International Public Partnerships Limited
Annual Report 2022

Plain-text annual report

ANNUAL REPORT AND FINANCIAL STATEMENTS 2022 I n t e r n a t i o n a l P u b l i c P a r t n e r s h i p s L i m i t e d A n n u a l R e p o r t a n d f i n a n c i a l s t a t e m e n t s 2 0 2 2 OUR PURPOSE IS TO INVEST RESPONSIBLY IN SOCIAL AND PUBLIC INFRASTRUCTURE THAT DELIVERS LONG-TERM BENEFITS FOR ALL STAKEHOLDERS. We aim to provide our investors with stable, long-term, inflation- linked returns, based on growing dividends and the potential for capital appreciation. We expect to achieve this by investing in a diversified portfolio of infrastructure assets and businesses which, through our active management, meets societal and environmental needs both now and into the future. OVERVIEW Strategic report corporate governance Financial StatementS COMPANY FACTS – London Stock Exchange trading code: INPP.L – Member of the FTSE 250 and FTSE All-Share indices – £2.9 billion market capitalisation at 31 December 2022 – 1,911 million shares in issue at 31 December 2022 – Eligible for ISA/PEPs and SIPPs – Guernsey incorporated company – International Public Partnerships Limited (the ‘Company’, ‘INPP’, the ‘Group’ (where including consolidated entities)) shares are excluded from the Financial Conduct Authority’s (‘FCA’s’) restrictions, which apply to non-mainstream investment products, and can be recommended by independent financial advisers to their clients – Registered company number: 45241 CONTENTS COMPANY OVERVIEW 02 Full-Year Financial Highlights 03 Responsible Investment Highlights 04 Investment Case STRATEGIC REPORT 06 Business Model – Delivering Long-term Benefits 08 Objectives and Performance 10 Chair’s Letter 12 Top 10 Investments 14 Case Study – OFTO Portfolio 16 Operating Review 18 Current Pipeline 20 Market Environment in 2022 and Future Opportunities 22 Operating Review 38 Responsible Investment 48 Continuous Risk Management CORPORATE GOVERNANCE 61 Summary of Investment Policy 62 Board of Directors 64 Corporate Governance Report 73 Audit and Risk Committee Report 76 Directors’ Report 77 Directors’ Responsibilities Statement FINANCIAL STATEMENTS 78 Independent Auditor’s Report to the Members of International Public Partnerships Limited 84 Consolidated Financial Statements 88 Notes to the Consolidated Financial Statements GLOSSARY Certain words and terms used throughout this Annual Report and financial statements are defined in the Glossary on pages 104 to 106. Where alternative performance measures (‘APMs’) are used, these are identified by being marked with an * and further information on the measure can be found in the Glossary. 107 Glossary 110 Key Contacts 111 Annex – SFDR periodic reporting requirements (unaudited) COVER IMAGES Front cover: Durham Regional Courthouse, Ontario, Canada Photo credit: WZMH Architects Inside cover: Thames Tideway Tunnel, UK Photo credit: Tideway View our company website www.internationalpublicpartnerships.com International Public Partnerships Limited Annual Report and financial statements 2022 01 FULL-YEAR FINANCIAL HIGHLIGHTS We aim to provide our investors with stable, long-term, inflation-linked returns, based on growing dividends and the potential for capital appreciation. DIVIDENDS 7.74p 2022 full-year dividend per share1* 2023 full-year dividend target per share2* 8.13p 7.93p 2024 full-year dividend target per share2 c.2.5% 2022 dividend growth* (2021: c.2.5%) 1.3X Cash dividend cover3* (2021: 1.1x) NET ASSET VALUE (‘NAV’)4* TOTAL SHAREHOLDER RETURN (‘TSR’)* £3.0bn NAV at 31 December 20224 (2021: £2.5bn) 159.1p NAV per share at 31 December 20224 (2021: 148.2p) 222.6% TSR since Initial Public Offering (‘IPO’)5 20.2% Increase in NAV (2021: 6.1%) 7.3% Increase in NAV per share* (2021: 0.7%) 7.5% Annualised TSR since IPO5 PORTFOLIO ACTIVITY REAL RETURNS PROFIT £191.6m Cash investments made during 20226 (2021: £252.7m) 0.7% Portfolio inflation-linked returns* at 31 December 20227 (2021: 0.7%) £326.8m Profit before tax (2021: £129.2m) 1 The forecast date for payment of the dividend relating to the six months to 31 December 2022 is 7 June 2023. 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 28 to 29. 4 The methodology used to determine the NAV is described in detail on pages 30 to 37. 5 Since inception in November 2006. Source: Bloomberg. Share price appreciation plus dividends assumed to be reinvested. 6 As at 31 December 2022, this includes cash investments made only. In addition, investment commitments of c.£120.4 million were made. 7 Calculated by running a ‘plus 1.0%’ inflation sensitivity for each investment and solving each investment’s discount rate to return the original valuation. The inflation-linked return is the increase in the portfolio weighted average discount rate. 02 International Public Partnerships Limited Annual Report and financial statements 2022 OVERVIEW Strategic report corporate governance Financial StatementS RESPONSIBLE INVESTMENT HIGHLIGHTS The Company supports the 2030 Agenda for Sustainable Development adopted by the UN Member States in 2015. Alignment with the UN Sustainable Development Goals (‘SDGs’) is a key part of the Company’s approach to Environmental Social and Governance (‘ESG’) integration and demonstrating the positive environmental and social characteristics of its investments. Currently, 100% of our investments support at least one SDG and some of the key contributions are demonstrated below: SDG POSITIVE ENVIRONMENTAL AND SOCIAL CHARACTERISTICS PORTFOLIO SDG ALIGNMENT >173,000 Students attending schools developed and maintained by the Company 15% 37,000,000m3 The three components of the London Tideway Improvements will work conjunctively to reduce discharges in a typical year by c.37 million cubic metres 14% >2,700,000 Estimated equivalent number of homes powered by renewable energy transmitted through offshore transmission (‘OFTO’) investments >154,000,000 Annual passenger journeys through sustainable transport investments 23% 23% For further information on the Company’s contribution to Responsible Investment, please see pages 38 to 47 and the Company’s Sustainability Report. International Public Partnerships Limited Annual Report and financial statements 2022 03 INVESTMENT CASE 01 PREDICTABLE, LONG-TERM, INFLATION-LINKED CASH FLOWS Continuing to deliver consistent financial returns for investors through dividends and capital growth. – Resilient, inflation-linked cash flows – Focus on growing predictable dividends – Principally regulated or contracted government-backed revenues – Originate investments with stable, long- term cash flows and potential growth attributes, whilst maintaining a balanced portfolio of assets 02 RESPONSIBLE APPROACH TO INVESTMENT The Company is committed to integrating ESG considerations across the investment lifecycle. In doing so, it aims to reduce risk, drive value creation and provide benefits for its stakeholders. – Article 8 Financial Product, as categorised under Sustainable Finance Disclosure Regulation (‘SFDR’) – Positive environmental and social characteristics – Alignment with UN-backed Principles for Responsible Investment (‘PRI’), SDGs and the Task Force on Climate-related Financial Disclosures (‘TCFD’) For more see pages 28 to 29 For more see pages 38 to 47 PROJECTED INVESTMENT RECEIPTS PROJECTED INVESTMENT RECEIPTS Investment Receipts (£ million) 450 400 350 300 250 200 150 100 50 0 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 0 4 9 2 0 5 0 2 1 4 7 2 1 4 8 2 1 4 9 2 1 5 0 Gold Coast Light Rail, Australia Photo credit: TransLink, Department of Transport and Main Roads 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 2022 are included. 04 International Public Partnerships Limited Annual Report and financial statements 2022 OVERVIEW Strategic report corporate governance Financial StatementS 03 DIVERSIFIED PORTFOLIO OF LOW- RISK INFRASTRUCTURE ASSETS The Company seeks to build a diversified portfolio of investments with low exposure to market demand risks. – Investing in infrastructure assets delivering essential public services – Investments are diversified across sectors and developed geographies – Low correlation to other asset classes – Active management of assets to mitigate risks and create value for all stakeholders 04 SPECIALIST INVESTMENT ADVISER The Company has a long-standing relationship with Amber Infrastructure Limited (‘Amber’, the ‘Investment Adviser’). Amber has sourced and managed the Company’s assets since IPO in 20061. – Amber is a specialist international infrastructure investment manager and one of the largest independent teams in the sector with over 170 employees internationally – Amber adopts a full-service approach and is a leading investment originator, asset and fund manager with a strong track record – Local presence with personnel and offices across the geographies in which the Company invests For more see pages 22 to 27 For more see pages 22 to 27 BOARD AND COMMITTEES FUND LEVEL REPORTING AND BOARD SUPPORT INVESTMENT PORTFOLIO REPRESENTATION AT ASSET BOARD LEVEL FINANCIAL AND ACTIVE ASSET MANAGEMENT East Anglia One OFTO, UK STRONG AND SUSTAINABLE STEWARDSHIP OF PORTFOLIO 1 The Company has a first right of refusal over qualifying infrastructure assets identified by Amber, and for US investments, by Amber’s long-term investor, US Group, Hunt Companies (‘Hunt’). International Public Partnerships Limited Annual Report and financial statements 2022 05 BUSINESS MODEL DELIVERING LONG-TERM BENEFITS OUR PURPOSE WHAT WE DO oUr pUrpoSe iS to inveSt reSponSiBlY in Social anD pUBlic inFraStrUctUre tHat DeliverS long-term BeneFitS For all StaKeHolDerS. We aim to provide our investors with stable, long- term, inflation-linked returns, based on growing dividends and the potential for capital appreciation. We expect to achieve this by investing in a diversified portfolio of infrastructure assets and businesses, which, through our active management, meets societal and environmental needs both now and into the future. SoUrce The Company operates a rigorous framework of governance, incorporating a streamlined screening, diligence and execution process. This includes substantive input from the Company’s Investment Adviser and, as appropriate, external advisers, with the Company’s Board providing robust challenge and scrutiny inveSt We seek new investments through our extensive relationships, knowledge and insights to: – Enhance long-term, inflation-linked cash flows* – Provide opportunities to create long-term value and enhance returns – Ensure ESG is core to the investment process valUe-FocUSeD portFolio Development – We seek a portfolio of investments with little to no exposure to market demand risks and for which financial, macroeconomic, regulatory, ESG and country risks are well understood and manageable – The Investment Adviser has a strong investment team that originates attractive opportunities in line with the Company’s investment strategy – We continually monitor opportunities to enhance the Company’s existing investments – The Company draws on the Investment Adviser’s award-winning sustainability programme, ‘Amber Horizons’, to inform areas for future investment For more see pages 16 to 18 UNDERPINNED BY eFFicient Financial management reSponSiBle inveStment continUoUS riSK management View our company website www.internationalpublicpartnerships.com 06 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS optimiSe Using the Investment Adviser’s highly experienced in-house asset management team, we seek to actively manage our investments in order to optimise their financial, operational and ESG performance Deliver Through our Investment Adviser’s active approach to the asset management of our investments, we aim to ensure strong ongoing asset performance to deliver target returns and wider benefits for stakeholders active aSSet management – The Investment Adviser has an in-house asset management team dedicated to actively managing our investments – Where possible, the Investment Adviser will manage the day-to-day activities of our investments internally, or will exercise our responsibilities through board representation at asset level and engagement with management teams – Through our Investment Adviser, we work with public sector clients, partners and service providers to ensure investments are being managed both responsibly and efficiently to create value for stakeholders by meeting or exceeding performance targets – We focus on investment stewardship across the portfolio and recognise the broader value created from our investments For more see pages 22 to 27 – Efficient financial management of investment cash flows and working capital – Maintaining cash covered dividends – Ensuring cost-effective operations For more see pages 28 to 29 – Integrated ESG considerations across the investment lifecycle – Robust ESG objectives to build resilience and drive environmental and social progress – Upholding high standards of business integrity and governance For more see pages 38 to 47 – Robust risk analysis during investment origination ensures strong portfolio development – Integrated risk management throughout the investment cycle to support strategic objectives – Ongoing risk assessment and mitigation supports successful continuous asset performance For more see pages 48 to 60 VALUE CREATION inveStor retUrnS Continuing to deliver consistent financial returns for investors through dividend growth* and inflation-linked returns from underlying cash flows and providing opportunities for potential capital appreciation pUBlic Sector anD otHer clientS Providing responsible investment in infrastructure to support the delivery of essential public services and broader societal objectives (e.g. supporting the path to net zero). Our ability to deliver services and maintain relationships with our clients and other key stakeholders is vital for the long-term prosperity of each investment commUnitieS Delivering sustainable social infrastructure for the benefit of local communities. The Company’s investments provide vital public assets which strengthen communities, and seek to provide additional benefits through deploying investment in local economies, job creation and by using investments to help strengthen communities SUpplierS anD tHeir emploYeeS The performance of our service providers, supply chain and their employees is crucial for the long-term success of our investments. The Company promotes a progressive approach to: – Safe, healthy, inclusive workplaces – Corporate social responsibility – Opportunities for professional development – Staff engagement International Public Partnerships Limited Annual Report and financial statements 2022 07 OBJECTIVES AND PERFORMANCE The value we provide to our investors and our wider stakeholders is monitored using our strategic key performance indicators (‘KPIs’). This is achieved by carefully monitoring our performance against related strategic priorities. INVESTOR RETURNS STRATEGIC PRIORITIES Delivering long-term, inflation-linked returns to investors TARGET AN ANNUAL DIVIDEND INCREASE OF 2.5% c.2.5% Annual dividend increase achieved for 2022 (2021: c.2.5%) TARGET A LONG-TERM TOTAL RETURN OF AT LEAST 7.0% PER ANNUM 7.9% p.a. IRR achieved since IPO1 (2021: 7.7%) INFLATION-LINKED RETURNS ON A PORTFOLIO BASIS 0.7% Inflation-linked returns on a portfolio basis2 (2021: 0.7%) 1 2 3 4 5 6 Calculated by reference to the November 2006 IPO issue price of 100p and reflecting NAV appreciation plus dividends paid. Calculated by running a ‘plus 1.0%’ inflation sensitivity for each investment and solving each investment’s discount rate to return the original valuation. The inflation-linked return is the increase in the portfolio weighted average discount rate. Please refer to pages 30 to 37 for further detail. Measured by comparing forecast portfolio distributions against actual portfolio distributions received. In the current year, actual portfolio distributions exceeded forecast. The Company’s Investment Adviser was awarded a 5-star rating in the UN- backed PRI 2021 assessment. The PRI grading was updated to a numerical system in 2021, with 5-stars being the highest awardable rating. In addition to achieving a 5-star PRI rating, the Company’s Investment Adviser was awarded “Best Corporate Sustainability Strategy 2021”. Please see page 41 for more information. Please refer to page 41 for additional ESG KPIs that are linked to the Company’s approach to asset management. Cash dividend payments to investors are paid from net operating cash flow before capital activity. 08 International Public Partnerships Limited Annual Report and financial statements 2022 valUe-FocUSeD portFolio Development Originate investments with stable, long-term cash flows and potential growth attributes, whilst maintaining a balanced portfolio of assets active aSSet management Ensuring strong ongoing asset performance reSponSiBle inveStment Management of material ESG factors eFFicient Financial management Making efficient use of the Company’s finances and working capital overview STRATEGIC REPORT corporate governance Financial StatementS NEW INVESTMENTS MEET AT LEAST THREE OF SIX ATTRIBUTES: 1. Stable, long-term returns 4. Investment secured through 2. Inflation-linked investor cash flows 3. Early stage investor preferential access 5. Other capital enhancement attributes 6. Positive SDG contribution 100% of the investments made in 2022 met at least three of the six attributes (2021: 100%) STRONG ONGOING ASSET PERFORMANCE AS DEMONSTRATED BY: 100% Forecast portfolio distributions received for 20223 (2021: 100%) 0.3% Asset performance deductions achieved against a target of <3% during 2022 (2021: 0.1%) 99.8% Asset availability achieved against a target of >98% during 2022 (2021: 99.8%) ROBUST INTEGRATION OF ESG INTO INVESTMENT LIFECYCLE POSITIVE SDG CONTRIBUTION FOR NEW INVESTMENTS 5-stars PRI rating4 (2021: A+) 100% Percentage of new investments in the year that positively support targets outlined by the SDGs5 (2021:100%) CASH COVERED DIVIDENDS6* COMPETITIVE ONGOING CHARGES 1.3x Dividends fully cash covered* for 2022 (2021: 1.1x) 1.06% Ongoing Charges Ratio for 2022 (2021: 1.18%) International Public Partnerships Limited Annual Report and financial statements 2022 09 CHAIR’S LETTER Looking forward, the Company remains confident that its business model and investment objectives will continue to offer a significant degree of protection for our investors. MIKE GERRARD CHAIR CASH DIVIDEND COVER1 1.3x PORTFOLIO INFLATION-LINKED RETURNS2 0.7% FINANCIAL AND OPERATIONAL PERFORMANCE Over the year to 31 December 2022, the Company’s NAV per share4 increased by 10.9 pence to 159.1 pence (31 December 2021: 148.2 pence). This reflects an increase in the fair value of the Company’s investments over the year, driven by, among other factors, the positive impact of the portfolio’s inflation-linkage (0.7%)2. I am pleased to also report that the Company recorded a cash dividend cover of 1.3x1, while delivering further dividend growth. This level of dividend cover was achieved in part again due to the high level of inflation correlation within the portfolio, with surplus cash having been reinvested into attractive investment opportunities during the year, or shortly after the year-end. DEAR SHAREHOLDERS, I am pleased to report that INPP has continued to deliver strong operational and financial performance, despite the current ongoing international economic and political uncertainties. The resilience of INPP’s portfolio of essential infrastructure projects and businesses is largely attributable to the predictability of the underlying investment cash flows, the high level of inflation correlation, and the Company’s active approach to asset management. The Company’s achievements during the year include: – Successful completion of a significantly oversubscribed £325 million capital raising, the proceeds of which were fully deployed to support recent investment activity; – Generating a total NAV return of c.12.5%3; and – Further developing the Company’s ESG strategy, including through categorisation as an Article 8 financial product (‘FP’) for the purposes of SFDR. 1 Cash dividend payments to investors are paid from net operating cash flows before capital activity as detailed on pages 30 to 37. 2 Calculated by running a ‘plus 1.0%’ inflation sensitivity for each investment and solving each investment’s discount rate to return the original valuation. The inflation-linked return is the increase in the portfolio weighted average discount rate. Please refer to pages 30 to 37 for further detail. 3 Reflects dividends paid in the year and increase in NAV on a per share basis. 4 The methodology used to determine the NAV is described in detail on pages 28 to 29. 5 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future. 10 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS As a result of the Company’s performance, the Board has declared a dividend of 3.87 pence per share for the six months to 31 December 2022, in line with its stated dividend target of 7.74 pence per share5 for the 2022 financial year. This represents c.2.5% growth on the prior corresponding year and is consistent with the c.2.5% average annual dividend growth that has been delivered since the Company’s inception. The dividend will be paid on 7 June 2023. tenth UK OFTO investment, which increased the Company’s contribution to net zero targets. The investments made during the year were funded from the proceeds of the successful £325 million capital raise that took place in April 2022. Demand for the capital raise, which was significantly oversubscribed, came from both new and existing investors, and the Company thanks all those who participated for their support. The Board is also pleased to reaffirm its dividend target for 2023 of 7.93 pence per share and provide dividend guidance of 8.13 pence per share for 20245. The level of dividend growth has been carefully considered by the Board, in particular owing to the current levels of inflation; however, the Board has decided to maintain the existing dividend trajectory to provide investors with consistently growing returns while reinvesting the surplus cash in the Company’s strong pipeline. The Company’s investments continue to perform well; and the Company’s Investment Adviser, Amber, is fully engaged with its public sector partners and key suppliers to ensure that the projects and businesses in which the Company invests remain available and operational, to deliver for the communities which they serve. For those investments measured by both availability and performance standards, for the 12 months to 31 December 2022, the availability of those assets was 99.8% (31 December 2021: 99.8%). INVESTMENT ACTIVITY There was significant investment activity during 2022, with the Company making investments and investment commitments totalling over £310 million across the energy, wastewater, social infrastructure and transport sectors. The largest of these was the Company’s c.£113 million commitment to acquire a portfolio of five high-quality infrastructure projects in New Zealand – demonstrating the Company’s ability to originate investment opportunities in new geographies and further diversify the portfolio. There were also follow-on investments into the Tideway project in London and the Family Housing for Service Personnel (‘FHSP’) projects in the US, as well as the completion of the Company’s Further information on the Company’s portfolio can be found on pages 16 to 18. INVESTMENT STEWARDSHIP As part of our commitment to ESG objectives, the Company continues to develop its non-financial disclosures in line with emerging regulations and best practices. As previously announced, the Company categorised itself as an Article 8 FP during 2022, and the Company and its Investment Adviser will continue to monitor the emerging requirements of the EU SFDR and EU Taxonomy Regulation. In addition, the Company has enhanced its approach to disclosing climate change risks and opportunities in line with the recommendations of the TCFD. Further information is available within the Responsible Investment section of this Report and within the second edition of our Sustainability Report which has been released alongside this Annual Report. CORPORATE GOVERNANCE As previously reported, Claire Whittet retired from the Board at the 2022 Annual General Meeting (‘AGM’), and I and my fellow Directors would like to thank her for nine years of dedicated service to the Company and her always wise counsel. Following Stephanie Coxon’s appointment in January 2022, the Board’s gender balance split remains as 57% female and 43% male. The Board is actively engaged with the Company’s portfolio companies and, during 2022, visited three of the Company’s investments, including Cadent and two in Germany: BeNEX and the Offenbach Police Headquarters. Please see more information in relation to Corporate Governance on pages 64 to 72. CURRENT ENVIRONMENT AND MARKET OUTLOOK Along with its infrastructure sector peers and the broader listed investment trust world, the Company’s share price has not been immune to market volatility, as financial markets continue to adjust to various political and economic headwinds. The Board notes that this is one of only a few occasions in the Company’s 16-year history in which the Company’s shares have traded at a discount to NAV and, whilst we will continue to monitor the share price and discount carefully, we remain confident in the robustness and reliability of the Company’s future cash flows. We continue to work with our Investment Adviser to ensure strong investment stewardship and active risk mitigation. The Company continues to see attractive investment opportunities, with a strong near-term pipeline of £230 million across the energy, transport and social infrastructure sectors. In order to support this pipeline, the Company has, in principle, agreed an increase in the committed size of its Corporate Debt Facility (‘CDF’) to £350 million and an extension of the maturity date to June 2025. Please see more information on page 28. Infrastructure investment and performance remain high priorities for governments in the countries INPP invests in, to help achieve economic growth, improved productivity, decarbonisation targets and resilience to the effects of climate change. The Company expects to continue to invest in line with its investment objectives, focusing on sustainable and attractive investment opportunities that provide stable, inflation-linked returns and that deliver long- term benefits for all our stakeholders. I and my fellow Directors thank you for your continued support. MIKE GERRARD CHAIR 29 March 2023 View our company website www.internationalpublicpartnerships.com International Public Partnerships Limited Annual Report and financial statements 2022 11 TOP 10 INVESTMENTS The Company’s top 10 investments by fair value at 31 December 2022 are summarised below. A complete listing of the Company’s investments is available on the Company’s website. CADENT Cadent owns four of the UK’s eight regional gas distribution networks (‘GDNs’) and in aggregate provides gas to approximately 11 million homes and businesses. LOCATION UK TIDEWAY Tideway is the trading name of the company that was awarded the licence to design, build, finance, commission and maintain a new 25km ‘super sewer’ under the River Thames. LOCATION UK DIABOLO Diabolo Rail Link (‘Diabolo’) integrates Brussels Airport with the national rail network allowing passengers to access high-speed trains, such as Amsterdam- Brussels-Paris and NS International trains. LOCATION Belgium LINCS OFTO The project connects the 270MW Lincs offshore wind farm, located 8km off the east coast of England, to the National Grid. The transmission assets comprise the onshore and offshore substations and connecting cables, c.125km in length. LOCATION UK ANGEL TRAINS Angel Trains is a rolling stock leasing company which owns more than 4,000 vehicles. Angel Trains has invested over £5 billion in rolling stock since it was established in 1994. LOCATION UK SECTOR Gas distribution % INVESTMENT FAIR VALUE 31 DECEMBER 2022 14.5% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 15.5% % HOLDING AT 31 DECEMBER 20221 7% Risk Capital PRIMARY SDG SUPPORTED SECTOR Wastewater % INVESTMENT FAIR VALUE 31 DECEMBER 2022 13.5% STATUS AT 31 DECEMBER 2022 Under construction % INVESTMENT FAIR VALUE 31 DECEMBER 2021 9.1% % HOLDING AT 31 DECEMBER 20221 18% Risk Capital PRIMARY SDG SUPPORTED SECTOR Transport % INVESTMENT FAIR VALUE 31 DECEMBER 2022 7.2% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 7.0% % HOLDING AT 31 DECEMBER 20221 100% Risk Capital PRIMARY SDG SUPPORTED SECTOR Energy transmission % INVESTMENT FAIR VALUE 31 DECEMBER 2022 6.3% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 6.9% % HOLDING AT 31 DECEMBER 20221 100% Risk Capital PRIMARY SDG SUPPORTED SECTOR Transport % INVESTMENT FAIR VALUE 31 DECEMBER 2022 6.0% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 7.1% % HOLDING AT 31 DECEMBER 20221 10% Risk Capital PRIMARY SDG SUPPORTED View our company website www.internationalpublicpartnerships.com 12 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS FHSP Mezzanine debt investments underpinned by security over seven operational Public-Private Partnerships (‘P3’) projects, comprising c.21,800 family housing units for US service personnel. LOCATION US EA1 OFTO The project connects the 714MW East Anglia One (‘EA1’) offshore wind farm, located c.50km off the Suffolk coast, to the National Grid. The transmission assets comprise the onshore and offshore substations and connecting cables, c.245km in length. LOCATION UK ORMONDE OFTO The project connects the 150MW Ormonde offshore wind farm, located 10km off the Cumbrian coast, to the National Grid. The transmission assets comprise the onshore and offshore substations and connecting cables, c.44km in length. LOCATION UK RELIANCE RAIL Reliance Rail is responsible for financing, designing, delivering and maintaining 78 next-generation, electrified, ‘Waratah’ train sets serving Sydney in New South Wales, Australia. LOCATION Australia BeNEX BeNEX is both a rolling stock leasing company as well as an investor in train operating companies (‘TOCs’) which currently provide c.43 million train km of annual rail transport. LOCATION Germany SECTOR Other % INVESTMENT FAIR VALUE 31 DECEMBER 2022 4.1% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 2.5% % HOLDING AT 31 DECEMBER 20221 100% Risk Capital PRIMARY SDG SUPPORTED SECTOR Energy transmission % INVESTMENT FAIR VALUE 31 DECEMBER 2022 3.6% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 N/A % HOLDING AT 31 DECEMBER 20221 100% Risk Capital PRIMARY SDG SUPPORTED SECTOR Energy transmission % INVESTMENT FAIR VALUE 31 DECEMBER 2022 3.5% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 4.2% % HOLDING AT 31 DECEMBER 20221 100% Risk Capital and 100% Senior Debt PRIMARY SDG SUPPORTED SECTOR Transport % INVESTMENT FAIR VALUE 31 DECEMBER 2022 2.9% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 3.7% % HOLDING AT 31 DECEMBER 20221 33% Risk Capital PRIMARY SDG SUPPORTED SECTOR Transport % INVESTMENT FAIR VALUE 31 DECEMBER 2022 2.4% STATUS AT 31 DECEMBER 2022 Operational % INVESTMENT FAIR VALUE 31 DECEMBER 2021 2.8% % HOLDING AT 31 DECEMBER 20221 100% Risk Capital PRIMARY SDG SUPPORTED More detail on significant movements in the Company’s portfolio for the year to 31 December 2022 can be found on pages 16 to 17 of the Operating Review. 1 Risk Capital includes project level equity and/or subordinated shareholder debt. International Public Partnerships Limited Annual Report and financial statements 2022 13 CASE STUDY OFTO PORTFOLIO DIFFERENTIATION OF THE OPERATING MODEL Since its IPO in 2006, the Company has recognised the importance of responsible investment and has been guided by this core principle in all of its activities. Infrastructure investment is fundamentally a long-term business that relies on our investments being resilient. ESG considerations play a key role within the Company’s investment framework and we draw on a wide range of tools, resources and analysis when making investment decisions. The Company recognises the importance that environmental and social factors can have on 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 the Company invests in. Through its Investment Adviser, the Company stays well informed of emerging investment trends and actively positions itself for future opportunities. The OFTO regime in the UK is a good example of how the Company proactively positioned itself to be at the forefront of an emerging investment opportunity and as a result was one of the first investors in the sector. UK OFFSHORE TRANSMISSION – A ROBUST INVESTMENT WITH STRONG ESG CREDENTIALS The UK continues to drive investment and innovation in the offshore wind sector through ambitious targets and the deployment of new technologies. The UK is one of the world’s largest markets for offshore wind, with more than 10GW of cumulative installed capacity across 38 sites. There is a further 5GW in pre-construction, and there are plans for a further 11GW. Sector growth has been encouraged by the UK’s target of 40GW of offshore wind energy by 2030, as stated in the Ten Point Plan for a Green Industrial Revolution. This includes 1GW generated by floating technologies. This ambition was increased through the British Energy Security Strategy (‘BESS’), published in April 2022, which aims to achieve up to 50GW of offshore wind by 2030. BEATRICE WM ROUGH LINCS DUDGEON EAST ANGLIA ONE GUNFLEET SANDS RAMPION BARROW ORMONDE ROBIN RIGG Since the time of the Company’s first investment in 2011, it has become a market leader with a combined total of over 65 years of operational performance and a portfolio with the capacity to transmit nearly 3.2 GW of renewable electricity – equivalent to the electricity needs of an estimated 2.7 million UK homes1. The OFTO portfolio accounts for 23% of the Company’s portfolio by investment fair value. These investments are not only a good financial opportunity for the Company, but also contribute to the UK’s carbon reduction targets and the SDGs: SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). The Board regularly reviews the composition of the portfolio, including the concentration of OFTOs. The Board is comfortable with the exposure and believes they are attractive investments with strong environmental benefits. THE COMPANY REACHED FINANCIAL CLOSE ON EA1 OFTO In December 2022, the Company successfully reached financial close for the long-term operation of the transmission link to the 714MW EA1 offshore wind farm. Located 50km off the coast of Suffolk in East Anglia. EA1 provides the EA1 wind farm access to transmit clean power to more than 600,000 UK homes by transmitting electricity generated by 102 offshore wind turbines2. The Company expects to reach financial close on its eleventh OFTO in 2023, Moray East OFTO. PRIMARY SDGS SUPPORTED 1 2 https://www.scottishpowerrenewables.com/pages/east_anglia_one.aspx. Data provided directly from wind farm owners. Figure may vary depending on actual wind generated and transmitted, which is naturally variable. 14 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS Key facts and performance: FINANCIAL CLIMATE SOCIETY c.£690m Capital cost – EA1 c.£2.4bn Capital cost of OFTO portfolio Image: Dudgeon OFTO, UK 714MW Clean energy generation supported by EA11 3,171MW Clean energy generation supported by OFTO portfolio2 630,000 Estimated equivalent number of homes capable of being powered by EA11 2,740,000 Estimated equivalent number of homes capable of being powered by the OFTO portfolio2 International Public Partnerships Limited Annual Report and financial statements 2022 15 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, inflation-linked cash flows and/or to provide the opportunity for capital growth. The Board regularly reviews the overall composition of the portfolio to ensure it continues to remain aligned with the Company’s investment objectives and ensure it is achieving a broad balance of risk. In addition, all new investments are required to have positive SDG contribution. During the year, the Company invested £191.6 million (2021: £252.7 million) and made additional investment commitments of £120.4 million. These opportunities were sourced by the Investment Adviser, either from the start of the project (e.g. early stage developments); through increasing the INVESTMENTS MADE DURING THE YEAR Company’s interest in existing investments; or accessing opportunities as a result of the Company’s previous investments and experience. These three origination approaches are the Company’s preferred routes to market, as they limit bidding in the competitive secondary market. Details of investment activity during 2022 are provided below. Further details for each of these transactions are provided on the Company’s website. PERFORMANCE AGAINST STRATEGIC PRIORITY KPIs 100% of investments made in 2022 met at least three of the six attributes (2021: 100%) DESIRABLE KEY ATTRIBUTES FOR THE PORTFOLIO INCLUDE: 1 Long-term, stable returns 2 3 4 5 Inflation-linked investor cash flows Early stage investor (e.g. the Company is an early stage investor in a new opportunity developed by our Investment Adviser) Investment secured through preferential access (e.g. sourced through pre-emptive rights or through the activities of our Investment Adviser) Other capital enhancement attributes (e.g. potential for additional capital growth through ‘de-risking’ or the potential for residual/terminal value growth) 6 Positive SDG contribution UK PPP PORTFOLIO1 Location Operational status Operational Investment £1.5 million DIABOLO Location Operational status Operational Investment £4.8 million2 NDIF Location Operational status Operational Investment £1.2 million Investment date June 2022 Key attributes 1 4 2 6 Primary SDG supported Investment date June 2022 Key attributes 6 3 2 Primary SDG supported Investment date Various Key attributes 5 4 6 3 Primary SDG supported In June 2022, the Company acquired a further 9% investment in Durham Building Schools for the Future (‘BSF’), taking its holding to 100%. At the same time, the Company increased its holdings in Nottingham BSF Phases 1 and 2 by a further 8% taking its overall ownership in each of the two schemes to 90%. These BSF schemes provide education facilities to over 3,800 pupils. During the year, a further c.£4.8 million (€5.5 million2) was drawn3. Of the €24.0 million initially committed, a total of €17.3 million has been drawn to date. At the current time, no further drawdowns are expected. During 2022, an additional £1.2 million was invested into National Digital Infrastructure Fund (‘NDIF’) as part of the Company’s commitment to digital infrastructure. 16 International Public Partnerships Limited Annual Report and financial statements 2022 TIDEWAY Location Operational status Under construction Investment £41.9 million FHSP Location Operational status Operational Investment £36.5 million2 EA1 OFTO Location Operational status Operational Investment c.£105.7 million overview STRATEGIC REPORT corporate governance Financial StatementS Investment date September 2022 Key attributes 1 2 3 4 Primary SDG supported 6 5 The Company increased its holding in Tideway to c.18%, deploying c.£42 million of additional capital. Tideway will provide several significant environmental and social benefits once operational. Investment date December 2022 Key attributes 1 4 6 Primary SDG supported The Company invested c.US$45 million into a follow-on investment in FHSP, including two additional interest-bearing subordinated debt instruments underpinned by security over seven operational P3 FHSP projects, comprising c.21,800 housing units located across the US. Investment date December 2022 Key attributes 1 2 5 Primary SDG supported 3 6 INVESTMENT COMMITMENTS MADE DURING THE YEAR GOLD COAST LIGHT RAIL – STAGE 3 Location Investment date March 2022 Operational status In construction Investment £7.0 million2 NEW ZEALAND PORTFOLIO Location Operational status Operational Investment £113.4 million2 Key attributes 1 2 3 4 Primary SDG supported 6 Investment date December 2022 Key attributes 1 2 5 6 Primary SDG supported INVESTMENT MADE POST-YEAR END EALING BSF Location Operational status Operational Investment £0.7 million Investment date March 2023 Key attributes 1 2 4 6 Primary SDG supported The Company reached financial close for the long- term ownership and ongoing operation of EA1 OFTO and owns 100% of the equity and subordinated debt. The investment will further increase the Company’s contribution to a net zero carbon economy. The Company reached financial close on Stage 3 of the Gold Coast Light Rail project. The follow-on investment arose through the Company’s existing 30% interest in the project. Please see more information on page 27. The Company agreed to acquire a portfolio of five infrastructure assets in New Zealand, including three schools, a correctional facility and a purpose-built student accommodation facility at the Auckland University of Technology. The investments are operational and delivering long- term stable cash flows linked to inflation. Post-year end, in March 2023, the Company acquired a further 20% investment in Ealing BSF, increasing its holding to 100%. This BSF scheme provides education facilities to over 1,400 pupils. 1 2 3 As previously reported, the Company agreed to acquire a small portfolio of investments in December 2021, with Durham BSF and Nottingham BSF Phase 1 and 2 completing in June 2022 following the satisfaction of conditions included in the December 2021 agreement. These conditions related to the corporate restructuring of the investments, which had the impact of reducing the investments’ defect risk prior to completion. GBP translated value of investment. The Company committed €24.0 million to Diabolo in December 2020 to protect Diabolo’s liquidity position and ensure compliance with its debt covenants. Please see more information on page 24. International Public Partnerships Limited Annual Report and financial statements 2022 17 OPERATING REVIEW valUe-FocUSeD portFolio Development CONTINUED CURRENT PIPELINE The Company’s performance does not depend upon additional investments to deliver current projected returns. Further investment opportunities will be judged by their anticipated contribution to overall portfolio returns relative to risk. Selected commitments and future opportunities that may be considered for investment in due course, as identified by the Investment Adviser, are outlined below. Known/Committed Opportunities Location Estimated Investment1 Expected Investment Period Investment Status Moray East OFTO c.£100 million 24 years New Zealand Portfolio c.£113 million 24 years Flinders University Health and Medical Research Building c.£10 million 25 years Gold Coast Light Rail – Stage 3 c.£7 million 5 years Preferred bidder. Investment expected in 2023 Investment commitment made. Expected to be funded in Q2 2023 Investment commitment made. Expected to be funded in 2024 Investment commitment made. Expected to be funded in 2026 1 Represents the current commitment or preferred bidder positions that meet the Company’s investment criteria. There is no certainty that potential opportunities will translate into actual investments for the Company. KEY AREAS OF FOCUS The Company has a longer-term pipeline of investments and has identified over 30 opportunities across the UK, Europe, North America and Australia. Future areas of investment may include: SOCIAL INFRASTRUCTURE EXAMPLE INVESTMENTS – Education – Health – Justice – Other social accommodation REGULATED UTILITIES EXAMPLE INVESTMENTS – OFTOs – Distribution and transmission TRANSPORT AND MOBILITY EXAMPLE INVESTMENTS – Government-backed transport including: – Light rail – Regional rail Olga Primary School, Tower Hamlets, UK Photo credit: Bob Wheeler Photography Gold Coast Light Rail, Australia Photo credit: TransLink, Department of Transport and Main Roads OTHER ESSENTIAL INFRASTRUCTURE EXAMPLE INVESTMENTS – Digital connectivity – Energy management Ormonde OFTO, UK Thames Tideway Tunnel, UK Photo credit: Tideway 18 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS Image: BeNEX, Germany Photo credit: ODEG International Public Partnerships Limited Annual Report and financial statements 2022 19 OPERATING REVIEW MARKET ENVIRONMENT IN 2022 AND FUTURE OPPORTUNITIES NORTH AMERICA – As previously reported, the Infrastructure Investment and Jobs Act (‘IIJA’)1 passed into US law in November 2021 and the Inflation Reduction Act (‘IRA’)2 passed in August 2022 – Stimulus bills including the IIJA and the IRA totalling US$1,600 billion provide for expansion of transport, communications, energy, carbon and resiliency infrastructure – During the year, universities, healthcare providers and other infrastructure owners were seen turning to private consortiums to lead the way in energy transition efforts to address upcoming carbon reduction commitments – Government entities are exploring alternative delivery of projects, including P3, in ever increasing numbers utilising new funding available from Federal sources – In Canada, social infrastructure remained a tight market with only limited opportunities for capital deployment whilst aggressive energy and decarbonisation targets led to an increase in energy-related deals – For the last five plus years, only a small number of contractors, advisers and investors have dominated the Canadian market. New models of procurement are however now being embraced by the public sector in order to improve competition EUROPE (EXCLUDING UK) – Infrastructure investment in Europe continues to be supported by wider EU frameworks and initiatives focusing on transitioning to net zero and supporting economic recovery post-Covid-19 – The European Commission announced a number of initiatives during 2022 under the Connecting Europe Facility (‘CEF’), which aims to support investment into infrastructure across Europe to promote growth and job recovery – CEF includes programmes for energy, transport and digital; digital was the first programme that was initiated and looks to support both public and private investment in digital connectivity infrastructure, and a further €5 billion was announced for transport infrastructure projects in September 2022 – In addition, the c.€800 billion Next Generation EU Recovery Fund3 was set up to support economic recovery post-Covid-19. The Fund aims to rebuild a ‘greener, more digital and more resilient Europe’ and features a large green infrastructure component – As a result of these initiatives the Company expects to review a continuing pipeline of opportunities in Western Europe 1 Bipartisan Infrastructure Law, The White House. 2 The Inflation Reduction Act, The White House. 3 Recovery and Resilience Facility, European Commission. 4 Transforming Infrastructure Performance: Roadmap to 2030, Infrastructure and Projects Authority, UK Government Sep 2021. 5 Levelling up the UK, Department for Levelling Up, Housing & Communities, UK Government Feb 2022. 6 Australian Infrastructure Budget Monitor 2022-23 (produced by Infrastructure Partnerships Australia). 20 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS AUSTRALIA AND NEW ZEALAND – Overall, investment in Australian infrastructure continues to be underpinned by Australian State and Federal Government sponsored initiatives with particular focus on the energy and transport sectors. Across State Government budgets alone, c.A$255 billion in general government expenditure was allocated to infrastructure over the next five years – Victoria and New South Wales continue to dominate the pipeline of committed funding, accounting for c.70% of total general government sector infrastructure spending over four years6 – Investment opportunities continue to be concentrated in these two states across the energy and transport sectors, including a number of forthcoming Renewable Energy Zone transmission projects in New South Wales – States and Territories also continue to sponsor smaller-scale greenfield social infrastructure projects, primarily across healthcare, housing and broader civic sectors – A New Zealand government general election will be held in 2023 with the result likely to dictate the procurement model for future greenfield infrastructure – The Company expects to see a continued pipeline of opportunities in Australia and New Zealand International Public Partnerships Limited Annual Report and financial statements 2022 21 UNITED KINGDOM – During the course of 2022, the UK Infrastructure Bank was established to support the UK in reaching its net zero targets and bolster regional and local economic growth through investment in infrastructure. This new bank looks to partner with local authorities and the private sector alike to invest into sectors the Company targets, including energy, water, waste, transport and digital – Whilst the current macroeconomic environment continues to be volatile, the requirement for infrastructure investment continues to be recognised in line with the National Infrastructure Strategy (‘NIS’) with the UK Government committing to spend £600 billion over the next five years4 – As part of the Autumn Statement, the UK Government announced that the current budgets for infrastructure would be protected for the construction of key infrastructure and round two of the Levelling Up Fund will invest at least £1.7 billion in local projects across the UK5 – Overall, the UK Government continues to recognise the importance of infrastructure investment alongside private sector capital in order to create jobs, boost economic recovery and reach its net zero targets; and the Company remains well positioned to take advantage of this pipeline OPERATING REVIEW active aSSet management OPERATIONAL PERFORMANCE The Investment Adviser’s active approach to asset management has been fundamental to the Company’s performance since its IPO. Amber has a dedicated team of over 45 asset managers with sector expertise and presence across the geographies in which INPP is invested. The Investment Adviser’s asset management team is responsible for the oversight and optimisation of the Company’s investments, with the key focus being to deliver long-term benefits for stakeholders by meeting or exceeding performance targets. The Investment Adviser’s involvement varies depending on the nature of the investment; it either manages the day-to-day activities of the investment or exercises its responsibilities through board representation and engagement with management teams. The health and safety of clients, delivery partners, employees and members of the public who use our assets is of the utmost importance to the Company. We accord the highest priority to health and safety. The Company’s accident frequency rate for occupational accidents that resulted in lost time during the year ending 31 December 2022 remained low at 0.35 per 100,000 hours worked (31 December 2021: 0.35). Health and safety data is reported and evaluated each quarter to highlight any trends or areas of focus and includes hours worked, minor injuries, near misses, critical incidents and the number of lost time injuries which occurred as a result of work activities1. From a cash flow perspective, the portfolio performed well over the year with 100% of the investment portfolio’s overall forecast distributions having been received (2021: 100%). Further information on operational performance and key updates for the Company’s PPP projects, regulated investments and operational businesses is set out on the following pages. 0.35 Per 100,000 hours worked (2021: 0.35) PERFORMANCE AGAINST STRATEGIC PRIORITY KPIs 100% Forecast distributions received (2021: 100%) 1 RIDDOR Dangerous Occurrence and Specified Injuries are recorded in accordance with Health and Safety Executive (‘HSE’) guidelines for the UK projects and for the overseas assets reporting is in accordance with the applicable legislation. 22 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS PORTFOLIO OVERVIEW SECTOR BREAKDOWN GEOGRAPHIC SPLIT 138 investments in infrastructure projects and businesses across a variety of sectors1 Investments are diversified by developed geographies Energy Transmission 23% Transport 19% Education 15% Gas Distribution 15% Wastewater 14% Health 4% Digital 2% Courts 2% Other 6% INVESTMENT TYPE INVESTMENT OWNERSHIP Investments across the capital structure Preference to hold majority stakes Risk Capital2 93% Senior Debt 7% UK 76% Australia 7% Belgium 7% Germany 4% US 4% Canada 1% Ireland <1% Denmark <1% 100% 46% 50-100% 6% <50% 48% MODE OF ACQUISITION/INVESTMENT STATUS INVESTMENT LIFE Early stage investment gives first mover advantage and maximises capital growth opportunities Weighted average investment life of c.37 years5 Construction 14% Operational 86% Early Stage Investor3 67% Later Stage Investor4 33% <20 years 42% 20-30 years 24% >30 years 34% 1 The majority of projects and businesses benefit from availability-based or regulated revenues. 2 Risk Capital includes project level equity and/or subordinated shareholder debt. 3 Early Stage Investor – investments developed or originated by the Investment Adviser or predecessor team in primary or early phase investments. 4 Later Stage Investor – investments acquired from a third-party investor in the secondary market. 5 Includes non-concession entities which have potentially a perpetual life but assumed to have finite lives for this illustration. International Public Partnerships Limited Annual Report and financial statements 2022 23 OPERATING REVIEW continUeD active aSSet management CONTINUED PPP PROJECTS PORTFOLIO BREAKDOWN PPP 38% PERFORMANCE AGAINST STRATEGIC PRIORITY KPIs 99.8% Asset availability achieved against a target of >98% (2021: 99.8%) 0.3% Asset performance deductions achieved against a target of <3% (2021: 0.1%) The Company’s PPP portfolio (accounting for 38% of the portfolio by investment fair value) has continued to perform well during the year. The Company, through its Investment Adviser, has continued to meet its key deliverables, including ensuring that the facilities are available for their intended use, ensuring that areas are safe and secure, and that the performance standards set out in the underlying agreements are achieved. – The level of availability and performance deductions is a key indicator as to the operational performance achieved. Despite the fact that availability and performance deductions are generally passed on to a facilities management provider under a long-term fixed price contract, the Investment Adviser actively manages the relevant subcontractors to optimise the performance of the Company’s PPP projects. During the year, the overall availability of the Company’s PPP assets was 99.8% (31 December 2021: 99.8%) and there were performance deductions of only 0.3% (31 December 2021: 0.1%), both of which were ahead of targets and demonstrate the high level of operational performance achieved – In addition, the Company’s public sector clients commissioned over 1,100 contract variations during 2022, resulting in £16.9 million of additional project work being delivered on behalf of the commissioning bodies. The completed changes during the year ranged from minor building fabric alterations within education facilities, social accommodation, and healthcare premises to the delivery of substantial facility upgrades and extensions – A number of benchmarking exercises were also performed and agreed for the Company’s social accommodation projects, which included reviewing services delivered in order to assess value for money for the public sector client – In addition, in July 2022, minority interests in four Lancashire BSF projects were successfully divested with £8.5 million being realised. The sales value aligned with the carrying value of the investments on the disposal date and demonstrated the attractiveness of the Company’s investment portfolio – The hand back of the PPP assets to the public sector clients is an increasingly important area of focus as the Company’s PPP portfolio matures and the assets approach the end of their respective concession term. Through its regular asset management activities, Amber actively monitors the asset condition, maintenance and lifecycle replacement works to ensure that the assets will meet their hand back requirements. This should ensure an efficient transfer to the relevant public sector client OTHER KEY UPDATES DIABOLO Diabolo is a rail infrastructure investment which integrates Brussels Airport with Belgium’s national rail network. The majority of the revenues generated by Diabolo are linked to passenger use of either the rail link itself, or the wider Belgian rail network. As previously reported, Diabolo was impacted by the restrictions on international travel and national lockdowns implemented in Belgium as a result of the Covid-19 pandemic. This led to the Company committing a further €24.0 million to Diabolo in December 2020 to protect Diabolo’s liquidity position and ensure compliance with its debt covenants. To date, €17.3 million has been drawn, with €5.5 million being drawn in 2022. A further €6.7 million remains available until December 2023, at which point the commitment will be cancelled unless there is a material deterioration in passenger numbers. The Company does not expect there to be any further drawdowns and Diabolo made a distribution in January 2023. Passenger numbers during H2 2022 were c.85% of those observed during H2 2019 (pre-Covid-19) and the latest traffic forecast report for Diabolo assumes a return to pre-Covid-19 passenger numbers in 2024. Discussions with Infrabel, the Belgian rail network owner, over the implementation of a passenger fare adjustment concluded during December 2022 and it will be effective from 1 February 2023. The outlook for Diabolo is positive, passenger numbers continue to recover, and the scheme continues to see high levels of operational performance. Relationships with the Belgian railway authorities and Diabolo’s lenders are positive, and it has successfully utilised the passenger fare adjustment mechanism which should reduce the impact of a reduction in passenger numbers. 24 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS is currently £4.4 billion, representing a 2% increase since costs were last reported (largely driven by inflation) but importantly, the cost to Thames Water customers remains well within the initial estimate provided at the outset of the project. Handover of operations to Thames Water is expected to occur in 2025 following the completion of the secondary lining and system commissioning. The amendments to Tideway’s licence that were agreed with Ofwat in order to mitigate the impact of both Covid-19 related cost overruns and the Financing Cost Adjustment Mechanism came into effect in March 2022. These amendments provided greater certainty for the business and have already been reflected within the forecast cash flows. Following earlier public consultations, in October 2022, Ofwat amended the date within Tideway’s licence from which delay penalties can be applied. This change has no impact on the forecast cash flows but rather maintains the headroom within the schedule which would otherwise have been eroded due to the previously announced schedule impact of Covid-19. As previously reported, the Company increased its shareholding in Tideway to approximately 18% in September 2022. The investment opportunity arose as a consequence of another existing investor having to dispose of its stake as an underlying investment fund was approaching the end of its life. The remainder of the exiting investor’s stake was acquired by the other continuing investors in Tideway. REGULATED INVESTMENTS PORTFOLIO BREAKDOWN Regulated Investments 52% The Company is currently invested in Cadent, Tideway and a portfolio of 10 OFTOs (together accounting for 52% of the portfolio by investment fair value), all of which are regulated by statutory independent economic regulators. Whilst different in nature, the regulatory frameworks used are ultimately designed to, among other things, protect the interests of consumers whilst ensuring that the regulated companies can earn a fair return on their capital. The Company owns 100% of each of its OFTO investments and whilst the Company does not hold majority positions in Cadent or Tideway, the Company engages through its Investment Adviser’s board director positions to ensure effective risk management and drive the financial, operational and ESG performance of its investments. OFTOS The Company’s OFTO investments are regulated by the Office of Gas and Electricity Markets (‘Ofgem’) which grants licences to transmit electricity generated by offshore wind farms into the onshore grid. The revenues generated are not linked to electricity production or price, instead the OFTO is paid a pre-agreed, availability- based revenue stream for a fixed period of time (typically 20-25 years). The Ofgem consultation regarding the potential regulatory developments underpinning an extension of the OFTO revenue stream is ongoing. As previously reported, the Investment Adviser is actively engaged with all relevant industry stakeholders. All parties recognise that the life extension of renewable energy assets is required to meet the UK net zero emissions targets. Ofgem expects to publish summaries of its July 2022 consultation in 2023. We will seek to keep investors informed of material developments. CADENT Cadent is the UK’s largest gas distribution network, serving 11 million homes and businesses. Cadent is regulated by Ofgem which has granted Cadent a licence to distribute gas across certain regions within the UK. Cadent continues to support the UK Government in meeting its net zero target. It has worked closely with the Department for Energy Security and Net Zero (‘DESNZ’)1 in supporting its Heat and Buildings Strategy and Hydrogen Strategy with a view to ensuring hydrogen is an integral part of the energy mix from 2026 and is actively engaging with the UK Government and regulators to build awareness of the opportunities offered by green gases in the journey towards net zero. Please refer to Section 3 of the Sustainability Report for further detail on the activity Cadent is undertaking to support the UK’s net zero targets. Whilst Cadent is largely insulated from changes in gas prices and the associated energy price caps, aside from where the changes can cause timing differences in certain cash flows, the Company continues to closely monitor the implications of changes in gas prices and other developments in the sector. TIDEWAY Tideway is regulated by Water Services Regulation Authority (‘Ofwat’) which has granted Tideway a licence to design, build, finance, commission and maintain a new 25km ‘super sewer’ under the River Thames to create a healthier environment for London by cleaning up the city’s greatest natural asset. Tideway reached a number of milestones over the course of 2022, including reaching the end of the primary tunnelling phase in April 2022, and completing the majority of the secondary lining by the end of the year. Overall construction works were approximately 85% complete at the end of the year, with the focus now principally on completion of the secondary lining as well as the upcoming system commissioning phase. The estimated cost of the project 1 Formerly part of the Department of Business, Energy and Industrial Strategy (‘BEIS’). International Public Partnerships Limited Annual Report and financial statements 2022 25 OPERATING REVIEW continUeD active aSSet management CONTINUED OPERATING BUSINESSES PORTFOLIO BREAKDOWN Operating Businesses 10% The Company invests in a number of operating businesses including Angel Trains, BeNEX and digital infrastructure businesses (together accounting for 10% of the portfolio by investment fair value). The Investment Adviser holds a board position on each of its operating businesses and uses these positions to ensure effective risk management and drive the financial, operational and ESG performance of its investments. COUNTERPARTY RISK Counterparty risk exists to some extent across all investments; however, the risk is required to be more carefully monitored when considered in relation to PPPs which have a long-term fixed-price contract with a facilities management provider. The Company has a diverse exposure to service providers across its portfolio and the Investment Adviser’s asset management team ensures counterparty risk is actively managed and mitigated. There were several acquisitions within the sector during the year, impacting certain of INPP’s service providers. None of these have had a material impact on INPP’s counterparty risk. ANGEL TRAINS Angel Trains generates the majority of its revenues from the contractual leasing of its rolling stock to TOCs and therefore its current revenues are largely unaffected by passenger numbers. Unlike the TOCs, Angel Trains is not involved in or directly impacted by any of the disputes underpinning the industrial action that occurred during the year, but will continue to monitor the situation and support TOCs where possible. During the year, Angel Trains successfully acquired the Readypower Group – a specialist rail and infrastructure services provider that supplies specialised on and off-track plant equipment as well as other maintenance and operating services to the UK rail sector. Readypower plays a crucial role in the maintenance and modernisation of the UK rail network and is supporting various infrastructure improvement projects across the UK. The acquisition is evidence of Angel Trains’ wider commitment to investing in and supporting the UK rail industry. INPP SERVICE PROVIDERS1 BENEX BeNEX is an investor in both rolling stock and TOCs serving the German Local Public Passenger Transportation Market. The TOCs in which BeNEX is invested operate rail franchises across Germany under contract with numerous German federal states covering c.43 million train km of passenger transport in total. Whilst only a minority of BeNEX’s annual revenues (currently less than 20%) are linked to passenger numbers, BeNEX continued to receive compensation from the federal government and/or the relevant federal states for the vast majority of revenues lost during the year as a result of the continued disruption caused by Covid-19. BeNEX benefited from the federal government’s introduction of the temporary German-wide ‘€9-ticket’ during the three summer months of 2022, and passenger numbers during the second half of 2022 had broadly returned to pre-pandemic levels. DIGITAL INFRASTRUCTURE In September 2022, the Amber-managed NDIF, in which INPP is invested, sold its investment in NextGenAccess (‘NGA’) which is a company that owns and operates a network of ultra-fast wholesale fibre broadband infrastructure across England and actively monitor the remaining three businesses in which the Company is invested (via NDIF), Community Fibre, Airband and toob. Infrabel 7% Downer & Spotless 6% Hunt Military Communities 4% Bouygues 3% Mitie 3% G4S 2% OCS 2% Amey 2% FES 2% Kier 1% Honeywell 1% Others 5% Regulated Investments2 52% Operating Businesses2 10% 1 Based on percentage of Investment at fair value as at 31 December 2022. 2 These investments operate with no significant exposure to any one service provider or delivery partner. 1. Based on percentage of Investments at Fair Value as at 31 December 2022. 2. These Risk Capital investments operate with no significant exposure to any one service provider or delivery partner. 26 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS PROJECTS UNDER CONSTRUCTION The Company has a strong track record of delivering construction projects safely, on time, to budget and to a high-quality by understanding the project environment and the potential risks that may occur. It works closely with the contractors, technical advisers and management companies, where applicable, throughout the construction period in order to mitigate risk and ensure the assets can perform as expected and create value for both investors and communities. The Company had three projects under construction as at 31 December 2022: TIDEWAY Location Construction completion date 20251 Defects completion date 2028 Status at 31 December 2022 Scheduled for completion in 20252 % of investments at fair value 13.5% Overall, construction works were approximately 85% complete at the end of December 2022. The tunnelling phase was completed in April 2022, and the focus is now principally on completion of the secondary lining and the upcoming system commissioning phase. GOLD COAST LIGHT RAIL – STAGE 3 Location Status at 31 December 2022 Scheduled for completion in 20263 Construction completion date 2026 Defects completion date 2027 % of investments at fair value 0.0% The project extends the existing Gold Coast Light Rail network a further 6.7km south from Broadbeach to Burleigh Heads. It will include eight new stations, five additional light rail trams, new bus and light rail connections at Burleigh and Miami, and upgrade of existing depot and stabling facilities. FLINDERS UNIVERSITY HEALTH AND MEDICAL RESEARCH BUILDING Location Status at 31 December 2022 On schedule Construction completion date 2024 Defects completion date N/A5 % of investments at fair value 0.0%4 The Flinders University Health and Medical Research Building plans to be a leading biomedical research facility that co-locates research, clinical and technological platforms to further the University’s long-standing contributions to the health, education and medical sectors. Flinders University is a public institution and the third largest university in South Australia. 1 Scheduled handover date. 2 Handover remains scheduled for 2025. This is approximately one year later than the original schedule with the delay largely attributable to the impact of Covid-19. 3 Completion is now scheduled for 2026. This is approximately six months behind the original schedule due to delays in design development and the identification of contaminated areas. 4 The Company’s investment is only due to be made following construction completion. The valuation of the commitment is currently immaterial. 5 This is not applicable as the authority is assuming all risk associated with the construction work that is being undertaken. International Public Partnerships Limited Annual Report and financial statements 2022 27 OPERATING REVIEW continUeD eFFicient Financial management The Company aims to manage its finances efficiently in order to provide financial flexibility for pursing new investment opportunities, whilst minimising levels of unutilised cash holdings. This is achieved through actively monitoring cash held and generated from operations, ensuring cash covered dividends and managed levels of corporate costs, and is supported by appropriate hedging strategies and prudent use of the Company’s CDF. PERFORMANCE AGAINST STRATEGIC PRIORITY KPIs 1.3x Dividends fully cash covered (2021: 1.1x) 1.06% Ongoing Charges Ratio (2021: 1.18%) £326.8m Profit before tax (2021: £129.2m) DIVIDENDS – During the year, the Company achieved its objective to generate dividends paid to investors through its operating cash flows – Cash dividends paid in the year of £136.0 million (31 December 2021: £118.5 million) – Cash dividends were 1.3 times (31 December 2021: 1.1 times) covered by the Company’s net operating cash flows before capital activity* – Cash receipts from investments were £205.9 million (31 December 2021: £167.9 million), reflecting the continued good operational performance of the portfolio – INPP expects the current higher levels of inflation to continue to contribute to an increase in cash flows from investments. However, there is typically a delay before the impact of changes in inflation is seen in the cash flows, owing to the timing of the indexation mechanisms within the contracts held by the portfolio companies, as well as the distribution schedules adopted by such portfolio companies ONGOING CHARGES – Corporate costs were effectively managed during the year and Ongoing Charges were 1.06% (31 December 2021: 1.18%), a decrease in part due to the increase in average NAV over the year – Corporate costs include management fees of £27.9 million for the year to 31 December 2022 (31 December 2021: £25.7 million) OPERATIONAL PERFORMANCE – IFRS profit before tax of £326.8 million was reported (31 December 2021: £129.2 million). The increase in profit in the year is principally reflective of the unrealised fair value gain on the portfolio in the year. More information on page 84 – The Company’s cash balance as at 31 December 2022 was £92.8 million, (31 December 2021: £56.1 million). The increase was underpinned by strong portfolio performance and proceeds from capital raising – £191.6 million of new capital was invested during the year (31 December 2021: £252.7 million). See more information in note 12 of the financial statements and on page 98 – Proceeds of capital raisings in the year net of issue costs were £320.2 million. Proceeds were used in part to pay down the cash drawn balance on the Company’s CDF, with the remaining amount deployed in the Company’s investment pipeline (see page 18) – At 31 December 2022, the Company’s CDF was £29.3 million cash drawn (31 December 2021: £156.2 million), with £16.7 million drawn under letter of credit (31 December 2021: £9.3 million). Following the balance sheet date, the cash drawn balance of the facility was repaid and at the date of this Report approximately £233 million of the facility remains available – Net financing costs paid were £2.9 million, (31 December 2021: £4.8 million) reflecting the level of utilisation of the Company’s CDF during the year – Since the year-end, the Company has, in principle, agreed an increase in the committed size of its existing CDF from £250 million to £350 million with the existing banking group. This increase is expected to be effective from April 2023 and would provide the Company with the liquidity required to take advantage of additional investment opportunities as they may arise. There would remain a flexible ‘accordion’ component which would, subject to lender approval, allow for a further increase in the committed size of the facility to £400 million. The Company is also progressing the documentation required to amend the maturity date of the CDF from March 2024 to June 2025. These two amendments are expected to be finalised shortly. No other changes to the terms of the CDF are expected 28 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS SUMMARY OF CASH FLOWS Summary of Consolidated Cash Flow Opening cash balance Cash from investments Corporate costs (for ongoing charges ratio) Net financing costs Net operating cash flows before capital activity1 Cost of new investments Investment transaction costs Net movement of CDF Proceeds of capital raisings (net of costs) Dividends paid Closing cash balance Cash dividend cover Year to 31 December 2022 Year to 31 December 2021 £ Million £ Million 56.1 205.9 (30.2) (2.9) 172.8 (191.6) (1.8) (126.9) 320.2 (136.0) 92.8 1.3x 44.3 167.9 (28.5) (4.8) 134.6 (252.7) (3.0) 117.8 133.6 (118.5) 56.1 1.1x 1 Net operating cash flows before capital activity as disclosed above of c.172.8 million (31 December 2021: c.£134.6 million) include net repayments from investments at fair value through profit or loss of c.£34.0 million (31 December 2021: c.£53.4 million), and finance costs paid of c.£2.9 million (31 December 2021: c.£4.8 million) and exclude investment transaction costs of c.£1.8 million (31 December 2021: c.£3.0 million) when compared to net cash inflows from operations of c.£138.6 million (31 December 2021: c.£83.3 million) as disclosed in the consolidated cash flow statement on page 87 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 2022 £ Million Year to 31 December 2021 £ Million (27.9) (0.6) (0.5) (1.2) (30.2) (25.7) (1.0) (0.4) (1.4) (28.5) Year to 31 December 2022 £ Million Year to 31 December 2021 £ Million (30.2) 2,858.3 (28.5) 2,423.2 (1.06%) (1.18%) 1 The Ongoing Charges ratio was prepared in accordance with the Association of Investment Companies’ (‘AIC’) recommended methodology, noting this excludes non-recurring costs. 2 Average of published NAVs for the relevant period. International Public Partnerships Limited Annual Report and financial statements 2022 29 OPERATING REVIEW continUeD inveStor retUrnS The Company aims to provide its investors with stable, long-term, inflation-linked returns, based on growing dividends and the potential for capital appreciation. During the year, the Company achieved continued dividend growth of c.2.5% and a NAV return of c.12.5%1, reflecting the continuing strong performance of the portfolio. PORTFOLIO PERFORMANCE AND TSR* The Company’s annualised TSR since the IPO to 31 December 2022 was 7.5% (31 December 2021: 8.5%). The total return based on the NAV appreciation plus dividends paid since the IPO to 31 December 2022 is 7.9% (31 December 2021: 7.7%) on an annualised basis. The Company’s long-term target is 7.0%. INFLATION-LINKAGE In an environment where investors are focused on achieving long-term real rates of return on their investments, inflation protection is an important consideration for the Company. At 31 December 2022, the majority of assets in the portfolio had a significant degree of inflation-linkage. In aggregate, the weighted average return of the portfolio (before fund-level costs) would be expected to increase by 0.7% per annum in response to a 1.0% per annum increase in all of the assumed inflation rates (31 December 2021: 0.7%). DIVIDEND GROWTH The Company targets predictable and growing dividends. The Company has delivered a c.2.5% average annual dividend increase, since IPO. The Company forecasts to pay the second dividend in respect of the 12 months to 31 December 2022, of 3.87 pence per share, in June 2023. Once paid, this would bring the total dividends paid in respect of 2022 in line with the previously announced target of 7.74 pence per share (2021: 7.55 pence per share). The Company is maintaining its previously announced dividend target of 7.93 pence per share in respect of 2023 and provides new guidance of 8.13 pence per share for 2024. PERFORMANCE AGAINST STRATEGIC PRIORITY KPIs 7.9% p.a. IRR achieved since IPO2 (31 December 2021: 7.7%) 0.7% Inflation-linked returns on a portfolio basis3 (31 December 2021: 0.7%) C.2.5% Annual dividend increase achieved (31 December 2021: c.2.5%) 1 Reflects dividends paid in the year and increase in NAV on a per share basis. 2 Calculated by reference to the November 2006 IPO issue price of 100p and reflecting NAV appreciation plus dividends paid. 3 Calculated by running a ‘plus 1.0%’ inflation sensitivity for each investment and solving each investment’s discount rate to return the original valuation. The inflation-linked return is the increase in the portfolio weighted average discount rate. Please refer to pages 30 to 37 for further detail. 30 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS INPP DIVIDEND GROWTH Pence per share 9 8 7 6 5 4 5.55 5.70 5.85 6.00 5.25 5.40 6.15 6.30 6.45 6.65 6.82 7.55 7.74 7.93 8.13 7.18 7.36 7.00 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 2 0 2 0 2 1 2 0 2 2 2 0 2 3 2 0 2 4 Actual Forecast 1. The HY2 2022 dividend of 3.87p per share will be declared immediately following the announcement of the 2022 Full Year Results and is expected to be paid in June 2023. Note: The H2 2022 dividend for the six months to 31 December 2022 of 3.87 pence per share will be declared immediately following the announcement of the 2022 Full Year Results and is expected to be paid in June 2023. SHARE PRICE PERFORMANCE The Company has historically exhibited relatively low levels of correlation with the market. The correlation with the FTSE All-Share index was 0.33 over the 12 months to 31 December 2022 (December 2021: 0.22). SHARE PRICE PERFORMANCE SHARE PRICE PERFORMANCE (% change) 140 120 100 80 60 40 20 0 -20 -40 -60 D e c 0 6 A p r 0 7 A u g 0 7 D e c 0 7 A p r 0 8 A u g 0 8 D e c 0 8 A p r 0 9 A u g 0 9 D e c 0 9 A p r 1 0 A u g 1 0 D e c 1 0 A p r 1 1 A u g 1 1 D e c 1 1 A p r 1 2 A u g 1 2 D e c 1 2 A p r 1 3 A u g 1 3 D e c 1 3 A p r 1 4 A u g 1 4 D e c 1 4 A p r 1 5 A u g 1 5 D e c 1 5 A p r 1 6 A u g 1 6 D e c 1 6 A p r 1 7 A u g 1 7 D e c 1 7 A p r 1 8 A u g 1 8 D e c 1 8 A p r 1 9 A u g 1 9 D e c 1 9 A p r 2 0 A u g 2 0 D e c 2 0 A p r 2 1 A u g 2 1 D e c 2 1 A p r 2 2 A u g 2 2 D e c 2 2 INPP FTSE 250 FTSE All-share INPP NAV Source: Bloomberg International Public Partnerships Limited Annual Report and financial statements 2022 31 OPERATING REVIEW continUeD inveStor retUrnS CONTINUED VALUATIONS NAV During the year, the Company raised additional equity totalling £325.0 million (£320.2 million net of issuance costs) by way of a Placing, Open Offer, Offer for Subscription and Intermediaries Offer of Ordinary Share Capital. NET ASSET VALUE MOVEMENTS (£ million) The negative impact of the increase in government bond yields was partially offset by changes to the investment risk premia designed to ensure that the valuations continue to reflect recent market-based evidence of pricing for infrastructure investments. The positive impact of these adjustments on the NAV was £496.5 million. During the year, Sterling weakened against the Australian Dollar, Euro, US Dollar, Canadian Dollar and the Danish Krone, these being the foreign currencies the Company was exposed to during the year. Including the change in the value of the forward foreign exchange contracts, the net positive impact on the NAV was £33.2 million with the most significant impact seen on the Company’s Australian Dollar- denominated investments. Inflation assumptions across all applicable geographies were increased in the near-term as inflation is assumed to remain above the Company’s longer term inflation assumptions for a short period of time. Deposit rate assumptions have also been adjusted. Further details of these changes can be seen on page 35 and in aggregate these had a positive £169.3 million impact on the NAV. 3300 3000 2700 2400 2100 1800 1500 320.2 (573.6) 496.5 (136.0) 33.2 169.3 2,528.8 201.4 3,039.8 NAV at 31 December 2021 Capital Raising (post issue costs) Change in Government Bond Yields Change in Investment Risk Premia Cash Distributed to INPP Shareholders (net of scrip) Change in Foreign Exchange Rates1 Change in Macroeconomic Assumptions NAV Return2 NAV at 31 December 2022 1. FX impact is net of hedging. 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 future investment cash flows, and (iii) changes in the Company’s net assets. The yields on the government bonds used as part of the valuation process increased during the period, resulting in a net £573.6 million decrease in the NAV. In line with forward guidance provided previously, two cash dividends of 3.77 pence and 3.87 pence per share were paid to the Company’s shareholders during the year, in relation to the six-month periods to 31 December 2021 and 30 June 2022 respectively, totalling £136.0 million (net of scrip). Among other things, the NAV Return of £201.4 million captures the impact of the following: – Unwinding of the discount rate; – Return generated from the portfolio’s strong inflation-linkage where actual inflation rates were higher than the Company’s assumptions for the period; – Updated operating assumptions to reflect current expectations of forecast cash flows; – Actual distributions received above the forecast amount due to active management of the Company’s portfolio; and – Changes in the Company’s working capital position. 1 Foreign exchange rate impact is presented net of hedging. 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 future investment cash flows, and (iii) changes in the Company’s net assets. 32 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS INVESTMENTS AT FAIR VALUE An increase of £191.6 million owing to new investments made during the year. The rebased investments at fair value of £2,565.1 million is presented to allow an assessment of the Portfolio Return assuming that the investments and distributions occurred at the start of the relevant period. The Portfolio Return of £252.9 million captures broadly the same items as the NAV Return (set out in detail on page 32) with the principal exception being the fund-level operating costs and portfolio working capital movements. During the period, Sterling weakened against the Australian Dollar, Euro, US Dollar, Canadian Dollar and the Danish Krone (these being the five foreign currencies the Company is exposed to). The positive impact on the Investments at Fair Value was £37.8 million with the most significant impact seen on the Company’s Australian Dollar-denominated investments. INVESTMENTS AT FAIR VALUE MOVEMENTS (£ million) 3,000 2,900 2,800 2,700 191.6 (205.9) 252.9 (77.1) 169.3 37.8 2,948.0 2,600 2,579.4 2,565.1 2,500 2,400 2,300 Investments at Fair Value at 31 December 2021 Investments Investment Distributions Rebased Investments at Fair Value Portfolio Return1 Change in Discount Rates Change in Macroeconomic Assumptions Change in Foreign Exchange Rates Investments at Fair Value at 31 December 2022 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. A decrease of £205.9 million due to distributions paid out from the portfolio during the period. Increases in government bond yields in the year, partially offset by changes to investment risk premia, resulted in a net increase in portfolio discount rates. The net negative impact of these movements on the investments at fair value is £77.1 million. Inflation assumptions across all applicable geographies were increased in the near-term as inflation is assumed to remain above the Company’s longer term inflation assumptions for a short period of time. Deposit rate assumptions have also been adjusted. Further details of these changes can be seen on page 35 and in aggregate these had a positive £169.3 million impact on the investments at fair value. 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. International Public Partnerships Limited Annual Report and financial statements 2022 33 OPERATING REVIEW continUeD inveStor retUrnS CONTINUED PROJECTED CASH FLOWS The Company’s investments are generally expected to continue to exhibit predictable cash flows, owing to the principally contracted or regulated nature of the underlying cash flows. As the Company has a high degree of visibility over the forecast cash flows of its current investments, the chart below sets out the Company’s forecast investment receipts from its current portfolio before fund-level costs. The majority of the forecast investment receipts are in the form of dividends or interest and principal payments from subordinated and senior debt investments. The Company’s portfolio comprises both investments with finite lives (determined by concession or licence terms) and perpetual investments that may be held for a much longer term. Over the term of investments with finite lives, the Company’s receipts from these investments includes a return of capital as well as income, and the fair value of such investments is expected to reduce to zero over time. PROJECTED INVESTMENT RECEIPTS (£ million) 450 400 350 300 250 200 150 100 50 0 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 0 4 9 2 0 5 0 2 1 4 7 2 1 4 8 2 1 4 9 2 1 5 0 34 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS MACROECONOMIC ASSUMPTIONS The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis. Following a thorough market assessment, it was resolved that certain adjustments should be made to the inflation rates and deposit rates used to value the Company’s assets. Inflation assumptions across all applicable geographies were increased in the near-term as inflation is expected to remain above the Company’s longer-term assumptions throughout the next 12 to 24 months. The foreign exchange rates were updated to reflect the spot rates on the valuation date. The key macroeconomic assumptions used as the basis for deriving the Company’s investment valuations are summarised below, with further details provided in note 11 of the financial statements. Macroeconomic assumptions Inflation rates Long-term deposit rates2 Foreign exchange rates Tax rates3 UK Australia Europe Canada US1 UK Australia Europe Canada US1 GBP/AUD GBP/DKK GBP/EUR GBP/CAD GBP/USD UK Australia Europe Canada US1 31 December 2022 31 December 2021 RPI: 8.00% until Dec 2023, 2.75% thereafter CPIH: 7.00% until Dec 2023, 2.00% thereafter 5.25% until Dec 2023 3.00% until Dec 2024, 2.50% thereafter 5.00% until Dec 2023, 2.50% until Dec 2024, 2.00% thereafter 2.75% until Dec 2023, 2.00% thereafter N/A 2.50% 2.75% 1.50% 2.50% N/A 1.77 8.40 1.13 1.64 1.21 2.75% RPI 2.00% CPIH 2.50% 2.00% 2.00% N/A 1.00% 2.00% 0.50% 1.50% N/A 1.86 8.86 1.19 1.72 1.35 19.00%/25.00%4 30.00% Various (12.50% – 32.28%) Various (23.00% – 26.50%) N/A 19.00%/25.00%4 30.00% Various (12.50% – 32.28%) Various (23.00% – 26.50%) N/A 1 The Company’s US investment is in the form of subordinated debt and therefore not directly impacted by inflation, deposit and tax rate assumptions. 2 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2023 before adjusting to the long-term rates noted in the table above from 1 January 2024. 3 Tax rates reflect those substantively enacted as at the valuation date or those that could reasonably be expected to be substantively enacted shortly after the valuation date. 4 The UK Government announced a corporate tax rate of 25% applicable from 1 April 2023 at the Spring Budget 2021. DISCOUNT RATES The discount rate used to value each investment comprises the appropriate long-term government bond yield plus an investment-specific risk premium which reflects the risks and opportunities associated with that particular investment and is designed to ensure that the resulting valuation reflects prevailing market conditions. The majority of the Company’s portfolio (93.2%) comprises Risk Capital investments, while the remaining portion (6.8%) comprises senior debt investments. To provide investors with a greater level of transparency, the Company publishes both a Risk Capital weighted average discount rate and a portfolio weighted average discount rate – the latter of which captures the discount rates of all investments including the senior debt interests. The weighted average discount rates are presented in the table overleaf. International Public Partnerships Limited Annual Report and financial statements 2022 35 OPERATING REVIEW continUeD inveStor retUrnS CONTINUED Weighted average government bond yield – portfolio Weighted average investment premium – portfolio Weighted average discount rate – portfolio Weighted average discount rate – Risk Capital 31 December 2022 31 December 2021 3.13% 4.38% 7.51% 7.71% 0.96% 6.01% 6.97% 7.38% Movement +217bps (163bps) +54bps +33bps The Company is aware that there are differences in approach to the valuation of investments among similar listed infrastructure funds. In the Company’s view, comparisons of discount rates between different listed infrastructure funds are only meaningful if there is a comparable level of confidence in the quality of forecast cash flows (i.e. assumptions are homogenous); the risk and return characteristics of different investment portfolios are understood; and allowance is made for differences in the quality of asset management employed to manage risk and deliver returns. Any focus on average discount rates without an assessment of these and other factors would be incomplete and could therefore lead to misleading conclusions. VALUATION SENSITIVITIES Sensitivity analysis is provided as an indication of the potential impact of these assumptions on the NAV per share on the unlikely basis that the changes occur uniformly across the remaining life of the portfolio. The movement in each assumption could be higher or lower than presented. Further, forecasting the impact of these assumptions on the NAV in isolation cannot be relied on as an accurate guide to the future performance of the Company as many other factors and variables will combine to determine what actual future returns are available. These sensitivities should therefore be used only for general guidance and not as an accurate prediction of outcomes. Further details can be found in note 11.5 of the financial statements. ESTIMATED IMPACT OF CHANGES IN KEY VARIABLES TO 31 DECEMBER 2022 BASED ON NAV OF 159.1 PENCE PER SHARE Discount rates +/-1% -14.2 Inflation +/-1% -11.9 17.2 13.6 Foreign exchange +/-10% -3.8 3.8 Deposit rates +/-1% Tax rates +/-1% Lifecycle +/-10% -1.3 1.3 -0.7 0.6 -0.8 0.8 -18.0 -12.0 -6.0 0.0 6.0 12.0 18.0 + 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. 36 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS INFLATION The impact of inflation on the value of each investment depends upon the extent to which the revenues and costs of that particular investment are linked to an inflation index. On a portfolio basis, there is a positive correlation to inflation with a 1.00% sustained increase in the assumed inflation rates projected to generate a 0.7% increase in returns (31 December 2021: 0.7%). The returns generated by the Company’s non-UK investments are typically linked to the relevant Consumer Price Index (‘CPI’) for that jurisdiction whilst the Company’s UK investments are typically linked to variations of the Retail Price Index (‘RPI’) or CPIH (CPI including owner occupied housing costs). In anticipation of the UK Government’s previously announced intention to align the RPI to the CPIH from 2030 onwards, the inflation assumption used for UK investments which are currently linked to the RPI and do not benefit from protective contractual agreements or regulatory precedents, was previously adjusted to align with the Company’s CPIH assumption from 2030. For the avoidance of doubt, the impact of this approach on the NAV is negligible. Furthermore, the inflation sensitivities by geographical region are provided in note 11.5 of the financial statements. FOREIGN EXCHANGE The Company has a geographically diverse portfolio and forecast cash flows from investments are subject to foreign exchange rate risk in relation to Australian Dollars, Canadian Dollars, Danish Krone, Euros and US Dollars. The Company seeks to mitigate the impact of foreign exchange rate changes on near-term cash flows by entering into forward contracts, but the Company does not hedge exposure to foreign exchange rate risk on long-term cash flows. The impact of a 10% increase or decrease in these rates is provided for illustration. DEPOSIT RATES The long-term weighted average deposit rate assumption across the portfolio is 1.02% per annum. While operating cash balances tend to be low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and therefore variations to deposit rates may impact valuations. The impact of a 1.00% increase or decrease in these rates is provided for illustration. TAX RATES Post-tax investment cash inflows are impacted by tax rates across all relevant jurisdictions. The impact of a 1.00% increase or decrease in these rates is provided for illustration. Other potential tax changes are not covered by this scenario. LIFECYCLE SPEND There is a process of renewal required to keep physical assets fit for use and the proportion of total cost that represents this ‘lifecycle spend’ will depend on the nature of the asset. PPPs will typically need to ensure that the assets are kept at the standard required of them under agreements with relevant public sector counterparties. To enhance the certainty around cash flows, the majority of the Company’s PPP investments, and all of the Company’s OFTO investments, are currently structured such that lifecycle cost risk is taken by a subcontractor for a fixed price (isolating equity investors from such downside risk). As a result, the impact of changes to the forecast lifecycle costs for the Company’s PPP investments is relatively small. The Company’s investments in rolling stock leasing or operating businesses, or businesses providing digital infrastructure, are also distinct from PPPs which have fixed revenue streams from which they need to pay lifecycle costs. These businesses will still expect to incur lifecycle costs but will typically aim to recover any changes in lifecycle costs over time through the prices they charge their end-users. Tideway and Cadent are treated differently due to the protections offered by the regulatory regimes under which they operate. Regulated assets have their revenues determined for a known regulatory period and each settlement includes revenue sufficient to allow the owner to undertake the efficient lifecycle management of its assets due in that regulatory period. It is common practice to employ reputable subcontractors to undertake lifecycle work under contracts which include incentive and penalty regimes aligned with the businesses’ regulatory targets. This approach ensures an alignment of interest and helps to mitigate the risk of increased lifecycle costs falling on the equity investor. Accordingly, no lifecycle sensitivity has been run in respect of the Company’s investments in Tideway and Cadent. The impact of a 10% increase or decrease in the lifecycle costs incurred by the Company’s PPPs, OFTOs, rolling stock leasing or operating businesses is provided for illustration. By order of the Board MIKE GERRARD CHAIR 29 March 2023 JOHN LE POIDEVIN DIRECTOR 29 March 2023 International Public Partnerships Limited Annual Report and financial statements 2022 37 RESPONSIBLE INVESTMENT reSponSiBle inveStment JULIA BOND CHAIR, ESG COMMITTEE considers each of these areas, in addition to EU Taxonomy criteria. The Company has opted to disclose a selection of data within this Annual Report for reference, but would encourage shareholders to review the Sustainability Report for a summary of the following: REGULATORY ALIGNMENT AND DISCLOSURES The Company recognises that regulations, such as the SFDR, will affect many of its shareholders and, during 2022, the Company categorised itself as an Article 8 FP. Since this categorisation, the EU Commission has finalised the Regulatory Technical Standards (‘RTS’). As such, the Company has now elected to disclose additional sustainability indicators that its shareholders require for their own regulatory requirements. CLIMATE CHANGE During the year, the Company engaged Willis Towers Watson (‘WTW’) and RMS to evolve its approach to assessing physical and transition climate-related risks and opportunities across its portfolio. We have used the outcomes of this exercise to enhance our TCFD disclosures, which are referenced on pages 44 to 45 of this Annual Report, but which are principally included within our Sustainability Report. NET ZERO Also during the year, the Company quantified its financed emissions (Scope 3 category 15), covering 97% of its portfolio, as part of its SFDR and TCFD disclosures. This 2022 baseline will allow the Company to monitor its financed emissions and to track progress made through Greenhouse Gas (‘GHG’) reduction initiatives across its investments. The Company has also increased cooperation with its public sector clients to support them to identify pathways to reduce emissions. In addition, the Company is pleased to be supporting the Infrastructure and Projects Authority (‘IPA’) to develop a sector-wide approach to emissions disclosure and net zero. NEXT STEPS As we progress this work, the interests of all our stakeholders will remain at the core of our decision making and our overall approach to stewardship. We’d like to thank Amber for their ongoing commitment to sustainability and we look forward to further engaging with investors on this important topic. JULIA BOND CHAIR, ESG COMMITTEE 29 March 2023 MESSAGE FROM THE ESG COMMITTEE CHAIR It is positive to see the continued momentum of integrating sustainability into the infrastructure sector, and finance more broadly. This reflects the Company’s view that a pragmatic and forward-thinking approach to sustainability can bring wider benefits to society and create long- term value for investors. Regulatory requirements and best practice guidance with regards to ESG have developed significantly in the last few years and this has brought about a more consistent and robust approach to monitoring and reporting performance. To reflect this, the Company has produced the second edition of its Sustainability Report, which has been published alongside this Annual Report. The Sustainability Report represents a step forward in the Company’s performance, risk monitoring and reporting, including SFDR disclosures as an Article 8 aligned FP; its climate risk approach in alignment with the recommendations of the TCFD; and its financed emissions metrics. This has been underpinned by the Company’s enhanced screening and due diligence process, which 38 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS APPROACH TO RESPONSIBLE INVESTMENT DISCLOSURES The Company believes its investments have positive environmental and social characteristics, as per its categorisation as an Article 8 FP. The following data has been collected to enable the Company to better assess and monitor its environmental and social impacts and identify associated risks and opportunities. It is intended that this data will assist the Company’s shareholders to meet their own regulatory requirements. For more detail on the Company’s approach to responsible investment, please refer to the second edition of the Company’s Sustainability Report. Please refer to page 111 for the Company’s SFDR periodic report to meet its reporting requirements under Article 11 of the SFDR. APPLICATION OF SUSTAINABILITY FRAMEWORKS Part of the process for data selection involves using international sustainability frameworks and reporting standards as a guidance. There are several frameworks with which the Company aligns partially (i.e. we use the framework as a starting point from which to develop accounting practices) or fully (i.e. we fully comply with the framework requirements). These are summarised below. PARTNERSHIP FOR CARBON ACCOUNTING FINANCIALS The Company’s financed emissions have been quantified in accordance with the Partnership for Carbon Accounting Financials (‘PCAF’) Financed Emissions Standard1, which aligns with GHG disclosures set out in the SFDR Principal Adverse Impacts (‘PAIs’) as well as the TCFD’s recommended metrics for asset managers. SDGS SFDR TCFD The Company supports the 2030 Agenda for Sustainable Development adopted by the UN Member States in 2015. Alignment with the SDGs is a key part of the Company’s approach to ESG integration and it contributes towards the SDGs in two main ways: the positive environmental and social characteristics of its investments and its approach to active asset management. For more information regarding the Company’s Investment Adviser’s work with the SDGs, see Section 1 of the Sustainability Report. The SFDR requires financial market participants (‘FMPs’) that market a FP into an EU state, to comply with the disclosure of ESG related information. As the Company qualifies as an internally managed Alternative Investment Fund (‘AIF’) pursuant to the Alternative Investment Fund Managers Directive, it is an FMP for the purposes of SFDR. By marketing itself to EU countries, the Company is deemed to be marketing an FP, given that it is itself an AIF. Therefore, INPP meets the two-pronged test of the SFDR. Please refer to the Annex of this report for the Company’s first periodic disclosure. The Company is aware of the transitional and physical impacts of climate change on the resilience of our business. As a closed ended investment company, the Company is not required to comply with LR 9.8.6R(8) and therefore is not required to issue a statement of compliance with TCFD. However, the Company has continued to voluntarily report in line with TCFD, with a summary included on pages 44 to 45 and the detailed reporting included in the Sustainability Report. By endorsing and aligning its practices and having anticipated reporting with the TCFD recommendations, the Company has crystallised its understanding and disclosure of climate-related risks and opportunities. The Company’s TCFD implementation is integrated in the Company’s strategy, risk management, governance practices, and reporting. OTHER ESG FRAMEWORKS The Company will continue to monitor other developing ESG frameworks closely, such as the EU sustainability reporting standards drafted by the European Financial Reporting Advisory Group (‘EFRAG’) as part of the Corporate Sustainability Reporting Directive (‘CSRD’) as well as the UK’s Sustainability Disclosure Requirements (‘SDR’) which is currently in its consultation phase. The Company will also closely follow the developments of the International Financial Reporting Standards Foundation’s International Sustainability Standards Board (‘ISSB’) in their aim of establishing global sustainability disclosure standards as well as the Taskforce on Nature-related Financial Disclosures (‘TNFD’), which is a developing framework for assessing nature-related risks. The Company aims to grow its use of ESG frameworks as they further harmonise their work into a comprehensive, global platform for corporate sustainability reporting. 1 PCAF (2022). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions. Second Edition. International Public Partnerships Limited Annual Report and financial statements 2022 39 RESPONSIBLE INVESTMENT continUeD reSponSiBle inveStment CONTINUED CONTRIBUTION TO THE SUSTAINABLE DEVELOPMENT GOALS The Company draws on the SDGs to demonstrate the positive environmental and social characteristics of its investments. This page highlights the primary SDGs that are supported by the Company’s investments, alongside alignment of the full portfolio by fair value. Please refer to Section 1 of the Sustainability Report for more information on the Company’s approach to SDG alignment. >650,000 Patients treated in healthcare facilities developed and managed by the Company 37,000,000m3 The three components of the London Tideway Improvements will work conjunctively to reduce discharges in a typical year by c.37 million cubic metres >12,500 Jobs supported across all investments >173,000 Students attending schools developed and managed by the Company >2,700,000 Estimated equivalent number of homes powered by renewable energy transmitted through OFTO investments >154,000,000 Annual passenger journeys through sustainable transport investments The chart below shows the alignment of the Company’s portfolio with the core SDGs described above, by investments at fair value as at 31 December 2022. 3 Good Health and Well-Being 4% 4 Quality Education 15% 6 Clean Water & Sanitation 14% 7 Affordable & Clean Energy 23% 9 11 Sustainable Cities & Communities 23% 16 Peace, Justice and Strong Institutions 3% Industry, Innovation and Infrastructure 18% 40 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS INPP ESG KPIS The Company seeks to improve the sustainability performance of its investments. To help streamline ESG data for financial reporting and monitor progress at the portfolio level, the Company tracks a set of KPIs1, which will be further developed over time. The 2022 KPI results demonstrate the progress that the Company’s investments have made during the year to establish strong governance processes and effectively managing environmental and social impacts. In 2021, the PRI Pilot Reporting Framework methodology introduced a significant change to the grading system from an alphabetical (A+ to E) system to a numerical (1 to 5 stars) system. As such, the Company adjusted the KPI to reflect the new scoring methodology and is pleased that Amber was awarded the highest rating of 5-stars in the 2021 assessment for both the Investment and Stewardship Policy and the Infrastructure modules. Following the significant enhancement of its ESG data collection and reporting processes, to align with the reporting requirement of SFDR and the TCFD, the Company now has a clearer picture of the ESG performance of its investments. This enhanced data set will be considered when reviewing the suitability of the Company’s ESG KPIs in 2023. KPI Target 31 December 2022 31 December 2021 1. Contribution to Sustainable Development Goals. Positive SDG contribution for new investments 2. Investment Adviser ESG Integration Performance. Investment Adviser PRI score 3. Robust corporate governance. Investments with appropriate policies and procedures concerning: Health and Safety, Sustainability, Equality, Diversity and Inclusion, Modern Slavery and Human Rights, Conflicts of interest, Anti-corruption and financial crime risk, Tax and transparency 4. Environmental performance. Investments with appropriate systems and processes in place to improve environmental performance. Specific indicators include: 4.1 Investments with an environmental management system 4.2 Investments with initiatives to improve environmental performance of material issues 5. Health and safety performance. Investments with appropriate systems and processes in place to improve health and safety performance. Specific indicators include: 5.1 Investments with health and safety management system 5.2 Investments with initiatives to improve health and safety performance 6. Greenhouse gas management. Investments with appropriate systems and processes in place to support management of energy efficiency and greenhouse gases. Specific indicators include: 6.1 Investments monitoring Scope 1 and 2 emissions 6.2 Investments with initiatives to improve energy efficiency and greenhouse gas performance 100% 100% 100% 5-stars/A+ 5-stars A+ (2020) 100% 100% 96% 100% 100% 100% 100% 100% 100% 98% 91% 100% 100% 100% 91% 95% 79% 97% 93% 94% 88% 1 KPIs apply to all investments where the Company has a majority equity investment, or a minority equity holding over £2 million. International Public Partnerships Limited Annual Report and financial statements 2022 41 RESPONSIBLE INVESTMENT continUeD reSponSiBle inveStment CONTINUED FINANCED GHG EMISSIONS APPROACH As part of its focus on aligning investments with the objectives of the Paris Agreement, the Company seeks to monitor GHG emissions across its portfolio and support decarbonisation initiatives, where possible. The Company actively manages all investments, supported by its Investment Adviser. The degree to which the Company can influence its financed emissions varies according to investment type. For PPP investments, some operating businesses and regulated investments, the Investment Adviser’s asset management team support at an operational level and aims to ensure that GHG emissions are monitored. Where the Company is a minority shareholder or for senior debt investments, the Company typically has less influence over operational activities, and in some cases may not have access to GHG or activity data. However, GHG impacts, and data availability, is incorporated at the screening and due diligence phase for every new investment. Quantifying the financed emissions of the investment portfolio is important for the Company to help support investment-level decarbonisation initiatives and to better understand its climate- related transition risks. The Company has self-assessed the data quality of its financed emissions, in line with the PCAF approach, and has quantified a weighted data quality score of 2.0 for its portfolio GHG emissions (High Quality = 1 Low Quality = 5). PORTFOLIO EMISSIONS As described on the following page, the Company has applied the PCAF guidance to calculate its total attributed GHG emissions (the Company’s Scope 3 category 15 investment emissions). This includes the Scope 1 and 2 emissions of each investment, attributed to the Company based on its proportional share of the equity and debt in each investment. SUSTAINABLE FINANCE DISCLOSURE REGULATION APPROACH The Company satisfies the threshold criteria set out in the SFDR and therefore has obligations under the SFDR. As part of these requirements, the Company has categorised itself as an Article 8 FP which promotes, among other characteristics, environmental and social characteristics. Through its investments in infrastructure that support a sustainable society, the Company promotes environmental and social characteristics but does not have sustainable investment as its objective and does not invest in sustainable investments, as defined under the SFDR. The carbon footprint metric aligns with PCAF’s ‘economic emission intensity’ and is the Company’s total attributed emissions normalised by the total equity and debt the Company invests across the portfolio. For the GHG intensity of investments metric the Company has applied the TCFD recommended approach for calculating a Weighted Average Carbon Intensity (‘WACI’). This metric gives an indication of the overall emissions intensity of the underlying operations of INPP’s investments without any attribution calculations and is a way of indicating a portfolio’s exposure to transitional risks of climate change. Whilst the metric will fluctuate as the GHG emissions of each investment decrease/increase it will also vary year-on-year based on the investments’ revenue and is therefore sensitive to economic factors. INPP SCOPE 3 FINANCED EMISSIONS INDICATOR Scope 31 December 2022 Total Attributed GHG emissions (tCO2e) Carbon footprint (tCO2e/£m invested) GHG intensity of investments (tCO2e/£m revenue) Scope 1 of investments Scope 2 of investments Total Total Total 36,667 10,311 46,978 27 145 REDUCTION INITIATIVES Whilst the Company’s level of control can vary significantly between investment types, it seeks to encourage GHG emissions reduction initiatives wherever possible. For examples of GHG reduction initiatives implemented across the portfolio during 2022, please refer to Section 3 of the Sustainability Report. This categorisation was communicated in the Company’s prospectus, published in April 20221. In addition, the Company has also published a website disclosure in accordance with the Level 1 requirements of the SFDR regulation2. SUSTAINABILITY INDICATORS During the year, the Company enhanced the criteria it uses to ensure that it meets the environmental and social characteristics it promotes. The Company has begun tracking additional sustainability indicators of its investments. These disclosures cover the majority of the Company’s investment portfolio and align with the definitions of the 14 core indicators listed in Annex 1 of the Delegated Regulation (EU) 2022/1288 (the ‘Delegated Act’), consisting of nine environmental disclosures and five social indicators. 1 https://www.internationalpublicpartnerships.com/news-media/press-releases/2021/placing-open-offer-and-offer-for-subscription-and-publication-of-prospectus-and-circular. 2 https://www.internationalpublicpartnerships.com/media/2629/amber-sfdr-website-disclosures.pdf. 42 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS EU TAXONOMY The Company is not part of the EU Taxonomy regulation. Equally, investee companies fall outside of EU Taxonomy regulation, either by location or threshold. Under its current Article 8 categorisation, the Company does not consider EU Taxonomy alignment. However, we recognise the potential benefit Taxonomy disclosures could provide to the Company’s investors. As such, the Company is working towards developing disclosures that will support Taxonomy alignment in 2023. For more information, please refer to Section 4 of the Sustainability Report. Sustainability indicators for our investments covering the year are displayed in a quantitative form below. For more information, please refer to Section 4 of the Sustainability Report. Sustainability indicator Metric Investment GHG emissions Scope 1 GHG emissions Scope 2 GHG emissions Total GHG emissions Carbon Footprint GHG intensity of investee companies Share of investments in companies active in the fossil fuel sector Share of non-renewable energy consumption and non-renewable energy production of investee companies from non-renewable energy sources compared to renewable energy sources, expressed as a percentage of total energy sources impact climate sector Energy consumption intensity per high impact climate sector: Electricity, gas, steam and air conditioning supply Energy consumption intensity per high impact climate sector: Transportation and storage Biodiversity Share of investments in investee companies with sites/operations located in or near to biodiversity-sensitive areas where activities of those investee companies negatively affect those areas tCO2e tCO2e tCO2e tCO2e/£m invested tCO2e/£m revenue % % GWh/£m GWh/£m % Unit 31 December 20221 36,667 10,311 46,978 27 145 15 97 0.63 0.22 0 0 Water Waste Tonnes of emissions to water generated by investee companies per million GBP invested, expressed as a weighted average Tonnes/£m Tonnes of hazardous waste and radioactive waste generated by investee companies per million GBP invested, expressed as a weighted average Tonnes/£m 0.03 Social and employee matters Share of investments in investee companies that have been involved in violations of the UN Global Compact (‘UNGC’) principles or Organisation for Economic Co- operation and Development (‘OECD’) Guidelines for Multinational Enterprises Share of investments in investee companies without policies to monitor compliance with the UNGC principles or OECD Guidelines for Multinational Enterprises or grievance /complaints handling mechanisms to address violations of the UNGC principles or OECD Guidelines for Multinational Enterprises Average unadjusted gender pay gap of investee companies Average ratio of female to male board members in investee companies, expressed as a percentage of all board members Share of investments in investee companies involved in the manufacture or selling of controversial weapons % % % % % 0 0 19 17 0 1 Sustainability indicators cover over 97% of the portfolio. Where the Company is missing data, it will work with co-investors to obtain data over time, with a preference to avoid estimating impacts. International Public Partnerships Limited Annual Report and financial statements 2022 43 RESPONSIBLE INVESTMENT continUeD reSponSiBle inveStment CONTINUED TCFD Recommended disclosure Summary Governance a) Describe the Board’s oversight of climate-related risks and opportunities. b) Describe management’s role in assessing and managing climate-related risks and opportunities. Strategy a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long-term. The Board sets the strategy for the Company and makes decisions on changes to the portfolio (including approval of acquisitions, disposals and valuations). Through Board committees and the advice of external independent advisers, it manages the governance and risks of the Company. The Board has overall responsibility for ESG considerations and ensuring they are integrated into the Company’s investment strategy, including in relation to climate change. This is achieved through the Company’s Audit and Risk Committee, Investment Committee, Management Engagement Committee and ESG Committee. The Company’s Investment Adviser is responsible for implementing the Company’s ESG policies into its activities on a day-to-day basis. This includes the integration of ESG considerations through investment origination and management of the Company's Investments. The Board and the Investment Manager meet on a quarterly basis, during which they review the risks facing the Company, including risks related to climate change. Sustainability considerations, including climate change, are also included as regular topics for discussion at the Company’s annual strategy meetings. Section Sustainability Report Sections 2 and 4 Sustainability Report Sections 2 and 4 The Company’s investments are exposed to physical and transitional climate change risks. However, the Company has a high degree of protection due to the contracted or regulated nature of its investments. Sustainability Report Sections 3 and 4 Flood, tropical cyclone, extreme wind and heat are the most important hazards for the Company’s existing portfolio. Other hazards could affect particular assets, but do not pose a widespread risk. Equally, the changes arising from a transition to a low-carbon economy have the potential to be wide-ranging, including changes to laws and regulations, adapting to decarbonisation of heat, increased electrification of transportation and other systems previously dependent on fossil fuels, and decarbonisation of construction. A transition to a low-carbon economy will continue to present infrastructure investment opportunities that will be required if governments around the world are to meet their legally binding commitments. As such the Company is well placed to benefit from the transition to net zero as well as manage risks associated with it. b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. A large portion of the Company’s investments are availability type assets where the cash flows are based on making the assets available in a pre-agreed manner. The cash flows from such investments are largely insulated from changes to the physical risks of climate change and the net zero transition. Sustainability Report Sections 3 and 4 The portfolio-level findings of the climate change impact assessment, including scenario analysis, demonstrate that the Company’s strategy is resilient to both physical and transition risks associated with climate change. The Company believes it is well placed to benefit from the transition to net zero, as infrastructure will play a leading role in decarbonising the global economy. Sustainability Report Sections 3 and 4 44 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS Recommended disclosure Summary Risk a) Describe the organisation’s processes for identifying and assessing climate- related risks. The Board recognises the importance of identifying and actively monitoring the risk facing the business. The Company considers climate risk in line with its risk management framework for identifying, evaluating and managing significant risks faced by the Company. b) Describe the organisation’s processes for managing climate-related risks. A robust assessment of principal and emerging risks facing the Company is performed. Each identified risk is assessed in terms of probability of occurrence, potential impact on financial performance and any movements in the relative significance of each risk between periods. The assessments build on the wealth of knowledge acquired by the Company and Investment Adviser through both bidding and asset management phases, with risk assessments carried out to quantify and assess risks. The Company has developed a series of risk management actions to reduce financial risks across the portfolio. Section Sustainability Report Sections 3 and 4 Sustainability Report Sections 3 and 4 c) Describe how processes for identifying, assessing and managing climate- related risks are integrated into the organisation’s overall risk management. Metrics a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. The Company’s approach to risk management is implemented through the following risk control processes: Risk Identification, Risk Assessment, Mitigation Plan, Risk Monitoring, Reporting and Reassessment. Sustainability Report Sections 3 and 4 The Company takes a holistic view to determining climate risks and opportunities at the investment level. Whilst the Company is supportive of monitoring and reporting emissions data, it also recognises that they do not always directly correlate with financial risks to the Company. However, the quantification of the financed emissions of the investment portfolio is important for the Company to help support its public sector clients with investment-level decarbonisation initiatives. In 2023, the Company will consider which metrics will best support its approach to monitoring climate risks and opportunities. Sustainability Report Sections 3 and 4 b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 GHG emissions, and the related risks. Due to the nature of its business, the Company itself has no Scope 1 or Scope 2 GHG emissions. As part of its focus on aligning investments with the objectives of the Paris Agreement, the Company seeks to monitor its Scope 3 investment emissions (financed emissions) across its portfolio and support decarbonisation initiatives where possible. Sustainability Report Sections 3 and 4 c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets. Through the investments that it makes, the Company is helping to support the shift to net zero in the markets where it invests. This includes infrastructure that directly enables net zero, such as the Company’s offshore wind electricity transmission assets in the UK, or our passenger rail investments that provide low-carbon transport. Sustainability Report Sections 3 and 4 The Company will continue to consider its approach to net zero at the portfolio level but recognises the limited control it has over many investments and the importance of collaboration with its public sector clients to achieve emissions reductions. Over the course of 2023, the Company will be reviewing its KPIs in relation to climate change risks and opportunities. International Public Partnerships Limited Annual Report and financial statements 2022 45 RESPONSIBLE INVESTMENT continUeD reSponSiBle inveStment CONTINUED VALUE CREATION – HOW WE ENGAGE The Company takes a proactive approach to identifying and engaging with key stakeholders to ensure there is clear two-way communication that can be used to support the mutual success of the Company and its stakeholders. Good governance is the cornerstone of these relationships, and the Company is focused on leading with high standards of business conduct. It achieves this through a combination of board engagement and oversight and leveraging the Investment Adviser’s expertise and networks. The Company believes robust stakeholder engagement is a critically important component to delivering its purpose over the long term and is considered at a strategic level by the Board, and ensuring all shareholders are treated fairly. The Board has promoted the success of the Company having regard to the requirements of Section 172 of the UK Companies Act 2006, as outlined opposite. 46 International Public Partnerships Limited Annual Report and financial statements 2022 inveStorS Consistent and growing returns We aim to provide our investors with stable, long-term, inflation-linked returns, based on growing dividends and the potential for capital appreciation. Through engagement with all our investors, we aim to inform them of our strategic objectives and to ensure that the Company understands all views on topical issues. This approach is intended to maximise investor buy-in to current objectives and performance whilst also helping shape the Company’s future plans. The key mechanisms for the Company’s engagement with investors include: – Regular and timely updates on performance, including through the annual and half-yearly reporting cycle. This includes institutional and retail-focused webinars – The Company’s AGM – Periodic Investor Days – One-to-one meetings or calls with the Board’s Chair and other Directors – One-to-one meetings or calls with representatives from the Company’s Investment Adviser – Other Group engagement with representatives from the Company’s Investment Adviser – The Company’s website – An annual video providing an overview of the Company Over the year, the Company has increased engagement with investors around its approach to ESG. The Company has held several one-to-one meetings to increase its understanding of investor requirements as a result of regulations such as TCFD, EU Taxonomy and EU SFDR. The output of these meetings has directly influenced the enhanced disclosures included within this Report and the second edition of the Sustainability Report. overview STRATEGIC REPORT corporate governance Financial StatementS pUBlic Sector & otHer StaKeHolDerS A trusted partner We aim to provide the public sector and other customers with a highly reliable, robust service through our investments. Our ability to deliver contracted services and maintain strong relationships with our clients through our Investment Adviser is vital for the long-term success of the business. Through close engagement with our clients, we aim to meet high levels of satisfaction and quickly respond to any potential issues and emerging challenges. The key mechanisms for engagement with our clients include: – Regular meetings (where possible in person and/or virtually) between the Investment Adviser and public sector clients including local authorities and regulators commUnitieS Strengthening communities We strive to make our investments an integral part of the communities they serve. Engaged communities can play an important role in successful delivery of new assets and their long-term operations. As part of our approach to active asset management, the Investment Adviser ensures critical services are delivered with a focus on the end-user, ensuring that the community is at the heart of all that we do. This approach is intended to help our communities thrive and create robust environments for our investments to flourish. The key mechanisms for community engagement include: – Active asset management providing facilities for community use – Local Education Partnership – Active asset management, which agreements provides monitoring of the facilities management arrangements on compliance with maintenance obligations – Asset managers directly engaging with the client on a day-to day basis The Company’s Investment Adviser has been proactively engaging with the Company’s public sector clients to provide them with options on how to work towards net zero solutions. Amber is part of a working group with the IPA in the UK, focused on developing a programme for net zero in the social infrastructure sector. – Supporting community initiatives During the course of 2022, through its Investment Adviser, the Company worked with the specialist agent Collecteco to support local communities through the donation of fixtures, fittings and equipment no longer suitable for use in social infrastructure investments. Collecteco partners with companies across the UK to generate social value, net zero and circular economy benefits by donating furniture to not-for-profit good causes. KeY SUpplierS An engaged supply chain Our ambition is to work with a high- quality, sustainable supply chain with a focus on long-term value for our stakeholders. The performance of our service providers, their employees, and investment supply chain is crucial for the long-term success of our business. The Company takes a progressive approach to engaging with key suppliers. A key component of this is ensuring our Investment Adviser is proactively maintaining an engaged supply chain for our investments. Examples of mechanisms for engagement with key suppliers include: – Annual Management Engagement Committee review – Ad-hoc engagement – Quarterly Board meetings and reporting – Investment Adviser managing investment supply chain For example, during the year, the Company has been working with the Facilities Management Companies within its supply chain to ensure they meet the Governance requirements set by the Company. Please refer to page 39 for more information. International Public Partnerships Limited Annual Report and financial statements 2022 47 CONTINUOUS RISK MANAGEMENT continUoUS riSK management The Board is ultimately responsible for risk management. Oversight of the risk framework and management process is delegated to the Audit and Risk Committee. The risk framework has been designed to mitigate the risk of failure to meet business objectives. No system of control can provide absolute assurance against the incidence of risk, misstatement or loss. Regard is given to the materiality of relevant risks in designing systems of risk management and internal control. BOARD – Audit and Risk Committee – Management Engagement Committee – Investment Committee – Nomination and Remuneration Committee – Environmental, Social and Governance Committee RISK CONTROL LEVELS – Service provider’s internal PRINCIPAL ADVISERS – Investment Adviser and controls – Independent controls and process reviews – External audit Asset Manager – Company Secretary – Fund Administrator – Legal Adviser – Corporate Broker – Corporate Bankers RISK MANAGEMENT RISK FRAMEWORK AND MANAGEMENT PROCESS The Company has in place a risk management framework. The Board recognises the importance of identifying and actively monitoring the risks facing the business. The framework involves an ongoing process for identifying, evaluating and managing significant risks faced by the Company. While responsibility for risk management ultimately rests with the Board, the aim is for the risk management framework to be embedded as part of the everyday operations and culture of the Company and its key advisers. 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 6 to 7. The framework has been in place for the year under review and up to the date of approval of these annual financial statements. Direct communication between the Company and its Investment Adviser’s in-house asset management team is a key element in the effective management of risks within the investment portfolio. The Board continues to monitor the need for an internal audit function but believes the controls and assurance processes applied at the key service providers, alongside the external controls process reviews performed annually, provide robust and sufficient assurance. 48 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS The risk framework is implemented through the following risk control processes: RISK IDENTIFICATION – The Board, Audit and Risk Committee and the Risk Sub-Committee identify risks with additional input from the Company’s Investment Adviser and the Administrator – Key risks are identified at the investment approval stage, where the investment papers include an assessment of key risks as well as potential mitigations. This reflects work performed at the due diligence phase, incorporating input where relevant from specialist advisors appointed to support the investment process – The Board receives detailed quarterly asset management reports highlighting performance and potential risk issues on an investment-by- investment basis – The Audit and Risk Committee 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 any movements in the relative significance of each risk between periods – A robust assessment of principal and emerging risks facing the Company is performed. The assessments build on the wealth of knowledge acquired by the Company and Investment Adviser through both bidding and asset management phases, with risk assessments carried out to quantify and assess risks – Where risks might impact viability, these are assessed further and the Viability Statement on page 58 contains more information of this review RISK MONITORING, REPORTING AND REASSESSMENT – Risks are monitored and risk mitigation plans are reassessed by the Audit and Risk Committee, where applicable, with input from any relevant key service providers, and reported to the Board on a quarterly basis – Annual external controls and process reviews help ensure the robustness of control processes – No significant failings or weaknesses were identified in the review of controls during the year MITIGATION PLAN – For newly identified risks or existing risks with increased likelihood or impact, the Audit and Risk Committee provides oversight in terms of developing an action plan to mitigate the risk and where relevant, enhanced monitoring and reporting is put in place International Public Partnerships Limited Annual Report and financial statements 2022 49 CONTINUOUS RISK MANAGEMENT continUeD continUoUS riSK management CONTINUED DEVELOPMENTS IN THE YEAR IN RELATION TO PRINCIPAL AND EMERGING RISKS UK REGULATORY REGIME ANNOUNCEMENTS The Company is currently invested in Cadent, Tideway and ten OFTOs, all of which are regulated by statutory independent economic regulators with different frameworks. These frameworks are designed to, amongst other things, protect the interests of consumers whilst ensuring that regulated companies can earn a reasonable return on their capital. Investments in regulated assets are considered long-term and therefore, investors typically look beyond any individual regulatory cycle. However, changes in the regulatory regimes have the potential to impact the returns of these regulated assets. Cadent is regulated by Ofgem, which has granted Cadent a licence to distribute gas across certain regions within the UK. Cadent’s licence provides it with five-yearly regulatory price reviews. The next price control period is expected to run from April 2026 to March 2031. In 2023, Ofgem is expected to launch its consultation which will set out its initial proposals on the framework that will be used to determine the revenues that UK gas network companies will be able to earn in the next price control period. Ofgem is not ultimately expected to finalise the revenue determinations until the months prior to the start of the next price control period in April 2026. Tideway is regulated by Ofwat, which has granted Tideway a licence to design, build, finance, commission and maintain a new 25km ‘super sewer’ under the River Thames. Tideway’s licence provides it with no price control review until 2030, after which, it will follow the current five-yearly price control process to which water and wastewater companies are currently subject. The amendments to Tideway’s licence that were agreed with Ofwat in order to mitigate the impact of both Covid-19 related cost overruns and the Financing Cost Adjustment Mechanism came into effect in March 2022. Following earlier public consultations, in October 2022, Ofwat amended the date within Tideway’s licence from which delay penalties can be applied. This change has no impact on the forecast cash flows but rather maintains the headroom within the schedule which would otherwise have been eroded due to the previously announced impact as a result of Covid-19. Ofwat continues to progress its ‘PR24’ review which will be used to determine the revenues that UK water companies will be able to earn in the price control period running from April 2025 to March 2030. Tideway’s licence provides it with no price control review until 2030 and therefore Ofwat’s PR24 review has no direct impact on Tideway. The Company’s OFTO investments are regulated by Ofgem, which has granted those OFTOs a licence to transmit electricity generated by an offshore wind farm into the onshore grid. The licence provides for an availability-based revenue stream at a predetermined rate for a fixed period of time (typically 20-25 years). Please see more information on page 25. COST OF LIVING CRISIS Household incomes are being squeezed as a result of the recent heightened levels of inflation. The Bank of England’s response to curb inflation has been to raise the base rate of interest which is 50 International Public Partnerships Limited Annual Report and financial statements 2022 adding to the financial pressures on UK households. The disruption in the market is leading to large scale industrial action across many sectors of the UK economy including rail, healthcare and education as workers seek improved pay and working conditions. The volatility seen in global financial markets is likely to continue as markets respond to a quickly changing economic environment and 2023 is likely to see further industrial action and disruption. The Company continues to monitor counterparty risk for any issues affecting its service providers in light of challenges faced by these businesses as a result of the current economic environment. The Investment Adviser, building on the experience gained following the liquidation of Carillion Plc and the administration of Interserve Plc, is well placed to respond to any issues arising from its service providers and has contingency plans in place to allow for a smooth transition of contracts to an alternative service provider if required. Please see further information on page 54. INTEREST RATES Recent increases in interest rates and government bond yields could impact the Company in a variety of ways including, discount rates applied to forecast cash flows, deposit rates affecting the amount of interest earned from cash held; and/or the cost of any new or replacement debt that needs to be procured. Historically, discount rates have not moved in lockstep with government bond yields and demand for infrastructure assets remains strong. Increased cash flows resulting from higher inflation expectations, foreign exchange gains derived from the weakening of Sterling, and greater interest earned from cash balances may also play a mitigating role in any potential future discount rate valuation movements. Due to the fixing or hedging of the vast majority of debt in the portfolio, increases in the cost of debt have a limited impact on current debt costs. Investments which do not have a pre- determined concession term or licence period may contain an element of refinancing exposure. Revenues for regulated assets are frequently adjusted by the regulator to compensate for changes in the market cost of debt, and other businesses which operate in industries with high barriers to entry would typically expect to be able to pass on a majority of changes in their cost base to counterparties. COVID-19 The Covid-19 pandemic continued to impact businesses across the world during the year. However, the Company is reassured by the operational performance of its portfolio to date. The overwhelming majority of revenue comes from availability-based payments or regulated cash flows that generally provide a range of protections against adverse scenarios. Short-term impacts have been witnessed in certain assets with demand-based risk, although operational performance of these assets has remained strong. The Company continues to monitor and where possible take action to avoid or mitigate any such impacts on its portfolio. Whilst the full long-term consequences of the pandemic are not yet known, the Company believes that its business model continues to offer a significant degree of protection to shareholders. overview STRATEGIC REPORT corporate governance Financial StatementS CLIMATE CHANGE Climate change is a key focus for the ESG Committee, ensuring that the Company continues to evolve its approach to considering both the risks and opportunities it presents. Climate change would most likely manifest itself through impact on physical assets (risk 4) and changes in climate-related regulation (risk 9). Climate change is therefore considered both as a current and emerging risk. During the year, the Company commissioned a third-party to support it in enhancing its assessment of climate change risks. Please see more information from page 38 in this Report and Sections 3 and 4 of the Sustainability Report. WAR IN UKRAINE The Company continues to actively monitor the war in Ukraine to ensure that the portfolio of investments is protected, to the extent it can be, from the direct and indirect impacts of the war. The Company does not hold any investments in the impacted region and we are not aware of any material direct implications for the Company or its portfolio. FURTHER INFORMATION A description of broader risk factors relevant to investors is disclosed in the latest Company prospectus available on the website www.internationalpublicpartnerships.com. RISKS ASSESSMENT AGGREGATE RISK ASSESSMENT The Company’s identified risks have been mapped to the five different risk categories: political, portfolio operations, macroeconomic, regulation and compliance, and central operations. RISK ASSESSMENT Aggregate risk assessment Political Portfolio operations Macroeconomic Regulation & compliance Central operations Lower Medium Higher ASSESSED RISK POSITION The chart summarises the overall residual level of risk facing the Company, presenting a combined assessment which incorporates the potential impact arising from not only the Company’s principal risks, but from all of the Company’s other identified risks: – Political risk incorporates risks arising from government policy and actions; – Portfolio operations risk incorporates risks arising from asset operations and ongoing investment performance, including regulatory risk impacting at asset level; – Macroeconomic risk incorporates risks arising in the wider economy, including inflation and interest rates; – Regulation and compliance risk incorporates risks arising from new laws and regulations applicable to the Company and its assets; and – Central operations risk incorporates risks arising from the management of the portfolio. The relative impact assessed to be arising from each risk has been combined to present a holistic position, giving stakeholders a more complete picture of the Company’s residual risk position. Those risks of the Company which are assessed to be the principal risks are separately identified, and further discussed overleaf. International Public Partnerships Limited Annual Report and financial statements 2022 51 CONTINUOUS RISK MANAGEMENT continUeD continUoUS riSK management CONTINUED PRINCIPAL RISKS This section provides a summary of the Board’s assessment of the Company’s principal risks. This is not intended to highlight all the potential risks to the business. There may be other risks that are currently unknown or regarded as less material, which could turn out to materially impact the performance of the Company, its assets, capital resources and reputation. Where the Company has applied mitigation processes, it is unlikely that the techniques applied will fully mitigate the risk. POLITICAL 1. POLITICAL POLICY DESCRIPTION MITIGATION The businesses in which the Company invests are subject 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. Governments 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. Change in political policy Political policy and public financing decisions may adversely impact either existing investments, or the Company’s ability to source new investments at attractive prices or at all. This may impact the Company’s reputation. Adverse changes to policies may directly or indirectly result from reputational developments seen across the wider sector. Termination of contracts Contracts between public sector bodies and the Company’s investment entities may contain rights for the public sector to terminate contracts in specific situations. While the contracts typically provide for some compensation in such cases, this may be less than required to sustain the Company’s valuation. There have been instances of contracts being voluntarily terminated in the UK (although not affecting the Company). Nationalisation Longer-term political policy pressures arising as a consequence of Brexit in the UK or the Covid-19 pandemic more globally remain uncertain, so the possible risk of nationalisation can be seen to remain over the medium-term. 52 International Public Partnerships Limited Annual Report and financial statements 2022 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 UK, around the role of the private sector in the provision of such services. The Company seeks to maintain strong and positive relationships with its public sector clients and external stakeholders where possible. The Company engages with its public sector clients in developing cost-saving initiatives and seeks to act as a ‘good partner’ including a focus 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 UK. The Code 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. The Company believes significant compensation would be required in order to enact this policy legitimately within existing contractual arrangements. Therefore, given the state of public finances, we maintain the view that the Company is defensively positioned in this regard. overview STRATEGIC REPORT corporate governance Financial StatementS 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 PORTFOLIO OPERATIONS 2. ASSET PERFORMANCE DESCRIPTION MITIGATION Construction For the Company’s assets under construction, there is an element of construction risk that takes the form of cost overruns or delays which could impact on investment returns. The construction industry continues to see implications resulting from the Covid-19 pandemic, which contain potential consequential impacts on the Company. Operational performance Assets in the portfolio have revenues which are based on the availability of the asset, as well as revenues not solely dependent on availability but with linkage to other factors including demand risk or 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 result in a reduction in the income that the Company has projected to receive. A number of investments in the portfolio are subject to regulatory regimes which are designed by the regulators to, among other things, protect the interests of consumers whilst ensuring that regulated companies are able to earn a reasonable return on their capital. Changes in the regulatory regimes have the potential to impact the returns of the Company’s two regulated assets. A number of investments in the portfolio assume residual values which are expected to be received from the assets on completion of the project contract or at the end of the expected investment holding period. Amounts which are realised may be different from current assumptions. Cyber Security Cyber security continues to be an issue of focus for the Company with growing levels of sophistication seen in the use of cyber attacks targeting businesses. The Company and the assets in its portfolio can be impacted by cyber security in a number of ways including asset operational performance, financial loss, or reputational impact. Performance-Related 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 and delay risk to subcontractors and/ or consumers, subject to credit risk (see below). The Company’s investment in Tideway benefits from a government support mechanism which ultimately backstops investors’ downside risk in the event of a major construction cost overrun. Tideway construction works were approximately 85% complete as at 31 December 2022. The Board reviews the performance of each investment on a quarterly basis and historically has seen consistently high levels of asset availability. 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 subcontractors in many cases, subject to credit risk (see below). In addition, investments in regulated assets are considered very long-term by the Company, beyond any individual regulatory cycle. This long-term view of such assets takes into account the robustness of yield as well as the potential for increases in the regulated asset base over time. The Company, through its Investment Adviser, has sight of detailed business continuity plans of its counterparties designed to manage services in adverse circumstances. In addition, the Company has the ability to pass down certain costs to the service providers and can potentially rely on business interruption cover where available. Residual value assumptions are based on prevailing market expectations and where possible recent market evidence. The nature of the Company’s assets should provide some mitigation to the risk of a reduction in demand for the assets at the end of the expected investment holding period. Layers of control exist across the portfolio designed to mitigate cyber security risk as far as possible for the Company and its assets. This includes dedicated controls and processes at fund, as well as, operational asset levels. The ways in which cyber security is further supported through the portfolio includes management focus at asset level, use of specialist external IT service providers and external controls reviews, for example. In the event of significant and continuing unavailability across the Company’s portfolio, the Company is able to terminate the Investment Advisory Agreement. This serves to reinforce alignment of interest between the Company and the Investment Adviser. International Public Partnerships Limited Annual Report and financial statements 2022 53 CONTINUOUS RISK MANAGEMENT continUeD continUoUS riSK management CONTINUED PORTFOLIO OPERATIONS continUeD 3. COUNTERPARTY RISK DESCRIPTION MITIGATION 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. This could negatively impact the Company’s cash flows and valuation. 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. 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 suppliers on a regular basis. Most of the services provided to the Company’s investments are reasonably well established with a number of 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. The Company closely monitors the risk of adverse developments occurring in relation to its significant counterparties, and develops contingency plans as appropriate to ensure risk of counterparty failure is minimised. 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 to credit deterioration of the counterparties of these swaps. The credit risk of such swap counterparties is considered at the time of entering into these arrangements and is regularly reviewed. The Company aims to use reputed financial institutions with good credit ratings. 4. PHYSICAL ASSET RISK DESCRIPTION MITIGATION 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. Health and safety data is monitored across the portfolio to highlight any areas of focus and ensure appropriate safety measures are in place. Climate change Investments may be subject to extreme weather and changes in precipitation and temperature, all of which may result in physical damage to assets. During the year, the Company commissioned a third-party to work alongside its Investment Adviser to assess alignment with the recommendations of TCFD. The Company has continued to update its investment processes, further strengthening climate considerations within investment screening and diligence, ensuring these are considered from the earliest point in the investment cycle. 54 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS PORTFOLIO OPERATIONS continUeD 5. CONTRACT RISK DESCRIPTION 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. MACROECONOMIC 6. INFLATION DESCRIPTION Inflation may be higher or lower than expected. The net cash flows from the Company’s investment portfolio are positively correlated to inflation. Should actual inflation turn out to be higher or lower than the rates assumed by the Company at the relevant valuation date, this would be expected to impact positively or negatively, respectively, on the Company’s projected cash flows. The level of inflation-linkage across the investments held by the Company varies and is not consistent. 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. MITIGATION Such contracts have been entered into, usually only after extensive 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. The Company benchmarks its inflation forecasts to credible independent sources MITIGATION The Company uses a long-term view of inflation within its forecasts, benchmarked where possible to independent analysis. It also provides sensitivities to investors indicating the projected impact on the Company’s NAV of alternative inflation scenarios, offering investors an ability to anticipate the likely effects alternative inflation scenarios may have on their investment. The Company monitors the effect of inflation on its portfolio through its biannual valuation process. International Public Partnerships Limited Annual Report and financial statements 2022 55 CONTINUOUS RISK MANAGEMENT continUeD continUoUS riSK management CONTINUED MACROECONOMIC continUeD 7. FOREIGN EXCHANGE MOVEMENTS DESCRIPTION MITIGATION A portion of the Company’s investment portfolio has cash flows which are denominated in currencies other than Sterling, but the Company 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. The Company uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange rates on the Sterling value of cash flows 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 the ability to anticipate the likely effects of some foreign exchange scenarios on their investment. The Company continues to be mindful of the potential for exchange rate volatility in light of international economic and political change. The Company notes that a devaluation of Sterling against the relevant currencies would typically have a positive impact on the NAV. The opposite would be true for an increase in the value of Sterling. 56 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS MACROECONOMIC continUeD 8. INTEREST RATES DESCRIPTION The Company is monitoring the potential impacts of increased inflation on interest rates. MITIGATION Changes in market rates of interest can affect the Company in a variety of different ways: Valuation discount rate 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 discount rates will have a negative impact on valuation while lower rates will have a positive impact. Corporate Debt Facility Floating rate interest is charged on the CDF, so higher than anticipated interest rates will increase the cost of this facility. Underlying portfolio considerations Portfolio entities typically choose or can be required to hold various cash balances. 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. Certain assets within the portfolio contain refinancing assumptions. Increases in lending rates available to these projects would have the potential to increase their cost of financing and therefore impact the overall returns from these assets. In 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 the overall discount rates. The investment risk premia may provide a buffer against rising bond yields assuming market demand for investment is sustained. Higher interest rates can often be precipitated by higher inflation expectations, and therefore any inflation-linkage (discussed above) 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 CDF at any time with minimal notice, providing sufficient funds are available. The CDF remains available to March 2024. The facility is £400 million in size (including a £150 million uncommitted ‘accordion’) compared to a current investment portfolio valuation of c.£2.9 billion. As presented in the sensitivity analysis, variations in cash deposit rates have little impact on the Company’s NAV. The Company monitors the effect of historical and projected interest rates on its portfolio through its biannual valuation process and reports this to investors. The risk of adverse movements in debt interest rates for unhedged debt within regulated entities is limited through protections provided by the regulatory regime; however, the Company may potentially be exposed to interest rate risk on debt outside of the regulatory structure. International Public Partnerships Limited Annual Report and financial statements 2022 57 CONTINUOUS RISK MANAGEMENT continUeD continUoUS riSK management CONTINUED REGULATION AND COMPLIANCE 9. LAW AND REGULATION DESCRIPTION MITIGATION Change in law or 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. Transition to net zero In 2019, the UK Government committed to the net zero target as recommended by the Climate Change Committee. Reaching net zero GHG emissions requires extensive changes across the economy. Major infrastructure decisions need to be made in the near future. These changes are unprecedented in their overall scale and therefore may impact the use case of a variety of infrastructure including altering the way infrastructure is operated and utilised. Some investments maintain a reserve or contingency designed to meet a 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. The possibility remains for there to be changes in law or regulation (including, for example, in relation to climate change) that have the potential to impact costs or obligations of the Company or portfolio projects, which may not be fully capable of mitigation. The Company closely monitors changes in laws and regulations to ensure that the Company remains compliant with its obligations and minimises cost exposures wherever possible. A large portion of the Company’s investments are availability type assets where the cash flows are based on making the asset available in a pre-agreed manner. The cash flows from such investments are largely insulated from the impacts of the transition to net zero. The changes arising from a transition to a low-carbon economy have the potential to be wide-ranging, including adapting to decarbonisation of heat, increased electrification of transportation and other systems previously dependent on fossil fuels, and decarbonisation of construction. It is expected infrastructure will continue to play a key role in the transition to a low-carbon economy. The Company believes the portfolio to be well placed for the transition to net zero. 10. TAX DESCRIPTION Change in tax rates Rates of tax, both in the UK and overseas jurisdictions in which the Company operates, may increase in the future if government policy were to change. 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). MITIGATION The Company typically incorporates tax rates changes within its forecast cash flows once substantively enacted, or where there is a reasonable expectation of substantial enactment shortly after the valuation date and continuously monitors for changes in tax rates. The Company 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. 58 International Public Partnerships Limited Annual Report and financial statements 2022 overview STRATEGIC REPORT corporate governance Financial StatementS CENTRAL OPERATIONS 11. FINANCIAL FORECASTS DESCRIPTION MITIGATION The Company’s projections depend on the use of financial models to calculate its future projected investment returns. There may be errors in any of these financial models, including calculation, input, logic, and output errors. Once corrected, such errors may lead to a revision in projected cash flows and thus impact valuation. The financial forecasts of certain operating infrastructure businesses can have more variability than contracted concessions, given the wider range of variables that apply and are therefore inherently more difficult to forecast accurately. 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 rates, 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. The financial models used to generate financial forecasts are generally subject to model audit by external professional service 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 forecasts will be realised, particularly in relation to operational infrastructure businesses where more variables apply. Investments in regulated businesses are considered very long- term, beyond the much shorter regulatory cycles. Valuations of such businesses should take into account robustness of yield and potential for increases in regulated asset base over time. Financial models are managed by a dedicated team with a background in financial modelling and experience of managing models in a manner that seeks to minimise the risk of error. Sensitivities are produced for the information of relevant stakeholders and are accompanied by disclaimers and guidance explaining that limited reliance can be placed upon them. International Public Partnerships Limited Annual Report and financial statements 2022 59 CONTINUOUS RISK MANAGEMENT continUeD continUoUS riSK management CONTINUED VIABILITY STATEMENT In accordance with provision 31 of the 2018 revision of the UK 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 the 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: The viability assessment is approved by the Board. Following the assessment, the Board has a reasonable expectation that the Company will be able to continue in operation and meet all of its liabilities as they fall due up to March 2028. This assessment is based on the following assumptions which are not within the Company’s control: – No significant changes to government policy, tax, 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 2022 NAV valuation; and – Continued availability of sufficient capital and market liquidity to allow for refinancing/repayment of any short-term recourse debt facility obligations as they become due, including in relation to the Company’s debt facility which remains available to March 2024. 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 73 to 75; MIKE GERRARD CHAIR 29 March 2023 JOHN LE POIDEVIN DIRECTOR 29 March 2023 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 given the linkage of revenues to inflation across many investments); large currency fluctuations impacting on receipts from overseas investments; and the impact of the loss of income from investments (whether due to key subcontractor default, or other reason for 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. 60 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS CORPORATE GOVERNANCE SUMMARY OF INVESTMENT POLICY OVERVIEW The Company invests in public or social infrastructure assets and related businesses located in the UK, Australia, Europe, North America and other parts of the world where the risk profile meets the Company’s risk and return requirements. 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. 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. 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. The Company does not currently expect to invest to any material extent in infrastructure projects located in non-OECD countries in the foreseeable future. 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 Asset Management section on pages 22 to 27 has details of the current composition of the investment portfolio. As a London Stock Exchange listed company, the Company is also subject to certain restrictions pursuant to the UKLA Listing Rules. MANAGING CONFLICTS OF INTEREST Further investments will continue to be sourced by the Investment Adviser, Amber Fund Management Limited. Some of these investments will have been originated and developed by, and in certain cases may be acquired from, members of the Amber Infrastructure Group. The Company has established detailed procedures to deal with conflicts of interest that may arise and manage conduct in respect of any such acquisition. The Corporate Governance Report sets out more details on the conflicts management process. FINANCIAL MANAGEMENT The Company may also make prudent use of leverage to enhance returns to investors, to finance the acquisition of investments in the short-term and to satisfy working capital requirements. Under the Company’s Articles, outstanding borrowings at the Company level, including any financial guarantees to support subscription obligations in relation to investments, are limited to 50% of the Gross Asset Value (‘GAV’) of the Company’s investments and cash balances. The Company has the ability to borrow in aggregate up to 66% of such GAV on a short-term basis (i.e. less than 365 days) if considered appropriate. Details of the Company’s CDF can be found on page 28. CHANGES TO INVESTMENT POLICY Material changes to the Investment Policy summarised in this section may only be made by ordinary resolution of the shareholders in accordance with the UK Listing Rules. International Public Partnerships Limited Annual Report and financial statements 2022 61 BOARD OF DIRECTORS The table below details all Directors of the Company at the date of this Report MIKE GERRARD Board Chair JULIA BOND Chair, ESG Committee STEPHANIE COXON Chair, Nomination and Remuneration Committee SALLY-ANN DAVID Chair, Risk Sub-Committee DATE OF APPOINTMENT: 4 September 2018 DATE OF APPOINTMENT: 1 September 2017 DATE OF APPOINTMENT: 1 January 2022 DATE OF APPOINTMENT: 10 January 2020 BACKGROUND AND EXPERIENCE A resident in the UK, Mike has over 30 years of financial and management experience in global infrastructure investment. 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 UK plc and, later, a managing director of Thames Water Utilities Limited. 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 UK. He is a Fellow of the Institution of Civil Engineers. LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS Mike holds no other listed company positions but holds several non-executive positions within boards and committees that oversee the development and delivery of infrastructure investments in the UK and Europe. BACKGROUND AND EXPERIENCE A resident in the UK, Julia has over 25 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. BACKGROUND AND EXPERIENCE A resident of Guernsey, Stephanie is a Fellow of the Institute of Chartered Accountants in England and Wales and is a non-executive director on several London listed companies. Prior to becoming a non- executive director, Stephanie led the investment trust capital markets team at PwC for the UK and Channel Islands. During her time at PwC, Stephanie specialised in advising FTSE 250 and premium London-listed companies on accounting, corporate governance, risk management and strategic matters. BACKGROUND AND EXPERIENCE A resident of Guernsey, Sally-Ann has over 35 years of experience in infrastructure projects in the energy sector, including international offshore transmission systems and the challenges of the energy transition. Having held senior positions within the power utility arena, Sally-Ann is currently the Chief Operating Officer of Guernsey Electricity Ltd. She is a Chartered Engineer and Chartered Director. LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS – European Assets Trust (‘EAT’) – Foreign, Commonwealth & LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS – PPHE Hotel Group Limited – JLEN Environmental Assets LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS – Guernsey Electricity Ltd – Channel Islands Electricity Development Office (‘FCDO’) Group Limited Grid – Strategic Command (MoD) – Apax Global Alpha Limited – Board member of The Association of Investment Companies – European Marine Energy Centre Ltd Sally-Ann is also a director of a health-related charity. All of the independent directors are members of all Committees with the exception of Mike Gerrard, who is not a member of the Audit and Risk Committee. Giles Frost is a non-independent director. 62 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS COMMITTEE MEMBERSHIP KEY: Audit and Risk Committee ESG Committee Investment Committee Management Engagement Committee Nomination & Remuneration Committee Risk Sub-Committee MERIEL LENFESTEY Chair, Management Engagement Committee JOHN LE POIDEVIN Chair, Audit and Risk Committee, Senior Independent Director from May 2022 GILES FROST CLAIRE WHITTET Senior Independent Director until May 2022 DATE OF APPOINTMENT: 10 January 2020 DATE OF APPOINTMENT: 1 January 2016 DATE OF APPOINTMENT: 2 August 2006 BACKGROUND AND EXPERIENCE A resident of Guernsey, Meriel has 28 years of multi-sector business experience. BACKGROUND AND EXPERIENCE A resident of Guernsey, John has over 30 years of business experience. With a background in human- centred design for technology, she brings a strategic end- user focus and a broad set of experiences encompassing many sectors and scales of organisation ranging from her own start-ups through global corporations and governmental programmes. 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 UK and overseas. John is a non-executive director on several plc boards and chairs a number of audit committees. BACKGROUND AND EXPERIENCE A resident in the UK, Giles is a founder of Amber Infrastructure and has worked in the infrastructure investments sector for over 20 years. Giles is chair and a director of Amber Infrastructure Group Holdings Limited, the ultimate holding company of the Investment Adviser to the Company and various of its subsidiaries. LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS – Bluefield Solar Income Fund Limited – Ikigai Ventures Limited – Boku, Inc. Meriel also sits on another commercial board; Jersey Telecom, and is a committee member for the Guernsey Institute of Directors LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS – BH Macro Limited – TwentyFour Income Fund Limited – Super Group (‘SGHC’) Limited 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 these roles. DATE OF APPOINTMENT: 2 August 2006 DATE OF RETIREMENT: 25 May 2022 BACKGROUND AND EXPERIENCE A resident of Guernsey, Claire has over 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 a non- executive director of a number of listed and private equity investment companies, none of which is a trading company. Claire is a member of the Chartered Institute of Bankers in Scotland, the Chartered Insurance Institute and the Institute of Directors and is a Chartered Banker, and holds the Institute of Directors Diploma in Company Direction. LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS – BH Macro Limited – Eurocastle Investment Ltd – Riverstone Energy Ltd – TwentyFour Select Monthly Income Fund Ltd – Third Point Offshore Investors Ltd International Public Partnerships Limited Annual Report and financial statements 2022 63 CORPORATE GOVERNANCE REPORT MIKE GERRARD CHAIR INTRODUCTION The Board of Directors are 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 and FTSE All-Share indices. 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 its 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. 64 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS COMPLIANCE WITH CORPORATE GOVERNANCE CODES AND REGULATIONS The Company has a Premium Listing on the London Stock Exchange and is required to confirm its compliance with (or explain departures from) the UK Corporate Governance Code (the ‘UK Code’). The Company is a member of the Association of Investment Companies (the ‘AIC’) and has put in place arrangements to comply with the AIC Code which, in accordance with the AIC Code, enables it to comply with the UK Code in areas that are of specific relevance to investment companies. The Guernsey Financial Services Commission (the ‘GFSC’) has confirmed that companies that report against the UK Code or AIC Code are deemed to meet the Guernsey Code of Corporate Governance. The AIC Code is available from the AIC website (www.theaic.co.uk). The UK Code is available from the FRC website (www.frc.co.uk). As an investment company, most of the Company’s day-to-day responsibilities are delegated to third parties. The Company does not have any executive directors. The UK Code’s two separate principles of setting out the responsibilities of the chief executive and disclosing the remuneration of executive directors (Principles G and Q of the UK Code) are therefore not applicable. For the purposes of the AIC Code, Giles Frost is not treated as 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 were independent of the Company’s Investment Adviser on appointment to the Board and continue to remain so. BOARD TENURE AND RE-ELECTION Directors do not have service contracts. Directors are appointed under letters of appointment, copies of which are available at the registered office of the Company. All directors offer themselves for re-election on an annual basis. The Board considers its composition and succession planning on an ongoing basis. 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. Stephanie Coxon joined the Board on 1 January 2022 and was elected by shareholders at the 2022 AGM. Claire Whittet retired from the Board following the conclusion of the 2022 AGM. Although the Company is registered in Guernsey, in accordance with the guidance set out in the AIC code, this Annual Report contains a description of how the Directors have considered matters set out in Section 172 of the UK Companies Act 2006 in relation to stakeholder engagement and the success of the Company. See pages 46 to 47 for more information. 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 and is available on the Company’s website, www.internationalpublicpartnerships.com. During the year, the Company was subject to the UK Packaged Retail and Insurance-based Investment Product (‘PRIIPs’) Regime (‘the Regulation’). In accordance with the requirements of the Regulation, the Company published and updated its three-page Key Information Document (‘KID’) on 8 September 2022. The KID is available on the Company’s website, www. internationalpublicpartnerships.com/investors, and will be updated following the publication of the Company’s financial results, in accordance with the amendments required by the Regulation and thereafter 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 approval 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 currently consists of seven non-executive directors, whose biographies, on pages 62 to 63, demonstrate a breadth of investment and business experience. The Board is chaired by Mike Gerrard, who was considered to be independent upon appointment and remains independent throughout his term of service for the purposes of the AIC Code. These reserved powers of the Board have been adopted by the Directors to demonstrate clearly the importance with which the Board takes its fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of its actions. The Board monitors the Company’s share price and NAV and regularly considers ways in which shareholder value may be enhanced. These may include implementing marketing and investor relations activities, appropriate management of share price premium/discount and the relative positioning and performance of the Company to its competitors. The Board is also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Individual directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors’ and Officers’ liability insurance in respect of legal action against its directors on an ongoing basis and the Company has maintained appropriate cover throughout the year. 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 Board Chair, all directors are entitled to receive other relevant ongoing training as necessary. International Public Partnerships Limited Annual Report and financial statements 2022 65 CORPORATE GOVERNANCE REPORT continUeD Director Mike Gerrard Julia Bond Stephanie Coxon1 Sally-Ann David Meriel Lenfestey John Le Poidevin Giles Frost2 Claire Whittet3 2022 Fees £ 2021 Fees £ 98,600 60,619 55,356 55,825 55,356 71,655 53,500 23,956 87,600 50,400 - 48,400 46,400 59,800 46,400 50,400 1 Stephanie Coxon was appointed to the Board on 1 January 2022. 2 The emoluments for Giles Frost are paid to his employer Amber Infrastructure Limited, a related company of the Company’s Investment Adviser. 3 Claire Whittet resigned from the Board on 25 May 2022. Giles 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, John Le Poidevin served as a director to four Luxembourg subsidiary entities of International Public Partnerships and was entitled to fees of £3,000 per entity for the year ended 31 December 2022. The Nomination and Remuneration Committee recommended an increase to £3,150 per entity for 2023. DIRECTORS’ INTERESTS Directors, who held office at 31 December 2022, had the following interests in the shares of the Company: Director Mike Gerrard Julia Bond Stephanie Coxon2 Sally-Ann David Meriel Lenfestey John Le Poidevin Giles Frost3 Claire Whittet4 31 December 2022 Number of Ordinary Shares1 31 December 2021 Number of Ordinary Shares1 243,447 106,542 10,000 30,303 25,142 327,898 971,676 114,102 159,181 72,444 – 30,303 9,979 160,653 971,676 76,248 1 All shares are beneficially held. 2 Stephanie Coxon was appointed to the Board on 1 January 2022. 3 Holds some shares through a personal investment company. 4 Holds shares through a Retirement Annuity Trust Scheme jointly with Claire Whittet’s spouse. Resigned from the Board on 25 May 2022. There have been no changes to the holdings of existing directors between 31 December 2022 and the date of this Report. 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 ensure Board diversity amongst its Board members. The Board currently has four female directors, making the gender balance 57% female and 43% male. Currently, the Management Engagement Committee Chair, the ESG Committee Chair, the Nomination and Remuneration Committee Chair and the Risk-Sub Committee Chair positions are all held by female directors. Prior to Claire Whittet’s retirement in May 2022, she held the role of SID. In addition, post-year end, the Company was listed as one of the FTSE 250’s ‘Top 10 Best Performers’ for gender diversity in the FTSE Women Leaders review 2022 and thirteenth in the ‘FTSE 350’s Investment Trust Rankings 2022 Women on Boards only’. The Board has concluded that it is of an appropriate size relative to the assets of the Company, with good diversity of skills, gender and experience. However, we are aware of the need to add further diversity to the Board and will consider this in our succession planning in the coming years. 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). All fees payable to the Directors should also 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 Nomination and Remuneration Committee proposes and the Board has, subject to investors’ approval, agreed to implement an inflationary uplift of 5% to remuneration with effect from 1 January 2023, as outlined in the table below. Whilst this increase is lower than current inflation rates, it is to maintain Directors’ fees at a competitive level, in line with peers and to avoid a large increase in future years. Position 2023 Fee P.A. £ 2022 Fee P.A. £ Board Chair Audit and Risk Committee Chair Director (Independent and Non-Independent) Senior Independent Director1 3,800 Risk Sub-Committee Chair1 3,250 Management Engagement Committee Chair1 3,250 Nomination and Remuneration Committee Chair1 3,250 ESG Committee Chair1 5,350 101,400 96,600 73,000 69,500 56,200 53,500 3,600 3,100 3,100 3,100 5,100 1 These are additional fees payable to directors chairing a committee. 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 AGM of the Company. 66 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS COMMITTEES OF THE BOARD The Board has established five 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 (www.internationalpublicpartnerships.com). In addition to the Chair of the Board, a Senior Independent Director is appointed as an alternative point of contact for shareholders and leads on matters where it is not appropriate for the Chair to do so. BOARD Responsibilities – Statutory obligations and public disclosure – Sets overall strategy for investments – Strategic matters and financial reporting 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 responsible for oversight and remuneration of the external auditor – Board composition and accountability to shareholders – Risk assessment and management including reporting compliance, monitoring, governance and control – Responsible for financial statements 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 INVESTMENT COMMITTEE Delegated responsibilities – Review investment and divestment proposals, including ensuring that proposals are properly prepared and that the approval process has been followed NOMINATION AND REMUNERATION COMMITTEE Delegated responsibilities – Undertake annual Board performance evaluation – Review remuneration of the Board and its Committees – Review, and change as necessary, structure, size and – Ensure proposals are compliant with the Company’s composition of the Board Investment Policy and strategy – Ensure that proposals do not breach Articles of – Identify and appoint suitable Board candidates as vacancies arise and ensure succession planning is in place Incorporation, Prospectus or other constitutional documents – Articulate the roles of the Chair and Non-Executive – Determine whether proposals are appropriate for investment or divestment and then, assuming the opportunity is approved, authorise the Investment Adviser to enact the transaction Directors – Conduct induction training for new Board members ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE Delegated responsibilities – Review the Company’s ESG policies, principles – Challenge the implementation of ESG policies through and standards – Provide strategic advice to the Board on ESG-related matters and policies the investment and divestment approval process – Provide a forum in which the Board and Investment Adviser can discuss and share ideas in relation to evolving ESG-related initiatives International Public Partnerships Limited Annual Report and financial statements 2022 67 CORPORATE GOVERNANCE REPORT continUeD AUDIT AND RISK COMMITTEE The Audit and Risk Committee is comprised of the full Board, with the exception of Mike Gerrard as Board Chair and Giles Frost as the Non-Independent Director. However, Mike Gerrard and Giles Frost routinely attend meetings of the Audit and Risk Committee as observers. John Le Poidevin is the current Chair of the Audit and Risk Committee and Sally-Ann David is the current Chair of the Risk Sub-Committee. The duties of the Audit and Risk Committee in discharging its responsibilities are outlined in the Audit and Risk Committee Report on page 73 to 75. 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. Topics considered during the year can be found in the Audit and Risk Committee Report on pages 73 to 75. 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 Giles Frost as the Non-Independent Director, and is chaired by Mike Gerrard, as Chair of the Company. The Committee considers proposals relating to the acquisition and disposal of investments and, if thought fit, approves those proposals. Details of the transactions completed during the year are outlined on pages 16 and 17 of this Annual Report. MANAGEMENT ENGAGEMENT COMMITTEE The Management Engagement Committee is comprised of the full Board, with the exception of Giles Frost as the Non-Independent Director; it is chaired by Meriel Lenfestey who succeeded Claire Whittet as Chair of the Management Engagement Committee following her retirement from the Board after the conclusion of the 2022 AGM. The duties of the Management Engagement Committee in discharging its responsibilities are outlined in the diagram on page 67. The Management Engagement Committee carries out its review of the Company’s advisers through consideration 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 Giles Frost as the Non-Independent Director; it is chaired by Stephanie Coxon who succeeded Julia Bond with effect from 25 May 2022. The Committee is formally charged by the Board to consider the structure, size, remuneration, skills and composition of the Board. This includes its diversity and inclusion development in line with the Company’s responsible investment objective and management of material ESG factors, ensuring diversity is strongly reflected at Board level as outlined on page 66. It also oversees the appointment and reappointment of directors, taking into account the expertise and diversity of the candidates and their independence (see page 67 for more detail on the Committee). In accordance with the UK 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. The last review was undertaken in 2020 and the Nomination and Remuneration Committee have commenced preparations ahead of the 2023 externally facilitated evaluation process. In 2022, the Nomination and Remuneration Committee has undertook an internal evaluation of the performance of the Board and Chair. Each Director was asked to provide written feedback regarding the performance of the Board as a whole and the Chair set against a range of best practice corporate governance criteria. A report of this feedback was considered by the Nomination and Remuneration Committee. No material issues were identified by the Directors regarding the performance of the Board and Chair. 68 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS ESG COMMITTEE The ESG Committee is comprised of the full Board and is chaired by Julia Bond. The Company’s ESG Committee provides a forum for discussion, support and challenge with respect to ESG matters, including the adoption of policies by the Company in relation to both investments and divestments, as well as Amber’s asset management activities and reporting policies. The ESG Committee meets at least twice a year and supports the Board in managing the Company’s ESG performance. Please refer to the Company’s Sustainability Report for more information on the ESG Committee and workstreams that have been delivered during the year. BOARD AND COMMITTEE MEETING ATTENDANCE The full Board meets at least four times per year and in addition there is regular additional contact between the Board, the Investment Adviser, the Administrator and the Company Secretary. The agenda and supporting papers are distributed in advance of quarterly Board and Committee meetings to allow time for appropriate review and to facilitate full discussion at the meetings. The table below lists Directors’ attendance at Board and Committee meetings during the year. In addition, during the year, three ad-hoc Board meetings and six Board Committee meetings1 took place to finalise matters that had been approved in principle at full meetings of the Board. Furthermore, two ad-hoc Investment Committee meetings were held during the year in accordance with the terms of the Committee to consider investment recommendations prepared by the Investment Adviser. Directors Maximum number Mike Gerrard2 Julia Bond Stephanie Coxon3 Sally-Ann David Meriel Lenfestey John Le Poidevin Giles Frost4 Claire Whittet5 Quarterly Board Audit and Risk Committee ESG Committee Management Engagement Committee Nomination and Remuneration Committee 4 4 4 4 4 4 4 4 2 5 N/A 5 5 5 5 5 N/A 2 4 4 4 4 4 4 4 4 2 1 1 1 1 1 1 1 N/A 0 3 3 3 3 3 3 3 N/A 1 1 2 3 4 5 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 Board Chair, Investment Adviser or other advisers, as required. Mike Gerrard is not a member of the Audit and Risk Committee but attended these meetings as an observer. Stephanie Coxon was appointed to the Board on 1 January 2022. Giles Frost is not a member of the Audit and Risk Committee, Management Engagement Committee, Nomination and Remuneration Committee or the Investment Committee. While Giles 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. Claire Whittet retired from the Board on 25 May 2022 and therefore did not attend any Board or Committee meetings during the remainder of 2022. 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 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 at all Board and Committee meetings during the year was 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. Please refer to pages 65 to 66 outlining the Board’s approach to diversity and re-election. International Public Partnerships Limited Annual Report and financial statements 2022 69 CORPORATE GOVERNANCE REPORT continUeD RELATIONSHIP WITH ADMINISTRATOR AND COMPANY SECRETARY Ocorian Administration (Guernsey) Limited (‘Ocorian’) 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, corporate governance best practice 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 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 the 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 but is less than £2.75 billion; – 0.8% per annum where GAV value exceeds £2.75 billion. In addition, the 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 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. 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. 70 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS 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 Investment 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, which covers the Company and its consolidated subsidiaries and therefore the consolidated Group taken as a whole, is outlined in further detail in the Risk Report found on pages 48 to 60. 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 summarised below is followed. MANAGING CONFLICTS OF INTEREST The Company has established detailed procedures to deal with conflicts of interest that may arise on investments acquired from the Investment Adviser’s group and manage conduct in respect of any such acquisitions. The Company’s Board has a majority of independent members and a Chair 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. For more detail on the features of this procedure please refer to the Company’s latest prospectus available on the website: www.internationalpublicpartnerships.com. International Public Partnerships Limited Annual Report and financial statements 2022 71 CORPORATE GOVERNANCE REPORT continUeD RELATIONS WITH SHAREHOLDERS The Board places great importance on communication with shareholders and encourages shareholders to share their views. 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 Board Chair and other Directors, including the Senior Independent Director, are happy to make themselves available to meet shareholders as required. During the year, the Company’s Results Presentations and day-to- day investor relations activities were mostly held online although post-Covid-19 there have been an increasing number of face-to- face meetings. During 2022, the Investment Adviser and members of the Board held formal meetings with over 200 shareholders in addition to more informal interactions. In addition, the Company held its inaugural Investor Meet Company webinar to reach its retail shareholders. The Company also maintained an active programme of sell-side engagement and the Board is also informed on a regular basis of all relevant market commentary on the Company by the Investment Adviser, Administrator and the Company’s Broker. The AGM of the Company provides an opportunity 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 the 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 Key Contacts). 72 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS AUDIT AND RISK COMMITTEE REPORT JOHN LE POIDEVIN CHAIR, AUDIT & RISK COMMITTEE The Audit and Risk Committee (the ‘Committee’ for the purposes of this section of the Annual 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. 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 (www.internationalpublicpartnerships.com). The Committee is chaired by John Le Poidevin. An overview of the Committee’s work during the year and details of how the Committee has discharged its duties are set out below. 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 also attended those meetings where the annual audit cycle, the Annual Report and financial statements and the half-yearly financial report were considered. The Audit and Risk Committee is comprised of the full Board, with the exception of Mike Gerrard as Board Chair and Giles Frost as the Non-Independent Director. All Committee members are considered to be appropriately experienced to fulfil their role, having significant, recent and relevant financial experience in line with the UK Corporate Governance Code. Biographies of the Committee members can be found on pages 62 to 63. COMMITTEE AGENDA The Committee’s agenda during the year included: – Review of the Company’s risk profile, specific risks and mitigation practices, including a focus on emerging risks; – Review of the effectiveness of the Company’s systems of internal control; – Review of the regulatory environment within which the Company operates; – Review of the Annual Report and financial statements and half-yearly financial report and matters raised by the Investment Adviser and the external auditors (including significant financial reporting judgements and estimates therein); – Review of the appropriateness of the Company’s accounting policies; – Consideration and challenging 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 portfolio 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; – Overseeing transition of the Company’s auditor; – Approving the external auditor’s plan for the current year end; and – Review of the policy on the provision of non-audit services by the external auditor. International Public Partnerships Limited Annual Report and financial statements 2022 73 AUDIT AND RISK COMMITTEE REPORT continUeD KEY ACTIVITIES CONSIDERED DURING THE YEAR The Committee undertook the following activities in discharging its responsibilities during the year: The Committee concluded that a consistent valuation methodology has been applied throughout the year and any forecast assumptions applied were appropriate. Revenue recognition The Committee has 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, the Administrator and external third-party advisers. The Committee also considered the adequacy of resources, qualifications and experience of staff in the finance function and had direct access to and independent discussions with the external auditor throughout the year. Fair, balanced and understandable The Committee seeks to establish arrangements to ensure fair, balanced and understandable reporting. The Committee engaged in extensive dialogue with the Investment Adviser throughout the year and considered the interim and annual financial statements as well as quarterly updates and reports prepared by the Investment Adviser. Following review of the Company’s 2022 Annual Report and financial statements, the Committee advised the Board that, in its opinion, the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary to assess the Company’s performance, operating model and strategy. 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, mindful of the ethical standards for auditors and auditor independence. Under the Company’s policy for non-audit services, there is a list of permitted services for which the external auditor may be engaged, where the Committee considers that the provision of such services would not necessarily impact its independence. Potential services to be provided by the external auditor with an expected value of up to £50,000, and which are permitted by the policy, must be pre- approved by the Chair of the Committee; any services above this value require pre-approval by the full Audit and Risk Committee. FINANCIAL REPORTING The Committee reviewed the Company’s Annual Report and financial statements, the half-yearly financial report and interim quarterly updates 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 consolidated 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 the valuation inputs to market comparables in order to derive the Directors’ valuation of investments. Valuations are prepared by the Investment Adviser and the 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. Key areas of focus subject to challenge were also discussed 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 its consideration of the audited financial statements. During the year, 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. Minor changes were made in the year to the approach taken around inflation assumptions in the valuation process, further detailed in the investor returns section on pages 30 to 37. The Investment Adviser confirmed that, other than these changes, the valuation methodology has been applied consistently with prior years. The Committee also reviewed and challenged the valuation assumptions (reasonableness of underlying cash flows, discount rates, interest rates, foreign exchange rates, inflation rates and tax rates). The Committee scrutinised the quality and findings of the external auditor in relation to their audit of the valuations, including its assessment of the Investment Adviser’s underlying cash flow projections and assumptions; macroeconomic assumptions; and discount rate methodology and output. The auditor confirmed no material adjustments were proposed. 74 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS Viability assessment The Committee carried out a robust assessment of the principal and emerging 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 60. External controls review During the year an independent external review of the Company’s controls framework in relation to bank payments, supplier procurement and systems security was performed. The review concluded that the controls in place are appropriate and meet expectations in helping to counter the changing nature of risks in these areas. Climate change The Committee continued to strengthen the Company’s approach to managing climate change risk. During the year, continued improvements were made to embed climate change further in the reporting and risk management process. Further details can be found in the Responsible Investment section from page 38, and in the review of principal and emerging risks, from page 52. REGULATORY AND TAX ENVIRONMENT The Committee received regular reports from the Administrator and Investment Adviser on regulation and regulatory developments. The Company continues to maintain compliance with the requirements of the Common Reporting Standard, the Retail distribution of unregulated collective investment schemes (regulation which the Company remains excluded from), the UK Criminal Finance Act 2017, AIFMD, The Foreign Account Tax Compliance Act (‘FATCA’), and UK Packaged Retail and Insurance-based Investment Products (EU Exit) Regulations 2019 as amended (‘UK PRIIPs’). FOCUS FOR 2023 The Company will continue to focus on the impacts arising from the current economic environment, keep focus on regular and routine matters, as well as continuing to monitor any political, tax and regulatory developments in its applicable geographies. JOHN LE POIDEVIN CHAIR, AUDIT AND RISK COMMITTEE 29 March 2023 Non-audit fees represented 22% of total audit fees during the year under review, relating only to the half-yearly review and capital raise conducted in the year. PwC 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 the auditor 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 PwC as external auditor. Review of auditor effectiveness The Committee performs an annual review of the objectivity, quality and effectiveness of the audit, with consideration where appropriate given to FRC Audit Quality Inspection Reports and FRC Practice Aid guidance. The Committee conducted an in-depth review in 2022 of the auditor’s performance, focusing in particular on any enhancements and efficiencies in process arising from the prior year, PwC’s first as the Company’s external auditor, and the Committee was satisfied in this regard. This was facilitated through discussions with the external auditor, 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. In accordance with the relevant Corporate Governance Code principles, the Committee will continue to review the effectiveness of the external auditor in line with best practice. During the year there was a review undertaken by the FRC over PwC ‘s audit of the financial statements for the year ended 31 December 2021. There were no key findings raised by the FRC team. Review of auditor’s remuneration The Committee carried out a review of the proposed audit fees for 2022. The audit fee for the Group (including unconsolidated subsidiaries) increased on the prior year as a result of inflation, scope changes and new audit regulation ISA 315 (Revised). The Committee considers that the audit fees for the current year are in line with market and therefore represent good value for money for the Company’s shareholders. 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 2022 was the second year for John Luff, the current lead audit partner. The committee remain actively engaged in endeavouring to ensure an appropriate level of continuity of the team. RISK MANAGEMENT During the year, the Committee continued to ensure that the Company’s risk management framework and processes remained effective in managing the Company’s risks. Areas of note for the year are discussed below. A review of significant developments relating to the Company’s risks arising in the year can be found in the Risk Management section of this Report, starting on page 48. International Public Partnerships Limited Annual Report and financial statements 2022 75 DIRECTORS’ REPORT INTRODUCTION The Directors present their Annual Report on the performance of the Company and Group for the year ended 31 December 2022. PRINCIPAL ACTIVITY The Company is a limited liability, Guernsey-incorporated and domiciled, authorised closed-ended investment company under Companies (Guernsey) Law, 2008. The Company’s shares have a premium listing on the Official List of the UK Listing Authority and are traded on the main market of the London Stock Exchange. The Chair’s Letter and Strategic Report contain a review of the business during the year. A Corporate Governance Report is provided on pages 64 to 72. DIRECTORS’ INDEMNITIES The Company has made qualifying third-party indemnity provisions for the benefit of its Directors, which were made during the year and remain in force at the date of this Report. SUBSTANTIAL SHAREHOLDINGS As at 31 December 2022, the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following interests in 5% or more of the Company’s Ordinary Shares to which voting rights are attached: NAME OF HOLDER % ISSUED CAPITAL NO. OF ORDINARY SHARES DATE NOTIFIED Investec Wealth & Investment 13.39 255,668,619 6 May 2022 There have been no additional notices between 31 December 2022 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 30 May 2023. The Company will seek to renew such authority at the AGM to take place on 31 May 2023. 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 UK Listing Authority, which provide that the price to be paid must not be more than 5% above the average of the middle market quotations for the Ordinary Shares for the five business days before the shares are purchased (unless previously advised to shareholders). No such shares were bought back by the Company during the prior year. Up to 10% of the Company’s shares may be held as treasury shares. GOING CONCERN The Company and Group’s business activities, together with the factors likely to affect the Company’s future development, performance and position, are set out in the Strategic Report on pages 6 to 60. The financial position, cash flows, liquidity position and borrowing of the Company and Group are described in the financial statements from page 84. 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 15-month going concern assessment review period, and at least 12 months from the approvals of these financial statements. 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. MIKE GERRARD CHAIR 29 March 2023 JOHN LE POIDEVIN DIRECTOR 29 March 2023 76 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS DIRECTORS’ RESPONSIBILITIES STATEMENT The Directors are responsible for preparing financial statements for each year which give a true and fair view, in accordance with applicable Guernsey law and UK adopted international accounting standards, 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 RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS The Directors each confirm to the best of their knowledge that: – The consolidated financial statements, prepared in accordance with UK adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and net return of the Group; and – 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 UK CORPORATE GOVERNANCE CODE The Board, as advised by the Audit and Risk Committee, has considered the Annual Report and financial statements and, taken as a whole, consider 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 CHAIR 29 March 2023 JOHN LE POIDEVIN DIRECTOR 29 March 2023 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; and – 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 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 Limited Annual Report and financial statements 2022 77 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS OUR OPINION In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of International Public Partnerships Limited (the “Company”) and its subsidiaries (together “the Group”) as at 31 December 2022, and of their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with UK-adopted international accounting standards and have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008. WHAT WE HAVE AUDITED The Group’s consolidated financial statements comprise: – the consolidated balance sheet as at 31 December 2022; – the consolidated statement of comprehensive income for the year then ended; – the consolidated statement of changes in equity for the year then ended; – the consolidated cash flow statement for the year then ended; and – the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. INDEPENDENCE We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements of the Group, as required by the Crown Dependencies’ Audit Rules and Guidance. We have fulfilled our other ethical responsibilities in accordance with these requirements. OUR AUDIT APPROACH OVERVIEW Audit scope – The Company is a closed-ended investment company, incorporated in Guernsey, whose ordinary shares are admitted to trading with a premium listing on the Main Market of the London Stock Exchange; – The Group comprises both consolidated and unconsolidated entities. As disclosed under note 1 to the consolidated financial statements, the Company meets the definition of an ‘investment entity’ in accordance with IFRS 10 ‘Consolidated Financial Statements’ and therefore accounts for its subsidiaries, with the exception of certain subsidiaries that are not themselves investment entities, at fair value through profit or loss under IFRS 9 ‘Financial Instruments’. The Company only consolidates those subsidiaries that are not themselves investment entities and whose main purpose is to provide services relating to the Company’s investment activities; – We conducted our audit of the consolidated financial statements in Guernsey principally, using the consolidated financial information and supporting documentation provided by Amber Fund Management Limited (“Amber”) and Ocorian Administration (Guernsey) Limited (“Ocorian”); both of whom the board of directors have delegated the provision of certain functions to; and – We tailored the scope of our audit, and structured our audit team to incorporate support from our PwC valuation experts, taking into account the nature and industry sector of the assets held within the investment portfolio; the involvement of third parties referred to above and the accounting processes and controls. Key audit matters – Risk of fraud in revenue recognition – Fair value measurement of investments at fair value through profit or loss Materiality – Overall Group materiality: £75.99 million (2021: £63.2 million) based on 2.5% of equity attributable to equity holders of the parent (i.e. net asset value). – Performance materiality: £56.9 million (2021: £47.4 million). 78 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS THE SCOPE OF OUR AUDIT As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. KEY AUDIT MATTERS Key audit matters are those matters that, in the auditor’s professional judgement, were of most significance in the audit of the consolidated financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditor, including 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, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Risk of fraud in revenue recognition Interest income of £93.8 million and dividend income of £64.8 million, as reflected in the consolidated statement of comprehensive income and note 4, are measured in accordance with the stated accounting policies. We considered the risk that management may seek to manipulate revenue in order to report the desired level of return to investors, to be a significant audit risk, and accordingly this has been reported as a key audit matter. We assessed the accounting policies in relation to the recognition of interest and dividend income for compliance with the financial reporting framework and checked that revenue has been recognised in accordance with the stated accounting policies. We understood and evaluated the internal control environment in place at the Group around the recognition of interest and dividend income. We performed the following substantive audit procedures to test revenue and check for any indication of fraudulent manipulation: – On a sample basis, we agreed dividend income recognised to the relevant supporting documentation, including dividend notices or board approvals, and traced the cash receipts to the bank statements. For any dividends received from UK companies within our sample, we inspected evidence of consideration by the boards of those underlying companies as to whether sufficient distributable reserves were available in order to pay valid dividends; – On a sample basis, we recalculated interest income based on the contractual agreements in place and traced the cash receipts through to the bank statements for the interest payments that had been received, and checked any unreceived interest was appropriately accrued for at year end; – Furthermore, we considered whether the interest and dividends in our sample testing described above had been recorded in the correct financial year. Given the nature of interest income and it being more easily corroborated from a cut off perspective as the interest periods are clearly defined and the interest attributable to each period easily recalculated based on the supporting contracts, we obtained further evidence over the cut off of dividend income in the correct financial year through our audit work performed over investment valuation, specifically in relation to our ‘lookback’ testing in which we compared the actual vs forecast cash flows and investigated variances exceeding an established threshold; and – We included specific consideration of any unusual journals impacting revenue within our journals testing as well as consideration of post year end journals to check for indications of cut off concerns. We have not identified any matters to report to those charged with governance in relation to the risk of fraud in revenue recognition. International Public Partnerships Limited Annual Report and financial statements 2022 79 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED continUeD Key audit matter How our audit addressed the key audit matter Fair value measurement of investments at fair value through profit or loss The investment portfolio, valued at £2.9 billion at year end as reflected in the consolidated balance sheet and note 11, comprises investments in infrastructure companies which largely generate long-term predictable cash flows. The valuation of the Group’s investment portfolio involves complexity and subjective management judgements and estimates. The magnitude of the amounts involved means that there is the potential for material misstatement. Since the driver of the Group’s net asset value is the valuation of the investment portfolio, this is the area of focus for stakeholders and a significant audit risk area, and accordingly this has been reported as a key audit matter. We assessed the investment valuation accounting policy for compliance with the accounting framework and best practice, and we checked that the investment valuations are measured in accordance with the stated policy. We understood and evaluated the Group’s processes, internal controls and methodology applied in determining the fair value of the investment portfolio in tailoring our audit approach. We tested the key controls by inspecting evidence of appropriate review and approval of the significant assumptions impacting the valuation models (including macroeconomic assumptions and discount rates), as well as the quarterly performance and actual vs forecast distribution variance analysis and certain investment model review controls. We performed the following substantive procedures: – We assessed the appropriateness of the key assumptions (i.e. macro-economic assumptions, discount rates, terminal value assumptions) which impact the entire investment portfolio, with the support of our valuation experts as described below. – We obtained the overall fair value reconciliation of opening to closing fair value from management and corroborated significant fair value movements during the year, thereby assessing the reasonableness and completeness of the movement in fair value for the year. – We stratified the portfolio based on the nature of the underlying assets and performed a ‘look back’ comparison of the forecast vs actual cash flows for the current financial year for each stratification category. This testing, in addition to our sample tests and assessment of management’s macroeconomic assumptions with the support of our PwC valuation experts, was further supplemented with a risk-based assessment performed to identify, and investigate, investments deemed to be at a higher risk of suffering an adverse valuation impact as a result of Covid-19 and climate change related risk exposure. – We performed detailed testing over a sample of models and significant inputs for the selected sample, which was selected via risk and value-based targeted sampling comprising 64% of the investment portfolio by value. This testing entailed challenging key inputs in the models and obtaining appropriate supporting documentation and evidence. – With the support of our PwC valuation experts, we corroborated and challenged the significant assumptions made by management in valuing the risk-based selected sample of assets, as well as performed a sensitivity analysis of significant subjective assumptions and checked the reasonableness of the overall valuation of these assets with reference to comparable market transactions and our experts’ market knowledge. With further support from our PwC valuation experts, we considered the reasonableness of the overall portfolio valuation with reference to our industry understanding and assessment of the fair value analysis prepared by Amber on behalf of, and subject to the review and approval of, the Directors. – Further substantive tests performed over the risk and value-based sample of investments included: – Back testing comparison of the forecast vs actual cash flows for the current financial year earned on each individual asset in the sample; and – Utilisation of a software tool to test the model integrity for each individual asset selected in our sample. – In addition to the controls testing and substantive testing performed over the entire portfolio, as detailed above, we performed a risk-based year on year variance analysis to identify, and investigate, any unusual movements within the remaining 36% of the portfolio. – Finally, for a sample of investments, to test ownership and existence we obtained third-party evidence of investment holdings and checked whether the details obtained corroborated or contradicted the records held by the Group and those used for investment valuation purposes. We have not identified any matters to report to those charged with governance in relation to the fair value measurement of Investments at fair value through profit or loss. HOW WE TAILORED THE AUDIT SCOPE We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, the industry in which the Group operates, and we considered the risk of climate change and the potential impact thereof on our audit approach. 80 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS We have considered whether the consolidated subsidiary entities included within the Group comprise separate components for the purpose of our audit scope. However, having taken account of the Group’s financial reporting systems and the related controls in place at Ocorian and Amber, and based on our professional judgement, we have tailored our audit scope to account for the Group’s consolidated financial statements as a single component. MATERIALITY The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole. Based on our professional judgement, we determined materiality for the consolidated financial statements as a whole as follows: Overall Group materiality £75.99 million (2021: £63.2 million) How we determined 2.5% of the equity attributable to equity holders of the parent (i.e. net asset value) Rationale for benchmark applied We believe that net assets is the most appropriate benchmark because this is the key metric of interest to investors. It is also a generally accepted measure used for companies in this industry. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £56.9 million (2021: £47.4 million) for the Group financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £3.8 million (2021: £3.2 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. REPORTING ON OTHER INFORMATION The other information comprises all the information included in the Annual Report and Financial Statements (the “Annual Report”) but does not include the consolidated financial statements and our auditor’s report thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND THE AUDIT RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with UK-adopted international accounting standards, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated 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 CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated 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 will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. International Public Partnerships Limited Annual Report and financial statements 2022 81 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED continUeD Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. – Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the consolidated financial statements. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. USE OF THIS REPORT This Report, including the opinions, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this Report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS COMPANY LAW EXCEPTION REPORTING Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion: – we have not received all the information and explanations we require for our audit; – proper accounting records have not been kept; or – the consolidated financial statements are not in agreement with the accounting records. We have no exceptions to report arising from this responsibility. 82 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report CORPORATE GOVERNANCE Financial StatementS CORPORATE GOVERNANCE STATEMENT The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this Report. The Company has reported compliance against the 2019 AIC Code of Corporate Governance (the “Code”) which has been endorsed by the UK Financial Reporting Council as being consistent with the UK Corporate Governance Code for the purposes of meeting the Company’s obligations, as an investment Company, under the Listing Rules of the FCA. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement, included within the Strategic Report and Corporate Governance section is materially consistent with the consolidated financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to: – The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks; – The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated; – The directors’ statement in the consolidated 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 Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the consolidated financial statements; – The directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate; and – The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statement is consistent with the consolidated financial statements and our knowledge and understanding of the Group and its environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the consolidated financial statements and our knowledge obtained during the audit: – The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s position, performance, business model and strategy; – The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and – The section of the Annual Report describing the work of the Audit and Risk Committee. We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. OTHER MATTER In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these consolidated financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (“ESEF RTS”). This auditor’s report provides no assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS. JOHN LUFF FOR AND ON BEHALF OF PRICEWATERHOUSECOOPERS CI LLP Chartered Accountants and Recognised Auditor Guernsey, Channel Islands 29 March 2023 International Public Partnerships Limited Annual Report and financial statements 2022 83 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 31 DECEMBER 2022 Interest income Dividend income Net change in investments at fair value through profit or loss Total investment income Other operating (expense) / 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 5 17 6, 17 8 9 Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 93,817 64,845 210,906 369,568 (3,978) 365,590 (29,421) (2,415) (2,891) (479) (35,206) 330,384 (3,556) 326,828 69 326,897 81,930 45,247 34,626 161,803 3,560 165,363 (26,173) (2,281) (3,896) (393) (32,743) 132,620 (3,453) 129,167 44 129,211 10 17.75 7.78 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 (2021: nil). The profit for the year represents the Total Comprehensive Income for the year. 84 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY YEAR ENDED 31 DECEMBER 2022 Balance at 1 January 2022 Profit for the year and total comprehensive income Issue of ordinary shares Issue costs applied to new shares Dividends in the year Balance at 31 December 2022 Share capital and share premium £’000s Notes Other distributable reserve £’000s 1,908,849 182,481 Retained earnings £’000s 437,470 Total £’000s 2,528,800 – 327,273 (4,846) – 15 15 15 – – – – 2,231,276 182,481 326,897 326,897 – – (138,285) 626,082 327,273 (4,846) (138,285) 3,039,839 YEAR ENDED 31 DECEMBER 2021 Balance at 1 January 2021 Profit for the year and total comprehensive income Issue of ordinary shares Issue costs applied to new shares Dividends in the year Balance at 31 December 2021 Notes 15 15 15 Share capital and share premium £’000s 1,769,582 Other distributable reserve £’000s 182,481 Retained earnings £’000s 432,373 – 140,629 (1,362) – – – – – 1,908,849 182,481 129,211 – – (124,114) 437,470 Total £’000s 2,384,436 129,211 140,629 (1,362) (124,114) 2,528,800 International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 85 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2022 Non-current assets Investments at fair value through profit or loss Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Derivative financial instruments Total current assets Total assets Current liabilities Trade and other payables Derivative financial instruments Total current liabilities Non-current liabilities Bank loans Total non-current liabilities Total liabilities Net assets Equity Share capital and share premium 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 29 March 2023. They were signed on its behalf by: MIKE GERRARD CHAIR 29 March 2023 JOHN LE POIDEVIN DIRECTOR 29 March 2023 Notes 11 11, 13 11 11 11, 14 8, 11 8, 11 15 15 15 16 31 December 2022 £’000s 31 December 2021 £’000s 2,947,959 2,947,959 2,579,434 2,579,434 44,096 92,829 – 136,925 3,084,884 13,919 1,826 15,745 29,300 29,300 45,045 57,378 56,090 2,713 116,181 2,695,615 10,597 – 10,597 156,218 156,218 166,815 3,039,839 2,528,800 2,231,276 182,481 626,082 3,039,839 1,908,849 182,481 437,470 2,528,800 159.1 148.2 86 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2022 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 / (increase) in receivables Increase in payables Income tax paid3 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 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 inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effects of changes in foreign currency on cash and cash equivalents Cash and cash equivalents at end of year Notes 4 8 5, 11 12 15 Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 326,828 (210,906) 3,556 4,539 11,326 3,321 (95) 138,569 (191,604) 33,985 (157,619) 320,154 (136,012) (2,849) 29,300 (156,218) 54,375 35,325 56,090 1,414 92,829 129,167 (34,626) 3,453 (2,445) (13,431) 1,282 (105) 83,295 (252,725) 53,350 (199,375) 133,638 (118,485) (4,825) 178,215 (60,397) 128,146 12,066 44,263 (239) 56,090 Includes interest received of £87.2 million (December 2021: £70.0 million) and dividends received of £64.8 million (December 2021: £45.2 million). 1 2 These cash flows represent the changes in liabilities arising from financing liabilities during the year in accordance with IAS 7, 44A-E. 3 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 28 to 29. Includes cash flows received from unconsolidated subsidiary entities in respect of surrender of tax losses. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 1. BASIS OF PREPARATION International Public Partnerships Limited is a closed-ended authorised investment company incorporated in Guernsey under the Companies (Guernsey) Law, 2008. The address of the registered office is given on the inside back cover. The nature of the Group’s (‘Parent and consolidated subsidiary entities’) operations and its principal activities are set out on pages 6 to 7. 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 UK-adopted International Accounting Standards (‘IFRS’), applicable legal and regulatory requirements of Guernsey, and the Listing Rules of the UK 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) b) c) Obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services; Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and 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 The Directors have reviewed cash flow forecasts prepared by management. Based on those forecasts, consideration of the Group’s operating costs and obligations as well as capital commitments, and an assessment of the Group’s committed banking facilities, it has been considered appropriate to prepare these consolidated financial statements of the Group on a going concern basis. In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted cash of £92.8 million as at 31 December 2022. The Company continues to fully cover operating costs and distributions from underlying cash flows from investments. The Company has access to a corporate debt facility of £250 million on a fully committed basis, and a flexible ‘accordion’ component which, subject to lender consent, allows for a future extension by an additional £150 million. At the date of this report, approximately £233 million of the fully committed portion remains available. A £20 million portion of the facility is available to be utilised for working capital purposes. The facility is forecast to continue in full compliance with the associated banking covenants. The facility is available for investment in new and existing assets until March 2024. 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 2022. 2. CRITICAL JUDGEMENTS AND ESTIMATES INVESTMENT ENTITY In the judgement of the Directors, International Public Partnerships Limited has been accounted for as an investment entity as defined by IFRS 10, further details of which are given in note 1, Basis of preparation. FAIR VALUATION OF INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Fair values are a critical estimate and 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. 88 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS 3. SEGMENTAL REPORTING Based on a review of information provided to the chief operating decision makers of the Group (determined to be the Board), the Group has identified four reportable segments based on the geographical risk associated with the jurisdictions in which it operates. The factors used to identify the Group’s reportable segments are centered on the risk-free rates and the maturity of the infrastructure sector within each region. Further, foreign exchange and political risk is identified, as these also determine where resources are allocated. The four reportable segments are UK, Europe (excl. UK), North America and Australia. Segmental results Dividend and interest income Fair value gain / (loss) 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 investments 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 2022 UK £’000s Europe (Excl. UK) £’000s North America £’000s Australia £’000s Total £’000s 117,621 151,080 268,701 230,025 2,226,964 136,925 2,363,889 (45,045) 2,318,844 9,974 38,360 48,334 47,263 347,620 – 347,620 – 347,620 9,228 24,558 33,786 32,185 166,023 – 166,023 – 166,023 21,839 (3,092) 18,747 17,424 207,352 – 207,352 – 207,352 158,662 210,906 369,568 326,897 2,947,959 136,925 3,084,884 (45,045) 3,039,839 Year ended 31 December 2021 UK £’000s Europe (Excl. UK) £’000s North America £’000s Australia £’000s Total £’000s 99,428 28,840 128,268 92,142 1,947,001 116,181 2,063,182 (166,815) 1,896,367 8,487 (2,839) 5,648 7,803 313,241 – 313,241 – 313,241 7,111 1,979 9,090 8,868 105,931 – 105,931 – 105,931 12,151 6,646 18,797 20,398 213,261 – 213,261 – 213,261 127,177 34,626 161,803 129,211 2,579,434 116,181 2,695,615 (166,815) 2,528,800 1 Reporting segment results are stated net of operational costs including management fees. Revenue from investments which individually represent more than 10% of the Group’s interest and dividend income approximates £15.9 million (2021: £15.4 million). INVESTMENT INCOME 4. 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 Company’s right to receive the dividend income is established. 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. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 4. INVESTMENT INCOME CONTINUED Interest income Interest on investments at fair value through profit or loss Interest on financial assets at amortised cost Total interest income Dividend income Net change in Investments at fair value through profit or loss Total investment income Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 93,655 162 93,817 64,845 210,906 369,568 81,930 – 81,930 45,247 34,626 161,803 Dividend and interest income includes transactions with unconsolidated subsidiary entities. Changes in investments at fair value through profit or loss are also recognised in relation to the Group’s investments in unconsolidated subsidiaries. 5. OTHER OPERATING (EXPENSE) / INCOME Fair value movement on foreign exchange contracts Other gains on foreign exchange movements Other income Total other operating (expense) / income 6. TRANSACTION COSTS Investment advisory costs Total transaction costs Details of total transaction costs paid to the Investment Adviser are provided in note 17. 7. AUDITOR’S REMUNERATION Fees payable to the Group’s auditor (PWC CI LLP) for the audit of the Group’s financial statements Fees payable to the Group’s auditor and their associates (PWC LLP, UK) 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 – – Reporting Account fees Interim review Total non-audit fees 90 International Public Partnerships Limited Annual Report and financial statements 2022 Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s (4,539) 545 16 (3,978) 2,445 1,089 26 3,560 Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 2,891 2,891 3,896 3,896 Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 587 18 209 814 77 106 183 542 11 20 573 73 – 73 overview Strategic report corporate governance FINANCIAL STATEMENTS 8. FINANCE COSTS AND BANK LOANS 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 year 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 £3.6 million (December 2021: £3.5 million). The Group has a corporate debt facility with £250 million available on a fully committed basis, with a flexible ‘accordion’ component which will, subject to lender approval, allow for a future extension by an additional £150 million. The interest rate margin on the corporate debt facility in the year was 170 basis points over SONIA. The facility matures in March 2024 with no repayments due ahead of maturity, and is secured over the assets of the Group. The banking group for the facility consists of National Australia Bank, the Royal Bank of Scotland International, Sumitomo Mitsui Banking Corporation and Barclays Bank. The drawdowns in the year were in the form of cash drawdowns used to partially fund investments. As at December 2022 the facility was £29.3 million cash drawn (December 2021: £156.2 cash drawn), with £16.7 million drawn as letter of credit (December 2021: £9.3 million drawn under letter of credit). The uncommitted balance of the facility which was not cash drawn or notionally drawn via letters of credit, was c.£204.0 million (December 2021: £84.5 million). 9. TAX ACCOUNTING POLICY Current tax is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income as it excludes items of income or expense that are taxable or deductible in past or future years and it further excludes items that are never taxable or deductible. The Group’s asset/liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. The current tax charge/credit in the Consolidated Statement of Comprehensive Income is recognised net of receivables recognised for losses surrendered to unconsolidated subsidiary entities. Under the current system of taxation in Guernsey, the Company itself is exempt from paying taxes on income, profits or capital gains. Dividend income and interest income received by the Group may be subject to withholding tax imposed in the country of origin of such income. Current tax: UK 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 Tax credit for the year Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s – (69) – (69) (2) (44) 2 (44) Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 326,828 – (69) (69) 129,167 – (44) (44) 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 (December 2021: £1 billion) over their full concession lives. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 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 Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings per share Basic and diluted (pence) Year ended 31 December 2022 £’000s Year ended 31 December 2021 £’000s 326,897 Number 129,211 Number 1,841,400,896 1,660,869,679 17.75 7.78 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. 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 at amortised cost Trade and other receivables Cash and cash equivalents Derivative financial instruments at fair value through profit or loss Foreign exchange contracts Total financial assets 31 December 2022 £’000s 31 December 2021 £’000s 2,947,959 2,579,434 44,096 92,829 – 3,084,884 57,378 56,090 2,713 2,695,615 ACCOUNTING POLICY The Group classifies its financial assets as at fair value through profit or loss or as financial assets at amortised cost. 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 or 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. Trade and other receivables 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 trade and other receivables. 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. 92 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS 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, being trade and other receivables. The Group adopts a simplified approach to calculate any expected credit losses. 11.2 FINANCIAL LIABILITIES Financial liabilities at amortised cost Trade and other payables Bank loans Derivative financial instruments at fair value through profit or loss Foreign exchange contracts Total financial liabilities 31 December 2022 £’000s 31 December 2021 £’000s 13,919 29,300 1,826 45,045 10,597 156,218 – 166,815 ACCOUNTING POLICY Financial liabilities Financial liabilities, other than those specifically accounted for under a separate policy, are measured at amortised cost and 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 accounting policy for bank loans is included earlier in note 8. The carrying value of financial assets and liabilities held at amortised cost is considered to approximate their fair value. 11.3 FINANCIAL RISK MANAGEMENT The Group’s objective in managing risk is the protection of stakeholder value. Risk is inherent in the Group’s activities and is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The Group is exposed to market risk (which includes currency risk, interest rate risk and inflation risk), credit risk and liquidity risk arising from the financial instruments it holds. The Board of Directors is ultimately responsible for the overall risk management of the Group, with delegation of oversight and activities (including identifying and controlling risks) provided to the Audit and Risk Committee and the Group’s Investment Adviser. The Group’s risk management framework and approach is set out within the Strategic Report (pages 48 to 60). 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 in note 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. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 11. FINANCIAL INSTRUMENTS CONTINUED 11.3 FINANCIAL RISK MANAGEMENT CONTINUED Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying borrowings within the unconsolidated investee entities are either hedged through interest rate swap arrangements via an economic hedge, 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. Nevertheless, refinancing risk exists in a number of such investments. The Group’s corporate debt facility is unhedged on the basis it is utilised as an investment bridging facility and therefore drawn for a relatively short period of time. Therefore, the Group is not significantly exposed to cash flow risk due to changes in interest rates over its variable rate borrowings. Interest income on bank deposits held within underlying investments is included within the fair value of investments. Foreign currency risk The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations. Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant investment returns from overseas investments via an economic hedge. The Group does not 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 US Dollar Current receivables Euro receivables US Dollar receivables Investments at fair value through profit or loss Euro Danish Krone Canadian Dollar Australian Dollar US Dollar Total 31 December 2022 £’000s 31 December 2021 £’000s 8,416 1,014 15,222 100 24,752 17 724 741 335,682 11,938 43,240 207,352 122,783 720,995 746,488 875 250 6,220 1,603 8,948 712 – 712 299,262 13,979 39,439 213,261 66,492 632,433 642,093 Sensitivity analysis showing the impact of variations of the above risks on the fair value of investments is shown in note 11.5. CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of dealing with creditworthy counterparties and reviewing this on a regular basis at the underlying entity level. The majority of underlying investments are in public-private partnerships and similar concessions (which are entered into with government, quasi government, other public, equivalent low risk bodies), or in regulated businesses that inherently exhibit low levels of credit risk. The maximum exposure of credit risk over financial assets as a result of counterparty default is the carrying value of those financial assets in the balance sheet. In addition, the underlying investee entities contract with third-party construction and facilities 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. 94 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS LIQUIDITY RISK Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations as and when they fall due associated with financial liabilities that are settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non- listed equity and loans). As a closed-ended investment vehicle there are no automatic capital redemption rights. The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring forecast and actual cash flows. Cash flow forecasts assume full availability of underlying infrastructure to the relevant public sector body or end-user. Failure to maintain assets available for use or operating in accordance with pre-determined performance standards or licence conditions may lead to a reduction (wholly or partially) in the investment income that the Group has projected to receive. The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored. The terms of public-private partnership contractual mechanisms also allow for significant pass-down of unavailability and performance risk to sub-contractors. Regulated asset regimes allow for the pass through of efficiently incurred costs to the purchaser. The Group’s financial liabilities comprise trade and other payables, payable within 12 months of the year end, derivative financial instruments, and bank loans, repayable in March 2024 as disclosed under note 8. 11.4 FAIR VALUE HIERARCHY All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities; Level 2 — Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable); Level 3 — Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable). During the year, 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 2022, the Group’s only derivative financial instruments were currency forward contracts amounting to a liability of £1.8 million (December 2021: asset of £2.7 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 2022, the fair value of financial instruments classified within Level 3 totalled £2,948.0 million (December 2021: £2,579.4 million). Financial instruments are classified within Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price. Valuation process Valuations are the responsibility of the Board of Directors. The valuation of unlisted equity and debt investments is performed on a quarterly1 basis by the Investment Adviser. The valuation is reviewed by the senior members of the Investment Adviser, and reviewed and approved by the Board. Valuation methodology The valuation methodologies used are primarily based on discounting 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 28 to 29 of the strategic report). The significant unobservable inputs and assumptions used in projecting the Group’s net future cash flows are shown overleaf. 1 Indicative valuations are calculated in respect of each at 31 March and 30 September. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 11. FINANCIAL INSTRUMENTS CONTINUED 11.4 FAIR VALUE HIERARCHY CONTINUED Inflation rates UK RPI: 8.00% until Dec 2023, 2.75% thereafter 2.75% RPI / 2.00% CPIH 31 December 2022 £’000s 31 December 2021 £’000s Long-term deposit rates2 Foreign exchange rates Tax rates3 Australia Europe (excl. UK) Canada US1 UK Australia Europe (excl. UK) Canada US1 GBP/AUD GBP/DKK GBP/EUR GBP/CAD GBP/USD UK Australia Europe (excl. UK) Canada US1 CPIH: 7.00% until Dec 2023, 2.00% thereafter 5.25% until Dec 2023 3.00% until Dec 2024, 2.50% thereafter 5.00% until Dec 2023, 2.50% until Dec 2024, 2.00% thereafter 2.75% until Dec 2023, 2.00% thereafter N/A 2.50% 2.75% 1.50% 2.50% N/A 1.77 8.40 1.13 1.64 1.21 2.50% 2.00% 2.00% N/A 1.00% 2.00% 0.50% 1.50% N/A 1.86 8.86 1.19 1.72 1.35 19.00% / 25.00% 30.00% Various (12.50%-32.28%) Various (23.00%-26.50%) N/A 19.00% / 25.00% 30.00% Various (12.50%-32.28%) Various (23.00%-26.50%) N/A 1 The Company’s US investment is in the form of subordinated debt and therefore not directly impacted by inflation, deposit and tax rate assumptions. 2 The portfolio valuation assumes actual current deposit rates are maintained until 31 December 2023 before adjusting to the long-term rates noted in the table above from 1 January 2024. 3 Tax rates reflect those substantively enacted as at the valuation date or those that could reasonably be expected to be substantively enacted shortly after the valuation date. Discount rates 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. Such adjustment is considered to implicitly include the market’s assessment of the risk posed by climate factors to that particular investment. Over the year, the weighted average government bond yield increased by 217bps. The weighted average investment premium decreased, reflecting observable market-based evidence. Valuation assumptions 31 December 2022 31 December 2021 Weighted Average Government Bond Yield Weighted Average Investment Risk Premium Weighted Average Discount Rate 3.13% 4.38% 7.51% 0.96% 6.01% 6.97% Movement +217bps (163bps) +54bps Weighted Average Discount Rate on Risk Capital1 7.71% 7.38% +33bps 1 Weighted average discount rate on Risk Capital only (equity and subordinated debt). 96 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS Reconciliation of Level 3 fair value measurements of financial assets Balance at 1 January Additional investments during the year Net repayments during the year Net change in Investments at fair value through profit or loss Balance at 31 December 31 December 2022 £’000s 31 December 2021 £’000s 2,579,434 191,604 (33,985) 210,906 2,947,959 2,345,433 252,725 (53,350) 34,626 2,579,434 11.5 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 2022 Discount rate Inflation rate (overall) UK (CPI/RPI) Europe North America Australia FX rate Tax rate Deposit rate Significant assumptions 31 December 2021 Discount rate Inflation rate (overall) UK (CPI/RPI) Europe North America Australia FX rate Tax rate Deposit rate Weighted average rate in base case valuations 7.51% 2.35% 2.00%/2.75% 2.00% 2.00% 2.50% Sensitivity factor +1.00% +1.00% +1.00% +1.00% +1.00% +1.00% N/A +10.00% 25.39% 1.02% +1.00% +1.00% Change in fair value of investment £’000s Sensitivity factor Change in fair value of investment £’000s (271,841) 260,036 211,400 39,054 821 8,761 72,128 (14,101) 24,235 -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -10.00% -1.00% -1.00% 328,070 (227,357) (183,950) (33,901) (764) (8,742) (72,132) 12,358 (24,100) Sensitivity factor Change in fair value of investment £’000s Sensitivity factor Change in fair value of investment £’000s Weighted average rate in base case valuations 6.97% 2.37% 2.00%/2.75% 2.00% 2.00% 2.50% +1.00% +1.00% +1.00% +1.00% +1.00% +1.00% N/A +10.00% 25.47% 1.04% +1.00% +1.00% (245,454) 231,029 179,431 40,393 738 10,451 63,273 (13,757) 24,626 -1.00% -1.00% -1.00% -1.00% -1.00% -1.00% -10.00% -1.00% -1.00% 295,025 (197,787) (151,850) (35,843) (1,218) (8,875) (63,279) 13,541 (13,723) International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD INVESTMENT ACTIVITY 12. 2022 Date of investment Description April – June 2022 June 2022 June – July 2022 September 2022 December 2022 December 2022 The Group made further investments into the National Digital Infrastructure Fund, UK The Group made follow on investments into a portfolio of Building Schools for the Future assets, UK The Group made a follow-on investment into the Diabolo Rail Link project, Belgium The Group made a follow-on investment into Tideway, UK The Group made a follow-on investment into FHSP, US The Group made an investment in the East Anglia 1 offshore transmission project, UK Total capital spend on investments during the year Consideration £’000s % Ownership post investment 1,205 1,455 4,753 41,943 36,507 105,741 191,604 45.0% Various 100.0% 17.9% 100.0% 100.0% During the year minority interests in four Lancashire Building Schools for Future (‘BSF’) projects were disposed from a portfolio subsidiary, being sold for £8.5 million aligning with the carrying value of the assets at the disposal date. 2021 Date of investment Description April 2021 June 2021 July 2021 September 2021 November 2021 November 2021 December 2021 December 2021 December 2021 The Group made an investment into toob, utilising part of its commitment to invest in digital infrastructure, UK The Group made an investment into the Offenbach police centre, Germany The Group made an investment in the Beatrice offshore transmission project, UK The Group made an investment to acquire an additional interest in Angel Trains, UK The Group made an investment in the Rampion offshore transmission project, UK The Group made an investment to acquire interests in a port-folio of Building Schools for the Future and UK PPP projects, UK The Group made an investment to acquire an interest in a portfolio of Danish PPP projects, Denmark The Group made an investment to acquire interests in a small portfolio UK PPP projects, UK The Group made a follow on investment into the Diabolo Rail Link Project, Belgium Total capital spend on investments during the year 13. TRADE AND OTHER RECEIVABLES Accrued interest receivable Other debtors Total trade and other receivables % Ownership post investment 46.1% 45% 100% 10% 100% Various 66.7% Various 100% Consideration £’000s 14,270 8,073 49,751 97,496 35,400 29,074 14,045 3,053 1,563 252,725 31 December 2022 £’000s 31 December 2021 £’000s 40,327 3,769 44,096 52,657 4,721 57,378 Other debtors included £1.3 million (December 2021: £1.2 million) of receivables from unconsolidated subsidiary entities for surrender of Group tax losses. 98 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS 14. TRADE AND OTHER PAYABLES Accrued management fee Other creditors and accruals Total trade and other payables 15. SHARE CAPITAL AND RESERVES Share capital Authorised and in issue at 1 January Issued for cash Issued as a scrip dividend alternative Authorised and in issue at 31 December – fully paid Share capital Balance at 1 January 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 2022 £’000s 31 December 2021 £’000s 9,798 4,121 13,919 8,308 2,289 10,597 31 December 2022 shares ’000s 31 December 2021 shares ’000s 1,706,104 203,762 1,377 1,911,243 1,620,953 81,818 3,333 1,706,104 31 December 2022 £’000s 31 December 2021 £’000s 1,908,849 1,769,582 325,000 2,273 327,273 (4,846) 135,000 5,629 140,629 (1,362) 2,231,276 1,908,849 At present, the Company has one class of Ordinary Shares with a par value of 0.01 pence which carry no right to fixed income. On 4 May 2022, the Group raised an additional £325 million of equity through a Placing, Open Offer and Offer for Subscription of 203,761,755 Ordinary shares at an issue price per share of 159.5 pence. On 13 June 2022, 1,377,796 new Ordinary fully paid shares were issued as a scrip dividend alternative in lieu of cash for the interim dividend in respect of the six months ended 31 December 2021. Other distributable reserve Balance at 1 January Movement in the year Balance at 31 December 31 December 2022 £’000s 31 December 2021 £’000s 182,481 – 182,481 182,481 – 182,481 On 19 January 2007, the Company applied to the Royal Court of Guernsey, following the initial placing of shares, to reduce its share premium account. This was in order to provide a distributable reserve to enable the Company to repurchase its shares if and when the Board of Directors consider it beneficial to do so. Following court approval, the distributable reserve account was created. Retained earnings Balance at 1 January Net profit for the year Dividends paid1 Balance at 31 December 1 Includes scrip element of £2.3 million in 2022 (December 2021: £5.6 million). 31 December 2022 £’000s 31 December 2021 £’000s 437,470 326,897 (138,285) 626,082 432,373 129,211 (124,114) 437,470 International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 15. SHARE CAPITAL AND RESERVES CONTINUED DIVIDENDS The Board is satisfied that, in every respect, the solvency test as required by the Companies (Guernsey) Law, 2008, was satisfied for the proposed dividend and the dividend paid in respect of the year ended 31 December 2022. The Board has approved interim dividends as follows: Amounts recognised as distributions to equity holders for the year ended 31 December Declared and proposed Interim dividend for the period 1 January to 30 June 2022 was 3.87 pence per share (2021: 3.78 pence per share) Interim dividend for the period 1 July to 31 December 2022 was 3.87 pence per share2 (2021: 3.77 pence per share) 31 December 2022 £’000s 31 December 2021 £’000s 138,2851 73,965 73,965 124,114 64,463 64,320 1 Includes the 2021 interim dividend for the period 1 July to 31 December 2021. 2 The dividend for the period 1 July to 31 December 2022 was approved by the Board on 29 March 2023 and therefore has not been included as a liability in the balance sheet for the year ended 31 December 2022. 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 page 61. The Group’s Investment Adviser reviews the capital structure on a semi-annual basis. As part of this review, the Investment Adviser considers the cost of capital and the associated risks. 16. NET ASSETS PER SHARE Net assets attributable to equity holders of the parent Number of shares Ordinary Shares outstanding at the end of the year Net assets per share (pence per share) 31 December 2022 £’000s 31 December 2021 £’000s 3,039,839 2,528,800 Number Number 1,911,243,132 1,706,103,581 159.1 148.2 17. RELATED PARTY TRANSACTIONS Details of the Company’s significant consolidated and unconsolidated subsidiaries are included in note 20. During the year, 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 Giles Frost is a Director and also a substantial shareholder. Giles 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 certain 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 £53,500 (2021: £48,500) for Giles Frost’s directorship of the Company are paid to his employer, Amber Infrastructure Limited (a member of the Amber Group). 100 International Public Partnerships Limited Annual Report and financial statements 2022 overview Strategic report corporate governance FINANCIAL STATEMENTS The amounts of the transactions in the year that were related party transactions are set out in the table below: Related party expense in the Income Statement Amounts owing to related parties in the Balance Sheet For the year ended 31 December 2022 £’000s For the year ended 31 December 2021 £’000s At 31 December 2022 £’000s At 31 December 2021 £’000s International Public Partnerships GP Limited1 Amber Fund Management Limited2 Total 29,421 2,891 32,312 26,173 3,896 30,069 9,798 2,134 11,932 8,308 247 8,555 1 Represents amounts paid to related parties for investment advisory fees. 2 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the balance sheet. INVESTMENT ADVISORY ARRANGEMENTS Investment advisory fees payable during the year are calculated as follows: For existing construction assets: – 1.2% per annum of gross asset value of investments bearing construction risk. For existing fully operational assets: – 1.2% per annum of the gross asset value (‘GAV’) excluding uncommitted cash from capital raisings up to £750 million; – 1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between £750 million and £1.5 billion; – 0.9% per annum where GAV (excluding uncommitted cash from capital raisings) is between £1.5 billion and £2.75 billion; – 0.8% per annum where GAV (excluding uncommitted cash from capital raisings) value exceeds £2.75 billion. Asset origination fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions. The IAA can be terminated where less than 95% of the Group’s assets are available for use for certain periods and the Investment Adviser fails to implement a remediation plan agreed with the Group. The IAA may also be terminated by either party giving to the other five years notice of termination, expiring at any time after 10 years from the date of the IAA. As at 31 December 2022, the Amber Group held 8,002,379 (December 2021: 8,002,379) shares in the Company. The shares held by the Investment Adviser in the Company helps further strengthen the alignment of interests between the two parties. During the year the Company acquired an additional c.£37 million interest in Family Housing for Service Personnel (‘FHSP’) from Hunt Companies Inc., an affiliate of the Company’s investment adviser Amber. In accordance with the Company’s procedures for related-party transactions, the Company sought an independent valuation. TRANSACTIONS WITH DIRECTORS Shares acquired by Directors in the year are disclosed below: Mike Gerrard Julia Bond Stephanie Coxon Sally Ann David Meriel Lenfestey John Le Poidevin Giles Frost Claire Whittet (retired May 2022) Total purchased Number of New Ordinary Shares Year ended 31 December 2022 Year ended 31 December 2021 84,266 34,098 10,000 – 15,163 167,245 – 37,854 348,626 – 24,072 – 30,303 – 30,303 27,567 1,654 113,899 Remuneration paid to the Non-Executive Directors is disclosed on page 66. Directors received dividends on total shares held as disclosed on page 66, in accordance with the approved dividends detailed under note 15. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 18. CONTINGENT LIABILITIES AND COMMITMENTS As at 31 December 2022 the Group has committed funding of up to c.£145.6 million (December 2021: c.£ 44.7 million), which includes committed investment amounts as noted in the Strategic Report on page 17, and a deferred commitment of c.£12.5 million for BeNEX (December 2021: £14.5 million) which is due to be settled from future returns generated by BeNEX. There were no other contingent liabilities at the date of this report. 19. EVENTS AFTER BALANCE SHEET Since the year-end, the Company has, in principle, agreed an increase in the committed size of its existing CDF from £250 million to £350 million with the existing banking group. This increase is expected to be effective from April 2023 and would provide the Company with the liquidity required to take advantage of additional investment opportunities as they may arise. There would remain a flexible ‘accordion’ component which would, subject to lender approval, allow for a further increase in the committed size of the facility to £400 million. The Company is also progressing the documentation required to amend the maturity date of the CDF from March 2024 to June 2025. These two amendments are expected to be finalised shortly. No other changes to the terms of the CDF are expected. In March 2023 the Group made a further 20% investment in Ealing BSF for £0.7 million. 20. OTHER MANDATORY DISCLOSURES NEW STANDARDS THAT THE GROUP HAS APPLIED FROM 1 JANUARY 2022 Standards and amendments to standards applicable to the Group that became effective during the year are listed below. These have no material impact on the reported performance or financial statements of the Group. – Annual improvements to IFRS Standards 2018-2020 (1 January 2022); and – Amendments to IFRS 3 Reference to the Conceptual Framework (1 January 2022). STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards applicable to the Group which are 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. – Disclosure of Accounting policies (Amendments to IAS 1 and IFRS Practice statement 2) (1 January 2023); – Definition of Accounting Estimates (Amendments to IAS 8) (1 January 2023); and – Amendments to IAS 1 Classification of Liabilities as Current or Non-current (1 January 2023). UNCONSOLIDATED SUBSIDIARIES A list of the significant investments in unconsolidated subsidiaries, including the name, country of incorporation as at 31 December 2022 and proportion of ownership is shown below: Name Abingdon Limited Partnership Aggregator PLC Access Justice Durham Limited AKS Betriebs GmbH & Co. KG Arden Partnership (Derby) Limited Arden Partnership (Lincolnshire) Limited Arden Partnership (Leicester) Limited 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 102 International Public Partnerships Limited Annual Report and financial statements 2022 Place of incorporation (or registration) and operation Proportion of ownership interest % UK UK Canada Germany UK UK UK Canada UK UK UK UK UK Australia UK UK UK UK 100 100 100 98 50 50 50 100 100 100 100 100 100 100 90 100 100 100 overview Strategic report corporate governance FINANCIAL STATEMENTS Name Essex Schools Limited Future Ealing Phase 1 Limited 4 Futures Phase 1 Limited 4 Futures Phase 2 Limited Hertfordshire Schools Building Partnership Phase 1 Limited H&W Courts Limited Partnership INPP Infrastructure Germany GmbH & Co. KG Inspire Partnership Limited Partnership IPP CCC Limited Partnership Inspiredspaces Durham (Project Co 1) Limited Kent PFI (Project Co 1) Limited Inspiredspaces Nottingham (Project Co 1) Limited Inspiredspaces Nottingham (Project Co 2) Limited Inspiredspaces STaG (Project Co 1) Limited Inspiredspaces STaG (Project Co 2) Limited Inspiredspaces Wolverhampton (Project Co 1) Limited Inspiredspaces Wolverhampton (Project Co 2) Limited Transform Islington (Phase 1) Limited Transform Islington (Phase 2) Limited IPP (Moray Schools) Holdings Limited LCV Project Trust Lewisham Schools for the Future SPV Limited Lewisham Schools for the Future SPV 2 Limited Lewisham Schools for the Future SPV 3 Limited Lewisham Schools for the Future SPV 3 Limited Maesteg School Partnership Norfolk Limited Partnership Northampton Schools Limited Partnership Northern Diabolo N.V. Oldham BSF Limited OPP Hobro Tinglysningsret A/S OPP Ørstedskolen A/S OPP Vildbjerg Skole A/S OPP Randers P-Hus A/A PSBP Midlands 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 TC Beatrice OFTO Limited TC Rampion OFTO Limited TC East Anglia OFTO Limited Place of incorporation (or registration) and operation Proportion of ownership interest % UK UK UK UK UK UK Germany UK Ireland UK UK UK UK UK UK UK UK UK UK UK Australia UK UK UK UK UK UK UK Belgium UK Denmark Denmark Denmark Denmark UK Australia UK UK Australia Australia UK UK UK UK UK UK UK UK UK UK UK UK 100 80 90 90 100 100 100 100 100 100 58 90 90 90.1 90.1 100 100 90 90 100 100 90 90 90 81 100 100 100 100 99 66.7 66.7 66.7 66.7 92.5 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 The entities listed above in aggregate represent 55.0% (December 2021: 58.2%) 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. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD 20. OTHER MANDATORY DISCLOSURES CONTINUED CONSOLIDATED SUBSIDIARIES The 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 Holdings 1 Limited IPP Investments UK Limited IPP Investments Limited Partnership Place of incorporation (or registration) and operation Proportion of ownership interest % UK Luxembourg Luxembourg UK UK UK UK 100 100 100 100 100 100 100 INVESTMENTS 21. The Group holds 138 investments across energy transmission, education, transport, health, courts, wastewater, police, military housing and other sectors. The table overleaf sets out the Group’s investments that are recorded at fair value through profit or loss. Investment Name UK UK 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 Three Shires – Derbyshire Three Shires – Leicestershire Three Shires – Lincolnshire Townlands Hospital 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 Beatrice OFTO Rampion OFTO East Anglia OFTO 104 International Public Partnerships Limited Annual Report and financial statements 2022 Country Status at 31 December 2022 Per cent. Risk Capital Owned by the Group1 Investment end UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK 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 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 50.0 50.0 50.0 100.0 April 2030 February 2032 December 2037 August 2028 April 2029 December 2028 April 2028 August 2027 December 2036 September 2026 September 2025 April 2030 December 2022 July 2033 February 2042 November 2037 October 2037 June 2037 May 3028 November 2041 0.02 August 2040 0.02 0.02 92.52 0.02 100.02 100.02 100.02 100.02 100.0 100.0 100.0 100.0 100.0 100.0 November 2040 August 2041 December 2041 September 2041 March 2031 July 2031 March 2030 July 2032 November 2034 February 2036 November 2038 April 2045 November 2041 December 2044 overview Strategic report corporate governance FINANCIAL STATEMENTS Investment Name Building Schools for the Future Portfolio Minority Shareholdings in 17 Building Schools for the Future Projects Blackburn with Darwen Phase One Blackburn with Darwen Phase Two Derby City Durham Schools Ealing Schools Phase One Essex Phase Two Hertfordshire Schools Phase One Islington Phase One Islington Phase Two Lewisham Phase 1 Lewisham Phase 2 Lewisham Phase 3 Lewisham Phase 4 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) Eltham Community Hospital Country Status at 31 December 2022 Per cent. Risk Capital Owned by the Group1 Investment end UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK UK 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 Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Various 100.0 100.0 90.0 100.0 80.0 100.0 100.0 90.0 90.0 90.0 90.0 90.0 81.0 99.0 46.0 46.0 90.0 90.0 90.1 90.1 90.0 90.0 100.0 100.0 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 49.8 Various September 2036 September 2039 August 2037 January 2036 March 2038 December 2036 August 2037 August 2034 March 2039 December 2034 August 2037 August 2037 March 2038 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 January 2040 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 Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 continUeD Investment Name Other UK Angel Trains Tideway Cadent National Digital Infrastructure Fund Australia Royal Melbourne Showgrounds Long Bay Forensic & Prisons Hospital Project Reliance Rail Royal Children’s Hospital Orange Hospital NSW Schools Gold Coast Rapid Transport Victoria Schools Two Flinders University North America Alberta Schools Durham Courts FHSP Europe (ex UK) Diabolo Rail Link Dublin Courts BeNEX Federal German Ministry of Education and Research Headquarters Pforzheim Schools Offenbach Police Centre Hobro Court Randers Hospital Parking Facility Ørsted School Vildbjerg School Country Status at 31 December 2022 Per cent. Risk Capital Owned by the Group1 Investment end UK UK UK UK Australia Australia Australia Australia Australia Australia Australia Australia Australia Canada Canada US Belgium Ireland Germany Germany Germany Germany Denmark Denmark Denmark Denmark Operational Construction Operational Operational Operational Operational Operational Operational Operational Operational Operational Operational Construction Operational Operational Operational Operational Operational Operational Operational Operational Construction Operational Operational Operational Operational 10.0 17.9 7.25 45.0 100.0 100.0 33.0 100.0 100.0 25.0 30.0 100.0 100.0 December 2058 March 2150 June 2069 July 2027 August 2031 July 2034 February 2044 December 2036 December 2035 December 2035 May 2029 December 2042 March 2049 100.0 100.0 100.02 June 2040 November 2039 October 2052 100.0 100.0 100.0 June 2047 February 2035 December 2049 98.0 98.0 45.0 66.7 66.7 66.7 66.7 July 2041 September 2039 June 2050 December 2027 April 2041 June 2038 December 2036 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. 106 International Public Partnerships Limited Annual Report and financial statements 2022 GLOSSARY INCLUDING ALTERNATIVE PERFORMANCE MEASURES AGM The Company’s Annual General Meeting AIC Association of Investment Companies CMA Competition and Markets Authority CSR Corporate Social Responsibility AFML Amber Fund Management Limited, a member of the Amber Group CPI Consumer Price Index AMBER/AMBER INFRASTRUCTURE The Company’s Investment Adviser (Amber Fund Management Limited and its corporate group) AMBER GROUP Amber Infrastructure Group Holdings Limited and its subsidiaries CPIH CPI (including owner occupied housing costs) CSRD Corporate Sustainability Reporting Directive APMS In accordance with ESMA Guidelines on Alternative Performance Measures (‘APMs’) the Board has considered what APMs are included in the Annual Report and financial statements which require further clarification. An APM is defined as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs included in the Annual Report and financial statements are identified as non-GAAP measures and are defined within this glossary ARC The Company’s Audit and Risk Committee ASCE American Society of Civil Engineers AVERAGE NAV Average of published NAVs for the relevant periods BEPS Base Erosion and Profit Shifting BESS British Energy Security Strategy BSF Building schools for future projects CASH DIVIDEND COVER Non-GAAP measure. Cash dividend payments to investors covered by the Net operating cash flow before capital activity. This measure shows the sustainability of the cash dividend payments made by the Company. Net operating cash flows before capital activity include net repayments from investments at fair value through profit and loss and finance costs paid and exclude investment transaction costs when compared to net cash inflows from operations as disclosed in the statutory cash flow statement in the financial statements CDF The Company’s corporate debt facility CEF Connecting Europe Facility DIVIDEND GROWTH Non-GAAP measure. Represents the growth in dividend per share paid to shareholders compared to the prior year. This measure provides information on the Company’s dividend performance. Dividends paid and number of issued shares can be found disclosed in the financial statements and notes to the financial statements DIVIDEND PER SHARE Non-GAAP measure. Represents dividends paid per Ordinary share issued, as disclosed in the financial statements. This measure provides information on the Company’s dividend performance. Dividends paid and number of issued shares can be found disclosed in the financial statements and notes to the financial statements EAT European Assets Trust EFRAG European Financial Reporting Advisory Group ESG Environmental, Social and Governance EU TAXONOMY EU Taxonomy for Sustainable Activities FCA Financial Conduct Authority FHSP The Company’s Family Housing for Service Personnel investment FMP Financial Market Participant FP Financial Project FRC The Financial Reporting Council GAV Gross asset value International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 107 GLOSSARY INCLUDING ALTERNATIVE PERFORMANCE MEASURES continUeD GDNS Gas distribution networks GFSC The Guernsey Financial Services Commission GHG Greenhouse gas emissions GRESB INFRASTRUCTURE The Infrastructure Asset Assessment assesses ESG performance at the asset level for infrastructure asset operators, fund managers and investors that invest directly in infrastructure GSLL Green Sustainability-Linked Loan HMRB Flinders University Health and Medical Research Building IAA Investment Advisory Agreement IFRS International Financial Reporting Standards IIJA Infrastructure Investment and Jobs Act INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED The ‘Company’, ‘INPP’, the ‘Group’ (where including consolidated entities) INVESTMENT ADVISER Amber (see above) IPA Infrastructure and Projects Authority IPO Initial public offering IRA Inflation Reduction Act IRR The internal rate of return LIBOR The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London NDIF National Digital Infrastructure Fund NET ASSET VALUE (‘NAV’) Non-GAAP measure. Represents the equity attributable to equity holders of the parent in the Balance Sheet. This terminology is used as it is common investment sector terminology and so is the most understandable to the users of the Annual Report. Components of NAV are further discussed throughout the Annual Report, including from page 30 NET ASSET VALUE (‘NAV’) PER SHARE Non-GAAP measure. Represents the equity attributable per share to equity holders of the parent in the Balance Sheet. This terminology is used as it is common investment sector terminology and so is the most understandable to the users of the Annual Report NET OPERATING CASH FLOWS BEFORE CAPITAL ACTIVITY Non-GAAP measure. Represents the cash flows from the Company’s operations before capital activity relating to the acquisition of new investments, issues of new capital or payment of dividends. This approach is used to provide investors with an indication of cash flows generated from operational activity and is used as part of the cash dividend cover calculations. Components of net operating cash flows before capital activity are further discussed throughout the Annual Report, including from page 30 NET ZERO Net Zero refers to balancing the amount of emitted greenhouse gases with the equivalent emissions that are either offset or sequestered. This should primarily be achieved through a rapid reduction in carbon emissions, but where zero carbon cannot be achieved, offsetting through carbon credits or sequestration through rewilding or carbon capture and storage needs to be utilised NIS National Infrastructure Strategy OECD Organisation for Economic Co-operation and Development OFGEM Office of Gas and Electricity Markets ISSB International Sustainability Standards Board OFTO Offshore Electricity Transmission project HUNT Amber’s long-term investor, US Group, Hunt Companies LLC OFWAT Water Services Regulation Authority KID The Company’s Key Information Document PCAF Partnership for Carbon Accounting Financials KPIs Key performance indicators PFI Projects and private finance initiative 108 International Public Partnerships Limited Annual Report and financial statements 2022 PORTFOLIO INFLATION-LINKED RETURN / INFLATION- LINKED CASH FLOWS Non-GAAP measure. Calculated by running a ‘plus 1.00%’ inflation sensitivity for each investment and solving each investment’s discount rate to return the original valuation. The inflation-linked cash flows is the increase in the portfolio weighted average discount rate. This measure provides an indication of the portfolio’s inflation protection. There is no near comparable in the financial statements TCFD Task Force on Climate-related Financial Disclosures THE COMPANY International Public Partnerships Limited TOCs Train operating companies PPP Public-private partnerships PRI The UN-backed Principles for Responsible Investment PRIIPS Packaged Retail and Insurance-based Investment Product PWC The Company’s auditors PricewaterhouseCoopers CI LLP RNS Regulatory news service RPI UK Retail Price Index RTS EU Commission’s Regulatory Technical Standards relating to the SFDR SCOPE 1 EMISSIONS direct emissions from owned or controlled sources SCOPE 2 EMISSIONS indirect emissions from the generation of purchased energy SCOPE 3 EMISSIONS all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions SDGS Sustainable Development Goals SDR The proposed UK Sustainability Disclosure Requirements SFDR The EU Sustainable Finance Disclosure Regulation SID Senior Independent Director SONIA SONIA is the effective reference for overnight indexed swaps for unsecured transactions in the Sterling market SPV Special Purpose Vehicle TOTAL SHAREHOLDER RETURN (‘TSR’) Non-GAAP measure. Share price appreciation plus dividends assumed to be reinvested since IPO. The total return based on the NAV appreciation plus dividends paid since the IPO. There is no direct reconciliation to the financial statements, being a calculation instead derived from the Company’s share price. However a nearest comparison were this measure based on a figure in the financial statements is provided in the Strategic Report, Investor Relations, Total Shareholder Return paragraph TRANSITION RISK Transition risks include policy changes, reputational impacts, and shifts in market preferences, norms and technology. Transition opportunities include those driven by resource efficiency and the development of new technologies, products and services, which could capture new markets and sources of funding UNGC UN Global Compact WTW Willis Towers Watson International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 109 KEY CONTACTS INVESTMENT ADVISER Amber Fund Management Limited 3 More London Riverside London SE1 2AQ REGISTERED OFFICE PO Box 286 Floor 2, Trafalgar Court Les Banques Guernsey Channel Islands GY1 4LY ADMINISTRATOR AND COMPANY SECRETARY Ocorian Administration (Guernsey) Limited PO Box 286 Floor 2, Trafalgar Court Les Banques Guernsey Channel Islands GY1 4LY INDEPENDENT AUDITOR PricewaterhouseCoopers CI LLP PO Box 321 Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey Channel Islands GY1 4ND LEGAL ADVISER Carey Olsen PO Box 98, Carey House Les Banques Guernsey Channel Islands GY1 4BZ CORPORATE BANKER Royal Bank of Scotland International 1 Glategny Esplanade St Peter Port Guernsey Channel Islands GY1 4BQ CORPORATE BROKERS Numis Securities Limited 31 Gresham Street London EC2V 7QA PUBLIC RELATIONS FTI Consulting 200 Aldersgate Aldersgate Street London EC1A 4HD 110 International Public Partnerships Limited Annual Report and financial statements 2022 Sustainable investment means an investment in an economic activity that contributes to an environmental or social objective, provided that the investment does not significantly harm any environmental or social objective and that the investee companies follow good governance practices. The EU Taxonomy is a classification system laid down in Regulation (EU) 2020/852, establishing a list of environmentally sustainable economic activities. That Regulation does not lay down a list of socially sustainable economic activities. Sustainable investments with an environmental objective might be aligned with the Taxonomy or not. Sustainability indicators measure how the environmental or social characteristics promoted by the financial product are attained. SFDR PERIODIC REPORTING REQUIREMENTS (unaudited) Product name: International Public Partnerships Ltd (the “Company”) Legal entity identifier: International Public Partnerships Ltd Environmental and/or social characteristics Did this financial product have a sustainable investment objective? Yes No It made sustainable investments with an environmental objective: ___% in economic activities that qualify as environmentally sustainable under the EU Taxonomy in economic activities that do not qualify as environmentally sustainable under the EU Taxonomy It promoted Environmental/Social (E/S) characteristics and while it did not have as its objective a sustainable investment, it had a proportion of ___% of sustainable investments with an environmental objective in economic activities that qualify as environmentally sustainable under the EU Taxonomy with an environmental objective in economic activities that do not qualify as environmentally sustainable under the EU Taxonomy with a social objective It made sustainable investments with a social objective: ___% It promoted E/S characteristics, but did not make any sustainable investments To what extent were the environmental and/or social characteristics promoted by this financial product met? Through its investments in infrastructure that support a sustainable society, the Company promotes environmental and social characteristics but does not have sustainable investment as its objective and does not invest in sustainable investments, as defined under the SFDR. The Company has strengthened the alignment of its investment activity with the objectives of the Paris Agreement, the recommendations of the Taskforce on Climate-related Financial Disclosures (“TCFD”) and investments that positively contribute towards the UN Sustainable Development Goals (“SDGs”). In the course of the relevant reporting period, the Company ensured that these environmental and social characteristics were met in accordance with the Company’s internal policies and procedures, and in the following ways: International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 108 111 (a) Sustainable Development Goal Alignment The Company draws on the SDGs to demonstrate the positive environmental and social characteristics of its investments. Please refer to page 40 of this report for more information on the Company’s approach to SDG alignment, and contribution during the period. This page highlights the primary SDGs that are supported by the Company’s investments, alongside alignment of the full portfolio by fair value. (b) Alignment with INPP Exclusion criteria All investments met the Company’s exclusion criteria, which are summarised below. The Company did not invest in infrastructure projects or associated businesses that had not demonstrated the ability or willingness to manage current and future ESG risks effectively, unless as a result of its involvement, the Company determined it would be able to significantly improve its ESG credentials. This means the Company did not invest in businesses or sectors relating to arms, tobacco, pornography, gambling, alcohol or any other sectors that have the potential to lead to human rights abuses. Equally, the Company did not invest in any infrastructure assets or associated businesses that had an unacceptable impact on the environment. The Company aligned its investment activities with the objectives of the Paris Agreement and did not invest in any infrastructure projects or associated businesses that do not have the potential to support/align with a low-carbon future. Finally, the Company did not invest in infrastructure or associated businesses that have a track record of; • • • Corrupt practices; Poor governance and ethics practices; or Poor safety or environmental management. Except for the exclusions stated above, the Company does not typically exclude infrastructure companies, sectors or asset types based on any particular activity or ESG exposure. Instead, the Company prefers to engage with the investments in its portfolio and use its position to influence positive change. (c) Alignment with INPP’s minimum Governance standards 100% of the portfolio aligned with the Company’s minimum Governance standards. Please refer to page 41 of this report for more information. (d) ESG incorporated through the investment process ESG was considered for all new investments, following the process summarised below. The consideration of ESG risks and opportunities is a formal element of the investment origination process. Following a review against the Company’s exclusion criteria, every investment opportunity underwent a detailed screening and due diligence process, which considered both potentially negative and positive impacts. In line with international industry practice, potential investments were categorised as follows: • • • Category A – Investments with the potential to cause adverse environmental and social risks and/or impacts that are diverse, irreversible or unprecedented in the absence of mitigation; Category B – Investments with potential limited adverse environmental and social risks and/or impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and Category C – Investments with minimal or no adverse environmental and social risks and/or impacts. This categorisation then determined the level of due diligence undertaken. For further information regarding ESG integration across the investment life cycle, please see page 10 of the Sustainability Report. 112 International Public Partnerships Limited Annual Report and financial statements 2022 109  How did the sustainability indicators perform? Information regarding the performance of the Company’s investments against its sustainability indicators is provided from page 20 of the Company’s Sustainability Report. …and compared to previous periods? Not applicable - 2022 was the first period that this has been monitored in the manner required by SFDR. Comparisons to previous periods will be provided in subsequent reports. What were the objectives of the sustainable investments that the financial product partially made and how did the sustainable investment contribute to such objectives? page 3 as a PDF is corrupt and cannot be placed The Company promotes environmental or social characteristics but does not have as its objective sustainable investment. How did the sustainable investments that the financial product partially made not cause significant harm to any environmental or social sustainable investment objective? How were the indicators for adverse impacts on sustainability factors taken into account? Not applicable Were sustainable investments aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights? Details: Not applicable The EU Taxonomy sets out a “do not significant harm” principle by which Taxonomy-aligned investments should not significantly harm EU Taxonomy objectives and is accompanied by specific Union criteria. The “do no significant harm” principle applies only to those investments underlying the financial product that take into account the Union criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this financial product do not take into account the Union criteria for environmentally sustainable economic activities. Any other sustainable environmental or social objectives. investments must also not significantly harm any Principal adverse impacts are the most significant negative impacts of investment decisions on sustainability factors relating to environmental, social and employee matters, respect for human rights, anti‐ corruption and anti‐bribery matters. International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 110113 How did this financial product consider principal adverse impacts on sustainability factors? Not applicable. As detailed in the section entitled "To what extent were the environmental and/or social characteristics promoted by this financial product met?", every investment opportunity undergoes a detailed screening and due diligence process during which the potential negative impacts that an investment may have on an environmental and/or social characteristic are further considered. Those investments with potential to cause environmental and social risks and/or impacts that are diverse, irreversible or unprecedented in the absence of mitigation are subject to a higher level of due diligence to ensure that any risks are sufficiently mitigated and opportunities realised. The list includes the investments constituting the greatest proportion of investments of the financial product during the reference period which is: 1 January to 31 December 2022 What were the top investments of this financial product? Largest investments Sector % Assets Country Cadent Tideway Diabolo Lincs OFTO Gas Distribution Waste water Transport Energy Transmission Angel Trains FHSP East Anglia One OFTO Transport Other Energy Transmission 14.5% 13.5% 7.2% 6.3% 6.0% 4.1% 3.6% Ormonde OFTO Energy Transmission 3.5% UK UK Belgium UK UK US UK UK Reliance Rail BeNEX Transport Transport 2.9% 2.4% Australia Germany Asset allocation describes the share of investments in specific assets. What was the proportion of sustainability-related investments? Not applicable – as noted above, the Company promotes environmental and social characteristics but does not have sustainable investment as its objective and therefore did not invest in sustainable investments, as defined under the SFDR. What was the asset allocation? 97% of the Company’s investments were used to attain the environmental or social characteristics of the Company. 114 International Public Partnerships Limited Annual Report and financial statements 2022 111 How did this financial product consider principal adverse impacts on sustainability factors? Not applicable. As detailed in the section entitled "To what extent were the environmental and/or social characteristics promoted by this financial product met?", every investment opportunity undergoes a detailed screening and due diligence process during which the potential negative impacts that an investment may have on an environmental and/or social characteristic are further considered. Those investments with potential to cause environmental and social risks and/or impacts that are diverse, irreversible or unprecedented in the absence of mitigation are subject to a higher level of due diligence to ensure that any risks are sufficiently mitigated and opportunities realised. What were the top investments of this financial product? The list includes the investments constituting the greatest proportion of investments of the financial product during the reference period which is: 1 January to 31 December 2022 Cadent Tideway Diabolo Lincs OFTO Angel Trains FHSP Largest investments Sector % Assets Country Gas Distribution Waste water Transport Energy Transmission Transport Other 14.5% 13.5% 7.2% 6.3% 6.0% 4.1% 3.6% Belgium UK UK UK UK US UK UK East Anglia One OFTO Energy Transmission Ormonde OFTO Energy Transmission 3.5% Reliance Rail BeNEX Transport Transport 2.9% 2.4% Australia Germany What was the proportion of sustainability-related investments? Not applicable – as noted above, the Company promotes environmental and social characteristics but does not have sustainable investment as its objective and therefore did not invest in sustainable Asset allocation describes the share of investments in specific assets. investments, as defined under the SFDR. What was the asset allocation? 97% of the Company’s investments were used to attain the environmental or social characteristics of the Company. 111 International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 115 In which economic sectors were the investments made? The Company’s investments were in infrastructure assets, in the following sectors: energy, transmission, transport, education, gas distribution, waste water, health, family housing for service personnel, digital, courts. To what extent were the sustainable investments with an environmental objective aligned with the EU Taxonomy? The Company is currently in the process of reviewing and determining the extent whether the Company’s investments align with the EU Taxonomy technical screening criteria contained in the Taxonomy Climate Delegated Act. Therefore, the Company is not currently in a position to disclose how and to what extent its investments are in economic activities that qualify as environmentally sustainable economic activities (as defined in Article 3 of the EU Taxonomy). Therefore, in accordance with the European Commission’s Decision Notice of 13 May 2022 (C(2022) 3051), the Company confirms that its investments are 0% EU Taxonomy-aligned. Did the financial product invest in fossil gas and/or nuclear energy related activities complying with the EU Taxonomy1? Yes: In fossil gas In nuclear energy No Fossil gas and/or nuclear related activities will only compy with the EU Taxonomy where they contribute to limiting climate change (“climate change mitigation”) and do not significantly harm any EU Taxonomy objective – see explanatory not in the left hand margin. The full criteria for fossil gas and nuclear energy economy activitiesthat comply with the EU Taxonomy are laid down in Commission Delegated Regulation (EU) 2022/1214.#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product. #2 Other includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor are qualified as sustainable investments. Investments#1Aligned with E/S characteristics#2 OtherTo comply with the EU Taxonomy, the criteria for fossil gas include limitations on emissions and switching to fully renewable power or low-carbon fuels by the end of 2035. For nuclear energy, the criteria include comprehensive safety and waste management rules. Enabling activities directly enable other activities to make a substantial contribution to an environmental objective. Transitional activities are activities for which low-carbon alternatives are not yet available and among others have greenhouse gas emission levels corresponding to the best performance. 112116 International Public Partnerships Limited Annual Report and financial statements 2022 What was the share of investments made in transitional and enabling activities? Not applicable How did the percentage of investments that were aligned with the EU Taxonomy compare with previous reference periods? Not applicable What was the share of sustainable investments with an environmental objective not aligned with the EU Taxonomy?Not applicable What was the share of socially sustainable investments?Not applicable The graphs below show in green the percentage of investments that were aligned with the EU Taxonomy. As there is no appropriate methodology to determine the taxonomy-alignment of sovereign bonds*, the first graph shows the Taxonomy alignment in relation to all the investments of the financial product including sovereign bonds, while the second graph shows the Taxonomy alignment only in relation to the investments of the financial product other than sovereign bonds. *For the purpose of these graphs, ‘sovereign bonds’ consist of all sovereign exposuresare sustainable investments with an environmental objective that do not take into account the criteria for environmentally sustainable economic activities under Regulation (EU) 2020/852. OpExCapExTurnover0%50%100%1. Taxonomy-alignment of investments including sovereign bonds* Other investmentsOpExCapExTurnover0%20%40%60%80%100%2. Taxonomy-alignment of investments excluding sovereign bonds* Other investmentsTaxonomy-aligned activities are expressed as ashare of: -turnoverreflecting theshare of revenuefrom greenactivities ofinvesteecompanies.-capitalexpenditure(CapEx) showingthe greeninvestments madeby investeecompanies, e.g. fora transition to agreen economy.-operationalexpenditure(OpEx) reflectingthe greenoperationalactivities ofinvesteecompanies.113What investments were included under “other”, what was their purpose and were there any minimum environmental or social safeguards? The Company may hold cash reserves and/or enter into derivative transactions for the purposes of ancillary liquidity, ongoing portfolio management and hedging. Given the purpose of these investments, there are no minimum environmental and social safeguards applied to such investments. As noted above, for the reporting period, the value of such “other” assets related to 3% of the Company’s investments. What actions have been taken to meet the environmental and/or social characteristics during the reference period? As noted above, the Company ensured that the environmental and social characteristics were met on a continuous basis, through the following mandatory practices and in line with the Company’s internal policies and procedures: (a) (b) (c) (d) Sustainable Development Goal Alignment; Alignment with INPP Exclusion criteria; Alignment with INPP’s minimum Governance standards; and ESG incorporated through the investment process. Please refer to the Company’s 2022 Sustainability Report for a full summary of actions taken to attain the environmental and social characteristics of the Company. How did this financial product perform compared to the reference benchmark? The Company does not use a defined benchmark at this time. How does the reference benchmark differ from a broad market index? Not applicable How did this financial product perform with regard to the sustainability indicators to determine the alignment of the reference benchmark with the environmental or social characteristics promoted? Not applicable How did this financial product perform compared with the reference benchmark? Not applicable How did this financial product perform compared with the broad market index? Not applicable International Public Partnerships Limited International Public Partnerships Limited Annual Report and financial statements 2022 Annual Report and financial statements 2022 114117 Reference benchmarks are indexes to measure whether the financial product attains the environmental or social characteristics that they promote. NOTES 118 International Public Partnerships Limited Annual Report and financial statements 2022 Printed on material from well-managed, FSC™ certified forests and other controlled sources. This publication was printed by an FSC™ certified printer that holds an ISO 14001 certification. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity, who offset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, under threat of clearance, carbon is locked-in, that would otherwise be released. I n t e r n a t i o n a l P u b l i c P a r t n e r s h i p s L i m i t e d A n n u a l R e p o r t a n d f i n a n c i a l s t a t e m e n t s 2 0 2 2 International Public Partnerships Limited c/o Ocorian Administration (Guernsey) Limited PO Box 286 Floor 2 Trafalgar Court Les Banques St Peter Port Guernsey, Channel Islands GY1 4LY Tel: +44 1481 742 742 WWW.INTERNATIONALPUBLICPARTNERSHIPS.COM 

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