International Public Partnerships Limited Annual Report 2018

FY2018 Annual Report · International Public Partnerships Limited

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2018

Annual Report and
Financial Statements

OVERVIEW
01 Full-Year Financial Highlights
02 Company Overview
04 Top 10 Investments

CHAIRMAN’S LETTER
06 Chairman’s Letter

STRATEGIC REPORT
10 Business Model
12 Performance Against Strategic Priorities
14 Case Study – Dudgeon OFTO
16 Operating Review
18 Current Market Environment
and Future Opportunities

21 Current Pipeline
34 Environmental, Social and Governance
39 Risk Management

CORPORATE GOVERNANCE
50 Summary of Investment Policy
52 Board of Directors
54 Corporate Governance Report
62 Audit and Risk Committee Report
66 Directors’ Report
68 Directors’ Responsibilities Statement

FINANCIAL STATEMENTS
69 Independent Auditor’s Report to the
Members of International Public
Partnerships Limited
75 Financial Statements
79 Notes to the Financial Statements
100 Key Contacts

COMPANY FACTS

– London Stock Exchange trading code: INPP.L

– Member of the FTSE 250 and FTSE All-Share indices

– £2.3 billion market capitalisation at 31 December 2018

– 1,484 million shares in issue at 31 December 2018

– Eligible for ISA/PEPs and SIPPs

– Guernsey incorporated company

– 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:
Dudgeon Offshore Transmission Project (‘OFTO’) – photo credit to Equinor, photographer –
Jan Arne Wold. The image illustrates the Company’s Dudgeon offshore substation, which
was acquired in November 2018. The project’s transmission cables link between the
onshore and offshore substations.
Inside front cover image:
Westermost Rough OFTO. The image illustrates the Company’s Westermost Rough
offshore substation.

International Public Partnerships Annual Report and financial statements 2018FULL-YEAR FINANCIAL HIGHLIGHTS

O
V
E
R
V
I
E
W

We aim to provide our investors with long-term, inflation-linked returns, by growing our
dividend and creating the potential for capital appreciation.

We expect to achieve this through responsible investment in public infrastructure, which
meets societal and environmental needs, both now, and into the future.

Our investments are chosen with the intention of creating robust and long-term
investment cash flows.

DIVIDENDS

NET ASSET VALUE (‘NAV’)4

PORTFOLIO ACTIVITY

7.00p

£2.2bn

2018 full-year dividend1
per share

NAV at 31 December 2018
(2017: £2.0bn)

7.18p

2019 full-year dividend target2
per share

7.36p

2020 full-year dividend target2
per share

148.1p

NAV per share at
31 December 20184
(2017: 145.0p)

7.9%

Increase in NAV

c.£105m

Cash investments and
commitments made
during 2018

PROFIT

£138.1m

Profit before tax
(2017: £106.4m)

TOTAL SHAREHOLDER
RETURN (‘TSR’)

c.2.5%

Average annual dividend
increase2

1.2x

Cash dividend covered3

2.1%

Increase in NAV per share

171.8%

TSR since inception5

8.6% p.a.

Annualised Total Shareholder
Return since inception5

1 The forecast date for payment of the dividend relating to the six months to 31 December 2018 is 10 June 2019.
2 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
3 Cash dividend payments to investors are paid from net operating cash flow before capital activity as detailed on pages 24–25.
4 The methodology used to determine the NAV is described in detail on pages 26–33.
5 Since inception November 2006. Source: Bloomberg. Share price plus dividends assumed to be reinvested.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OVERVIEW

COMPANY OVERVIEW

CONSISTENT AND GROWING RETURNS

INPP Dividend Payments

p per share

7.18

7.00

6.82

7.36

6.65

6.45

6.30

6.00 6.15

5.70 5.85

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
A

2
0
1
9
F

2
0
2
0
F

Annualised Total
Shareholder Return since
inception of 8.6% p.a.1

Since listing, INPP has grown
from £300m market
capitalisation to £2.3bn
(December 2018)

Annual dividend growth has
averaged 2.5% since
inception2

High degree of
inflation linkage

LOW RISK AND DIVERSIFIED PORTFOLIO

Sector Breakdown

Geographic Split

7 8 9

1 Energy Transmission
2 Transport
3 Education
4 Gas Distribution
5 Waste Water
6 Health
7 Courts
8 Military Housing
9 Other

22%
21%
19%
12%
11%
4%
3%
3%
5%

4 5 6

1 U.K.
2 Belgium
3 Australia
4 U.S.
5 Germany
6 Canada
7 Ireland
8 Italy

71%
10%
10%
3%
3%
2%
1%
<1%

Investment Type

1 Investments with
third party
senior debt
2

Investments with
no third party
senior debt4

91%

130 investments in infrastructure projects and businesses
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 Construction
2 Operational
3 Early Stage Investor5
4 Later Stage Investor6

11%
89%
70%
30%

1 100%
2 50%–100%
3 <50%

49%
7%
44%

1 <20 years
2 20–30 years
3 >30 years

48%
26%
26%

Early stage investment gives first mover advantage
and maximises capital growth opportunities

Preference to hold majority positions/control or an
alternative position of influence e.g. board representation

Weighted average portfolio life of 35 years7

1 Since inception in 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.

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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEW

International Public Partnerships invests in high-quality
infrastructure projects and businesses that are resilient
over the long-term

Long-dated, contractual,
predictable cash flows

Revenue streams from
regulated or government
backed counterparties

HIGHLY PREDICTABLE PORTFOLIO PERFORMANCE

Projected Investment Receipts3
INPP Projected Cash Flow Proﬁle

Investment Receipts (£m)

300

250

200

150

100

100 years

Investments focused
on high-quality,
OECD countries

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
0
4
8

2
1
4
7

2
1
4
8

2
1
4
9

2
1
5
0

Projected Investment Receipts

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 future. Only investments committed as at 31 December 2018 are included.

STRONG INVESTMENT STEWARDSHIP
– Experienced independent Board and

strong corporate governance

– The Company’s Investment Adviser,
Amber Infrastructure (‘Amber’), is a
leading originator, asset and fund
manager

– The Investment Adviser has one of the
largest independent teams in the sector
with over 120 employees working
internationally managing our assets

– We have a long-standing relationship –
the Investment Adviser has managed
the Company’s assets since its
inception in 2006

– The Investment Adviser has a strong

track record of originating and
developing opportunities for new
investment

– The Investment Adviser’s active

management approach to underlying
asset investments supports
sustainable performance

– We aim to integrate ESG considerations
throughout the investment lifecycle

See more about Corporate Governance
on pages 8–9

See more about the Investment Adviser
on pages 22–23

Relationship with the Investment Adviser

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

Strong and sustainable
stewardship of portfolio

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

TOP 10 INVESTMENTS

International Public Partnerships’ (‘INPP’s’, the ‘Company’s’) top 10 investments by fair value at
31 December 2018 are summarised below. A complete listing of the Company’s investments can be
found in note 21 of the financial statements, with further information available on the Company’s
website (www.internationalpublicpartnerships.com).1

CADENT
Location

Sector

Status at 31 December 2018

Various, United Kingdom

Gas Distribution

Operational

DIABOLO RAIL LINK
Location

Sector

Status at 31 December 2018

Brussels, Belgium

Transport

Operational

% Holding at 31 December 2018

4% Risk Capital

% Holding at 31 December 2018

100% Risk Capital

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

12.4%

14.0%

Cadent owns four of the U.K.’s eight regional gas
distribution networks (‘GDNs’) and in aggregate provides
gas to approximately 11 million consumers. It is expected
that the Company will acquire an additional 3% of Cadent
from National Grid in June 2019.

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

10.0%

Diabolo Rail link integrates Brussels Airport with the
national rail network allowing passengers to access
high-speed trains, such as Amsterdam-Brussels-Paris
and NS Hispeed trains.

THAMES TIDEWAY TUNNEL (‘TIDEWAY’)
Location

London, United Kingdom

LINCS OFFSHORE TRANSMISSION
Location

Lincolnshire, United Kingdom

Sector

Waste Water

Sector

Energy Transmission

Status at 31 December 2018

Under Construction

Status at 31 December 2018

Operational

% Holding at 31 December 2018

16% Risk Capital

% Holding at 31 December 2018

100% Risk Capital

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

10.6%

10.8%

Tideway is a £4.2 billion investment and relates to the
design, build and operation of a 25km ‘super-sewer’
under the River Thames.

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

9.0%

The project connects the 270MW Lincs offshore wind
farm, located 8km off the east coast of England, to the
National Grid. The transmission cables comprise the
onshore and offshore substations and under-sea cables,
100km in length.

Significant movements in the Group’s portfolio for the year ended
31 December 2018 can be found on page 16 of the Strategic Report.

1 Risk Capital includes both project level equity and subordinated shareholder debt.
2

Includes two tranches of investment into U.S. military housing.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWORMONDE OFFSHORE TRANSMISSION
Location

Cumbria, United Kingdom

U.S. MILITARY HOUSING2
Location

Sector

Energy Transmission

Sector

Status at 31 December 2018

Operational

Status at 31 December 2018

Various, United States

Military Housing

Operational

% Holding at 31 December 2018

100% Risk Capital
and 100% senior debt

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

6.2%

6.5%

The project connects 132kV Ormonde offshore wind farm,
located 10km off the Cumbrian coast, to the National
Grid. The transmission assets comprise the onshore and
offshore substations and under-sea cables, 41km in length.

% Holding at 31 December 2018

100% Risk Capital

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

3.1%

3.0%

Two tranches of mezzanine debt underpinned by security
over seven operational PPP military housing projects,
relating to a total of 19 operational military bases in the
U.S. and comprising c.21,800 individual housing units.

RELIANCE RAIL
Location

Sector

Status at 31 December 2018

Sydney, Australia

Transport

Operational

DUDGEON OFFSHORE TRANSMISSION
Location

North Norfolk, United Kingdom

Sector

Energy Transmission

Status at 31 December 2018

Operational

% Holding at 31 December 2018

33% Risk Capital

% Holding at 31 December 2018

100% Risk Capital

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

4.3%

4.4%

Reliance Rail is responsible for financing, designing,
manufacturing and ongoing maintenance of 78
next-generation, electrified, ‘Waratah’ train sets serving
Sydney in New South Wales, Australia.

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

2.2%

N/A

The project connects the 402MW Dudgeon offshore
wind farm, located 32km off the coast of Cromer in
North Norfolk, to the National Grid. The transmission
asset comprises the onshore and offshore substations
and under-sea cables, 89km in length.

ANGEL TRAINS
Location

Sector

Status at 31 December 2018

Various, United Kingdom

Transport

Operational

BENEX RAIL
Location

Sector

Status at 31 December 2018

Various, Germany

Transport

Operational

% Holding at 31 December 2018

5% Risk Capital

% Holding at 31 December 2018

49% Risk Capital

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

3.5%

3.4%

Angel Trains is a rolling stock leasing company asset
base comprising over 4,400 vehicles. Angel Trains has
invested over £5 billion in new rolling stock and
refurbishment since 1994, and is the second largest
private investor in the industry after Network Rail.

% Investment Fair Value 31 December 2018

% Investment Fair Value 31 December 2017

2.0%

BeNEX leases rolling stock to train operating companies.
It holds shares in six rail companies and one bus
company, providing transport services of c.39 million
train km and c.9 million km by road.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

CHAIRMAN’S LETTER

Dear Shareholders,
In this, my first letter as your Chairman,
I am pleased to report another year of
successful performance across the
Company’s investment portfolio. Our strong
financial returns mean that the Company
has again met its target full-year dividend
of 7.00 pence per share (2017: 6.82 pence
per share), representing an annualised
increase of 2.6%. This is in line with our
well-established, long-term expectations for
annual dividend growth of approximately
2.5%. This helps bring our total shareholder
return to 171.8%, or 8.6% on an annualised
basis since the Company’s inception.

Owing to the robustness and forward-
visibility of the cash flows generated by the
underlying assets in which the Company
invests, the Board has reaffirmed its
dividend target for 2019 of 7.18 pence per
share and has provided additional guidance
of 7.36 pence per share for the year ending
31 December 2020. We maintain our strong
inflation linkage, such that for a 1.00%
sustained increase in the assumed inflation
rate, the Company would expect to generate
a 0.82% increase in portfolio return.

The Investment Adviser’s active approach
to asset management and origination
of new investment opportunities has
helped to realise the potential for capital
growth within the existing portfolio and
has contributed to a 2.1% growth in NAV
per share to 148.1 pence per share for
2018 (2017: 145.0 pence per share). At the
same time, the total NAV has increased
by 7.9% to £2.2 billion (2017: £2.0 billion).

INVESTMENT ACTIVITY
During 2018, the Company successfully
invested and committed up to approximately
£105 million in new or follow-on investments,
taking the total number of assets in the
portfolio to 130. This included an investment
of £46.2 million into the Company’s seventh
offshore transmission asset, Dudgeon
Offshore Transmission Project (‘OFTO’).
The project provides the transmission
connection to a 402MW offshore wind
farm located off the coast of Norfolk,
which produces enough clean energy
to power over 410,000 U.K. homes.

Following the previously disclosed exercise
of put/call options, the Company is due to
invest a further c.£150-155 million (subject
to price adjustment per the terms of the
option agreements) in Cadent Gas Limited
(‘Cadent’) by the end of June 2019. On
conclusion of these arrangements, the
Company is expected to hold a 7.25%
ownership interest in Cadent, providing
it with the permanent right to appoint
a board director, consistent with the
Company’s long-term target level of
shareholding in the Cadent business.

Throughout the course of the year, the
Company continued to diversify and
selectively grow its exposure to the U.K.
digital infrastructure sector via a £14.8 million
investment from our £45 million commitment
to the National Digital Infrastructure Fund
(‘NDIF’), in which we are a co-investor
alongside HM Government. These digital
investments are currently forecast to serve
over 250,000 new premises with improved
ultrafast broadband connectivity providing
over 1,000km of new high-capacity fibre
routes across the U.K. Further details of
investments the Company made during
the year can be found on page 16.

Despite uncertainty in the wider equity
capital markets impacting investor appetite
for capital issuance, support for the
Company’s investment case and track
record remained strong – with £116 million
of additional capital raised from existing
and new investors in October 2018 at
a price of 152.5 pence per share. The
Company’s share price continued to
demonstrate an intrinsically low correlation
to the broader equity market at 0.231,
which was consistent with 2017.

ASSET STEWARDSHIP AND
PORTFOLIO PERFORMANCE
Since its formation in 2006, the Company
has been a highly specialist and dedicated
investor across a wide range of established
and emerging asset classes which help
meet a modern society’s demand for safe,
reliable and cost-effective infrastructure. The
Company’s focus has been, and continues
to be, on those situations where we believe
that private finance has the capacity to
deliver outstanding infrastructure facilities
and services, using its expertise to offer
good value for money to governments
and the societies which they serve and,
at the same time, earn long-term returns
in line with our investment objectives.

By maintaining a well-resourced, active and
focused approach to asset management,
the Company, through the Investment
Adviser, was well positioned when Carillion
plc (‘Carillion’), a contractor and facilities
manager to many businesses in the sector,
entered liquidation in January 2018. As
previously announced, the Company closely
monitored Carillion’s performance prior to
its collapse and contingency plans were in
place as a matter of course. This enabled
all 24 affected projects to be transitioned
to new facilities management providers on

1 Correlation to FTSE All-share index for the 12 months to 31 December 2018.

International Public Partnerships Annual Report and financial statements 2018CHAIRMAN’S LETTERI am pleased to report another year of successful performance
across the Company’s investment portfolio.

We remain very positive about our
investment in Cadent, its operating
model and its long-term contribution to
the Company’s investment portfolio. On
the Company’s behalf, the Investment
Adviser continues to engage actively with
Cadent’s management team and our co-
shareholders in Cadent, to help achieve a
fair and reasonable outcome from Ofgem’s
consultations. While the consultation period
is ongoing, we have taken a cautious view
on the range of possible outcomes that
may potentially impact the valuation of
Cadent within the Company’s portfolio.

The Company has also been a long-term
investor in transportation assets, making
its first investment in U.K. rolling stock
in 2008 via the train leasing company,
Angel Trains. Angel Trains has achieved
significant growth during the last 10 years,
surpassing the Company’s original base
case expectations. In the last 12 months,
however, the increased demand for new
trains within the U.K. has brought new
entrants into the sector which, in turn, has
placed additional competitive pressures in
its key marketplace. Whilst we have taken
this into account in our view on future
prospects, the Company remains confident
in Angel Trains’ long-term investment case.

More information about the operating
environment and the potential
implications for the Company can
be found on pages 26–33.

a permanent basis with no impact on the
availability of the facilities to their public
sector users; and all on-site personnel, who
formerly worked for Carillion, were offered
continuity of employment on the same
terms. Work continues to transition to a new
construction contractor on one project, the
fourth batch of the Priority Schools Building
Programme – Aggregator (‘PSBP Midlands
Limited’). Construction on this project is
expected to reach completion during 2019
and the Company maintains its guidance
that we expect no more than a £1.5 million
impact on NAV as a result of Carillion’s
liquidation, across the 24 affected projects.

The Company notes Interserve Plc’s
announcement on 15 March 2018 that
administrators have been appointed, and
that the sale of its business and assets,
including the entity providing facilities
management services to 6% of the
Company’s portfolio (by investment fair
value), to a newly incorporated company
(Interserve Group Ltd) controlled by its
lenders has been completed. We are
working closely with the new company
and its lenders to ensure continuity of
service, whilst at the same time keeping
contingency plans in place. We do not
currently anticipate that this will adversely
impact the Company’s valuation. More
information is available on pages 22–23.

The Company completed three refinancings
of projects within its portfolio during 2018,
including two Building Schools for Future
(‘BSF’) projects and the Liverpool Central
Library. These refinancings delivered
significant shared financial benefits to the
Company’s local authority clients, which
helped further align our interests with the
Company’s public sector counterparties.

Progress continues to be made on the
construction of one of our largest projects,
Tideway, where the new 25km sewer being
built under the River Thames in London
is now c.40% complete. The project will
ultimately deliver significant environmental
and social benefits for London through
the reduction of sewage and associated
wastewater discharges, which currently flow
directly into the River Thames whenever the
current sewer network is overloaded (which
can happen with only modest rainfall).

Since its formation, the Company has been
a strong supporter of Environmental, Social
and Governance (‘ESG’) initiatives and in this
Annual Report we allocate increased space
to their coverage on pages 34–38. The
growing importance of stakeholder support
for the Company’s investment activities is
a subject I will return to in future letters.

OPERATING ENVIRONMENT
The Audit and Risk Committee of the
Board has been monitoring the risks
associated with all potential outcomes
from the U.K. leaving the European
Union (E.U.) and their potential impact
on the Company. The possibility of
disruption to some of the supply chains
on which the Company depends (for
example, for skilled workers or spare
parts) cannot be discounted. Accordingly,
the Investment Adviser has adopted a
position of heightened readiness and close
communication with key contractors, so
that as much early warning as possible
can be given to enable appropriate
mitigating measures to be implemented, if
an identified risk becomes a material issue
for one of the Company’s investments.

The U.K. gas and electricity market
regulator, Ofgem, is currently consulting
with industry participants on the next round
of regulatory settlement which will govern,
amongst other things, the revenue and
incentives received by Cadent. In December
2018, Ofgem published a consultation
document on its proposed price control
measures which would apply in its next
regulatory period from 2021 to 2026.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

VALUATION
Recent third-party transactions, competitive
bid processes engaged in by the Investment
Adviser and the takeover and subsequent
de-listing of John Laing Infrastructure Fund
(‘JLIF’) have all provided positive valuation
indicators for the types of assets which
the Company holds. These drivers have
served to highlight value-adding factors
within the infrastructure sector and have
been considered as part of the Company’s
valuation methodology, in terms of the
appropriate choice of discount rates used.

At the same time, and in conjunction with
necessary adjustments to the applicable
discount rates, the Company continues
to adopt a cautious approach to the
management of near-term uncertainty
associated with forecasting operational cash
flows generated by investee businesses
including, for the reasons described
above, Cadent and Angel Trains.

In balancing these factors, and
notwithstanding the positive NAV growth
we otherwise recorded over the period, the
Company continues to adopt a cautious
approach to the protection of shareholder
value – further information about which
can be found on pages 26–33.

As part of its long-term succession planning,
the Board previously signalled Rupert
Dorey’s intention to retire as Chairman of
the Board, effective at the end of 2018.
Having been appointed as a Non-Executive
Director of the Company on 4 September
2018, I assumed the role of Chairman
upon Rupert’s retirement. I would like to
pay tribute to Rupert’s highly effective
oversight and direction of the Company
during his period as Chairman. He led the
Board for over four years and was one of
the first directors of the Company at the
time of its listing in 2006. During this period,
the Company has consistently delivered
on its objectives, often exceeding them,
and I warmly thank Rupert on behalf of
all our shareholders, past and present.

John Le Poidevin was appointed as
Chairman of the Audit and Risk Committee
with effect from 1 July 2018. John is a
former audit partner at BDO LLP with
substantial experience of financial reporting,
corporate governance and the listing rules
and has been a Board member since 2016.
John Whittle retired from his role as Chair of
the Audit and Risk Committee and remains
the Senior Independent Director of the
Board. John Stares retired from his role as
Chair of the Nomination and Remuneration
Committee and also as the Chair of the
Risk Sub-Committee on 1 February 2019.
Julia Bond has been appointed as his
replacement for both positions. John Stares
remains a Director of the Company.

CORPORATE GOVERNANCE
The Board has noted that several listed
investment funds have announced
plans to redomicile from Guernsey and
elsewhere to the U.K. and register as
U.K. Investment Companies. Based on
professional advice, the Company believes
that some of our shareholders could be
disadvantaged by a change of domicile
and hence, whilst the Board will continue to
keep this under review, it sees no current
imperative to become a U.K. Investment
Company or to otherwise change the
Company’s long-established domicile. As
previously advised, the Board keeps the
Company’s domicile under regular review
and monitors any proposed legislative
changes governing listed investment funds.

The Company’s investments pay tax locally
in the relevant jurisdiction. In the U.K. the
Company’s assets are held in U.K. company
structures that are liable to pay U.K.
Corporation Tax, in line with U.K. law and as
set out within the Company’s tax strategy
(available on the Company’s website). U.K.
shareholders in the Company are subject
to U.K. tax according to their status and
subject to their making the investment
through an approved pension, ISA or SIPP.

The Board values strong 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 54. Over the course of the
year, the Board undertook an externally
facilitated evaluation of its practices
and the Management Engagement
Committee formally reviewed the
performance of the Investment Adviser
and other key service providers to the
Company. The Board reviews operational
processes on an ongoing basis.

International Public Partnerships Annual Report and financial statements 2018CHAIRMAN’S LETTERCHAIRMAN’S LETTERCONTINUED

Finally, I would like to express the
appreciation and thanks of the Board not
only to you, our shareholders, for your
ongoing support, but also to our public
sector clients for their working partnerships;
to the users of our infrastructure for
their custom; to our supply chain for
their commitment to service quality;
and last, but by no means least, to our
Investment Adviser for their vigilance
and professionalism. All of these and
many other stakeholders are integral to
the ongoing success of the Company.

Mike Gerrard
Chairman
27 March 2019

Further information on the Company’s
corporate governance developments and
operational reviews over the year can
be found in the Corporate Governance
section of this report on pages 54–61.

OUTLOOK
Since the 1980s, models created in the
U.K. for the delivery, management and
operation of infrastructure have been copied
across the world, from privatisation through
the Private Finance Initiative (‘PFI’) and
public private partnerships (‘PPP’) more
generally, on to more bespoke structures
such as that used on the Tideway project.

The market for the type of assets in
which the Company invests remains
fundamentally strong, with governments
and regulators in the countries in which
we invest being committed to the principle
of long-term private sector investment,
as part of an overall toolkit for public
infrastructure delivery. The Company’s
exposure to ‘classic’ PFI projects in the
U.K. is relatively modest at c.8% of our
investment portfolio value and our diversified
investment strategy does not rely on a
forward pipeline of U.K. PFI opportunities.

The Board remains vigilant in its monitoring
and mitigation of the risks affecting the
U.K. listed infrastructure sector. The
Company’s portfolio and diversity of
supply chain, together with the hands-
on asset management approach of our
Investment Adviser (as proven in our
handling of Carillion’s liquidation) has,
to date, served to mitigate the impact of
emerging risks. Given the high-quality and
diversity of the Company’s portfolio and
our promising pipeline of global investment
opportunities, we remain confident in our
ability to continue to deliver predictable,
long-term, inflation-linked returns to our
shareholders. More information and a
detailed pipeline of opportunities are set
out in the Current Market Environment and
Future Opportunities section pages 18–20.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
BUSINESS MODEL
DELIVERING INVESTOR RETURNS

OUR OBJECTIVES

OUR STRENGTHS

OUR OPERATING MODEL

International Public Partnerships
(‘INPP’) invests in high-quality,
predictable, long-duration public
infrastructure investments
internationally or located within
core OECD countries

We aim to provide our investors
with sustainable long-term
returns through progressive
dividends with the potential
for capital appreciation

This is supported by robust
investment cash flows 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

A SUSTAINABLE APPROACH

– Long-term alignment of interests
between the Company, Investment
Adviser and other key suppliers

– A vertically integrated model with

direct relationships with public sector
customers

– The Investment Adviser has one of the
largest independent teams in the
sector (over 120 people)

– Experts in all aspects of infrastructure

development, investment and
management

– The Investment Adviser has physical
presence in all the major countries in
which we invest, which provides local
insights and relationships

–

‘Hands-on’ approach to asset
management – with an experienced
and dedicated team

– Active approach to investment
stewardship, which is the
cornerstone of successful investment

– Strong relationships with our
service providers and clients

– Active engagement with key

stakeholders

– Consideration and integration of

material ESG issues and opportunities

See Company Investment Policy on
pages 50–51

1 On the Initial Public Offer issue price
of 100 pence per Ordinary Share.

2 See pages 30–33 for information relating
to the Company’s use of sensitivity
analysis.

3 See pages 26–33 for the methodology

used to determine NAV.

4 Future profit projection and dividends
cannot be guaranteed. Projections are
based on current estimates and may
vary in future.

5 Source: Bloomberg. Share price plus
dividends assumed to be reinvested.

VALUE-FOCUSED PORTFOLIO DEVELOPMENT

Together with the Investment Adviser, we seek new
investments that:
– enhance predictable, long-term cash flows
– provide opportunities for capital appreciation
– protect the environment and enhance society

IDENTIFY
The insights, knowledge and relationship of the Investment
Adviser’s local teams are used to identify attractive new investments.
We monitor opportunities to enhance the existing investments.

ASSESS
We seek investments with low exposure to market demand
risks and for which financial, macroeconomic, regulatory, ESG
and country risks are well understood and manageable.

ACCESS
The Investment Adviser’s strong origination team
develops unique investment opportunities that can
lead to enhanced returns.

OPTIMISE RETURNS
We seek to balance risk and return, using detailed research and
analysis to optimise each investment; and to create
opportunities for enhanced environmental and social outcomes.

APPROVAL
Our rigorous framework includes substantive input from the
Investment Adviser and, as appropriate, external advisers, with
the Company Board providing robust challenge and scrutiny.

EFFECTIVE FINANCIAL
MANAGEMENT

EFFECTIVE RISK
MANAGEMENT

STRONG INVESTMENT
STEWARDSHIP

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORT

OUR VALUE CREATION

ACTIVE ASSET MANAGEMENT

INVESTOR RETURNS

Together with the Investment Adviser, we actively manage
investments to:
– deliver target returns
– mitigate and manage risks
– enhance prospects for growth
– maintain client satisfaction

We focus on the following Key Performance Indicators (‘KPIs’) to track the
value we provide to shareholders:
– Distributions to shareholders
– Total Shareholder Returns
– Net Asset Value and Net Asset Value per share

ENTITY MANAGEMENT
Where possible, through the Investment Adviser, we manage
the day-to-day activities of each of our investments internally
to ensure we have line of sight over project cash flows.

7.00p

2018 dividend per share1
(2017 dividend per share:
6.82p)

0.82%

Real returns
Portfolio inflation linkage 2

148.1p

NAV per share 3
(31 Dec 2017: 145.0p)

MONITOR PERFORMANCE
Extensive monitoring includes asset level board and
management meetings, reviewing data and following
industry trends, and obtaining formal and informal
feedback through the Investment Adviser.

c.2.5%

Average dividend
growth since IPO4

8.6% p.a.

Annualised Total
Shareholder Return
since inception5

£138.1m

Profit before tax
(2017: £106.4m)

REPORT
We robustly measure and report our financial and
non-financial performance to inform and feed back into our
decision-making process and operating model.

BROADER VALUE CREATION

DRIVE GROWTH
We actively work with our public sector clients to
ensure that projects are being managed in an efficient manner,
deliver the required outputs – optimising returns for our
investors.

We focus on project stewardship across the portfolio and recognise the
broader value created from our investments. These five key areas of impact
demonstrate the social and environmental value we deliver to the end-users
and communities that our projects serve.

EFFECTIVE FINANCIAL

MANAGEMENT

EFFECTIVE RISK

MANAGEMENT

STRONG INVESTMENT

STEWARDSHIP

– 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
– ESG risks and opportunity realisation

– Building resilience and resistance in line with

environmental and social trends

– Uphold high standards of business integrity
– Work with trusted partners
– Strong independent board and governance

CO
TO S
EMPL

KIL

T T O
T I N G T H E
M IT
N M E N T
OTE C
NVIR

O
C

M
R
P

P
U
B
L

S
U
P
P

C
L

INVEST I N G
IN TH E
COMMU N I T Y

See Environmental, Social and Governance
on pages 34–38

H
T
L
A
E
H

D
N
A
Y
T
E
F
A
S

G
N
I
E
B
L
L
E
W

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

PERFORMANCE AGAINST
STRATEGIC PRIORITIES

–

Improvement of risk/return, inflation linkage and diversification

– Assets acquired exhibited robust cash flow profiles

of cash flows, including geographical diversification

including additional stakes in the Hertfordshire BSF, Gold Coast Light Rail

(Phase 2) projects, and further investments through NDIF

– Additional commitment in the year to Cadent of c.£35-40 million

– Overall portfolio value inflation linkage increased from 0.79% to 0.82% 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)

STRATEGIC PRIORITIES

DESCRIPTION

KEY PERFORMANCE INDICATORS

PERFORMANCE IN 2018

VALUE-FOCUSED PORTFOLIO DEVELOPMENT

INVEST IN ASSETS THAT ENHANCE PORTFOLIO RETURNS
RELATIVE TO RISK AND MAINTAIN A WELL-BALANCED
SUSTAINABLE INVESTMENT PORTFOLIO

– Make new investments that enhance prospects for future value

– Value of new investments

growth and ESG performance contribution

– £46.2 million investment in Dudgeon OFTO. The investment supports

climate mitigation by transmitting clean power to over 410,000 U.K. homes

– Proportion of investments in construction

– 11% 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
Companies LLC (‘Hunt’)). See page 20 for more information on Hunt

preferred access

– Value of additional investments acquired off-market or through

– Acquisitions totalling £17.1 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 99.9% 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

–

Increase long-term resilience through management of environmental
and social performance of assets

– Provide efficient management of cash holdings and debt facilities

available for investment and appropriate hedging policies

– Efficient management of the Company’s overall finances, with the

intention to reduce ongoing charges where possible

– Manage portfolio in a cost-efficient manner

returns from investments in line with expectations

– Performance deductions below 3% for all projects

– Performance deductions of 0.18% for all projects

– Number of change requests from existing contracts

– Over 881 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

– Number of investments actively managing ESG factors

– Over 90%1 of the portfolio’s total investments (by number) have an ESG

policy in place

– Dividends paid to investors covered by operating cash flow

– Cash dividends paid to investors 1.2 times covered by operating cash flow

– New investments made from available cash (after payment of

– All investments in 2018 funded through excess cash in priority to the

before capital activity

corporate debt facility

– Market tested cash deposit rates

– £91.6 million of foreign exchange forward contracts in place to mitigate

short-term foreign exchange cash flow volatility

– Ongoing charges 1.17% p.a. (2017: 1.15%)

dividend) ahead of using corporate debt

– Competitive cash deposit rates

– Use of appropriate hedging strategies

– Management of ongoing charges

ACTIVE ASSET MANAGEMENT

ACTIVE AND EFFECTIVE MANAGEMENT OF ASSETS

EFFECTIVE FINANCIAL MANAGEMENT

EFFECTIVE MANAGEMENT OF THE COMPANY’S FINANCES

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTSTRATEGIC PRIORITIES

DESCRIPTION

KEY PERFORMANCE INDICATORS

PERFORMANCE IN 2018

The Company’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 KPIs to these Strategic Priorities and
review our performance against these KPIs
throughout the year. We also assess the risks
relating to each KPI (as identified in the Risk
Management section of this Report).

VALUE-FOCUSED PORTFOLIO DEVELOPMENT

INVEST IN ASSETS THAT ENHANCE PORTFOLIO RETURNS

RELATIVE TO RISK AND MAINTAIN A WELL-BALANCED

SUSTAINABLE INVESTMENT PORTFOLIO

ACTIVE ASSET MANAGEMENT

ACTIVE AND EFFECTIVE MANAGEMENT OF ASSETS

EFFECTIVE FINANCIAL MANAGEMENT

EFFECTIVE MANAGEMENT OF THE COMPANY’S FINANCES

– Make additional acquisitions off-market or through preferential

access (e.g. sourced through pre-emption rights or via Amber/Hunt

Companies LLC (‘Hunt’)). See page 20 for more information on 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

–

Increase long-term resilience through management of environmental

and social performance of assets

– Provide efficient management of cash holdings and debt facilities

available for investment and appropriate hedging policies

– Efficient management of the Company’s overall finances, with the

intention to reduce ongoing charges where possible

– Manage portfolio in a cost-efficient manner

– Make new investments that enhance prospects for future value

– Value of new investments

growth and ESG performance contribution

– £46.2 million investment in Dudgeon OFTO. The investment supports

climate mitigation by transmitting clean power to over 410,000 U.K. homes

– Proportion of investments in construction

– 11% of portfolio currently under construction

– Value of additional investments acquired off-market or through

– Acquisitions totalling £17.1 million secured through pre-emption rights

– 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

preferred access

including additional stakes in the Hertfordshire BSF, Gold Coast Light Rail
(Phase 2) projects, and further investments through NDIF

– Additional commitment in the year to Cadent of c.£35-40 million

– Assets acquired exhibited robust cash flow profiles

– Overall portfolio value inflation linkage increased from 0.79% to 0.82% 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 99.9% 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 of 0.18% for all projects

– Number of change requests from existing contracts

– Over 881 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

– Number of investments actively managing ESG factors

– Over 90%1 of the portfolio’s total investments (by number) have an ESG

policy in place

– Dividends paid to investors covered by operating cash flow

– Cash dividends paid to investors 1.2 times covered by operating cash flow

before capital activity

– New investments made from available cash (after payment of

– All investments in 2018 funded through excess cash in priority to the

dividend) ahead of using corporate debt

– Competitive cash deposit rates
– Use of appropriate hedging strategies

– Management of ongoing charges

corporate debt facility

– Market tested cash deposit rates

– £91.6 million of foreign exchange forward contracts in place to mitigate

short-term foreign exchange cash flow volatility

– Ongoing charges 1.17% p.a. (2017: 1.15%)

1 The nature of ESG policies varies across investments, depending on their ownership structure and services provided.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CASE STUDY
DUDGEON OFTO

THE COMPANY REACHED
FINANCIAL CLOSE ON
DUDGEON OFTO
In 2018, the Company successfully
reached financial close for the long-
term operation of the transmission link
to the 402MW Dudgeon offshore wind
farm. Located 32km off the coast of
Cromer in North Norfolk. Dudgeon
OFTO provides the Dudgeon Wind
Farm access to transmit clean power
to more than 410,000 U.K. homes by
transmitting electricity generated by
67 6MW offshore wind turbines5.

The trend towards offshore wind is set to
continue, with several new wind farms due
for completion in 2019 and 2020 including
the Beatrice project in Moray Firth; East
Anglia ONE project; and the Hornsea
Project ONE wind farm off the Yorkshire
coast. The Company is well positioned
to continue investing in this sector and
is currently shortlisted for an additional
OFTO and is awaiting the outcome of
shortlisting for three further assets.

DIFFERENTIATION OF THE
OPERATING MODEL
Long-term, sustainable investments are
the core of the Company’s business. To
ensure that our investments are robust
for the long-term, we need to draw on
a wide range of tools, resources and
analysis, including ESG considerations,
in making investment decisions.

ESG is an important focus as we recognise
that environmental and social factors have
the potential to influence the performance
of the Company’s investments. These can
be wide ranging and include risks such as
impacts of climate change, environmental
regulation, or political change. By
identifying, monitoring and mitigating
relevant ESG risks, we aim to manage the
outcomes and protect the Company’s
return on investments. Equally, ESG factors
can also create investment opportunities,
which the Company is actively exploring.
For example, the trend towards low
carbon and renewable energy is driving
significant investment opportunities in
the markets within which we operate.

Through the Company’s Investment Adviser,
the Company stays well informed of
emerging investment trends and actively
positions itself for future opportunities.
The OFTO regime in the U.K. is a good
example of how the Company has
proactively positioned itself to be at the
forefront of an emerging investment
opportunity.

U.K. OFFSHORE TRANSMISSION –
A ROBUST INVESTMENT WITH
STRONG ESG CREDENTIALS
The U.K. Government set an ambitious
target for the deployment of renewable
energy. By 2020, the Government expects
15% of the U.K.’s total energy needs to
be met from renewable sources – this
means that around 30% of electricity may
come from renewables1. Last year the
U.K. installed record levels of offshore
wind farm capacity, contributing towards
an estimated 17% of Britain’s total
electricity needs in 2018, with a record
high of 34.7% in December 20182.

To support this target, the Government
identified that a new approach to developing
transmission networks would be required
and developed the offshore transmission
regulatory regime. The Company
recognised this opportunity and strategically
positioned itself as one of the very few
original consulting parties to Ofgem on
the regime in 2009. At that point, a typical
OFTO investment was below £100 million,
whereas we are now exploring OFTO
opportunities of more than £1 billion.

Since the time of the Company’s first
investment, the Company has become
a market leader with a combined total of
over 40 years of operational performance
and a portfolio with the capacity to
transmit nearly 1.5GW3 of renewable
electricity – equivalent to the electricity
needs of an estimated 1.3 million U.K.
homes4. Not only has this provided a good
financial investment opportunity, it also
contributes to the U.K.’s carbon reduction
targets and the United Nations Sustainable
Development Goals (‘UNSDGs’).

1 https://www.ofgem.gov.uk/electricity/transmission-networks/offshore-transmission
2 https://www.renewableuk.com/news/431383/New-wind-generation-peak-rounds-off-record-breaking-year-for-renewables.htm
3 1,469MW. Data provided directly from wind farm owners.
4 Data provided directly from wind farm owners. Figure may vary depending on actual wind generated and transmitted, which is naturally variable.
5 http://dudgeonoffshorewind.co.uk/

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTUNITED NATIONS
SUSTAINABLE DEVELOPMENT
GOALS SUPPORTED

LINCS
£310M

DUDGEON
£298M

GUNFLEET
SANDS
£50M

FINAL TRANSFER VALUE
DETERMINED BY OFGEM
ROBIN RING
£66M

ORMONDE
£104M

BARROW
£34M

WESTERMOST
ROUGH
£157M

WESTERMOST ROUGH

LINCS

DUDGEON

GUNFLEET SANDS

ROBIN RING

ORMONDE

BARROW

KEY FACTS AND PERFORMANCE

FINANCIAL

CLIMATE

SOCIETY

£318.7m

Dudgeon project
capital cost

£1.14bn

OFTO portfolio total
capital cost

402MW

Clean energy generation
supported by Dudgeon

1,470MW

Clean energy generation
supported by OFTO portfolio

410,000

Homes powered
by Dudgeon

1,277,000

Homes powered
by OFTO portfolio

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’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.
The Board also regularly reviews the overall
composition of the portfolio to ensure
it continues to remain aligned with the
Company’s investment objectives. Desirable
key attributes for the portfolio include:

1. Long-term, stable returns
2. Inflation-linked investor cash flows
3. Early stage investor (e.g. the Company
is an early stage investor in a new
asset developed by our Investment
Adviser)

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 ‘de-risking’ or the potential
for residual/terminal value growth)

6 Broader ESG considerations

During the year to 31 December 2018, the
Company invested or made investment
commitments up to c.£105 million. The
majority of these projects were sourced by
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 the Company’s preferred
route to market as they limit bidding in the
competitive secondary market.

Details of investment activity during 2018 are provided below.

INVESTMENTS MADE DURING 2018

LOCATION

KEY ATTRIBUTES

OPERATIONAL
STATUS

INVESTMENT

INVESTMENT DATE

Dudgeon Offshore Transmission
Project

National Digital Infrastructure
Fund

BSF Hertfordshire Project

U.K.

✓ ✓ ✓

✓ ✓ Operational

£46.2 million

13 November 2018

✓ ✓ ✓ ✓ Operational

£14.8 million

Various

✓ ✓

✓

✓ Operational

£1.7 million

28 March 2018

Gold Coast Light Rail Phase 2

Australia

✓ ✓ ✓ ✓

✓ Operational

£0.6 million1

2 January 2018

£63.3 million

INVESTMENT COMMITMENTS MADE DURING THE YEAR TO 31 DECEMBER 2018

COMMITMENT

COMMITMENT DATE

Cadent

U.K.

✓ ✓

✓ ✓ ✓ Operational

c.£35-40 million

30 April 2018

Offenbach Police Centre

Germany

✓

✓ ✓ ✓ ✓ Under construction

£1.6 million1

26 July 2018

1 GBP translated value of investment.

Further details for each of these transactions are provided opposite.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTOFFENBACH POLICE CENTRE,
GERMANY
In 2017, the Company 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 approximately three years to
construct after which it will have a 30 year
operational term. The Company initially
committed £7.2 million for a 50% economic
interest in the project. The commissioning
public authority requested an extension of
the building to accommodate an additional
130 working places. This c.€30 million
variation to the scheme was successfully
agreed in July 2018, leading to an additional
£1.6 million commitment into the project by
the Company. A subsidiary affiliated with the
project’s construction contractor will assume
responsibility for the project’s financing
during the construction period. As such,
aside from a small initial investment, the
Company’s financial commitment is not due
until satisfactory construction completion,
anticipated to occur in mid-2021.

See more on the Company’s pipeline
investments on page 21

DUDGEON OFFSHORE
TRANSMISSION PROJECT, U.K.
The Company reached financial close for
the long-term ownership and operation
of the transmission link to the 402MW
Dudgeon offshore wind farm in November
2018. The project is the Company’s
seventh OFTO investment and relates
to the transmission connection to the
offshore wind farm located 32km off
the coast of Cromer in North Norfolk.

The Company made a £46.2 million
investment for 100% of the equity
and subordinated debt of the OFTO.
Approximately 85% of the Dudgeon offshore
transmission assets acquisition was funded
by way of a public bond issuance which
received a Baa1 rating from Moody’s. The
asset is fully operational and is expected to
provide investment returns over its 20 year
initial revenue period, correlated to U.K. RPI.

DIGITAL INFRASTRUCTURE
CO-INVESTMENT, U.K.
In July 2017, the Company committed jointly
with HM Government to make an investment
in digital infrastructure and particularly fibre
optic broadband connections through
a commitment to NDIF, a vehicle also
managed by the Investment Adviser. The
Company has committed to invest up to
£45 million into the U.K. digital infrastructure
through NDIF alongside HM Government.

During 2018, the Company invested
£14.8 million, as part of its £45 million
commitment to NDIF, into four investments
including Community Fibre Limited,
Airband Ltd and Nextgenaccess Ltd. The
commitments that NDIF have made align
to the fund’s primary focus of investing in
businesses and projects building physical
infrastructure assets and delivering an
essential utility-like service, with high barriers
to entry and the expectation to be highly
profitable and cash generative once mature.

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 new
developments was closed in July 2010.

In March 2018, the Company acquired an
additional 20% interest in the Hertfordshire
BSF project, taking its interest to 100%,
by investing a further £1.7 million.

ADDITIONAL INVESTMENT IN GOLD
COAST LIGHT RAIL, AUSTRALIA
In January 2018, the Company made
its final investment of £0.6 million into
the Gold Coast Light Rail Phase 2
concession project in Queensland,
Australia. This follows the completion of
the construction of the 7.3km extension
which opened for passenger services in
December 2017, in time for the Gold Coast
Commonwealth Games in April 2018.

CADENT, U.K.
In November 2018, National Grid announced
that it had elected to exercise the options
to sell its remaining 39% shareholding of
Cadent to the Quadgas consortium, of
which the Company is a member. The
Company previously announced that it had
entered into put/call options with respect to
the additional stake that National Grid has
now exercised. As a result, the Company
expects to make a further investment of
c.£150–155 million into Cadent (subject to
price adjustment in accordance with the
terms of the option agreements) by the
end of June 2019. On conclusion of these
arrangements, the Company is expected
to hold a 7.25% ownership interest in
Cadent, giving it the permanent right to
appoint a board director. This has been
the Company’s long-term target level of
shareholding in the Cadent business.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Whilst political uncertainty will likely continue
to impact the sector, market sentiment
has improved over the course of the year.
There has been significant demand for
infrastructure assets of the type and quality
in which the Company invests, and there
is no indication that this is due to change.
This was demonstrated in the second
half of 2018 by the successful takeover
bid of the listed infrastructure fund, JLIF,
by a consortium of private infrastructure
investors at a 12% premium to the 30 June
2018 NAV. The transaction, amongst
other recent transactions throughout
the period, highlighted the quality and
underlying value of the listed infrastructure
fund’s assets, and the cautious approach
taken in the valuation methodology.

The U.K.’s proposed exit from the E.U.
has also added an element of uncertainty
to the markets in which the Company
operates. Whilst the Investment Adviser
does not currently foresee any material
impacts, this cannot be guaranteed
and it continues to monitor the risks
associated with the U.K. leaving the E.U.,
with or without an agreement. For more
information, please refer to page 40.

Looking to the year ahead, the Company
will build upon its success as a pioneer
of investments into offshore transmission
and digital infrastructure in the U.K.
and will continue to develop suitable
opportunities from its strong and well
diversified investment pipeline.

CURRENT MARKET ENVIRONMENT
AND FUTURE OPPORTUNITIES

historical PFI projects associated with large,
acute hospitals in the U.K. – to which the
Company has no exposure. We note that
the Company’s exposure to such ‘classic’
PFI projects in the U.K. is relatively modest
(8.0% at 31 December 2018). In October
2018, the Government announced the
abolition of U.K. infrastructure procured
through PFI or PF2. However, at the same
time the Government announcement
reaffirmed its continued support for
existing PFI projects and flagged the
need for private finance to support the
infrastructure pipeline as a whole.

In the Spring Statement, the Government
reiterated that it is committed to the role
of private finance in infrastructure and
confirmed that of the projected £600
billion infrastructure pipeline, over half is
forecast to come from the private sector1.
The Government also announced it will
not be seeking a like-for-like replacement
for the previous delivery models but will be
exploring new ways to use private finance
in government projects and in March
2019 the Government launched a formal
consultation on infrastructure finance.
The Company believes that partnerships
between public authorities and the private
sector can deliver significant value for
money benefits to society, through access
to specialist expertise and resources,
rigorous risk management and long-
term asset management strategies.

In addition, there has been an increased
focus on outsourcing and the services
offered by privatised utilities. As mentioned
earlier in this Annual Report, regulators,
such as Ofwat and Ofgem, have been
consulting with industry participants on the
next round of regulatory settlements with
an increased focus on ensuring customer
satisfaction and value for money. Ofgem’s
RIIO-2 consultation will govern, among
other things, the revenue and incentives
provided for the next regulatory period (2021
to 2026). Ofgem has published its initial
methodology which proposes to adjust
several price control measures in its next
regulatory review period from 2021 to 2026.

UNITED KINGDOM

The U.K. Government remains committed to
the development of public infrastructure as
a key component of its long-term economic
policy and recognising the increasing need
for public infrastructure across the U.K.

The Infrastructure and Projects Authority
released the Government’s National
Infrastructure and Construction Pipeline
in November 2018, forecasting that
infrastructure investment over the next
decade will be £600 billion, with planned
investment across both the public and
private sectors. The pipeline will include
investment in the U.K.’s roads, hospitals and
schools, ensuring that modern technologies
are embraced to build infrastructure
effectively and improve productivity as
part of the Transforming Infrastructure
Performance programme, which will
help improve delivery and performance
of social and economic infrastructure.

As a result, there has continued to be
a focus on the assessment of value for
money of private sector investment in
public infrastructure. During the year,
there was continued comment by the
U.K. Labour Party challenging the use of
the private sector in financing of public
infrastructure, including suggestions to
renationalise key public infrastructure
assets. In particular, there has been a
greater volume of commentary directed at

‘National Infrastructure and Construction Pipeline 2018’, Infrastructure and Projects Authority, December 2018.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTinitial focus is on infrastructure, including
energy, digital, transport and social
infrastructure with a current investment
target to the end of 2020 of €500 billion.

In order to upgrade Europe’s infrastructure,
the European Commission has estimated
that approximately €200 billion is needed
during the current decade (to 2030) for
transmission grids and gas pipelines,
in addition to investment proposed by
the European Commission to develop
sustainable and innovative transport
infrastructure in Europe across all modes
of transport. Funding will be focused
on modernising and upgrading existing
infrastructure and developing innovative
projects and new technologies for transport,
as well as upgrading the railway network,
maritime connections and ports and inland
waterways and in other new opportunities.

Demand for the PPP asset class also
remains strong, with steady volumes of
transactions in the European market.
While the U.K. is the largest market in

undertaken within the strategic and policy
framework of Infrastructure Australia’s
‘Australian Infrastructure Plan’ (updated
February 2018). Australia’s population is
expected to grow by nearly 12 million over
the next 30 years and this plan has become
the reference point for the most important
infrastructure investments over the next
15 years, with a pipeline of projects having a
capital value of around A$55 billion and a
further A$25 billion of infrastructure projects
now in delivery. Many are large-scale
(multi-billion Australian dollar) transport
projects, responding to population growth in
Australia’s biggest cities. Greenfield PPP
activity during 2018 declined compared to
previous years, with A$1.5 billion of projects
closing during the year compared to
A$15.4 billion in 2017. A number of high-
value transport and social infrastructure
projects, particularly in Queensland and
Victoria, have been announced for
procurement over the next 12-24 months.

EUROPE
EXCLUDING UNITED KINGDOM

Investment into European infrastructure
continues to be strong and is supported
by broader E.U. frameworks. As part of the
Investment Plan for Europe, the European
Fund for Strategic Investment was launched
by the European Investment Bank and the
European Commission in July 2015. Its

AUSTRALIA

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

Australian states are also developing smaller
scale social infrastructure projects in health,

Europe by the number of transactions,
Germany, France and Belgium continue
to see steady deal flows.

In Europe (excluding the U.K.), the Company
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.

Future success will depend on securing
opportunities through bid processes in
primary and secondary markets, while
ensuring that every opportunity fits within
the Company’s risk and reward parameters.

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.

2018 saw a significant amount of debt
refinancing of existing PPP projects, with asset
owners taking advantage of favourable debt
market conditions, together with some trading
of PPP assets on the secondary market.

The Company’s view 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 of new
transactions. Although the Company remains
cautious of the refinancing risk prevalent
within Australia’s current primary PPP market,
current liquidity in debt markets is at a level that
may provide the Company with opportunities
to manage its exposure to such risk.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
The ability for the private sector to
participate in more North American
infrastructure projects provides the
Company with a broad variety of
investment opportunities. The Company
is well-positioned to capitalise on these
developments through its relationship
with U.S. group, Hunt Companies LLC
(‘Hunt’), the Company’s Investment
Adviser’s main shareholder, where the
Company has ‘right of first look’ over
investment opportunities in North America
originated or sold by Hunt, which meet
the Company’s investment criteria.

CURRENT MARKET ENVIRONMENT
AND FUTURE OPPORTUNITIES
CONTINUED

The funds will be allocated to various
projects to not only address traditional
infrastructure requirements but also other
needs such as drinking and wastewater
systems, waterways, resources, energy,
rural infrastructure, public lands and
veterans’ hospitals. During 2018, initiatives
have been proposed and enacted at both
a state and federal level to facilitate the
deployment of funds into infrastructure
projects; transportation projects are
some of the first deals to benefit from
the prioritisation of infrastructure. In the
last quarter of 2018, fresh rounds of
private activity bonds and other specific
transportation funding initiatives were
announced helping to facilitate new projects.

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. It encourages a
move away from financing the country’s
infrastructure through government and
tax-advantage schemes to using PPP
as the principal method of funding.

Canada has a strong track record
of infrastructure investment and the
‘Investing in Canada Plan’ aims to deliver
C$180 billion of infrastructure investment
by 2028 to support local, provincial and
territorial projects over 12 years. This
includes funding in public transit, green
and social infrastructure, transportation
infrastructure to support trade and rural
northern communities and is split equally
between new investment projects and
funding existing initiatives. The long-
term Infrastructure Plan will see more
than C$33 billion in federal investment
towards infrastructure projects across the
country. The Company has an ongoing
presence in the country through two
operational projects. The continued focus
on expanding the Infrastructure Plan over
the next decade allows the Company to
capitalise on this opportunity and develop
the already existing relationships.

NORTH AMERICA

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 12th in the world according to
the World Economic Forum, estimating that
the U.S. needed to spend US$4.6 trillion by
2025, with a funding gap of US$1.5 trillion,
to rebuild the U.S. public infrastructure
from its current state of disrepair. Many of
the states with the greatest requirement
for new infrastructure are located in the
North East of the country as the population
in these states grows and the existing
infrastructure reaches the end of its life.

As part of President Donald Trump’s
‘Rebuild America’s Infrastructure’ plan
to reform 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.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTCURRENT PIPELINE

The Company’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 the Investment Adviser are outlined below.

KNOWN/COMMITTED
OPPORTUNITIES

LOCATION

ESTIMATED INVESTMENT

EXPECTED INVESTMENT
PERIOD

INVESTMENT STATUS

CADENT

NDIF

OFFENBACH POLICE
HEADQUARTERS

SECTOR OF INVESTMENT
OPPORTUNITY

OTHER, INCLUDING
REGULATED INVESTMENTS

OFTO

EDUCATION

HEALTH

TRANSPORT

ACCOMMODATION

U.K.

c.£150–155 million1

Operational business

U.K.

c.£30 million1

Operational
businesses

Germany

c.£8.8 million1, 2

c.30 years

Put/call option has been exercised,
further investment expected at the end
of June 2019

Of the £45 million commitment to NDIF,
c.£15 million has been invested to
31 December 2018

Investment commitment made.
Expected to be funded mid-2021

LOCATION

ESTIMATED CAPITAL VALUE3

U.K., Europe

c.£7.0 billion

EXPECTED INVESTMENT
LENGTH

INVESTMENT STATUS

Various, including
operational
businesses

Regulated opportunities at varying
stages

U.K.

c.£3.9 billion

c.20 years

Shortlisted on one OFTO

U.K., Europe

c.£1.0 billion

Australia

c.£730 million

Various

Opportunities through variations to
existing PPP contracts and through
the Investment Adviser’s wider
relationships

Australia,
Europe

U.K., Europe,
U.S., Australia

c.£390 million

Various

Includes follow-on opportunities

c.£1.0 billion

Various

Variety of opportunities, mainly
PPP-style investments

1 Represents the current estimate of total future investment commitment by the Company.
2 Project has reached financial close. Commitment to invest once construction has completed, expected to be mid-2021.
3

Includes both debt and equity.

The above includes commitments and a selection of 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 and future opportunities that meet the Company’s investment criteria. There is no
certainty that potential opportunities will translate to actual investments for the Company. 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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED

ACTIVE ASSET MANAGEMENT

Ensuring that the Company’s assets are available for use and are performing in accordance with contractual expectations is critical for the
Company and its service providers. In line with the Company’s ESG approach to managing assets, wherever possible, we work with our
partners to improve the Company’s environmental and social performance throughout the investment lifecycle. Through the Company’s
Investment Adviser we operate as an active investor and closely monitor relationships between our service providers and clients, the regulator,
the operating business and the end-user. With over 120 employees, of which nearly a third are dedicated to asset management, the Investment
Adviser has the flexibility, resource and experience to respond quickly to the changing requirements of its clients and counterparties.

The Investment Adviser is actively involved in managing the assets to not only ensure performance standards are met, but it also seeks to deliver
the highest standard of project stewardship across the portfolio. By using the contractual requirements as a framework to deliver on its projects’
expected outcomes, the Investment Adviser also considers its sustainable approach to asset development and the ongoing management of its
investments. It does this by engaging with and encouraging feedback from its clients and stakeholders, whether a facilities management partner,
lender, regulatory authority or local authority representative. The Investment Adviser’s knowledge of the project, combined with frequent site
visits, and interactions with management and customer contact, allows it to carefully ascertain the risks and opportunities that each project entails.

OPERATIONAL PORTFOLIO DEVELOPMENT
The Investment Adviser maintains a well-resourced, dedicated asset management team that ensures active asset management across the
Company’s portfolio. The Company has a diverse exposure to service providers across its portfolio and counterparty risk is actively managed and
mitigated. The chart below illustrates the Company’s service providers (by investment fair value) highlighting the diversification across the portfolio.

INPP Service Providers1

3
4
5
6

Interserve

Infrabel NV Van Publiek Recht

1
2 Downer & Spotless
3 ENGIE
4
5 G4S
6 Hunt Military Communities
7 OCS
8 Amey
9 Honeywell International
10 Kier
11 Others
12 Regulated Investments –
Cadent & Thames Tideway Tunnel3
13 Regulated Investments – OFTOs3
14 Senior Debt2
15 Other – Angel Trains, BeNEX and NDIF3

10%
9%
5%
4%
3%
3%
3%
2%
2%
1%
4%
23%

17%
8%
6%

1 Based on percentage of NAV as at 31 December 2018.
2 Senior debt includes Interserve (1.7%), OFTO (4.9%), Integral (0.5%), Galliford Try (0.4%), FES (0.4%), Laing O’Rourke (0.3%).
3 These risk capital investments operate with no significant exposure to any one service provider or delivery partner.

As noted in the Chairman’s letter, during the period, the Company has
focused resource on the 24 projects (representing c.3.0% of the
portfolio by investment fair value at the valuation date immediately
preceding Carillion’s liquidation), where subsidiaries of Carillion
provided construction and/or facilities management services. Since the
collapse of Carillion in January 2018 the Company’s Investment Adviser
has successfully transitioned all the projects impacted, to new facilities
management providers, with just one facility requiring a new
construction partner to be appointed, the fourth batch of the Priority
Schools Building Programme – Aggregator. The Company still
anticipates that the overall cost of transitioning will be immaterial (less
than £1.5 million). Please refer to Projects Under Construction opposite
for more information.

In addition, the Company has been monitoring the issues affecting
Interserve Plc and notes its announcement that administrators have
been appointed, and the sale of its business and assets to a newly
incorporated company (Interserve Group Limited) controlled by its

lenders has been completed. Interserve Integrated Services Ltd provides facilities management services to c.6% (by investment fair value) of
the Company’s portfolio, of which INPP holds senior debt interests in 2%. Furthermore, the Company has no exposure to ongoing
construction risk within these investments as all facilities that have been affected are currently operational with no disruption to service
delivery. The Company will continue to monitor the situation and broader contingency plans are in place, should they be required. At this time,
the Company believes that the administration of Interserve Plc will not adversely impact the Company’s valuation. The Company and the
Investment Adviser continue to closely monitor the performance of all its service providers and where necessary, have contingency plans in
place to ensure the continuity of operation of services.

While the Carillion transition was a resource-intensive exercise for the Investment Adviser’s asset management team, its oversight of day-to-
day project management continued. Throughout the year the Investment Adviser continued to engage with its public sector clients to manage
variations to the existing schemes to support positive business change. During the year, the Company’s public sector clients commissioned
over 881 contract variations in projects resulting in over £10.9 million of additional project work conducted on behalf of the commissioning
body, with individual variations ranging in value from £25 to over £1.3 million. The Investment Adviser assesses each case on its individual
merits and ensures there is no material change to the risk profile or financial return, whilst assisting their clients to achieve their objectives.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORT

For example, in 2018, to meet the demand from significant population growth in the areas served by the 12 sites that comprise the
Company’s schools’ investment in Melbourne, Victoria, the Investment Adviser oversaw the installation of an additional 49 classrooms,
art studios, and administration facilities across seven sites with a value of A$15 million.

The Investment Adviser seeks to actively manage and add value to the portfolio where it is able to do so, and where it is in the best interests
of its clients and the end-user. The Company undertook three debt refinancings of projects within its portfolio including two of its education
assets under the BSF programme and Liverpool Library. The three refinancings are part of a series across the Company’s portfolio that have
been conducted with the aim of delivering savings to the projects and the local authorities. These refinancings generate improved financial
returns which are shared with the public sector counterparty and demonstrate an important pillar of our active asset management and
financial approach – delivering benefits to our clients and the end-users, whilst not increasing the charge paid by the public sector. The
Company completed a further refinancing at one of its education assets under the BSF programme in February 2019 and has further
refinancings in progress that will complete throughout 2019.

The Investment Adviser works with its public sector counterparties to deliver ongoing value and operational savings. During the period, five
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. The Investment Adviser also continued to focus on energy
efficiency, resulting in savings to public sector counterparties, an example being the ongoing efforts to identify and deliver operational savings
for Norfolk Police OCC Project, where the catering service was re-designed delivering a £53,000 annual reduction in the cost of the service
to the Authority. The Investment Adviser continues to work with the Authority to identify efficiencies, including the transfer of lifecycle
responsibility for furniture, fittings and equipment that will be concluded in 2019. This will allow the Authority to deliver savings from the
£2.3 million budget over the remaining 17 years of the contract through product selection, buying power and replacement strategies.

As part of our focus on ESG, we have delivered incremental improvements across the portfolio. Further information is available on pages 34–38.

PROJECTS UNDER CONSTRUCTION
Three projects, representing approximately 11% of the Company’s portfolio were under construction at 31 December 2018.

Construction progress on Tideway continues in line with expectations with c.40% of the project now completed and final completion targeted
for 2024. Tideway continues to embed a transformational approach to health, safety and wellbeing with excellent performance to date. In
2018, plans for three acres of new public space were published by Tideway. These new areas of public space will be located along the River
Thames, providing multiple environmental and social benefits.

Construction work remains outstanding following the collapse of Carillion on the fourth batch of the Priority Schools Building Programme –
Aggregator where the Company provides debt to the project. These works predominately relate to the outstanding construction of a sports
hall at one school and the external works at four other schools within the eight schools in the fourth batch. A replacement construction
provider has been identified and a plan is being agreed to resolve the outstanding works, which is expected to occur during 2019, subject to
a new construction provider being appointed to replace Carillion Construction Limited, following its liquidation.

Ground work activities for Offenbach Police Headquarters continue to proceed in line with the construction schedule. The overall building
licence has been received after submitting all relevant documents to the municipality. Currently, the floor plate of the building is installed, and
finalisation of this construction stage is expected to be completed by the end of April 2019.

Projects under construction as at 31 December 2018 are set out in the table below.

ASSET

LOCATION

CONSTRUCTION
COMPLETION DATE

DEFECTS
COMPLETION DATE

STATUS

% OF FAIR VALUE
OF INVESTMENT

Priority Schools Building Programme –
Aggregator (batch 4)

U.K.

2019

Tideway

U.K.

20242

Offenbach Police Headquarters

Germany

2021

2020

20273

2025

Outstanding
construction works1

On schedule

0.4%

10.6%

0.0%

1 Construction remains outstanding following the collapse of Carillion on the fourth batch of the Priority Schools Building Programme – Aggregator. These works predominately relate to the

outstanding construction of a sports hall at one school and the external works at four other schools within the eight schools in the fourth batch. The construction works are scheduled to
complete in 2019.

2 Scheduled handover date. Source: Tideway Annual Report 2017–2018.
3 Scheduled system acceptance date. Source: Tideway Annual Report 2017–2018.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’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
Corporate costs (for ongoing charges ratio)
Other corporate costs
Net financing costs

Net operating cash flows before capital activity1

Cost of new investments
Investment transaction costs
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
2018
£ million

Year to
31 December
2017
£ million

33.9
138.8
(24.5)
(0.1)
(3.2)

111.0

(63.3)
(1.2)
(17.8)
114.9
(92.8)
–

84.7

1.2x

71.0
118.9
(21.5)
(3.3)
(4.1)

90.0

(464.0)
(7.0)
17.8
404.4
(76.2)
(2.1)

33.9

1.2x

1 Net operating cash flows before capital activity as disclosed above of c.£111.0 million (31 December 2017: £90.0 million) include net repayments from investments at fair value through profit and
loss of c.£34.9 million (31 December 2017: £25.8 million), and finance costs paid of c.£3.2 million (31 December 2017: £4.1 million) and exclude investment transaction costs of c.£1.2 million
(31 December 2017: £7.0 million) when compared to net cash inflows from operations of c.£78.2 million (31 December 2017: £61.3 million) as disclosed in the statutory cash flow statement on
page 78 of the financial statements.

CASH FLOWS ASSOCIATED WITH ONGOING CHARGES RATIO

Corporate Costs

Management fees
Audit fees
Directors’ fees
Other running costs

Corporate costs

Ongoing Charges Ratio

Annualised ongoing charges1
Average NAV2
Ongoing charges

Year to
31 December
2018
£ million

Year to
31 December
2017
£ million

(22.7)
(0.3)
(0.4)
(1.1)

(24.5)

(19.4)
(0.3)
(0.3)
(1.5)

(21.5)

Year to
31 December
2018
£ million

Year to
31 December
2017
£ million

(24.5)
2,097.8
(1.17%)

(21.5)
1,865.0
(1.15%)

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.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTThe Company’s cash balance at 31 December 2018 was £84.7 million, a £50.8 million increase on the corresponding balance at
31 December 2017 of £33.9 million. A significant factor contributing to this increase was £42.2 million of proceeds remaining at year end from
the October 2018 capital raising, which in total raised £114.9 million net of fees. We expect this unutilised amount to be fully invested during
the first half of 2019 to fund investments into the Company’s committed investment pipeline on page 21.

Cash receipts from investments increased by c.£20 million, reflecting the further growth and maturity of the portfolio. This was partially offset
by higher ongoing charges driven by NAV growth, including management fees of £22.7 million paid during 2018 (2017: £19.4 million). Net
financing costs were £3.2 million during the year, a decrease of £0.9 million compared to 2017 due to lower amounts drawn as cash or as
letters of credit on the corporate debt facility during 2018. Other corporate costs during the year were £0.1 million (2017: £3.3 million). Other
corporate costs in 2017 included a one-off adjustment, made to align the management fee payments with the contractual quarterly payment
cycle (previously a biannual payment practice); this resulted in an additional payment of £2.9 million being made during 2017 to accommodate
this change.

The cost of new investments in 2018 was £63.3 million (2017: £464 million), as disclosed in note 12 of the financial statements. Investment
transaction costs reduced from £7.0 million in 2017 to £1.2 million in 2018, reflecting the lower level of investment activity during the year.

Following the capital raise in October 2018, the Company was able to fully repay the cash drawn balance of the facility. This is consistent with
the practice of using the facility for short-term funding, rather than for long-term financing. The Company has a £400 million corporate debt
facility (available until July 2021) and as at 31 December 2018, the facility was undrawn with £0.5 million committed via letters of credit (2017:
£17.8 million cash drawn).

Cash dividends paid in the year of £92.8 million (2017: £76.2 million) were in respect of the six month periods ended 31 December 2017 and
30 June 2018; the increase reflecting both the larger shareholder base following share issuances in 2017, as well as a scrip alternative not
being offered for the 31 December 2017 dividend. The Company seeks to generate dividends paid to investors through its operating cash
flows and cash dividends paid were 1.2 times covered by the Company’s net operating cash flows before capital activity in the period. The
Company remains confident of its ability to continue to grow dividends going forward as demonstrated through its dividend guidance of 7.18
pence in 2019 and 7.36 pence in 2020.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED

INVESTOR RETURNS

The Company has continued to deliver consistent dividend growth, NAV growth and inflation linkage from underlying cash flows.

DIVIDEND GROWTH AND PERFORMANCE
The Company targets predictable and, where possible, growing dividends. Since inception, the Company has delivered a c.2.50% per annum
average dividend increase. The Company forecasts to pay the second 3.50 pence per share dividend in respect of 2018 in June 2019. Once
paid, this would bring the total dividends paid in respect of 2018 to 7.00 pence per share (2017: 6.82 pence). The Company forecasts to pay 7.18
pence per share and 7.36 pence per share for 2019 and 2020 respectively. The Company’s dividend growth is illustrated in the chart on page 2.

Total investment income in the period was £167.0 million (2017: £139.8 million) including fair value movements, dividends and interest. These
returns were partially offset by operating expenses (including finance costs) of £29.6 million (2017: £34.0 million), as shown in the Consolidated
Statement of Comprehensive Income.

Profit before tax was £138.1 million, an increase from the prior year (2017: £106.4 million) due to increased investment income as a result of the
growing portfolio as well as the impact of fair value movements. Earnings per share were 9.75 pence (2017: 8.36 pence).

TOTAL SHAREHOLDER RETURN
The Company’s Total Shareholder Return (share price growth plus reinvested distributions) for investors since IPO in November 2006 to
31 December 2018 was 171.8% (8.6% on an annualised basis). This compares to a FTSE All-Share index total return over the same period of
78.4% (4.9% on an annualised basis). As shown in the share price performance graph below, the Company has historically exhibited relatively
low levels of volatility compared to the market, a trend that continued through 2018 with a correlation of 0.23 with the FTSE All-Share index (for
the 12 months to 31 December 2018). Earlier in the year the Company’s share price performance came under pressure as part of a sector-
wide shift to the otherwise positive sentiment towards the U.K. listed infrastructure funds. However, the Company’s share price subsequently
recovered following transactions of similar assets in the market which assisted in demonstrating the overall value of the Company’s portfolio.

INPP Share Price Performance

The Company’s Share Price Performance

% change

100

-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 Jun 18 Dec 18

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 2018, 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 0.82% 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.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTVALUATIONS
NET ASSET VALUATION
The Company reported a 7.9% increase in NAV from £2,038.3 million at 31 December 2017 to £2,198.7 million at 31 December 2018. Over the
same period, the NAV per share increased by 2.1% from 145.0 pence to 148.1 pence.

The NAV represents the fair value of the Company’s investments plus the value of other net assets held within the Company’s consolidated
group (the ‘Group’). The key drivers of the change to the NAV between 31 December 2017 and 31 December 2018 are highlighted in the
graph that follows and are described in more detail below.

Net Asset Value Movements (£m)
Net Asset Value Movements (£m)
£m
2,250

90.3

1.7

7.4

(92.8)

114.9

(4.2)

2,200

2,150

2,100

2,050

2,000

1,950

2,038.3

33.0

2,005.3

43.1

2,198.7

101.2

2,097.5

NAV at
31 December
2017

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
Return2

NAV at
31 December
2018

Investments at Fair Value

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.

The movements seen in the chart above are explained further below:
– £114.9 million (net of costs) of new capital was raised at a price of 152.5 pence per share. The proceeds of the capital raising were used to

repay the cash drawn balance of the CDF

– Government bond yields increased in the U.K., Canada, Ireland, Italy and the U.S., and decreased in Australia, Belgium and Germany,

resulting in a small net negative impact on NAV

– There was a significant reduction in the investment risk premia reflecting (i) market-based evidence of pricing, including a number of

single-asset transactions as well as the takeover of JLIF, observed by the Company during the year, and (ii) a cautious approach to the
assumptions underpinning the cash flow forecasts of certain investments and therefore a reduction in the risk inherent in the cash flows,
including in Cadent and Angel Trains (this point should be considered alongside the NAV Return impact noted below)

– The portfolio also benefited from a reduction in the construction risk premia applied to assets that moved out of the construction or defect

liability period and into full operations

– Sterling weakened against the euro and the U.S. dollar, but strengthened against the Australian and Canadian dollars. The net impact was

–

positive on the NAV, with the most significant impact seen on the Company’s euro-denominated investments
In line with forward guidance provided previously, two cash dividends totalling £92.8 million were paid to the Company’s shareholders during
the year. These two dividends were made in respect of the six month periods ended 31 December 2017 and 30 June 2018 respectively

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED

– The NAV Return of £43.1 million captures the impact of the following:

– The movement in the valuation date from 31 December 2017 to 31 December 2018 and the receipt of distributions
– Updated operating assumptions to reflect current expectations of forecast cash flows. This includes the cautious approach that has
been taken with regards to the assumptions underpinning the cash flow forecasts on both Cadent and Angel Trains. On Cadent, the
adjustments have been made following recent announcements made by the energy regulator, Ofgem, in respect of their ongoing
consultation regarding regulatory returns for the price control period beginning in 2021. On Angel Trains, the adjustments have been
made following the increased competition seen within the rolling stock sector and the resulting uncertainty in the company’s growth
plans. Whilst these adjustments have had a negative impact on the full year 2018 NAV Return, the impact on the NAV has been partially
mitigated by the discount rate adjustments noted on page 27. The Company remains positive on the long-term contribution that these
investments make to the wider portfolio

– Actual distributions received above the forecast amount due to active management of the Company’s portfolio, including negotiating

and optimising investment cash flows, to ensure cash can be extracted from the underlying investments earlier than forecast

– Movements in the Company’s working capital position

INVESTMENTS AT FAIR VALUE
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 auditors. It is considered quarterly for approval by the Company’s Directors. Investments at fair value as at
31 December 2018 were £2,097.5 million, an increase of 4.6% since 31 December 2017 (£2,005.3 million).

Investments at Fair Value Movements (£m)
Investments at Fair Value Movements (£m)

63.3

(139.8)

87.8

6.7

2,097.5

2,005.3

74.2

1,928.8

£m
2,100

2,050

2,000

1,950

1,900

Investments
at Fair Value
at 31 December
2017

Investments

Investment
Distributions

Rebased
Investments
at Fair Value

Portfolio
Return1

Change in
Discount
Rates

Change in
Foreign
Exchange
Rates 2

Investments
at Fair Value
at 31 December
2018

1 The Portfolio Return represents, amongst other things, (i) variances in both realised and forecast investment cash flows and (ii) the unwinding of the discount factor applied to those future

investment cash flows.

2 Represents movements in the forward rates used to translate forecast non-GBP investment receipts and the spot rates used to translate non-GBP cash balances.

The movements seen in the chart above are explained further below:
– An increase of £63.3 million in the Investments at Fair Value owing to new investments made during the year
– A decrease of £139.8 million due to investment distributions paid out from the portfolio
– The Portfolio Return of £74.2 million captures broadly the same items as the NAV Return (set out in detail on page 27) with the principal

exception being the fund-level operating costs

– There was a reduction in the discount rates used by the Company to value its investments. The component parts of the £87.8 million

impact shown above can be seen in the NAV movements chart on page 27

– The Rebased Investments at Fair Value is presented in order to allow an assessment of the Portfolio Return assuming that the investments

and distributions occurred at the start of the relevant period

– Sterling weakened against the euro and the U.S. dollar, but strengthened against the Australian and Canadian dollars. There was a net

positive impact on the NAV, with the most significant impact seen on the Company’s euro-denominated investments

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTPROJECTED FUTURE CASH FLOWS
The Company’s investments are expected to continue to exhibit predictable cash flows, owing to the contracted nature or the protections
provided through their respective regulatory regime. As the Company has a large degree of visibility over the forecast cash flows of its current
investments, the chart below sets out the Company’s forecast investment receipts from its current portfolio before fund-level costs.

The majority of the forecast investment receipts are in the form of dividends or interest and principal payments from subordinated and senior
debt investments. The Company’s portfolio comprises both investments with finite lives (determined by concession or licence terms) and
perpetual investments (including, for example, ownership interests in regulated trading companies) that may be held for a much longer term.
Over the term of investments with finite lives, the Company’s receipts from these investments effectively represent a return of capital as well as
income, and the fair value of such investments is expected to reduce to zero over time.

INPP Projected Cash Flow Profile
Projected Investment Receipts

Investment Receipts (£m)

300

250

200

150

100

100 years

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
0
4
8

2
1
4
7

2
1
4
8

2
1
4
9

2
1
5
0

Note: There are many factors that may influence the actual achievement of long-term cash flows to the Company. These include both internal as well as external factors and investors should not treat
the chart above as being more than an indicative profile and not a projection, estimate or profit forecast. The actual achieved profile will almost certainly be different and may be higher or lower
than indicated. No new investments other than those committed as at 31 December 2018 have been included.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED

MACROECONOMIC ASSUMPTIONS
The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis. Following a thorough market assessment, it
was resolved that no adjustments should be made other than to the foreign exchange rates used to value the Company’s overseas investments.
In addition, and further to recent announcements by both Ofgem and Ofwat, the Company will now publish its assumption for the consumer
price inflation including owner-occupiers’ housing costs index (‘CPIH’) which will be relevant for valuation purposes from 2021 for Cadent and
from 2030 for Tideway. The regulators have stated that this is not designed to negatively impact companies but rather to reflect the perceived
shortcomings of the RPI (i.e. the regulators’ intention is for the transition from RPI to CPIH to be valuation neutral).

The key macroeconomic assumptions used as the basis for deriving the Company’s portfolio valuation are summarised below, with further
details provided in note 11 of the financial statements.

Macroeconomic assumptions

Inflation

Long-term Deposit Rates2

Foreign Exchange3

Tax Rate

U.K.
Australia
Europe
Canada
U.S.1

GBP/AUD
GBP/EUR
GBP/CAD
GBP/USD

U.K.
Australia
Europe
Canada
U.S.1

31 December 2018

31 December 2017

2.75% RPI/2.00% CPIH
2.50%
2.00%
2.00%
N/A

2.00%
3.00%
2.00%
2.00%
N/A

1.88
1.05
1.80
1.34

2.75% RPI
2.50%
2.00%
2.00%
N/A

2.00%
3.00%
2.00%
2.00%
N/A

1.85
1.08
1.78
1.43

17.00%-19.00%4
30.00%
Various (12.50%-29.58%)
Various (26.50%-27.00%)
N/A

17.00%–19.00%4
30.00%
Various (12.50%–29.58%)
Various (26.50%–27.00%)
N/A

1 The Company’s U.S. investment is in the form of subordinated debt and therefore not directly impacted by inflation, deposit and tax rate assumptions.
2 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2019 before adjusting to the long-term rates noted in the table above.
3 The Company uses a four year forward curve for the foreign exchange rate’s post valuation date.
4 The reduction in U.K. tax rates reflects the rates substantively enacted as at the valuation date.

DISCOUNT RATES
The discount rate used to value each investment comprises the appropriate long-term government bond yield plus an investment-specific risk
premium which considers the perceived risks and opportunities associated with each investment.

The majority of the Company’s portfolio (91.7%) comprises Risk Capital investments (including equity and subordinated debt investments),
while the remaining portfolio (8.3%) comprises senior debt investments. To provide investors with a greater level of transparency, the Company
publishes both a Risk Capital weighted average discount rate and a portfolio weighted average discount rate, the latter of which captures the
discount rates of all investments including the senior debt interests.

The weighted average discount rates are presented in the table opposite. These rates need to be considered against the assumptions and
projections upon which the Company’s forecast cash flows are based.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTWeighted Average Government Bond Yield – Portfolio

Weighted Average Investment Premium over Government Bond Yield – Portfolio

Weighted Average Discount Rate – Portfolio

Weighted Average Discount Rate – Risk Capital only

NAV per share

31 December
2018

31 December
2017

1.83%

5.43%

7.26%

7.55%

148.1p

1.83%

5.69%

7.52%

7.87%

145.0p

Movement

–

(0.26%)

(0.32%)

3.1p

The Company is aware that there are subtle differences in approach to the valuation of investments among different listed infrastructure funds
similar to the Company. In the Company’s view, comparisons of average discount rates between different listed infrastructure funds are only
meaningful if there is a comparable level of confidence in the quality of forecast cash flows (i.e. assumptions are homogeneous); the risk and
return characteristics of different investment portfolios are understood; and the quality of asset management employed to manage risk and
deliver returns are identical. Any focus on average discount rates without an assessment of these and other factors would be incomplete and
could therefore derive misleading conclusions.

VALUATION SENSITIVITIES
This section indicates the sensitivity of the 31 December 2018 NAV per share of 148.1 pence to change in key assumptions. Further details
can be found in note 11 of the financial statements. This analysis is provided as an indication of the potential impact of these assumptions on
the NAV per share on the basis that they apply uniformly across the portfolio whereas in practice the impact is unlikely to be uniform. The
movement in each assumption could be higher or lower than presented. Further, forecasting the impact of these assumptions on the NAV in
isolation cannot be relied on as an accurate guide to the future performance of the Company as invariably, many other factors and variables
will combine to determine what actual future returns are available. These sensitivities should therefore be used only for general guidance and
not as an accurate prediction of outcomes.

IMPACT OF CHANGES IN KEY ASSUMPTIONS TO 31 DECEMBER 2018 NAV 148.1P PER SHARE
Estimated Impact of Changes in Key Variables to 31 Dec 2018 based on NAV of 148.1p per share

Discount rates +/–1%

–14.5

Inflation +/–1%

–14.9

17.5

17.6

Foreign exchange +/–10%

–4.1

4.1

Deposit rates +/–1%

Tax rates +/–1%

Lifecycle +/–10%

–1.5

–1.3

1.6

1.3

–0.8

0.8

-18

-12

-6

■ – change ■ + change

Pence per share

DISCOUNT RATES
The chart above indicates the sensitivity of the NAV per share to uniform changes to the discount rates applied to the forecast cash flows from
each individual investment.

INFLATION
The impact of inflation on the value of each investment depends upon the extent to which the revenues and costs, including the financing
arrangements, of that particular investment are linked to an inflation index. On a portfolio basis, there is a positive correlation to inflation with a
1.0% sustained increase in the assumed inflation rate projected to generate a 0.82% increase in portfolio returns. The returns generated by
the Company’s U.K. investments are typically linked to the RPI whereas the Company’s non-U.K. investments are typically linked to the
relevant Consumer Price Index (’CPI’) for that jurisdiction. Further to recent announcements by the regulators, the revenues earned by Cadent
and Tideway will be linked to the CPIH from 2021 and 2030 respectively. The regulators have stated that this is not designed to negatively
impact companies but rather to reflect the perceived shortcomings of the RPI (i.e. the regulators’ intention is for the transition from RPI to CPIH
to be valuation neutral). The inflation sensitivities by region are provided in note 11.5 of the financial statements.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
OPERATING REVIEW
CONTINUED

FOREIGN EXCHANGE
The Company has a geographically varied portfolio and forecast cash flows from investments are subject to foreign exchange rate risk in
relation to euros, Australian dollars, Canadian dollars and U.S. dollars. The Company seeks to mitigate the impact of foreign exchange rate
changes on near-term cash flows by entering into forward contracts, but the Company does not hedge exposure to foreign exchange rate risk
on long-term cash flows. The impact of a 10% increase or decrease in these rates is provided for illustration.

DEPOSIT RATES
The long-term weighted average deposit rate assumption across the portfolio is 1.87% per annum. While operating cash balances tend to be
low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and
therefore variations to deposit rates may impact valuations. The impact of a 1.00% increase or decrease in these rates is provided for
illustration.

TAX RATES
The Company has a geographically diverse portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all
relevant jurisdictions. The impact of a 1.00% increase or decrease in these rates is provided for illustration. Other potential tax changes are not
covered by this scenario.

LIFECYCLE SPEND
There is a process of renewal required to keep physical assets fit for use and at the standard required of them under agreements with relevant
public sector counterparties. 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 80% 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 changes to the forecast lifecycle costs 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 management of its assets due in that regulatory period. It is common practice to employ
reputable sub-contractors to undertake lifecycle work under contracts which include incentive and penalty regimes aligned with the
businesses 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.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTPRINCIPAL RISKS AND UNCERTAINTIES
The Board seeks to mitigate and manage risks relating to the Group through continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment and the management of the Group’s portfolio.

The Group’s approach to risk is set out in the Risk Report in this Annual Report on pages 42–48, the Risk Report includes an overview of the
principal risks and their mitigation. Risk factors are also detailed further in the Company’s last Prospectus (the Placing, Open Offer and Offer
for Subscription and Placing Programme Prospectus published on 12 April 2017). These risks and uncertainties are expected to remain
relevant to the Group for the next six months of its financial year and include (but are not limited to):
–

Inflation risk – revenues and expenditures of project entities with respect to infrastructure assets are generally partially or wholly subject to
indexation and an assumption is made that inflation will increase at a long-term rate. The Group’s ability to meet targets may be adversely
or positively impacted by inflation

– Foreign exchange risk – the Group has exposure to foreign currencies and therefore exposure to exchange rate fluctuations
– Credit and counterparty risks – the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group
– Liquidity risk – the ability to successfully access suitable financial resources in the debt, equity and related financial markets
– Contract risk – the ability of counterparties to operate contracts to the detriment of the Group and the risk of default under contract

whether by the Group, its subsidiaries or their counterparties

– Other external risks – includes the political and regulatory risks (including tax and accounting policies and practices) associated with the
Group and its projects; IT and cyber risks; and changes in the competitive environment which may have an adverse impact on the Group

The Board considers and reviews, on a regular basis, the risks that the Group is exposed to.

By order of the Board

Mike Gerrard
Chairman
27 March 2019

John Le Poidevin
Director
27 March 2019

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
ENVIRONMENTAL, SOCIAL AND GOVERNANCE

STRONG INVESTMENT STEWARDSHIP

OUR APPROACH
There is growing evidence suggesting that financial performance
is linked to strong ESG practices. By identifying, monitoring and
mitigating relevant ESG risks, we aim to manage the outcomes and
protect the Company’s return on investments. Similarly, by having
a view on the opportunities that ESG-related factors can present,
we can better support our clients and identify new opportunities for
investment. As a result, we are committed to evolving our approach
to ESG to ensure that we continue to deliver high standards of
stewardship and returns for our shareholders.

In 2018, the Company continued to integrate the Investment
Adviser’s Sustainability Policy across the portfolio. Examples of
specific activities undertaken in 2018 include:
– Continued to make investments with strong ESG credentials, for
example Dudgeon OFTO. Please refer to the case study on
pages 14–15 for more detail

– Updated our investment origination processes to ensure ESG
policies are adequately considered as part of the acquisition
process. This involved consideration of ESG factors as part of
the formal approval of preliminary and final investment cases
– Engaged with our asset managers to identify ESG opportunities
at the individual investment level. This included exploring energy
efficiency opportunities throughout the asset lifecycle with
facilities management contractors resulting in increased
LED installations

– Where we hold an investment through an operational company,
we used our board positions to influence the direction of the
underlying businesses. For example, we have been actively
engaging with Cadent on the development of their new
sustainability strategy

– A questionnaire was issued to the Investment Adviser’s asset

managers and its service providers to identify what ESG policies
are in place and what activities are being undertaken at each
investment to implement good ESG practice. For example, we
identified that at least 94% of our investments are influenced by
an overarching ESG policy1.

To reflect the Company’s ongoing commitment to good stewardship
of the investments that we own and manage, and the increasing
complexity of these challenges, the Investment Adviser has
appointed a new Head of ESG. As part of this newly created role, the
Head of ESG is conducting a full review of the Investment Adviser’s
existing processes with the view to further enhance and develop the
Company’s approach for 2019. This not only covers our approach
for managing risks, but also how we can use ESG opportunities
to improve the performance of the portfolio and to identify new
investment opportunities. This appointment is a positive move for the
Company and will help us build on the good ESG stewardship the
Company has delivered.

As part of this review, a new Active Management Plan is being
developed for the Company, identifying specific ESG risks and
opportunities and how they will be addressed through engagement.

Our performance against our five key areas of impact is summarised
below:

T T O
T I N G T H E
M IT
N M E N T
OTE C
NVIR

O
C

M
R
P

CO
TO S
EMPL

KIL

P
U
B
L

S
U
P
P

C
L

INVEST I N G
IN TH E
COMMU N I T Y

H
T
L
A
E
H

D
N
A
Y
T
E
F
A
S

G
N
I
E
B
L
L
E
W

1 ESG policies vary depending on the ownership structure and nature of investment. ESG policies are either applicable directly to the investment, to the Project Company or to the key services

that the Project Company sub contracts.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORT

HEALTH, SAFETY AND WELLBEING

100%

Investments are influenced by a
Health, Safety and Wellbeing Policy

88%

Investments with at least partial
access to greenspace

77%

Investments with provision to support
active transport

RELEVANCE TO INPP
Health, Safety and Wellbeing are of paramount importance to
the Company. Infrastructure projects inherently involve health and
safety risk from complex construction, such as Tideway, through to
the day-to-day operations of a school or a court. Ensuring the safety
of everyone who comes into contact with our assets, including
end-users, delivery partners, employees and the general public, is of
the highest priority; accordingly, we have a zero-tolerance approach
to accidents and injuries.

Poor physical and mental health costs U.K. businesses an estimated
£29 billion each year. In addition, Public Health England estimates
that the state spends more on the treatment of obesity and diabetes
than on the police, fire service and judicial system combined1.

Better health is not just core to one’s wellbeing, it also makes an
important contribution to economic progress, as healthy populations
live longer, are more productive, and save more.

Physical health
The World Health Organisation flags the potential health gains of
a shift from private motorised transport to walking, cycling and
rapid transit/public transport, including reduced respiratory and
cardiovascular disease from air pollution and less exposure to traffic
injury risks and noise stress. In 2018, we identified at least 77%2 of
our investments provide equipment to support active transport at
site level, including bike racks and showers.

The Company continues to maintain several investments in primary
healthcare. These investments provide healthcare services and have
been designed to create a healthy environment. For instance, the
Royal Children’s Hospital’s design features include solar panels,
volatile organic compound free materials, collection and re-use of
rainwater, water efficient appliances and landscaping, black water
treatment plant, efficient lighting, 500 bike parking spaces, materials
with high recycled content, bio mass fuel boiler, and 5-star Green
Star status.

PERFORMANCE
Safety
The Company undertakes a proactive approach to ensuring that all
parties are aware of their health and safety obligations, which are
monitored through quarterly reporting. In 2018, we identified that
100%2, 3 of our total investments are influenced by a Health and
Safety Policy, with all of them actively engaging employees on
the subject.

In 2018, Tideway won an industry award, among others, for their
mandatory, one-day Employee Project Induction Centre (‘EPIC’)4.
EPIC has now been attended by 12,000 people and demonstrates
how Tideway are setting new standards for attitudes and
performance in every part of the project and throughout the industry.

Mental health
Academics at University College London, Imperial College London,
University of Exeter and the Nuffield Trust have found that the
proportion of children and young people that have a mental health
condition has grown six-fold in England over two decades5.

There is increasing evidence that access to green spaces has a
positive effect on a person’s mental health6 and we can report that at
least 88%2 of the Company’s investments have at least partial
access to green space.

1 Health matters, Public Health England, March 2017.
2 Metrics are estimates and exclude the digital infrastructure investments (held in a fund structure), U.S. Military Housing (where only senior debt is held), Brescia Hospital in Italy

(where we do not provide asset management services) and projects in construction (except for Tideway). Figures should be considered as a minimum due to potential gaps in information.

3 BeNEX is not covered by a specific Health and Safety Policy but is subject to rigorous Health and Safety Statutory requirements in Germany.
4 https://www.constructionnews.co.uk/events/construction-news-awards/training-excellence-winner/10030920.article
5 https://www.nuffieldtrust.org.uk/news-item/striking-increase-in-mental-health-conditions-in-children-and-young-people
6 www.environmentalevidence.org/SR40.html

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTINUED

COMMITMENT TO PROTECTING THE ENVIRONMENT

1.5GW

Offshore wind energy connected

>91%

Total investments monitoring their
asset’s energy usage

RELEVANCE TO INPP
Environmental issues present both risk and opportunity for the
Company. By reducing the portfolio’s impact on climate change,
improving air quality, and restoring biodiversity, we can help improve
the health and wellbeing of our end-users and support our main
stakeholders delivering key objectives.

Equally, global action on the environment is presenting new
investment opportunities. It is estimated that approximately
US$90 trillion of investment into infrastructure is required between
2015 and 2030 to improve the impact of climate change currently.

Air Quality
In 2018, the Company increased its investment in Gold Coast Light
Rail. Since launching in 2014, Gold Coast Light Rail has contributed
to an increased use of public transport, with ongoing increased
patronage of c.20%2 since opening. Within the areas measured prior
to the project’s installation, there has been a general decrease in the
number of vehicles being used. With more passengers travelling by
electric trains rather than by car, Gold Coast Light Rail will deliver
improved local air quality benefits. This builds on our evolving rail
investment portfolio, which includes Reliance Rail, Diabolo, BeNEX
and Angel Trains.

In the U.K., the Government released two forward-looking strategies.
The first outlines a 25 year plan for how the U.K. can improve the
environment focusing on improved air quality, restoring biodiversity
and increasing climate resilience. The second outlines a bold vision
for how the U.K. can preserve its material resources by minimising
waste, promoting resource efficiency and moving towards a circular
economy. Both of these strategies will require a market response
and new infrastructure if they are to be delivered.

By keeping abreast of these developments, we can support our
stakeholders and identify new areas for potential investment.

PERFORMANCE
Climate Change
During 2018, we identified that at least 91%1 of our total number of
investments monitored their energy usage. In addition, 34%1 of the
Company’s portfolio implemented energy saving initiatives, with a
large number rolling out LED lighting as part of the lifecycle
management of these assets in 2018.

In addition to environmental project stewardship, the Company
continued to invest in low carbon infrastructure. In total, the
Company has mobilised a total of c.£1 billion of long-term private
sector network investment into offshore transmission to support the
U.K.’s green economy, with approximately 1.5GW connected. Please
refer to the case study on pages 14–15.

Resource Efficiency
In support of the growing concern around waste and the U.K.
Government’s ambition to move to a more circular economy,
we have started to identify how many of our assets are actively
considering waste production and disposal. In 2018, 35%1 of our
investments monitored waste at the site level, which we are looking
to improve.

In addition, in 2018 Cadent continued to test the viability of using
renewable gas on the network. Renewable gas production plants
convert waste from food and crops or sewage into a gas that has a
negligible carbon footprint and is compatible with existing pipelines
and appliances. In the last five years, Cadent has connected
29 providers of renewable gas to its networks, producing energy
to heat 87,000 homes3.

Biodiversity
As part of its legacy environmental commitments, Tideway is
supporting research to aid understanding of habitats and aquatic
ecology of the River Thames. In 2018, the Zoological Society of
London (‘ZSL’) completed the second year of surveys of juvenile fish
in the estuary in October. During 2019, the survey findings for 2017
and 2018 will be analysed with the intention of mapping those parts
of the river which are most important for juvenile fish4.

1 Metrics are estimates and exclude the digital infrastructure investments (held in a fund structure), U.S. Military Housing (where only senior debt is held), Brescia Hospital in Italy

(where we do not provide asset management services) and projects in construction (except for Tideway). Figures should be considered as a minimum due to potential gaps in information.

2 Gold Coast Light Rail Status Report, 2017.
3 Cadent Annual Report (2017-2018).
4 Tideway HSSE Committee bi-annual report.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTSUPPORTING PUBLIC SECTOR CLIENTS

INVESTING IN THE COMMUNITY

>190,000

Number of pupils at
schools within the portfolio

79%

Ofsted rating of ‘Good’
or above

>3,000

Management meeting
hours with public sector

>150,000

Out of hours community use

10,142

Volunteer hours on Tideway

RELEVANCE TO INPP
The provision of essential services to our public sector clients
is a core component of their success and the regions in which
they operate. Our investments provide the capital required by the
public sector to deliver the vital infrastructure and services they need
for local communities to thrive.

By working in partnership with our public sector clients, we not only
deliver services for which we are contracted, but also provide job
creation, placemaking and economic development. The ability to
work with our partners for the benefit of the local community that
each project serves is fundamental to the ongoing success of
each investment.

PERFORMANCE
Partnerships
Stakeholder engagement is a key part of supporting our public
sector clients and the Company’s ‘hands-on’ approach facilitates a
strong collaborative relationship that generates mutual benefits. By
maintaining an intimate understanding of the projects and engaging
extensively with the public sector that uses them, the Company is
better positioned to determine the risks and opportunities that may
occur at each asset. We maintain these relationships by holding
regular meetings and engaging with our public sector clients, with an
estimate of 3,000 hours1 or more of face-to-face meetings in 2018.

Availability
Ensuring that the facilities the Company provides are available for
their intended use, that areas are safe and secure, and that the
performance standards set out in the underlying agreements are
achieved is a key deliverable for the Investment Adviser. The
availability and performance data for the Company’s investments are
monitored and appraised regularly to assess the overall performance
of each investment. Please see the availability of the Company’s
investments on pages 12–13.

Education Performance
Education assets within the portfolio represent c.20% of the
Company and provide educational development and facilities to over
190,000 pupils2, bringing social value to the local communities in
which they are based. Catering facilities are provided to 20 U.K.
based schools through the supply chain, and since the beginning of
the year, our supply chain has prepared in excess of 411,000 free
school meals1. Across the Company’s U.K. school estate, 79% of the
portfolio achieved an OFSTED rating of ‘Good’ or above2.

RELEVANCE TO INPP
Engaged communities can play an important role in successful
delivery of new assets and their long-term operations. Strong
communities have the potential to influence the operations of our
assets as the positive effects of strong communities can include
lower crime rates, better educational achievement, higher
employment and better health.

Through its projects, the Company is exploring how it can work with
the local communities where it invests and bring socio-economic
benefits to the area.

PERFORMANCE
Local Employment
Tideway are actively working towards providing 4,000 sustainable
employment options to its local communities. In 2018, Tideway
continued to work towards employing local people, including
those previously unemployed across London and the South East,
combined with delivering on a commitment to ensure payment of
London Living Wage across all of their sites.

Community hours
Across all of the Company’s investments, an estimation of over
150,000 hours1 of community use have been provided to support
local groups. For example, the Company’s schools in Calderdale and
Derby offer a central hub that can be used by the wider community.
The facilities used by local community groups, businesses and
charities include:
– Tupton High School – the local rugby and athletics club use the

school facilities at evenings and weekends; and

– Long Eaton High School – local church groups use the facilities at
weekends and the North East Derbyshire Music Group uses the
facilities three times per week, as well as holding concerts in the
main hall at various times during the year.

Volunteering
Volunteering, supporting charities and community-based initiatives
are a priority at a number of the Company investments. For example,
Tideway’s staff made a major contribution to the project’s
community programme in 2018 through volunteering. Giving time
through volunteering to support the local community is one of
Tideway’s specific legacy commitments and in 2018 construction
staff volunteered for the total of 10,142 hours3. This includes 7,000
hours volunteered by the main works contractor.

1 Metrics are estimates and exclude digital infrastructure investments, U.S. Military Housing, Brescia Hospital and construction projects (except Tideway).
2 www.gov.uk/government/organisations/ofsted
3 Estimate based on Tideway document; ‘Community investment highlights for 2018’.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
CONTINUED

Productivity
According to the U.K. Government, apprenticeships are an important
component of improving the productivity of businesses, their
efficiency, boosting the economy and supporting young people’s
employment prospects3. In 2018, Tideway made progress on
plans to develop the next generation of talent and help local and
disadvantaged people into employment. This included targets for
Tideway and its contractors to employ apprentices, local people
and ex-offenders.

COMMITMENT TO SKILLS AND EMPLOYMENT

>95%

Investments are influenced by
an employee development/training
programme

>94%

Managed investments influenced by
an Equality, Diversity and Inclusion
Policy

RELEVANCE TO INPP
The socio-economic impact of the Company’s assets and its
supply chain are a key factor of the long-term success of the
Company’s portfolio. As part of our active asset management
approach, we engage with our counterparties regularly and there is
ongoing communication. By monitoring these relationships, we can
better understand our delivery partners workforce and their
employee satisfaction.

PERFORMANCE
Staff training
We actively engage with our partners to deliver a high level of
employee satisfaction within the underlying businesses. At least
95%1 of our assets are covered by a staff training/development
programme, with many providing additional performance incentives.
For instance, Cadent, delivered around 26,0002 training days in
2017/2018 across its total workforce. Training and professional
development can increase staff motivation and efficiency, leading to
improved operational performance and strong employee retention
and development.

Equality, Diversity and Inclusion
As part of our approach to active management of our investments,
we ensure that equality, diversity and inclusion is considered.
At least 94%1 of the Company’s investments have an Equality,
Diversity and Inclusion Policy in place to help promote a good
working environment.

Cadent has a large workforce that covers much of England, with
over 4,000 employees. Cadent has established processes to
diversify their employee base to reflect, as far as possible, that of
their customer base across the U.K., through fair and equitable
recruitment procedures. They also run groups that focus on the
engagement, attraction and awareness of the sector through
participation in energy and utility skills or skill partnership groups.
For example, their key target audiences include women, ethnic
minorities, service leavers, parents, unemployed, and ‘NEETS’
(Not in Education, Employment or Training).

1 Metrics are estimates and exclude the digital infrastructure investments (held in a fund structure), U.S. Military Housing (where only senior debt is held), Brescia Hospital in Italy

(where we do not provide asset management services) and projects in construction (except for Tideway). Figures should be considered as a minimum due to potential gaps in information.

2 Cadent Annual report (2017–2018).
3 Productivity Matters: The Impact of Apprenticeships on the U.K. Economy, Centre for Economics and Business Research.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTRISK 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. The system of risk
management and internal control has been designed to manage,
rather than eliminate, the risk of failure to meet the business objectives.
Regard is given to the materiality of relevant risks in designing systems
of internal control, but no system of control can provide absolute
assurance against the incidence of risk, misstatement or loss.

The Company has in place a risk management framework, with a
risk register that is reviewed and updated by the Board and Audit and
Risk Committee on a quarterly basis and perform a detailed annual
workshop to consider emerging and changing risks along with the
Investment Adviser. The Audit and Risk Committee considers the risks
facing the Company and has 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 2018 and up to the date of approval of this
Annual Report.

RISK MANAGEMENT PROCESS
The Company’s risk management process as overseen by the
Board can be summarised as:

Risk Monitoring,
Reporting and
Reassessment

Risk
Identification

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 Audit and Risk Committee with input from
the Management Engagement Committee. It is implemented
through the following risk control processes.

RISK IDENTIFICATION
The Board and Audit and Risk Committee and its Risk Sub-
Committee identify risks with additional input from the Company’s
Investment Adviser and Estera International Fund Managers
(Guernsey) Limited (‘the Administrator’). The Board also receives
detailed quarterly asset management reports highlighting
performance and potential risk issues on an investment-by-
investment basis. The Audit and Risk Committee 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 49 for more
information of this assessment.

Risk
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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

RISK MANAGEMENT
CONTINUED

MONITORING, REPORTING AND REASSESSMENT OF RISK
Risks are monitored and 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 COMMITTEE
- MANAGEMENT ENGAGEMENT COMMITTEE
- INVESTMENT COMMITTEE
- NOMINATION AND REMUNERATION COMMITTEES

Risk control levels
– Service provider’s
internal controls
– Independent controls
and process reviews
– External audit

Principal advisers
– Investment Adviser
– Asset Manager
– Company Secretary
– Fund Administrator
– Legal Adviser
– Corporate Broker
– Corporate Bankers

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,
to the extent possible, to the underlying investment portfolio as
illustrated in the Business Model on pages 10–11.

PRINCIPAL RISKS AND MITIGATION
The key risks affecting the Company and the investment portfolio
have not, in the view of the Board, materially changed year-to-year,
largely due to the contractual regulated and long-term nature of
the investments with similar risk profiles. However, 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, and in some instances such
risks have changed in the year.

Counterparty risk was closely monitored during the year following
the identification of issues affecting certain service providers to the
Group, with contingency plans developed by the Investment Adviser.
Following the collapse of Carillion plc in early 2018, work to transition
affected assets to new facilities management services commenced,
with announcements made during this process to ensure
appropriate communication with shareholders of key developments
and impacts for the Company. The Investment Adviser continues to
closely monitor other service providers within the portfolio. More
information is provided in the Active Asset Management section of
this report on pages 22–23.

There remains uncertainty over the eventual relationship between
the U.K. and the E.U. This uncertainty makes it hard to foresee what
impact Brexit will have on the wider macroeconomic environment
and hence the valuation of the Company’s assets. The Audit and
Risk Committee has sought to manage Brexit risk as it might
manifest at both the Company and asset levels. In keeping with the
approach taken by the Audit and Risk Committee, during the year
the Investment Adviser established a focused Brexit risk committee
to identify, assess and, where relevant, identify mitigating strategies
for potential Brexit risk arising across the Group. Focus has been
given to areas which may have the potential to impact the Company,
including any developments in the approach to cross-border AIFMD
regulation and taxation of cross-border financing. Regarding the
portfolio, attention has also been given to managing potential risks
that may affect projects or businesses, and which may consequently
impact the valuation of the assets. Particular areas of consideration
at this level include, for example, availability of staff, availability of
financing and supply chain considerations for key parts, amongst
others. As a result of these assessments, we do not currently believe
there will be a significant impact on the Company as a direct result
of Brexit; however, this cannot be guaranteed and we continue to
closely monitor developments as the withdrawal process continues
to evolve.

The U.K. Labour Party’s proposed policy to nationalise privately
owned infrastructure including U.K. PFI, should it come into
government, has also been previously noted. The Company believes
that significant compensation would be required in order to enact
this legitimately within existing contractual arrangements, therefore
we maintain the view that the Company is defensively positioned in
this regard.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTAs part of the Board’s ongoing commitment to manage risk
during the year the Board commissioned an external review of the
Company’s tax policies and procedures, including a focus on the
Company’s tax risk approach. See the Audit and Risk Committee
report on pages 62–65 for further details of this review.

In addition, the Company is conscious that the long-term
performance of its investments is influenced by ESG factors. These
might include how the portfolio of investments respond to climate
change; the efficacy of water management; how effective their
health and safety policies are in the protection against accidents;
how they manage their supply chains, how they treat their workers;
and whether they have a corporate culture that builds trust and
fosters innovation. The Audit and Risk Committee has identified ESG
factors as its focus for internal review this year, which will assess the
Company’s current approach to reporting and overall incorporation
of ESG factors into its processes.

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.
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 beyond that relevant to all
other funds and it is instead managed as a general risk affecting all
such 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
overleaf) 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

Low

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

Medium

IMPACT

High

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’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

INFLATION

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.

The Company 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.

The Company indirectly holds part of its
investments in entities in jurisdictions with
currencies other than sterling, but borrows
corporate level debt, reports its NAV and pays
dividends in sterling. Changes in the rates of
foreign currency exchange are outside the
Company’s control and may impact positively or
negatively on cash flows and valuation.

FOREIGN EXCHANGE
MOVEMENTS

The Company uses a long-term view of inflation
within its forecasts, benchmarked where possible to
independent analysis.

The Company uses forward foreign exchange
contracts to mitigate the risk of short-term volatility
in foreign exchange rates on investment returns
from overseas investments. These may not be fully
effective and rely on the strength of the
counterparties to those contracts to be enforceable.

The Company monitors the effect of foreign
exchange on its portfolio through its 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. We continue to be
mindful of the potential for exchange rate volatility in
light of international economic and political change,
including during the U.K.’s withdrawal from the E.U.
We note a devaluation of sterling against the main
currencies (in which non-U.K. investments are
made) would typically have a positive impact on
NAV. The opposite would also be true for an
increase in the value of sterling.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORT
RISK

DESCRIPTION

MITIGATION/APPROACH

MACROECONOMIC RISKS CONTINUED

INTEREST RATES

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 yields) 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.

Corporate Debt Facility
The Company has a corporate 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.

In determining the discount rates used to value its
investments, the Company generally uses nominal
government bond yields to which specific
investment risk premia are added to determine
discount rates. The investment risk premia may
provide a buffer against rising bond yields assuming
market demand for investment is sustained. Where
the Company’s cash investment inflows are linked
to inflation, higher interest rates can often be
precipitated by higher inflation expectations, and
therefore any inflation linkage may partly mitigate
the effect of interest rate changes.

In the event that the interest rate increases, the
Company has the option of repaying its corporate
debt facility at any time with minimal notice,
providing sufficient funds are available.

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 the Company is different to that
projected. If the Company 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.

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 SPV structures and
relatively smaller balances in the SPVs, it is not
economically feasible to hedge against adverse
deposit rate movements.

The Company monitors the effect of historical and
projected interest rates on its portfolio through its
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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

RISK MANAGEMENT
CONTINUED

RISK

DESCRIPTION

MITIGATION/APPROACH

MACROECONOMIC RISKS CONTINUED

TAX AND ACCOUNTING

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 the Company 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 the Company 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 the Company invests have been assessing
their compliance or otherwise with this guidance.

Accounting
The Company 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.

The Company incorporates changes in tax rates
within its forecast cash flows and NAV once
substantively enacted.

The diversified jurisdictional mix of the Company’s
investments may provide some mitigation to tax
changes in any one jurisdiction.

The Company believes it takes a cautious 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 relating to tax reform across
the jurisdictions in which the Company has
operations. Future legislation in response to the
OECD proposals, or changes in approach to
existing legislation as a consequence of market
practice or updated guidance, continue to have the
potential to negatively impact the Company.

A portion of the Company’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.

POLITICAL AND REGULATORY RISKS

The nature of the businesses in which the
Company invests exposes it 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 the Company’s existing investments benefit
from long-term service and asset availability-based
pricing contracts or regulatory frameworks 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.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORT
RISK

DESCRIPTION

MITIGATION/APPROACH

POLITICAL AND REGULATORY RISKS CONTINUED

POLITICAL POLICY

Change in Political Policy
Political policy and financing decisions may
adversely impact either on existing investments, or
on the Company’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 the
Company have the potential to be made as a direct
or indirect result of reputational developments seen
across the wider sector.

The Company 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
the Company’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 the
Company’s valuation, causing loss of value. There
have been instances of contracts being voluntarily
terminated in the U.K. (although not affecting the
Company).

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
the Company’s cash flow from its investments and/
or valuation of them.

The Company engages with its public sector clients
in developing cost-saving initiatives and seeks to
act as a ‘good partner’ including by focusing on the
ESG aspects of its investments. None of the
Company’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 the U.K.’s planned withdrawal from the
E.U., there are no specific ‘Brexit’ termination
clauses in the Company’s underlying project
contracts.

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. There remains
the possibility for there to be changes in law or
regulation as a result of Brexit which have the
potential to impact costs or obligations of the
Company or portfolio projects, which may not be
fully capable of mitigation.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED

RISK

DESCRIPTION

MITIGATION/APPROACH

POLITICAL AND REGULATORY RISKS CONTINUED

Regulatory Requirements
The Company 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 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, however as the Company
is a Guernsey-based, self-managed AIF, there is not
expected to be a direct impact on the Company’s
regulatory status or its existing ability to raise
capital.

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.

Operational Performance
Assets in the portfolio contain revenues which are
based on the availability of the asset, as well as
revenues not solely dependent on availability but
also have linkage to other factors including being
subject to regulatory frameworks.

The entitlement of the Company’s PPP and OFTO
investments to receive revenues 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 the Company has projected to
receive.

Certain assets in the portfolio which contain
revenue streams that are not solely based on
availability of the asset may include linkage to other
factors or are subject to the regulatory regime.

Termination
In serious cases where the terms of the underlying
contract with the public sector are breached due
to default or force majeure then that contract can
usually be terminated without compensation.
Failure to receive the amount of revenue projected
or termination of a contract will have a
consequential impact on the Company’s cash flow
and value.

Contractual mechanisms allow for significant
pass-down of construction cost overrun risk to
sub-contractors or consumers, subject to credit risk
(see opposite).

The Board reviews underlying investment
performance of each investment, quarterly, allowing
asset performance to be monitored in close to real
time.

Historically, the Company has seen very high levels
of asset performance, which suggests a positive
trend for the future.

For regulated assets, the regulatory regimes under
which the assets operate provide a level of
protection of cash flows for these assets.

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 opposite).

In the event of significant and continuing unavailability
across the Company’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.

ASSET PERFORMANCE

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTRISK

DESCRIPTION

MITIGATION/APPROACH

OPERATIONAL AND VALUATION RISKS CONTINUED

COUNTERPARTY RISK

The Company’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.

Over recent years there has been particular
pressure on construction and facilities
management firms operating across the sector,
particularly within the U.K.

The Company has a broad range of suppliers and
believes that supplier counterparty risk is diversified
across its investments. All contracts include the
provision of a security package from counterparties
to mitigate the impact of supplier failure. In addition,
generally payments are made in arrears to service
providers giving the Company some protection
against failures in performance.

The credit quality of supplier counterparties is
reviewed as part of the Company’s due diligence at
the time of making its investments and for key
supplies on a regular basis. Most of the services
provided to the Company’s investments are
reasonably established with competing providers.
Therefore, there are expectations that 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.

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
at the valuation date immediately preceding the
collapse of Carillion) 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
impact of transitioning projects to alternative service
providers, including transaction costs, is expected to
be immaterial (see pages 22–23). In addition, in early
2019 Interserve Plc entered administration and the
sale of its business and assets, to a newly
incorporated company (Interserve Group Limited)
controlled by its lenders completed immediately
afterwards. Interserve Integrated Services Ltd
provides facilities management services to c.6% of the
Company’s portfolio (by fair value). The Company has
been monitoring the issues affecting Interserve Plc
and has developed contingency plans. All the facilities
that have been affected are currently operational with
no disruption to service delivery. At this time, it is not
believed that the administration of Interserve Plc will
adversely impact the Company’s valuation (see
pages 22–23). The Company continues to monitor
the risk of any additional developments occurring in
this space relating to its other significant
counterparties.

Where borrowings exist in respect of the
Company’s investments, interest rates are
generally fixed through the use of interest rate
swaps. The Company is therefore exposed if the
counterparties of these swaps were to default or
the swaps otherwise become ineffective.

The credit risk of such swap counterparties is
considered at the time of entering into these
arrangements and is regularly reviewed. However,
there is a risk of credit deterioration which could
impact affected investments.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT
CONTINUED

RISK

DESCRIPTION

MITIGATION/APPROACH

OPERATIONAL AND VALUATION RISKS CONTINUED

PHYSICAL ASSET RISK

CONTRACT RISK

FINANCIAL FORECASTS

Recent investment
opportunities have been
seen more in operating
infrastructure businesses
that exhibit greater variability
to assumptions around
growth, refinancing and/or
allowed returns

The Company indirectly invests in physical assets
used by the public and thus is exposed to possible
risks, both reputational and legal, in the event of
damage or destruction to such assets and their
users, including loss of life, personal injury and
property damage. While the assets the Company
invests in benefit from insurance policies, these
may not be effective in all cases.

The Company’s investments benefit from regular
risk reviews and external insurance advice which is
intended to ensure that those assets continue to
benefit from insurance cover that is standard for
such assets.

The performance of the Company’s investments is
dependent on the complex set of contractual
arrangements specific to each investment
continuing to operate as intended. The Company is
exposed to the risk that such contracts do not
operate as intended, are incomplete, contain
unanticipated liabilities, are subject to interpretation
contrary to 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 the
Company’s due diligence at the time of making new
investments. See Political Policy on page 45 for
further commentary on contractual risk of voluntary
termination.

The Company’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.

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.

Recent investments in operating infrastructure
businesses that can result in more variability in
performance than contracted concessions special
purpose companies, are inherently more difficult to
forecast accurately given the wider range of
variables that apply.

Investments in regulated business are considered
very long-term, beyond the much shorter regulatory
cycles. Valuations of such business should take into
account robustness of yield and potential for
increases in regulated asset base over time.

Sensitivities
The Company publishes information relating to its
portfolio including projections of how portfolio
performance and valuation might be impacted by
changes in various factors e.g. interest rates,
inflation, deposit rates, etc. The sensitivity analysis
and projections are not forecasts and actual
performance is likely to differ (possibly significantly)
from that projection as in practice the impact of
changes to such factors will be unlikely to apply
evenly across the portfolio or in isolation from other
factors.

Sensitivities are produced for the information of
investors and are accompanied by disclaimers and
guidance explaining that limited reliance can be
placed upon them.

International Public Partnerships Annual Report and financial statements 2018STRATEGIC REPORTThe 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 of its
liabilities as they fall due up to March 2024. This assessment is
based on the following assumptions which are not within the
Company’s control:
– No changes to government policy, laws and regulations affecting
the Company or its investments other than the impacts already
factored into future cash flows as part of the 31 December 2018
NAV valuation

– 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.

By order of the Board

Mike Gerrard
Chairman
27 March 2019

John Le Poidevin
Director
27 March 2019

VIABILITY STATEMENT
In accordance with provision C2:2 of the 2014 revision of the U.K.
Code of Corporate Governance, 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. Whilst we consider the valuation
of investment cash flows for the purposes of NAV over a
considerably longer period than five years, we view five years as an
appropriate timeframe for assessing the Company’s viability given
these inherent uncertainties.

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 62–65

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 typically be positive for the Company’s
investment cash flows giving linkage of revenues to inflation across
many investments), 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 assets 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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
SUMMARY OF INVESTMENT POLICY

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 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, the Company
is also subject to certain restrictions pursuant to the U.K.L.A
Listing Rules.

OVERVIEW
The Company 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, or under a licence issued by a regulator unless there
is a strategic rationale for earlier realisation. The Company 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 or regulated
businesses having a public or social infrastructure character
with either availability, property rental or user paid payment
mechanisms or appropriate regulatory frameworks
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

–

– Divestments where an investment is no longer aligned with the
Company’s investment objectives or where circumstances
offer an opportunity to enhance the value of the portfolio

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEMANAGING 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 24.

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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
BOARD OF DIRECTORS

From left to right

JOHN STARES1
Chair, Risk
Sub-Committee,
Chair, Nomination
and Remuneration
Committee (until
1 February 2019)

JOHN WHITTLE1
Senior
Independent
Director
Chair, Audit and
Risk Committee
(until 1 July 2018)

JULIA BOND1
Chair, Risk
Sub-Committee
Chair, Nomination
and Remuneration
Committee (with
effect from
1 February 2019)

GILES FROST

CLAIRE
WHITTET1
Chair,
Management
Engagement
Committee

MIKE GERRARD
Board Chair,
Chair, Investment
Committee (with
effect from
31 December
2018)

JOHN LE
POIDEVIN1
Chair, Audit and
Risk Committee
(with effect from
1 July 2018)

Date of
appointment

28 August 2013

6 August 2009

1 September 2017

2 August 2006

10 September 2012

4 September 2018

1 January 2016

RUPERT
DOREY 1,2
Board Chair
Chair, Investment
Committee
(until his
retirement on
31 December
2018)

Date of
appointment

2 August 2006

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCE

MIKE GERRARD
Background and experience
Aged 61 and a resident in the U.K., Mike has 30 years
of financial and management experience in global
infrastructure investment.

JOHN STARES1
Background and experience
Aged 67 and a resident of Guernsey since
2001, John has over 40 years’ experience.

He has held a number of senior positions, including
as an assistant director of Morgan Grenfell plc, a
director of HM Treasury Taskforce, deputy CEO and
later CEO of Partnerships U.K. plc.

Mike has a breadth of experience across a range of
economic and social infrastructure sectors and has
been involved in some of the largest infrastructure
projects in the U.K.

Listed company and other relevant
directorships
Mike holds several non-executive positions
within boards and committees that oversee
the development and delivery of infrastructure
investments in the U.K. and Europe.

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
Terra Firma (for a number of Guernsey-based entities)
Governor of More House School
New Philanthropy Capital (Trustee)

JULIA BOND1
Background and experience
Aged 59 and a resident in the United Kingdom,
Julia has 27 years’ 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 British Foreign and Commonwealth.

CLAIRE WHITTET1
Background and experience
Aged 63 and a resident of Guernsey, Claire has
40 years’ experience in the banking industry
with Bank of Scotland, Bank of Bermuda and
Rothschild and Co Bank International where she
was latterly, managing director and co-Head until
May 2016 when she became a non-executive
director. She is also non-executive director of a
number of other investment company Boards
and is not involved in any trading companies.

Listed company and other relevant
directorships
European Assets Trust (‘EAT’)

JOHN LE POIDEVIN1
Background and experience
Aged 48 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
leadership 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.

John is a non-executive director on several plc
boards and chairs a number of Audit Committees.

Listed company and other relevant
directorships
Aurigny Air Services Ltd
BH Macro Ltd
Safecharge International Group Ltd
Stride Gaming plc

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

JOHN WHITTLE1
Background and experience
Aged 63, John is 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

GILES FROST
Background and experience
Aged 56 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.

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.

Since 2005, Rupert has been a non-executive
director for a number of Hedge Funds, Private Equity
& Infrastructure Funds.

He is a member of the Institute of Directors.

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

1 All of the independent directors are members of all Committees with the exception of Mr Gerrard, who is not a member of the Audit and Risk Committee.
2 Mr Dorey is not pictured as he had retired from the Board as at the date of this report.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’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 direction and
oversight of the Company, for agreeing its strategy, monitoring its
financial performance, and setting and monitoring its risk appetite.

This section describes how the Company 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 the
Investment Adviser, 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 (the ‘U.K.
Code’). This requirement applies regardless of where the company is
incorporated. Whilst a revised U.K. Code was issued in July 2018,
it will apply to the Company for its forthcoming financial year and
therefore the relevant U.K. Code remains the April 2016 edition.

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.

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 and
updated its standardised three page Key Information Document
(‘KID’) on 2 October 2018. 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 52–53, demonstrate a breadth of
investment and business experience.

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. We note that the AIC
published a revision to its Code in February 2019 which will apply
to the Company’s 2019 financial year end. However, the Board
has taken a forward-looking position and adopted some of its
recommendations in advance of the proposed application.

The Board consists solely of non-executive directors and, for the
period of this report, was chaired by Mr Dorey, who was 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.

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).

For the purposes of the AIC Code, Mr Frost is treated as not being
an independent director, due to his relationship with the Company’s
Investment Adviser. In accordance with the AIC Code, all other
non-executive directors are independent of the Company’s
Investment Adviser.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEBOARD 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 upon joining the Board and, in consultation with the
Chairman, all directors are entitled to receive other relevant ongoing
training as necessary.

Mr Dorey had been a Board member since August 2006 but retired
on 31 December 2018, and Mr Gerrard was appointed as Chairman
of the Board. More information is available in the Chairman’s Letter.
Mr Whittle has been a Board member since August 2009. The
Board is confident that Mr Whittle remains independent. However,
during the period, Mr Whittle retired from his role as Chair of the
Audit and Risk Committee and will be retiring from the Board at the
2020 AGM as part of the Board’s ongoing succession programme.

The Board has agreed that all Directors will stand for re-election at
each AGM.

DIRECTORS’ DUTIES AND RESPONSIBILITIES
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.

These duties cover the following areas of responsibility:
– Statutory obligations and public disclosure
– Approval of investment decisions
– Strategic matters and financial reporting
– Board composition and accountability to shareholders
– Risk assessment and management, including reporting,

compliance, monitoring, governance and control

– Other matters having material effects on the Company

These reserved powers of the Board have been adopted by the
Directors to demonstrate clearly the importance with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions.

The Board monitors the Company’s share price and NAV and
regularly considers ways in which shareholder value may be
enhanced. These may include implementing marketing and
investor relations activities, appropriate management of share
price premium/discount and the relative positioning and
performance of the Company to its competitors. The Board is
also responsible for safeguarding the assets of the Company
and for taking reasonable steps for the prevention and detection
of fraud and other irregularities.

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.

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. During the latter half of 2018,
the Board invited Trust Associates to undertake an independent
review of Board remuneration to ensure that it remained in line
with the market and is at a level to attract high calibre individuals
to the Board. As a result, the Board resolved to increase Board
remuneration with effect from 1 January 2019 as outlined in the
table below.

Position

2019 Fee p.a.
£

2018 Fee p.a.
£

Board Chair
Audit and Risk Committee Chair
Senior Independent Director
Risk Sub-Committee Chair
Management Engagement Committee
Chair
Nomination and Remuneration Committee
Chair
Director (Independent and
Non-Independent)

85,000
58,000
47,000
47,000

67,500
55,000
43,000
43,000

47,000

43,000

47,000

43,000

45,000

43,000

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE GOVERNANCE REPORT
CONTINUED

DIRECTORS’ INTERESTS
Directors, who held office at 31 December 2018, had the following
interests in the shares of the Company:

Director

Mike Gerrard2
Julia Bond
John Le Poidevin
John Stares
Claire Whittet3
John Whittle4
Giles Frost
Rupert Dorey5

31 December
2018
Number of
Ordinary
Shares1

55,739
14,020
97,883
75,000
69,602
58,864
893,797
1,037,614

31 December
2017
Number of
Ordinary
Shares1

–
–
65,333
75,000
68,017
58,864
880,313
1,037,614

1 All shares are beneficially held.
2 Mr Gerrard joined the Board on 4 September 2018.
3 Holds shares through a Retirement Annuity Trust Scheme jointly with Ms Whittet’s spouse.
4 Holds shares through a Retirement Annuity Trust Scheme.
5

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.

There have been no changes to the holdings of existing directors
between 31 December 2018 and the date of this report.

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 are the Chairs of the Audit and Risk
Committee, the Risk Sub-Committee, the Management Engagement
Committee, the Nomination & Remuneration Committee, as well as
the Senior Independent Director.

There are no long-term incentive schemes provided by the
Company and no performance fees, or bonuses paid to directors.
Any changes to directors’ aggregate remuneration are considered
at the Annual General Meeting (‘AGM’) of the Company.

Director

Mike Gerrard2
Julia Bond3
John Le Poidevin4
John Stares5
Claire Whittet
John Whittle6
Giles Frost7
Rupert Dorey8

2018 Fees paid
£

2017 Fees paid1
£

21,683
43,000
46,000
43,000
43,000
49,000
43,000
67,500

–
14,333
53,000
53,000
53,000
65,000
53,000
77,500

1 The 2017 fees include £10,000 of fees payable to Board members with respect to the May

2017 share issuance.

2 Mr Gerrard joined the Board on 4 September 2018.
3 Ms Bond was appointed as Risk Sub-Committee Chair, effective from 1 February 2019.
4 Mr Le Poidevin was appointed as Chairman of the Audit and Risk Committee on 1 July

2018 for which he receives a higher fee.

5 Mr Stares had lead responsibility for risk within the Risk Sub-Committee during the year.
6 Mr Whittle retired as Chairman of the Audit and Risk Committee on 1 July 2018.
7 The emoluments for Mr Frost are paid to his employer Amber Infrastructure Limited, a

related company of the Company’s Investment Adviser.

8 Mr Dorey became Chairman of the Board on 31 December 2013 for which he received a

higher fee.

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 the director fees above, following Mr Whittle’s
appointment as Director to the five Luxembourg subsidiary entities of
International Public Partnerships, he is entitled to fees of £3,000 per
entity for the year ended 2018.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCECOMMITTEES 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 or divestment and then, assuming the
opportunity is approved, authorise the Investment
Adviser to enact the transaction

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

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

CORPORATE GOVERNANCE REPORT
CONTINUED

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 is comprised of the full Board, with
the exception of Mr Gerrard as Board Chairman and Mr Frost as the
Non-Independent Director.

Mr Le Poidevin is the current Chairman of the Audit and Risk
Committee, following his appointment on 1 July 2018. During the
period, Mr Stares had lead responsibility for risk within the Risk
Sub-Committee and was succeeded in the role by Julia Bond,
effective 1 February 2019. During his tenure as Company Chairman,
Mr Dorey, was a member of the Audit and Risk Committee. Whilst
the AIC does not preclude the Board Chairman from being a
member of the Audit and Risk Committee, in line with corporate
governance best practice, it has been agreed that Mr Gerrard, as the
new Company Chairman, would not be a member of the Audit and
Risk Committee. However, Mr Gerrard may attend meetings of the
Audit and Risk Committee at the invitation of the Committee.

The duties of the Audit and Risk Committee in discharging its
responsibilities are outlined in the Audit and Risk Committee Report.

In respect of its risk management function, the Audit and Risk
Committee, through the separately convened Risk Sub-Committee,
is also responsible for reviewing the Company’s risk management
function and framework, in relation to the investment policy of the
Company 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 Audit and Risk Committee formally reviews the Company’s
overall approach to risk management on an annual basis and its
risk register on at least a quarterly basis. During the year, topics
considered in greater detail included the Company’s readiness for
the U.K.’s exit from the E.U.; please refer to page 40 for further
information. The Committee is 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.

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 Gerrard, as Chairman of the Company following his
appointment upon Mr Dorey’s retirement.

The Committee considers proposals relating to the acquisition and
disposal of investments and, if thought fit, approves those proposals.
Details of the transactions completed during the period are outlined
on page 16 of this Annual Report.

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 57.

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.

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 was chaired during the reporting period by Mr Stares,
with Julia Bond succeeding him as Committee Chair with effect from
1 February 2019.

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 57 for more detail on the Committee).

In accordance with the Corporate Governance Code required for
listed companies of the premium segment of the London Stock
Exchange, the Company undertakes an externally facilitated
evaluation every three years. Utilising the services of corporate
governance consultant, Trust Associates, the Nomination and
Remuneration Committee undertook a review of the performance
of the Board and its Committees during 2017. No significant issues
were reported as a result of this review.

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.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEThe table below lists Directors’ attendance at Board and Committee meetings during the year1. In addition, during the year, five Board
Committee meetings1 took place to finalise matters that had been approved in principle at full meetings of the Board.

Directors

Maximum number

Mike Gerrard2
Julia Bond
John Le Poidevin
John Stares
Claire Whittet
John Whittle
Giles Frost3
Rupert Dorey

Quarterly
Board

Audit
and Risk
Committee

Investment
Committee

Management
Engagement
Committee

Remuneration
and Nomination
Committee

2
4
4
4
4
4
4
4

N/A
4
5
5
5
5
N/A
5

N/A
–
1
1
1
1
N/A
1

1
1
1
1
1
1
N/A
1

1
1
2
2
2
2
N/A
2

1 Board Committee meetings are formed of any two or more members of the Board and do not require full attendance. All members of the Board are appraised of the matters to be discussed at

the Committee meeting and have the opportunity to raise questions to the Chairman, Investment Adviser or other advisers, as required.

2 Mr Gerrard joined the Board on 4 September 2018. Mr Gerrard joined the Committees of the Board (with the exception of the Audit and Risk Committee) on 29 November 2018.
3 Mr Frost is not a member of the Audit and Risk Committee, Management Engagement Committee, Nomination & Remuneration Committee or the 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.

The Board has reviewed the composition, structure and diversity of
the Board, succession planning, the independence of the Directors
and whether each of the Directors has sufficient time available to
discharge their duties effectively. The Board confirms that it believes
it has an appropriate mix of skills and backgrounds, that a majority of
directors should be considered as independent in accordance with
the provisions of the AIC Code and that all directors have the time
available to discharge their duties effectively.

Notwithstanding that a number of the independent directors sit on
the boards of a number of other listed companies, the Board, noted
that these individuals are exclusively non-executive directors and
that listed investment companies generally require less day-to-day
responsibility and time commitment than trading companies.
Furthermore, the Board noted that attendance of all Board and
Committee meetings during the year is high by all Directors and that
each Director has always shown the time commitment necessary to
fully and effectively discharge their duties as a director.

Accordingly, the Board recommends that shareholders vote in favour
of the re-election of all directors at the forthcoming AGM.

RELATIONSHIP WITH ADMINISTRATOR AND COMPANY
SECRETARY
Estera International Fund Managers (Guernsey) Limited acts as
Administrator and Company Secretary, and is responsible to the
Board under the terms of the Administration Agreement. Noting that
final responsibility lies with the Board, the Administrator ensures
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 as referred to above.

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 current 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

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CORPORATE GOVERNANCE REPORT
CONTINUED

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 10 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
Company. 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.

INVESTMENT APPROVAL PROCESS
As outlined above, the Investment Committee, comprised of
independent directors of the Company, make decisions with respect
to new investments or divestments 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 it makes 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 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

–

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEThe Annual General Meeting of the Company provides a forum for
shareholders to meet and discuss issues with the Directors and with
the Investment Adviser of the Company. It is the Board’s policy to
publish the results of the voting at the AGM via Regulatory News
Service (‘RNS’) at the completion of the meeting.

To promote a clear understanding of the Company, its objectives
and financial results, the Board aims to ensure that information
relating to the Company is disclosed in a timely manner. The
Company’s website (www.internationalpublicpartnerships.com)
enables 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 notifications (via email)
of RNS announcements that 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 page 100).

The acquisition of all assets, including those from any associate of
the Investment Adviser is considered and approved in advance by
the Investment Committee. In considering any such acquisition, the
Committee will, as it deems necessary, review and ask questions of
the Buyside Committee of the Investment Adviser and the Group’s
other advisers and the acquisition will be approved by the Committee
on the basis of this advice. The purpose of these procedures is
to ensure that the terms upon which any investment is acquired
from a member of the Amber group is on an arm’s length basis.

RISK MANAGEMENT AND INTERNAL CONTROLS
The Board is responsible for overall risk management with delegation
provided to the Audit and Risk Committee. The system of risk
management and internal control has been designed to manage,
rather than eliminate, the risk of failure to meet the business
objectives. Regard is given to the materiality of relevant risks and
therefore the system of internal control cannot provide absolute
assurance against material misstatement or loss.

This process is outlined in further detail in the Risk Report found on
pages 42–48.

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 Senior Independent
Director 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 2018, the Investment Adviser and members of the
Board held formal meetings with over 135 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 externally 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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’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. During the year, John Le Poidevin was appointed as
Chairman of the Audit and Risk Committee, taking over the role on
1 July 2018 from John Whittle, who remains as Senior Independent
Director of the Company. An overview of the Committee’s work
during the year and details of how the Committee 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
The 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 where financial reporting planning, the
Annual Report and financial statements, and the half-yearly financial
report were considered.

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 pages 52–53.

COMMITTEE AGENDA
The Committee’s agenda during the year included:
– Review of the Company’s risk profile, specific risks and mitigation

practices, with a special focus on Brexit

– Review of the effectiveness of the Company’s internal control

systems, including specific focus in the year on tax policies and
procedures, which included an external review

– Review of the regulatory environment the Company operates

within

– Review of the Annual Report and financial statements and

half-yearly financial report and matters raised by management
and the external auditors (including significant financial reporting
judgements therein), including consideration of the positive FRC
review observations

– 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, objectivity and independence of the

external auditors, and the terms of engagement, cost
effectiveness and the scope of the audit

– Approving the external auditor’s plan for the current year end
– Review of the policy on the provision of non-audit services by the

external auditor

KEY ACTIVITIES CONSIDERED DURING THE YEAR
The Committee undertook the following activities in discharging our
responsibilities during the year:

FINANCIAL REPORTING
The Committee reviewed the Company’s Annual Report and
financial statements, the half-yearly financial report and interim
management reports prior to approval by the Board and advised the
Board with respect to meeting the Company’s financial reporting
obligations. The Committee 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.

The Committee considered the most significant accounting
judgement exercised in preparing the financial statements to be the
basis for determining the fair value of the Company’s investments,
as detailed below.

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.

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.
The Committee challenged the Investment Adviser on the year end
fair value of investments as part of our consideration of the audited
statements.

During the period, the Committee reviewed the Investment Adviser’s
quarterly valuation reports, reports on the performance of the
underlying assets and the Investment Adviser’s assessment of
macroeconomic assumptions. The Investment Adviser confirmed
that the valuation methodology has been applied consistently with
prior years. The Committee 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. The
auditor confirmed no material adjustments were proposed.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEThe Committee concluded that a consistent valuation methodology
had been applied throughout the year and any forecast assumptions
applied were appropriate.

RISK MANAGEMENT
In addition to our positive work performance as set out within the risk
section of this Annual Report the Committee undertook the following
work:

Revenue recognition
The Committee have considered the risk of inappropriate accounting
recognition of revenue to be a relatively low risk given the nature of
the Company’s activities.

Internal controls over financial reporting
The Committee satisfied itself that the system of internal control
and compliance over financial reporting was effective, through
consideration of regular reports from the Investment Adviser
and Administrator.

The Committee also considered the adequacy of resources,
qualifications and experience of staff in the finance function and had
direct access and independent discussions with the external auditor
during the course of the year.

Fair, balanced and understandable
Following extensive dialogue with management, the Committee
reviewed the Company’s 2018 Annual Report and financial
statements. The Committee 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.

FRC review
During the year, the FRC’s Corporate Reporting Review team, as
part of its obligations under the Companies Act 2006, performed a
routine review of the Company’s 2017 Annual Report and financial
statements. The Committee are pleased to report that the FRC had
no immediate questions or queries to raise following the review.
In pursuit of continuous improvement in the quality of corporate
reporting, the Committee have taken into account additional
recommendations made by the FRC when preparing the current
Annual Report and financial statements. The FRC review provides
no assurance that our Annual Report and financial statements
were correct in all material respects; the FRC’s role is not to verify
the information provided but to consider compliance with
reporting requirements.

Viability assessment
The Committee 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 an
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 49.

Tax compliance, reporting and controls review
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. During the
year, an external controls and process review was performed by
KPMG focusing on the Company’s tax policies and procedures, as
well as reviewing the Company’s tax strategy. The review concluded
that appropriate policies and procedures are in place.

The Committee continue to monitor tax regulation and tax policy
developments, in particular developments around the OECD-led
BEPS initiative, across our geographies. Whilst no material net
adverse valuation impacts have currently been noted from enacted
legislation in this area to date, there can be no guarantee that future
responses to the OECD proposals by governments or changes in
approach to current rules as a consequence of changes in guidance
or recognised industry practice will not have a negative impact on
the Company’s performance.

U.K. withdrawal from the E.U.
Risk management activities during the year also included focus on
the potential risks which may arise on the Company as a result of the
U.K.’s withdrawal from the E.U., as set out on page 40.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
AUDIT AND RISK COMMITTEE REPORT
CONTINUED

EXTERNAL AUDITOR
The Committee recommended to the Board the scope and terms
of engagement of the external auditor. The Committee considered
auditor objectivity and independence, audit tenure, audit tendering
and auditor effectiveness as detailed below.

Objectivity and independence
In assessing the objectivity of the auditor, the Committee considered
the terms under which the external auditor may be appointed to
perform non-audit services. Work expected to be completed by an
external auditor includes formal reporting for shareholders, regulatory
assurance reports and work in connection with new investments.

The Company’s policy for non-audit services was reviewed and
updated in the year to ensure it continues to be effective in mitigating
risks to auditor independence. Under the policy, there is a specific
list of services for which the external auditor cannot be engaged,
as the Committee consider that the provision of such services
would impact its independence. 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 11.5% of total audit fees during the period under review.
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 auditors.

Audit tendering and tenure
The Committee annually 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 2018 was the third
year for the current lead audit partner. The Committee 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.

The Company last put the audits of the Group and its
controlled investee entities out to full tender in October 2010.
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 (previously Deloitte). In line with the new auditor
rotation requirements for listed companies, the next full
tender process is expected to commence during 2020.

Since 2010, the Committee has market tested the audits for a
number of investee level entities, resulting in these audits being
awarded to alternative audit firms, principally 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 2018 of
the auditor’s performance and the Committee 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. In accordance with the relevant
Corporate Governance Code principles, the Committee will continue
to review the effectiveness of the external auditor and seek to
retender in line with best practice.

Review of auditor’s remuneration
The Committee carried out a review of the proposed audit fees
for 2018. The audit fee for the Group (including unconsolidated
subsidiaries) remained broadly consistent with the prior year.
The Committee consider that the audit fees for 2018 present
good value for money for the Company’s shareholders.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEREGULATORY AND TAX ENVIRONMENT
The Committee received regular reports from the Administrator and
Investment Adviser on regulation and regulatory developments. Main
areas of regulatory focus during the year have included the Common
Reporting Standard, Tax Strategy reporting, the Retail distribution
of unregulated collective investment schemes (regulation which the
Company remains excluded from), the U.K. Criminal Finance Act
2017, the Alternative Investment Fund Managers Directive (‘AIFMD’),
The Foreign Account Tax Compliance Act (‘FATCA’), and the
Packaged Retail and Insurance-based Investment Products (PRIIPs).
The Company maintains, and seeks to maintain, compliance with all
applicable regulation.

FOCUS FOR 2019
From 1 February 2019, Julia Bond assumed lead responsibility for
risk within the Risk Sub-Committee, succeeding John Stares who
previously held the role. Alongside routine matters, this year the
Committee will progress the independent review of the Company’s
ESG policies and procedures, as well as continuing to monitor any
political, tax and regulatory developments in its applicable geographies.

John Le Poidevin
Chairman, Audit and Risk Committee
27 March 2019

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’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 2018.

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 54–61.

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 2018, 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

% Issued capital

No. of Ordinary Shares

Date notified

Investec Wealth & Investment Ltd
Schroders plc

12.00%
6.66%

168,673,159
93,679,484

5 September 2018
27 September 2018

There have been no additional notices between 31 December 2018 and the date of this report.

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 24 May
2019. The Company will seek to renew such authority at the Annual General Meeting to take place on 29 May 2019. Any buy back of Ordinary
Shares will be made subject to Guernsey law and within any guidelines established from time-to-time by the Board and the making and timing
of any buy backs will be at the absolute discretion of the Board.

Purchases of Ordinary Shares will only be made through the market at prices below the prevailing NAV of the Ordinary Shares (as last
calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance
with the Listing Rules of the 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.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEGOING CONCERN
The Company’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 10–49. The financial position of the Company (and consolidated subsidiaries), its cash flows, liquidity position
and borrowing are described in the financial statements from page 75.

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 Company (and
consolidated subsidiaries) 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

Mike Gerrard
Chairman
27 March 2019

John Le Poidevin
Director
27 March 2019

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ RESPONSIBILITIES STATEMENT

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 IFRS as adopted by the E.U., give a true and fair view of the
assets, liabilities, financial position and net return of Group

– The Annual Report and financial statements 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

Mike Gerrard
Chairman
27 March 2019

John Le Poidevin
Director
27 March 2019

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 E.U., of the state of affairs of
the Company and its consolidated subsidiaries (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.

International Public Partnerships Annual Report and financial statements 2018CORPORATE GOVERNANCEFINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED

OPINION
In our opinion:
–

International Public Partnerships Limited’s group financial statements give a true and fair view of the state of the Group’s affairs as at
31 December 2018 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

We have audited the financial statements of International Public Partnerships Limited which comprise:
– Consolidated statement of comprehensive income for the year ended 31 December 2018;
– Consolidated balance sheet as at 31 December 2018;
– Consolidated statement of changes in equity for the year ended 31 December 2018;
– Consolidated cash flow statement for the year ended 31 December 2018; 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
(‘IFRS’) 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.

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 39 that describe the principal risks and explain how they are being managed

or mitigated

– the Directors’ confirmation set out on page 39 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 68 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

– the directors’ explanation set out on page 49 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

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED CONTINUED

OVERVIEW OF OUR AUDIT APPROACH

Key audit matters

– Misstatement or manipulation of investment fair value
–

Income recognition

Audit scope

– We performed an audit of International Public Partnerships Limited and the consolidated service entities

(‘the Group’), for the year ended 31 December 2018

– The Group has determined that it is an investment entity under the requirements of IFRS10 amendments

for Investment Entities (‘IFRS 10 amendments’) and therefore only consolidates service entities as
explained in note 1 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 £22.0 million (2017: £20.4 million) which represents 1% (2017: 1%) of Equity

KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, 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.

Misstatement or manipulation of investment fair value £2,097 million (2017: £2,005 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 strategic report – ‘Operating Review’ and ‘Risk Management’ sections.

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.

Test of Controls: We have tested the effectiveness of controls in operation over investment acquisitions,
forecasting cash flows, distributions and model integrity and we have placed reliance on control over
these processes.

Verification of existence and ownership of Investments: We have tested, on a sample basis, the
ownership of investments to ensure the Group is entitled to distributions from the investments.

Valuation assumptions: We have been supported in our testing of macroeconomic inputs and discount
rates by specialists from our EY Valuation & Business Modelling (EYVBM) team.

We selected a sample of investments that cover specific risks identified. The following procedures
were performed:

Macroeconomic Inputs: We tested that the macroeconomic inputs (inflation rates, foreign exchange
rates, deposit rates and tax rates) reviewed by our EYVBM team were applied consistently and accurately
in the selected models.

Discount Rates: We engaged our EYVBM specialists to test the discount rates used in the
selected models.

Model integrity: We reviewed management controls including management’s use of third-party audits of
the initial model and analysis of yields. We engaged our EYVBM specialists to test the year-on-year
changes to the logical operation on selected models.

Risk

Our response to the risk

International Public Partnerships Annual Report and financial statements 2018Our response to the risk
(continued)

Key observations
communicated to the
Audit Committee

Risk

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 as they are the auditors of some of the
underlying unconsolidated subsidiaries which hold the investments selected for testing. We engaged
EYVBM specialists to assess the assumptions used to determine the underlying variable cash flows
which require significant judgement. Their assessment was based on a combination of market data and
experience of valuing other similar investments.

We performed the following procedures across the whole portfolio:
– We reviewed the changes in discount rate of the assets in the Company’s portfolio by analysing the

components of the discount rate build up approach adopted by management. Any material movements
in the components were discussed with management and explanations obtained were corroborated with
appropriate evidence

– For a sample of investments, we tested that the macroeconomic inputs (inflation rates, foreign exchange
rates, deposit rates and tax rates) reviewed by our EYVBM team were applied consistently and accurately

– We have performed a detailed analytical review based on year-on-year movement on each investment

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. There were no disposals during the year.

Market Review: We engaged EYVBM specialists 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 wanted to bring to the
attention of the Audit Committee.

We confirmed that the valuation of the investments is fairly stated and was in line with IFRS as adopted by
the European Union.

Income recognition
Income primarily comprises of the dividend and interest income stream generated by the investments held in
underlying subsidiaries.

Management may seek to overstate income as a result of seeking to report the desired level of return
to investors.

Our response to the risk

We updated our understanding of the Group’s processes and policies for income recognition including our
understanding of the systems and controls implemented.

We reviewed minutes of all board meetings during the year to ensure dividends declared have
been recognised.

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 to bring to the attention of the Audit Committee.

Key observations
communicated to the
Audit Committee

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED CONTINUED

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 International Public Partnerships Limited (‘the Company’) and the consolidated service entities as explained in note 1 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.

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 £22.0 million (2017: £20.4 million), which is 1% (2017: 1%) of equity. We believe that total equity
provides us with an appropriate basis for audit materiality as NAV 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 £2,056 million at 30 June 2018
to £2,199 million as at 31 December 2018 mainly due to capital raise in October 2018. This resulted in a higher materiality of £22.0 million
compared to £20.6 million that was originally determined at the audit planning stage.

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
£16.5 million (2017: £15.3 million). We have set performance materiality based on our understanding of the entity and the past history of no
misstatements (corrected and uncorrected).

Given the importance of interest income, dividend income and related party fees to the users of the financial statements we also apply a lower
performance materiality of £3.7 million (2017: £2.8 million) with regard to misstatements in these balances.

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 £1.1 million (2017: £1 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.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSOTHER 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 Annual
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 63 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

– Audit Committee reporting set out on page 62
– Directors’ Statement of compliance with the U.K. Corporate Governance Code set out on page 68 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

– The financial statements are not in agreement with the Company’s accounting records and returns
– 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 68, 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.

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.

Richard Le Tissier
for and on behalf of Ernst & Young LLP,
Guernsey
Channel Islands
27 March 2019

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.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 DECEMBER 2018

Interest income
Dividend income
Net change in investments at fair value through profit or loss

Total investment income
Other operating income

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

6, 17

Year ended
31 December
2018
£’000s

Year ended
31 December
2017
£’000s

71,201
32,018
63,826

167,045
622

69,356
20,655
49,808

139,819
588

167,667

140,407

(22,798)
(1,520)
(957)
(359)

(20,637)
(1,700)
(6,835)
(316)

(25,634)

(29,488)

142,033

110,919

(3,944)

(4,534)

138,089

106,385

280

114

138,369

106,499

9.75

8.36

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 (2017: nil). The profit for the year represents the Total Comprehensive
Income for the year.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 DECEMBER 2018

Balance at 31 December 2017

Total comprehensive income

Issue of Ordinary Shares
Issue costs applied to new shares
Distributions in the year

Balance at 31 December 2018

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

Share
Capital
£’000s

Other
Distributable
Reserve
£’000s

Notes

Retained
Earnings
£’000s

Total
£’000s

1,441,048

182,481

414,769 2,038,298

–

15
15
15

120,270
(1,075)
–

–

–
–
–

138,369

–
–
(97,115)

120,270
(1,075)
(97,115)

1,560,243

182,481

456,023

2,198,747

Share
Capital
£’000s

Other
Distributable
Reserve
£’000s

Notes

Retained
Earnings
£’000s

Total
£’000s

1,029,387

182,481

391,785

1,603,653

–

15
15
15

417,283
(5,622)
–

–

–
–
–

106,499

–
–
(83,515)

417,283
(5,622)
(83,515)

1,441,048

182,481

414,769

2,038,298

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2018

Non-current assets
Investments at fair value through profit or loss

Total non-current assets

Current assets
Financial assets at amortised cost
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 27 March 2019.

They were signed on its behalf by:

Mike Gerrard
Chairman
27 March 2019

John Le Poidevin
Director
27 March 2019

31 December
2018
£’000s

31 December
2017
£’000s

Notes

2,097,468

2,005,292

2,097,468

2,005,292

11,13
11

25,234
84,718

109,952

26,963
33,850

60,813

2,207,420

2,066,105

11,14
11

8, 11

8,366
307

8,673

–

8,673

8,303
1,704

10,007

17,800

27,807

2,198,747

2,038,298

15
15
15

1,560,243
182,481
456,023

1,441,048
182,481
414,769

2,198,747

2,038,298

148.1

145.0

Profit before tax in the Consolidated Statement of Comprehensive Income1
Adjusted for:
Gain on investments at fair value through profit or loss
Finance costs2
Fair value movement on derivative financial instruments
Working capital adjustments
Decrease in receivables
Increase/(decrease) in payables

Income tax (paid)/received3

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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange (loss)/gain on cash and cash equivalents

Cash and cash equivalents at end of year6

Notes

4
8
5,11

Year ended
31 December
2018
£’000s

Year ended
31 December
2017
£’000s

138,089

106,385

(63,826)
3,944
(1,397)

1,645
62

78,517
(296)

78,221

(49,808)
4,534
(2,923)

2,664
(2,075)

58,777
2,525

61,302

(63,293)
34,943
–

(464,027)
25,759
(2,053)

(28,350)

(440,321)

114,925
(92,845)
(3,234)
54,991
(72,791)

404,385
(76,230)
(4,086)
338,264
(320,464)

1,046

341,869

50,917
33,850
(49)

(37,150)
70,981
19

84,718

33,850

Includes interest received of £68.5 million and dividends received of £32.0 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 net operating cash flows before capital activity as shown in the Strategic Report on pages 24–25.
5 Funds advances to affiliated entities to facilitate financial close of investments around the balance sheet date in the prior year.
6

Includes restricted cash of £42.2 million (2017: £1.2 million) which under the terms of the Corporate Debt Facility Agreement can only be utilised for new investments.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018

1. BASIS OF PREPARATION
International Public Partnerships Limited is a closed-ended authorised investment company incorporated in Guernsey under the Companies
(Guernsey) Law, 2008. The address of the registered office is given on page 100. The nature of the Group’s (‘Parent and consolidated
subsidiary entities’) operations and its principal activities are set out on pages 2 and 10 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 E.U.,
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
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 IFRS 9
Financial Instruments.

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 £42.5 million as at 31 December 2018. The Company continues to fully cover operating costs and distributions from underlying cash
flows from investments. The Company has access to a corporate debt facility of £400 million, of which £399.5 million was uncommitted as at
31 December 2018, and is available for investment in new and existing projects until July 2021. In addition, a portion of the facility can be
utilised for working capital purposes. The facility is forecast to continue in full compliance with the associated banking covenants.

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 material impact on the
accounting policies of the Group. Note 20 sets out a comprehensive listing of all new standards applicable from 1 January 2018.

2. SIGNIFICANT JUDGEMENTS AND ESTIMATES
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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
3. SEGMENTAL REPORTING
Based on a review of information provided to the chief operating decision makers of the Company, the Group has identified four reportable
segments based on the geographical risk associated with the jurisdictions in which it operates. The factors used to identify the Group’s
reportable segments are centred on the risk-free rates and the maturity of the Infrastructure sector within each region. Further, foreign
exchange and political risk is identified, as these also determine where resources are allocated. 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 on investments

Total investment income

Reporting segment profit1

Segmental financial position
Investments at fair value
Current assets

Total assets
Total liabilities

Net assets

Segmental results
Dividend and interest income
Fair value gain/(loss) on investments2

Total investment income

Reporting segment profit1

Segmental financial position
Investments at fair value
Current assets

Total assets
Total liabilities

Net assets

Year ended 31 December 2018

U.K.
£’000s

Europe
(Excl. U.K.)
£’000s

North
America
£’000s

Australia
£’000s

Total
£’000s

76,463
30,184

106,647

77,348

6,907
23,485

30,392

30,887

1,496,423
109,952

1,606,375
(8,673)

290,406
–

8,521
6,298

14,819

14,570

103,767
–

11,328
3,859

15,187

103,219
63,826

167,045

15,564

138,369

206,872
–

2,097,468
109,952

2,207,420
(8,673)

1,597,702

290,406

103,767

206,872

2,198,747

Year ended 31 December 2017

U.K.
£’000s

69,396
15,134

84,530

50,621

1,421,619
60,813

1,482,432
(27,807)

Europe
(Excl. U.K.)
£’000s

7,759
31,043

38,802

38,855

277,489
–

1,454,625

277,489

North
America
£’000s

8,675
(1,643)

7,032

7,393

98,349
–

98,349

Australia
£’000s

Total
£’000s

4,181
5,274

9,455

9,630

90,011
49,808

139,819

106,499

207,835
–

2,005,292
60,813

2,066,105
(27,807)

207,835

2,038,298

1 Reporting segment results are stated net of operational costs including management fees.
2

Investment fair value losses for North America investments were primarily the result of adverse foreign exchange movements in the year impacting valuation assumptions.

Revenue from investments which individually represent more than 10% of the Group’s interest and dividend income approximates
£23.0 million (2017: £12.1 million).

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 20184. 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 and is recognised gross of withholding tax, if any.

Dividend income
Dividend income is recognised gross of withholding tax 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
2018
£’000s

Year ended
31 December
2017
£’000s

71,201
–

71,201

69,351
5

69,356

32,018
63,826

20,655
49,808

167,045

139,819

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

Fair value gain on foreign exchange contracts
Other losses on foreign exchange movements

Total other operating income

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.

Year ended
31 December
2018
£’000s

Year ended
31 December
2017
£’000s

1,397
(775)

622

2,923
(2,335)

588

Year ended
31 December
2018
£’000s

Year ended
31 December
2017
£’000s

935
22

957

6,835
–

6,835

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
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
2018
£’000s

Year ended
31 December
2017
£’000s

304

306

46
111

461

11
42

42
329

677

10
202

212

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 £3.9 million (2017: £4.5 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 2018 there were no cash drawn
amounts on the facility. The uncommitted balance of the facility which was not cash drawn or notionally drawn via letters of credit, was
£399.5 million.

The facility was renewed in July 2018 on improved terms. The interest rate margin on the corporate debt facility is 165 (previously 175) basis
points over Libor. The loan facility matures in July 2021 and is secured over the assets of the Group.

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.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018Under 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
Other overseas tax – prior 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
2018
£’000s

Year ended
31 December
2017
£’000s

(412)
–
82
50

(280)

(694)
399
181
–

(114)

Year ended
31 December
2018
£’000s

Year ended
31 December
2017
£’000s

138,089

106,385

–
82
(412)
50

(280)

–
181
(694)
399

(114)

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. To provide an indication of the tax paid across
the wider portfolio, total forecasted corporation tax payable by the Group’s underlying investments is in excess of £1 billion (2017: £1 billion)
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
2018
£’000s

Year ended
31 December
2017
£’000s

138,369

106,499

Number

Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share

1,418,962,119 1,273,495,032

Basic and diluted (pence)

9.75

8.36

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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
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 IFRS 9 Financial Instruments. Financial liabilities are derecognised when the obligation
is discharged, cancelled or expired. Specific financial asset and liability accounting policies are provided below.

11.1 FINANCIAL ASSETS

Investments at fair value through profit and loss
Financial assets
Financial assets at amortised cost
Cash and cash equivalents

Total financial assets

31 December
2018
£’000s

31 December
2017
£’000s

2,097,468

2,005,292

25,234
84,718

26,963
33,850

2,207,420

2,066,105

Accounting policy
The Group classifies its financial assets as at fair value through profit or loss or as financial assets at amortised costs. 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 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 held in a portfolio, the business model of
which is to manage them on a fair value basis. 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 meet the contracted cash flow test as solely payments of principal and interest and which are held in a
business model to receive these contractual cash flows are classified as ‘financial assets at amortised cost’. Financial assets at amortised
cost are measured at amortised cost, less any impairment. 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 classified as financial assets and liabilities at fair value through profit or loss, held for trading. Derivatives are recognised initially,
and are subsequently remeasured, at fair value. Derivatives are shown 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 using a simplified approach to calculate any expected credit losses. There is no material impairment at the balance sheet date.

Financial liabilities at amortised cost
Trade and other payables
Bank loans
Derivative financial instruments
Foreign exchange contracts

Total financial liabilities

31 December
2018
£’000s

31 December
2017
£’000s

8,366
–

307

8,673

8,303
17,800

1,704

27,807

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 carrying value 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 39–49). 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, are fixed rate loans or the
risk of adverse movement in interest rates is limited through protections provided by the regulatory regime. For example, it is generally a
requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. Hedging activities are aligned with
the period of the loan, which also mirrors the concession period and are highly effective. However, particularly in Australia, refinancing risk
exists in a number of such investments. The Group’s corporate debt facility is unhedged on the basis it is utilised as an investment bridging
facility and therefore drawn for a relatively short period of time. Therefore, the Group is not significantly exposed to cash flow risk due to
changes in interest rates over its variable rate borrowings. Interest income on bank deposits held within underlying investments is included
within the fair value of investments.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS CONTINUED
11.3 FINANCIAL RISK MANAGEMENT CONTINUED
Foreign currency risk
The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations.
Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are
measured. The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant
investment returns from overseas investments. The Group doesn’t hedge its exposure to foreign exchange in relation to foreign currency
denominated investment balances. The carrying amounts of the Group’s foreign currency denominated monetary financial instruments at the
reporting date are set out in the table below:

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
2018
£’000s

31 December
2017
£’000s

2,555
1,184
97
1,227

5,063

1,454
183

1,637

204
1,486
196
405

2,291

1,650
329

1,979

290,406
38,163
206,872
65,604

277,489
38,287
207,835
60,062

601,045

583,673

607,745

587,943

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 PPP 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 managements 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 PPP contractual mechanisms also allow for
significant pass-down of unavailability and performance risk to sub-contractors. Regulated asset regimes allow for the pass through of
efficiently incurred costs to the purchaser.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 201811.4 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 2018, the Group’s only derivative financial instruments were currency forward contracts amounting to a liability of £0.3 million
(2017: £1.7 million).

Financial instruments classified as Level 2 have been valued using models whose inputs are observable in an active market (spot
exchange rates, yield curves, interest rate curves). Valuations based on observable inputs include financial instruments such as swaps and
forward contracts which are valued using market standard pricing techniques where all the inputs to the market standard pricing models
are observable.

Level 3:
This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities and other non-controlled
investments which are classified at fair value through profit or loss. At 31 December 2018, the fair value of financial instruments classified
within Level 3 totalled £2,097.5 million (2017: £2,005.3 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.

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 the full-term of each underlying investment are generated by detailed investment specific financial models. These
models forecast the dividend, shareholder loan interest payments, capital repayments and senior debt repayments (where applicable)
expected from the underlying investments. The cash flows included in the forecasts used to determine fair value are typically fixed under
contracts, however there are certain variable cash flows which are based on management’s estimations (see also pages 24–25 of the
Strategic Report). The significant unobservable inputs and assumptions used in projecting the Group’s net future cash flows are shown
overleaf.

Indicative valuations are calculated in respect of each at 31 March and 30 September.

31 December 2018

Inflation

Long-term tax
Foreign exchange rates
Long-term deposit rates

31 December 2017

Inflation
Long-term tax
Foreign exchange rates
Long-term deposit rates

1 Related to investments in Canada.

U.K.

2.75% RPI,
2.00% CPIH
19.00%-17.00%
N/A
2.00%

U.K.

2.75% RPI
19.00%-17.00%
N/A
2.00%

Europe
(Excl. U.K.)

2.00%

North America

2.00%

12.50%-29.58%
1.05
2.00%

26.50%-27.00%1
1.34-1.80
2.00%

Europe
(Excl. U.K.)

2.00%
12.50%-29.58%
1.08
2.00%

North America

2.00%
26.50%-27.00%1
1.43-1.78
2.00%

Australia

2.50%

30.00%
1.88
3.00%

Australia

2.50%
30.00%
1.85
3.00%

Discount rate
The discount rate used in the valuation of each investment is the aggregate of the following:
– Yield on a government bond with a remaining term equivalent to (or as close as possible to) the investment being valued, issued by the

national government for the location of the relevant investment (‘government bond yield’)

– A premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds
– A further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in

construction and/or to reflect any current asset specific or operational issues. Typically, this risk premium will reduce over the life of any
asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash flows
decrease. However, the rate may increase in relation to investments with unknown residual values at the end of the relevant concession life
as that date nears

– A further adjustment reflective of market-based transaction valuation evidence for similar assets

Over the period, the weighted average government bond yield was stable. The weighted average investment risk premium decreased by
0.26%, reflecting observable market-based evidence. Further details are provided within the Strategic Report on pages 30–31.

Valuation Assumptions

Weighted Average Government Bond Yield
Weighted Average Investment Risk Premium

Weighted Average Discount Rate

Weighted Average Discount Rate on Risk Capital1

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
2018

31 December
2017

1.83%
5.43%

7.26%

7.55%

1.83%
5.69%

7.52%

7.87%

Movement

–
(0.26%)

(0.26%)

(0.32%)

31 December
2018
£’000s

31 December
2017
£’000s

2,005,292
63,293
(34,943)
–
63,826

1,515,163
464,027
(25,759)
2,053
49,808

2,097,468

2,005,292

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 201811.5 SENSITIVITY ANALYSIS
The valuation requires management to make certain assumptions in relation to unobservable inputs to the model. There are no straight
forward inter-relationships between the unobservable inputs. A sensitivity analysis for reasonably possible alternative assumptions is
provided below:

Significant assumptions 31 December 2018

Discount rate

Inflation rate (overall)
U.K.
Europe
North America1
Australia

FX rate

Tax rate

Deposit rate

Significant assumptions 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.

Weighted
average rate in
base case
valuations

Change in fair
value of
investment
£’000s

Sensitivity
factor

7.26%

2.38%
2.75%
2.00%
2.00%
2.50%

+1.00% (215,216)

-1.00% 259,450

+1.00% 260,898
204,773
+1.00%
46,126
+1.00%
1,079
+1.00%
8,920
+1.00%

-1.00% (220,864)
-1.00% (173,197)
(39,019)
-1.00%
(917)
-1.00%
(7,709)
-1.00%

N/A

+10.00%

60,833

-10.00%

(60,820)

17.65%

+1.00%

(19,044)

-1.00%

18,970

1.87%

+1.00%

23,842

-1.00%

(22,310)

Weighted
average rate in
base case
valuations

Change in fair
value of
investment
£’000s

Sensitivity
factor

Change in fair
value of
investment
£’000s

Sensitivity
factor

7.52%

2.60%
2.75%
2.00%
2.00%
2.50%

+1.00%

(199,454)

-1.00%

240,577

+1.00%
+1.00%
+1.00%
+1.00%
+1.00%

215,094
160,216
44,149
1,055
9,685

-1.00%
-1.00%
-1.00%
-1.00%
-1.00%

(181,979)
(135,020)
(37,210)
(1,224)
(8,515)

N/A

+10.00%

58,876

-10.00%

(58,882)

19.85%

2.11%

+1.00%

(13,625)

22,433

-1.00%

13,715

(22,429)

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
12. INVESTMENTS
2018

Date of investment

2 January 2018

28 March 2018

Description

The Group funded a final tranche of investment in the Gold Coast Rapid
Transport project, Australia

The Group made an investment to acquire an additional interest in the
Hertfordshire Phase 1 Building Schools for the Future project, U.K.

April – December 2018

The Group made investments as part of its commitment to NDIF, U.K.

7 November 2018

The Group made an investment in the Dudgeon offshore transmission
project, U.K.

Total capital spend on investments during the year

2017

Date of investment

Description

Consideration
£’000s

% Ownership
post investment

575

30%

1,745

100%

45%

100%

14,807

46,166

63,293

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,

20,797

100%

Australia

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 NDIF, 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

1 Acquired debt only.

33%

45%

86,779

230

464,027

Accrued interest receivable
Other debtors

Total financial assets at amortised cost

31 December
2018
£‘000s

31 December
2017
£‘000s

20,704
4,530

25,234

22,295
4,668

26,963

Other debtors included £4.3 million (2017: £3.8 million) of receivables from unconsolidated subsidiary entities for surrender of Group
tax losses.

14. TRADE AND OTHER PAYABLES

Accrued management fee
Other creditors and accruals

Total trade and other payables

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
2018
£‘000s

31 December
2017
£‘000s

7,131
1,235

8,366

7,056
1,247

8,303

31 December
2018
shares
‘000s

1,405,420
76,066
2,843

31 December
2017
shares
‘000s

1,127,421
273,333
4,666

1,484,329

1,405,420

31 December
2018
£’000s

31 December
2017
£’000s

1,441,048

1,029,387

116,000
4,270

410,000
7,283

120,270

417,283

(1,075)

(5,622)

1,560,243

1,441,048

At present, the Company has one class of Ordinary Shares which carry no right to fixed income.

On 29 October 2018, the Group raised an additional £116 million of equity through a tap issue of 76,065,574 Ordinary Shares at an issue price
per share of 152.5 pence.

On 8 November 2018, 2,843,332 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 2018.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
15. SHARE CAPITAL AND RESERVES CONTINUED

Other distributable reserve

Opening balance
Movement in the year

Balance at 31 December

31 December
2018
£’000s

31 December
2017
£’000s

182,481
–

182,481

On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share premium
account. This was in order to provide a distributable reserve to enable the Company to repurchase its shares if and when the Board of
Directors consider it beneficial to do so. Following court approval, the distributable reserve account was created.

Retained earnings

Opening balance
Net profit for the year
Dividends paid1

Closing balance

Includes scrip element of £4.3 million in 2018 (2017: £7.3 million).

31 December
2018
£’000s

31 December
2017
£’000s

414,769
138,369
(97,115)

391,785
106,499
(83,515)

456,023

414,769

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 2018.

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 2018 was 3.5 pence per share (2017: 3.41 pence per share)
Interim distribution for the period 1 July to 31 December 2018 was 3.5 pence per share2 (2017: 3.41 pence per share)

Year ended
31 December
2018
£’000s

Year ended
31 December
2017
£’000s

97,1151

83,515

49,189
51,952

46,028
47,945

Includes the 2017 interim distribution for the period 1 July to 31 December 2017.

1
2 The distribution for the period 1 July to 31 December 2018 was approved by the Board on 27 March 2019 and therefore has not been included as a liability in the balance sheet for the year

ended 31 December 2018.

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 on pages 50–51.

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.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 201816. NET ASSETS PER SHARE

Net assets attributable to equity holders of the parent

Number of shares
Ordinary Shares outstanding at the end of the year

Net assets per share (pence per share)

31 December

2018
£’000s

2017
£’000s

2,198,747

2,038,298

Number

1,484,329,031

1,405,420,125

148.1

145.0

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 Director’s fees of £43,000 (2017: £43,000) 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
2018
£’000s

For the year
ended
31 December
2017
£’000s

At
31 December
2018
£’000s

At
31 December
2017
£’000s

22,798
957

23,755

20,637
6,835

27,472

7,131
2

7,133

7,056
103

7,159

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.

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
17. RELATED PARTY TRANSACTIONS CONTINUED
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 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 10 years from the date of the IAA.

As at 31 December 2018, Amber Infrastructure held 8,002,379 (2017: 8,002,379) shares in the Company. The shares held by the Investment
Adviser in the Company helps further strengthen the alignment of interests between the two parties.

TRANSACTIONS WITH DIRECTORS
Shares acquired by Directors in the year are disclosed below:

Director

Mike Gerrard
Julia Bond
John Le Poidevin
Claire Whittet
John Whittle
Giles Frost
Rupert Dorey

Total purchased

Number of New Ordinary Shares

Year ended
31 December
2018

Year ended
31 December
2017

55,739
14,020
32,550
1,585
–
13,484
–

–
–
65,333
15,760
6,666
367,039
329,000

117,378

783,798

Remuneration paid to the Non-Executive Directors is disclosed on page 56.

18. CONTINGENT LIABILITIES AND COMMITMENTS
As at 31 December 2018 the Group has committed funding of up to c. £195.0 million (2017: £179.1 million), including committed investment
amounts as noted in the Strategic Report on page 16 and 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 2018
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.
–
–
– 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)

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. 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)
– 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)
–
–

IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (1 January 2019)
IFRS 17 Insurance Contracts (1 January 2021)

UNCONSOLIDATED SUBSIDIARIES
A list of the significant investments in unconsolidated subsidiaries, including the name, country of incorporation as at 31 December 2018 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

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.

100
100
100
98
100
90
90
100
100
100
100
90
100
100
100
80
90
90
100
100
100
100
100
91

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
20. OTHER MANDATORY DISCLOSURES CONTINUED
UNCONSOLIDATED SUBSIDIARIES CONTINUED

Name

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
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
TC Dudgeon OFTO PLC

Place of
incorporation
(or registration)
and operation

Proportion
of ownership
interest %

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.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.
U.K.

58
82
82
90
90
90
90
90
90
100
100
100
100
100
100
99
100
100
100
100
100
100
100
100
100
100
100
100
100
100

The entities listed above in aggregate represent 63.0% (2017: 62.2%) 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

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 201821. INVESTMENTS
The Group holds 130 investments across energy transmission, education, transport, health, courts, wastewater, 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
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
Dudgeon 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

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 2018

Per cent Risk
Capital owned
by the Group1

Investment end

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
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.02
100.02
100.0
100.0
100.0
100.0
100.0

April 2030
February 2032
December 2037
August 2028
April 2029
December 2028
April 2028
August 2027
December 2036
September 2026
September 2025
April 2030
June 2025
July 2033
February 2042
November 2037

Operational
Operational
Operational
Construction
Operational

0.02
0.02
0.02
0.02
0.02

August 2040
November 2040
August 2041
December 2041
September 2041

Operational
Operational
Operational
Operational
Operational
Operational
Operational

Mixed
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational

100.0
100.0
100.0
100.02
100.02
100.0
100.0

Various
90.0
90.0
90.0
91.0
80.0
45.0
100.0
90.0
90.0

March 2031
July 2031
March 2030
July 2032
November 2034
February 2036
November 2038

Various
September 2036
September 2039
August 2037
January 2036
March 2038
March 2038
August 2037
August 2034
March 2039

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Country

Status at
31 December 2018

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.
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
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

99.0
46.0
46.0
82.0
82.0
90.1
90.1
90.0
90.0
90.0
90.0
58.0

49.8
49.8

49.8
49.8
49.8
49.8
49.8

33.4

33.4
33.4
34.3

34.3
49.8
49.8
33.4
30.0
30.0
30.0
30.0

Investment end

August 2037
August 2036
August 2037
August 2034
August 2038
October 2034
September 2036
January 2036
December 2036
September 2037
August 2040
August 2035

December 2033
December 2031

June 2031
December 2030
November 2032
December 2033
November 2032

January 2031

May 2032
May 2031
April 2035

October 2031
June 2034
November 2035
February 2042
October 2030
April 2033
May 2037
August 2036

Operational
Construction
Operational
Operational

4.8
15.99
4.4
45.0

December 2038
March 2150
June 2069
July 2027

21. INVESTMENTS CONTINUED

Investment Name

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)
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
Tideway
Cadent
National Digital Infrastructure Fund

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.

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018Investment Name

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.

Country

Status at
31 December 2018

Per cent Risk
Capital owned
by the Group1

Investment end

Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia

Operational
Operational
Operational
Operational
Operational
Operational
Operational
Operational

100.0
100.0
33.0
100.0
100.0
25.0
30.0
100.0

August 2031
July 2034
February 2044
December 2036
December 2035
December 2035
May 2029
December 2042

Canada
Canada
U.S.

Operational
Operational
Operational

100.0
100.0

0.02

June 2040
November 2039
October 2052

Belgium Operational
Operational
Ireland
Operational
Germany
Operational
Germany
Germany
Operational
Germany Construction
Operational

Italy

June 2047
100.0
February 2035
100.0
December 2037
49.0
97.0
July 2041
98.0 September 2039
June 2050
45.0
November 2021
37.0

International Public Partnerships Annual Report and financial statements 2018OVERVIEWCHAIRMAN’S LETTERSTRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
KEY CONTACTS

INVESTMENT ADVISER
Amber Fund Management Limited
3 More London Riverside
London
SE1 2AQ

REGISTERED OFFICE
PO Box 286
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY

AUDITOR
Ernst & Young LLP
Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
Channel Island
GY1 4AF

LEGAL ADVISER
Carey Olsen
PO Box 98, Carey House
Les Banques
Guernsey
Channel Islands
GY1 4BZ

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

ADMINISTRATOR AND COMPANY SECRETARY
Estera International Fund Managers (Guernsey) Limited
PO Box 286
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY

CORPORATE BANKER
Royal Bank of Scotland International
1 Glategny Esplanade
St Peter Port
Guernsey
Channel Islands
GY1 4BQ

100

International Public Partnerships Annual Report and financial statements 2018FINANCIAL STATEMENTSI

International Public Partnerships Limited
c/o Estera International Fund Managers (Guernsey) Limited
PO Box 286
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Tel: +44 1481 742 742