partnerships Annual Report and Financial Statements 2015 13
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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. Certain discretionary fees that were
previously included in the IAA had not in fact
been paid to the Investment Adviser. Such
equity raising and disposal fees were formally
removed from the IAA in October 2015.
Cash receipts from capital raisings and tap
issuances are not included in the GAV for the
purposes of 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
important exceptions to this. Outside of
these exceptions, 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.
Typically such services are provided by a
third party in return for a fixed fee under
contracts put in place at the inception of
the 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.
In line with IFRS 10 (Investment Entity
Consolidation Exemption) all underlying
project level costs (and project level
revenues) are 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 investee 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,
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 bid costs. 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 2015
Strategic Report Relationship with the Investment Adviser and its Group
International Public Partnerships Limited
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 investee 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
outsource some or all of such services.
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 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 several
years or more to gestate and are regularly
reviewed between the Company and its
Investment Adviser. Under the terms of
the IAA 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 certain
opportunities being realised by Hunt
Companies (a US based group and 50%
shareholder in the Investment Adviser).
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.
International Public Partnerships Annual Report and Financial Statements 2015 15
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Report
2015 Financial and Operating Review
Key Performance Indicators
The key objectives of the Company are set out below and ten priorities
have been identified to assist in meeting these. 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
2015 financial year are summarised below and further details of
each of these elements are provided in the sections that follow:
Key Objectives
Investor Returns
Page
Reference
18
Page
Reference
26 to 27
Key Objectives
Key Performance Indicator
2015 Performance
Deliver sustainable long-term returns
to shareholders
– Focus on providing shareholders with
predictable, and where possible
growing dividends
– Maintain and enhance distributions
to shareholders
– Deliver capital value enhancement
– Total Shareholder Return
where possible
– NAV and NAV pence per share
– Achieved targeted fully covered cash
dividend of 6.45 pence per share, a
c.2.5% increase on 2014 dividend
– Achieved. The Total Shareholder Return
since IPO is 115.0%, or 8.7% on an
annualised basis
– NAV of £1,290.2 million and NAV per
share of 130.2 pence, an increase of
2.52%
Strategic Priorities
1. Active Asset Management
Strategic Priorities
Key Performance Indicator
2015 Performance
1
Focus on delivery of anticipated
returns from existing investments
– Actively manage investments to
– Availability for all controlled
– Achieved
ensure that they meet financial and
other targets
investments at 98% or above
– Returns from investments in line
– Met 2015 net revenue generation and
with expectations
dividend goals
2 Maintain high levels of public
sector satisfaction and asset
performance
3
Deliver additional value from
existing assets through management
of construction risk and delivery of
operational improvements to meet
client requirements
– Performance deductions below
– Achieved
3% for all projects
– Number of change requests from
– Around 950 variation requests
existing contracts
processed, representing c.£10 million of
the additional works at the project level
– Management of investments in the
course of construction projects in
line with overall delivery timetable
– Works commenced on new
construction projects in line with project
timetables
16 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report
2. Value-Focused Portfolio Development
Strategic Priorities
Key Performance Indicator
2015 Performance
Page
Reference
4
Through relationships with co-
shareholders and pre-emptive rights,
where applicable, increase individual
investment holdings to 100% where
beneficial
5 Make additional acquisitions where they
can be acquired on or off-market at
prospective returns that are beneficial in
risk/return terms
6
7
8
9
Enhance prospects for capital growth by
investing 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 continuing review of portfolio
composition to ensure suitable blend of
risk/return, inflation linkage, yield
versus capital characteristics, level of
diversification and opportunistic
enhancements
3. Efficient Financial Management
– Value enhancing follow-on
– Increased stake in Liverpool Library
27 to 29
investments
project to 100%
– Increased stake in Lewisham Building
Schools for the Future project up to
50%
– Value of additional investments
– All investments in the year were
acquired off-market
acquired outside secondary market
auction processes
– Number of investments in
– Investment into six projects in
construction
construction phase during the period
representing 8% of NAV
– Value of investments in
– Investment into regulated water
complementary investment
sectors
investment, Tideway
– Number of new opportunities in
international markets
– Improvement of risk/return,
inflation linkage, return,
diversification characteristics
– During the year, £31.7 million was
invested in a US Military Housing
project
– £17.5 million was committed to an
investment in Australia
– Investments during the year, notably
Tideway, significantly enhanced the
average duration of the portfolio from
21 years to over 27. Once fully invested
the portfolio duration will be c.40 years
Strategic Priorities
Key Performance Indicator
2015 Performance
10 Provide efficient management of
cash holdings and debt facilities
available for investment and appropriate
hedging policies
– Dividends paid to investors
covered by operating cash flow
– Dividends paid to investors 1.2 times
covered by net operating cash flow1
– New investments made from
available cash (after payment of
dividend) in priority to use of
corporate debt
– All investments in the period funded
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
– £1.7 million of foreign exchange forward
contracts in place at the balance sheet
date to mitigate short-term foreign
exchange cash flow volatility
Page
Reference
29
1 Cash dividends to shareholders are paid from net operating cash flow (including financing costs) before non-recurring operating costs.
2 Residual cash after payment of dividend and corporate costs over the next twelve months.
International Public Partnerships Annual Report and Financial Statements 2015 17
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Strategic
Report
2015 Financial and Operating Review continued
Performance against key objectives during the year – Investor Returns
Profits and distributions
Profit before tax was £79.9 million (2014: £71.2 million) with earnings per share of 9.54 pence (2014: 9.49 pence).
Returns from portfolio investments (investment income) in the year were £100.2 million (2014: £90.1 million) including fair value movements,
dividends and interest. These returns were partially offset by operating expenses (including finance costs) of £21.6 million (2014: £18.3 million).
These results allowed the Company to deliver a dividend of 6.45 pence per share for the year (2014: 6.30 pence per share).
Total Shareholder Return
The Company’s Total Shareholder Return (share price growth plus reinvested distributions) for investors since the IPO of the Company in
November 2006 to 31 December 2015 has been 115.0%, compared to a total return on the FTSE All-Share index over the same period of
49.2%1 or 8.7% and 4.5% (respectively) on an annualised basis. 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
80
70
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
Jun 15
Dec 15
INPP
FTSE 250
FTSE All-Share INPP NAV
Source: Bloomberg
Net Asset Valuation
The Company reported a 21.5% increase in NAV, up to £1,290.2 million at 31 December 2015 from £1,062.1 million at 31 December 2014. This
represented an increase of 2.5% of NAV per share, increasing to 130.2 pence per share at 31 December 2015 from 127.0 pence per share at
31 December 2014.
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 2014 and 31 December 2015 are highlighted in the graph that follows and
described in more detail below.
1 Bloomberg – share price appreciation plus income.
18 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report Net Asset Value Movement (£m)
198.0
Capital
Raising
(before
costs)
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
1,062.1
29.2
1,032.9
NAV at
31 December
2014
44.6
(28.8)
1.8
Change in
Government
Bond Yields
Change in
Project Risk
Premia
Change in
Construction
Risk Premia
(16.0)
Change in
FX Rates1
(48.6)
Cash
Distributed
to INPP
Shareholders
77.1
NAV
Return2
Fair value of investments
Cash and other net assets
1,290.2
89.1
1,201.1
NAV at
31 December
2015
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 to
those future project cash flows and (iii) changes in the Company’s other net assets (see also more detail below).
During the period a total of £198 million of new capital was raised (before costs) from a tap issue and via a Placing, Open Offer and Offer for
Subscription. Proceeds were utilised to repay the drawn balance of the corporate debt facility and acquire new investments.
For the twelve months to 31 December 2015, government bond yields decreased in all countries the Company holds investments in, resulting
in a positive impact on the NAV. 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. 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.
Sterling strengthened against the Australian Dollar, the Canadian Dollar and the Euro over the year to 31 December 2015 and this had a negative
impact on the NAV. The most significant foreign exchange impact was seen in the valuation of the Company’s Euro denominated investments.
Cash distributions reached £48.6 million during the year and represent the cash elements of two dividends made to shareholders.
The NAV Return of £77.1 million, representing a return of 6.4%, captures the following:
– Unwinding of the discount factor – the movement of the valuation date and the receipt of forecast distributions
– Optimisation of cash flows – actual distributions received above the forecast amount due to active management of the Company’s portfolio,
including negotiating and optimising project cash flows to ensure cash can be extracted from the underlying investments earlier than
forecast and optimising Group tax losses
– Movements in the Company’s working capital position
– Updated project forecasts – refinement of project model and macroeconomic 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) predictable cash flows. As the Company has a large
degree of visibility over expected income from its current investments the chart overleaf 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 overleaf 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).
International Public Partnerships Annual Report and Financial Statements 2015 19
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Strategic
Report
2015 Financial and Operating Review continued
INPP Projected Cash Flow Profile
Income £m
240
220
200
180
160
140
120
100
80
60
40
20
0
NAV £m
1,400
1,200
1,000
800
600
400
200
0
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
and investors should not treat the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will
almost certainly be different and may be higher or lower than indicated.
Portfolio performance and return
The Company’s investment portfolio is reviewed semi-annually by the Investment Adviser, and presented for approval by the Directors. The Directors’
valuation of the portfolio, Investments at Fair Value, as at 31 December 2015 was £1,201.1 million, an increase of 16.3% since 31 December 2014.
Investments at Fair Value Movements (£m)
1,300
1,200
1,100
1,000
900
800
700
600
500
143.1
(76.0)
1,100.0
1,032.9
Investments
Project
distributions
paid out of
the Portfolio
101.5
Portfolio
return1
17.7
(2.4)
(15.7)
1,201.1
Change in
Discount
Rates
Change in
macroeconomic
assumptions
Change in
foreign
exchange
rates
Investments at
Fair Value at
31 December 2014
Rebased
Investments
at Fair Value
Investments at
Fair Value at
31 December 2015
1 The Portfolio Return represents, amongst other things, (i) variances in forecast project cash flows, (ii) the unwinding of the discount factor applied to those future project
cash flows and (iii) any dividends received in the period.
The portfolio return of £101.5 million represents a 9.2% increase in the rebased value of investments and can be attributed to:
– Distributions received over and 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 project vehicles earlier than forecast and utilisation of
group tax loss relief
– Unwinding of the discount factor whereby the movement of the valuation date has a positive impact on the Investments at Fair Value
– Uplift from a revaluation of existing investments to reflect current market pricing, notably the Angel Trains investment where a significant
uplift in valuation occurred during the period as stakes in the company were sold by other shareholders and this market-based evidence
was incorporated within the portfolio valuation
– Updating and refinement of project model assumptions to reflect current expectations of future cash flows
– Increase in forecast tax outflows in light of potential legislative changes to international tax
20 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report
In addition there was:
– A net decrease in discount rates across jurisdictions in which the Company invests, leading to a £17.7 million increase in portfolio value
– A net decrease of £2.4 million which reflects the changes made to the macroeconomic assumptions
– A net decrease in the portfolio valuation due to foreign exchange rate movements in all four currencies the Company has exposure to
The remaining movements relate to investments of £143.1 million and project distributions of £76.0 million.
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 12. Across the portfolio the weighted average long-term inflation assumption as at 31 December 2015 was 2.57% (2014:
2.55%) and the weighted average deposit rate assumption was 3.11% (2014: 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
US
UK
Australia
Europe
Canada
US
GBP/AUD
GBP/CAD
GBP/EUR
GBP/USD
UK
Australia
Europe
Canada
US
31 December 2015
31 December 2014
2.75%
2.50%
1.0% in 2016, then 2.00%
2.00%
2.00%
3.00%
4.50%
3.00%
3.00%
3.00%
2.13
2.02
1.28
1.49
2.75%
2.50%
2.00%
2.00%
N/A2
3.50%
4.50%
3.00%
3.00%
N/A2
2.03
1.84
1.23
N/A2
20%–18%3
30%
Various (no change)
Various (26%–27%)
Various
20%
30%
Various (no change)
Various (no change)
N/A2
1 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2018 before adjusting to the long-term rates noted in the table above.
2 The Company made its first US denominated investment during 2015. It had no USD exposure prior to this time.
3 The reduction in UK tax rates reflects the latest substantively enacted rates at 31 December 2015 and therefore captures the reduction to 19% from 1 April 2017 and 18% from
1 April 2020.
Discount rates
The discount rate used for valuing each investment is based on the appropriate long-term government bond yield 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 (84%) is comprised of investments where the Company only holds the Risk Capital in the underlying
projects. The remaining portfolio (16%) 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 overleaf. These rates need to be considered against the
assumptions and projections upon which the Company’s anticipated cash flows are based.
International Public Partnerships Annual Report and Financial Statements 2015 21
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
2015 Financial and Operating Review continued
If the Company’s average discount rates are to be compared with those of similar companies, this needs to be done rigorously. In the
Company’s view comparisons of average discount rates between 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. As such, assumptions are unlikely to be homogenous,
and focus on average discount rates without an assessment of these and other factors could be misleading.
Metric
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.
31 December
2015
30 June
2015
31 December
2014
Movement
31 December 2014 –
31 December 2015
2.31%
2.12%
2.79%
(0.48%)
5.22%
5.17%
4.69%
7.53%
7.29%
7.48%
8.09%
130.2p
7.83%
128.6p
7.90%
127.0p
0.53%
0.05%
0.19%
3.2p
The change in the weighted average discount rate in the period is principally due to the accretive nature of the assets that were brought into the
portfolio together with revaluations of certain assets.
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 beneficial. 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 below. Using these real rates on a weighted average basis leads to a ‘real’
portfolio rate of (0.44%) 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 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 21.
31 December 2015
31 December 2014
Movement (2014–2015)
Country
UK
Australia
Europe1
Canada
US
Portfolio weighted average
Nominal
2.33%
3.29%
1.73%
2.20%
2.99%
2.31%
Real
Nominal
Real
Nominal
Real
(0.76%)
1.00%
(0.14%)
0.55%
1.18%
2.85%
3.80%
2.17%
2.56%
N/A
(0.36%)
(0.52%)
(0.40%)
1.41%
0.25%
0.57%
N/A
(0.51%)
(0.44%)
(0.36%)
N/A
(0.41%)
(0.39%)
(0.02%)
N/A
(0.44%)
2.79%
(0.05%)
(0.48%)
(0.39%)
1
Includes Belgium, Germany, Ireland and Italy. Note estimates only for Belgium and Ireland as no index linked bonds available.
22 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report 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
– 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
– Where deductions are suffered under such contracts they are fully passed down to subcontractors
– Where possible, lifecycle costs/risks are not borne by the Company but are passed down to a third party such as a facilities management
contractor
– Cash flows from and to the Company’s subsidiaries and the infrastructure asset owning entities in which it has invested will be made and
are received at the times anticipated
– Where assets are in construction they are either completed on time or any costs of delay are borne by the contractors not the Company
– Where the operating costs of the Company or the infrastructure asset owning entities in which it has invested are fixed by contract such
contracts are performed, and where such costs are not fixed, that they remain within projected budgets
– Where the Company or the infrastructure asset owning entities in which it has invested owns the residual property value in an asset that
the projected amount for this value is realised
– Foreign exchange rates remain consistent with current four-year forward looking projections
– There are no regulatory changes in the future which negatively impact the cash flow forecasts
Impact of Changes in Key Macroeconomic Variables to 31 December 2015 NAV 130.2p per Share
Discount rates +/-1%
-12.4
Inflation +/-1%
-9.5
14.7
10.7
Foreign exchange +/-10%
-3.3
4.0
Deposit rates +/-1%
Tax rates +/-1%
Lifecycle +/-10%
-1.3
1.4
-0.8
0.8
-0.5
0.5
-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 12. 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 2015 NAV per share by 14.7 pence. Should the underlying
project discount rates increase by 1% per annum the NAV per share would decrease by 12.4 pence.
International Public Partnerships Annual Report and Financial Statements 2015 23
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Strategic
Report
2015 Financial and Operating Review continued
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 2015, 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 0.76% 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 10.7 pence increase to the NAV per share. Conversely, if the rates were to decrease by 1% per
annum there would be a 9.5 pence decrease to the NAV per share.
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 providing any form of profit or dividend forecast.
Foreign exchange
The Company has a geographically diverse portfolio and therefore revenues are subject to foreign exchange rate risk. Should the assumed
exchange rates increase by 10% per annum this could be anticipated to lead to a 4.0 pence increase in the NAV per share while a 10% per
annum reduction in the exchange rates would result in a 3.3 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 deposit rate assumption across the portfolio is 3.11% per annum. While operating cash balances tend to be
low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and
therefore variations to deposit rates may impact the portfolio. All else being equal, a 1% per annum increase in the underlying deposit rates
could be anticipated to lead to a 1.3 pence increase in the NAV per share and a 1% per annum decrease in deposit rate to a 1.4 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 0.8 pence decrease in
the NAV per share while a 1% per annum reduction in the tax rates could be anticipated to lead to a 0.8 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 93.5% 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 0.5 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.
24 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report 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 non-recurring operating costs
Non-recurring operating costs
Net cash flow from operations
Cost of new investments
Net (repayment)/drawdown of corporate debt facility
Proceeds of capital raisings (net of costs)
Disposal proceeds
Distributions paid
Net cash at period end
Year to
31 December
2015
£ million
Year to
31 December
2014
£ million
29.4
76.0
(13.7)
(3.5)
58.8
(2.8)
56.0
(143.1)
(16.3)
195.0
–
(48.6)
72.4
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
The Company’s net cash at 31 December 2015 was £72.4 million (2014: £29.4 million), an increase of £43 million reflecting proceeds from
capital raising and positive investment cash flows offset by new investments made in the year and repayment of outstanding balances on the
corporate debt facility.
Cash inflow from the Company’s investment portfolio was £76.0 million (2014: £64.0 million). The increased cash flow was mainly due to the
contributions from new investments made during the year.
Recurring operating costs have increased from £12.2 million to £13.7 million, in line with the increase in the Company’s NAV and increased
audit fees, as detailed in the ‘ongoing charges’ table below; other operating costs have remained largely consistent. Net financing costs
increased from £1.9 million to £3.5 million mainly due to the drawdowns on the corporate debt facility made to provide financing for investments
prior to the equity capital raise. Non-recurring operating costs of £2.8 million (2014: £5.0 million) mainly represent costs associated with the
refinancing of the corporate debt facility in the period and one-off transaction costs incurred on new investments.
The Company funded its acquisitions during the period by drawing down on its corporate debt facility which was subsequently repaid using
the proceeds from capital issuance. No investments were disposed of in the year (2014: £22.3 million).
Cash dividends paid in the period of £48.6 million (2014: £40.7 million) were in respect of the six-month periods ended 31 December 2014 and
30 June 2015.
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
2015
£ million
Year to
31 December
2014
£ million
(12.5)
(0.2)
(0.2)
(0.8)
(11.1)
(0.1)
(0.2)
(0.8)
(13.7)
(12.2)
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.
International Public Partnerships Annual Report and Financial Statements 2015 25
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
Ongoing Charges
Annualised Ongoing Charges1
Average NAV2
Ongoing Charges
2015 Financial and Operating Review continued
Year to
31 December
2015
£ million
Year to
31 December
2014
£ million
(13.7)
1,143.3
(12.2)
983.5
(1.20%)
(1.24%)
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 – 1. Active Asset Management
Investment cash flow from the Company’s portfolio of 120 investments has continued to perform 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.
During 2015, our public sector clients commissioned c.950 variations resulting in over £10 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 £2 million and demonstrate
the value and flexibility of PFI/PPP contracts to respond to the changing requirements of public sector clients.
The Company also takes an active role in assisting its public sector clients to achieve savings from existing concession arrangements. The
Investment Adviser is working with a number of 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 in relation to both insurance and facility
management services that have resulted in reduced costs to the public sector.
On a number of the Company’s portfolio of assets the Investment Adviser, facilities management operator and the public sector client work
extensively with the local community. Examples include local sports clubs using schools facilities, schools utilising the court facilities for mock
trials, workplace experience for students and those who have been long-term unemployed, and various out of school hours clubs.
During the latter stages of 2015 work commenced on two new assets in construction. The New Schools PPP project in Australia (Victorian
Schools 2) reached financial close on 29 October 2015. The project comprises 15 new build schools across twelve different green-field sites in
outer metropolitan Melbourne. In order to meet the construction programme, design development commenced shortly after the confirmation
of preferred bidder status and design submissions to the State continued through financial close to the end of 2015.
Construction on the project is split into two tranches with the first eight schools due to be completed by 1 January 2017 and the remainder by
1 January 2018. Design and construction progress on the project is on programme and includes:
– Submission of five design packages to the State
– The establishment of several sites and commencement of ground works
Works over the next twelve months include completion of the design and construction of the first tranche of eight schools and finalised design
for the remaining schools.
In addition, since its investment in Tideway significant milestones have been achieved to allow the company to start construction on the 25km
‘super sewer’. Thames Water, on Tideway’s behalf, is well-advanced with the necessary enabling works which are preparing the 24 sites
across London for the driving of the tunnel itself, with the most prominent piece of work taking place in the foreshore by Blackfriars Bridge.
Main works construction is anticipated to start slightly earlier than planned, in the first half of 2016.
26 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report
Projects under construction as at 31 December 2015, all of which are currently on schedule for operational commencement, are set out in the
table below.
Asset
Priority School Building Aggregator Programme – 4 batches
Thames Tideway Tunnel
Victoria Schools PPP Project
Construction
Completion
Date
Defects
Completion
Year
2018
2024
2018
2019
2027
2019
Location
UK
UK
Australia
Status
On schedule
On schedule
On schedule
% of
Fair Value of
Investment
3.1%
4.9%
N/A1
1 The Victoria Schools project is currently funded via a letter of credit. Investment will be made at construction completion.
Performance against Strategic Priorities – 2. Value-Focused Portfolio Development
During the year the Company made further investment or commitments of £311.7 million across nine 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
Priority School Building
Programme ‘Aggregator’ – Batch 1
Location
Acquisition/
Divestment
North East, UK
Acquisition
Priority School Building
Programme ‘Aggregator’ – Batch 2
Hertfordshire, Luton
and Reading, UK
Acquisition
Priority School Building
Programme ‘Aggregator’ – Batch 3
North West, UK
Acquisition
Operational Status
Under
construction
Under
construction
Under
construction
Investment/
Commitment
Acquisition Date
£7.9 million
10 March 2015
£10.2 million
19 March 2015
£8.4 million
25 March 2015
Building Schools for the Future
Lewisham, UK
Acquisition
Operational
£14.3 million
17 April 2015
Liverpool Central Library
Liverpool, UK
Acquisition
Operational
£1.9 million
30 June 2015
Priority School Building
Programme ‘Aggregator’ – Batch 4
Thames Tideway Tunnel
US Military Housing P3
Midlands, UK
Acquisition
London, UK
Acquisition
Under
construction
Under
construction
£9.8 million
13 August 2015
Up to
£210 million1
24 August 2015
Various, US
Acquisition
Operational
£31.7 million
4 October 2015
Victoria Schools PPP Project
Victoria, Australia
Acquisition
Under
construction
£17.5 million1 28 October 2015
Post 31 December 2015
Westermost Rough OFTO
Yorkshire, UK
Acquisition
Operational
£26.8 million
3 February 2016
1
Funding for investment solely or partially by way of letter of credit to support future investment commitment.
Priority Schools Building Programme ‘Aggregator’
During the twelve months to 31 December 2015 the Amber Consortium of which the Company is part, reached financial close, investing
£36.3 million into four of five batches of schools being delivered through the Priority Schools Building Programme (‘PSBP’).
These projects use an innovative financing model based upon the establishment of a funding vehicle known as the ‘Aggregator’. One of the key
features of the Aggregator is the ability to warehouse loans and thereby aggregate total financing requirements across all five schools batches.
The Aggregator is financed by a consortium including the Company along with Aviva Investors and the European Investment Bank providing
senior debt.
The Company expects to provide up to an additional c.£7 million funding to the remaining batch. Financial close of this final batch is expected
in the early part of 2016.
International Public Partnerships Annual Report and Financial Statements 2015 27
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Report
2015 Financial and Operating Review continued
Additional investment in Lewisham Building Schools for the Future (‘BSF’) project
During the period, the Company acquired an additional 40% investment in the Lewisham BSF concession, increasing the Company’s overall
exposure to between 41% and 50% in the underlying BSF assets.
The Company invested £14.3 million for an additional 40% interest from Babcock Project Investments Limited. The Lewisham project
comprises schools located in south east London boroughs, including Sedgehill and Conisborough Schools; Trinity School; Deptford Green
School; and Bonus Pastor, Pendergast and Drum Beat Schools.
Additional investment in Liverpool Central Library project
In June the Company acquired an additional 19.9% investment for c.£1.9 million in the Liverpool Central Library PFI concession from Shepherd
Construction. The acquisition increased the Company’s overall exposure from 80.1% to 100%.
The Liverpool Central Library is one of the flagship legacy projects for Liverpool City Council, as part of the Liverpool European Capital of
Culture programme in 2008. The Company, through its Investment Adviser, acted as Lead Sponsor and Manager for the £50 million project
to refurbish three existing historic library buildings which included the demolition and construction of a new main library and archive complex.
The library reached construction completion in January 2013 and opened to the public in May that year.
Thames Tideway Tunnel project
In August, the Company along with its consortium partners reached financial close on the Tideway project. The Company will invest up to
£210 million in relation to its 16% stake in the project. It is the Company’s largest investment to date. The remaining Risk Capital is being funded
by the consortium partners.
Tideway is one of the most significant UK infrastructure investment opportunities. Up to 39 million tonnes of untreated sewage are currently
discharged into London’s waterways every year and the project will significantly reduce this.
Tideway will be a new part of the sewer network which will carry sewage and storm water discharges from the broader London sewerage
system. Tideway will be a 7.2m diameter 25km sewer tunnel running up to 65 metres below the Thames and will effectively replace the
Thames as a ‘sewer of last resort’. The Tideway project has a design life of 120 years and is expected to provide yield to its investors
throughout this period.
Construction of the estimated £4.2 billion project (2011 prices) will be under three main contracts. The construction preferred bidders were
announced in February 2015, with BMB JV (Joint Venture of BAM Nuttall Ltd, Morgan Sindall Plc and Balfour Beatty Group Limited) selected
for the West contract, FLO JV (Joint Venture of Ferrovial Agroman UK Ltd and Laing O’Rourke Construction) for the Central contract and CVB
JV (Joint Venture of Costain, Vinci Construction Grands Projets and Bachy Soletanche) for the East contract. Construction is expected to
commence in 2016 and reach completion by 2023, followed by a 120-year operational life.
During construction, the Tideway project will benefit from a bespoke regulatory framework that will allow it to start generating revenue when
construction begins. Once fully operational, Ofwat will regulate the Tideway project in line with other water and sewerage companies’
regulatory cycles.
The Company’s commitment to Tideway has been secured through the issue of a letter of credit under the Company’s corporate debt facility.
The Company’s investment will be funded as the project’s milestones are met with the final injection expected in early 2018. As a result, at
31 December 2015, the Company had invested £58.9 million into the project with the remainder backed by a letter of credit.
US Military Housing P3
The Company invested approximately US$48 million (c.£32 million) into a series of fully yielding subordinated debt instruments with a remaining
average life of 37 years. The subordinated debt was acquired by the Company from the Federal Home Loan Mortgage Corporation (‘Freddie
Mac’) and is underpinned by security over seven operational P3 military housing projects relating to a total of 19 operational military bases in
the US comprising approximately 21,800 individual housing units.
The opportunity was identified as a consequence of the Hunt shareholding in the Company’s Investment Adviser and the relationship that
exists between Hunt and the Company with respect to US opportunities. Hunt are one of the largest owners, managers and providers of
ongoing services in the P3 Military Housing sector having interests in approximately 33,000 housing units including those the subject of this
transaction where they also provide property management services in respect of most of the units.
28 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report Victoria Schools PPP Project
The Company reached financial close on a new schools scheme in the State of Victoria, Australia. The Company will invest A$35.6 million
(£17.5 million), representing 100% of the project’s risk capital at the end of the project’s construction period, expected in 2018. The commitment
is currently secured through the issue of a letter of credit under the Company’s corporate debt facility.
The project has been commissioned by the Victorian Department of Education and Training, and comprises the design, building, financing and
maintenance of 15 schools across twelve sites. The contract with the Victorian Government is for a period of 25 years from the expected date
of construction completion.
The project is expected to deliver a predictable and high quality cash flow to the Company backed by the credit of the State of Victoria
which is rated AAA by both S&P and Moody’s. The Company anticipates a return on its investment fully in line with its experience on other
comparable projects.
Westermost Rough offshore transmission project (‘OFTO’)
In February 2016, Transmission Capital Partners, the consortium comprising the Company, Amber Infrastructure and Transmission Investment
reached financial close for the long-term licence and operation of its sixth UK offshore transmission project, Westermost Rough OFTO.
The Company made a £26.8 million investment for 100% of the equity and subordinated debt of the OFTO. The OFTO will connect a windfarm
containing 35 6MW turbines located 8km off the coast of Yorkshire to the onshore grid network, providing enough electricity to power around
150,000 UK homes.
Performance against Strategic Priorities – 3. Efficient Financial Management
The Company seeks to generate dividends to investors that are paid from operating cash flow. For the year ended 31 December 2015 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.
In May 2015, the Company renewed its corporate debt facility (‘the facility’) with existing providers, Royal Bank of Scotland and the National
Australia Bank Limited. The facility size increased from £175 million to £300 million. The margin on the facility is 175 basis points, 50 basis
points lower than the original arrangement. The facility is subject to renewal in May 2018. The drawn portion of the facility was fully repaid in
December 2015. Currently £169 million is drawn on the facility via letters of credit, which takes into account the Company’s investment into
Westermost Rough OFTO in February 2016.
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.
International Public Partnerships Annual Report and Financial Statements 2015 29
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic Report
Case Study
Thames Tideway
Tunnel
The Thames Tideway
Tunnel (‘Tideway’) is a new
£4.2 billion investment in the
sewer network which will
carry sewage and storm
water discharges from
the London sewerage
network.
Investment Commitment
£210m
25km
Length of Tunnel
Maximum Tunnel Depth
65m
30 International Public Partnerships Annual Report and Financial Statements 2015
Project Overview
– Tideway will be a 25 kilometres sewer tunnel running
Key Features
– A yielding investment through both construction and
up to 65 metres below the Thames, effectively
replacing the Thames as a ‘sewer of last resort’,
feeding overflow sewage to a pumping station at
Abbey Mills in East London
– The tunnel will be built under three separate
construction contracts each covering a distinct
physical section of the network
– The winning construction contractors were selected
operating periods (120 years)
– A fully RPI-linked revenue stream
– The investment will significantly extend the Company’s
portfolio’s life; the weighted average concession life of
the portfolio to c.40 years once full investment is made
– Strong protections exist to mitigate construction risks,
including:
• Experienced management team, project manager
through a separate competitive tender process run by
Thames Water
and construction contractors already in place
• Significant incentive arrangements under the
construction contracts, licence and stakeholder
arrangements
• A government support package which provides
significant mitigation to the risks of construction
• Bespoke regulatory features to reflect the nature of
the construction obligations including a mechanism
applied after construction to incentivise cost and
time savings
Project Background and Financing
– Amber, the Company’s Investment Adviser, worked on
behalf of the Company and formed the Bazalgette
consortium in 2014 to bid on the project alongside
other leading investors including:
• Allianz Capital Partners
• Dalmore Capital Limited
• DIF Infrastructure
• Swiss Life
– The investor group includes a significant proportion of
UK pension funds through which over 1.7 million UK
pensioners will have an indirect investment in Tideway
– The Company will invest up to £210 million for a 16%
stake, in instalments drawn during the construction
period
– The Company’s commitment is backed by letters of
credit against the Company’s corporate debt facility.
The last instalment is scheduled to occur in early 2018
– Six relationship banks will provide senior non-recourse
debt directly to the project
Construction Timeline
2014
— Planning decision
— Bids due in for main
works and financing
— Investigation work at sites
2016
Main works
preliminary
construction
begins
2019
Secondary
lining begins
2022
System
commissioning
begins
2015
Main works and
financing contracts
awarded
2017
Tunnelling
begins
2021
Tunnelling
ends
2023
All works
completed
International Public Partnerships Annual Report and Financial Statements 2015 31
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
Outlook
Current Market Environment and Future Opportunities
The Company anticipates continued benefits arising from the strong
outlook in the infrastructure markets in which we invest. Moreover,
the governments in the jurisdictions in which our efforts are directed
continue to promote new infrastructure projects and broadly favour
continued reliance on the private sector as the source of finance and
investment expertise in this space.
Most governments in developed nations have a policy on renewing
and improving infrastructure provision in their countries. In the UK
and Australia this is evidenced by the National Infrastructure Plan and
many other countries have similar ambitions. This trend for promotion
of new infrastructure projects will, in the Company’s view, persist in
the medium to long-term. This offers very positive macroeconomic
support for the Company’s future growth prospects.
While the Company is confident of the long-term opportunities within
the sector, the prospects for new investment over any short-term
period are inevitably more difficult to predict. The investment levels
of the past should not necessarily be seen as indicative of the levels
of investment that the Company may make going forward. Future
investment is dependent on factors including:
– 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 resulting impact on pricing and levels of returns
– The macroeconomic environment (e.g. the impact of inflation,
interest rates, and the pricing of risk and return for alternative
investments)
We also continue to guide investors that competition in the secondary
market for assets such as those in which the Company invests
remains strong. While the Company is always interested in reviewing
mature secondary market investment opportunities being sold by
their existing owners, not all of these opportunities are likely to be
accretive to the Company’s portfolio.
The Company is also selective to enable it to realise an appropriate
risk and return balance within the overall portfolio. In the past, this
has 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. While no such divestments are currently envisaged, the
Company will continue to review its portfolio with this option in mind.
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 as follows:
United Kingdom
The UK government has continued the previous coalition government’s
focus and interest in the UK infrastructure sector, and it views high
quality infrastructure as a means to increase productivity and
competitiveness. In its Summer 2015 Budget, the UK government
pledged to be ‘bold in delivering infrastructure’ and announced the
intention to publish a productivity plan that will ‘set out measures to
encourage long-term investment in economic capital... including
infrastructure’.
In recognition of this it has now streamlined its approach to the
development of infrastructure assets in the UK, establishing the
Infrastructure and Projects Authority. The Authority will provide
support for the major economic projects, centralising the financing
and delivery of such projects. In order to assist the planning of major
infrastructure projects the government also established the National
Infrastructure Commission which is charged with offering unbiased
analysis of the UK’s long-term infrastructure needs.
While many of the £411 billion projects currently identified in the
National Infrastructure Plan fall outside the scope of the Company’s
investment parameters, there is likely to be a wide variety of projects in
which the Company might invest. Although these projects may have
risk/return dynamics similar to those found in the Company’s existing
portfolio, increasingly these assets are not likely to be structured as
traditional PFI/PPP procurements. The Company expects more
regulated assets to come under consideration by it in 2016.
For example, the Company is particularly interested in the
government’s willingness to use the regulated asset model as a means
for infrastructure procurement – where, simplistically, investors receive a
permitted and pre-specified return on capital invested through
agreement with the relevant regulator. This methodology was used in
the recent Tideway transaction with water regulator Oftwat’s oversight
and support. The expectation is that the regulated model could be
used to procure other core infrastructure assets and we watch this
space, as well as opportunities with existing utilities, with interest.
We have also highlighted for some time the attractive characteristics
of the offshore transmission (‘OFTO’) sector – where investment is
made into the cables and substations 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. The Company has, to date, been a
market leader in investment into this space having invested into six
projects. The Company expects to continue to benefit from additional
opportunities in this sector that will come to market over the coming
years; the regulator, Ofgem, has estimated a further £2 billion of
investment required in OFTOs within the next two years with the
prospect of significantly more in the years thereafter. The government
has also been engaged in a consultation process on arrangements
for the introduction of competitive tendering of onshore electricity
transmission projects.
32 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report 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.
Both Federal and State governments have their own long-term
infrastructure strategy delivery organisations and there is a unified
method for the delivery of PPP projects. A National PPP Policy
Framework has been developed which aims to provide a consistent
approach by procuring agencies 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,
developments and modernisation of highways and rail transport
together with water and communications infrastructure. There are
presently six potential PPP projects identified by State governments
for development in 2016/17, with a further three greenfield projects
in procurement as well as one existing project subject to a major
augmentation. It is also anticipated that asset sales in some states
may lead to funding availability for further projects.
The Australian government’s 2015 Infrastructure Audit identified
a number of infrastructure challenges facing Australia, including
population growth, a desire to increase productivity and connectivity
and improve resilience and maintenance.
Consequently, an Australia Infrastructure Plan was released in
February 2016 which provides a comprehensive roadmap to address
‘infrastructure gaps’ and identifies a priority list of project initiatives in
each state and territory. Particular focus is placed on solutions that
would improve the public funding of infrastructure and enable
increased private sector investment.
Europe – excluding United Kingdom
Select jurisdictions in Northern Europe, including Belgium, the
Netherlands, Germany, Austria, Ireland and parts of Scandinavia,
continue to offer new primary market infrastructure opportunities
across a range of sectors including accommodation and transportation
which are attractive to the Company. The Company expects further
suitable opportunities to be offered by the European market following
the publication of the Investment Plan for Europe (commonly known as
the Juncker Plan) by the European Commission in November 2014.
According to European PPP Expertise Centre’s ‘2014 Market Update:
Review of the European PPP Market’ in 2014, 82 PPP transactions,
with a total value of €18.7 billion reached financial close in the
European market (including the UK), representing a 15% increase in
value from 2013. Whilst the UK was the largest such market in Europe
by value and number of transactions in 2014, Germany was named in
2014 as the third largest PPP market, and the Company was recently
announced preferred bidder on a PPP opportunity there.
Looking forward, there are further potential new PPP opportunities
announced in jurisdictions such as the Netherlands, with twelve
projects identified as being prepared to tender through PPP and/or
in procurement.
The Investment Plan for Europe, launched in November 2014, was
set up to enable €315 billion of investment in strategic projects
across Europe in a three-year period from January 2015; its aim is
to encourage the mobilisation of private funding in Europe.
The plan laid the foundation for the creation of a €16 billion guarantee
to be provided by the European Investment Bank (‘EIB’), funded
from the EU budget, known as the European Fund for Strategic
Investments (‘EFSI’). The EFSI guarantee offers specific cover to
investments financed by the EIB, and will allow the EIB Group to
provide additional financing of approximately €61 billion over its
investment period.
The strategic investments which the EFSI will support include projects
in the transport and energy infrastructure sectors. The EFSI guarantee
has already been used for PPP and other infrastructure/energy projects
including examples in continental Europe such as the Vienna Hospitals
PPP and the €560 million West Strasbourg Bypass concession.
In summary therefore, the infrastructure markets of Europe continue
to grow in ways that offer encouragement to the Company. The same
qualification as applies to all the Company’s opportunities applies
equally to those in Europe: that is that future success will depend on
both success in bid processes (both in the primary and secondary
markets) and confidence that such opportunities fit within the
Company’s risk and reward parameters and offer overall benefit to
the portfolio.
United States
The infrastructure market in the United States is very significant in
size. In 2015 KPMG estimated the historical size of the US P3 market
as being around US$8.5 billion per annum with a future forecast of
US$12.5 billion per annum. As with infrastructure markets in other
developed countries the projected growth is anticipated to be
delivered partly as a consequence of the need for infrastructure
renewal and partly because of changes in demographics and the
future shape of public services. Moody’s Investor Services stated in
October 2014, ‘Given the sheer size of its infrastructure and growing
urban population the US has the potential of becoming the largest
market for public private partnerships in the world’.
Following the launch of President Obama’s ‘Build America Investment
Initiative’ in July 2014, the US Treasury released recommendations
formulated by the Interagency Infrastructure Finance Working Group
in order to expand public-private collaboration in infrastructure. The
recommendations included eight pathways designed to provide more
favourable conditions for private investors across all infrastructure
sectors. The Treasury is also working on a white paper exploring
options for alternative incentive arrangements that would assist in
aligning the incentives of the public and private sector.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2015 33
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Strategic
Report
Outlook continued
Some 33 of the individual states have enacted legal authority to
transact public private partnership (PPP/P3) projects and availability
based payment schemes (which match the Company’s preferred form
of project) have seen increasing levels of attention from procurers.
Current Pipeline
Overall, the Company is very positive about its short and longer-term
prospects, both in terms of the performance of its existing
investments and the opportunity to add high quality investments to
the portfolio during 2016.
The Company is well positioned to capitalise on developments in
this market through its relationship with Hunt (described in more
detail on page 15), where it has ‘right of first look’ over investment
opportunities in the United States originated or divested by Hunt
which meet the Company’s investment criteria.
Other countries
Infrastructure opportunities are well established in Canada and
the Company holds two existing Canadian PPP investments.
The Company’s Investment Adviser remains active in the Canadian
market. However, the market is dominated by very price competitive
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.
New Zealand continues to also be of interest to the Company. The
government in that market has been pursuing a privatisation process of
several government 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 reviewing one such opportunity.
The Company keeps a watching brief on opportunities in other
international markets including markets such as Scandinavia 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.
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 sixth project, Westermost
Rough OFTO, and is actively bidding each new opportunity as it
comes to market
– Enhanced access to US P3 opportunities, particularly through
the relationship with Amber/Hunt
– Other UK and European primary investment opportunities
(for instance in the regulatory, healthcare and judicial sectors)
– Other UK and international regulated assets
– Acquisition of additional investments in projects where the
Company already has an investment. Typically these will arise
under pre-emption and similar rights
– 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 overleaf. It should be noted that 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. Moreover, none of
these projects is certain to progress, either with the Company or
at all.
Finally, and notwithstanding the comments above and the
opportunities listed overleaf, it should be noted that the Company’s
projected economic performance is not dependent upon making
future investment commitments in order to deliver its projected
returns. These can be delivered in the Company’s view from
its existing assets. Fundamentally therefore, further investment
opportunities will, first and foremost, be judged based on whether
they add value and quality to the Company’s existing portfolio.
34 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report Current Projects
Priority Schools Building
Programme ‘Aggregator’
Location
UK
Thames Tideway Tunnel
UK
Estimated Investment
Opportunity/Project
Capital Value
Up to £7 million1
Up to £151 million
investment commitment
remaining1
Expected
Concession
Length
25 years
120 years
Project Status
Remaining investment expected to be made in
early 2016
The Company is part of the Bazalgette
consortium awarded licence to own and finance
project. Investment in phases until early 2018
Education projects
UK
HUB framework projects UK
£8 million1
£132 million2
c.25 years
Investment in existing projects, some pre-emptive
c.25 years
Hub framework for various Scottish social
community
Transportation project
Australia
£133 million2
c.15 years
Follow-on investment in existing project
Police Centre
Germany
c.£6 million1
c.32.5 years
Named as preferred bidder
Other/Medium-term Opportunities
Judicial
Netherlands
c.£66 million2
c.25 years
The Company is involved in a number of ongoing
bids for projects
Healthcare
Transportation
Accommodation
OFTOs
Austria
Australia
Australia,
Germany
UK
£57 million2
£56 million1
£233 million2
c.25 years
c.20 years
c.20 years
£250 million2
20 years
1 Represents current estimated total investment that may be invested by the Company.
2 Represents the estimated current unaudited capital value of the project and includes both debt and equity.
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 opportunities where the current estimated gross value of the relevant project is given (which includes
an estimate of both debt and equity), the estimates provided are not necessarily indicative of the eventual acquisition price for, or the value of,
any interest that may be acquired.
Rupert Dorey
23 March 2016
Chairman
John Whittle
23 March 2016
Director
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2015 35
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance 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 aim
is that 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 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 additional
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.
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.
Strategic
Report
Risk Report
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 in
designing systems of internal control but no system of control can
provide absolute assurance against the incidence of risk,
misstatement or loss.
The Company has in place a risk management framework, with a risk
register that is reviewed and updated 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 risks judged as most significant 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 management process
The Company’s risk management process as overseen by the Board
can be summarised as:
Risk
Identification
Risk
Reassessment
Risk
Assessment
Mitigation
Plan
36 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report
Reassessment 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
Risk Control Levels
— Service provider’s
internal controls
— Independent controls
and process reviews
— External audit
Principal Advisers
— Investment Adviser
— Asset Manager
— Company Secretary
— Fund Administrator
— Legal Adviser
— Corporate Broker
— Corporate Bankers
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 risk framework is applied holistically across the Company and the
underlying investment portfolio as illustrated in the Operating Model
diagram across pages 12 and 13.
INTERNATIONAL PUBLIC PARTNERSHIPS Annual Report and Financial Statements 2015 37
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
Risk Report continued
Risk heat map
Risk Heat Map
High
y
t
i
l
i
b
a
b
o
r
P
Medium
2
3
1
Low
Low
5
12
11
Principal Risks and Mitigation
The key risks affecting the Company and the investment portfolio have
not, in the view of the Board, materially changed year to year, largely
due to the 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.
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, together with movement of those risks in the period, are
set out in detail in the table on pages 38 to 44. This is not intended to
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 materially the performance of the Company, its assets, capital
resources and reputation.
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.
Whilst the Company has applied mitigation processes as highlighted
below it is unlikely that the techniques applied will fully mitigate the risk.
The chart below provides a summary of the Board’s view of the
probability and potential impact of the Company’s principal risks:
4
7 8
10
9
6
Medium
Impact
High
Mitigation/Approach
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 utilises a long-term view of inflation
within its forecasts, benchmarked where possible to
independent analysis.
Risk
Description
Macroeconomic Risks
1 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 the Company’s future projected cash
flows. Negative inflation (deflation) will reduce the
Company’s future cash flows in absolute terms.
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.
38 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report
Key
Risk exposure has increased
in the period
Risk exposure has reduced
in the period
No significant change in risk exposure
since last reporting period
Risk
Description
Mitigation/Approach
Macroeconomic Risks continued
2 Foreign
Exchange
Movements
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.
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.
Reduction in overall
exposure to foreign
exchange originated assets
mainly due to substantial
increase in NAV driven by
new GBP investments and
capital raised in the year.
3 Interest rates
Changes in market rates of interest can affect
the Company in a variety of different ways:
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.
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.
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.
As presented in the sensitivity analysis, variations in cash
deposit rates have little impact on the Company’s NAV.
Due to the spread of cash holdings within ringfenced
Special Purpose Vehicle (‘SPV’) structures and relatively
smaller balances in the SPVs, it is not economically
feasible to hedge against adverse deposit rate
movements.
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.
International Public Partnerships Annual Report and Financial Statements 2015 39
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
Risk Report continued
Risk
Description
Macroeconomic Risks continued
Mitigation/Approach
4 Taxation
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.
The diversified jurisdictional mix of the Company’s
investments may provide some mitigation to tax changes
in any one jurisdiction.
Increased uncertainty over
future tax policy across a
number of geographies
mainly driven by OECD
recommendations on BEPS.
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.
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.
5 Accounting
Accounting changes can have the effect of reducing
distributable profits in investee entities and holding
entities and may impact the Company’s cash flows and
thus valuation adversely.
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.
Market Risk
6 Political and
Regulatory
Increasing pressures on
public sector bodies globally
have the potential to impact
the infrastructure industry.
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 either
dependent ultimately on public sector expenditure or
dependent on regulatory or other similar frameworks
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.
The Company’s existing investments mainly 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
infrastructure and similar investment and recognise the
risk of deterring future investment in the event that penal
or disproportionate steps are taken in respect of existing
contractual engagements.
40 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report Risk
Description
Market Risk continued
Mitigation/Approach
Termination of Contracts
Often 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 some
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
(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 relationships on existing investments and on the
Company’s ability to source new investments at attractive
prices or at all.
UK European Union (‘EU’) Membership
Impact resulting from ‘in-out’ referendum in respect of
UK EU Membership on 23 June 2016.
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 PPP contracts.
Compensation on termination clauses within such
contracts serves 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 in many
cases 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.
Possible period of volatility in the months preceding
the referendum due to uncertainty with respect to
the outcome. If the UK were to exit the EU there is the
potential for this to impact UK gilt rates and the credit
rating of the UK government and continuing market
volatility, including stock markets. This could include
a negative impact on Sterling, however this could be
partially mitigated by the Company’s non-Sterling
denominated projects.
International Public Partnerships Annual Report and Financial Statements 2015 41
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
Risk Report continued
Risk
Description
Market Risk continued
Mitigation/Approach
Change in Regulations
The Company is subject to changes in regulatory policy
that relate to its business and that of its Investment
Adviser both in terms of its investments and in terms of
itself. 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 FCA 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.
Operational and Valuation Risk
7 Asset
Performance
Asset Availability
The Company’s investments’ entitlement to receive
income 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 dis-entitle
(wholly or partially) the continued receipt of income that
the Company has projected to receive.
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 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.
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.
In the event of significant and continuing unavailability
across the Company’s portfolio the Company is able
to terminate the IAA. This serves to reinforce alignment of
interest between the Company and the Investment
Adviser.
42 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report Risk
Description
Mitigation/Approach
Operational and Valuation Risk continued
8 Counterparty
Risk
New investment activity by
the Company in the year has
decreased the level of risk
within the portfolio through
diversification of
counterparties.
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.
9 Physical
Asset Risk
10 Contract Risk
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.
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.
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.
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.
International Public Partnerships Annual Report and Financial Statements 2015 43
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Strategic
Report
Risk Report continued
Risk
Description
Mitigation/Approach
Operational and Valuation Risk continued
The Company’s projections depend on the use of
financial models 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.
Sensitivities
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.
Cyber-security is an issue of increasing relevance across
all businesses as a response to the growing levels of
sophistication being used in carrying out cyber-attacks
targeting businesses. Cybercrime could impact the
Company in a number of ways including financially,
operationally or through reputational impact.
11 Financial
Forecasts
12 Cyber-
security
Increasing levels of
sophistication are being
used in cyber-attacks
targeting businesses.
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.
A number of control layers are in place across the
Company structure to mitigate as far as possible
against the risk of a cyber-security issue occurring
in the Company’s operational or investment activities.
44 International Public Partnerships Annual Report and Financial Statements 2015
Strategic Report Viability Statement
In accordance with provision C.2:2 of the 2014 revision of the UK Code of Corporate Governance, we have considered the Company’s viability
as summarised below. Due to the very long-term and contractual nature of our investments, we have a significant level of confidence over the
endurance and longevity of our business however it is difficult to assess the regulatory, tax and political environment on a long-term basis.
Therefore, whilst we consider the valuation of investment cash flows for the purposes of NAV over a considerably longer period than five years,
we view five years as an appropriate timeframe for assessing the Company’s viability given these inherent uncertainties.
In 2015, the viability assessment process was embedded within the Company’s annual risk review cycle and involves the following:
1) An Audit and Risk Committee review and assessment of the risks facing the Company. A summary of the review process is detailed on
pages 36 to 37
2) Identification of those principal risks that are deemed more likely to occur and have a potential impact on the Company’s viability over
the viability period (this exercise has included consideration of a persistent low inflation rate environment, a persistent weak currency
environment impacting on overseas investments, and the impact from the loss of income from investments (whether due to key sub-
contractor default or other asset underperformance)). We note that a number of risks identified during the risk review process in step
one above may have implications for the Company’s valuation but may be considered insignificant from a five-year viability perspective
3) Quantification analysis of the potential impact of those principal risks occurring in isolation and under plausible combined sensitivity
scenarios over the viability period
4) Assessment of potential mitigation strategies to mitigate the potential impact of principal risks over the viability period. This exercise has
considered the potential to liquidate investments and/or refinance investments if necessary
The viability assessment is approved by the Board. Following the assessment, the Board have a reasonable expectation that the Company
will be able to continue in operation and meet all its liabilities as they fall due up to March 2021. This assessment is based on the following
assumptions which are not within the Company’s control:
– No retrospective changes to government policy, laws and regulations affecting the Company or its investments
– Continued availability of sufficient capital and market liquidity to allow for the refinancing/repayment of any short-term recourse debt facility
obligations as they become due
International Public Partnerships Annual Report and Financial Statements 2015 45
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Board of Directors
Background and Experience
Rupert Dorey1
Chairman
Chairman, Investment Committee
Aged 55 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.
He is a member of the Institute of Directors.
Date of Appointment
2 August 2006
John Whittle1
Senior Independent Director
Chairman, Audit and Risk Committee
John Le Poidevin1
John Stares1
Claire Whittet1
Giles Frost
Chairman, Risk Sub-Committee
Chairman, Management Engagement
Chairman, Nomination and Remuneration
Committee
Background and Experience
Aged 60, John is a resident of Guernsey.
John is a Chartered Accountant and holds
the Institute of Directors Diploma in Company
Direction. John holds non-executive
positions on a number of other boards.
John was previously Finance Director of
Close Fund Services, a large independent
fund administrator.
Prior to moving to Guernsey, John was
at Price Waterhouse in London before
embarking on a career in business services,
predominantly telecoms.
Aged 45, and a resident of Guernsey,
John has over 20 years of business
experience.
John is a Fellow of the Institute of
Chartered Accountants in England and
Wales and a former partner of BDO LLP,
where as Head of Consumer Markets,
he developed an extensive breadth of
experience and knowledge across the
leisure and retail sectors in the UK
and overseas.
John is a non-executive on several plc
boards and chairs a number of
Audit Committees.
Committee
experience.
Aged 64 and a resident of Guernsey since
Aged 60 and a resident of Guernsey, Claire
Aged 53, resident in the United Kingdom,
2001, John has over 40 years’ business
has over 38 years’ experience in the banking
Giles is a founder and director of Amber and
industry. Since 2003 Claire has been a director
has worked in the infrastructure investments
and, more recently, Managing Director and
sector for over 20 years. Giles qualified as a
Before moving to Guernsey, John worked for
Co-Head of Rothschild Bank International Ltd
solicitor and partner in the law firm Wilde
23 years as a management consultant with
and Director of Rothschild Bank (CI) Ltd. Claire
Sapte (now Dentons).
Accenture where he held a wide variety of
was previously with Bank of Scotland and was
leadership roles.
latterly Global Head of Private Client Credit at
Giles is a director of Amber Infrastructure
He currently holds non-executive positions
Bank of Bermuda.
Group Holdings Ltd, the ultimate holding
company of the Investment Adviser to the
on the boards of several other companies.
Claire is a non-executive director on a number
Company and various of its subsidiaries.
of other funds, is a member of the Chartered
John is a Fellow of the Institute of Chartered
Institute of Bankers in Scotland, a member of
Accountants in England and Wales, a member
the Chartered Insurance Institute, a Chartered
of the Worshipful Company of Management
Banker, a member of the Institute of Directors
Consultants and a Freeman of the City
and holds the Institute of Directors Diploma in
of London.
Company Direction.
6 August 2009
1 January 2016
10 September 2012
2 August 2006
Date of Appointment
28 August 2013
Listed Company and Other Relevant Directorships
Listed Company and Other Relevant Directorships
AP Alternative Assets LP, AAA Guernsey Ltd
Advance Frontier Markets Fund Ltd
Challenger Acquisitions Ltd
JT Group (Chairman)
BH Macro Ltd
Cinven Capital Management III, IV, V, VI Ltd,
General Partner Ltd, Cinven Ltd
NB Global Floating Rate Income Fund Ltd
M&G General Partner Inc, Episode LLP &
Episode Inc.
Partners Group Global Opportunities Ltd
Tetragon Financial Group Ltd/Tetragon
Financial Group Master Fund Ltd
Globalworth Real Estate Investments Ltd
Market Tech Holdings Ltd
Terra Firma (Guernsey-based entities)
Eurocastle Investment Ltd
GLI Finance Ltd (Alternate)
Safecharge International Group Ltd
Governor of More House School
Riverstone Energy Ltd
India Capital Growth Fund Ltd and Advance
Frontier Markets Fund Ltd
Stride Gaming plc
Starwood European Real Estate Finance Ltd
Toro Ltd
1 All of the Independent Directors are members of all committees.
1 All of the Independent Directors are members of all committees.
New Philanthropy Capital (Trustee)
TwentyFour Select Monthly Income Fund Ltd
Giles is also a director of a number of the
Company’s subsidiary and investment
holding entities and of other entities in
which the Company has an investment. He
does not receive directors’ fees from such
roles for the Company.
46 International Public Partnerships Annual Report and Financial Statements 2015
Corporate Governance
Background and Experience
Rupert Dorey1
Chairman
John Whittle1
Senior Independent Director
John Le Poidevin1
Chairman, Investment Committee
Chairman, Audit and Risk Committee
Aged 55 and a resident of Guernsey, Rupert
Aged 60, John is a resident of Guernsey.
Aged 45, and a resident of Guernsey,
has over 30 years of experience in financial
John is a Chartered Accountant and holds
John has over 20 years of business
markets, including 17 years at CSFB where
the Institute of Directors Diploma in Company
experience.
he specialised in credit-related products.
Direction. John holds non-executive
positions on a number of other boards.
John is a Fellow of the Institute of
Rupert’s expertise was principally in the
Chartered Accountants in England and
areas of debt distribution, origination and
John was previously Finance Director of
Wales and a former partner of BDO LLP,
trading, where he held a number of senior
Close Fund Services, a large independent
where as Head of Consumer Markets,
positions at CSFB, including Fixed Income
fund administrator.
Credit product coordinator for European
he developed an extensive breadth of
experience and knowledge across the
offices and head of UK Credit and
Prior to moving to Guernsey, John was
leisure and retail sectors in the UK
Rates Sales.
at Price Waterhouse in London before
and overseas.
embarking on a career in business services,
Since 2005 Rupert has been a non-executive
predominantly telecoms.
John is a non-executive on several plc
boards and chairs a number of
Audit Committees.
director for a number of Hedge Funds,
Private Equity & Infrastructure Funds.
He is a member of the Institute of Directors.
Date of Appointment
2 August 2006
General Partner Ltd, Cinven Ltd
NB Global Floating Rate Income Fund Ltd
M&G General Partner Inc, Episode LLP &
Frontier Markets Fund Ltd
Episode Inc.
Starwood European Real Estate Finance Ltd
Partners Group Global Opportunities Ltd
Tetragon Financial Group Ltd/Tetragon
Financial Group Master Fund Ltd
Toro Ltd
1 All of the Independent Directors are members of all committees.
Background and Experience
John Stares1
Chairman, Risk Sub-Committee
Chairman, Nomination and Remuneration
Committee
Aged 64 and a resident of Guernsey since
2001, John has over 40 years’ business
experience.
Before moving to Guernsey, John worked for
23 years as a management consultant with
Accenture where he held a wide variety of
leadership roles.
He currently holds non-executive positions
on the boards of several other companies.
John is a Fellow of the Institute of Chartered
Accountants in England and Wales, a member
of the Worshipful Company of Management
Consultants and a Freeman of the City
of London.
Claire Whittet1
Chairman, Management Engagement
Committee
Giles Frost
Aged 53, resident in the United Kingdom,
Giles is a founder and director of Amber and
has worked in the infrastructure investments
sector for over 20 years. Giles qualified as a
solicitor and partner in the law firm Wilde
Sapte (now Dentons).
Giles is a director of Amber Infrastructure
Group Holdings Ltd, the ultimate holding
company of the Investment Adviser to the
Company and various of its subsidiaries.
Aged 60 and a resident of Guernsey, Claire
has over 38 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 non-executive director on a number
of other funds, 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.
6 August 2009
1 January 2016
Date of Appointment
28 August 2013
10 September 2012
2 August 2006
Listed Company and Other Relevant Directorships
Listed Company and Other Relevant Directorships
AP Alternative Assets LP, AAA Guernsey Ltd
Advance Frontier Markets Fund Ltd
Challenger Acquisitions Ltd
JT Group (Chairman)
BH Macro Ltd
Cinven Capital Management III, IV, V, VI Ltd,
Globalworth Real Estate Investments Ltd
Market Tech Holdings Ltd
Terra Firma (Guernsey-based entities)
Eurocastle Investment Ltd
GLI Finance Ltd (Alternate)
Safecharge International Group Ltd
Governor of More House School
Riverstone Energy Ltd
India Capital Growth Fund Ltd and Advance
Stride Gaming plc
New Philanthropy Capital (Trustee)
TwentyFour Select Monthly Income Fund Ltd
Giles is also a director of a number of the
Company’s subsidiary and investment
holding entities and of other entities in
which the Company has an investment. He
does not receive directors’ fees from such
roles for the Company.
1 All of the Independent Directors are members of all committees.
International Public Partnerships Annual Report and Financial Statements 2015 47
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
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 issued in
September 2014 (the ‘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 Financial Reporting Council
acknowledges that the AIC Corporate Governance Code issued
in February 2015 (the ‘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 AIC website (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 that 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 (‘AGM’) (Principle 3 – AIC Code).
The Company considers that putting forward all Independent
Directors for re-election annually as is recommended for FTSE 350
companies under the AIC Code 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.
48 International Public Partnerships Annual Report and Financial Statements 2015
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’s tenure reached nine years in 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.
The Board of Directors
The Board of Directors currently consists of six Non-Executive
Directors, whose biographies, on pages 46 to 47, 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 he 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-Executive Directors are independent of the
Company’s Investment Adviser.
Board Tenure and Re-election
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 UKLA Rules, Mr Frost will retire and stand
for re-election at the 2016 AGM.
In accordance with the AIC Code, when and if any Director has
been in office (or on re-election would at the end of that term of
office have been in 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 had served as a Board member for over nine years.
While the Board is confident that Mr Dorey remains independent,
he has agreed to offer himself for re-election on an annual basis
until his intended retirement from the Board at the Company’s
2018 AGM.
Corporate Governance
Also, on a rotational basis, one-third of the remaining Directors retire
and put themselves up for re-election at every AGM; Mrs Whittet
will make herself available for re-election at the 2016 AGM.
Any Directors appointed to the Board since the previous AGM also
retire and stand for re-election. Mr Le Poidevin was appointed to
the Board on 1 January 2016 and will therefore offer himself for
re-election at the 2016 AGM.
Taking the above into account, Mr Dorey, Mr Frost, Mr Le Poidevin
and Mrs Whittet will all retire and stand for re-election at the
2016 AGM.
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,
compliance, monitoring, governance and control
– Other matters having material effects on the Company
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 shareholder value 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.
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 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. The
Board currently has one female Director.
Board Remuneration
The Nomination and Remuneration Committee considers matters
relating to the Directors’ remuneration, taking into account
benchmark information (including taking into account fees paid to
directors of comparable companies, although such a review does
not necessarily result in any changes to the fees paid) and based
upon the amount of work performed by the Board members. In
2015 no advice or services were provided by any external persons
in respect of its consideration of Directors’ remuneration and no
changes were made to Board 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 Nomination and Remuneration,
Management Engagement, and Investment Committees,
respectively do not receive additional fees for these roles.
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
AGM of the Company.
During the year, serving Directors were paid the following
emoluments:
Director
Rupert Dorey2
Giles Frost3
John Whittle4
Claire Whittet
John Stares
John Le Poidevin5
2015
Fees paid/
accrued1
£
70,000
42,000
60,000
47,500
47,500
–
2014
Fees paid
£
60,000
32,000
50,000
37,500
37,500
–
1
Includes £10,000 fee payable to Board members with respect to the October
2015 Placing, Open Offer and Offer for Subscription and Placing Programme,
paid in January 2016.
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 became Chairman of the Audit and Risk Committee on 31 December
2013, for which he receives a higher fee.
5 Mr Le Poidevin was appointed to the Board on 1 January 2016.
International Public Partnerships Annual Report and Financial Statements 2015 49
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Corporate Governance Report continued
Directors’ Interests
Directors, who held office at 31 December 2015, had the following
interests in the shares of the Company:
Director
Rupert Dorey2
Giles Frost
John Whittle3
Claire Whittet3
John Stares
John Le Poidevin4
31 December
2015
Number
of Ordinary
Shares1
31 December
2014
Number
of Ordinary
Shares1
793,687
448,745
52,198
50,000
75,000
N/A
643,687
298,745
40,256
–
–
N/A
1 All shares are beneficially held.
2 Shares owned by Mr Dorey’s spouse.
3 Holds shares through a Retirement Annuity Trust Scheme.
4 Mr Le Poidevin was appointed to the Board on 1 January 2016 and had no
interests in the shares of the Company prior to his appointment.
There have been no changes to any of the above holdings
between 31 December 2015 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.
In December 2015, Mr Whittle was appointed as director of
International Public Partnerships Lux 1 Sarl and International
Public Partnerships Lux 2 Sarl. The appointment is effective from
January 2016. No director fees have been accrued or paid for
the year ended 31 December 2015.
Committees of the Board
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.
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 within that committee.
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 Audit and Risk Committee Report.
50 International Public Partnerships Annual Report and Financial Statements 2015
In respect of its risk management function, the Audit and Risk
Committee is also responsible for reviewing the Company’s risk
management framework including 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. More detail is provided within the
Risk Report.
The Audit and Risk Committee was satisfied that the key risks that
could impact the Company and its investments were effectively
mitigated and reported upon and were broadly in line with those
of the Company’s more relevant industry peers.
Management Engagement Committee
The Management Engagement Committee is comprised of the
full Board, with the exception of Mr Frost as the Non-Independent
Director, and is chaired by Mrs Whittet. The duties of the
Management Engagement Committee in discharging its
responsibilities are outlined in the diagram on page 51.
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.
During the year the Management Engagement Committee
formally reviewed the performance of the Investment Adviser
and other key service providers to the Company and 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.
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 is chaired by Mr Stares.
The Committee is formally charged by the Board to consider
the structure, size, remuneration and composition of the
Board. It also oversees the appointment and re-appointment
of Directors, taking into account the expertise of the candidates
and their independence (see pages 46 to 47 for more detail on
the Committee).
As part of its ongoing remit, the Nomination and Remuneration
Committee undertook an evaluation of the performance of the
Board and Chairman. Each Director was asked to provide written
feedback regarding the performance of the Board as a whole
and the Chairman set against a range of best practice corporate
governance criteria. A report of this feedback was considered by
Corporate Governance
the Nomination and Remuneration Committee. No material issues
were identified by the Directors regarding the performance of the
Board and Chairman. The Board notes that in accordance with
the Corporate Governance Code for FTSE 350 companies, the
Company undertakes an externally facilitated evaluation every
three years. The last external evaluation was undertaken in 2014.
As part of the Board’s ongoing succession planning, ahead of
Mr Dorey’s planned retirement in 2018 and potential anticipated
changes in chairmanship roles of the existing Board at that time,
the Nomination and Remuneration Committee were charged with
recruiting an additional Board member. The Board’s search
for a suitable director canvassed its advisers and other market
participants for a list of suitable candidates. Given the high calibre
of applicants through this process the Board did not engage a
search consultancy. The candidates were considered against
various criteria, notably the breadth of experience and background
of the existing Directors to ensure that the new appointee both
complemented and enhanced the skill set of the existing Board
while also being able to bring a fresh perspective to Company
Committees of the Board
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
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 the 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
Investment 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 the 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
Management Engagement Committee
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
Nomination and Remuneration Committee
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 2015 51
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Corporate Governance Report continued
business. One-on-one meetings between the shortlisted
candidates and the Directors and senior personnel at the
Investment Adviser were conducted and the Nomination and
Remuneration Committee recommended the appointment of
Mr Le Poidevin. This recommendation was accepted and
approved by the Board and Mr Le Poidevin was appointed to
the Board on 1 January 2016.
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 considers proposals
relating to the acquisition and disposal of investments and, if
thought fit, approves those proposals. Details of the transactions
it invested in during the period are outlined on pages 27 to 29 of
the Strategic Report.
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.
In addition, as part of its commitment to maintaining an active
dialogue with investors, in May 2015 the Board was pleased to
meet with a number of investors and sell-side analysts at an
investor briefing in London. The briefing provided attendees with
an overview of current market conditions, case studies on the
Company’s approach to investment and asset management,
current pipeline opportunities, and gave investors the opportunity
to meet members of the Board and the Investment Adviser.
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 IAA, AFML acts
as Investment Adviser to the Company to review and monitor
investments and to advise the Company in relation to strategic
management of the investment portfolio. Details of the Investment
Adviser’s relationship with the Company are provided on page 15
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 shareholders’ best interests to continue
the appointment of AFML as the Company’s Investment Adviser.
The table below lists Directors’ attendance at Board and
Committee meetings during the year, to the date of this report.
Directors
Maximum number:
Rupert Dorey
Giles Frost1
John Whittle
Claire Whittet
John Stares
John Le Poidevin2
Quarterly
Board
Ad-hoc Board
Audit and Risk
Committee
Management
Engagement
Committee
Investment
Committee
Remuneration
and Nomination
Committee
4
4
4
4
4
4
N/A
6
6
1
5
4
5
N/A
5
5
N/A
5
5
5
N/A
1
1
N/A
1
1
1
N/A
10
10
N/A
10
9
9
N/A
2
2
N/A
2
2
2
N/A
1 Mr Frost is not a member of the Audit and Risk Committee, Management Engagement Committee or Investment Committee. Mr Frost does not attend Ad-hoc Board
meetings as a Director where recommendations from the Investment Adviser are under consideration.
2 Mr Le Poidevin was appointed to the Board on 1 January 2016 and as such did not attend any meetings during 2015.
52 International Public Partnerships Annual Report and Financial Statements 2015
Corporate Governance
Making New Investments
As outlined above, 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 IAA 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
– The establishment of ‘information barriers’ between the
Buyside and Sellside Committees to ensure information is
kept confidential to one or the other side
– 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.
This process is outlined in further detail in the Risk Report found
on pages 36 to 37.
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, including the Chairman of
the Remuneration and Nomination Committee, are available to
meet shareholders as required.
International Public Partnerships Annual Report and Financial Statements 2015 53
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Corporate Governance Report continued
In addition to more formal investor events, such as the Investor
Briefing mentioned on page 52 above and results presentations,
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
2015 the Investment Adviser and members of the Board held
formal meetings with around 100 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 AGM of the Company provides a forum for shareholders
to meet and discuss issues with the Directors and with the
Investment Adviser of the Company. It is the Board’s policy to
publish the results of the voting at the AGM via Regulatory News
Service at the completion of the meeting.
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
54 International Public Partnerships Annual Report and Financial Statements 2015
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. It also supports best practice in
responsible investment.
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.
Focus project
Thames Tideway Tunnel (‘Tideway’), UK – Tideway is a major new
development under the Thames River in London. Tideway
is committed to be a responsible business, a good neighbour and to
give back to local communities as part of delivering a lasting legacy
for London. Its Corporate Social Responsibility activities began to
widen in 2015 as it prepared for the start of construction in 2016.
– The beginning of 2015 marked the first full year of Thames River
Watch, a pioneering citizen science project to monitor the heath
of the river. Funded by Tideway and run by environmental
charity Thames 21, it measures water quality, quantity and
types of litter, and the spread of invasive non-native species.
The data collected aims to raise awareness of the threats facing
the Thames. The water quality results for year one showed
coliform bacteria were in the majority of samples, a key sign of
the pollution from sewer overflows that will be drastically
reduced by the tunnel.
– As more staff joined the project, Tideway became the first
company outside the financial industry to launch a Returners
programme to help professionals back into work after a career
break. Working with Women Returners, who help professional
women re-launch their careers, the project offered twelve-week
paid assignments for professionals who have been out of the
workforce for two years or more. As a result of the programme,
seven ‘returners’ landed roles with the project, which included
opportunities in business planning, legal, stakeholder
engagement, operations management, asset management and
financial modelling.
– One of the highlights of our community programme was the
Row4Results partnership with London Youth Rowing, a schools
project that aims to establish an indoor rowing programme and
competition across London boroughs that border the River
Thames. The scheme forms part of Tideway’s efforts to
encourage young people to reconnect with the river and take
advantage of the leisure opportunities it provides. In July 2015
Kingsford School from Newham were presented with the
Row4Results trophy in the presence of the Duke of Edinburgh
after they retained their title.
Corporate Governance 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.
Other project highlights
German Ministry of Education and Research BMBF,
Germany – 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.
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,
benefitting both the schools and the associated local authority.
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.
International Public Partnerships Annual Report and Financial Statements 2015 55
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance 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. I have set out
below an overview of the work of the Committee and details of
how we have discharged our 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
Our Committee meetings were attended by the Investment Adviser
and Administrator by invitation during the year. A representative of
the Company’s external Auditor, Ernst and Young LLP (‘EY’), also
attended those meetings at which the financial reporting planning
and the Annual Report and Financial Statements and Half-yearly
Financial Report 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 46 and 47.
Committee Agenda
Our Committee’s agenda during the year included:
– Review of the Annual Report and Financial Statements and
Half-yearly Financial Report and matters raised by management
and external Auditor (including significant financial reporting
judgements therein)
– Review of the appropriateness of the Company’s accounting
policies
– Review of the effectiveness of the Company’s internal control
systems
– Review of the effectiveness, objectivity and independence of
the external Auditor 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
Company’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 exposure to cybercrime risks
Key Activities Considered During the Year
We undertook the following activities in discharging our
responsibilities during the year:
Financial reporting
The Committee reviewed the Company’s Annual Report and
Financial Statements, the Half-yearly Financial Report and interim
management statements prior to approval by the Board and
56 International Public Partnerships Annual Report and Financial Statements 2015
advised the Board with respect to meeting the Company’s financial
reporting obligations. We reviewed the Company’s accounting
policies and practices, including: approval of critical accounting
policies; consideration of the appropriateness of significant
judgements and estimates; and advising the Board as to their
views on whether the Annual Report and Financial Statements,
taken as a whole, are fair, balanced and understandable.
We considered the most significant accounting judgements
exercised in preparing the financial statements continued to be:
the application of investment entity amendments as required by
IFRS 10 (Applying the Consolidation Exemption); and the basis for
determining the fair value of the Company’s investments as
detailed below.
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 (including
controlled, jointly controlled or entities over which it has significant
influence) in its accounts 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.
We 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 Auditor.
We accordingly recommended that the Board approve the
financial statements on this basis (i.e. that investment entities are
accounted for at fair value and service entities are 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 Directors’ valuation of investments.
This methodology requires a series of judgements to be made, as
explained in note 12 to the financial statements.
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. We challenged the Investment Adviser on the year-end
fair value of investments as part of our consideration of the audited
financial statements.
Corporate Governance During the period, we 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. We also reviewed and
challenged the valuation assumptions (discount rates, deposit
rates, foreign exchange rates, inflation rates and tax rates).
The external Auditor explained the results of their review of
the valuations, including their assessment 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 their
appropriateness to the Board.
Revenue recognition
The Audit and Risk Committee have considered the risk of
inappropriate accounting recognition of revenue to be a relatively
low risk given the nature of the Company’s activities.
Internal controls over financial reporting
The Committee satisfied itself that the system of internal control
and compliance over financial reporting was effective, through
consideration of regular reports from the Investment Adviser
and Administrator.
We also considered the adequacy of resources, qualifications and
experience of staff in the finance function and had direct access
and independent discussions with the external Auditor during the
course of the year.
Fair, balanced and understandable
We reviewed the Company’s 2015 Annual Report and Financial
Statements and advised the Board that, in our 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.
Cybercrime review
As part of the Company’s rolling annual controls and processes
review, an independent assessment of the Company’s exposure to
cybercrime is in progress.
Viability assessment
During 2015, we carried out a robust assessment of the key risks
faced by the Company with a view to identifying risks which may
impact the Company’s viability. Detailed stress tests, including
impact assessment on the Company’s forecasted cash flows,
showed significant resilience in the Company’s ability to remain
viable. The results of the risk assessment process are detailed
in the Viability Statement on page 45.
External Auditor
We recommended to the Board the scope and terms of
engagement of the external Auditor. We considered Auditor
objectivity and independence, audit tenure and audit tendering
and Auditor effectiveness as detailed below:
– Objectivity and independence
In assessing the objectivity of the Auditor, we 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.
Under the policy there is a specific list of services for which the
external auditor cannot be engaged as we consider 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 Audit and Risk Committee.
Non-audit fees represented 11.0% of total audit fees, reflecting the
relatively low level of non-audit work conducted.
EY undertook its standard independence and objectivity
procedures in relation to non-audit 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 8 to
the financial statements. These were reported to us and were
considered not to be significant as to risk impacting the objectivity
and independence of EY external Auditors.
– Audit tendering and tenure
The Committee considers the reappointment of the external
Auditor, including rotation of the audit partner. The external Auditor
is required to rotate the audit partner responsible for the Group
audit every five years and the year to 31 December 2015 will be
the last year for the current lead audit partner. We have challenged
EY on its process to transition to a new lead audit partner and are
satisfied with progress to date and with the level of continuity of
other key audit team members.
In October 2010, the Company put out to full tender the audits
of the Group and its controlled investee entities. 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. Following
the tender, EY were appointed Auditor of the Company.
As part of our annual review of the objectivity and effectiveness of
the audit, the Committee conducted an in-depth review of their
performance. There were no matters arising from the review in the
current year, which require the service to be tendered immediately.
International Public Partnerships Annual Report and Financial Statements 2015 57
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Audit and Risk Committee Report continued
During the year, we reviewed the competitiveness and
performance of the Auditor across the Group and this led to a
small number of changes in auditor at subsidiaries to KPMG 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 2015 we 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 Company’s
financial statement risks, and review of the audit findings report.
– Review of Auditor’s remuneration
Following the end of a four-year fixed scope fee arrangement
(negotiated at the time of the last audit tender in 2010), the
Committee carried out a fresh review of the proposed audit fees
for 2015. This resulted in an increase at the Group level driven by
changes in the underlying accounting standards, higher audit
regulatory requirements, changes to scope of work being carried
out and general cost inflation. This was partially mitigated through
reductions in fees of underlying investee entities (consolidated
subsidiary entities), including a number that, following a
benchmarking exercise, will be audited for the first time by KPMG
LLP. We consider the audit fees for 2015 to be cost effective and
present good value for money for the Company’s shareholders.
Regulatory environment
We received regular reports from the Administrator and Investment
Adviser on regulation and regulatory developments.
– Common Reporting Standard
In recent years, governments have become much more aware
of the large amounts of undisclosed wealth held in offshore
accounts. Governments see an opportunity to boost revenue
by collecting tax relating to these accounts. Implementation of
Common Reporting Standard (‘CRS’) is a step in that direction.
All qualifying entities are required to comply with the requirements
of CRS from 2016. The Company through its registrar (Capita) has
appropriate systems and procedures in place to comply with these
regulations. We will continue to review compliance with these rules
as the staged implementation continues throughout 2016.
– Retail distribution of unregulated collective investment
schemes
FCA rules came into force on 1 January 2014 relating to the
restrictions on the retail distribution of unregulated collective
investment schemes and close substitutes came into effect. The
Company continues to confirm that its shares will qualify as an
‘excluded security’ under these rules and will therefore be excluded
from the FCA’s restrictions which apply to non-mainstream pooled
investment products. As such, the Company’s shares can continue
to be recommended by independent financial advisers 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.
– Foreign Account Tax Compliance Act (‘FATCA’)
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 Company continues compliance with the
legislation and is registered with IRS.
– Alternative Investment Fund Management Directive
(‘AIFMD’)
The Company is deemed to be an internally managed non-EU
fund. An internally managed non-EU fund 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 the FCA in 2014 and commenced quarterly
reporting from 31 December 2014.
Focus for 2016
In addition to our routine matters and continued monitoring of
areas above, the Committee will select a new process for an
independent review in 2016 as part of the Company’s annual
internal controls and procedures rolling review programme.
The Committee will also review compliance with new regulations
such as Common Reporting Standards and continue to monitor
ongoing tax and regulatory developments such as Base Erosion
and Profit Shifting.
John Whittle
23 March 2016
Chairman, Audit and Risk Committee
58 International Public Partnerships Annual Report and Financial Statements 2015
Corporate Governance Directors’ Report
Introduction
The Directors present their Annual Report on the performance of
the Company and Group for the year ended 31 December 2015.
Principal Activity
The Company is a limited liability, Guernsey incorporated
authorised closed-ended investment company under The
Companies (Guernsey) Law, 2008. The Company’s shares have a
premium listing on the Official List of the UKLA 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 48 to 55.
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 2015, the Company had been notified, in
accordance with chapter five 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
Schroder plc
Investec Wealth &
Investment Limited
% Issued
Capital
No. of Ordinary
Shares
Date
notified
13.97% 116,774,275 4 Dec 2014
9.85% 97,616,757 19 Nov 2015
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). No such shares were
bought back by the Company in the period from 2 June 2015.
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 to 45. The financial position
of the Group, its cash flows, liquidity position and borrowing are
described in the financial statements from page 66.
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.
Director Declaration
Each of the persons who is a Director at the date of approval of
this Annual Report confirms that:
As at 23 March 2016, being the most current information available,
no further notifications had been received.
So far as the Director is aware, there is no relevant audit information
of which the Company’s external Auditor is unaware.
Directors’ Authority to Buy Back Shares and Treasury
Shares
The Company did not purchase any shares for treasury or
cancellation during the year.
The current authority of the Company to make market purchases
of up to 14.99% of the issued Ordinary Share capital expires on
2 June 2016. The Company will seek to renew such authority
at the AGM to take place on 2 June 2016. 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.
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 UKLA which
provide that the price to be paid must not be more than 5% above
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.
By order of the Board
Rupert Dorey
23 March 2016
Chairman
John Whittle
23 March 2016
Director
International Public Partnerships Annual Report and Financial Statements 2015 59
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Directors’ Responsibilities Statement
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
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, considers 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
23 March 2016
Chairman
John Whittle
23 March 2016
Director
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 accepts 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
60 International Public Partnerships Annual Report and Financial Statements 2015
Corporate Governance 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 2015 and of its profit for the year then ended;
– have been properly prepared in accordance with International Financial Reporting Standards (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
International Public Partnerships Limited (the ’Group’) financial statements comprise:
– consolidated statement of comprehensive income for the year ended 31 December 2015;
– consolidated balance sheet as at 31 December 2015;
– consolidated statement of changes in equity for the year ended 31 December 2015;
– consolidated cash flow statement for the year ended 31 December 2015; and
– related notes 1 to 22 to the consolidated financial statements.
The financial reporting framework that has been applied in their preparation is applicable law and IFRS as adopted by the European Union.
Overview of our audit approach
Risks of material misstatement
Audit scope
– Misstatement or manipulation of investment fair value
– Revenue recognition
– We performed an audit of the Group for the year ended 31 December 2015
– The Company has determined that it is an investment entity under the requirements of IFRS 10
amendments for Investment Entities (‘IFRS 10 amendments’) and therefore only consolidates
service entities as explained in note 2. Service entities are audited to Group materiality
threshold
– Procedures were performed by the Group audit team
Materiality
– Overall Group materiality of £12.9 million which represents 1% of Equity
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the
allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the
procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any
opinion on these individual areas.
Risk
Misstatement or manipulation of investment fair value
Investments comprise a portfolio of assets measured at fair value through profit or loss. The fair
values of these investments 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 12 of the financial statements and are discussed in the report of
the Audit Committee on pages 56 to 58.
The valuation risk includes the risk of an inappropriate valuation model being applied including
the risk of manipulation or error in both the assumptions applied and the amount and timing of
expected cash flows.
International Public Partnerships Annual Report and Financial Statements 2015 61
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Independent Auditor’s Report to the
Members of International Public
Partnerships Limited continued
Our response to the risk
We have tested the effectiveness of controls in operation over the investment acquisitions,
forecasting cash flows, distributions and model integrity and we have placed reliance on control
over these processes.
We selected a sample of investments to provide coverage over the key geographies the Group
operates in and to address significant demand risk and performed the following procedures:
Valuation assumption: We engaged our EY valuation specialists to assess the discount rates
(sub-debt and equity and senior debt), inflation rates and deposit rate assumptions used in the
models by comparing these to market data.
Model integrity: We engaged our EY financial modelling specialists to sample test the logical
operation of the financial models.
Model inputs: We agreed a sample of contractual cash flows to contractual terms and actual
cash flows. We engaged EY valuation specialists to assess demand based cash flows which
require significant judgement.
For all other investments we performed the following procedures:
– We tested historical accuracy of forecasting by comparing the historical forecast distributions
from the projects to the actual distributions.
– We developed our own expectations for changes in investment values. For each investment
outside our expected range we obtained and corroborated reasons for the difference.
– Consistency of assumptions: We tested that material macro-economic assumptions (discount
rates, inflation rates, foreign exchange rates, deposit rates and tax rates) were applied
consistently to each investment.
What we concluded to the Audit
Committee
We confirmed that there were no matters arising from our work that we wanted to bring to the
Audit Committee’s attention.
Risk
Revenue recognition
For the purposes of our risk assessment, dividend and interest income is treated as ‘revenue’ and
as it is material we have treated ‘revenue recognition’ as a significant risk.
Given the nature of the work we previously performed and the sources of revenue, the impact of
increasing our risk assessment on our audit strategy was limited.
Our response to the risk
We updated our understanding of the Group’s processes and policies for revenue recognition
including our understanding of the systems and controls implemented.
Management may seek to inflate revenue in order to improve the Group’s reported performance.
We agreed a sample of dividend and interest receipts to documentation from investees and we
checked the calculation of interest amounts and the allocation thereof to the appropriate period.
What we concluded to the Audit
Committee
We confirmed that there were no matters identified during our audit work on revenue recognition
that we wanted to bring to the attention of the Audit Committee.
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope. Taken
together, this enables us to form an opinion on the consolidated financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
62 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements
Materiality
Materiality is the magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and
extent of our audit procedures.
We determined materiality for the Group to be £12.9 million (2014: £10.6 million), which is 1% (2014: 1%) of equity. We believe that total
equity provides us with an appropriate basis for audit materiality as net asset value is a key published performance measure and is a key
metric used by management in assessing and reporting on the overall performance of the Group.
During the course of our audit, we reassessed initial materiality and noted that total equity had increased from approximately £1.1 billion
at 30 June 2015 to £1.3 billion as at 31 December 2015 mainly due to the capital raise in November 2015. This resulted in a higher
materiality of £12.9 million compared to £10.8 million that was originally determined at the audit planning stage.
A lower materiality of £2.9 million (2014: £1.9 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
‘Performance materiality’ is the application of materiality at the individual account or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
overall performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Group should be 50% of
materiality, namely £6.4 million (2014: 50% of materiality, namely £5.3 million). The performance materiality percentage is consistent with
last year. Our objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in the financial
statements did not exceed our materiality level.
Reporting threshold
‘Reporting threshold’ is an amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.6 million (2014: £0.5
million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
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 and the parent company’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 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.
International Public Partnerships Annual Report and Financial Statements 2015 63
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance
Independent Auditor’s Report to the
Members of International Public
Partnerships Limited continued
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 60, 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.
This report is made solely to the Group’s members, as a body, in accordance with Section 262 of the Companies Law. Our audit work
has been undertaken so that we might state to the Group’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 Group and the Group’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Matters on which we are required to report by exception
ISAs (UK and Ireland) reporting
Listing Rules review requirements
We are required to report to you if, in our opinion, financial and non-financial
information in the Annual 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
– otherwise misleading.
In particular, we are required to report whether we have identified any
inconsistencies between our knowledge acquired in the course of performing
the audit and the Directors’ statement that they consider the Annual Report and
accounts taken as a whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the entity’s performance,
business model and strategy; and whether the Annual Report appropriately
addresses those matters that we communicated to the Audit Committee that
we consider should have been disclosed.
Conclusion
We have no exceptions to report.
We are required to review:
– the Directors’ statement in relation to going concern, set out on page 59, and
longer-term viability, set out on page 45; and
– the part of the Corporate Governance Statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Conclusion
We have no exceptions to report.
Companies (Guernsey) Law, 2008 requirements 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.
Conclusion
We have no exceptions to report.
64 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements
Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity
ISAs (UK and Ireland) reporting
Michael Bane
for and on behalf of Ernst & Young LLP,
Guernsey
Channel Islands
23 March 2016
We are required to give a statement as to whether we have anything material to
add or to draw attention to in relation to:
– the Directors’ confirmation in the Annual Report that they have carried out a
robust assessment of the principal risks facing the entity, including those that
would threaten its business model, future performance, solvency or liquidity;
– the disclosures in the Annual Report that describe those risks and explain how
they are being managed or mitigated;
– the Directors’ statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material uncertainties to the
entity’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements; and
– the Directors’ explanation in the Annual Report as to how they have assessed
the prospects of the entity, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures, drawing attention to any
necessary qualifications or assumptions.
Conclusion
We have nothing material to add or to draw attention to.
International Public Partnerships Annual Report and Financial Statements 2015 65
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Consolidated Statement of
Comprehensive Income
Year ended 31 December 2015
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 income/(expense)
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
2015
£’000s
Year ended
31 December
2014
£’000s
44,026
16,397
39,784
–
100,207
1,276
101,483
(13,470)
(1,181)
(2,145)
(231)
32,200
23,605
32,187
2,104
90,096
(599)
89,497
(11,608)
(930)
(2,874)
(248)
Notes
4
4
4
4,5
6
18
7
(17,027)
(15,660)
84,456
73,837
9
(4,523)
10
79,933
1,926
81,859
(2,668)
71,169
2,042
73,211
11
9.54
9.49
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 (2014: nil). The profit for the year represents the Total
Comprehensive Income for the year.
66 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements Consolidated Statement of
Changes in Equity
Year ended 31 December 2015
Balance at 31 December 2014
Total comprehensive income
Issue of Ordinary Shares
Issue costs applied to new shares
Distributions in the year
Balance at 31 December 2015
Year ended 31 December 2014
Balance at 31 December 2013
Total comprehensive income
Issue of Ordinary Shares
Issue costs applied to new shares
Distributions in the year
Balance at 31 December 2014
Share
capital
£’000s
Other
distributable
reserve
£’000s
Notes
Retained
earnings
£’000s
Total
£’000s
625,289
182,481
254,298
1,062,068
–
16
16
16
203,207
(3,134)
–
–
–
–
–
81,859
81,859
–
–
(53,798)
203,207
(3,134)
(53,798)
825,362
182,481
282,359
1,290,202
Share
capital
£’000s
Other
distributable
reserve
£’000s
Notes
Retained
earnings
£’000s
Total
£’000s
524,393
182,481
228,517
935,391
–
16
16
16
101,688
(792)
–
–
–
–
–
73,211
73,211
–
–
(47,430)
101,688
(792)
(47,430)
625,289
182,481
254,298
1,062,068
International Public Partnerships Annual Report and Financial Statements 2015 67
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Consolidated Balance Sheet
As at 31 December 2015
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 23 March 2016.
They were signed on its behalf by:
Rupert Dorey
23 March 2016
Chairman
John Whittle
23 March 2016
Director
68 International Public Partnerships Annual Report and Financial Statements 2015
31 December
2015
£’000s
31 December
2014
£’000s
Notes
12
1,201,107
1,032,941
1,201,107
1,032,941
12,14
12
12
12,15
9,12
23,099
72,391
1,719
97,209
19,529
29,391
2,948
51,868
1,298,316
1,084,809
8,114
8,114
–
–
8,114
6,414
6,414
16,327
16,327
22,741
1,290,202
1,062,068
16
16
16
17
825,362
182,481
282,359
625,289
182,481
254,298
1,290,202
1,062,068
130.2
127.0
Financial Statements Consolidated Cash Flow Statement
Year ended 31 December 2015
Profit from operations
Adjusted for:
Gain on investments at fair value through profit or loss
Unrealised exchange loss/(gain)
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 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 (repayments)/drawdowns
Net cash provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange (loss)/gain on cash and cash equivalents
Cash and cash equivalents at end of year2
1 Cash flows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
Includes restricted cash of £51.5 million (2014: nil) which can only be utilised for new investments.
2
Notes
4
9
10
6,12
5
13
5
16
16
9,12
Year ended
31 December
2015
£’000s
Year ended
31 December
2014
£’000s
81,859
73,211
(39,784)
665
4,523
(1,926)
1,229
–
(6,146)
1,700
42,120
2,662
44,782
(32,187)
(528)
2,668
(2,042)
716
(2,104)
(5,830)
80
33,984
1,033
35,017
(143,077)
14,695
–
(188,228)
11,628
22,332
(128,382)
(154,268)
195,002
(48,587)
(3,482)
(16,327)
126,606
43,006
29,391
(6)
94,208
(40,742)
(1,879)
16,327
67,914
(51,337)
80,609
119
72,391
29,391
International Public Partnerships Annual Report and Financial Statements 2015 69
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements
For the year ended 31 December 2015
1. Basis of Preparation
International Public Partnerships Limited is a closed-ended authorised investment company incorporated in Guernsey under the
Companies (Guernsey) Law, 2008. The address of the registered office is given on page 93. The nature of the Group’s operations and its
principal activities are set out on pages 2 and 8 to 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 the Company:
a) obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services;
b) commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income,
or both; and
c) measures and evaluates the performance of substantially all of its investments on a fair value basis.
Accordingly, these 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, it has been considered 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 £21 million as at 31 December 2015. In May 2015, the Company’s corporate debt facility was renewed to £300
million (2014: £175 million) of which £131 million was uncommitted as at 31 December 2015, and is available for investment in new and
existing projects until May 2018. The new facility is forecast to continue in full compliance with the associated banking covenants.
The Company also continues to fully cover operating costs and distributions from underlying cash flows from investments.
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 21 sets out a comprehensive listing of all new standards applicable from 1 January 2016.
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 2015, 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
2015 and are satisfied with the resulting conclusion.
70 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 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, 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 12.
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 centred 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 operating segments being UK, Europe (non-UK), Australia
and North America.
Segmental results
Dividend and interest income
Fair value gain/(loss) on investments1
Total investment income/(loss)
Reporting segment profit/(loss)2
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
Realised gain on disposal of investments
Total investment income
Reporting segment profit2
Segmental financial position
Investments at fair value
Current assets
Total assets
Total liabilities
Net assets
Year ended 31 December 2015
UK
£’000s
46,088
55,429
101,517
81,893
Europe
Non-UK
£’000s
6,983
(7,045)
(62)
(111)
845,746
97,209
942,955
(8,114)
202,968
–
202,968
–
934,841
202,968
North
America
£’000s
2,717
(3,495)
(778)
53
67,023
–
67,023
–
67,023
Australia
£’000s
Total
£’000s
4,635
(5,105)
60,423
39,784
(470)
100,207
24
81,859
85,370
–
85,370
–
1,201,107
97,209
1,298,316
(8,114)
85,370
1,290,202
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
America
£’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
Investment fair value losses for non-UK sectors are primarily the result of adverse foreign exchange movements in the year impacting valuation assumptions.
1
2 Reporting segment results are stated net of operational costs including management fees.
Revenue from investments which represents more than 10% of the Group’s interest and dividend income approximates £12.0 million
(2014: £17.0 million).
International Public Partnerships Annual Report and Financial Statements 2015 71
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
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 excludes 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
2015
£’000s
Year ended
31 December
2014
£’000s
43,984
42
44,026
16,397
39,784
–
100,207
31,862
338
32,200
23,605
32,187
2,104
90,096
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
No disposals were carried out by the Group during the year ended 31 December 2015.
In the year ended 31 December 2014, 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 related 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
Year ended 31 December 2014
Fair value of
investment at
disposal
£’000s
Cash
received at
disposal
£’000s
Net
realised gain
on disposal
£’000s
20,228
22,332
2,104
72 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 6. Other Operating Income/(Expense)
Fair value loss on foreign exchange contracts
Other gains on foreign exchange movements
Total operating income/(expense)
7. Transaction Costs
Investment advisory costs
Legal and professional costs
Total transaction costs
Details of investment advisory costs paid are provided in note 18.
8. 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
2015
£’000s
Year ended
31 December
2014
£’000s
(1,229)
2,505
1,276
(716)
117
(599)
Year ended
31 December
2015
£’000s
Year ended
31 December
2014
£’000s
2,145
–
2,145
2,818
56
2,874
Year ended
31 December
2015
£’000s
Year ended
31 December
2014
£’000s
250
42
320
35
647
–
80
80
93
9
339
20
461
49
9
58
9. 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.
Finance costs for the year were £4.5 million (2014: £2.7 million). In May 2015, 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 £175 million to £300 million. The
drawdowns in the period were in the form of cash drawdowns and issuance of letters of credit. Cash drawdowns were used to partially fund
investments and the letter of credit drawdowns were used to back the Group’s commitment to a future pipeline of cash investments.
Following an equity capital raise in November 2015, the outstanding cash drawn balance on the facility was fully repaid (at 31 December
2014 the cash drawn balance on the facility was £16.3 million). As at 31 December 2015 the facility was notionally drawn via letters of credit
supporting the Group’s committed investments. The uncommitted balance of the facility as at 31 December 2015 was £131 million.
The interest rate margin on the corporate debt facility is 175 basis points over Libor. The loan facility matures in May 2018 and is secured
over the assets of the Group.
International Public Partnerships Annual Report and Financial Statements 2015 73
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
10. 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.
Year ended
31 December
2015
£’000s
Year ended
31 December
2014
£’000s
Current tax:
UK corporation tax credit – current year
UK corporation tax – prior year
Overseas tax – current year
Tax credit for the year
Reconciliation of effective tax rate
Profit before tax
Expected tax on profit at Guernsey corporation rate – 0% (2014: 0%)
Application of overseas tax rates
Group tax losses surrendered to unconsolidated investee entities
Adjustments to previous year’s assessment
Tax credit for the year
(2,030)
4
100
(1,926)
(2,189)
(63)
210
(2,042)
Year ended
31 December
2015
£’000s
Year ended
31 December
2014
£’000s
79,933
71,169
–
100
(2,030)
4
(1,926)
–
210
(2,189)
(63)
(2,042)
The income tax credit above does not represent the full tax position of the entire Group as the investment returns received by the
Company are net of tax payable at the underlying investee entity level. As a consequence of the adoption of IFRS 10 investment entity
consolidation exemption, underlying investee entity tax is not consolidated within these financial statements. Total forecasted corporation
tax payable by the Group’s underlying investments is £753 million over their full concession lives.
11. 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
2015
£’000s
Year ended
31 December
2014
£’000s
81,859
73,211
Number
Number
857,859,876 771,578,934
9.54
9.49
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.
74 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 12. 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.
12.1 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
2015
£’000s
31 December
2014
£’000s
1,201,107
1,032,941
23,099
72,391
19,529
29,391
1,719
2,948
1,298,316
1,084,809
1
Includes fair value of investments in associates amounting to £2.0 million (2014: £1.7 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.
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.
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.
International Public Partnerships Annual Report and Financial Statements 2015 75
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
12. Financial Instruments continued
12.2 Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Bank loans
Total financial liabilities
31 December
2015
£’000s
31 December
2014
£’000s
8,114
–
8,114
6,414
16,327
22,741
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.
12.3 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 36 to 45). 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 loss are disclosed in the fair value hierarchy section 12.4.
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.
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 12.5.
76 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 12. Financial Instruments continued
12.3 Financial risk and management objectives continued
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they
are measured. The 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
US Dollar
Current receivables
Euro receivables
Investments at fair value through profit or loss
Euro
Canadian Dollar
Australian Dollar
US Dollar
Total
31 December
2015
£’000s
31 December
2014
£’000s
871
1,107
11
3
1,992
393
393
2,263
824
1
–
3,088
407
407
202,968
34,819
85,370
32,204
210,962
38,858
93,050
–
355,361
342,870
357,746
346,365
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.
International Public Partnerships Annual Report and Financial Statements 2015 77
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
12. Financial Instruments continued
12.4 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 2015, the Group’s only derivative financial instruments were currency forward contracts amounting to an asset
of £1.7 million (2014: asset of £2.9 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 2015, the fair value of financial instruments classified within Level 3
totalled £1,201.1 million (2014: £1,032.9 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.
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.
78 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 12. Financial Instruments continued
12.4 Fair value hierarchy continued
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.
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:
Inflation
Long-term tax
Foreign exchange rates
Long-term deposit rates
UK
Europe Non-UK
North America
Australia
2.75%
20.00%–18.00%
N/A
3.00%
1% in 2016;
2% thereafter
12.50%–33.99%
1.28
3.00%
2.00%
26.00%–27.00%
1.49–2.02
3.00%
2.50%
30.00%
2.13
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 0.48%. This was offset by a 0.53% 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 21).
Valuation methodology
Weighted Average Government Bond Rate
Weighted Average Project Premium
Weighted Average Discount Rate
31 December
2015
31 December
2014
2.31%
5.22%
7.53%
2.79%
4.69%
7.48%
Movement
(0.48%)
0.53%
0.05%
Weighted Average Discount Rate1
8.09%
7.90%
0.19%
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 2015
Additional investments during the year
Net repayments during the year
Net change in fair value of investments at fair value through profit or loss
Balance at 31 December 2015
£’000s
1,032,941
143,077
(14,695)
39,784
1,201,107
International Public Partnerships Annual Report and Financial Statements 2015 79
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
12. Financial Instruments continued
12.5 Sensitivity analysis
The valuation requires management to make certain assumptions in relation to unobservable inputs to the model, the significant
assumptions along with sensitivity analysis are provided below:
Significant assumptions
Discount rate
Inflation rate (overall)
UK
Europe
North America
Australia
FX rate
Tax rate
Deposit rate
13. Investment Acquisitions
2015
Date of acquisition
Description
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
7.53%
+ 1.00%
(122,989)
– 1.00%
145,246
2.57%
+ 1.00%
2.75% + 1.00%
2.00% + 1.00%
2.00% + 1.00%
2.50% + 1.00%
106,251
64,013
30,134
1,019
11,085
– 1.00%
– 1.00%
– 1.00%
– 1.00%
– 1.00%
(94,026)
(55,802)
(25,105)
(899)
(12,214)
n/a
+ 10.00%
39,535
– 10.00%
(32,351)
21.64% + 1.00%
(7,502)
– 1.00%
7,528
3.11% + 1.00%
13,706
– 1.00%
(13,035)
Consideration
£’000s
% Ownership
post acquisition
36,316
100%
March–August 2015
The Group invested four batches of funding via the Aggregator Vehicle PLC
into various PF2 schools procured under the UK government’s Priority Schools
Building Programme.
17 April 2015
30 June 2015
The Group made follow-on investments in four Lewisham Building Schools for the
Future projects.
14,286
41–50%
The Group made a follow-on investment for the remaining 19.9% stake in the
Inspire Partnership Liverpool Library project.
1,905
100%
August–December 2015
The Group made its first three tranches of investment in the Thames Tideway
Tunnel project.
58,910
15.99%
2 October 2015
The Group acquired a debt investment in the P3 US Military Housing sector.
Total capital spend on new acquisitions during the year
2014
Date of acquisition
Description
31,660
143,077
–
–
Consideration
£’000s
% Ownership
post acquisition
31 January 2014
The Group acquired an additional 48% interest in the Kent BSF education project
7,200
15 January 2014
27 January 2014
The Group acquired 10% of the share capital in Inspiredspaces Wolverhampton
(Project Co 2) Ltd
453
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
168,111
100%
Total capital spend on new acquisitions during the year
188,228
80 International Public Partnerships Annual Report and Financial Statements 2015
58%
10%
Financial Statements 13. Investment Acquisitions continued
The BMBF interests were acquired by an unconsolidated subsidiary entity of the Group from an associate of the Investment Adviser on
27 January 2014.
14. Trade and Other Receivables
Accrued interest receivable
Other debtors
Total trade and other receivables
31 December
2015
£’000s
31 December
2014
£’000s
17,363
5,736
23,099
13,045
6,484
19,529
Other debtors included £4.3 million (2014: £4.9 million) of receivables from unconsolidated subsidiary entities for surrender of Group
tax losses.
15. Trade and Other Payables
Accrued management fee
Other creditors and accruals
Total trade and other payables
16. Share Capital and Reserves
Share capital
In issue 1 January
Issued for cash
Issued as a scrip dividend alternative
In issue at 31 December – fully paid
Opening balance
Issued for cash (excluding issue costs)
Issued as a scrip dividend alternative
Total share capital issued in the year
Costs on issue of Ordinary Shares
Balance at 31 December
31 December
2015
£’000s
31 December
2014
£’000s
6,987
1,127
8,114
5,980
434
6,414
31 December
2015
shares
’000s
31 December
2014
shares
’000s
836,159
150,573
3,902
760,642
70,370
5,147
990,634
836,159
31 December
2015
£’000s
31 December
2014
£’000s
625,289
524,393
197,996
5,211
95,000
6,688
203,207
101,688
(3,134)
(792)
825,362
625,289
At present, the Company has one class of Ordinary Shares which carry no right to fixed income.
On 9 June 2015, 1,846,353 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 2014.
On 9 September 2015, the Group raised an additional £18 million of equity through a tap issue of 13,430,202 Ordinary Shares at an
issue price per share of 134.00p.
On 24 October 2015, 2,055,252 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 2015.
International Public Partnerships Annual Report and Financial Statements 2015 81
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
16. Share Capital and Reserves continued
On 18 November 2015, the Group raised an additional £180 million of equity through its Placing and Offer for Subscription of 137,142,857
Ordinary Shares at an issue price per share of 131.25p.
Other distributable reserve
Opening balance
Movement in the year
Balance at 31 December
31 December
2015
£’000s
31 December
2014
£’000s
182,481
–
182,481
–
182,481
182,481
On 19 January 2007 the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share
premium account. This was in order to provide a distributable reserve to enable the Company to repurchase its shares if and when the
Board of Directors consider it beneficial to do so. Following court approval, the distributable reserve account was created.
Retained earnings
Opening balance
Net profit for the year
Dividends paid1
Closing balance
1
Includes scrip element of £5.2 million in 2015 (2014: £6.7 million).
31 December
2015
£’000s
31 December
2014
£’000s
254,298
81,859
(53,798)
228,517
73,211
(47,430)
282,359
254,298
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 2015.
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 2015 was 3.225 pence per share
(2014: 3.15 pence per share)
Interim distribution for the period 1 July to 31 December 2015 was 3.225 pence per share
(2014: 3.15 pence per share2)
Year ended
31 December
2015
£’000s
Year ended
31 December
2014
£’000s
53,7981
47,430
27,459
24,040
31,948
26,339
Includes the 2014 interim distribution for the period 1 July to 31 December 2014.
1
2 The distribution for the period 1 July to 31 December 2015 was approved by the Board on 23 March 2016 and therefore has not been included as a liability in the balance
sheet for the year ended 31 December 2015.
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 ongoing expenses and dividend payments. The Group’s Investment Policy is set out in the Strategic Report (pages 8 to 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.
82 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 17. 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
2015
£’000s
31 December
2014
£’000s
1,290,202
1,062,068
Number
Number
990,634,037
836,159,373
130.2
127.0
18. 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 £42,000 (2014: £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:
International Public Partnerships GP Limited
Amber Fund Management Limited1
Total
Related party expense
in the Income Statement
Amounts owing to related
parties in the Balance Sheet
For the year
ended
31 December
2015
£’000s
For the year
ended
31 December
2014
£’000s
At
31 December
2015
£’000s
At
31 December
2014
£’000s
13,470
2,145
15,615
11,608
2,818
14,426
6,987
231
7,218
5,980
–
5,980
1 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the
balance sheet.
Investment advisory arrangements
Investment advisory fees/profit share payable during the period are calculated as follows:
For existing construction assets:
– 1.2% per annum of gross asset value (‘GAV’) of investments bearing construction risk
For existing fully operational assets:
– 1.2% per annum of the GAV excluding uncommitted cash from capital raisings up to £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
Investment advisory fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions.
International Public Partnerships Annual Report and Financial Statements 2015 83
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
18. Related Party Transactions continued
The IAA can be terminated where less than 95% of the Group’s assets are available for use for certain periods and the Investment
Adviser fails to implement a remediation plan agreed with the Group. The IAA may also be terminated by either party giving to the other
five years’ notice of termination, expiring at any time after ten years from the date of the IAA.
As at 31 December 2015, Amber Infrastructure held 8,002,379 (2014: 8,002,379) shares in the Company. The shares held by the
Investment Adviser in the Company helps further strengthen the alignment of interests between the two parties.
Transactions with Directors
Shares acquired by Directors in the financial year ended 31 December 2015 are disclosed below:
Director
John Whittle
Rupert Dorey (including spouse)
Claire Whittet
John Stares
Giles Frost
Total purchased
Number of
New Ordinary
Shares
11,942
150,000
50,000
75,000
150,000
436,942
None of the Directors disposed of any shares during the year (2014: nil).
Remuneration paid to the Non-Executive Directors is disclosed on page 49.
19. Contingent Liabilities
As at 31 December 2015 the Group has committed investments supported by letters of credit amounting to £169 million which were
notionally drawn on the Group’s corporate debt facility.
There were no contingent liabilities at the date of this report.
20. Events after Balance Sheet Date
In February 2016, the Company reached financial close on its sixth UK offshore transmission project, Westermost Rough. The Company
made a £26.8 million investment for 100% of the equity and subordinated debt.
21. Other Mandatory Disclosures
New standards that the Group has applied from 1 January 2015
Standards and amendments to standards that became effective during the period are listed below. These have no material impact on
the reported performance or financial statements of the Group.
– Amendments to IAS 19: Defined Benefit Plans (effective date 1 February 2015)
– Annual improvements to IFRSs 2010-2012 cycle (effective date not later than 1 February 2015)
– Annual improvements to IFRSs 2011-2013 cycle (effective date 1 January 2015)
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
these standards when they become effective. The Group does not currently anticipate the standards to have a significant impact on the
Group’s financial statements, however this will remain under consideration in light of interpretation notes as and when they are issued.
– IFRS 16 Leases (1 January 2019)
– IFRS 9 Financial Instruments (issued on 24 July 2014) (1 January 2018)
– IFRS 15 Revenue from Contracts with Customers (1 January 2018)
– Amendments to IFRS 10 and IAS 28: Sale or Contribution of assets between an Investor and its Associate or Joint Venture
(postponed)
– Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (1 January 2016)
– Amendments to IFRS 10, IFRS 12 and IAS 28: Investment entities: Applying the Consolidation Exception (1 January 2016)
– Annual improvements to IFRSs 2012-2014 cycle (1 January 2016)
– Amendments to IAS 1 Disclosure Initiative (1 January 2016)
84 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 21. Other Mandatory Disclosures continued
Standards issued but not yet effective continued
– Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (1 January 2017)
– Amendments to IAS 7: Disclosure Initiative (1 January 2017).
Unconsolidated subsidiaries
A list of the significant investments in unconsolidated subsidiaries, including the name, country of incorporation as at 31 December 2015
and proportion of ownership is shown below:
Name
Abingdon Limited Partnership
Aggregator PLC
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
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
100
98
100
100
100
100
100
100
100
100
100
100
100
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 85.7% (2014: 85%) 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 2015 85
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
21. 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
22. Investments
The Group holds 120 investments1 across Accommodation, Custodial, Energy, Transport and Utilities sectors. The following table sets
out the Group’s investments that are recorded at fair value through profit or loss.
1 As at 31 December 2015, the Victoria Schools project was a committed investment backed by a letter of credit with equity investment due to be made on construction completion.
Project
Short description of investment
Start date
End date
No. of
years
25 March 2000
09 March 2030
30
Construction
value1
‘millions
£6.90
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
Aggregator
Alberta
Schools
Angel Trains
Four investments through a funding vehicle to provide
financing for the UK Priority Schools Building Programme
(PSBP). As part of the programme, 46 schools under 5
PFI projects are being delivered using the PF2 private
finance funding structure
Design, construction, financing and 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 in the UK
Barnsley PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Barnsley, UK
Barnsley PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Barnsley, UK
Barnsley PFI
SPV 3
Design, redevelopment, financing and provision of
facilities management services to schools in Barnsley, UK
Barking &
Dagenham PFI
SPV 1
Design, redevelopment, 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
10 March 2015
29 December 2041
26
£483.44
02 March 2007
30 November 2039
30 CAD490.00
26 January 2005
31 December 2038
34
£699.00
26 May 2011
26 April 2036
25
£105.87
03 January 2012
31 December 2036
25
£58.54
03 September 2012
02 September 2036
25
£141.72
01 April 2012
19 March 2037
25
£30.68
01 December 2000
01 December 2031
312
€360.10
1 Represents the full construction/capex 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.
86 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements Project
Short description of investment
Start date
End date
No. of
years
Construction
value1
‘millions
Birmingham PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Birmingham,
UK
Blackburn PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Blackburn,
UK
Blackburn PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Blackburn,
UK
BMBF
Bootle
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
05 January 2011
30 September 2036
25
£56.58
01 September 2011
31 August 2036
25
£28.85
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
Bradford PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Bradford, UK
Bradford PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Bradford, UK
Brescia
Hospital
Bristol PFI
SPV 1
Calderdale
Refurbish, extend and provide facilities management
services to the Brescia Hospital Campus, Italy
Design, redevelopment, financing and provision of
facilities management services to schools in Bristol, UK
Design, construction, financing and provision of facilities
management services to five schools in Calderdale, UK
Cambridgeshire
PFI SPV 1
Design, redevelopment, financing and provision
of facilities management services to schools in
Cambridgeshire, UK
Derby City PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Derby, UK
Derby Courts Design, construction, financing and provision of facilities
management services to two courthouses in Derbyshire,
UK
19 August 2006
18 August 2033
27
£90.73
01 January 2011
14 March 2036
25
£181.55
01 December 2002
07 November 2021
19
€24.00
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
01 September 2012
31 August 2037
25
£38.17
04 June 2003
02 September 2028
25
£21.30
Derby Schools Design, construction, financing and provision of facilities
28 March 2003
28 March 2029
26
£25.30
management services to two secondary schools in
Derbyshire, UK
Derby
Schools 2
Design, build, finance and provision of facilities
management services to two secondary schools in
Derbyshire, UK
Derbyshire PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Derbyshire,
UK
Diabolo (T2 &
T3 & T5)
Design, construction, financing and subsequent operation
of a rail link, Belgium
1 Represents the full construction/capex value of the underlying projects.
13 February 2006
12 February 2032
26
£28.30
01 June 2011
31 October 2035
23
£38.52
02 October 2007
30 June 2047
40
£285.00
International Public Partnerships Annual Report and Financial Statements 2015 87
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
Project
Short description of investment
Start date
End date
No. of
years
Construction
value1
‘millions
Dublin Courts Design, construction, financing and subsequent provision
18 April 2007
30 June 2035
28
£105.00
of facilities management services to a courthouse in
Dublin, Ireland
Durham Courts Design, construction, financing and provision of facilities
02 March 2007
30 November 2039
32
CAD98.00
management services for a new courthouse facility in
Durham, Ontario, Canada
Durham PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to Durham County, UK
Essex PFI
SPV 1
Essex PFI
SPV 2
Gold Coast
Light Rail
Hereford &
Worcester
Islington PFI
SPV 1
Islington PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Essex, UK
Design, redevelopment, financing and provision of
facilities management services to schools in Essex, UK
Design, construction, financing, operation and provision
of facilities management services to a light rail public
transportation system in Queensland, Australia
Design, construction, financing and subsequent operation
of four courthouses in Hereford & Worcester, UK
Design, redevelopment, financing and provision of
facilities management services to schools in Islington, UK
Design, redevelopment, financing and provision of
facilities management services to schools in Islington, UK
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
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
25
£30.95
Kent PFI SPV 1 Design, redevelopment, financing and provision of
30 September 2010
30 September 2037
27
£82.00
facilities management services to Kent, UK
Lancashire PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Lancashire,
UK
Lancashire PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Lancashire,
UK
Lancashire PFI
SPV 2A
Design, redevelopment, financing and provision of
facilities management services to schools in Lancashire,
UK
Lancashire PFI
SPV 3
Design, redevelopment, financing and provision of
facilities management services to schools in Lancashire,
UK
Lewisham PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Lewisham,
UK
Lewisham PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Lewisham,
UK
Lewisham PFI
SPV 3
Design, redevelopment, financing and provision of
facilities management services to schools in Lewisham,
UK
1 Represents the full construction/capex value of the underlying projects.
88 International Public Partnerships Annual Report and Financial Statements 2015
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
Financial Statements Project
Short description of investment
Start date
End date
No. of
years
Construction
value1
‘millions
Lewisham PFI
SPV 4
Design, redevelopment, financing and provision of
facilities management services to schools in Lewisham,
UK
01 October 2012
31 March 2038
26
£64.60
LIFT – Bexley,
Bromley,
Greenwich 1
LIFT – Bexley,
Bromley,
Greenwich 2
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
26 January 2005
30 December 2033
29
£34.95
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
31 August 2005
10 December 2031
26
£3.23
LIFT – BBG
Lakeside
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
LIFT – BHH Mt
Vernon
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
LIFT – BHH
Sudbury
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
19 May 2006
30 June 2031
15 December 2006
30 June 2032
05 May 2006
30 June 2031
Design, construction, financing and subsequent operation
of the redevelopment of 2 LIFT hospital projects, UK
22 December 2004
29 June 2031
25
26
25
27
£6.98
£16.87
£7.59
£11.90
Design, construction, financing and subsequent operation
of the redevelopment of 2 LIFT hospital projects, UK
31 May 2004
31 March 2031
27
£11.43
Design, construction, financing and subsequent operation
of the redevelopment of 2 LIFT hospital projects, UK
30 November 2005
31 March 2032
26
£8.00
LIFT – Brent,
Harrow,
Hillingdon
LIFT – Bristol
Fishponds
& Hampton
House
LIFT – Bristol
Shirehampton &
Whitchurch
LIFT – Dudley
Brierly Hill
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
15 June 2007
31 March 2031
LIFT – Dudley
Ridge Hill &
Stourbridge
Design, construction, financing and subsequent operation
of the redevelopment of 2 LIFT hospital projects, UK
31 May 2004
30 June 2034
LIFT – ELLAS Design, construction, financing and subsequent operation
29 May 2003
31 March 2032
of the redevelopment of 4 LIFT hospital projects, UK
LIFT – ELLAS 2 Design, construction, financing and subsequent operation
16 December 2005
30 September 2034
of the redevelopment of 3 LIFT hospital projects, UK
LIFT – ELLAS 3 Design, construction, financing and subsequent operation
10 September 2010
07 May 2037
of the redevelopment of LIFT hospital project, UK
LIFT – ELLAS 4 Design, construction, financing and subsequent operation
12 February 2010
03 October 2036
of the redevelopment of 2 LIFT hospital projects, UK
LIFT – Goscote Design, construction, financing and subsequent operation
06 October 2009
30 November 2035
of the redevelopment of LIFT hospital project, UK
LIFT – Harrow
NRC
Design, construction, financing and subsequent operation
of the redevelopment of 3 LIFT hospital projects, UK
26 March 2008
23 June 2034
LIFT – Oxford
Dunnock Way
& East Oxford
Design, construction, financing and subsequent operation
of the redevelopment of 2 LIFT hospital projects, UK
30 November 2004
30 September 2031
24
30
29
29
27
27
26
26
27
£32.94
£13.82
£39.56
£34.99
£5.61
£8.19
£5.43
£7.76
£16.95
1 Represents the full construction/capex value of the underlying projects.
International Public Partnerships Annual Report and Financial Statements 2015 89
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
Project
Short description of investment
Start date
End date
No. of
years
Construction
value1
‘millions
LIFT – South
Bristol
Community
Hospital
LIFT –
Wolverhampton
& Walsall
Liverpool
Library
Long Bay
Luton PFI
SPV 1
Maesteg
Design, construction, financing and subsequent operation
of the redevelopment of LIFT hospital project, UK
12 February 2010
13 February 2042
32
£43.79
Design, construction, financing and subsequent operation
of the redevelopment of 2 LIFT hospital projects, UK
29 October 2004
08 April 2031
26
£12.38
Design, construction, financing and 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
Design, redevelopment, financing and provision of
facilities management services to schools in Luton, UK
Design, construction, financing and provision of facilities
management services for new build schools in Maesteg,
UK
19 July 2010
07 November 2037
27
£40.80
01 August 2006
31 May 2034
28
AUD147.00
01 January 2011
31 December 2035
25
£28.46
29 July 2008
30 September 2033
25
£17.60
Moray Schools Design, construction, financing and provision of facilities
26 February 2012
26 February 2042
30
£35.00
management services to two schools (Elgin Academy
and Keith Primary School) under a 30-year non-profit
distribution PPP concession agreement with The Moray
Council, UK
Newham PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Newham, UK
Norfolk
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
Northampton
Schools
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
North Wales
Police Authority
Design, construction, financing and subsequent supply of
facilities management services to the North Wales Police
HQ, UK
Nottingham PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Nottingham,
UK
Nottingham PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Nottingham,
UK
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
NSW Schools Design, construction, financing, operation, and
01 March 2006
31 December 2035
29
AUD124.30
maintenance of 10 new schools for the NSW Department
of Education and Training (DET), Australia
OFTO – Robin
Rigg
Finance, operate and maintain onshore substations,
onshore and under-sea cables connecting the mainland
electricity grid network to offshore wind-farms, UK
1 Represents the full construction/capex value of the underlying projects.
90 International Public Partnerships Annual Report and Financial Statements 2015
02 March 2011
02 March 2031
20
£65.00
Financial Statements Project
Short description of investment
Start date
End date
No. of
years
Construction
value1
‘millions
OFTO –
Gunfleet Sands
Finance, operate and maintain onshore/offshore
substations, onshore and under-sea cables connecting
the mainland electricity grid network to offshore wind-
farm, UK
19 July 2011
19 July 2031
20
£49.00
OFTO – Barrow Finance, operate and maintain onshore/offshore
27 September 2011
27 March 2030
19
£33.50
OFTO –
Ormonde
substations, onshore and under-sea cables connecting
the mainland electricity grid network to offshore wind-
farm, UK
Finance, operate and maintain onshore/offshore
substations, onshore and under-sea cables connecting
the mainland electricity grid network to offshore wind-
farm, UK
OFTO – Lincs
Finance, operate and maintain onshore substations,
onshore and under-sea cables connecting the mainland
electricity grid network to offshore wind-farm, UK
Orange Hospital Design, construction, financing and 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
Royal Children’s
Hospital
Design, construction, financing and provision of facilities
management services to the Royal Children’s Hospital,
Australia
Salford PFI
SPV 1
Salford PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Salford, UK
Design, redevelopment, financing and provision of
facilities management services to schools in Salford, UK
10 July 2012
09 July 2032
20
£103.90
11 July 2014
10 July 2034
20
£307.70
21 December 2007
21 December 2035
28 AUD170.00
11 September 2009
11 September 2039
30
£47.10
31 December 2006
29 February 2044
38 AUD2,081.00
20 December 2007
31 December 2036
29 AUD1,400.00
11 September 2011
31 August 2036
25
£64.17
01 April 2012
01 September 2038
26
£81.17
Showgrounds Design, construction, financing and subsequent operation
01 July 2005
01 August 2031
26 AUD103.00
of the redevelopment of Melbourne showgrounds,
Australia
Somerset PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Somerset,
UK
Southwark PFI
SPV 1
Design, redevelopment, financing and provision of
facilities management services to schools in Southwark,
UK
Southwark PFI
SPV 2
Design, redevelopment, financing and provision of
facilities management services to schools in Southwark,
UK
STaG PFI SPV 1 Design, redevelopment, financing and provision of
facilities management services to schools in South
Tyneside & Gateshead County, UK
1 Represents the full construction/capex value of the underlying projects.
01 November 2012
29 October 2037
25
£48.90
10 January 2011
09 January 2036
24
£20.30
01 September 2014
31 December 2036
22
£39.57
21 December 2009
04 September 2036
27
£21.40
International Public Partnerships Annual Report and Financial Statements 2015 91
Chairman’s LetterOverviewStrategic ReportFinancial StatementsCorporate Governance Notes to the Financial Statements continued
For the year ended 31 December 2015
Project
Short description of investment
Start date
End date
No. of
years
Construction
value1
‘millions
STaG PFI SPV 2 Design, redevelopment, financing and provision of
facilities management services to schools in South
Tyneside & Gateshead County, UK
Strathclyde
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
Design, redevelopment, financing and provision of
facilities management services to schools in Tameside,
UK
Design, redevelopment, financing and provision of
facilities management services to schools in Tameside,
UK
Thames
Tideway Tunnel
Licence to finance the construction and facilities
management of a sewerage tunnel underneath the River
Thames, London, UK
Tower Hamlets
Schools
Design, construction (mix of new build and refurbishment)
and provision of facilities management services in respect
of 25 schools in Tower Hamlets, UK
US Military
Housing
Investment of finance into a pool of 7 projects procured
through the Military Housing Privatisation Initiative, US
Victoria Schools
2 – Learning
Communities
Victoria2
Design, construction, financing, operation and
maintenance of 15 new public schools in the developing
suburbs around Melbourne, Australia
Waltham Forest
PFI SPV 1
Design, redevelopment, financing and provision of
facilities management services to Waltham Forest, UK
Wolverhampton
PFI SPV 1
Design, redevelopment, financing and provision of
facilities management services to Wolverhampton, UK
Wolverhampton
PFI SPV 2
Design, redevelopment, financing and provision of
facilities management services to Wolverhampton, UK
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
01 August 2015
31 March 2147
132
£4,200.00
28 June 2002
27 August 2027
25
£74.10
02 October 2015
25 October 2052
37 USD1,818.10
29 October 2015
31 December 2042
27
AUD321.06
31 August 2008
31 August 2033
25
£21.90
30 April 2010
04 September 2037
27
£43.50
01 September 2015
31 August 2040
25
£44.00
1 Represents the full construction/capex value of the underlying projects.
2 As at 31 December 2015, the Victoria School project was a committed investment backed by a letter of credit with equity investment due to be made on construction
completion.
92 International Public Partnerships Annual Report and Financial Statements 2015
Financial Statements 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
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Channel Islands
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Carey Olsen
PO Box 98, Carey House
Les Banques
Guernsey
Channel Islands
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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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