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Annual Report and
Financial Statements
2017
OVERVIEW
01 Highlights
02 Company Overview
04 Top 10 Investments
CHAIRMAN’S LETTER
05 Chairman’s Letter
STRATEGIC REPORT
08 Business Model
10 Performance Against Strategic Priorities
12 Case Study
14 Operating Review
16 Current Market Environment
and Future Opportunities
19 Current Pipeline
31 Risk Management
CORPORATE GOVERNANCE
42 Corporate Social and Environmental
Responsibility
45 Summary of Investment Policy
46 Board of Directors
48 Corporate Governance Report
56 Audit and Risk Committee Report
60 Directors’ Report
62 Directors’ Responsibilities Statement
FINANCIAL STATEMENTS
63 Independent Auditor’s Report to the
Members of International Public
Partnerships Limited
68 Financial Statements
72 Notes to the Financial Statements
COMPANY FACTS
– London Stock Exchange trading code: INPP.L
– Member of the FTSE 250 and FTSE All-Share indices
– £2.2 billion market capitalisation at 31 December 2017
– 1,405 million shares in issue at 31 December 2017
– Eligible for ISA/PEPs and SIPPs
– International Public Partnerships (the ‘Company’,
‘INPP’) shares are excluded from the Financial Conduct
Authority’s (‘FCA’) restrictions, which apply to
non-mainstream investment products, and can be
recommended by independent financial advisers to
their clients
WWW.INTERNATIONALPUBLICPARTNERSHIPS.COM
International Public Partnerships Limited
Registered number: 45241
Cover image:
Cadent (Gas Distribution Network), Manchester, U.K.
Inside front cover image:
Chambers Wharf, Thames Tideway Tunnel Project, London, U.K.
International Public Partnerships Annual Report and financial statements 2017 HIGHLIGHTS
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We aim to provide our investors with sustainable, long-term and inflation-linked
returns.
We expect to do this through growing our dividend and by creating the potential
for capital appreciation.
Our approach is supported by robust investment cash flows.
DIVIDENDS
NET ASSET VALUE (‘NAV’)
PORTFOLIO ACTIVITY
6.82p
£2.0bn
£464.0m
2017 full-year distribution1
per share
NAV at 31 December 2017 4
(2016: £1.6bn)
Cash investments made
during 2017
2.5%
Average annual dividend
increase2
7.00p
2018 full-year distribution
target2 per share
145.0p
NAV per share at
31 December 20174
(2016: 142.2p)
27.1%
Increase in NAV
PROFIT
£106.4m
Profit before tax
(2016: £175.3m)
TOTAL SHAREHOLDER
RETURN (‘TSR’)
1.2x
2.0%
165.4%
Cash dividend covered3
Increase in NAV per share
TSR since inception5
7.18p
2019 full-year distribution
target2 per share
9.2%
Compound annual growth
in TSR since inception5
1 The forecast date for payment of the dividend relating to the six months to 31 December 2017 is 15 June 2018.
2 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
3 Cash dividend payments to investors are paid from net operating cash flow before non-recurring operating costs as detailed on pages 22 and 23.
4 The methodology used to determine investment fair value is incorporated within the NAV as described in detail on pages 24 to 30.
5 Since inception November 2006. Source: Bloomberg. Share price plus dividends assumed to be reinvested.
01
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OVERVIEW
COMPANY OVERVIEW
TRACK RECORD OF STABLE AND GROWING RETURNS TO INVESTORS
INPP Dividend Payments
p per share
8
7
6
5
4
a v e r a g e d i v i d e n d g r o w t h
6.30
6.45
6.15
6.65
7.18
7.00
6.82
c . 2 . 5 % + a n n u a l
5.85
5.70
6.00
5.55
5.40
5.25
2
0
0
7
A
2
0
0
8
A
2
0
0
9
A
2
0
1
0
A
2
0
1
1
A
2
0
1
2
A
2
0
1
3
A
2
0
1
4
A
2
0
1
5
A
2
0
1
6
A
2
0
1
7
A
2
0
1
8
F
2
2
0
1
9
F
2
Compound annual growth
rate in TSR of 9.2% p.a.1
Since listing, INPP has
grown from £300m
market capitalisation to
£2.2bn (December 2017)
Dividend growth has
averaged 2.5% since
inception2
High degree of
inflation linkage
A WELL DIVERSIFIED PORTFOLIO
Sector Breakdown
Geographic Split
7 8 9
1
6
5
2
4
3
1 Transport
2 Education
3 Energy Transmission
4 Gas Distribution
5 Waste Water
6 Health
7 Courts
8 Military Housing
9 Other
21%
20%
19%
14%
11%
4%
4%
3%
4%
4 5 6
1
78
3
2
1 U.K.
2 Australia
3 Belgium
4 U.S.
5 Germany
6 Canada
7 Ireland
8 Italy
71%
10%
10%
3%
3%
2%
1%
<1%
Investment Type
2
1
1 Investments with
third party
senior debt
2
Investments with
no third party
senior debt4
91%
9%
129 investments in infrastructure projects
across a variety of sectors
Invested in selected global regions that meet
INPP’s specific risk and return requirements
Invested across the capital structure, taking
into account appropriate risks to returns
Mode of Acquisition/Asset Status
Project Ownership
Investment Life
3
2
1
4
1 Construction
12%
2 Operational
88%
3 Early Stage Investor5
73%
4 Later Stage Investor6 27%
1
3
2
1 100%
2 50%–100%
3 <50%
47%
7%
46%
3
1
2
1 <20 years
2 20–30 years
3 >30 years
40%
33%
27%
Early stage investment gives first mover advantage
and maximises capital growth opportunities
Preference to hold majority stakes
Weighted average portfolio life of 37 years7
1 Since inception November 2006. Source: Bloomberg. Share price plus dividends assumed
to be reinvested.
2 Future dividends cannot be guaranteed. Projections based on current estimates and may
vary in future.
3 There are many factors that may influence the actual achievement of long-term cash flows to
the Company. These include both internal as well as external factors and investors should
not treat the chart above as being more than an indicative profile and not a projection,
estimate or profit forecast. The actual achieved profile will almost certainly be different and
may be higher or lower than indicated.
4
5
6
7
Investments where the Company holds the Risk Capital and the senior debt or the senior
debt has been repaid.
‘Early Stage Investor’ – asset developed or originated by the Investment Adviser or
predecessor team in primary or early phase investments.
‘Later Stage Investor’ – asset acquired from a third party investor in the secondary market.
Includes non-concession entities which have potentially a perpetual life but assumed to
have finite lives for this illustration.
02
International Public Partnerships Annual Report and financial statements 2017OVERVIEW
International Public Partnerships invests
in high-quality, predictable, long-duration
infrastructure projects.
Strong: long-dated,
contractual, predictable
cash flows
Secure: mainly from
regulated or government
backed counterparties
Investments focused
on high-quality,
OECD countries
PREDICTABLE, SECURE, LONG-TERM CASH FLOWS
INPP Projected Cash Flow Profile3
INPP Projected Cash Flow Profile
Investment Receipts (£m)
300
250
200
150
100
50
0
Investments at Fair Value (£m)
2,500
2,000
1,500
1,000
500
0
100 years
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
2
1
4
7
2
1
4
8
2
1
4
9
2
1
5
0
Projected Investment Receipts (LHS)
Projected Investment at Fair Value (RHS)
Note: This chart is not intended to provide any future profit forecast. Cash flows shown are projections based on the current
Note: This chart is not intended to provide any future profit forecast. Cash flows shown are projections based on the current
individual asset financial models and may vary in the future. Only investments committed as at 31 December 2017 included.
individual asset financial models and may vary in the future. Only investments committed as at 31 December 2017 included.
INTERNATIONAL PUBLIC PARTNERSHIPS WITH AMBER INFRASTRUCTURE — A STRONG PARTNERSHIP
– Experienced independent Board
and strong corporate governance
Relationship with the Investment Adviser and its Group
–
INPP’s Investment Adviser,
Amber Infrastructure, is a leading
originator, asset and fund manager
– Amber has one of the largest
independent teams in the sector with
over 100 employees working
internationally managing our assets
– We have a long-standing relationship
– Amber has managed INPP’s assets
since its inception in 2006
– Amber has a strong track record
of originating and developing
opportunities for new investment
– Amber’s active management
approach to underlying asset
investments supports sustainable
performance
–
INPP has first right over qualifying
infrastructure assets developed by
Amber and for U.S. investments,
its main shareholder, U.S. Group,
Hunt Companies LLC.
Investment Adviser and Asset Manager
Board and Committees
Fund level reporting and board support
Investment
portfolio
Asset management
representation at board level
Financial and ‘hands-on’
asset management
See more on page 8
See more on page 20
03
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OVERVIEW
TOP 10 INVESTMENTS
International Public Partnerships’ (‘INPP’s) top ten investments by fair value at 31 December 2017 are summarised below.
A complete listing of the Group’s investments is in note 21 of the financial statements, with further information available on the Company’s
website (www.internationalpublicpartnerships.com).
CADENT (GAS DISTRIBUTION NETWORK)1
Location
Various, United Kingdom
Sector
Status at 31 December 2017
Gas Distribution
Operational
RELIANCE RAIL
Location
Sector
Status at 31 December 2017
Sydney, Australia
Transport
Operational
% Holding at 31 December 2017
4% Risk Capital2
% Holding at 31 December 2017
33% Risk Capital2
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
14.0%
N/A
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
4.4%
0.0%
THAMES TIDEWAY TUNNEL1
Location
Sector
London, United Kingdom
Waste Water
ANGEL TRAINS1
Location
Sector
Status at 31 December 2017
Under Construction
Status at 31 December 2017
Various, United Kingdom
Transport
Operational
% Holding at 31 December 2017
16% Risk Capital2
% Holding at 31 December 2017
5% Risk Capital2
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
10.8%
9.1%
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
3.4%
4.5%
DIABOLO RAIL LINK1
Location
Sector
Status at 31 December 2017
Brussels, Belgium
Transport
Operational
U.S. MILITARY HOUSING1,3
Location
Sector
Status at 31 December 2017
Various, United States
Military Housing
Operational
% Holding at 31 December 2017
100% Risk Capital2
% Holding at 31 December 2017
100% Risk Capital2
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
10.0%
11.5%
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
3.0%
4.0%
LINCS OFFSHORE TRANSMISSION1
Location
Lincolnshire, United Kingdom
ROYAL CHILDREN’S HOSPITAL1
Location
Sector
Energy Transmission
Sector
Status at 31 December 2017
Operational
Status at 31 December 2017
Victoria, Australia
Health
Operational
% Holding at 31 December 2017
100% Risk Capital2
% Holding at 31 December 2017
100% Risk Capital2
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
9.0%
11.7%
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
2.0%
2.8%
ORMONDE OFFSHORE TRANSMISSION1
Location
Cumbria, United Kingdom
Sector
Energy Transmission
Status at 31 December 2017
% Holding at 31 December 2017
Operational
100% Risk Capital2
and 100% senior debt
6.5%
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
8.9%
BeNEX RAIL1
Location
Sector
Status at 31 December 2017
Various, Germany
Transport
Operational
% Holding at 31 December 2017
49% Risk Capital2
% Investment Fair Value 31 December 2017
% Investment Fair Value 31 December 2016
2.0%
2.5%
Significant movements in the Group’s portfolio for the year ended 31 December 2017 can be found on page 14 of the Strategic Report.
1 These projects contain revenues that are not solely dependent on availability but also include an element of linkage to other factors such as passenger numbers, rolling stock releasing
assumptions, occupancy and/or have regulatory periodic reviews. All other investments receive entirely availability based revenues.
2 Risk Capital includes both project level equity and subordinated shareholder debt.
3
Includes two tranches of investment into U.S. military housing.
04
International Public Partnerships Annual Report and financial statements 2017OVERVIEW
CHAIRMAN’S LETTER
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The Company was once again able to achieve
annual growth in dividend distributions,
broadly in line with longer-term inflation
expectations at an average rate of
approximately 2.5%.
Dear Shareholders,
I am pleased to report that 2017 was a
strong year for the Company. It delivered
robust financial performance in addition
to making over £460 million of new
investment, committing to invest up to
a further £225 million and raising over
£400 million of additional capital.
Since listing in 2006, the Company has
generated a Total Shareholder Return (‘TSR’)
of 165.4%. This is equivalent to an average
annual return of 9.2% and is ahead of our
long-term target of an 8% to 9% return1.
We remain positive about the Company’s
future ability to deliver predictable, inflation-
linked returns to our shareholders.
The Company’s combination of strong and
sustained performance, growth in capital
deployed into complementary assets
and continued robust investor demand
for new stock resulted in an increase
of INPP’s market capitalisation to over
£2.2 billion at the end of 2017 – up from
£1.7 billion at the end of the previous year.
1 Since inception. Source: Bloomberg. Share price plus
dividends assumed to be reinvested.
2 Future dividends cannot be guaranteed. Projections are
based on current estimates and may vary in the future.
GROWTH IN INVESTOR RETURNS
The Company was once again able
to achieve annual growth in dividend
distributions, broadly in line with longer-
term inflation expectations at an average
rate of approximately 2.5%. We achieved
our targeted dividend of 6.82 pence per
share for 2017, representing a c.2.5%
growth over 2016 (6.65 pence per share).
The Board is pleased to reaffirm its minimum
dividend target for 2018 of 7.00 pence per
share and to provide new guidance of 7.18
pence per share for 2019. We have good
forward visibility of investment cash flows
and, given the continued predictability
of the Company’s investments, we are
confident of our longer-term prospects
to continue to increase our dividend. By
disclosing two-year forward guidance,
we hope to provide shareholders with
additional clarity of our future intentions2.
INVESTMENT ACTIVITY
During 2017, INPP completed a record
level of new investment activity, making
£464 million of new cash investments
into four new and four follow-on
investments and entered into up to £225
million of new investment commitments
and binding offers across the energy
distribution, waste water, education
and transport infrastructure sectors.
Our ability to access high-quality
infrastructure investments is testament to
the collective expertise of INPP and that
of our Investment Adviser, Amber Fund
Management Limited (‘Amber’). We continue
to capitalise on the combination of our
origination capability, leading technical
expertise and strong industry relationships
that allow us to deliver real value for
money to both our shareholders and our
clients. All opportunities are appraised
on a case-by-case basis and pursued in
a disciplined fashion. We aim to ensure
that INPP’s strong platform, which has
been carefully developed over the 11 years
since listing continues to be enhanced.
The largest investment in 2017 was
£272.5 million, as part of a consortium
which acquired a 61% stake in Cadent
(formerly known as National Grid’s gas
distribution networks). This landmark
acquisition was originated along with
a group of leading, long-term U.K. and
international institutional investors. In
addition, the acquisition of a further 14%
interest in Cadent was negotiated between
the consortium and National Grid and is
subject to put and call options between
the parties, exercisable from 2019.
This investment illustrates our ability to
convert strong industry relationships and
technical expertise to augment further
the Company’s projected returns.
05
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CHAIRMAN’S LETTER
CHAIRMAN’S LETTER
CONTINUED
Progress on the Thames Tideway Tunnel
(‘Tideway’) is continuing in line with our
expectations, with construction scheduled
to complete in 2022. A further £78.2 million
of scheduled investment was made into
the Tideway project during 2017, including
the Company’s final commitment to the
project, which was invested in December.
In November 2017, the Company invested
approximately A$154 million (£86.8 million)
to acquire an additional interest in the
Australian rolling stock public private
partnership, known as the Reliance Rail
Project. The additional investment was
part of a broader asset refinancing which
will also provide an attractive level of return
compared to the existing portfolio.
CAPITAL RAISING AND CORPORATE
CREDIT FACILITY
To support portfolio growth, we conducted
capital raisings in May 2017 and December
2017 in which we secured £330 million
and £80 million respectively (before costs).
Both placings were oversubscribed with
demand from existing and new investors.
The Company’s £400 million corporate
credit facility continued to provide additional
capacity to support the strong pipeline of
potential new investment opportunities in
regulated and other public infrastructure. It
acts as a bridging facility between capital
raising rather than serving as long-term,
structural leverage. The net proceeds of the
2017 issuances were used to reduce the
drawn element of the debt facility as well as
finance new acquisitions. At year end, the
corporate credit facility was largely undrawn,
providing the Company with some financial
flexibility to consider new investments.
06
PORTFOLIO PERFORMANCE
As well as new asset acquisitions, we
continue to focus on achieving consistently
strong performance from our existing
portfolio. The Board believes that an
active asset management approach is
fundamental to INPP’s long-term success,
as well as ensuring that we maintain strong
relationships with partners and clients.
This strength of relationship translates into
high rates of client satisfaction with facilities
and services delivered. We continue to
ensure that the existing portfolio meets
or exceeds performance metrics.
The value of this approach, together with
the capital raising undertaken in 2017, is
demonstrated by INPP’s strong growth in
Net Asset Value (‘NAV’), which increased
27.1% to £2,038.3 million, or 2.0% to 145.0
pence on a NAV per share basis in 2017.
The Company had an exposure to
Carillion plc where the Company received
construction/facilities management services
from Carillion subsidiaries on 3% of the
portfolio, across 24 projects. Carillion
entered liquidation in January 2018 and
following its collapse Amber implemented
contingency plans to transition projects to
new providers and manage broader project-
level relationships. Services have now
been transitioned on 17 of these projects
and there is a high level of confidence of
successful transition on the remainder. Full
transition is expected to occur on all projects
over the following six months to new
providers on substantially the same terms
as the existing contracts. Pleasingly, all
on-site ex-Carillion personnel will be offered
continuity of employment on the same terms
and all projects have been fully operational
throughout the period. The Company’s
expectation is that the cost of transitioning to
these new arrangements will be immaterial
to the Company (up to c.£1.5 million
although likely to be substantially less),
and that, overall there will be minimal
impact on the Company’s valuation and
the expectation is that there will be no
additional cost to the public sector.
CORPORATE GOVERNANCE
The Board values good corporate
governance and continues to comply with
the Association of Investment Companies
Code of Corporate Governance and the
U.K. Corporate Governance Code as
set out on page 48. During the year, the
Board undertook an external-facilitated
evaluation of its own practices and the
Management Engagement Committee
formally reviewed the performance of the
Investment Adviser and other key service
providers to the Company. As part of
the Board’s ongoing review of operation
processes, we also procured an external
review of the process for monitoring and
reporting of asset availability, as this is
an important metric both for our public
sector clients and for the Board.
To ensure that there is continuity of
Board oversight and sufficient resource,
the Board undertook a search for an
additional Director, resulting in Ms Julia
Bond being appointed on 1 September
2017. Ms Bond has 27 years’ experience in
the financial capital markets and has held
senior management positions, including
at Credit Suisse. After a successful career
in financial services, Julia brings a wealth
of board experience in Investment Trusts,
the public sector, professional bodies as
well as the voluntary sector. Julia’s skills
and knowledge are complementary to the
current Board and will allow for an orderly
process of Board succession in due course.
In anticipation of my retirement from the
Board, we are actively seeking a candidate
for the Chairmanship of the Company.
While this process is ongoing, my fellow
Board members and I have agreed that I
should continue in the role until a suitable
replacement has been identified and an
appropriate transition taken place. We
are confident that there are a number of
high-quality candidates with the relevant
experience and we look forward to
updating our shareholders in due course.
International Public Partnerships Annual Report and financial statements 2017 In addition, further information on INPP’s
corporate governance developments
and operational reviews over the
year can be found in the Corporate
Governance section of this report.
OUTLOOK
The market outlook for the Company
remains positive as enhanced capital
investment into infrastructure continues to
rank highly on government agendas globally
as a key economic driver. We anticipate
that this will over time generate more
investment opportunities in the developed
countries in which the Company invests.
INPP also remains focused on the
completion of its committed investments
while continuing to develop, track and
appraise other potential opportunities that
are at various stages of development.
Amber has identified a pipeline of potential
opportunities that meet the Company’s
risk-return profile in sectors, such as
regulated utilities (including offshore
transmission), health, judicial, waste, and
other accommodation and transport
projects, that may be progressed as
investment opportunities for the Company.
The Company continues to closely monitor
the market reaction during the U.K.’s
planned withdrawal from the European
Union (‘E.U.’). Whilst the immediate market-
related volatility has not persisted to the
scale widely anticipated by many industry
participants, there remains uncertainty
about the true impact of Brexit on the
U.K. economy. As outlined in our 2016
Annual Report, we do not anticipate that
there will be significant impact on the
Company’s existing investments, however
given the high degree of uncertainty the
Board continues to monitor developments
as the Brexit negotiations progress.
The Company also notes the heightened
attention in the U.K. paid to the assessment
of the economic and social value that
private sector investment brings to
public infrastructure projects, including
suggestions by the Labour party to seek to
renationalise key public infrastructure assets,
companies and private finance contracts
operating in the U.K. As a long-standing and
leading originator, investor and operator of
public infrastructure projects internationally,
the Company firmly believes that the
close partnerships between public clients
and private investment brings significant
benefits to the public sector and ultimately
the end-users and relevant parties. We
also recognise that it is incumbent upon
project owners and the broader investment
industry to demonstrate the value we
bring, not only to our investors but the
communities in which our projects serve.
Overall, we believe that the nature of
INPP’s investment portfolio and the active
approach we have adopted to asset
management both, provide a firm foundation
from which to react to any emerging
risks and that we remain well positioned
to add high-quality investments to the
portfolio in the short-to-medium term.
More information and a detailed
pipeline of opportunities is set out in
the Current Market Environment and
Future Opportunities section. The
Company’s approach to Corporate,
Social and Environmental Responsibility
is set out in more detail on page 42.
I would like to take this opportunity to thank
our shareholders for their support for the
Company throughout 2017 and we look
forward to this continuing in the coming year.
Rupert Dorey
Chairman
20 March 2018
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
BUSINESS MODEL
DELIVERING INVESTOR RETURNS
OUR OBJECTIVES
OUR STRENGTHS
OUR OPERATING MODEL
APPROACH
– Long-term alignment of interests
between INPP, Amber and other
key suppliers
– A vertically-integrated model
with direct relationships with public
sector customers
– One of the largest independent
teams of over 100 people, experts
in all aspects of infrastructure
development, investment and
management
– Physical presence in all the major
countries in which we invest
which provides local insights and
relationships
–
‘Hands-on’ approach to asset
management – the breadth and
depth of our experience makes us
a specialist among asset managers
STRONG RELATIONSHIPS
International Public Partnerships
(‘INPP’) invests in high-quality,
predictable, long-duration public
infrastructure projects internationally
We aim to provide our investors
with sustainable long-term returns
through progressive dividends with
the potential for capital appreciation
This is supported by a robust
investment cash flow with
inflation linkage
Through the active management
of our existing asset portfolio, new
investments and the prudent use
of gearing, we target an internal rate
of return (‘IRR’) equal to or
greater than 8% per annum1
See Company Investment Policy on page 45
Public Sector Client
Construction Contractor
Debt Providers
Facilities Management
Contractor
Consortium Partners
STABLE PROJECTED CASH FLOW2
INPP Projected Cash Flow Profile
Investment Receipts (£m)
300
250
200
150
100
50
0
Investments at Fair Value (£m)
2,500
2,000
1,500
1,000
500
0
100 years
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
2
1
4
7
2
1
4
8
2
1
4
9
2
1
5
0
Projected Investment Receipts (LHS)
See footnote 2 and Company Overview, page 3
for full data ‘INPP projected cash flow profile’
Note: This chart is not intended to provide any future profit forecast. Cash flows shown are projections based on the current
individual asset financial models and may vary in the future. Only investments committed as at 31 December 2017 included.
Projected Investment at Fair Value (RHS)
1 On the Initial Public Offer issue price of 100 pence
per ordinary share.
2 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 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.
3 See page 29 for information relating to the
Company’s use of sensitivity analysis.
4 See pages 24 to 30 for the methodology used
to determine NAV.
5 Future profit projection and dividends cannot be
guaranteed. Projections are based on current
estimates and may vary in future.
6 Source: Bloomberg. Share price plus dividends
assumed to be reinvested.
7 Assets under management represents INPP’s
proportional ownership of each project’s Total
Development Value at inception.
08
INTERNATIONAL PUBLIC
PARTNERSHIPS LIMITED
Strong independent Board
leadership and governance
VALUE-FOCUSED
PORTFOLIO DEVELOPMENT
We seek new investments that:
– enhance secure, long-term cash flow
– provide opportunities for capital appreciation
– exhibit low risk relative to returns
IDENTIFY
The insights, knowledge and relationship of Amber’s local
teams are used to identify attractive new investments.
We also monitor opportunities to grow the
existing portfolio.
ASSESS
We seek investments with low risk relative to returns,
taking into account financial, macroeconomic,
regulatory and country risks.
ACCESS
Amber’s strong origination team develops unique
investment opportunities that can lead to
enhanced returns.
APPROVAL
Our rigorous framework includes substantive input
from Amber and external advisers, with the INPP
Board providing final approval.
OPTIMISE RETURNS
We seek to balance risk and return,
using detailed research and analysis to optimise
returns from each investment.
EFFECTIVE FINANCIAL
MANAGEMENT
EFFECTIVE RISK
MANAGEMENT
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT OUR VALUE CREATION
INVESTOR RETURNS
We focus on the following Key Performance Indicators to track the value
we provide to shareholders:
– Maintain and enhance distributions to shareholders
– Total Shareholder Returns
– Net Asset Value and Net Asset Value per share
6.82p
0.79%
2017 dividends per share
(2016: 6.65p)
Real returns
Portfolio inflation linkage 3
145.0p
NAV per share 4
(2016: 142.2p)
2.5%
Average dividend
growth since IPO 5
9.2% p.a.
£106.4m
Annualised Total Shareholder
Return6 since inception
Profit before tax
(2016: £175.3m)
BROADER VALUE CREATION
Our investments enable the development and ongoing operation
of valuable infrastructure for the public and end-users
£8.1bn
129
>99.6%
Development value 7
Number of investments
Asset availability
1,050mw
Energy transported
336
2
>1Mm
Number of schools and
public building sites
Total floor area
under management
– Governance
– Strategy setting
–
– Risk management
Investment decisions
ACTIVE ASSET MANAGEMENT
We actively manage investments to:
– deliver target returns
– enhance prospects for growth
– maintain client satisfaction
ENTITY MANAGEMENT
Where possible, through Amber we manage the
day-to-day activities of each of our projects internally
to ensure we have line of sight over project cash flows.
DRIVE GROWTH
We actively work with our public sector clients to
ensure that projects are being managed in an efficient
manner - optimising returns for our investors.
MONITOR PERFORMANCE
Extensive monitoring includes asset level board and
management meetings, reviewing data and following
industry trends, and obtaining formal and informal
feedback through Amber.
REPORT
We robustly measure and report our performance
to key stakeholders to inform and feed back into our
decision-making process and operating model.
– Ensuring cash covered dividends
– Hedging against short-term foreign
exchange rate movements
– Managing investment capital flows
– Managing risks throughout the
investment cycle
– Robust risk assessment and mitigation
process
09
EFFECTIVE FINANCIAL
MANAGEMENT
EFFECTIVE RISK
MANAGEMENT
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
PERFORMANCE AGAINST
STRATEGIC PRIORITIES
STRATEGIC PRIORITIES
DESCRIPTION
KEY PERFORMANCE INDICATORS
PERFORMANCE IN 2017
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
INVEST IN ASSETS THAT ENHANCE PORTFOLIO RETURNS
RELATIVE TO RISK AND MAINTAIN A WELL-BALANCED
INVESTMENT PORTFOLIO
– Make new investments that enhance prospects for future value
– Value of new investments
growth
– Continued investment into the Thames Tideway Tunnel, Victoria Schools,
Gold Coast Light Rail and Offenbach Police Centre which are currently
under construction
– Proportion of investments in construction
– 12% of portfolio currently under construction
– Make additional acquisitions off-market or through preferential
access (e.g. sourced through pre-emption rights or via Amber/Hunt)
preferred access
– Value of additional investments acquired off-market or through
– Acquisitions totalling £92.2 million secured through pre-emption rights
– Manage portfolio composition with complementary investments,
in line with the Company’s Investment Policy and enhancing at
least one of the following aspects:
• Blend of risk to return
•
Inflation linkage
• Cash flow profile
• Capital attributes (such as construction risk and residual value
growth potential)
– Focus on delivery of target returns from existing investments
– Availability for all controlled investments at 98% or above -
– Availability for investments at 99.6% or greater
– Maintain high levels of public sector client satisfaction and asset
performance
– Deliver additional value from existing assets through management of
construction risk and delivery of operational improvements to meet
client requirements
– Enhance prospects for capital growth by investing in construction
phase assets where available
– Provide efficient management of cash holdings and debt facilities
available for investment and appropriate hedging policies
– Efficient management of INPP’s overall finances, with the intention
to reduce ongoing charges where possible
– Manage portfolio in a cost-efficient manner
ACTIVE ASSET MANAGEMENT
ACTIVE AND EFFECTIVE MANAGEMENT OF ASSETS
EFFECTIVE FINANCIAL MANAGEMENT
EFFECTIVE MANAGEMENT OF COMPANY’S FINANCES
10
–
Improvement of risk/return, inflation linkage and diversification
–
Investments in Australia and Germany adding to geographical diversification
of cash flows, including geographical diversification
– All assets acquired exhibited robust cash flow profiles
including additional stakes in the Wolverhampton BSF, Reliance Rail and
Gold Coast Light Rail (Phase 2) projects
– Appointed as the preferred bidder for the Dudgeon Offshore Transmission
Project (‘OFTO’) in the U.K.
–
Investment into projects including Cadent in the U.K. enhance inflation
linkage within the portfolio
– Overall portfolio value inflation linkage increased from 0.78% to 0.79% for
every 1.00% p.a. increase over assumed inflation rates (calculated by
running a ‘plus 1.00%’ inflation sensitivity for each investment and solving
each investment’s discount rate to return the original valuation. The inflation
linkage is the increase in the portfolio weighted average discount rate)
returns from investments in line with expectations
– Performance deductions below 3% for all projects
– Performance deductions below 1% for all projects
– Number of change requests from existing contracts
– Over 900 change requests undertaken
– Management of investments during the course of construction
– Majority of construction projects managed on time and to budget. Costs of
projects in line with overall delivery timetable
small project delays absorbed by construction partners
– Dividends paid to investors covered by operating cash flow
– Cash dividends paid to investors 1.2 times covered by operating cash flow
before one-off costs
– New investments made from available cash (after payment of
– All investments in 2017 funded through excess cash in priority to the
dividend) ahead of using corporate debt
corporate debt facility
– Competitive cash deposit rates
– Market-tested cash deposit rates
– Use of appropriate hedging strategies
– £54.6 million of foreign exchange forward contracts in place to mitigate
short-term foreign exchange cash flow volatility
– Management of ongoing charges
– Ongoing charges 1.15% p.a. (2016: 1.13%)
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT
INPP’s strategy covers three interlinked
areas of focus. This three-pronged approach
helps us to manage our assets and finances
throughout the investment cycle and also
to identify new opportunities that meet
our investment objectives.
We link Key Performance Indicators to
these Strategic Priorities and review our
performance against these KPIs twice a year.
We also assess the risks relating to each KPI
(as identified in the Risk Management section
of this Report).
STRATEGIC PRIORITIES
DESCRIPTION
KEY PERFORMANCE INDICATORS
PERFORMANCE IN 2017
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
INVEST IN ASSETS THAT ENHANCE PORTFOLIO RETURNS
RELATIVE TO RISK AND MAINTAIN A WELL-BALANCED
growth
INVESTMENT PORTFOLIO
– Make new investments that enhance prospects for future value
– Value of new investments
– Continued investment into the Thames Tideway Tunnel, Victoria Schools,
Gold Coast Light Rail and Offenbach Police Centre which are currently
under construction
– Proportion of investments in construction
– 12% of portfolio currently under construction
– Value of additional investments acquired off-market or through
– Acquisitions totalling £92.2 million secured through pre-emption rights
preferred access
– Manage portfolio composition with complementary investments,
in line with the Company’s Investment Policy and enhancing at
–
Improvement of risk/return, inflation linkage and diversification
of cash flows, including geographical diversification
including additional stakes in the Wolverhampton BSF, Reliance Rail and
Gold Coast Light Rail (Phase 2) projects
– Appointed as the preferred bidder for the Dudgeon Offshore Transmission
Project (‘OFTO’) in the U.K.
–
Investments in Australia and Germany adding to geographical diversification
– All assets acquired exhibited robust cash flow profiles
–
Investment into projects including Cadent in the U.K. enhance inflation
linkage within the portfolio
– Overall portfolio value inflation linkage increased from 0.78% to 0.79% for
every 1.00% p.a. increase over assumed inflation rates (calculated by
running a ‘plus 1.00%’ inflation sensitivity for each investment and solving
each investment’s discount rate to return the original valuation. The inflation
linkage is the increase in the portfolio weighted average discount rate)
– Focus on delivery of target returns from existing investments
– Availability for all controlled investments at 98% or above -
– Availability for investments at 99.6% or greater
– Maintain high levels of public sector client satisfaction and asset
returns from investments in line with expectations
– Performance deductions below 3% for all projects
– Performance deductions below 1% for all projects
– Number of change requests from existing contracts
– Over 900 change requests undertaken
– Management of investments during the course of construction
– Majority of construction projects managed on time and to budget. Costs of
projects in line with overall delivery timetable
small project delays absorbed by construction partners
– Dividends paid to investors covered by operating cash flow
– Cash dividends paid to investors 1.2 times covered by operating cash flow
before one-off costs
– New investments made from available cash (after payment of
– All investments in 2017 funded through excess cash in priority to the
dividend) ahead of using corporate debt
corporate debt facility
– Competitive cash deposit rates
– Use of appropriate hedging strategies
– Market-tested cash deposit rates
– £54.6 million of foreign exchange forward contracts in place to mitigate
short-term foreign exchange cash flow volatility
– Management of ongoing charges
– Ongoing charges 1.15% p.a. (2016: 1.13%)
11
– Make additional acquisitions off-market or through preferential
access (e.g. sourced through pre-emption rights or via Amber/Hunt)
least one of the following aspects:
• Blend of risk to return
•
Inflation linkage
• Cash flow profile
• Capital attributes (such as construction risk and residual value
growth potential)
– Deliver additional value from existing assets through management of
construction risk and delivery of operational improvements to meet
performance
client requirements
– Enhance prospects for capital growth by investing in construction
phase assets where available
– Provide efficient management of cash holdings and debt facilities
available for investment and appropriate hedging policies
– Efficient management of INPP’s overall finances, with the intention
to reduce ongoing charges where possible
– Manage portfolio in a cost-efficient manner
ACTIVE ASSET MANAGEMENT
ACTIVE AND EFFECTIVE MANAGEMENT OF ASSETS
EFFECTIVE FINANCIAL MANAGEMENT
EFFECTIVE MANAGEMENT OF COMPANY’S FINANCES
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CASE STUDY
CADENT GAS
DISTRIBUTION
NETWORK
INPP has a 4.4% interest in National Grid’s gas
distribution networks (‘GDNs’), acquired as part
of the Quad Gas Group consortium’s purchase
of a 61% interest in the GDNs on 31 March 2017
(now known as Cadent). The Consortium
has also established the right to acquire an
additional 14% equity interest in the GDNs
from National Grid in due course
DIFFERENTIATION OF THE OPERATING MODEL
Our key differentiator is that the Company’s Investment Adviser, Amber,
supports INPP (and its investment portfolio entities) with project origination
and financial and asset management services to deliver the best value
for its shareholders. Amber employs over 100 experienced professionals
focused on development, financing and investment in public infrastructure.
Collectively, we identify, develop and originate investment opportunities that
meet INPP’s risk-return profile. Amber can research and track investment
opportunities from conception through to development and consultation
stages, often in advance of an investment formally coming to market. In
managing the whole lifecycle of the Company’s investment in any one asset,
Amber delivers a consistent level of oversight and control over the projects
the Company invests in.
In addition, Amber’s experience and ability in forming partnerships with other
long-term investors, both U.K. and international, enables INPP to participate
in large scale infrastructure projects providing access to opportunities which
broaden the base for new investments. Under the terms of the Investment
Advisory Agreement with Amber, INPP has the right of ‘first look’ at
investments that are being realised by Amber, including opportunities
identified by Hunt Companies (a U.S. based group and 50% shareholder in
Amber) that meet INPP’s investment criteria.
12
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT INPP – CONTINUED ABILITY TO SOURCE
ATTRACTIVELY VALUED CORE
INFRASTRUCTURE ASSETS
As part of the Company’s diversification
and move away from traditional private
finance initiative (‘PFI’) models, INPP has
grown its exposure within the portfolio
to regulated assets, including Cadent.
INPP is part of a consortium, including other
leading U.K. and international investors,
which acquired a 61% interest in Cadent, a
gas distribution company formerly wholly
owned by National Grid plc. The Company
invested £272.5 million into the project for a
4.4% stake with the remaining Risk Capital
funded by consortium partners.
Cadent spans over four GDNs each with
the right to distribute gas in the East and
North West of England, North London
and the West Midlands, respectively. The
networks service approximately 50% of the
country’s connected households through
130,000km of gas pipeline. The GDNs
are well-established, predictable and
strongly cash yielding businesses whose
characteristics are consistent with and
complementary to other regulated and
non-regulated assets in the Company’s
portfolio.
The key attributes include:
– Stable, RPI-linked revenues deriving from a
regulated asset base with long-term cash
flows expected to enhance the degree of
inflation linkage inherent in the Company’s
overall portfolio;
– Critical elements of the U.K.’s infrastructure
base;
– Proven, well-established, highly stable and
transparent regulatory regime overseen by
Ofgem;
– A mature underlying asset base with an
established operating history and no
exposure to commodity or consumer
demand risk; and
– An experienced management team and
a strong minority shareholder partner in
National Grid.
INPP’s investment in GDNs, through
Cadent, strengthens the Company’s focus
on regulated assets which deliver long-term,
sustainable, inflation-linked revenues. This
began with INPP’s ongoing investment
programme investing in the offshore
transmission (‘OFTO’) sector and continued
with INPP’s investment into the Tideway
project in 2015. These assets operate
in an established, highly respected and
predictable regulatory regime, overseen
by Ofgem and Ofwat, respectively.
THE FACTS
THE COVERAGE
130,000km
Length of gas pipeline network
c.50%
Proportion of U.K. population served
13
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
VALUE-FOCUSED PORTFOLIO DEVELOPMENT
New investments that meet the Company’s
Investment Policy are made after assessing
their risk and return profile relative to the
existing portfolio. In particular, we seek
investments to complement the existing
portfolio through enhancing long-term,
predictable cash flows and/or to provide
the opportunity for higher capital growth.
Desirable key attributes include:
1. Long-term, stable returns
2. Inflation-linked investor cash flows
3. Early stage investor (e.g. the Company
is an early stage investor in a new
asset developed by Amber)
4. Preferential access (e.g. sourced
through pre-emptive rights or through
the activities of our Investment
Adviser)
5. Enhanced capital attributes (e.g.
potential for additional capital growth
through construction ‘de-risking’ or
the potential for residual/terminal
value growth)
During the year to 31 December 2017, INPP
invested a record £464.0 million. The majority
of these projects were sourced by Amber, the
Investment Adviser, either from the start of
the project (i.e. early stage developments in
response to an initial government
procurement process) through increasing its
interest in existing assets; or as part of a
larger consortium, building on the Company’s
experience and credibility to participate in
multi-billion pound regulated infrastructure
transactions.
These three procurement approaches are
INPP’s preferred route to market, as they
avoid bidding in the competitive secondary
public private partnership (‘PPP’) market.
Details of investment activity during 2017 are
provided below.
PROJECT
LOCATION
1
2
3
4
5
KEY ATTRIBUTES
OPERATIONAL
STATUS
INVESTMENT
INVESTMENT DATE
Cadent gas distribution network
Thames Tideway Tunnel
Wolverhampton Building Schools
for the Future
U.K.
U.K.
U.K.
✓ ✓
✓ ✓
Operational
£272.5 million
31 March 2017
✓ ✓ ✓ ✓ ✓
Under construction
£78.2 million
Various
✓ ✓
✓
Operational
£1.5 million
5 May 2017
Gold Coast Light Rail – Phase 2
Australia
✓ ✓ ✓ ✓
Operational
£3.9 million1
Victoria Schools Project
Australia
✓ ✓ ✓ ✓
Operational
£20.8 million1
Various
Various
Reliance Rail
Other investments
Australia
✓ ✓ ✓ ✓
Operational
£86.8 million1
28 November 2017
£0.3 million2,3
£464.0 million2,3
1 GBP translated value of investment.
2 A subsidiary affiliated with the project construction contractor will assume responsibility for financing the construction of the Offenbach Police Centre. As such, INPP’s financial commitment is
not due until satisfactory construction completion, anticipated to occur in mid-2020. £0.1 million was invested at financial close.
3 An investment commitment of up to £45.0 million was made to the National Digital Infrastructure Fund. During the period £0.2 million pre-investment was called by the fund.
In addition, up to £225 million of investment
commitments or binding offers were made
during the period including into the
Offenbach Police Centre, Germany, the
National Digital Infrastructure Fund,
Dudgeon OFTO and a further investment
in the Cadent gas distribution networks.
CADENT (GAS DISTRIBUTION
NETWORK), U.K.
The Company is part of a consortium which
includes other leading U.K. and international
institutional investors which acquired a 61%
interest in Cadent (owner of gas distribution
networks (‘GDNs’)). In 2017, the Company
invested £272.5 million into the project
for a 4.4% stake with the remaining Risk
Capital funded by consortium partners.
In addition to the 61% interest acquired
by the consortium, a further 14% interest
in the GDNs has been negotiated with
the National Grid and is subject to put
and call options between National Grid
and the consortium. The consortium also
has pre-emption arrangements over the
residual 25% investment that National
Grid will continue to hold after the exercise
of the 14% option. The investment
demonstrates the Company’s performance
in originating regulated assets with long-
term, sustainable, inflation-linked revenues.
14
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT THAMES TIDEWAY TUNNEL, U.K.
The Tideway investment relates to
the design, build and operation of a
25km ‘super-sewer’ under the River
Thames in London. The Company is
part of a consortium committed to
investing £4.2 billion in developing this
asset which is regulated by Ofwat.
Construction of the Thames Tideway Tunnel
is continuing with work having started
ahead of schedule at the key drive sites and
overall construction completion is scheduled
for 2022. During the period, an additional
£1,050 million of long-term financing
was successfully raised by Tideway to
support its construction activities, bringing
total long-term financing raised since
the project reached financial close to
£2.2 billion. During 2017, the Company
invested a further £78.2 million into the
project, completing the c.£207 million
investment commitment it made when
the consortium was awarded the licence
to own and finance the project in 2015.
ADDITIONAL INVESTMENT IN
BUILDING SCHOOLS FOR THE
FUTURE (‘BSF’) PROJECTS, U.K.
BSF is a former U.K. Government
programme for the redevelopment of
secondary schools in the U.K. financed
using a combination of design and
build contracts and private finance type
arrangements. The programme for further
developments was cancelled in July 2010.
In 2017, the Company acquired an
additional interest in the Wolverhampton
BSF schools project committing a
further £1.5 million to acquire a further
8% indirect investment in the scheme.
As a result, the Company’s existing 82%
investment in the project grew to 90%.
supported by a letter of credit. Construction
of the 7.3km extension reached completion
ahead of schedule and opened for
passenger services in December 2017,
in time for the opening of the Gold Coast
Commonwealth Games in April 2018.
VICTORIA SCHOOLS PROJECT,
AUSTRALIA
In October 2015, the Company, as part
of a consortium, was selected to design,
build, finance and maintain the New
Schools Public Private Partnership Project
in Victoria, Australia. The project comprises
the delivery of 15 schools across 12 sites.
The Company provides 100% of the project
Risk Capital and in 2017, £20.8 million of
investment was made into the project and
construction completed in December 2017.
ADDITIONAL INVESTMENT IN
RELIANCE RAIL, AUSTRALIA
The Reliance Rail Project is a public private
partnership with Transport for New South
Wales, an executive agency of the New
South Wales Government relating to the
provision of rolling stock. In November 2017,
INPP invested c.A$154 million (£86.8 million)
and now owns a 33% interest in the project.
INPP has held a small minority interest in
the project since 2006, but since 2012 this
has been carried at nominal value only.
Whilst the operational performance of the
project has been excellent, equity value
had been suppressed by the complexity
of the project’s original structure. The 2017
investment and associated refinancing
restores the original value of the Company’s
existing investment, and on a blended
basis of the new and existing capital is
expected to provide the Company with an
attractive return in comparison with other
operational PPP projects in the portfolio.
ADDITIONAL INVESTMENT IN GOLD
COAST LIGHT RAIL, AUSTRALIA
In April 2016, the Company committed
to invest c.£4.8 million into the second
stage of the Gold Coast Light Rail PPP
concession project in Queensland, Australia,
the first stage of which was already part
of the portfolio. £3.9 million of investment
was made directly into the project during
the period with an additional £0.7 million
OFFENBACH POLICE CENTRE,
GERMANY
The Company has committed to invest
in the new public private partnership
police centre of South-East Hesse in
Offenbach which is approximately 5km
from Frankfurt, Germany. It is anticipated
that the project will take two and a half
years to construct after which it will have
a 30-year operational term. INPP has
See more on the Company’s pipeline
investments on page 19
committed to invest c.€8 million for a 45%
shareholding in the project. A subsidiary
affiliated with the project’s construction
contractor will assume responsibility for
financing during the construction period. As
such, aside from a small initial investment,
INPP’s financial commitment is not due
until satisfactory construction completion,
anticipated to occur in mid-2020.
DIGITAL INFRASTRUCTURE, U.K.
The Company committed jointly with HM
Government to make an investment in
digital infrastructure and particularly fibre
optic broadband connections through the
National Digital Infrastructure Fund (‘NDIF’),
a vehicle also managed by Amber. The
Company sees the prospect of long-term
parallels between the essential nature of
broadband connectivity to the home and
workplace, and the established businesses
of gas and electricity distribution and
transmission with which it already has
experience. INPP has committed up to
£45 million into NDIF, with HM Government
committing up to £150 million.
DUDGEON OFFSHORE
TRANSMISSION PROJECT (OFTO),
U.K.
Transmission Capital Partners, the
consortium comprising INPP, Amber
Infrastructure and Transmission Investment
was appointed in November 2017 as
preferred bidder for the long-term licence
and operation of its seventh OFTO project.
The project relates to the transmission
cable connection to the offshore wind farm
located 32km off the coast of Cromer in
North Norfolk, U.K. The Company takes
no exposure to electricity production
or price risk but is paid a pre-agreed,
availability-based revenue stream over
20 years which is fully linked to U.K.
inflation (RPI). The Company expects to
invest c.£50 million, with financial close
estimated in the second quarter of 2018.
15
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CURRENT MARKET ENVIRONMENT
AND FUTURE OPPORTUNITIES
The U.K. Government remains
committed to the development of public
infrastructure as a key component
of its long-term economic policy.
The U.K. Government recognises
infrastructure as a central pillar of its
industrial strategy, and in 2017 it updated
the National Infrastructure and Construction
Pipeline (‘NICP’). The NICP details
£460 billion of planned infrastructure
investment across the public and private
sectors, projecting total public and private
investment in U.K. infrastructure to be
around £600 billion over the next ten years.
This is enhanced by the U.K. Government
increasing the National Productivity
Investment Fund to £31 billion at the
end of 2017, which will support private
sector investment in transport, housing
and digital infrastructure, in particular.
In December 2017, the Infrastructure and
Projects Authority (‘IPA’) launched the
Transforming Infrastructure Performance
(‘TIP’) programme to help improve the
delivery and performance of social and
economic infrastructure and boost
construction sector productivity. A ten-
year programme, the TIP is designed to
enhance the way infrastructure is designed,
procured, delivered and operated to help
drive efficiency and productivity gains. This
is not only about benchmarking capital
efficiency – which the Company and its
Investment Adviser, as long-term investors,
have always been actively engaged in, and
how to drive better asset performance
over the whole lifecycle, but what role
technology can also play in maximising the
benefits of public infrastructure in daily life.
Whilst infrastructure spending and
procurement has remained a constant
policy objective, it has increasingly become
a political imperative too. The Company
notes the increasing public attention paid
to the assessment of the value for money
private sector investment that U.K. public
infrastructure provides. Whilst the greater
volume of commentary has been levelled
at historical PFI projects associated with
large, acute hospitals in the U.K. – to
which the Company has no exposure – the
Company continues to believe that PFI/PF2
brings significant benefits to the project’s
public sectors partners, and ultimately their
end-users. These include the benefits of
contracts covering the whole of the life of
the asset and the risk transfer to the private
sector arising through detailed payment
mechanisms imposing penalties where
standards fall below those required by
the project contracts. Such arrangements
have demonstrated the effectiveness of
incentives for the private sector to build new
infrastructure on time and to budget and
to lower the overall cost of capital through
the competitive procurement process.
Whilst political uncertainty will likely
continue to pose potential economic risk
and potential market-wide challenges, the
strength of the Company’s geographically
and sector diversified portfolio gives the
Board confidence in its position as a long-
term custodian on public infrastructure
projects in the face of enhanced public
scrutiny in the U.K. As it invests into
differentiated areas of infrastructure
including regulated assets, the Company
notes that as at 31 December 2017 only
8% of its assets were PFIs in the U.K. with
a further 16% having similar characteristics,
but were developed under different
programmes. More information on the
Company’s evolution into regulated assets
is set out in the Case Study on page 12.
UNITED KINGDOM
16
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT NORTH AMERICA
The ability for the private sector to
participate in more U.S. infrastructure
projects provides INPP with a broad
variety of investment opportunities. It is
well-positioned to capitalise on these
developments through its relationship
with Hunt (described in more detail on
page 3), where it has ‘right of first look’
over investment opportunities in the U.S.
originated or sold by Hunt, which meet
the Company’s investment criteria.
Canada has a strong track record of
infrastructure investment and in 2017, it
expanded on the commitments made in the
2016 budget and the 2016 Fall Economic
Statement by proposing an additional
C$81 billion through to 2027–28 in public
transit, green and social infrastructure, and
transportation infrastructure to support trade
and rural and northern communities. The
Investing in Canada long-term infrastructure
plan expects C$180 billion of infrastructure
investment to be made over 12 years. One
element of the 2017 budget will be delivered
through integrated bilateral agreements
between the federal government and
each of the provinces and territories
across four funding streams: public transit,
green infrastructure, community, culture
and recreation infrastructure and rural
and northern communities. INPP has an
ongoing presence in the country through
two operational projects. The continued
focus on expanding the infrastructure
plan over the next decade allows INPP to
capitalise on this opportunity and develop
the already existing relationships.
Infrastructure in the U.S. continues to
come under pressure and is significantly
underfunded. The American Society of
Civil Engineers (‘ASCE‘) gave America’s
infrastructure a grade D+ on its 2017
report card, falling to twelfth in the world
according to the World Economic Forum,
estimating that the United States needed
to spend US$4.6 trillion by 2025, with a
funding gap of US$1.5 trillion, to rebuild
the United States, public infrastructure
from its current state of disrepair.
To address this, infrastructure has been
flagged as a top priority and an agenda item
of the 2018 budget, as part of President
Donald Trump’s ‘Rebuild America’s
Infrastructure’ plan seeking reforms for how
infrastructure projects are regulated, funded,
delivered and maintained. Over the next
10 years, the President’s target is to invest
US$1.5 trillion into national infrastructure
including US$200 billion of federal funding
commitment with the remainder to be
funded by state and local governments and
private investors. There are also initiatives
to shorten the process for approving
projects to two years or less (White House
Infrastructure Proposal, 2018). The funds
will be allocated to various projects to
not only address traditional infrastructure
but other needs, such as drinking
and waste water systems, waterways,
resources, energy, rural infrastructure,
public lands and veterans’ hospitals.
Increasing private investment to reach
the targets proposed is a theme that
runs throughout the Infrastructure Plan,
in addition to incentives and amendments
to existing limitations to encourage private
investment. The plan encourages a move
away from financing the country’s
infrastructure through government and
tax-advantage schemes to using public
private partnerships, as the principal
method of funding.
17
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CURRENT MARKET ENVIRONMENT
AND FUTURE OPPORTUNITIES
CONTINUED
Investment into European infrastructure
continues to be strong and is supported
by broader E.U. frameworks. As part of
the Investment Plan for Europe, known as
the ‘Juncker Plan’, which was announced
in November 2014, the European Fund
for Strategic Investment was launched
by the European Investment Bank and
the European Commission. Its initial
focus was on infrastructure, including
energy, digital, transport and social
infrastructure with a current investment
target to the end of 2020 of €500 billion.
Demand for the PPP asset class also remains
strong, with steady volumes of transactions in
the European market. In 2017, the European
PPP Expertise Centre reported 42 PPP
transactions had reached financial close in
the European market (including the U.K.),
totalling investment of €14.4 billion. While
the U.K. is the largest market in Europe
by number of transactions, Germany and
France continue to see substantial deal flow.
In Europe (excluding the U.K.), INPP is
focusing on stable and well-structured
Northern European economies including
Belgium, the Netherlands, Germany,
Austria and Ireland. These jurisdictions
offer a steady flow of new primary market
opportunities across a range of sectors,
including accommodation, schools, police
facilities and transportation. Benelux,
Germany and Austria are particularly
attractive investment opportunities, given
INPP’s expertise and relationships with
likely partners in those markets. Moreover,
existing investments in central Europe
allow for attractive and partly exclusive
secondary opportunities, providing an
additional source of growth to strengthen
INPP’s position in those markets.
Future success will depend on securing
opportunities through the bid process in
primary and secondary markets, while
ensuring that every opportunity fits within
the Company’s risk and reward parameters.
Australia has a history of private sector
organisations providing and financing public
sector infrastructure. It has a well-developed
market for infrastructure investment and
debt finance, with an active pool of domestic
and overseas investors and banks.
Over the medium to long term, much of
Australia’s infrastructure development will be
undertaken within the strategic and policy
framework of Infrastructure Australia’s
‘Australian Infrastructure Plan’ (updated
February 2017). Australia’s population is
expected to grow to more than 30 million
people by 2031 and this plan has become
the reference point for the most important
infrastructure investments over the next 15
years, with a total capital value of around
A$60 billion. Many are large-scale (multi-
billion A$) transport projects, responding to
population growth in Australia’s biggest
cities. This projected growth in major
transport projects is consistent with the
current trends in Australia with A$3.0 billion
of PPP transport projects closed in 2016
and A$7.8 billion during 2017.
Australian states are also developing smaller
scale social infrastructure projects in health,
social housing and education sectors. In
keeping with policy recommendations in the
Infrastructure Plan, some states are also
adopting infrastructure procurement models
that outsource operator services to the
private sector, as well as seeking private
sector capital to develop the asset.
New Zealand remains an important market
although the recent change in government
is expected to limit the number of PPP
projects and government privatisations.
Amber, the Investment Adviser, continues to
monitor projects as they come to market,
and would resource the pursuit of these
opportunities from its Australian offices
should they offer enhanced returns.
INPP is positive about the prospects for
further investments in the region and, whilst
mindful of the recent improvement in the value
of sterling since the announcement of Brexit,
will continue to monitor currency volatility in
respect to new transactions. Although INPP
remains cautious of the refinancing risk
prevalent within Australia’s current primary
PPP market, there is an increasing appetite in
the debt markets for longer tenor debt
compared to previous years.
EUROPE
EXCLUDING UNITED KINGDOM
AUSTRALIA AND
NEW ZEALAND
18
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT CURRENT PIPELINE
INPP’s performance does not depend upon additional investments to deliver projected returns. Further investment opportunities will be
judged by their anticipated contribution to overall portfolio returns relative to risk. Selected opportunities that may be considered for
investment in due course as identified by Amber are outlined below.
KNOWN/COMMITTED
OPPORTUNITIES
DUDGEON OFTO
CADENT
DIGITAL
OFFENBACH POLICE
HEADQUARTERS
LOCATION
ESTIMATED INVESTMENT
EXPECTED CONCESSION
LENGTH
INVESTMENT STATUS
U.K.
U.K.
c.£50m1
c.20 years
Preferred bidder
Commitment as part of a
consortium to acquire
additional 14% interest
Operational business
Subject to put and call option expected
to be exercised during 2019
U.K.
Up to £45m1
Various
Germany
c.£7m2
30 years
Commitment to National Digital
Infrastructure Fund, investment
opportunities being reviewed by Amber
Investment commitment made.
Expected to be funded mid 2020
SECTOR OF INVESTMENT
OPPORTUNITY
OTHER, INCLUDING
REGULATED INVESTMENTS
LOCATION
U.K.
ESTIMATED PROJECT CAPITAL
COMMITMENT VALUE
EXPECTED CONCESSION
LENGTH
INVESTMENT STATUS
c.£4.5bn3
Various including
operational
businesses
Regulated opportunities including in
energy and waste sectors at varying
stages
OFTO
EDUCATION
HEALTH
TRANSPORT
ACCOMMODATION
U.K.
c.£1.7bn3
c.20 years
Shortlisted on four OFTOs
U.K., Europe
c.£240m3
Australia
c.£230m3
Australia,
Europe
c.£590m3
U.K., Europe,
U.S., Australia
c.£680m3
Various
Various
Various
Various
Opportunities through variations to
existing PPP contracts and through
Amber’s wider relationships
Includes follow-on opportunities
Variety of opportunities mainly
PPP-style investments
1 Represents the current estimate total future investment commitment by the Company.
2 Project has reached financial close. Commitment to invest once construction has completed, expected to be mid 2020.
3 Represents the estimated current unaudited value of the project and includes both debt and equity.
The above includes commitments and potential opportunities currently under review by the Investment Adviser including current
bids, preferred bidder opportunities and the estimated value of opportunities to acquire additional investments, including
under pre-emption/first refusal rights. There is no certainty that these will translate to actual investment opportunities for the
Company. The value referenced in relation to the pre-emption opportunities represents the estimated potential investment value,
which reflects the current estimate of the total likely acquisition value at that time. In relation to opportunities where the current
estimated gross value of the relevant project is given (which includes an estimate of both debt and equity), the estimates provided
are not necessarily indicative of the eventual acquisition price for, or the value of, any interest that may be acquired.
19
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED
ACTIVE ASSET MANAGEMENT
The Company’s focus has been, and will continue to be, to procure and manage assets which carry little demand-based risk, however
increasingly the Company has shifted away from pure availability based assets recognising the value in risk-adjusted returns regulated assets
can drive. The delivery of expected outcomes for all parties to our investments is critical, whether this is a courthouse cleaned to the specified
contractual standards or the delivery of a ‘super sewer’ under London on time and within budget.
Through Amber, as a long-term, responsible private investor, we closely monitor relationships between our service providers and our clients,
the Regulator and the operating business, and the operating business and the end user. Amber has the flexibility and experience to quickly
respond to the changing requirements of all its clients and counterparties.
We are not a passive investor and where possible manage project origination, financial and asset management in-house through our
Investment Adviser. We are actively involved in managing service providers and operating businesses to deliver the expected outcomes and
in the event the assets under our management require remedial or improvements works, we work collectively with our service providers,
operating businesses and clients to ensure end-users receive the outcomes they expect.
OPERATIONAL PORTFOLIO DEVELOPMENT
Amber continues to engage with its public sector clients to manage variations to the existing scheme to support positive business change.
During 2017, INPP’s public sector clients commissioned over 900 contract variations in its projects resulting in over c.£8.6 million of additional
project work, with individual variations ranging in value from £200 to over £1 million. These project variations were overseen by Amber as part
of its day-to-day asset management activities, in conjunction with the relevant project facilities manager and each public sector client. Amber
assesses each case on its individual merits and ensures there is no material change to the risk profile or financial return, whilst assisting their
client to achieve their operational or facilities objectives.
Amber seeks to actively manage and add value to the portfolio where it is able to do so. For instance, the Company undertook two debt
refinancings of its education assets under the BSF programme in 2017, with others planned over the course of 2018. The refinancings
generate improved financial returns which are shared with the public sector counterparty and demonstrate an important pillar of our active
asset management approach – delivering benefits to our clients and the end-users, whilst not increasing the charge paid by the public sector.
Amber works with its public sector counterparties to deliver ongoing value and operational savings. In 2017, nine benchmarking exercises
were performed in its social accommodation projects, which included reviewing facilities management services delivered on the projects
in order to assess value for money for the public sector. Amber also continued to focus on energy efficiency, resulting in savings to public
sector counterparties.
Safety is at the core of Amber’s approach to asset management. Following the tragic events at Grenfell Tower in June 2017, Amber carried
out a review of INPP’s portfolio of assets to assess whether it had construction elements of a similar nature. This review focused on whether
the INPP facilities were clad and insulated in the same materials as Grenfell Tower. The findings of the review confirmed that the specific
combination of cladding and insulation material used at Grenfell Tower was not present on any of the assets managed on behalf of INPP. The
review also considered the height of facilities, whether the facilities have more than one means of escape, times of use of the facilities, and
whether the facilities had sprinklers. The outcome of the review indicated that the facilities INPP invests in are suitable for their intended use.
As noted in the Chairman’s letter, the Company has paid particular attention to the portion of the portfolio where subsidiaries of Carillion plc
provided construction and/or facilities management services; 3% of the portfolio (across 24 projects) received construction/facilities
management services from Carillion. Following the collapse of Carillion in January this year, Amber implemented its contingency plan to
transition projects to new providers and manage broader project-level relationships. 17 of these projects have now been transitioned to new
facilities managers on an interim basis. Full transition is expected to occur over the following six months and will be on substantially the same
terms as the original Carillion contracts and all on-site ex-Carillion personnel will be offered continuity of employment on the same terms.
20
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT PROJECTS UNDER CONSTRUCTION
Four projects, representing approximately 12% of the Company’s portfolio were under construction at 31 December 2017.
Tideway continued to make good progress in line with its scheduled construction programme. Works commenced in April 2017 to enable the
tunnel boring machines (‘TBMs’) to be located ahead of the tunnelling commencing in 2018. One of the drive sites, Chambers Wharf, once
completed will create the largest new public outdoor area in London for over a decade.
During 2017, the construction works on the New Schools PPP Project in Australia (Victorian Schools 2) progressed in line with expectations,
with the remaining seven schools achieving construction completion during 2017.
The seven kilometre Gold Coast Phase 2 light rail project extension reached completion and opened for passenger services on 17 December,
approximately two weeks earlier than the planned completion date.
Construction on the first three of the Priority Schools Building Aggregator Programme projects are complete although some post completion
works remain. While all the new schools on the fourth batch were completed by September 2017, a sports hall at one of the schools is due to
be completed towards the end of 20182. Batch five is on schedule to complete construction in April 2018.
Projects under construction as at 31 December 2017 are set out in the table below.
ASSET
Priority School Building
Aggregator Programme
(batch 4 & 5)
Thames Tideway Tunnel
LOCATION
U.K.
U.K.
Offenbach Police Headquarters
Germany
CONSTRUCTION
COMPLETION DATE
DEFECTS
COMPLETION DATE
STATUS
% OF FAIR VALUE
OF INVESTMENT
2018
2019
Modest delays.
0.9%
No financial
impact on Company1
2024
2020
2027
2025
On schedule
On schedule
10.8%
0.0%
1 Two batches are behind schedule at 31 December 2017. INPP is a debt only provider and the programme is largely determined by equity providers and their management supply chain.
2 Subject to a new construction provider being appointed to replace Carillion.
21
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED
EFFECTIVE FINANCIAL MANAGEMENT
The Company aims to manage its finances effectively by minimising its unutilised cash holdings, while maintaining the financial flexibility to
pursue new investment opportunities. This is achieved through active monitoring of cash held and generated from operations, appropriate
hedging strategies, and prudent use of the Company’s corporate debt facility (‘CDF’).
SUMMARY OF CASH FLOWS
Summary of Consolidated 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 operating cash flows1
Cost of new investments
Net movement of corporate debt facility
Proceeds of capital raisings (net of costs)
Distributions paid
Funds advanced to affiliate entities
Net cash at period end
Cash dividend cover
Year to
31 December
2017
£ Million
Year to
31 December
2016
£ Million
71.0
118.9
(21.5)
(4.1)
93.3
(10.3)
83.0
(464.0)
17.8
404.4
(76.2)
(2.1)
33.9
1.2x
72.4
94.7
(16.1)
(2.3)
76.3
(4.0)
72.3
(209.9)
–
198.1
(61.9)
–
71.0
1.2x
1 Net operating cash flows as disclosed above (c.£83.0 million) include net repayments from investments at fair value through profit and loss (c.£25.8 million), and finance costs paid (c.£4.1 million)
which are not included in the net cash inflows from operations (c.£61.3 million) as disclosed in the statutory cash flow statement on page 71 of the financial statements.
SUMMARY OF CORPORATE EXPENSES AND ONGOING CHARGES
Corporate Expenses
Management fees
Audit fees
Directors’ fees
Other running costs
Operating costs (ongoing)
Ongoing Charges
Annualised Ongoing Charges1
Average NAV2
Ongoing Charges
Year to
31 December
2017
£ Million
Year to
31 December
2016
£ Million
(19.4)
(0.3)
(0.3)
(1.5)
(21.5)
(14.4)
(0.3)
(0.3)
(1.1)
(16.1)
Year to
31 December
2017
£ Million
Year to
31 December
2016
£ Million
(21.5)
1,865.0
(1.15%)
(16.1)
1,421.8
(1.13%)
1 The Ongoing Charges ratio was prepared in accordance with the Association of Investment Companies’ (‘AIC’) recommended methodology, noting this excludes non-recurring costs.
2 Average of published NAVs for the relevant period.
22
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT The Company’s cash balance of £33.9 million at 31 December 2017 was £37.1 million lower than the cash held at 31 December 2016 of
£71.0 million. This reflected the volume of investment activity in the year, as opening cash included proceeds from capital raised of £41.7
million that were used to part-fund investment during the first quarter of 2017. In comparison, the 31 December 2017 cash balance included
only £1.2 million remaining from the December 2017 capital raising.
Cash receipts from investments increased by £24.2 million, reflecting the further growth of the portfolio. This was partially offset by higher
ongoing charges and net financing costs. Management fees paid to the Investment Adviser totalled £19.4 million (2016: £14.4 million), with
increases over the prior year amount driven mainly by portfolio growth as well as a contractual alignment of the timing of fee payments in the
year (see also below). The Company was able to achieve a £17 million positive increase in operating cash flows before non-recurring operating
costs compared with 2016.
Higher net financing costs reflect higher investment activity and a larger corporate debt facility following an increase in November 2016 from
£300 million to £400 million. The benefits of the larger facility were seen during the year, as the Company was able to part-fund the investment
in Cadent whilst continuing to support investment commitments under letters of credit. The facility is intended to be drawn only as a short-
term arrangement to fund acquisitions, and in line with this policy, the facility was repaid following the Cadent investment. This was achieved
by utilising proceeds of a £330 million (before issues costs) capital raise in May 2017, whilst a further capital raising of £80 million (before issue
costs) in December 2017, enabled the Company to repay further amounts that had been drawn to part-fund cash investments during the
second half of the year.
During 2017, the timing of management fee payments was aligned with the contractual quarterly payment cycle (rather than the previous
biannual payment practice). This resulted in a £2.9 million additional payment being made during 2017 to accommodate this change. This
differential is shown within non-recurring operating costs given it reflects a one-off adjustment year with five quarterly payments rather than
four. The one-off costs in 2017 did not impact the reported cash dividend coverage of 1.2x. Other non-recurring operating costs were
predominantly transaction costs, £6.8 million (2016: £3.2 million) settled during the year related to new investments, with total non-recurring
costs amounting to £10.3 million (2016: £4.0 million).
Cash investments made during 2017 (detailed in note 12) totalled £464.0 million (2016: £209.9 million). Funds advanced to affiliate entities
(£2.1 million) relate to monies used to fund investments that reached financial close around the year end.
Cash dividends paid in the year of £76.2 million (2016: £81.9 million) were in respect of the six-month periods ended 31 December 2016
and 30 June 2017, the reduction being due to higher scrip uptake by investors in the current year. INPP seeks to generate dividends paid to
investors through its operating cash flows, and in all periods shown above cash dividends were at least 1.2 times covered by the Company’s
net cash flow from operations before non-recurring operating costs. The Company remains confident of its ability to continue to grow
dividends going forward as demonstrated through its forward guidance of 7.00 pence in 2018 and 7.18 pence in 2019.
23
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED
INVESTOR RETURNS
INPP has continued to deliver consistent dividend growth, NAV growth and inflation linkage from underlying cash flows.
DIVIDEND GROWTH AND PERFORMANCE
INPP targets predictable and, where possible, growing dividends. During the year, the Company delivered a 6.82 pence per share dividend
(2016: 6.65 pence) and forecasts to pay 7.00 pence per share and 7.18 pence per share for 2018 and 2019 respectively2. Since inception,
the Company has delivered a c.2.5% per annum average dividend increase. INPP’s dividend growth is illustrated in the chart on page 2.
Profit before tax was £106.4 million, reduced from the previous year (2016: £175.3 million) which saw one-off valuation gains mainly as a
result of foreign exchange movements following the U.K. referendum to leave the European Union. Earnings per share were 8.36 pence
(2016: 17.18 pence).
Returns from portfolio investments (investment income) in the year were £139.8 million (2016: £206.8 million) including fair value movements,
dividends and interest. These returns were partially offset by operating expenses (including finance costs) of £34.0 million (2016: £24.6 million)
and other operating income of £0.6 million (2016: other operating expense of £6.8 million) as shown in the Consolidated Statement of
Comprehensive Income.
TOTAL SHAREHOLDER RETURN
INPP’s Total Shareholder Return (share price growth plus reinvested distributions) for investors since its Initial Public Offering (‘IPO’) in
November 2006 to 31 December 2017 is 165.4% (9.2% on an annualised basis). This compares to a FTSE All-Share Index total return over
the same period of 97.1% (6.3% on an annualised basis). INPP has exhibited relatively low levels of volatility compared to the market, as
evidenced by the graph below showing the Company’s share price since IPO against the price performance of the major FTSE indices.
INPP Share Price Performance
INPP SHARE PRICE PERFORMANCE
% change
100
80
60
40
20
0
-20
-40
-60
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 Jun 16 Dec 16 Jun 17 Dec 17
INPP
FTSE 250
FTSE All-Share INPP NAV
Source: Bloomberg
INFLATION-LINKED CASH FLOWS
In an environment where investors are increasingly focused on achieving long-term real rates of return on their investments, inflation protection
is an important consideration for the Company. At 31 December 2017, the majority of assets in the portfolio had some degree of inflation
linkage and, in aggregate, the weighted average return of the portfolio (before fund-level costs) would be expected to increase by 0.79% per
annum in response to a 1.00% per annum increase in the currently assumed inflation rates across the whole portfolio1.
1 Calculated by running a ‘plus 1.00%’ inflation sensitivity for each investment and solving each investment’s discount rate to return the original valuation. The inflation linkage is the increase in the
portfolio weighted average discount rate.
2 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
24
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT NET ASSET VALUATION AND NAV PER SHARE
The Company reported a 27.1% increase in NAV, up to £2,038.3 million at 31 December 2017 (2016: £1,603.7 million). This represented an
increase of 2.0% in the NAV per share, increasing to 145.0 pence at 31 December 2017 (2016: 142.2 pence). The NAV represents the fair
value of the Company’s investments plus the value of cash and other net assets held within the Company’s consolidated group.
The key drivers of the change to the NAV between 31 December 2016 and 31 December 2017 are highlighted in the graph that follows and
are described in more detail below.
Net Asset Value Movement (£m)
Net Asset Value Movements
£m
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
404.4
(36.0)
45.0
2.5
4.6
(76.2)
90.3
2,038.3
33.0
2,005.3
1,603.7
88.5
1,515.2
NAV at
31 December
2016
Capital
Raising
(post issue
costs)
Change in
Government
Bond Yields
Change in
Investment
Risk Premia
Change in
Construction
Risk Premia
Change in
Foreign
Exchange
Rates1
Cash
Distributed
to INPP
Shareholders
(net of scrip)
NAV
Return 2
NAV at
31 December
2017
Fair value of investments
Cash and other net assets
1 Represents movements in the forward rates used to translate forecast non-GBP investment cash flows and the spot rates used to translate non-GBP cash balances.
2 The NAV Return represents, amongst other things: (i) variances in both realised and forecast investment cash flows; (ii) the unwinding of the discount factor applied to those cash flows;
and (iii) changes in the Company’s net assets.
During 2017:
– Over £400 million of new capital was raised (before costs). The proceeds of the capital raisings were used to repay the cash drawn balance
of the corporate debt facility and acquire new investments
– Government bond yields increased in all countries in which INPP holds investments, with the exception of Italy and the U.S., resulting in a
net negative impact on NAV. This was more than offset by an unwinding of the investment premia, reflecting a lack of observable market-
based evidence to justify revaluing the investments in line with the net increase in government bonds and a reduction in the risk profile of
certain investments
– The portfolio also benefited from a reduction in discount rate risk premia applied to assets that moved out of the construction/defects
liability phase and into full operations
– Sterling weakened against the Australian dollar and the euro but strengthened against the Canadian and U.S. dollars. The net impact was
a positive impact on NAV, with the most significant impact on euro-denominated investments
In line with forward guidance provided previously, two cash dividends were paid to INPP shareholders totalling £76.2 million
–
The NAV Return of £90.3 million captured the impact from the following:
– Unwinding of the discount factor – the movement of the valuation date and the receipt of forecast distributions
– Optimisation of cash flows – actual distributions received above the forecast amount due to active management of the Company’s
portfolio, including negotiating and optimising investment cash flows and utilisation of Group tax loss relief
– Updated cash flow forecasts – updated operating and macroeconomic assumptions to reflect current expectations of future cash flows
– Movements in the Company’s working capital position
25
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED
INVESTMENT VALUATION
PROJECTED FUTURE CASH FLOWS
The Company’s investments are expected to continue to exhibit predictable cash flows. As the Company has a large degree of visibility over
the forecast cash flows of its current investments, the chart below sets out the Company’s forecast investment receipts from its current
portfolio before fund-level costs. The majority of the forecast investment receipts are in the form of dividends or interest and principal
payments from senior and subordinated debt investments.
The Company’s portfolio comprises both investments with finite lives (determined by concession or licence terms) and perpetual investments
(including, for example ownership, interests in regulated trading companies), that may be held for a much longer term before being sold.
Over the life of concession-based investments, the Company’s receipts from these investments represent a return of capital as well as
income. The fair value of the Company’s concession-based investments is expected to reduce to zero over time.
INPP Projected Cash Flow Profile
INPP Projected Cash Flow
Investment Receipts (£m)
300
250
200
150
100
50
0
Investments at Fair Value (£m)
2,500
2,000
1,500
1,000
500
0
100 years
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
2
1
4
7
2
1
4
8
2
1
4
9
2
1
5
0
Projected Investment Receipts (LHS)
Projected Investment at Fair Value (RHS)
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
Note: This chart is not intended to provide any future profit forecast. Cash flows shown are projections based on the current individual asset financial models and may vary in the
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
future. Only investments committed as at 31 December 2016 included.
certainly be different and may be higher or lower than indicated. No new investments other than those committed as at 31 December 2017 have been included.
PORTFOLIO PERFORMANCE AND RETURN
The valuation of the Company’s investment portfolio is determined by the Board, with the benefit of advice from the Investment Adviser
and review by the Company’s auditor. It is considered quarterly for approval by the Company’s Directors. Investments at fair value as at
31 December 2017 were £2,005.3 million, an increase of 32.3% since 31 December 2016 (£1,515.2 million).
Investments at Fair Value Movements (£m)
Investments at Fair Value Movements
£m
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,515.2
Investments
at Fair Value
at 31 December
2016
464.0
2.1
(118.9)
108.7
11.5
18.6
4.1
2,005.3
1,862.4
Investments
Funds
Advanced
Investment
Distributions
Rebased
Investments
at Fair Value
Portfolio
Return1
Change in
Discount
Rates
Change in
Macroeconomic
Assumptions
Change in
Foreign
Exchange
Rates 2
Investments
at Fair Value
at 31 December
2017
1 The Portfolio Return represents, amongst other things, (i) variances in both realised and forecast investment cash flows and (ii) the unwinding of the discount factor applied to those future
investment cash flows.
2 Represents movements in the forward rates used to translate forecast non-GBP investment receipts and the spot rates used to translate non-GBP cash balances.
26
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT The Portfolio Return of £108.7 million represents a 5.8% increase in the rebased Investments at Fair Value and can be attributed to:
– Unwinding of the discount factor – the movement of the valuation date and the receipt of forecast distributions
– Optimisation of cash flows – actual distributions received above the forecast amount due to active management of the Company’s
portfolio, including optimising investment cash flows and utilisation of Group tax loss relief
– Updated cash flow forecasts – updated operating and macroeconomic assumptions to reflect current expectations of future cash flows
In addition, there was:
– An increase of £464.0 million in the Investments held at Fair Value owing to new investments made during the year
– A decrease of £118.9 million due to investment cash flows that were paid out of the portfolio as distributions of interest, principal and
dividends
– A net decrease in the weighted average discount rates across jurisdictions in which the Company invests, leading to a £11.5 million
increase in the fair value of investments
– An increase of £18.6 million which reflects the changes made to the macroeconomic assumptions
– A net increase of £4.1 million due to foreign exchange rate movements in all four currencies the Company is exposed to
MACROECONOMIC ASSUMPTIONS
The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis and, following a thorough market assessment
during the period, certain adjustments have been made to some of the assumptions used to derive the Company’s portfolio valuation.
The key assumptions used as the basis for deriving the Company’s portfolio valuation are summarised below with further details provided in
note 11. Across the portfolio, the weighted average long-term inflation assumption at 31 December 2017 was 2.60% (2016: 2.58%) and the
weighted average deposit rate assumption was 2.11% (2016: 2.07%). The Net Asset Valuation section above provides further details on the
impact of these assumptions on the valuation during the period.
Variable
Inflation
Long-term Deposit Rates1
Foreign Exchange
Tax Rate
Basis
U.K.
Australia
Europe
Canada
U.S.2
U.K.
Australia
Europe
Canada
U.S.2
GBP/AUD
GBP/CAD
GBP/EUR
GBP/USD
U.K.
Australia
Europe
Canada
U.S.2
31 December 2017
31 December 2016
2.75%
2.50%
2.00%
2.00%
N/A
2.00%
3.00%
2.00%
2.00%
N/A
1.85
1.78
1.08
1.43
2.75%
2.50%
2.00%
2.00%
N/A
2.00%
3.00%
2.00%
2.00%
N/A
1.86
1.71
1.12
1.30
17.00%–19.00%3
30.00%
Various (12.50%–25.00%)
Various (26.50%–27.00%)
N/A
17.00%–20.00%
30.00%
Various (12.50%–33.99%)
Various (26.50%–27.00%)
N/A
1 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2019 before adjusting to the long-term rates noted in the table above.
2 The Company’s U.S. investments are in the form of subordinated debt and therefore not directly impacted by inflation, deposit and tax rate assumptions.
3 The reduction in U.K. tax rates reflects the latest substantively enacted rates at 31 December 2017 and therefore captures the reduction to 17.00% from 1 April 2020.
27
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED
DISCOUNT RATES
The discount rate used to value each investment comprises the appropriate long-term government bond yield plus an investment-specific risk
premium. The risk premia takes into account the perceived risks and opportunities associated with each investment.
The majority of the Company’s portfolio (91%) comprises Risk Capital investments (comprising equity and subordinated debt investments),
with the remaining portfolio (9%) comprising senior debt investments. To provide investors with a greater level of transparency, the Company
publishes both a Risk Capital weighted average discount rate and a portfolio weighted average discount rate, which captures the discount
rates of all investments including the senior debt interests.
The weighted average discount rates are presented in the table below. These rates need to be considered against the assumptions and
projections upon which the Company’s forecast cash flows are based.
Metric
Weighted Average Government Bond Yield (Nominal) – Portfolio
Weighted Average Investment Premium over Government Bond Yield (Nominal) – Portfolio
Weighted Average Discount Rate – Portfolio
Weighted Average Discount Rate – Risk Capital only1
NAV per share
1 Risk Capital includes both equity and subordinated debt investments.
31 December
2017
30 June
2017
31 December
2016
1.83%
5.69%
7.52%
7.87%
1.74%
5.72%
7.46%
7.86%
1.55%
5.82%
7.37%
7.90%
145.0p
144.7p
142.2p
Movement
31 December
2016 –
31 December
2017
0.28%
(0.13)%
0.15%
(0.03)%
2.8p
In the Company’s view, comparisons of average discount rates between competitor investment portfolios or funds are only meaningful if,
there is a comparable level of confidence in the quality of forecast cash flows (and assumptions) the rates are applied to; the risk and return
characteristics of different investment portfolios are understood; and the depth and quality of asset management employed to manage risk
and deliver expected returns are identical across the compared portfolios. As such, assumptions are unlikely to be homogeneous, and any
focus on average discount rates without an assessment of these and other factors would be incomplete and could therefore derive misleading
conclusions. For transparency and to aid comparability, the Company’s approach to such cash flows is set out below.
PORTFOLIO LEVEL CASH FLOW ASSUMPTIONS UNDERLYING NAV CALCULATION
The Company is aware that there are subtle differences in approach to the valuation of portfolios of investments among different infrastructure
funds. INPP regards its key cash flow and broad valuation assumptions and principles as:
– Key macroeconomic variables (outlined in the section above) continue to be applicable
– Concession contracts under which payments are made to the Company and its subsidiaries remain on track and are not terminated before
their contractual expiry date
– Any deductions suffered under such contracts are fully passed down to subcontractors
– Lifecycle costs/risks are either not borne by the Company and are passed down to a third party such as a facilities management contractor
or where borne by the Company are incurred per current expectations
– Cash flows from and to the Company’s subsidiaries and the infrastructure asset-owning entities in which it has invested will be made and
are received at the times anticipated
– Where assets are in construction they are either completed on time or any costs of delay are borne by the contractors not the Company
– Where the operating costs of the Company or the infrastructure asset-owning entities in which it has invested are fixed by 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 31 December 2017 four-year forward rates
– There are no tax or regulatory changes in the future which negatively impact cash flow forecasts
– Perpetual investments are assumed to have a finite life and therefore residual/terminal value
28
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT SENSITIVITIES FOR KEY MACROECONOMIC ASSUMPTIONS AND DISCOUNT RATES
The Company’s NAV is based on the factors outlined above including discount rates. The Company has also provided sensitivity analysis
showing an indication of the impact on NAV per share from changes in key assumptions and discount rates, as set out below. Further details
can be found in note 11. This analysis is provided as an indication of the likely impact of these variables on the NAV per share on the basis that
they apply uniformly across the portfolio whereas in practice the impact is unlikely to be uniform. These sensitivities should be used only for
general guidance and not as accurate predictors of outcomes.
IMPACT OF CHANGES IN KEY VARIABLES TO 31 DECEMBER 2017 NAV 145.0P PER SHARE
Impact of Changes in Key Macroeconomic Variables on 31 December 2017 NAV of 145.0p
Discount rates +/–1%
–14.2
Inflation +/–1%
–12.9
17.1
15.3
Foreign exchange +/–10%
–4.2
4.2
Deposit rates +/–1%
Tax rates +/–1%
Lifecycle +/–10%
–1.6
1.6
–1.0
1.0
–0.7
0.7
–20
–15
–10
–5
0
5
10
15
20
■ – change ■ + change
Pence per share
INFLATION
Forecasting the impact of possible future inflation/deflation on projected returns and NAV in isolation cannot be relied on as an accurate guide
to the future performance of the Company as actual inflation is unlikely to follow any of these scenarios exactly and invariably, and 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. Additional inflation sensitivities (by region) are
provided in note 11.5 of the financial statements.
FOREIGN EXCHANGE
The Company has a geographically varied portfolio and therefore revenues are subject to foreign exchange rate risk. The impact of a 10%
increase or decrease in these rates is provided for illustration. The Company does not hedge exposure to foreign exchange rate risk on
long-term cash flows and therefore changes in NAV are to be expected from changes in the foreign exchange forward curve against euros,
Australian dollars, Canadian dollars and U.S. dollars.
DEPOSIT RATES
The long-term weighted average deposit rate assumption across the portfolio is 2.11% 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. The impact of a 1% increase or decrease in these rates is provided for
illustration.
TAX RATES
The Company has a geographically varied portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all
relevant jurisdictions. The impact of a 1% increase or decrease in these rates is provided for illustration. Other potential tax changes are not
covered by this scenario.
29
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED
LIFECYCLE SPEND
There is a process of renewal required to keep physical assets fit for use and at the standard required of them under the agreements with
the relevant public sector bodies. The proportion of total cost that represents this ‘lifecycle spend’ will depend on the nature of the asset.
To enhance the certainty around cash flows, and excluding the Company’s regulated investments, around 76% of the Company’s assets
(by value) are currently structured such that lifecycle cost risk is taken by a subcontractor for a fixed price (isolating equity investors from
such downside risk). As a result, the impact of any changes to the Company’s lifecycle cost profile is relatively small.
Regulated assets, such as Tideway and Cadent are treated differently, due to the protections offered by the regulatory regime under which
they operate. Regulated assets have their revenues determined for a known regulatory period and each settlement includes revenue sufficient
to allow the owner to undertake the efficient lifecycle of its assets due in that regulatory period. It is common practice to employ reputable
subcontractors to undertake lifecycle work under contracts which include incentive and penalty regimes aligned with equity’s own regulatory
targets. This approach ensures an alignment of interest and helps to mitigate the risk of increased lifecycle costs falling on the equity investor.
FUTURE GROUP TAX LOSS RELIEF
Under current U.K. group tax loss relief rules, losses within the U.K. group companies can be, subject to U.K. tax law, offset against taxable
profits in other U.K. group companies (including controlled project entities). This group tax loss relief can reduce the overall tax charge across
the portfolio and potentially reduce taxable profits substantially below the levels currently modelled by the Company. The Company has taken
a conservative approach to the valuation of future tax losses and, to date, has not incorporated these into the NAV. Changes to U.K. tax loss
relief rules came into force retrospectively from April 2017, limiting the amount of loss carry forward but increasing the ability to utilise losses
across the Group. We have not needed to adjust our portfolio valuation approach for this.
By order of the Board
Rupert Dorey
Chairman
20 March 2018
John Whittle
Senior Independent Director
20 March 2018
30
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT RISK MANAGEMENT
EFFECTIVE RISK MANAGEMENT
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board is responsible for overall risk management, with delegation
provided to the Audit and Risk Committee (‘ARC’). 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.
INPP has a risk management framework in place, with a risk register
that is reviewed and updated by the Board and Audit and Risk
Committee on a quarterly basis. The ARC 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 most significant risks faced by the Company. The process has
been in place through 2017 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
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.
While 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 external controls process reviews performed
annually, 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 ARC with input from the Management
Engagement Committee. It is implemented through the following risk
control processes.
RISK IDENTIFICATION
The Board and the ARC 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. The ARC also has an open dialogue with its
advisers to assist with assessment of significant risks, if any, that
might arise between reporting periods.
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. A robust
assessment of the principal risks facing the Company is performed.
In terms of risks that might impact viability these are separately
considered. See the viability statement on page 41 for more
information on this assessment.
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.
31
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED
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
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 notes the evolving political and economic
environment, where certain risks are more pronounced in
the period under review. Whilst the U.K. opposition party
has publicly threatened to nationalise privately owned
infrastructure including U.K. PFI, the Company believes that
significant compensation would be required in order to do
this legitimately within existing contractual arrangements.
Counterparty risk has been closely monitored over the year following
issues affecting certain service providers to the Group, and
contingency plans developed by the Investment Adviser in the event
of counterparty failure. Following the collapse of Carillion plc in early
2018, the Company announced that the costs of transitioning to new
facilities management providers and other associated costs would
be up to c. £1.5 million. The Investment Adviser continues to closely
monitor other service providers within the portfolio.
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 U.K.’s departure from the E.U. also continues to be monitored
for any associated risk to the Company, however there are no ‘Brexit’
specific clauses in INPP’s underlying project contracts. Nevertheless,
a certain degree of uncertainty remains at this stage over the
eventual regulation which will cover the future relationship between
the U.K. and the E.U., in particular the approach to cross-border
AIFMD regulation and taxation of cross-border financing. We
continue to monitor this on an ongoing basis.
Direct communication between the Company and its Investment
Adviser, and the entity level asset manager, is 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 Business
Model on pages 8 and 9.
As noted in the Audit and Risk Committee report (pages 56 to 59),
the Board also considered the Company’s controls and processes
relating to asset availability reporting. Asset availability reporting
was considered an important non-financial KPI for a number of the
Company’s investments, as there are consequential implications on
returns if such assets become unavailable for public use. The review
concluded that the Company had sufficient controls in operation for
the accurate capture and reporting of such information and no
weaknesses or control deficiencies were identified.
The Board’s view of principal risks and how the relative significance
may have changed in the period are set out on the following pages.
32
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT This section 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 materially impact
the performance of the Company, its assets, capital resources
and reputation.
We note the potential impact of, and heightened focus on
cybersecurity, which continues to be an issue of relevance across
all businesses as a response to the growing levels of sophistication
being used in carrying out cyber-attacks. The Company recently
procured an external independent review of its cybersecurity control
enforcement and continues to monitor resilience to these threats.
Following careful consideration, it is not believed that cybersecurity
represents a specific risk to the Company and is instead managed
as a general risk to all businesses accordingly.
A description of broader risk factors relevant to investors is disclosed
in the latest Company prospectus available on the website
www.internationalpublicpartnerships.com.
While the Company has applied mitigation processes (set out 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:
RISK HEAT MAP
PROBABILITY
High
Medium
2
1
Low
Low
3
11
RISK TYPE
1
Inflation
2 Foreign Exchange Movements
3
Interest Rates
4 Tax and Accounting
5 Political Policy
6 Law and Regulation
7 Asset Performance
8 Counterparty Risk
9 Physical Asset Risk
10 Contract Risk
11 Financial Forecasts
10
8
4
7
9
5
6
Medium
IMPACT
High
33
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED
The following key is used in the table below to highlight the
Board’s view on movement of risk exposures during the period:
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
1
INFLATION
Whilst we hold a stable view we
note an increase in inflation would
have a positive impact on
investment cash flows
2
FOREIGN EXCHANGE
MOVEMENTS
Continued possibility of
exchange rate volatility in light
of international economic and
political change including the
U.K.’s planned withdrawal from
the European Union
Inflation may be higher or lower than expected.
Investment cash flows are positively correlated to
inflation, therefore increases/decreases to inflation
compared to current projections would impact
positively or negatively on the Company’s future
projected cash inflows. Negative inflation (deflation)
will reduce the Company’s future cash flows in
absolute terms.
INPP monitors the effect of inflation on its portfolio
through its biannual valuation process. It 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
alternative inflation scenarios may have on their
investment.
The Company’s portfolio has been developed
in anticipation of continued inflation at or above
the levels used in the Company’s valuation
assumptions. Where inflation is at levels below the
assumed levels investment performance may be
impaired. The level of inflation linkage across the
investments held by the Company varies and is not
consistent. Some investments have no inflation
linkage and some have a geared exposure to
inflation. The consequences of higher or lower
levels of inflation than that assumed by the
Company will not be uniform across its portfolio.
The Company is also exposed to the risk of
changes to the manner in which inflation is
calculated by the relevant authorities.
INPP 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
INPP’s control and may impact positively or
negatively on cash flows and valuation.
INPP uses a long-term view of inflation within
its forecasts, benchmarked where possible to
independent analysis.
INPP 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.
INPP monitors the effect of foreign exchange on
its portfolio through its biannual valuation process
and reports this to investors. The Company also
provides sensitivities to investors indicating the
projected impact on the 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.
34
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT
RISK
DESCRIPTION
MITIGATION/APPROACH
MACROECONOMIC RISKS CONTINUED
3
INTEREST RATES
The sensitivity of the portfolio to
interest rates is relatively static
Changes in market rates of interest can affect the
Company in a variety of different ways:
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) may 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.
In determining the discount rate used to value its
investments, INPP 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.
Corporate Debt Facility
INPP 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,
adversely impacting on cash flow and the
Company’s valuation.
Underlying Portfolio Considerations
Changes in interest rates have potential impacts
on the portfolio at underlying investee entity level.
Portfolio 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 INPP is different to that projected.
If INPP receives less interest than it projects this
will impact cash flows and NAV adversely.
Certain assets within the portfolio contain
refinancing assumptions. Increases in lending rates
available to these projects would have the potential
to increase their cost of financing and therefore
impact the overall returns from these assets.
In the event that the interest rate increases, INPP
has the option of repaying its corporate level 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 ring-fenced special purpose vehicle
(‘SPV’) structures and relatively smaller balances
in the SPV’s, it is not economically feasible to hedge
against adverse deposit rate movements.
INPP monitors the effect of historical and projected
interest rates on its portfolio through its biannual
valuation process and reports this to investors.
It also provides sensitivities to investors indicating
the projected impact on the Company’s NAV of a
limited number of alternative scenarios, offering
investors an ability to anticipate the likely effects
of some deposit interest rate scenarios on
their investment.
The risk of adverse movements in debt interest
rates for unhedged debt within regulated entities
is limited through protections provided by the
regulatory regime.
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED
RISK
DESCRIPTION
MITIGATION/APPROACH
INPP incorporates changes in tax rates within its
forecast cash flows and NAV once substantively
enacted.
The diversified jurisdictional mix of INPP’s
investments may provide some mitigation to tax
changes in any one jurisdiction.
INPP 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. While 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 continues to
monitor developments in relevant geographies.
Significant legislation relating to corporate interest
restriction was enacted in 2017 in the U.K. and
Belgium, with no net adverse valuation impacts
currently noted. There remains, however, no
guarantee that responses to the OECD proposals
by other governments’ changes in approach to
these rules, as a consequence of market practice
or updated guidance, will not have a negative
impact on the Company’s performance.
A portion of INPP’s income is received in the form
of shareholder debt interest income i.e. from pre-tax
cash flows and not constrained by distributable
profits tests. However, changes in accounting
standards or challenges to accounting judgements
can potentially have an impact on distributable
profits or post-tax cash flows.
MACROECONOMIC RISKS CONTINUED
4
TAX AND ACCOUNTING
The Company continues to
monitor developments relating to
tax reform across the jurisdictions
in which the Company has
operations but notes no overall
increase in risk over the year
Change in Tax Rates
Headline rates of tax have tended to reduce in
recent years, both in the U.K. and overseas
jurisdictions in which INPP operates. However,
there is a risk that this trend could be reversed if
government or policy were to change in the future.
Change in Tax Legislation
Changes in tax legislation across the multiple
jurisdictions in which INPP has investments can
reduce returns impacting on the Company’s future
cash flow returns and hence valuation (calculated
on a discounted cash flow basis).
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. Countries in
which INPP invests have been assessing their
compliance or otherwise with this guidance.
Accounting
INPP and its portfolio of investments and holding
entities form an international group structure. The
Group uses long-term cash flow forecasts from its
portfolio as part of its valuation process. These cash
flow forecasts are dependent upon distribution
profiles/cash tax profiles and therefore can fluctuate
because of future changes in accounting standards,
or challenges to accounting judgements. Therefore,
future changes to accounting standards, or
changes in interpretation and application of existing
standards, have the potential to impact the
distributable profits of entities in the portfolio and so
the cash flows available to the Group and overall
portfolio valuation.
36
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT RISK
DESCRIPTION
MITIGATION/APPROACH
POLITICAL AND REGULATORY RISKS
The nature of the businesses in which INPP invests
exposes the Company to potential changes in
policy and legal requirements. All investments have
a public sector infrastructure service aspect and
are exposed to political scrutiny and the potential
for adverse public sector or political criticism.
Most of INPP’s existing investments benefit from
long-term service and asset availability based
pricing contracts and the countries in which the
Company operates do not tend to have a tradition
of penal retrospective legislation. They 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.
5
POLITICAL POLICY
Public debate around private
sector involvement infrastructure
provision has intensified
assessment of public sector value
and therefore increases the risk of
reputational and/or economic
impact
Change in Political Policy
Political policy and financing decisions may
adversely impact either on existing investments, or
on INPP’s ability to source new investments, at
attractive prices or at all. This may impact the
Company’s reputation.
Current global policy practice continues to support
the use of private sector capital to finance public
infrastructure, despite challenge from some political
parties, particularly in the U.K., around the role of
the private sector in the provision of such services.
A certain degree of reputational risk exists in this
area as policy decisions adversely impacting INPP
have the potential to be made as a direct or indirect
result of reputational developments seen across the
wider sector.
INPP seeks to maintain strong and positive
relationships with its public sector clients where
possible. It also has an active relationship with other
external stakeholders including investors.
Termination of Contracts
Often contracts between public sector bodies and
INPP’s investment entities contain rights for the
public sector to voluntarily terminate contracts in
certain situations. While the contracts typically
provide for some compensation in such cases, this
may be less than required to sustain INPP’s
valuation, causing loss of value. There have been
instances of contracts being voluntarily terminated
in the U.K. (although, not affecting INPP).
INPP engages with its public sector clients in
developing cost-saving initiatives and seeks to act
as a ‘good partner’. None of INPP’s investments
have been identified, by any government audit or
public sector report, as 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
U.K. 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 serve to partially mitigate the risk of
voluntary termination. Furthermore, in the current
financial climate where voluntary termination leads
to a requirement to pay compensation, such
compensation is likely in many cases to represent
an unattractive immediate call on the public
finances for the public sector.
Regarding any potential impact from the U.K.’s
planned withdrawal from the E.U., there are no
‘Brexit’ specific clauses in INPP’s underlying
project contracts.
37
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED
RISK
DESCRIPTION
MITIGATION/APPROACH
POLITICAL AND REGULATORY RISKS CONTINUED
6
LAW AND REGULATION
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
INPP’s cash flow from its investments and/or
valuation of them.
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.
Regulatory Requirements
INPP is subject to changes in regulatory
requirements that relate to its business and that of
its Investment Adviser (both in terms of its
investments and in terms of itself). It is supervised
by the Guernsey Financial Services Commission
and is required to comply with the U.K. Listing
Rules applicable to ‘Premium’ listings. The
Investment Adviser is regulated by the Financial
Conduct Authority in the U.K. in accordance with
the Financial Services and Markets Act 2000.
The Company and Amber, its Investment Adviser,
monitor regulatory developments and seek
independent professional advice in order to
manage compliance with changing regulatory
requirements. It is unclear currently what impact, if
any, Brexit will have on regulatory requirements.
OPERATIONAL AND VALUATION RISKS
Construction
For the Company’s assets under construction,
there is an element of construction risk that takes
the form of cost overruns that could impact on
project returns.
Contractual mechanisms allow for significant pass
down of construction cost overrun risk to
subcontractors or consumers, subject to credit risk
(see below).
Asset Availability
The entitlement of INPP’s PPP and OFTO
investments to receive income is generally
dependent on 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 INPP has projected to receive.
The Board reviews underlying investment
performance of each investment quarterly allowing
asset performance to be monitored in close to real
time.
Historically, INPP has seen very high levels of asset
performance, which suggests a positive trend for
the future.
Contractual mechanisms and underlying regulatory
frameworks also allow for significant pass-down of
unavailability and performance risk to sub-
contractors in many cases, subject to credit risk
(see below).
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 INPP’s cash flow and
value.
In the event of significant and continuing
unavailability across INPP’s portfolio, it is able to
terminate the Investment Advisory Agreement. This
serves to reinforce alignment of interest between
the Company and the Investment Adviser.
The risk of termination of contracts as a result of
political policy is addressed in risk five above.
7
ASSET PERFORMANCE
New investment made in
the year into construction
stage assets
38
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT RISK
DESCRIPTION
MITIGATION/APPROACH
OPERATIONAL AND VALUATION RISKS CONTINUED
8
COUNTERPARTY RISK
Following the collapse of Carillion
plc in early 2018, the Company
continues to monitor the risk of
any further developments
occurring relating to any of its
other significant counterparties.
See page 20 in the Strategic
Report for further information
INPP’s investments are dependent on the
performance of a series of counterparties to
contracts including public sector bodies,
consortium partners, 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.
There may be disruption or delay to the services
provided to investments, or replacement
counterparties where they can be obtained may
only be obtained at a greater cost. These risks
would negatively impact the Company’s cash flows
and valuation.
Where borrowings exist in respect of INPP’s
investments, interest rates are generally fixed
through the use of interest rate swaps. INPP is
therefore exposed if the counterparties of these
swaps were to default or the swaps otherwise
become ineffective.
9
PHYSICAL ASSET RISK
INPP 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 INPP invests in benefit
from insurance policies, these may not be effective
in all cases.
INPP 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 INPP’s due diligence at the time
of making its investments. Most of the services
provided to the Company’s investments are
reasonably established with competing providers
and therefore there are expectations there will 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.
Early 2018 saw the collapse of Carillion plc. Facilities
management services were provided by Carillion
FM to projects making up approximately 3% (by fair
value) of the Company’s portfolio. The Investment
Adviser had been monitoring the issues affecting
Carillion plc for some time and had developed
contingency plans accordingly. The anticipated
impact of transitioning projects to alternative service
providers including transaction costs is expected to
be less than £1.5 million. The Company continues
to monitor the risk of any additional developments
occurring in this space relating to its other more
significant counterparties or without delay.
INPP’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.
39
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED
RISK
DESCRIPTION
MITIGATION/APPROACH
OPERATIONAL AND VALUATION RISKS CONTINUED
10
CONTRACT RISK
11
FINANCIAL FORECASTS
The nature of some recent
investments in operational
infrastructure businesses can
result in more variability in
performance
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. INPP is
exposed to the risk that such contracts do not
operate as intended, are incomplete, contain
unanticipated liabilities, are subject to interpretation
contrary to its expectations or otherwise fail to
provide the protection or recourse anticipated.
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 INPP’s due
diligence at the time of making new investments.
See also Political Policy on page 37 for further
commentary on contractual risk of voluntary
termination.
INPP’s projections depend on the use of financial
models to calculate its future projected investment
returns. 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 projected cash flows and thus impact
valuation. Recent investments in operating
infrastructure businesses can result in more
variability in performance than contracted
concessions special purpose companies, and
are therefore inherently more difficult to forecast
accurately given the wider range of variables
that apply.
Sensitivities
INPP 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.
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, particularly in
relation to operational infrastructure businesses
where more variables can impact forecast results.
Sensitivities are produced for the information of
investors and are accompanied by disclaimers and
guidance explaining that limited reliance can be
placed upon them.
40
International Public Partnerships Annual Report and financial statements 2017STRATEGIC REPORT The viability assessment is approved by the Board. Following the
assessment, the Board has 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 2023. 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
Rupert Dorey
Chairman
20 March 2018
John Whittle
Senior Independent Director
20 March 2018
VIABILITY STATEMENT
In accordance with provision C2:2 of the 2014 revision of the U.K.
Corporate Governance Code, we have considered the Company’s
viability as summarised below. Due to the long-term and/or
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. While 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.
The viability assessment process is 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 32 and 33
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 (noting that a high rate
environment would be positive for the Company’s investment cash
flows), large currency fluctuations impacting on receipts from
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
41
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY
Social responsibility and corporate citizenship are core to our
business, creating value for clients, investors, shareholders,
communities and society alike. This is achieved by taking
responsibility for our actions, outcomes and reputation and is fully
embedded into INPP’s core business objectives and day-to-day
business culture and operations.
Our most material impacts are indirect, relating to the environmental
and social performance of the construction and operation of the
buildings and infrastructure that make up the Company’s portfolio.
This ranges from the social utility derived from modern school
environments for children to learn; to quality public buildings
such as libraries and local health practices; to new efficient
trains and light rail systems providing better connectivity; and
to offshore power networks enabling the transmission of green
energy from offshore wind farms for wider distribution to homes
and businesses. Additionally, we recognise the importance of
managing our relationship with Amber, our Investment Adviser,
(and associated asset management operations) including
the energy and resources used within all our operations and
our contribution to the local and international community.
INPP relies upon Amber and its Sustainability Policy to promote best
practice and continued improvement in environmental management
and social responsibility. Amber’s Sustainability Policy looks beyond
legislative and regulatory requirements and has three principles as its
core:
1 Supporting projects which contribute to the long-term sustainable
development of an area;
2 Factoring in the socio-economic and environmental impacts of its
assets and their supply chain is embedded in its development
and management decision making; and
3 Encouraging and promoting sustainable practices within Amber
for its people, at its place of work and in the communities that
it serves.
Over the course of 2017, Amber has expanded and enhanced its
sustainability outlook by developing a clear set of aims that are
measurable through its Key Performance Indicators (‘KPIs’) that are
embedded across the business and the projects that it manages.
Amber uses the UN Sustainable Development Goals (‘UNSDGs’) as
the overarching sustainability framework to inform its strategies and
target setting and has chosen to focus on seven of the 17 UNSDGs
to prioritise its goals.
Amber is certified to The Planet Mark, an internationally-recognised
and trusted sustainability certification programme, and is committed
to measuring and reducing its carbon footprint and wider
sustainability metrics. More information is available on Amber’s
website: www.amberinfrastructure.com.
Our values are based on the principles of responsible investment
and finance that supports sustainable economic development,
enhances quality of life and safeguards the environment. A selection
of the social responsibility and environmental initiatives provided
through our investment portfolio are described below demonstrating
that wherever we operate, we seek to integrate within the
neighbourhood, supporting the local community, its business and
workforce.
INVESTING IN THE COMMUNITY
INPP seeks, through its projects, to work collaboratively with the
local communities where it invests, recognising the economic
benefits and contribution the projects can bring to the area,
particularly as the Company is typically investing for in excess of
20 years. Examples of community engagement during the year are
given below.
The Thames Tideway Tunnel project leads the construction industry
in demonstrating how a large capital construction project should
integrate into and deliver real benefits to adjacent communities.
The project team are helping deliver their vision of ‘Reconnecting
London and Londoners with the River Thames’1 through supporting
community activities in the boroughs where works are to be
delivered. Specific events have included education programmes,
support of local clubs and societies working in partnership with local
schools and colleges.
Salford and Wigan BSF worked with their local authority partners
to identify specific areas of need. Walkden school was assisted in
the purchase of books that are specifically aimed at encouraging
fathers to read to their children and the provision of transportation
to parents’ evenings to encourage participation and partnership
between the school and parents. Additionally, Moorside High School
pupils were assisted by the facilities manager (‘FM’) provider to
create videos warning of the dangers of drug and alcohol abuse.
We continue to support the Community Partnerships Programme at
the Royal Children’s Hospital (‘RCH’), an investment in Melbourne,
Australia, which aims to provide partnerships and attractions to
reflect the RCH’s standing as one of the world’s great children’s
hospitals. The initiative includes bringing the community into the
RCH and creating partnerships with iconic local institutions,
supporting the ‘pain free experience for children’ through
entertainment and distraction, integrating education outcomes
with entertainment and incorporating evidence based outcomes in
developing the programme of events and activities.
1 http://www.infrastructure-intelligence.com/article/aug-2015/historic-day-reconnecting-london-and-londoners-thames
42
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE COMMITMENT TO THE ENVIRONMENT
We continue to consider the environmental impact of our portfolio
and have taken various steps to increase our commitment. This is
illustrated by some of the initiatives set out below. We proactively
work with the commissioning authorities and construction partners
to achieve high standards in sustainability, including building
certifications such as BREEAM, LEED and Green Star.
A scheme at Olga School, one of the schools in the Tower Hamlets
Grouped Schools project, was successfully completed this year.
The project involved the entire demolition of the existing one form
entry school and the creation of a new three form entry school.
The new school achieved a BREEAM Excellent status overall and
was accredited with ISO 14001, an internationally recognised
environmental management standard which monitors factors such
as reduction in energy consumption, waste disposal and material
use throughout the supply chain. The construction also incorporated
the installation of photovoltaic panels, which met a 30% renewable
energy target and will have an ongoing contribution towards
sustainable energy generation.
Oakfield School in Nottingham (part of our Nottingham BSF 1
project) received a Gold Award in the annual Nottingham in Bloom
competition, a nationwide gardening competition across Britain
that helps bring the community together and show environmental
responsibility. Staff of the facilities management provider gave
unpaid support to the school to help promote the scheme. The
school has been commended for horticultural excellence and its
contribution to the environment, local landscape and character of
Nottingham. Additionally, the school is currently evaluating the
potential to reuse cooking oil from the kitchen in the CHP plant to
power and heat the school, reducing both emissions and waste.
At the Royal Children’s Hospital in Melbourne, project staff have
worked with their project partners to develop a joint strategy for
energy conservation. To date, 52 initiatives have been implemented;
these initiatives are projected to reduce 60,000 tonnes of C02
emissions and could result in a saving of over A$8M. One such
project includes the installation of an organic waste dehydrator in
the commercial retail section of the facility which saves 55,000kg
of waste from landfill and 87.6 tonnes of CO2 emissions annually.
INPP’s investment into OFTOs enables the transmission of green
energy generated by offshore windfarms to the National Grid.
In addition, INPP’s investment into the Thames Tideway Tunnel
will have a significant environmental impact on the water quality
of the River Thames in London, as a result of both sewage and
waste water being diverted away from the Thames and directly to
a water facility.
SUPPORTING PUBLIC SECTOR PARTNERS
INPP investments by their very nature support public sector
partners’ engagement with the wider communities throughout the
construction and operational phases of the portfolio’s assets, and
some examples of this are set out below.
Lewisham BSF project has provided over £10,000 of sponsorship
to CSR initiatives across the project. Bonus Pastor School was
supported in holding two awards evenings to celebrate success
and encourage attainment. With a specific focus on sports and arts,
the students displayed their work and were awarded trophies for
individual success. Drumbeat School (for students with special
needs) benefited from the installation of external surfacing and play
equipment enabling safe outdoor play and motor skill development
at no cost to the school. Similarly, Prendergast Vale School received
a donation towards the purchase of play equipment. The project has
received outstanding feedback from the public sector partner for
tangibly enhancing the educational development of the young
people who use the facilities.
The Waltham Forest project supported an ‘Eco Garden’ at Frederick
Bremner School. The financial sponsorship provided facilities for
an ‘Outdoor Classroom’ providing flowers, plants, vegetables and
shrubs, and implements such as wheelbarrows, hand tools and
protective clothing. It enhanced curriculum delivery in a number
of areas such as healthy eating, employability and the natural
environment. It was noted as being particularly beneficial for
students with additional support needs who find traditional
classroom environments challenging.
Stepney Green Sixth Form Centre, a large variation in the Tower
Hamlets Schools project is nearing completion. As part of the
scheme the building contractor supported the local educational
community to provide careers talks and mock interviews at local
schools to inspire the next generation of construction industry
professionals. This led to the contractor employing six apprentices
as part of the workforce, of which 23% lived in the local area.
In addition, the contractor provided business support to ensure
400 SMEs were encouraged to bid for the project and were
subsequently encouraged to bid for future construction opportunities
in the local area. The programme comprised of an engagement and
brokerage service for main contractors and buying organisations to
help diversify their supply chains.
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE SOCIAL AND
ENVIRONMENTAL RESPONSIBILITY CONTINUED
PROMOTING SUCCESSFUL PARTNERSHIPS
Our long-term partnerships with the operational business,
construction firms and facilities managers who build and operate the
investments within the portfolio are critical to the overall success of
those projects. We work hand-in-hand with those firms and are
pleased to provide examples of how they have engaged with the
projects and their local communities during the year.
The facilities management provider staff at St Thomas More have
been particularly proactive in partnering with the local community.
Examples include charity support such as collecting Easter eggs
for a local children’s hospital and supporting the local homeless
through clothing and financial donations. The wellbeing of staff has
also been a particular focus with the establishment of an in-house
health club which promotes healthy eating and exercise, including
the participation of FM staff in a local running event.
Staff from the facilities management provider at Bootle Government
offices have partnered with the local authority to offer work
experience placements for young people. The two-week placements
offered five young people in the area an insight into the world of
work and increased their employability. In addition, the facilities
management provider supported a local building training college
with materials, expertise and work placements on local building sites
through their construction division.
Cadent continues to offer a reliable, valued and trusted presence
in local communities. Their strategy, ‘Our Contribution’ details
specifically how the company will do business and create a
sustainable legacy. Highlights from 2017 include:
– Employees continue to share time, skills and expertise through
volunteering – in 2017 over 14,000 hours were dedicated to
community projects
– Establishing the Alzheimer’s Society as their first charity
partnership following a staff vote in September 2016. To date,
over £600,000 has been raised by staff to assist with the aim
of assisting those living with dementia and their families
– Where assets are renewed, consideration is given to reducing
costs, carbon and emissions. As an example, Bishops Wood
Substation in the U.K. was refurbished resulting in an electricity
consumption saving of 60%
44
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE SUMMARY OF INVESTMENT POLICY
OVERVIEW
INPP invests in public or social infrastructure assets and related
businesses located in the U.K., Australia, Europe, North America
and other parts of the world where the risk profile meets the
Company’s risk and return requirements.
The Company has a long-term view and invests in operational and
construction phase assets for the life of the asset or concession,
unless there is a strategic rationale for earlier realisation. INPP
seeks to enhance the capital value and the income derived
from its investments to optimise returns for its investors. The
Investment Policy is summarised below and available in full at
www.internationalpublicpartnerships.com.
INVESTMENT PARAMETERS
Maintaining the performance of the existing portfolio is the
Company’s key focus. However, it will also seek attractive
opportunities to expand its portfolio, including:
–
–
Investments with characteristics similar to the existing portfolio
Investments in other assets or concessions having a public or
social infrastructure character with either availability, property
rental or user paid payment mechanisms
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 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. It does not expect to invest in projects in non-OECD
countries, unless it can get comfortable with the risk-return profile.
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 on the
suitability of the investment from a risk and return perspective.
The Company Overview on page 2 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 total assets in any one
investment in order to limit the risk of any one investment to the
overall portfolio.
As a London Stock Exchange-listed company, INPP is also
subject to certain restrictions pursuant to the UKLA Listing Rules.
MANAGING CONFLICTS OF INTEREST
Further investments will continue to be sourced by the Investment
Adviser, Amber Fund Management Limited. 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 Corporate Governance Report sets
out more details on the conflicts management process.
FINANCIAL MANAGEMENT
The Company may also make prudent use of leverage to enhance
returns to investors, to finance the acquisition of investments in the
short term and to satisfy working capital requirements.
Under the Company’s Articles, outstanding borrowings at the
Company level, including any financial guarantees to support
subscription obligations in relation to investments, are limited
to 50% of the Gross Asset Value (‘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. Details of the
Company’s corporate debt facility can be found on page 22.
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 U.K. Listing Rules.
45
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
BOARD OF DIRECTORS
RUPERT
DOREY1
Chairman
Chairman,
Investment
Committee
CLAIRE
WHITTET1
Chairman,
Management
Engagement
Committee
From left to right
JOHN STARES1
Chairman, Risk
Sub-Committee
Chairman,
Nomination and
Remuneration
Committee
Date of appointment
GILES FROST
JULIA BOND1
JOHN LE
POIDEVIN1
JOHN WHITTLE1
Senior
Independent
Director
Chairman,
Audit and Risk
Committee
28 August 2013
2 August 2006
10 September 2012
2 August 2006
1 September 2017
1 January 2016
6 August 2009
1 All of the Independent Directors are members of all Committees.
46
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE
RUPERT DOREY1
Background and experience
Aged 57 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 U.K. Credit and Rates Sales.
JOHN LE POIDEVIN1
Background and experience
Aged 47 and a resident of Guernsey, John
has over 25 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 he held a number of
leaderships roles, including Head of Consumer
Markets, where he developed an extensive breadth
of experience and knowledge across the real estate,
leisure and retail sectors in the U.K. and overseas.
Since 2005 Rupert has been a non-executive director
for a number of Hedge Funds, Private Equity and
Infrastructure Funds.
John is a non-executive director on several plc
boards and chairs a number of audit committees.
He is a member of the Institute of Directors.
Listed company and other relevant
directorships
AP Alternative Assets LP
Cinven Capital Management IV, V, VI Ltd
and Cinven General Partner Ltd
NB Global Floating Rate Income Fund Ltd
M&G General Partner Inc.
Tetragon Financial Group Limited
JOHN WHITTLE1
Background and experience
Aged 62 and a resident of Guernsey. John is a Fellow
of the Institute of Chartered Accountants in England
and Wales 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 administrator.
Prior to moving to Guernsey, John was at Price
Waterhouse in London before embarking on a career
in business services, predominantly telecoms.
Listed company and other relevant
directorships
Aberdeen Frontier Markets Investment Company Ltd
Globalworth Real Estate Investments Ltd
GLI Finance Ltd
India Capital Growth Fund Ltd
Starwood European Real Estate Finance Ltd
Chenavari Toro Income Fund Ltd
Listed company and other relevant
directorships
Aurigny Air Services Ltd
BH Macro Ltd
Safecharge International Group Ltd
Stride Gaming plc
JOHN STARES1
Background and experience
Aged 66 and a resident of Guernsey since
2001, John has over 40 years of 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.
Listed company and other relevant
directorships
JT Group (Chairman)
Terra Firma (Guernsey-based entities)
Governor of More House School
New Philanthropy Capital (Trustee)
CLAIRE WHITTET1
Background and experience
Aged 62 and a resident of Guernsey, Claire has nearly
40 years of experience in the banking industry with
Bank of Scotland, Bank of Bermuda and Rothschild
Bank International where latterly she was, Managing
Director and co-Head until May 2016 when she
became a non-executive director of the bank. She is
also non-executive director of five other listed funds.
Claire is a member of the Chartered Institute of
Bankers in Scotland, the Chartered Insurance
Institute, is a Chartered Banker, a member of
the Institute of Directors and holds the Institute
of Directors Diploma in Company Direction.
Listed company and other relevant
directorships
BH Macro Ltd
Eurocastle Investment Ltd
Riverstone Energy Ltd
TwentyFour Select Monthly Income Fund Ltd
Third Point Offshore Investors Ltd
GILES FROST
Background and experience
Aged 55 and a resident in the United Kingdom, Giles
is a founder and Director of Amber Infrastructure 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.
Listed company and other relevant
directorships
Giles is also a Director of a number of the
Company’s subsidiary and investment holding
entities and of other entities in which the Company
has an investment. He does not receive Directors’
fees from such roles for the Company.
JULIA BOND1
Background and experience
Aged 59 and a resident in the United Kingdom,
Julia has 27 years of experience of capital markets in
the financial sector and held senior positions within
Credit Suisse including Head of One Bank Delivery
and Global Head of Sovereign Wealth funds activity.
Julia is currently a non-executive director and
trustee of several governmental bodies and charities
including the Supervisory and Management Board
of the British Foreign and Commonwealth Office
and a non-executive adviser to the CEO of the
Association of Certified Chartered Accountants.
Listed company and other relevant
directorships
European Assets Trust (‘EAT’)
47
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
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 that is a constituent of the FTSE 250 Share Index.
The Board is responsible to shareholders for the overall
management and oversight of the Company, for agreeing its
strategy, monitoring its financial performance, and setting and
monitoring its risk appetite.
This section describes how INPP is governed. It explains how
the Board is organised and operates, including the roles and
composition of each of its Committees, and provides details on our
Board members and how they are remunerated. As an investment
company, the Company has no employees and relies on the advice
and expertise of its key suppliers, notably its Investment Adviser,
Amber Fund Management Limited (‘Amber’). This section therefore
also explains the nature of the Company’s relationship with Amber,
and how this is managed, including the remuneration of the
Investment Adviser.
COMPLIANCE WITH CORPORATE GOVERNANCE CODES
AND REGULATIONS
All companies with a Premium Listing on the London Stock
Exchange are required to confirm their compliance with (or explain
departures from) the U.K. Corporate Governance Code issued in
April 2016 (the ‘U.K. 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
July 2016 (the ‘AIC Code’) can assist externally managed companies
in meeting their obligations under the U.K. 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 U.K. Code or AIC Code are
deemed to meet the Guernsey Code of Corporate Governance.
The AIC Code is available from the Association of Investment
Companies website (www.theaic.co.uk). The U.K. 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 U.K. Code. However, 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 U.K.
Code’s two separate principles of setting out the responsibilities of
the chief executive and disclosing the remuneration of executive
directors (Section A.2 of the U.K. Code) are therefore not applicable.
48
The Company is subject to a new European Union Regulation
(2017/653) (the ‘Regulation’) which deems it to be a packaged retail
and insurance-based investment product (‘PRIIPS’). In accordance
with the requirements of the Regulation, the Company published its
first standardised three-page Key Information Document (‘KID’) on
22 December 2017. The KID is available on the Company’s website
www.internationalpublicpartnerships.com/investors and will be
updated at least every 12 months.
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 six of the seven Directors are independent.
BOARD OF DIRECTORS
The Board of Directors consists of seven Non-Executive Directors,
whose biographies, on pages 46 and 47, demonstrate a breadth of
investment and business experience.
On 1 September 2017, the Board was pleased to announce that
following an external recruitment process it had appointed Ms Julia
Bond as an additional Non-Executive Director of the Board.
Ms Bond brings a wealth of board experience in Investment Trusts,
the public sector, professional bodies as well as the voluntary sector.
Ms Bond’s skills and knowledge are complementary to the current
Board. As mentioned in the Chairman’s Letter, the Board is actively
seeking a candidate for Chairmanship following Mr Dorey’s planned
retirement from this role and the Board.
The Board consists solely of Non-Executive Directors and, for the
period of this report, was chaired by Mr Dorey, who is responsible for
leadership of the Board and ensuring its effectiveness in all aspects
of its role. The Board considered that Mr Dorey was independent
upon appointment and remained independent throughout his term
of service for the purposes of the AIC Code. For the period of this
report, Mr Whittle held the role of Senior Independent Director. He is
an alternative point of contact for shareholders and leads in matters
where it is inappropriate for the Chairman to do so.
For the purposes of the AIC Code, Mr Frost is treated as not being
an Independent Director, due to his relationship with the Company’s
Investment Adviser. In accordance with the AIC Code, all other
Non-Executives are independent of the Company’s Investment
Adviser.
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE 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. All Directors offer themselves for
re-election on an annual basis. The Board considers its composition
and succession planning on an ongoing basis.
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.
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.
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.
Mr Dorey has been a Board member since August 2006 and in
August 2015 had served as a Board member for over nine years.
The Board is confident that Mr Dorey remains independent and
offers himself for re-election on an annual basis. Mr Dorey intends
to retire following the successful search for a new Chairman and
completion of a reasonable transition period. More information is
available on page 6.
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 has two female Directors.
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.
BOARD REMUNERATION
The Nomination and Remuneration Committee considers matters
relating to the Directors’ remuneration, taking into account benchmark
information (including 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 2017, no advice or services were provided by
any external persons in respect of its consideration of Directors’
remuneration.
All fees payable to the Directors should reflect the time spent by
the Directors on the Company’s affairs and the responsibilities borne
by the Directors and be sufficient to attract, retain and motivate
Directors of a quality required to run the Company successfully.
The Chairman of the Board is paid a higher fee in recognition of
additional responsibilities, as is the Chairman of the Audit and Risk
Committee. The Chairman of the Nomination and Remuneration,
Management Engagement, and Investment Committees respectively
do not receive additional fees for these roles.
49
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE GOVERNANCE REPORT
CONTINUED
DIRECTORS’ INTERESTS
Directors, who held office at 31 December 2017, had the following
interests in the shares of the Company:
Director
Rupert Dorey2
John Whittle3
Claire Whittet4
John Stares
John Le Poidevin
Julia Bond5
Giles Frost
31 December
2017
Number of
Ordinary
Shares1
31 December
2016
Number of
Ordinary
Shares1
1,037,614
58,864
68,017
75,000
65,333
–
880,313
793,687
52,198
52,257
75,000
–
–
513,274
1 All shares are beneficially held.
2
Included in this number are 200,000 shares owned by Mr Dorey’s spouse and 43,927
shares are held by another close family member.
3 Holds shares through a Retirement Annuity Trust Scheme.
4 Holds shares through a Retirement Annuity Trust Scheme jointly with Ms Whittet’s spouse.
5 Ms Bond joined the Board on 1 September 2017.
There have been no changes to any of the above holdings between
31 December 2017 and the date of this report.
There are no long-term incentive schemes provided by the Company
and no performance fees, or bonuses paid to Directors. Any
changes to Directors’ remuneration are considered at the Annual
General Meeting of the Company. The base remuneration, approved
at the 2017 Annual General Meeting, for each Director role is set
out below:
Position
Board Chairman
Audit Committee Chairman
Director (Independent and Non-Independent)
Director
Rupert Dorey2
John Whittle3
Claire Whittet
John Stares
John Le Poidevin
Julia Bond4
Giles Frost5
£67,500
£55,000
£43,000
2016
Fees paid
£
60,000
50,000
37,500
37,500
37,500
N/A
32,000
2017
Fees paid1
£
77,500
65,000
53,000
53,000
53,000
14,333
53,000
Includes £10,000 fee payable to Board members with respect to the May 2017 share issue.
1
2 Mr Dorey became Chairman of the Board on 31 December 2013 for which he receives a
higher fee.
3 Mr Whittle became Chairman of the Audit and Risk Committee on 31 December 2013 for
which he receives a higher fee.
4 Ms Bond joined the Board on 1 September 2017.
5 The emoluments for Mr Frost are paid to his employer Amber Infrastructure Limited, a
related company of the Company’s Investment Adviser.
Mr Frost is also 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 addition to Director fees above, following Mr Whittle’s appointment
as Director to the five Luxembourg subsidiary entities of International
Public Partnerships, he received fees of £3,000 per entity for the
year ended 2017.
50
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE COMMITTEES OF THE BOARD
BOARD
Responsibilities
— Statutory obligations and public disclosure
— Sets overall strategy for investments
— 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
auditor 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
— Review the Terms of the Investment Advisory
Agreement and recommend any changes considered
necessary
— Ensure there are no conflicts of interest between
service partners
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
51
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE GOVERNANCE REPORT
CONTINUED
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 page 51 for more detail on the Committee).
In accordance with the Corporate Governance Code for FTSE 350
companies, the Company undertakes an externally facilitated
evaluation every three years. During the period the Board
commissioned Trust Associates to facilitate an external evaluation of
the Board’s performance. The evaluation included interviews with
members of the Investment Adviser’s team, other external advisers
including the Company’s broker and discussions with several of the
Company’s largest investors. The report concluded the relationship
between Amber and the Board continues to be very strong. It also
acknowledged that the composition and practices of the Board
were strong and there was a need to continue to plan for growth
and replacement of skills as directors retire.
Ahead of the anticipated changes in chairmanship role of the existing
Board following Mr Dorey’s retirement as Chairman, the Board also
discussed succession planning. An active search for a new
Chairman is in process.
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, as Chairman of the Company. The Committee
considers proposals relating to the acquisition and disposal of
investments and, if thought fit, approves those proposals. Details of
the transactions invested in during the period are outlined on page
14 of the 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.
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 on
the Company’s website.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee (‘ARC’) is comprised of the full Board,
with the exception of Mr Frost as the Non-Independent Director.
Mr Whittle is the current Chairman of the Audit and Risk Committee
and Mr Stares has lead responsibility for risk within the Risk
Sub-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 ARC in discharging its responsibilities are outlined
in the Audit and Risk Committee Report.
In respect of its risk management function, the ARC 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.
The ARC 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
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 Ms 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.
52
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE 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
John Whittle
Claire Whittet
John Stares
John Le Poidevin
Julia Bond1
Giles Frost2
Quarterly Board
Ad-hoc Board
Audit
and Risk
Committee
Management
Engagement
Committee
Investment
Committee
Remuneration
and Nomination
Committee
4
4
4
4
4
4
2
4
11
11
9
8
7
9
N/A
1
4
4
4
4
3
4
N/A
0
1
1
1
1
1
1
N/A
0
3
3
3
3
1
2
N/A
0
3
3
3
3
3
3
N/A
0
1 Ms Bond joined the Board on 1 September 2017. Ms Bond joined the Committees of the Board on 1 December 2017.
2 Mr Frost is not a member of the Audit and Risk Committee, Management Engagement Committee or Investment Committee. While Mr Frost attended the majority of ad-hoc Board and
Committee meetings, as these meetings considered recommendations from the Investment Adviser his presence does not count towards the quorum so has been excluded from this tally.
RELATIONSHIP WITH ADMINISTRATOR AND COMPANY
SECRETARY
Estera International Fund Managers (Guernsey) Limited, formerly
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 Guernsey Company Law,
London Stock Exchange listing requirements, the regulatory
requirements of the Guernsey Financial Services Commission,
anti-money laundering regulations and observation of the reserved
powers of the Board and in this respect the Board receives detailed
quarterly reports.
The Directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for ensuring
that Board procedures are followed and that it adheres to applicable
legislation, rules and regulations under Guernsey law, the Guernsey
Financial Services Commission and the London Stock Exchange.
RELATIONSHIP WITH THE INVESTMENT ADVISER
The Directors are responsible for the overall management and
direction of the affairs of the Company. Under the Investment
Advisory Agreement (‘IAA’), Amber Fund Management Limited (a
member of the Amber Infrastructure Group Holdings Limited group
of companies) 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.
CONTRACTUAL ARRANGEMENTS AND FEES
The IAA allows for the provision of investment advisory and certain
other financial services to the Board. In return, the Investment
Adviser receives fees based on the Gross Asset Value (‘GAV’) and
composition of the investment portfolio as well as a contribution to
expenses. The annual base fees are detailed in note 17 to the
financial statements and calculated at the following rates:
– 1.2% for that part of the portfolio that bears construction risk (i.e.
the asset has not fully completed all construction stages including
any relevant defects period and achieved certification by the
relevant counterparty and senior lender)
– For fully operational assets:
• 1.2% for the first £750 million of 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, 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. 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 the flexibility to remove the Investment Adviser.
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.
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.
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE GOVERNANCE REPORT
CONTINUED
MAKING NEW INVESTMENTS
As outlined above, the Investment Committee, comprised of
Independent Directors of the Company, makes investment decisions
with respect to new investments after reviewing recommendations
made by the Company’s Investment Adviser. The Investment Adviser
has a detailed set of procedures and approval processes in relation
to the recommendation of new investments to the Board.
It is expected that further investments will be sourced by the
Investment Adviser. It is likely that some of these investments will
have been originated and developed by, and in certain cases may be
acquired from, other members of the Investment Adviser’s Group.
Where that is the case the conflicts management process
summarised below is followed.
MANAGING CONFLICTS OF INTEREST
The Company has established detailed procedures to deal with
conflicts of interest that may arise on investments acquired from the
Investment Adviser’s Group, and manage conduct in respect of any
such acquisitions. As previously mentioned, the Company’s Board
has a majority of independent members and a Chairman who is
independent of the Investment Adviser. Each Director is required to
inform the Board of any potential or actual conflicts of interest prior to
Board discussions.
The potential conflicts of interest that may arise include when an
Amber entity is an existing investor in the target entity while an
associated company, AFML, acts on the ‘buyside’ as Investment
Adviser to the Company. The Investment Advisory Agreement
contains procedures with the intention of ensuring that the terms on
which the vendors of such assets dispose of their assets are fair and
reasonable to the vendors; and on the ‘buyside’ the Company as
Investment Adviser, must be satisfied as to the appropriateness of
the terms for and the price of the acquisition.
Key features of these procedures include:
– The creation of separate committees representing the interests
of the vendors on the one hand (the ‘Sellside Committee’) and
the Company on the other (the ‘Buyside Committee’), to ensure
arm’s length recommendation and approval processes. The
membership of each Committee is restricted in such a way as
to ensure its independence and to minimise conflicts of interest
arising
– A requirement for the Buyside Committee to conduct and report
to the Company on an independent due diligence process on
the assets proposed to be acquired prior to making an offer
– A requirement for any offer made for the assets to be supported
by advice on the fair market value for the transaction from an
independent expert
– 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 Advisers 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.
54
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE 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.
During 2017, the Company significantly upgraded its website
(www.internationalpublicpartnerships.com) enabling investors to
easily find publicly disclosed documents including Annual Reports
and RNS announcements, together with additional background
information on its assets and corporate practice. 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).
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 Management
Report found on pages 31 to 41.
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.
In addition to more formal investor events, such as 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 2017, the Investment Adviser and members of the
Board held formal meetings with over 70 individual shareholders in
addition to day-to-day interaction, including calls and other forms
of correspondence. In addition, major investors were approached
as part of the external-facilitated Board evaluation process. The
Company also has an active programme of sell side engagement
and the Board is also informed on a regular basis of all relevant
market commentary on the Company by the Investment Adviser,
Administrator and the Company’s Broker.
The Annual General Meeting (‘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 RNS at the
completion of the meeting.
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
AUDIT AND RISK COMMITTEE REPORT
The Audit and Risk Committee (the ‘Committee’ for the purposes
of this report) is an essential part of the Company’s governance
framework. The Board has delegated oversight of the Company’s
financial reporting, internal controls, compliance and external audit
to the Committee. An overview of the Committee’s work during
the year and details of how we have discharged our duties is set
out below.
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 during the year were attended by the
Investment Adviser and Administrator by invitation. A representative
of the Company’s external auditor, Ernst & Young LLP (‘EY’), also
attended those meetings considering financial report planning, the
Annual Report and financial statements, and the half-yearly financial
report.
All Committee 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 page 47.
COMMITTEE AGENDA
The 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
– 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 effectiveness of the Company’s internal control
systems, including specific focus on asset availability and tax
policy reviews in the year
– Review of the Company’s risk profile, specific risks and mitigation
practices
– 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
– Review of the regulatory environment the Company operates
within
KEY ACTIVITIES CONSIDERED DURING THE YEAR
The Committee undertook the following activities in discharging our
responsibilities during the year:
FINANCIAL REPORTING
We reviewed the Company’s Annual Report and financial
statements, the half-yearly financial report and interim management
reports prior to approval by the Board and 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 its views on whether the Annual Report
and financial statements, taken as a whole, was 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 Exception); 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 that qualifies as an investment entity in accordance with
IFRS 10 is required to prepare financial statements on an investment
basis; 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 investee 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.
56
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE Fair value of investments
The Company’s investments are typically in unlisted securities,
including shares and debt, 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.
FAIR, BALANCED AND UNDERSTANDABLE
Following extensive dialogue with management, we reviewed
the Company’s 2017 Annual Report and financial statements.
We 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.
This methodology requires a series of judgements to be made as
explained in note 11 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 statements.
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 prior years. We also
reviewed and challenged the valuation assumptions (discount rates,
interest rates, foreign exchange rates, inflation rates and tax rates).
The external auditor explained the results of its review of the
valuations, including its assessment of management’s underlying
cash flow projections and assumptions; macroeconomic
assumptions; and discount rate methodology and output. On the
basis of its audit work the auditor confirmed no material adjustments
were proposed.
The Committee concluded that a consistent valuation methodology
had been applied throughout the year and any forecast assumptions
applied were appropriate.
REVENUE RECOGNITION
We 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.
CONTROLS REVIEW
Asset availability review
In the year an external review of the Company’s controls and
processes relating to asset availability reporting was concluded.
Asset availability reporting was considered an important non-
financial KPI for a number of our investments, as there are
consequential implications on returns if such assets become
unavailable for public use. The review concluded the Company had
sufficient controls in operation for the accurate capture and reporting
of such information, with no weaknesses or control deficiencies
identified.
Tax compliance and reporting
Companies are increasingly required to manage tax risk by
integrating greater process and controls to meet new and more
stringent reporting requirements, increased regulatory demands,
and audit activity. A critical aspect is the Company’s ability to
streamline and strategically manage the end-to-end core processes
underlying all tax activities with a focus on managing risk. It was
therefore agreed that the next annual controls and process review
will focus on the Company’s tax policies and procedures.
VIABILITY ASSESSMENT
We carried out a robust assessment of the principal risks facing
the Company with a view to identify 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 41.
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.
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
AUDIT AND RISK COMMITTEE REPORT
CONTINUED
In accordance with the relevant principles of the Corporate
Governance Code, the Committee will continue to review the
effectiveness of the external auditor and seek to retender in line
with best practice.
Review of auditor’s remuneration
The Committee carried out a review of the proposed audit fees for
2017. There was an increase at Group level, driven by general cost
inflation. We consider that the audit fees for 2017 present good value
for money for the Company’s shareholders.
REGULATORY AND TAX ENVIRONMENT
We received regular reports from the Administrator and Investment
Adviser on regulation and regulatory developments.
Taxation
We continue to monitor tax regulation and tax policy developments,
in particular developments around the OECD-led BEPS initiative,
across our geographies. During the year the U.K. and Belgium
enacted substantial pieces of new tax legislation, containing
provisions relating to corporate interest deductibility and group
losses carried forward. These rules and the number of potential
elections available in the U.K. make the assessment of impact of
the rules complex and subject to a degree of judgement. Whilst no
material net adverse valuation impacts have currently been noted,
there can be no guarantee that responses to the OECD proposals
by other governments or changes in approach to these rules as a
consequence of changes in guidance or recognised industry
practice will not have a negative impact on the Company’s
performance.
Common Reporting Standard
All qualifying entities are now required to comply with the
requirements of the Common Reporting Standard (‘CRS’).
The Company, through its registrar (Capita), has implemented
appropriate systems and procedures for compliance with these
regulations. CRS reporting for the end of 2017 is on course to be
submitted by June 2018.
Tax Strategy reporting
Legislation requiring large businesses to publish a Tax Strategy
document became effective from 1 January 2017. Whilst it is not
clear the legislation should directly capture the Company, the
Company has chosen to publish its Tax Strategy document for the
purposes of transparency and good governance and will continue
to monitor compliance going forward.
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 its independence. Any
potential services to be provided by the external auditor with 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 value require pre-approval by the full Audit
and Risk Committee. Non-audit fees represented 31.3% of total
audit fees.
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 7 to the financial statements.
These were reported to us and were not considered to be a
significant risk impacting the objectivity and independence of EY
as external Auditor.
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 2017 was the second year for
the current lead audit partner. We continue to challenge EY on its
process for transitioning other key current audit team members
reaching the end of their rotation terms and continue to be actively
engaged in the developments in this area and in ensuring an
appropriate level of continuity of the team.
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 was
appointed auditor of the Company. In line with the new auditor
rotation requirements for listed companies, the next full tender is
expected to commence by 2020.
Since 2010, a number of investee level audits have been awarded to
alternative audit firms, notably KPMG.
Review of auditor effectiveness
As part of our annual review of the objectivity and effectiveness of
the audit, the Committee conducted an in-depth review in 2017 of
the auditor’s performance and we were satisfied in this regard. 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.
There were no significant matters arising which require the service
to be immediately retendered.
58
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE Retail distribution of unregulated collective investment
schemes
Financial Conduct Authority (‘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 its shares
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 (‘IFAs’) to ordinary retail investors in accordance with the
FCA’s rules.
The Company is advised that the basis of being excluded from these
restrictions is principally due to the Company conducting its affairs
in such a manner that it would have qualified for approval by HMRC
as an investment that had been resident in the U.K. in its previous
accounting periods. The Company intends to conduct its affairs so
that this remains the case for the foreseeable future.
FOCUS FOR 2018
Alongside routine matters, this year the Committee will progress the
independent review of the Company’s tax policies and procedures,
as well as continue to monitor any political, tax, and regulatory
developments in its applicable geographies.
John Whittle
Chairman, Audit and Risk Committee
20 March 2018
59
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT
INTRODUCTION
The Directors present their Annual Report on the performance of the Company and Group for the year ended 31 December 2017.
PRINCIPAL ACTIVITY
The Company is a limited liability, Guernsey-incorporated, authorised closed-ended investment company under Companies (Guernsey) Law,
2008. The Company’s shares have a premium listing on the Official List of the U.K. Listing Authority and are traded on the main market of the
London Stock Exchange.
The Chairman’s Letter 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 2017, 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
12.574%
10.07%
169,424,308
135,727,396
Date notified
17 May 2017
24 May 2017
As at 20 March 2018, being the most current information available, the following additional notices had been received:
Name of holder
% Issued capital
No. of Ordinary shares
Date notified
Investec Wealth & Investment Limited
11.02%
154,836,590
19 March 2018
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 11 June
2018. The Company will seek to renew such authority at the Annual General Meeting to take place on 11 June 2018. Any buyback 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 buybacks 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 U.K. Listing Authority, which provide that the price to be paid must not be more than 5% above the average of the
middle market quotations for the Ordinary shares for the five business days before the shares are purchased (unless previously advised to
shareholders). No such shares were bought back by the Company in the period from 7 June 2017. Up to 10% of the Company’s shares may
be held as treasury shares.
60
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE 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 41. The financial position of the Group, its cash flows, liquidity position and borrowing are described in the
financial statements from page 68.
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 person who is a Director at the date of approval of this Annual Report confirms that:
So far as the Director is aware, there is no relevant audit information of which the Company’s external auditor is unaware.
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
Chairman
20 March 2018
John Whittle
Senior Independent Director
20 March 2018
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International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
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 (‘IFRS’) as adopted by the European Union, of the state of
affairs of the Group and of the profit or loss of the Group for that
year. In preparing those financial statements, the Directors are
required to:
– Select suitable accounting policies and then apply them
consistently
– Make judgements and estimates that are reasonable
– State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements
– Prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Group will continue in
business
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Group and to enable them to ensure that the
financial statements comply with the Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud, error and non-compliance with law and
regulations.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors; the work carried out by the auditor
does not involve considerations, of these matters and, accordingly,
the auditor 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
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
DIRECTORS’ STATEMENT UNDER THE U.K. CORPORATE
GOVERNANCE CODE
The Board, as advised by the Audit and Risk Committee, has
considered the Annual Report and financial statements and, taken
as a whole, consider it to be fair, balanced and understandable and
that it provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
By order of the Board
Rupert Dorey
Chairman
20 March 2018
John Whittle
Senior Independent Director
20 March 2018
62
International Public Partnerships Annual Report and financial statements 2017CORPORATE GOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
OPINION
In our opinion:
–
International Public Partnerships Limited (the ‘Group’) financial statements give a true and fair view of the state of the Group’s affairs as at
31 December 2017 and of its profit for the year then ended;
– The Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as
adopted by the European Union; and
– The financial statements have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
WHAT WE HAVE AUDITED
We have audited the financial statements of International Public Partnerships Limited (the ‘Group’) which comprise:
– Consolidated statement of comprehensive income for the year ended 31 December 2017;
– Consolidated balance sheet as at 31 December 2017;
– Consolidated statement of changes in equity for the year ended 31 December 2017;
– Consolidated cash flow statement for the year ended 31 December 2017; and
– Related notes 1 to 21 to the consolidated financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (U.K.) (ISAs (U.K.)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report
below. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the U.K., including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
USE OF OUR REPORT
This report is made solely to the Group’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. 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.
CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (U.K.) require us to report
to you whether we have anything material to add or draw attention to:
– the disclosures in the Annual Report set out on page 32 that describe the principal risks and explain how they are being managed or
mitigated;
– the Directors’ confirmation set out on page 31 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 Directors’ statement set out on page 62 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 12 months from the date of approval of the financial statements;
– whether the Directors’ statement in relation to going concern required under the Listing Rules is materially inconsistent with our knowledge
obtained in the audit; or
– the Directors’ explanation set out on page 41 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.
63
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED CONTINUED
OVERVIEW OF OUR AUDIT APPROACH
Key audit matters
Audit scope
– Misstatement or manipulation of investment fair value
– Revenue recognition
– We performed an audit of the Group for the year ended 31 December 2017
– 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 of the financial statements. Service entities are audited to Group materiality
threshold
– All audit work performed for the purposes of the audit was undertaken by the Group audit team
Materiality
– Overall Group materiality of £20.4 million (2016: £16 million) which represents 1% (2016: 1%) of equity
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Misstatement or manipulation of investment fair value £2,005 million (2016: £1,515 million)
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 11 of the financial statements and
are discussed in the report of the Audit Committee on page 57.
The valuation risk includes the risk of an inappropriate valuation model being applied, the risk of manipulation
or error in both the assumptions applied and the amount and timing of expected cash flows.
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 variable cash flow risk. The following procedures were performed:
Valuation assumption: We have been supported in our testing of macroeconomic inputs and discount
rates inputs by specialists from our EY Valuation & Business Modelling team (‘EYVBM’).
Model integrity: We engaged our EYVBM specialists to sample test the following on selected models:
– The year on year changes to the logical operation; and
– Management controls including management’s use of third party audits of the initial model and analysis of
yields.
Model inputs: We agreed a sample of contractual cash flows to contractual terms and actual cash flows.
We engaged KPMG to perform this work for a part of our sample. We engaged EYVBM specialists to assess
the assumptions used to determine the underlying variable cash flows which require significant judgement.
Their assessments were based on a combination of market data and experience of valuing other similar
investments.
Verification of existence and ownership of investments: We have tested the ownership of investments to
ensure the Group is entitled to distributions from the investments.
64
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTS Our response to the risk
(continued)
We performed the following procedures across the remainder of the portfolio:
– We compared the discount rates used by management across all investments to the relevant rates as
tested by the EYVBM team
– We have performed a detailed analytical review based on year on year movement on each investment,
setting detailed expectations and validating significant variances from expectation
– We tested the historical accuracy of forecasting by comparing the historical forecast distributions from the
projects to the actual distributions
– We tested all acquisitions during the year
– We tested that the macroeconomic assumptions (inflation rates, foreign exchange rates, deposit rates
and tax rates) were applied consistently across all investments
Market review: We engaged the EYVBM team to provide benchmarking information on the variable
components e.g. inflation rates, risk free rates, deposit rates etc.
We confirmed that there were no material matters arising from our audit work that we wished to bring to the
attention of the Audit Committee.
We confirmed that the valuation of the investments was not materially misstated and was in line with IFRSs
as adopted by the European Union.
Revenue recognition
Notwithstanding there is no revenue reported, we treat dividend and interest income as ‘revenue’ and as it is
material we have considered ‘revenue recognition’ as a significant risk.
Management may seek to overstate revenue as a result of seeking to report the desired level of return to
investors.
Key observations
communicated to
the Audit Committee
Risk
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.
We agreed a representative sample of dividend and interest receipts to documentation from unconsolidated
subsidiaries and we checked the calculation of interest amounts and the allocation thereof to the appropriate
period. We have performed cut off and completeness testing to conclude on accuracy.
We confirmed that there were no matters identified during our audit work that we wanted to bring to the
attention of the Audit Committee.
Key observations
communicated to
the Audit Committee
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the
Group. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Group
and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed.
The Group consists of the Company consolidated service entities as explained in note 2 of the financial statements. All audit work performed
for the purposes of the audit was undertaken by the Group audit team.
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.
65
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED CONTINUED
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 £20.4 million (2016: £16 million), which is 1% (2016: 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 £1,953 million at
30 June 2017 to £2,038 million as at 31 December 2017 mainly due to capital raise in December 2017. This resulted in a higher materiality of
£20.4 million compared to £19.5 million that was originally determined at the audit planning stage.
A lower materiality of £2.8 million (2016: £2.2 million) has been applied to interest income, dividend income and related party fees 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 75% of materiality, namely £15.3
million (2016: 50% of materiality, namely £8 million). We have set performance materiality based on our understanding of the entity and the
past history of no misstatements (corrected and uncorrected).
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 £1 million (2016: £0.8 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.
OTHER INFORMATION
The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report
thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report,
we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and
to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
– Fair, balanced and understandable statement set out on page 62 by the Directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the
Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
66
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTS – Audit Committee reporting set out on page 56; or
– Directors’ statement of compliance with the U.K. Corporate Governance Code set out on page 48 the parts of the directors’ statement
required under the Listing Rules relating to the Company’s compliance with the U.K. Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision
of the U.K. Corporate Governance Code.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
– proper accounting records have not been kept by the Company, or proper returns adequate for our audit have not been received from
branches not visited by us; or
– the financial statements are not in agreement with the Company’s accounting records and returns; or
– we have not received all the information and explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’ responsibilities statement set out on page 62, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (U.K.) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Richard Le Tissier
for and on behalf of Ernst & Young LLP,
Guernsey
Channel Islands
20 March 2018
Notes:
1 The maintenance and integrity of the International Public Partnerships Limited website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
2 Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
67
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2017
Interest income
Dividend income
Net change in investments at fair value through profit or loss
Total investment income
Other operating income/(expense)
Total income
Management costs
Administrative costs
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)
Notes
4
4
4
5
17
6,17
8
9
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
69,356
20,655
49,808
139,819
588
56,778
18,655
131,369
206,802
(6,836)
140,407
199,966
(20,637)
(1,700)
(6,835)
(316)
(16,107)
(1,259)
(3,219)
(267)
(29,488)
(20,852)
110,919
179,114
(4,534)
(3,774)
106,385
175,340
114
1,818
106,499
177,158
10
8.36
17.18
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 (2016: nil). The profit for the year represents the Total Comprehensive
Income for the year.
68
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2017
Balance at 31 December 2016
Total comprehensive income
Issue of Ordinary shares
Issue costs applied to new shares
Distributions in the year
Balance at 31 December 2017
YEAR ENDED 31 DECEMBER 2016
Balance at 31 December 2015
Total comprehensive income
Issue of Ordinary shares
Issue costs applied to new shares
Distributions in the year
Balance at 31 December 2016
Notes
15
15
15
Notes
15
15
15
Share
Capital
£’000s
Other
Distributable
Reserve
£’000s
Retained
Earnings
£’000s
Total
£’000s
1,029,387
182,481
391,785
1,603,653
–
417,283
(5,622)
–
–
–
–
–
106,499
106,499
–
–
(83,515)
417,283
(5,622)
(83,515)
1,441,048
182,481
414,769 2,038,298
Share
Capital
£’000s
Other
Distributable
Reserve
£’000s
Retained
Earnings
£’000s
Total
£’000s
825,362
182,481
282,359
1,290,202
–
205,869
(1,844)
–
–
–
–
–
177,158
177,158
–
–
(67,732)
205,869
(1,844)
(67,732)
1,029,387
182,481
391,785
1,603,653
69
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
31 December
2017
£’000s
31 December
2016
£’000s
Notes
11
2,005,292
1,515,163
2,005,292
1,515,163
11,13
11
11,14
11
8,11
26,963
33,850
32,506
70,981
60,813
103,487
2,066,105
1,618,650
8,303
1,704
10,007
17,800
17,800
27,807
10,370
4,627
14,997
–
–
14,997
2,038,298
1,603,653
15
15
15
1,441,048
182,481
414,769
1,029,387
182,481
391,785
2,038,298
1,603,653
16
145.0
142.2
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2017
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
Total current assets
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
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 20 March 2018.
They were signed on its behalf by:
Rupert Dorey
Chairman
20 March 2018
John Whittle
Director
20 March 2018
70
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 2017
Profit from operating activities before tax1
Adjusted for:
Gain on investments at fair value through profit or loss
Unrealised foreign exchange gain
Finance costs2
Fair value movement on derivative financial instruments
Working capital adjustments
Decrease/(increase) in receivables
(Decrease)/increase in payables
Income tax received/(paid)3
Net cash inflow from operations4
Investing activities
Acquisition of investments at fair value through profit or loss
Net repayments from investments at fair value through profit or loss
Funds advanced to affiliated entities5
Net cash outflow from investing activities
Financing activities
Proceeds from issue of shares net of issue costs
Dividends paid
Finance costs paid2
Loan drawdowns2
Loan repayments2
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange gain on cash and cash equivalents
Cash and cash equivalents at end of year6
Includes interest received of £69.7 million and dividends received of £20.7 million.
1
2 These are cash flows and non-cash flows for financing liabilities in accordance with IAS 7, 44A-E.
3 Cash flows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
4 Net cash flows from operations above are reconciled to operating cash flows as shown in the Strategic Report on pages 22 and 23.
5 Funds advances to affiliated entities to facilitate financial close of investments around the balance sheet date.
Includes restricted cash of £1.2 million (2016: £41.7 million) which can only be utilised for new investments.
6
Notes
4
8
5,11
12
15
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
106,385
175,340
(49,808)
(14)
4,534
(2,923)
2,678
(2,075)
58,777
2,525
61,302
(131,369)
(657)
3,774
6,346
(8,704)
2,315
47,045
(110)
46,935
(464,027)
25,759
(2,053)
(209,884)
27,197
–
(440,321)
(182,687)
404,385
(76,230)
(4,086)
338,264
(320,464)
198,097
(61,863)
(2,326)
–
–
341,869
133,908
(37,150)
70,981
19
(1,844)
72,391
434
33,850
70,981
71
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
1. BASIS OF PREPARATION
International Public Partnerships Limited is a closed ended authorised investment company incorporated in Guernsey under the Companies
(Guernsey) Law, 2008. The address of the registered office is given on the inside back cover. The nature of the Group’s (‘Parent and
consolidated subsidiary entities’) operations and its principal activities are set out on pages 2 and 8 respectively.
These financial statements are presented in pounds sterling as this is the currency of the primary economic environment in which the Group
operates and represents the functional currency of the Parent and all values are rounded to the nearest (£’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 U.K. Listing Authority. These 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, and that are not themselves investment entities. Subsidiaries
that do not provide investment-related services are required to be measured at fair value through profit or loss in accordance with IAS 39
Financial Instruments: Recognition and Measurement.
GOING CONCERN
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 £32.7 million as at 31 December 2017. The Company has access to a corporate debt facility of £400 million, of which £378.1 million
was uncommitted as at 31 December 2017, and is available for investment in new and existing projects until November 2019. In addition, a
portion of the facility can be utilised for working capital purposes. The 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 same accounting policies, presentation and methods of computation are followed in this set of 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 20 sets out a comprehensive listing of all new standards applicable from 1 January 2017.
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 2017, that themselves do not meet the definition of an
investment entity. Typically, a service entity provides management services, strategic advice and financial support to investee entities.
Judgement is therefore required in assessing which entities meet these definitional requirements. The Directors have reviewed and assessed
the criteria applied in the assessment of services entities based on the guidance in place as at 31 December 2017 and are satisfied with the
resulting conclusion.
FAIR VALUATION OF INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Fair values are determined using the income approach which discounts the expected cash flows at a rate appropriate to the risk profile of
each investment. In determining the discount rate, relevant long-term government bond yields, specific investment risks and evidence of
recent transactions are considered. Details of the valuation process and key sensitivities are provided in note 11.
72
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTS 3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating decision makers of INPP, the Group has identified four reportable segments
based on the geographical risk associated with the jurisdictions in which the Group operates. The factors used to identify the Group’s
reportable segments are centred on the risk free rates and the maturity of the Infrastructure sector within each region. Further, foreign
exchange and political risk is identified, as these also determine where resources are allocated. Management has concluded that the Group is
currently organised into four operating segments being U.K., Europe (excl. U.K.), North America and Australia.
Segmental results
Dividend and interest income
Fair value gain/(loss) on investments1
Total investment income
Reporting segment profit2
Segmental financial position
Investments at fair value
Current assets
Total assets
Total liabilities
Net assets
Segmental results
Dividend and interest income
Fair value gain on 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 2017
U.K.
£’000s
Europe
(Excl. U.K.)
£’000s
69,396
15,134
84,530
50,621
7,759
31,043
38,802
38,855
North
America
£’000s
8,675
(1,643)
7,032
7,393
Australia
£’000s
Total
£’000s
4,181
5,274
9,455
9,630
90,011
49,808
139,819
106,499
1,421,619
60,813
1,482,432
(27,807)
277,489
–
277,489
–
98,349
–
98,349
–
207,835 2,005,292
60,813
–
207,835
–
2,066,105
(27,807)
1,454,625
277,489
98,349
207,835 2,038,298
Year ended 31 December 2016
U.K.
£’000s
52,572
52,930
105,502
82,694
1,069,397
103,487
1,172,884
(14,997)
Europe
(Excl. U.K.)
£’000s
7,582
48,377
55,959
53,629
247,388
–
247,388
–
North
America
£’000s
6,919
9,906
16,825
14,832
100,721
–
100,721
–
Australia
£’000s
Total
£’000s
8,360
20,156
75,433
131,369
28,516
206,802
26,003
177,158
97,657
–
97,657
–
1,515,163
103,487
1,618,650
(14,997)
1,157,887
247,388
100,721
97,657
1,603,653
Investment fair value losses for North America investments were 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 individually represent more than 10% of the Group’s interest and dividend income approximates
£12.1 million (2016: £12.2 million).
73
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
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 investment 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 change in investments at fair value through profit or loss
Net change in investments 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 investments at fair value through profit or loss
Total investment income
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
69,351
5
69,356
56,730
48
56,778
20,655
49,808
18,655
131,369
139,819
206,802
Dividend and interest income includes that from transactions with unconsolidated subsidiary entities. Changes in investments at fair value
through profit or loss are also recognised in relation to the Group’s investments in unconsolidated subsidiaries.
5. OTHER OPERATING INCOME/(EXPENSE)
Fair value gain/(loss) on foreign exchange contracts
Other losses on foreign exchange movements
Total other operating income/(expense)
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
2,923
(2,335)
588
(6,346)
(490)
(6,836)
74
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 6. TRANSACTION COSTS
Investment advisory costs
Legal and professional costs
Total transaction costs
Details of total transaction costs paid to the Investment Adviser are provided in note 17.
7. 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
Total audit fees
Other fees
– Audit related assurance services
– Other services
Total non-audit fees
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
6,835
–
6,835
3,148
71
3,219
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
306
286
42
329
677
10
202
212
41
323
650
25
53
78
8. FINANCE COSTS
ACCOUNTING POLICY
Interest bearing loans and overdrafts are initially recorded as the proceeds received net of any directly attributable issue costs. Subsequent
measurement is at amortised cost, with borrowing costs 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 debt facility.
Finance costs for the year were £4.5 million (2016: £3.8 million). The Group has a corporate debt facility of £400 million provided by Royal Bank of
Scotland, National Australia Bank, Barclays Bank and Sumitomo Mitsui Banking Corporation. 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 specific future cash investments. As at December 2017 the facility was £17.8 million cash drawn.
The uncommitted balance of the facility which was not cash drawn or notionally drawn via letters of credit, was £378.1 million.
The interest rate margin on the corporate debt facility is 175 basis points over Libor. The loan facility matures in November 2019 and is
secured over the assets of the Group.
75
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
9. 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 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 Group may be subject to withholding tax imposed in the country of origin of such income.
Current tax:
U.K. corporation tax credit – current year
U.K. corporation tax – prior year
Other overseas tax – current year
Tax credit for the year
Reconciliation of effective tax rate
Profit before tax
Exempt tax status in Guernsey
Application of overseas tax rates
Group tax losses surrendered to unconsolidated investee entities
Adjustments to previous year’s assessment
Tax credit for the year
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
(694)
399
181
(114)
(1,918)
–
100
(1,818)
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
106,385
175,340
–
181
(694)
399
(114)
–
100
(1,918)
–
(1,818)
The income tax credit above does not represent the full tax position of the entire group as the investment returns received by the Company
are net of tax payable at the underlying investee entity level. As a consequence of the adoption of IFRS 10 investment entity consolidation
exception, underlying investee entity tax is not consolidated within these financial statements. Total forecasted corporation tax payable by the
Group’s underlying investments is in excess of £1 billion (2016: £824 million) over their full concession lives.
10. 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
Year ended
31 December 2017
£’000s
Year ended
31 December 2016
£’000s
106,499
177,158
Number
Number
Weighted average number of Ordinary shares for the purposes of basic and diluted earnings per share
1,273,495,032
1,031,394,086
Basic and diluted (pence)
8.36
17.18
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.
76
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 11. FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and
the transfer qualifies for derecognition in accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’. Financial liabilities
are derecognised when the obligation is discharged, cancelled or expired. Specific financial asset and liability accounting policies are
provided below.
11.1 FINANCIAL ASSETS
Investments at fair value through profit and loss
Financial assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
31 December
2017
£’000s
31 December
2016
£’000s
2,005,292
1,515,163
26,963
33,850
32,506
70,981
2,066,105
1,618,650
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 and other non-controlled investments 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 underlying 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 total investment income in the
Consolidated Statement of Comprehensive Income.
Financial assets
Trade and other receivables that are non-derivative financial assets, 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. 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 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.
77
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS CONTINUED
11.2 FINANCIAL LIABILITIES
Financial liabilities at amortised cost
Trade and other payables
Bank loans
Derivative financial instruments
Foreign exchange contracts
Total financial liabilities
31 December
2017
£’000s
31 December
2016
£’000s
8,303
17,800
1,704
27,807
10,370
–
4,627
14,997
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.
11.3 FINANCIAL RISK MANAGEMENT
The Group’s objective in managing risk is the protection of shareholder value. Risk is inherent in the Group’s activities and is managed through
a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is
critical to the Group’s continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and inflation
risk), credit risk and liquidity risk arising from the financial instruments it holds. The Group’s Investment Adviser is responsible for identifying
and controlling risks. The Board of Directors supervises the Investment Adviser and is ultimately responsible for the overall risk management
of the Group.
The Group’s risk management framework and approach is set out within the Strategic Report (pages 31 to 41). 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 11.4.
The Group’s portfolio of investments has been developed in anticipation of continued inflation at or above the levels used in the Group’s
valuation assumptions. Where inflation is at levels below the assumed levels for a sustained period of time, investment performance may be
impaired. The level of inflation linkage across the investments held by the Group varies and is not consistent.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore
impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying
borrowings within the unconsolidated investee entities are either hedged through interest rate swap arrangements or are fixed rate loans. For
example, it is generally a requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. However,
particularly in Australia, refinancing risk exists in a number of such investments. Hedging activities are aligned with the period of the loan,
which also mirrors the concession period and are highly effective. For certain regulated assets, the risk of adverse movements in interest rates
is limited through protections provided by the regulatory regime. The Group’s corporate debt facility is unhedged on the basis it is utilised as
an investment bridging facility and therefore drawn for a relatively short period of time. Therefore, the Group is not significantly exposed to
cash flow risk due to changes in interest rates over its variable rate borrowings. Interest income on bank deposits held within underlying
investments is included within the fair value of investments.
78
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 Foreign currency risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are
measured. The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant
investment returns from overseas investments. The Group doesn’t hedge its exposure to foreign exchange in relation to foreign currency
denominated investment balances. The carrying amounts of the Group’s foreign currency denominated monetary financial instruments at the
reporting date are set out in the table below:
Cash
Euro
Canadian Dollar
Australian Dollar
U.S. Dollar
Current receivables
Euro receivables
U.S. Dollar receivables
Investments at fair value through profit or loss
Euro
Canadian Dollar
Australian Dollar
U.S. Dollar
Total
31 December
2017
£’000s
31 December
2016
£’000s
204
1,486
196
405
2,291
1,650
329
1,979
791
1,438
6
3
2,238
414
1,382
1,796
277,489
38,287
207,835
60,062
247,388
39,135
97,657
61,586
583,673
445,766
587,943
449,800
Sensitivity analysis showing the impact of variations of the above risks on the fair value of investments is shown in section 11.5.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group
has adopted a policy of dealing with creditworthy counterparties and reviewing this on a regular basis at the underlying entity level. The
majority of underlying investments are in public-private partnerships and similar concessions which are entered into with government, quasi
government, other public, equivalent low risk bodies, or in regulated businesses that inherently exhibit low levels of credit risk. The maximum
exposure of credit risk over financial assets as a result of counterparty default is the carrying value of those financial assets in the balance
sheet. In addition, the underlying investee entities contract with third-party construction and facilities management contractors. The Group
seeks to mitigate this risk through using a diverse range of sub-contractors and through at least quarterly review of the credit position of
major contractors.
Liquidity risk
Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations associated with financial liabilities that are
settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non-listed equity and loans).
As a closed-ended investment vehicle there are no automatic capital redemption rights. The Group manages liquidity risk by maintaining
adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows.
Cash flow forecasts assume full availability of underlying infrastructure to the relevant public sector body or end-user. Failure to maintain
assets available for use or operating in accordance with pre-determined performance standards or licence conditions may lead to a reduction
(wholly or partially) in the investment income that the Group has projected to receive.
The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored. The terms of
public-private partnership contractual mechanisms also allow for significant pass-down of unavailability and performance risk to sub-contractors.
79
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS CONTINUED
11.4 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 2017, the Group’s only derivative financial instruments were currency forward contracts amounting to a liability of £1.7 million
(2016: £4.6 million).
Financial instruments classified as Level 2 have been valued using models whose inputs are observable in an active market (spot exchange rates,
yield curves, interest rate curves). Valuations based on observable inputs include financial instruments such as swaps and forward contracts
which are valued using market standard pricing techniques where all the inputs to the market standard pricing models are observable.
Level 3:
This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities and other non-controlled
investments which are classified at fair value through profit or loss. At 31 December 2017, the fair value of financial instruments classified within
Level 3 totalled £2,005.3 million (2016: £1,515.2 million).
Financial instruments are classified within Level 3 if their valuation incorporates significant inputs that are not based on observable market data
(unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there
is compelling external evidence demonstrating an executable exit price.
Valuation process
Valuations are the responsibility of the Board of Directors. The valuation of unlisted equity and debt investments is performed on a quarterly1
basis by the Investment Adviser and reviewed by the senior members of the Investment Adviser. The Investment Adviser verifies the major
inputs applied in the latest valuation by agreeing the information in the valuation computation to relevant project financial models and market
information. In addition, the accuracy of the computation is tested.
The latest valuation is also compared with the valuations in the preceding semi-annual and annual reporting periods. The senior members of
the Investment Adviser consider the appropriateness of the valuation methods and inputs. On a quarterly basis, after the checks above have
been performed, the Investment Adviser presents the valuation results to the Audit and Risk Committee. This includes a discussion of the
major assumptions used in the valuations, with an emphasis on the more significant investments. Any changes in valuation methods and
assumptions are discussed and agreed with the Group’s Audit and Risk Committee for recommendation to the Board.
In addition, any new investment acquisitions by the Group from related parties are subject to an independent valuation provided to the Board.
1
Indicative valuations performed at 31 March and 30 September.
80
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 Valuation methodology
The valuation methodologies used are primarily based on discounting the underlying investee entities’ future projected net cash flows at
appropriate discount rates. Valuations are also reviewed against recent market transactions for similar assets in comparable markets
observed by the Group or Investment Adviser and adjusted where appropriate.
Cash flow forecasts for each underlying investment are generated through detailed project specific financial models. Financial models forecast
the project related cash flows for the full term of the investment. The cash flows included in the forecasts used to determine fair value are
typically fixed under contracts however there are certain variable cash flows which are based on management’s estimation. These models
also forecast the dividend, shareholder loan interest payments, capital repayments and senior debt repayments (where applicable) expected
from the underlying investments. Key macroeconomic inputs and assumptions utilised in projecting the Group’s net future cash flows include:
31 December 2017
Inflation
Long-term tax
Foreign exchange rates
Long-term deposit rates
31 December 2016
Inflation
Long-term tax
Foreign exchange rates
Long-term deposit rates
1 Related to investments in Canada.
U.K.
2.75%
19.00%–17.00%
N/A
2.00%
Europe
(Excl. U.K.)
North America
Australia
2.00%
12.50%–29.58%
1.08
2.00%
2.00%
26.50%–27.00%1
1.43–1.78
2.00%
2.50%
30.00%
1.85
3.00%
U.K.
2.75%
20.00%–7.00%
N/A
2.00%
Europe
(Excl. U.K.)
2.00%
12.50%–33.99%
1.12
2.00%
North America
Australia
2.00%
26.50%–27.00%1
1.30–1.71
2.00%
2.50%
30.00%
1.86
3.00%
Discount rate
The discount rate used for valuation of each investment is the aggregate of the following:
– Yield on government bonds with an average life equivalent to (or as close as available to) the weighted average concession length of the
investments, issued by the national government for the location of the relevant investments (‘government bond yield’)
– A premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds
– A further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in
construction and/or to reflect any current asset specific or operational issues. Typically, this risk premium will reduce over the life of any
asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash flows
decrease. However, the rate may increase in relation to investments with unknown residual values at the end of the relevant concession life
as that date nears
– A further adjustment reflective of market-based transaction valuation evidence for similar assets
81
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS CONTINUED
11.4 FAIR VALUE HIERARCHY CONTINUED
Discount rate (continued)
Over the period, the weighted average government bond increased by 0.28%. This was offset by a 0.13% decrease in the weighted average
project premium reflecting observable market based evidence. Further details are provided within the Strategic Report (page 28).
Valuation Assumptions
Weighted Average Government Bond Rate
Weighted Average Project Premium
Weighted Average Discount Rate
31 December
2017
31 December
2016
1.83%
5.69%
7.52%
1.55%
5.82%
7.37%
Movement
0.28%
(0.13%)
0.15%
Weighted Average Discount Rate on Risk Capital1
7.87%
7.90%
(0.03%)
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
Additional investments during the year
Net repayments during the year
Funds advanced to affiliated entities
Net change in fair value of investments at fair value through profit or loss
Balance at 31 December
31 December
2017
£’000s
31 December
2016
£’000s
1,515,163
464,027
(25,759)
2,053
49,808
1,201,107
209,884
(27,197)
–
131,369
2,005,292
1,515,163
11.5 SENSITIVITY ANALYSIS
The valuation requires management to make certain assumptions in relation to unobservable inputs to the model, the significant assumptions
along with sensitivity analysis are provided below:
Weighted
average rate
in base case
valuations
Change in fair
value of
investment
£’000s
Change in fair
value of
investment
£’000s
Sensitivity
factor
Sensitivity
factor
7.52%
+1.00% (199,454)
-1.00%
240,577
2.60%
2.75%
2.00%
2.00%
2.50%
+1.00%
+1.00%
+1.00%
+1.00%
+1.00%
215,094
160,216
44,149
1,055
9,685
-1.00% (181,979)
-1.00% (135,020)
(37,210)
-1.00%
(1,224)
-1.00%
(8,515)
-1.00%
N/A
+10.00%
58,876
-10.00%
(58,882)
19.85%
+1.00%
(13,625)
-1.00%
13,715
2.11%
+1.00%
22,433
-1.00%
(22,429)
Significant assumptions at 31 December 2017
Discount rate
Inflation rate (overall)
U.K.
Europe
North America1
Australia
FX rate
Tax rate
Deposit rate
1 Relates to Canadian investments only.
82
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 Significant assumptions at 31 December 2016
Discount rate
Inflation rate (overall)
U.K.
Europe
North America1
Australia
FX rate
Tax rate
Deposit rate
1 Relates to Canadian investments only.
12. INVESTMENTS
2017
Date of investment
Description
Weighted
average rate
in base case
valuations
7.37%
2.58%
2.75%
2.00%
2.00%
2.50%
Change in fair
value of
investment
£’000s
Sensitivity
factor
+1.00%
(144,963)
+1.00%
+1.00%
+1.00%
+1.00%
+1.00%
128,969
75,083
39,423
1,230
13,233
Change in fair
value of
investment
£’000s
169,794
(113,352)
(66,584)
(32,839)
(1,134)
(12,795)
Sensitivity
factor
-1.00%
-1.00%
-1.00%
-1.00%
-1.00%
-1.00%
N/A
+10.00%
44,161
-10.00%
(44,167)
20.78%
2.07%
+1.00%
+1.00%
(10,193)
23,172
-1.00%
-1.00%
10,143
(19,782)
Consideration
£’000s
% Ownership
post investment
March–December 2017
The Group funded four further tranches of investment in the Tideway project, U.K.
78,234
15.99%
31 March 2017
5 May 2017
The Group, as part of a consortium, made an investment to acquire a share of
61% of Cadent gas distribution networks business, U.K.
272,501
4.4%
The Group made an investment to acquire an additional interest in the
Wolverhampton Building Schools for the Future project
1,536
3,899
90%
30%
July–December 2017
The Group funded six tranches of investment for the extension of the Gold Coast
Rapid Transport project, Australia
September–December 2017
The Group funded four tranches of investment in the Victoria Schools Two project,
Australia
20,797
100%
28 November 2017
8 December 2017
21 December 2017
The Group made an investment to acquire an additional interest in the Reliance
Rail rolling stock project in New South Wales, Australia
The Group injected funding as part of its investment in the National Digital
Infrastructure Fund, U.K.
The Group made an initial investment on financial close of a Police Centre project
in Offenbach, Germany
Total capital spend on investments during the year
33%
45%
45%
86,779
230
51
464,027
83
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
12. INVESTMENTS CONTINUED
2016
Date of investment
Description
4 February 2016
The Group invested in 100% of the equity and subordinated debt of the
Westermost Rough offshore transmission project
April–December 2016
The Group funded four further tranches of investment in the Tideway project
26 April 2016
29 June 2016
22 August 2016
The Group invested its fifth batch of funding via the Aggregator Vehicle PLC into
various PF2 schools procured under the U.K. Government’s Priority Schools
Building Programme
The Group made a follow on investment for an additional 72% interest in the
Wolverhampton phase two Building Schools for the Future (‘BSF’) project
The Group made an investment to acquire or increase its interest in ten BSF
projects across the U.K.
July–September 2016
The Group made two investments to acquire an interest in the Halton BSF project
28 September 2016
The Group acquired a further debt investment in the P3 U.S. Military Housing
sector 1
Consideration
£’000s
% Ownership
post investment
26,837
100%
70,219
5,054
15.99%
100%
7,149
82%
72,297 80%–99%
2,158
24,606
45%
–
22 December 2016
The Group acquired a further 3.33% interest in the Gold Coast Light Rail Project
1,564
30%
Total capital spend on investments during the year
209,884
1 Acquired debt only.
13. TRADE AND OTHER RECEIVABLES
Accrued interest receivable
Other debtors
Total trade and other receivables
31 December
2017
£ ‘000s
31 December
2016
£‘000s
22,295
4,668
26,963
24,773
7,733
32,506
Other debtors included £3.8 million (2016: £6.2 million) of receivables from unconsolidated subsidiary entities for surrender of Group tax losses.
31 December
2017
£ ‘000s
31 December
2016
£‘000s
7,056
1,247
8,303
8,668
1,702
10,370
14. TRADE AND OTHER PAYABLES
Accrued management fee
Other creditors and accruals
Total trade and other payables
84
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 15. 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
2017
shares
£‘000s
1,127,421
273,333
4,666
31 December
2016
shares
£‘000s
990,634
132,792
3,995
1,405,420
1,127,421
31 December
2017
£’000s
31 December
2016
£’000s
1,029,387
825,362
410,000
7,283
200,000
5,869
417,283
205,869
(5,622)
(1,844)
1,441,048
1,029,387
At present, the Company has one class of Ordinary shares which carry no right to fixed income.
On 20 May 2017, the Group raised an additional £330 million of equity through a Placing, Open Offer and Offer for Subscription of
220,000,000 Ordinary shares at an issue price per share of 150.0 pence.
On 7 June 2017, 2,372,322 new Ordinary fully paid shares were issued as a scrip dividend alternative in lieu of cash for the interim dividend in
respect of the six months ended 31 December 2016.
On 9 November 2017, 2,293,393 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 2017.
On 8 December 2017, the Group raised an additional £80 million of equity through a tap issue of 53,333,334 Ordinary shares at an issue price
per share of 150.0 pence.
Other distributable reserve
Opening balance
Movement in the year
Balance at 31 December
31 December
2017
£’000s
31 December
2016
£’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.
85
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
15. SHARE CAPITAL AND RESERVES CONTINUED
Retained earnings
Opening balance
Net profit for the year
Dividends paid1
Closing balance
1
Includes scrip element of £7.3 million in 2017 (2016: £5.9 million).
31 December
2017
£’000s
31 December
2016
£’000s
391,785
106,499
(83,515)
282,359
177,158
(67,732)
414,769
391,785
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 2017.
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 2017 was 3.41 pence per share (2016: 3.325 pence per share)
Interim distribution for the period 1 July to 31 December 2017 was 3.41 pence per share2 (2016: 3.325 pence per share)
Year ended
31 December
2017
£’000s
Year ended
31 December
2016
£’000s
83,5151
67,732
46,028
47,945
35,784
37,487
Includes the 2016 interim distribution for the period 1 July to 31 December 2016.
1
2 The distribution for the period 1 July to 31 December 2017 was approved by the Board on 20 March 2018 and therefore has not been included as a liability in the balance sheet for the year
ended 31 December 2017.
CAPITAL RISK MANAGEMENT
The Group seeks to efficiently manage its financial resources to ensure that it is able to continue as a going concern while providing improved
returns to shareholders through the management of the debt and equity balances. The capital structure consists of the Group’s corporate
debt facility and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group aims
to deliver its objective by investing available cash and using leverage whilst maintaining sufficient liquidity to meet ongoing expenses and
dividend payments. The Group’s Investment Policy is set out in the Corporate Governance Report (page 45).
The Group’s Investment Adviser reviews the capital structure on a semi-annual basis. As part of this review, the Investment Adviser considers
the cost of capital and the associated risks.
16. 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)
86
31 December 2017
£’000s
31 December 2016
£’000s
2,038,298
1,603,653
Number
Number
1,405,420,125
1,127,421,076
145.0
142.2
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 17. RELATED PARTY TRANSACTIONS
During the period, Group companies entered into certain transactions with related parties that are not members of the Group but are related
parties by reason of being in the same group as Amber Infrastructure Group Holdings Limited, which is the ultimate holding company of the
Investment Adviser, Amber Fund Management Limited (‘AFML’).
Under the Investment Advisory Agreement (‘IAA’), AFML was appointed to provide investment advisory services to the Group including
advising the Group as to the strategic management of its portfolio of investments.
AFML and International Public Partnerships GP Limited are subsidiary companies of Amber Infrastructure Group Holdings Limited (‘Amber
Group’), in which Mr G Frost is a Director and also a 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 Directors’ fees of £43,000 (2016: £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
2017
£’000s
For the year
ended
31 December
2016
£’000s
At
31 December
2017
£’000s
At
31 December
2016
£’000s
20,637
6,835
27,472
16,107
3,219
19,326
7,056
103
7,159
8,668
311
8,979
1 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the balance sheet.
INVESTMENT ADVISORY ARRANGEMENTS
Investment advisory fees payable during the period are calculated as follows:
For existing construction assets:
– 1.2% per annum of gross asset value of investments bearing construction risk
For existing fully operational assets:
– 1.2% per annum of the gross asset value (‘GAV’) excluding uncommitted cash from capital raisings up to £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
Asset origination fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions.
The IAA can be terminated where less than 95% of the Group’s assets are available for use for certain periods and the Investment Adviser fails
to implement a remediation plan agreed with the Group. The IAA may also be terminated by either party giving to the other five years’ notice of
termination, expiring at any time after ten years from the date of the IAA.
As at 31 December 2017, Amber Infrastructure held 8,002,379 (2016: 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.
87
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
17. RELATED PARTY TRANSACTIONS CONTINUED
TRANSACTIONS WITH DIRECTORS
Shares acquired by Directors in the financial year ended 31 December 2017 are disclosed below:
Director
Rupert Dorey
Giles Frost
John Whittle
Claire Whittet
John Le Poidevin
Total purchased
Number of
New Ordinary
shares
329,000
367,039
6,666
15,760
65,333
783,798
During the year, Rupert Dorey also disposed of 129,000 shares by way of a gift transfer for nil consideration.
Remuneration paid to the Non-Executive Directors is disclosed on page 50.
18. CONTINGENT LIABILITIES AND COMMITMENTS
As at 31 December 2017 the Group has committed funding up to £179.1 million (2016: £382.4 million), including amounts supported by letter
of credit which were notionally drawn against the Group’s corporate debt facility.
There were no contingent liabilities at the date of this report.
19. EVENTS AFTER BALANCE SHEET DATE
There were no events to report after the balance sheet date.
20. OTHER MANDATORY DISCLOSURES
NEW STANDARDS THAT THE GROUP HAS APPLIED FROM 1 JANUARY 2017
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 12: Recognition of Deferred Tax Assets for Unrealised Losses (1 January 2017)
– Amendments to IAS 7: Disclosure Initiative (1 January 2017)
STANDARDS ISSUED BUT NOT YET EFFECTIVE
Standards issued but 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, however does not currently anticipate the standards to have a significant impact on the Group’s
financial statements. The Group does not believe the provisions of IFRS 15 Revenue from Contracts with Customers to be applicable to the
financial statements of the Group, due to the nature of the investment income recognised by INPP. Current assumptions regarding the impact
of future standards 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 (1 January 2018)
IFRS 15 Revenue from Contracts with Customers (1 January 2018)
–
– Amendments to IFRS 9 Prepayment Features with Negative Compensation (1 January 2019)
– Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures (1 January 2019)
–
–
– Clarifications to IFRS 15 Revenue from Contracts with Customers (1 January 2018)
– Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions (1 January 2018)
– Amendments to IAS 40 Transfers of Investment Property (1 January 2018)
– Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (1 January 2018)
–
–
–
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (1 January 2018)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (1 January 2019)
IFRS 17 Insurance Contracts (1 January 2021)
88
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 UNCONSOLIDATED SUBSIDIARIES
A list of the significant investments in unconsolidated subsidiaries, including the name, country of incorporation as at 31 December 2017 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
Blackburn with Darwen Phase 1 Limited
Blackburn with Darwen Phase 2 Limited
BPSL No. 2 Limited Partnership
Building Schools for the Future Investments LLP
Calderdale Schools Partnership
CHP Unit Trust
Derby City BSF Limited
Derbyshire Courts Limited Partnership
Derbyshire Schools
Derbyshire Schools Phase Two Partnership
Future Ealing Phase 1 Limited
4 Futures Phase 1 Limited
4 Futures Phase 2 Limited
Hertfordshire Schools Building Partnership Phase 1 Limited
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
Kent PFI (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
Inspiredspaces Wolverhampton (Project Co 2) Limited
Transform Islington (Phase 1) Limited
Transform Islington (Phase 2) Limited
IPP (Moray Schools) Holdings Limited
LCV Project Trust
Maesteg School Partnership
Norfolk Limited Partnership
Northampton Schools Limited Partnership
Northern Diabolo N.V.
Oldham BSF Limited
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
Place of
incorporation (or
registration) and
operation
Proportion of
ownership
interest %
U.K.
U.K.
Canada
Germany
Canada
U.K.
U.K.
U.K.
U.K.
U.K.
Australia
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
Germany
U.K.
Ireland
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
Australia
U.K.
U.K.
U.K.
Belgium
U.K.
Australia
U.K.
U.K.
Australia
Australia
U.K.
U.K.
100
100
100
98
100
90
90
100
100
100
100
90
100
100
100
80
90
90
80
100
100
100
100
91
58
82
82
90
90
90
90
90
90
100
100
100
100
100
100
99
100
100
100
100
100
100
100
89
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
20. OTHER MANDATORY DISCLOSURES CONTINUED
Name
TC Robin Rigg OFTO Limited
TC Barrow OFTO Limited
TC Gunfleet Sands OFTO Limited
TC Ormonde OFTO Limited
TC Lincs OFTO Limited
TC Westermost Rough OFTO Limited
Place of
incorporation (or
registration) and
operation
Proportion of
ownership
interest %
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
100
100
100
100
100
100
The entities listed above in aggregate represent 62.2% (2016: 79.9%) 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.
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
U.K.
Luxembourg
Luxembourg
U.K.
U.K.
Proportion of
ownership
interest %
100
100
100
100
100
21. INVESTMENTS
The Group holds 129 investments across energy transmission, education, transport, health, courts, waste water, police, military housing and
other sectors. The table below sets out the Group’s investments that are recorded at fair value through profit or loss.
Investment Name
U.K.
U.K. PPP Assets
Calderdale Schools
Derbyshire Schools Phase Two
Northamptonshire Schools
Derbyshire Courts
Derbyshire Schools Phase One
North Wales Police HQ
St Thomas More Schools
Tower Hamlets Schools
Norfolk Police HQ
Strathclyde Police Training Centre
Hereford & Worcester Courts
Abingdon Police Station
Bootle Government Offices
Maesteg Schools
Moray Schools
Liverpool Library
90
Country
Status at
31 December 2017
Risk Capital
Owned by the
Group1
%
Investment end date
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
30 April 2030
100.0
29 February 2032
100.0
31 December 2037
100.0
31 August 2028
100.0
28 April 2029
100.0
31 December 2028
100.0
30 April 2028
100.0
31 August 2027
100.0
100.0
16 December 2036
100.02 30 September 2026
100.02
5 September 2025
30 April 2030
100.0
14 June 2025
100.0
28 July 2033
100.0
26 February 2042
100.0
7 November 2037
100.0
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 Investment Name
Priority Schools Building Aggregator Programme
Batch 1 – Schools in North East England
Batch 2 – Schools in Hertfordshire, Luton and Reading
Batch 3 – Schools in North West of England
Batch 4 – Schools in the Midlands Region
Batch 5 – Schools in Yorkshire
OFTOs
Robin Rigg OFTO
Gunfleet Sands OFTO
Barrow OFTO
Ormonde OFTO
Lincs OFTO
Westermost Rough OFTO
Building Schools for the Future Portfolio
Minority Shareholdings in 26 Building Schools for the Future Projects
Blackburn with Darwen Phase One
Blackburn with Darwen Phase Two
Derby City
Durham Schools
Ealing Schools Phase One
Halton Place
Hertfordshire Schools Phase One
Islington Phase One
Islington Phase Two
Oldham Schools
Tameside Schools One
Tameside Schools Two
Nottingham Schools One
Nottingham Schools Two
South Tyneside and Gateshead Schools One
South Tyneside and Gateshead Schools Two
Southwark Phase One
Southwark Phase Two
Wolverhampton Schools Phase One
Wolverhampton Schools Phase Two
Kent Schools
NHS LIFT Portfolio
Beckenham Hospital
Garland Road Health Centre
Alexandra Avenue Primary Care Centre, Monks Park Health Centre
(two projects)
Gem Centre Bentley Bridge, Phoenix Centre (two projects)
Sudbury Health Centre
Mt Vernon
Lakeside
Fishponds Primary Care Centre, Hampton House Health Centre
(two projects)
Shirehampton Primary Care Centre, Whitchurch Primary Care Centre
(two projects)
1 Risk Capital includes project level equity and/or subordinated shareholder debt.
2
Investment contains senior or mezzanine debt in addition to any Risk Capital ownership shown.
Country
Status at
31 December 2017
Risk Capital
Owned by the
Group1
%
Investment end date
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
Operational
Construction
Construction
Construction
Construction
0.02
31 August 2040
0.02
9 November 2040
0.02
24 August 2041
0.02 29 December 2041
0.02 30 September 2041
Operational
Operational
Operational
Operational
Operational
Operational
Mixed
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
1 March 2031
100.0
18 July 2031
100.0
31 March 2030
100.0
100.02
9 July 2032
100.02 10 November 2034
11 February 2036
100.0
Various
Various
90.0 30 September 2036
90.0 30 September 2039
31 August 2037
90.0
3 January 2036
91.0
31 March 2038
80.0
31 March 2038
45.0
31 August 2037
80.0
31 August 2034
90.0
31 March 2039
90.0
31 August 2037
99.0
31 August 2036
46.0
31 August 2037
46.0
31 August 2034
82.0
30 August 2038
82.0
25 October 2034
90.1
4 September 2036
90.1
9 January 2036
90.0
31 December 2036
90.0
2 September 2037
90.0
31 August 2040
90.0
4 August 2035
58.0
49.8
49.8
49.8
49.8
49.8
49.8
49.8
33.4
33.4
1 December 2033
1 December 2031
1 June 2031
1 December 2030
1 November 2032
1 December 2033
1 November 2032
1 January 2031
1 May 2032
91
International Public Partnerships Annual Report and financial statements 2017OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Country
Status at
31 December 2017
Per cent. Risk
Capital Owned
by the Group1
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
U.K.
Construction
U.K.
U.K.
Operational
U.K. Pre Investment
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Canada
Canada
U.S.
Belgium
Ireland
Germany
Germany
Germany
Germany
Italy
Operational
Operational
Operational
Operational
Operational
Operational
Mixed
Construction
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Construction
Operational
Investment end date
1 May 2031
1 April 2035
1 October 2031
1 June 2034
1 November 2035
1 February 2042
1 October 2030
1 April 2033
7 May 2037
1 August 2036
31 December 2038
31 March 2150
30 June 2069
21 July 2027
24 August 2031
19 July 2034
11 February 2044
21 December 2036
21 December 2035
31 December 2035
31 May 2029
31 December 2042
33.4
34.3
34.3
49.8
49.8
33.4
30.0
30.0
30.0
30.0
4.8
15.99
4.4
45.0
100.0
100.0
33.0
100.0
100.0
25.0
30.0
100.0
100.0
100.0
0.02
30 June 2040
24 November 2039
25 October 2052
8 June 2047
100.0
18 February 2035
100.0
31 December 2037
49.0
97.0
31 July 2041
98.0 30 September 2039
30 June 2050
45.0
7 November 2021
37.0
21. INVESTMENTS CONTINUED
Investment Name
Blackbird Leys Health Centre, East Oxford Care Centre (two projects)
Brierley Hill
Ridge Hill Learning Disabilities Centre, Stourbridge Health & Social Care
Centre (two projects)
Harrow NRC (three projects)
Goscote Palliative Care Centre
South Bristol Community Hospital
East London LIFT Project One (four projects)
East London LIFT Project Two (three projects)
East London LIFT Project Three (Newby Place)
East London LIFT Project Four (two projects)
Other U.K.
Angel Trains
Thames Tideway Tunnel
Cadent
National Digital Infrastructure Fund
Australia
Royal Melbourne Showgrounds
Long Bay Forensic & Prisons Hospital Project
Reliance Rail
Royal Children’s Hospital
Orange Hospital
NSW Schools
Gold Coast Rapid Transport
Victoria Schools Two
North America
Alberta Schools
Durham Courts
U.S. Military Housing
Europe (excl. U.K.)
Diabolo Rail Link Project
Dublin Courts
BeNEX (Bus and Rail)
Federal German Ministry of Education and Research Headquarters
Pforzheim Schools
Offenbach Police Centre
Brescia Hospital
1 Risk Capital includes project level equity and/or subordinated shareholder debt.
2
Investment contains senior or mezzanine debt in addition to any Risk Capital ownership shown.
92
International Public Partnerships Annual Report and financial statements 2017FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2017 CONTACTS
INVESTMENT ADVISER
Amber Fund Management Limited
3 More London Riverside
London
SE1 2AQ
REGISTERED OFFICE
Heritage Hall
PO Box 225, Le Marchant Street
St Peter Port
Guernsey
Channel Islands
GY1 4HY
ADMINISTRATOR AND
COMPANY SECRETARY
Estera International Fund Managers
(Guernsey) Limited
Heritage Hall
PO Box 225, Le Marchant Street
St Peter Port
Guernsey
Channel Islands
GY1 4HY
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
AUDITOR
Ernst & Young LLP
Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
Channel Islands
GY1 4AF
LEGAL ADVISER
Carey Olsen
PO Box 98, Carey House
Les Banques
Guernsey
Channel Islands
GY1 4BZ
CORPORATE BANKER
Royal Bank of Scotland International
1 Glategny Esplanade
St Peter Port
Guernsey
Channel Islands
GY1 4BQ
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International Public Partnerships
c/o Heritage International Fund Managers Limited
Heritage Hall, PO Box 225
Le Marchant Street, St Peter Port
Guernsey GY1 4HY
Tel: +44 1481 716000
WWW.INTERNATIONALPUBLICPARTNERSHIPS.COM