Annual Report • Mar 30, 2023
Annual Report
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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.
– 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 Key Contacts
108 Annex – SFDR periodic reporting requirements (unaudited)
Company website: www.internationalpublicpartnerships.com
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*
C. 2022 dividend growth 2.5%* (2021: c.2.5%)
£3.0bn NAV at 31 December 20224 (2021: £2.5bn)
20.2 Increase in NAV % (2021: 6.1%)
PORTFOLIO ACTIVITY
7.93p 2023 full-year dividend target per share 2*
1.3X Cash dividend cover3* (2021: 1.1x)
2024 full-year dividend target per share2
159.1p NAV per share at 31 December 20224 (2021: 148.2p)
7.3 Increase in NAV per share % * (2021: 0.7%)
0.7 Portfolio inflation-linked returns* % at 31 December 20227 (2021: 0.7%)
NET ASSET VALUE ('NAV')4* TOTAL SHAREHOLDER RETURN ('TSR')*
222.6 TSR since Initial Public Offering ('IPO') % 5
7.5% Annualised TSR since IPO5
8.13p
PROFIT
£326.8m Profit before tax
(2021: £129.2m)
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:
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
>2,700,000
Estimated equivalent number of homes powered by renewable energy transmitted through offshore transmission ('OFTO') investments
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 46 and the Company's Sustainability Report.
SDG POSITIVE ENVIRONMENTAL AND SOCIAL CHARACTERISTICS PORTFOLIO SDG ALIGNMENT
15%
14%
Continuing to deliver consistent financial returns for investors through dividends and capital growth.
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.
The Company seeks to build a diversified portfolio of investments with low exposure to market demand risks.
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 .
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').
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.
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
We seek new investments through our extensive relationships,
EFFICIENT FINANCIAL MANAGEMENT
CONTINUOUS RISK MANAGEMENT
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
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
For more see pages 28 to 29
Upholding high standards of business integrity and governance
Robust risk analysis during investment origination ensures strong portfolio development
For more see pages 47 to 58
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
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
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
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:
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.
Delivering long-term, inflationlinked returns to investors
TARGET AN ANNUAL DIVIDEND INCREASE OF 2.5%
c. Annual dividend increase achieved for 2022 2.5% (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 basis 2 (2021: 0.7%)
Originate investments with stable, longterm cash flows and potential growth attributes, whilst maintaining a balanced portfolio of assets
Managing strong ongoing asset performance
Making efficient use of the Company's finances and working capital
of the investments made in 2022 met at least three of the six attributes (2021: 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%)
Asset availability achieved against a target of >98% during 2022 (2021: 99.8%)
5-stars PRI rating4 (2021: A+)
POSITIVE SDG CONTRIBUTION FOR NEW INVESTMENTS
100 %
Percentage of new investments in the year that positively support targets outlined by the SDGs5 (2021: 100%)
1.06 Ongoing charges ratio for 2022 % (2021: 1.18%)
1.3x Dividends fully cash covered* for 2022 (2021: 1.1x)
Looking forward, the Company remains confident that its business model and investment objectives will continue to offer a significant degree of protection for ourinvestors.
MIKE GERRARD CHAIR
1.3x
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:
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.
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.
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%).
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 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.
Further information on the Company's portfolio can be found on pages 16 to 19.
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 financial product, 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.
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 62 to 69.
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.
MIKE GERRARD CHAIR 29 March 2023
5 Future profit projection and dividends cannot be guaranteed. Projections are based on current estimates and may vary in future.
View our company website www.internationalpublicpartnerships.com
| 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 in length. LOCATION US |
SECTOR Other STATUS AT 31 DECEMBER 2022 Operational % HOLDING AT 31 DECEMBER 20221 100% Risk Capital |
% INVESTMENT FAIR VALUE 31 DECEMBER 2022 4.1% % INVESTMENT FAIR VALUE 31 DECEMBER 2021 2.5% PRIMARY SDG SUPPORTED |
|
|---|---|---|---|
| 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 |
SECTOR Energy Transmission STATUS AT 31 DECEMBER 2022 Operational % HOLDING AT 31 DECEMBER 20221 100% Risk Capital |
% INVESTMENT FAIR VALUE 31 DECEMBER 2022 3.6% % INVESTMENT FAIR VALUE 31 DECEMBER 2021 N/A PRIMARY SDG SUPPORTED |
|
| 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 |
SECTOR Energy transmission STATUS AT 31 DECEMBER 2022 Operational % HOLDING AT 31 DECEMBER 20221 100% Risk Capital and 100% Senior Debt |
% INVESTMENT FAIR VALUE 31 DECEMBER 2022 3.5% % INVESTMENT FAIR VALUE 31 DECEMBER 2021 4.2% PRIMARY SDG SUPPORTED |
|
| 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 |
SECTOR Transport STATUS AT 31 DECEMBER 2022 Operational % HOLDING AT 31 DECEMBER 20221 33% Risk Capital |
% INVESTMENT FAIR VALUE 31 DECEMBER 2022 2.9% % INVESTMENT FAIR VALUE 31 DECEMBER 2021 3.7% PRIMARY SDG SUPPORTED |
|
| 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 Transport STATUS AT 31 DECEMBER 2022 Operational % HOLDING AT 31 DECEMBER 20221 100% Risk Capital |
% INVESTMENT FAIR VALUE 31 DECEMBER 2022 2.4% % INVESTMENT FAIR VALUE 31 DECEMBER 2021 2.8% 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 18 of the Operating Review.
1 Risk Capital includes project level equity and/or subordinated shareholder debt.
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.
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.
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 3.2GW 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.
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.
The investments directly support targets outlined in SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action)
1 https://www.scottishpowerrenewables.com/pages/east_anglia_one.aspx.
2 Data provided directly from wind farm owners. Figure may vary depending on actual wind generated and transmitted, which is naturally variable.
Key facts and performance:
FINANCIAL
Capital cost s – EA1
Image: Dudgeon OFTO, UK
CLIMATE
Clean energy generation supported by EA1 1
Clean energy generation supported by OFTO portfolio 2 SOCIETY
Estimated equivalent number of homes capable of being powered by EA11
2,740,000 Estimated equivalent number of homes
capable of being powered by OFTO portfolio 2
15
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 that 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 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 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.
100 of the investments made in 2022 met % at least three of the six attributes (2021: 100%)
(e.g. sourced through pre-emptive rights or through the activities of our Investment Adviser)
.
Location
Operational status Operational
Investment £1.5 million
Investment date June 2022
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.
Location
Operational status Operational
Investment £4.8 million2 Investment date June 2022
Investment date Various Key attributes 3 4 5 6
Primary SDG supported
Primary SDG supported
During the year, a further c.£4.8 million2 (€5.5 million) 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.
Location
Operational status Operational
Investment £1.2 million
International Public Partnerships Limited Annual Report and financial statements 2022
16
Location
Operational status In construction
Investment £41.9 million
Location
Operational status Operational Investment £36.5 million2
Investment date September 2022
Investment date December 2022 Key attributes 1 4 6
Primary SDG supported
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.
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.
Location
Opeational status Operational
Investment £105.7 million Investment date December 2022
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.
Location
Operational status In construction
Investment £7.0 million2
Investment date
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.
Location
Operational status Operational
Investment £113.4 million2 Investment date December 2022
Primary SDG supported
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.
Location
Operational status Operational
Investment £0.7 million
Investment date March 2023 Key attributes
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.
Post-year end, in March 2023,
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 | Preferred bidder. Investment expected in 2023 |
|
| New Zealand Portfolio | c.£113 million | 24 years | Investment commitment made. Expected to be funded in Q2 2023 |
|
| Flinders University Health and Medical Research Building |
c.£10 million | 25 years | Investment commitment made. Expected to be funded in 2024 |
|
| Gold Coast Light Rail – Stage 3 | c.£7 million | 5 years | 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.
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:
EUROPE (EXCLUDING UK)
1 Bipartisan Infrastructure Law, The White House.
2 The Inflation Reduction Act, The White House.
3 Recovery and Resilience Facility, European Commission.
6 Australian Infrastructure Budget Monitor 2022-23 (produced by Infrastructure Partnerships Australia).
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.
Forecast distributions received
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: 100.0%).
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.
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.
(2021: 100%)
1 The majority of projects and businesses benefit from availability-based or regulated revenues.
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.
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.
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.
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.
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 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 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 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 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.
1 Formerly part of the Department of Business, Energy and Industrial Strategy ('BEIS').
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.
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.
Angel Trains
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.
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 Wales. The Company's Investment Adviser continues to actively monitor the remaining three businesses in which the Company is invested (via NDIF), Community Fibre, Airband and toob.
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.
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.
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 investment 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 Construction completion date 2026 Defects completion date 2027 |
Status at 31 December 2022 Scheduled for completion in 20263 % of investment at fair value 0.0%4 |
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 Construction completion date 2024 Defects completion date N/A 5 |
Status at 31 December 2022 On schedule % of investment 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.
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.
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.
1.3x
(2021: 1.1x)
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.
Dividends fully cash covered
1.06% Ongoing Charges Ratio (2021: 1.18%)
Profit before tax (2021: £129.2m)
| Year to | Year to | |
|---|---|---|
| 31 December | 31 December | |
| 2022 | 2021 | |
| Summary of Consolidated Cash Flow | £ Million | £ Million |
| Opening cash balance | 56.1 | 44.3 |
| Cash from investments | 205.9 | 167.9 |
| Corporate costs (for ongoing charges ratio) | (30.2) | (28.5) |
| Net financing costs | (2.9) | (4.8) |
| Net operating cash flows before capital activity1 | 172.8 | 134.6 |
| Cost of new investments | (191.6) | (252.7) |
| Investment transaction costs | (1.8) | (3.0) |
| Net movement of CDF | (126.9) | 117.8 |
| Proceeds of capital raisings (net of costs) | 320.2 | 133.6 |
| Dividends paid | (136.0) | (118.5) |
| Closing cash balance | 92.8 | 56.1 |
| Cash dividend cover | 1.3x | 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 84 of the financial statements.
| Year to | Year to | |
|---|---|---|
| 31 December | 31 December | |
| 2022 | 2021 | |
| Corporate Costs | £ Million | £ Million |
| Management fees | (27.9) | (25.7) |
| Audit fees | (0.6) | (1.0) |
| Directors' fees | (0.5) | (0.4) |
| Other running costs | (1.2) | (1.4) |
| Corporate costs | (30.2) | (28.5) |
| Year to | Year to | |
|---|---|---|
| 31 December | 31 December | |
| 2022 | 2021 | |
| Ongoing Charges Ratio | £ Million | £ Million |
| Annualised Ongoing Charges1 | (30.2) | (28.5) |
| Average NAV2 | 2,858.3 | 2,423.2 |
| Ongoing Charges | (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.
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.
PERFORMANCE AGAINST STRATEGIC KPIs
7.9% p.a.
IRR achieved since IPO2 (31 December 2021: 7.7%)
0.7% p.a.
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%)
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%.
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 inflationlinkage. 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%).
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.
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.
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.
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).
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.
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
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 34 and in aggregate these had a positive £169.3 million impact on the NAV.
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.
management of the Company's portfolio;
and
position.
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.
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.
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 | 31 DECEMBER 2022 | 31 DECEMBER 2021 | |
|---|---|---|---|
| Inflation rates | UK | RPI: 8.00% until Dec 2023, | 2.75% RPI |
| 2.75% thereafter | |||
| CPIH: 7.00% until Dec 2023, | |||
| 2.00% thereafter | 2.00% CPIH | ||
| Australia | 5.25% until Dec 2023 | 2.50% | |
| 3.00% until Dec 2024, | |||
| 2.50% thereafter | |||
| Europe | 5.00% until Dec 2023, | 2.00% | |
| 2.50% until Dec 2024, | |||
| 2.00% thereafter | |||
| Canada | 2.75% until Dec 2023, | 2.00% | |
| 2.00% thereafter | |||
| US1 | N/A | N/A | |
| Long-term deposit rates2 | UK | 2.50% | 1.00% |
| Australia | 2.75% | 2.00% | |
| Europe | 1.50% | 0.50% | |
| Canada | 2.50% | 1.50% | |
| US1 | N/A | N/A | |
| Foreign exchange rates | GBP/AUD | 1.77 | 1.86 |
| GBP/DKK | 8.40 | 8.86 | |
| GBP/EUR | 1.13 | 1.19 | |
| GBP/CAD | 1.64 | 1.72 | |
| GBP/USD | 1.21 | 1.35 | |
| Tax rates3 | UK | 19.00%/25.00%4 | 19.00%/25.00%4 |
| Australia | 30.00% | 30.00% | |
| Europe | Various (12.50% - 32.28%) | Various (12.50% - 32.28%) | |
| Canada | Various (23.00% - 26.50%) | Various (23.00% - 26.50%) | |
| US1 | N/A | 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.
The discount rate used to value each investment comprises the appropriate long-term government bond yield plus an investmentspecific 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.
| 31 DECEMBER 2022 |
31 DECEMBER 2021 |
MOVEMENT | |
|---|---|---|---|
| Weighted average government bond yield – portfolio | 3.13% | 0.96% | +217bps |
| Weighted average investment premium – portfolio | 4.38% | 6.01% | (163bps) |
| Weighted average discount rate – portfolio | 7.51% | 6.97% | +54bps |
| Weighted average discount rate – Risk Capital | 7.71% | 7.38% | +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.
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.
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.
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.
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.
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.
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.
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
| Chair | Director |
|---|---|
| 29 March 2023 | 29 March 2023 |
Mike Gerrard John Le Poidevin 29 March 2023 29 March 2023
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 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:
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.
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.
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.
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
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 108 for the Company's SFDR periodic report to meet its reporting requirements under Article 11 of the SFDR.
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.
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 climaterelated risks and opportunities. The Company's TCFD implementation is integrated in the Company's strategy, risk management, governance practices, and reporting.
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.
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 Naturerelated 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.
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.
Patients treated in healthcare facilities developed and managed by the Company
Students attending schools developed and maintained by the Company
The three components of the London Tideway Improvements will work conjunctively to reduce discharges in a typical year by c.37 million cubic metres
Estimated equivalent number of homes powered by renewable energy transmitted through OFTO investments
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.
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 Principles for Responsible Investment (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 |
100% | 100% | 100% |
| 2. Investment Adviser ESG Integration Performance. Investment Adviser's PRI score |
5*/A+ | 5* | A+ (2020) |
| 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 |
100% | 100% | 96% |
| 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 |
100% 100% |
98% 91% |
95% 79% |
| 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 |
100% 100% |
100% 100% |
97% 93% |
| 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% 91% |
94% 88% |
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).
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.
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) | Scope 1 of investments | 36,667 |
| Scope 2 of investments | 10,311 | |
| Total | 46,978 | |
| Carbon footprint (tCO2e/£m invested) | Total | 27 |
| GHG intensity of investments (tCO2e/£m revenue) | Total | 145 |
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.
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.
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 .
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.
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.
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.
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 | Unit | 31 December 20221 |
|---|---|---|---|
| Investment | Scope 1 GHG emissions | tCO2e | 36,667 |
| GHG | Scope 2 GHG emissions | tCO2e | 10,311 |
| emissions | Total GHG emissions | tCO2e | 46,978 |
| Carbon Footprint | tCO2e/£m invested | 27 | |
| GHG intensity of investee companies | tCO2e/£m revenue | 145 | |
| Share of investments in companies active in the fossil fuel sector | % | 15 | |
| 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 |
% | 97 | |
| Energy consumption intensity per high impact climate sector: Electricity, gas, steam and air conditioning supply |
GWh/£m | 0.63 | |
| Energy consumption intensity per high impact climate sector: Transportation and storage |
GWh/£m | 0.22 | |
| 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 |
% | 0 |
| Water | Tonnes of emissions to water generated by investee companies per million GBP invested, expressed as a weighted average |
Tonnes/£m | 0 |
| Waste | 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 |
% | 0 |
| 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 |
% | 0 | |
| Average unadjusted gender pay gap of investee companies | % | 19 | |
| Average ratio of female to male board members in investee companies, expressed as a percentage of all board members |
% | 17 | |
| Share of investments in investee companies involved in the manufacture or selling of controversial weapons |
% | 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.
RECOMMENDED DISCLOSURE SUMMARY SECTION Governance a) Describe the Board's oversight of climate-related risks and opportunities. 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. Sustainability Report Sections 2 and 4 b) Describe management's role in assessing and managing climaterelated risks and opportunities. 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. Sustainability Report Sections 2 and 4 Strategy a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long-term. 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. 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. Sustainability Report Sections 3 and 4 b) Describe the impact of climate-related risks and opportunities on the organisation's businesses, strategy and financial planning. 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 c) Describe the resilience of the organisation's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. 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 Risk a) Describe the organisation's processes for identifying and assessing climaterelated 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. Sustainability Report Sections 3 and 4 b) Describe the organisation's processes for managing climaterelated 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 Sustainability Report Sections 3 and 4
quantify and assess risks. The Company has developed a series of risk management actions to reduce financial risks across the portfolio.
c) Describe how processes for identifying, assessing and managing climaterelated risks are integrated into the organisation's overall risk management.
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
| RECOMMENDED DISCLOSURE |
SUMMARY | SECTION |
|---|---|---|
| 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 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 greenhouse gas 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 |
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. The Company will continue to consider its approach to net zero at the portfolio |
Sustainability Report Sections 3 and 4 |
| performance against targets. |
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. |
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 below.
We aim to provide our investors with stable, long-term, inflationlinked 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:
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.
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:
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.
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:
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-forprofit good causes.
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
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 41 for more information.
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.
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.
The risk framework is implemented through the following risk control processes:
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.
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 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 pages 54.
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.
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.
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 on pages 37 in this Report and Sections 3 and 4 of the Sustainability Report.
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.
A description of broader risk factors relevant to investors is disclosed in the latest Company prospectus available on the website www.internationalpublicpartnerships.com.
The Company's identified risks have been mapped to the five different risk categories: political, portfolio operations, macroeconomic, regulation and compliance, and central operations.
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:
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.
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.
The following key is used in the table below to highlight the Board's view on movement of risk exposures during the year:
Risk exposure has increased in the year
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 longterm 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.
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. 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.
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).
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.
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. 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.
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.
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 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.
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.
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.
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.
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 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.
Investments may be subject to extreme weather and changes in precipitation and temperature, all of which may result in physical damage to assets.
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.
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.
The performance of the Company's investments is dependent on the complex set of contractual arrangements specific to each investment continuing to operate as intended. The Company is exposed to the risk that such contracts do not operate as intended, are incomplete, contain unanticipated liabilities, are subject to interpretation contrary to its expectations or otherwise fail to provide the protection or recourse anticipated.
Such contracts have been entered into, usually only after 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
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.
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 benchmarks the inflation assumptions used in its forecasts to credible independent sources. 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.
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.
The Company is monitoring the potential impacts of increased inflation on interest rates. 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.
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.
Floating rate interest is charged on the CDF, so higher than anticipated interest rates will increase the cost of this facility.
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.
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.
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.
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.
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.
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.
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.
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.
Change in tax legislation
Changes in tax legislation across the multiple jurisdictions in which the Company has investments can reduce returns, impacting on the Company's future cash flow returns and hence valuation (calculated on a discounted cash flow basis). The 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.
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.
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.
Investments in regulated businesses are considered very longterm, 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.
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:
Mike Gerrard Chair 29 March 2023 John Le Poidevin Director 29 March 2023
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.
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.
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:
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 23 to 27 has details of the current composition of the investment portfolio.
The Company's Investment Policy restricts it from making any investment of more than 20% of the total assets in any one investment in order to limit the risk of any one investment to the overall portfolio.
As a London Stock Exchange listed company, the Company is also subject to certain restrictions pursuant to the UKLA Listing Rules.
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.
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.
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.
MIKE GERRARD Board Chair
DATE OF APPOINTMENT: 4 September 2018
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.
JULIA BOND Chair, ESG Committee
DATE OF APPOINTMENT: 1 September 2017
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.
STEPHANIE COXON Chair, Nomination and Remuneration Committee
DATE OF APPOINTMENT: 1 January 2022
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 nonexecutive 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.
SALLY-ANN DAVID Chair, Risk Sub-Committee
DATE OF APPOINTMENT: 10 January 2020
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.
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.
MERIEL LENFESTEY Chair, Management Engagement Committee
DATE OF APPOINTMENT: 10 January 2020
BACKGROUND AND EXPERIENCE
A resident of Guernsey, Meriel has 28 years of multi-sector business experience.
With a background in humancentred 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
JOHN LE POIDEVIN Chair, Audit and Risk Committee, Senior Independent Director from May 2022
DATE OF APPOINTMENT: 1 January 2016
DATE OF APPOINTMENT: 2 August 2006
BACKGROUND AND EXPERIENCE
subsidiaries.
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
GILES FROST CLAIRE WHITTET Senior Independent Director until May 2022
DATE OF RETIREMENT: 25 May 2022
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 nonexecutive 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.
programmes.
A resident of Guernsey, John has over 30 years of business experience.
John is a Fellow of the Institute of Chartered Accountants in England and Wales and a former partner of BDO LLP, where he held a number of leadership roles, including Head of Consumer Markets, where he developed an extensive breadth of experience and knowledge across the real estate, leisure and retail sectors in the UK and overseas.
John is a non-executive director on several plc boards and chairs a number of audit committees.
LISTED COMPANY AND OTHER RELEVANT DIRECTORSHIPS - BH Macro Limited - TwentyFour Income Fund
Limited
Limited
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.
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.
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.
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 page 46 for more information.
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.
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.
The Board of Directors currently consists of seven non-executive directors, whose biographies, on pages 60 to 61, 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.
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.
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.
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.
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.
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.
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.
| 2023 FEE P.A. | 2022 FEE P.A. | |
|---|---|---|
| POSITION | £ | £ |
| Board Chair | 101,400 | 96,600 |
| Audit and Risk Committee Chair | 73,000 | 69,500 |
| Director (Independent and Non-Independent) Senior | 56,200 | 53,500 |
| Independent Director1 | 3,800 | 3,600 |
| Risk Sub-Committee Chair1 | 3,250 | 3,100 |
| Management Engagement Committee Chair1 | 3,250 | 3,100 |
| Nomination and Remuneration Committee Chair1 | 3,250 | 3,100 |
| ESG Committee Chair1 | 5,350 | 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.
| DIRECTOR | 2022 FEES £ |
2021 FEES £ |
|---|---|---|
| Mike Gerrard | 98,600 | 87,600 |
| Julia Bond | 60,619 | 50,400 |
| Stephanie Coxon1 | 55,356 | - |
| Sally-Ann David | 55,825 | 48,400 |
| Meriel Lenfestey | 55,356 | 46,400 |
| John Le Poidevin | 71,655 | 59,800 |
| Giles Frost2 | 53,500 | 46,400 |
| Claire Whittet3 | 23,956 | 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, who held office at 31 December 2022, had the following interests in the shares of the Company:
| DIRECTOR | 31 DECEMBER 2022 NUMBER OF ORDINARY SHARES1 |
31 DECEMBER 2021 NUMBER OF ORDINARY SHARES1 |
|---|---|---|
| Mike Gerrard | 243,447 | 159,181 |
| Julia Bond | 106,542 | 72,444 |
| Stephanie Coxon2 | 10,000 | - |
| Sally-Ann David | 30,303 | 30,303 |
| Meriel Lenfestey | 25,142 | 9,979 |
| John Le Poidevin | 327,898 | 160,653 |
| Giles Frost3 | 971,676 | 971,676 |
| Claire Whittet4 | 114,102 | 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.
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 - Board composition and accountability to shareholders |
- Risk assessment and management including reporting compliance, monitoring, governance and control - Responsible for financial statements |
| AUDIT AND RISK COMMITTEE | MANAGEMENT ENGAGEMENT COMMITTEE |
| Delegated responsibilities | 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 |
- 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 - Ensure proposals are compliant with the Company's Investment Policy and strategy - Ensure that proposals do not breach Articles of Incorporation, Prospectus or other constitutional documents - Determine whether proposals are appropriate for investment or divestment and then, assuming the opportunity is approved, authorise the Investment Adviser to enact the transaction |
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 composition of the Board Identify and appoint suitable Board candidates as vacancies arise and ensure succession planning is in place Articulate the roles of the Chair and Non-Executive Directors Conduct induction training for new Board members |
| ENVIRONMENTAL, SOCIAL AND GOVERNANCE COMMITTEE Delegated responsibilities - Review the Company's ESG policies, principles and standards - Provide strategic advice to the Board on ESG-related |
- Challenge the implementation of ESG policies through the investment and divestment approval process - Provide a forum in which the Board and Investment |
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 70 to 72.
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 70 to 72. 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.
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 to 18 of this Annual Report.
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 65.
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.
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 63. It also oversees the appointment and reappointment of directors, taking into account the expertise and diversity of the candidates and their independence (see page 65 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.
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.
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 | QUARTERLY BOARD |
AUDIT AND RISK COMMITTEE |
ESG COMMITTEE |
MANAGEMENT ENGAGEMENT COMMITTEE |
NOMINATION AND REMUNERATION COMMITTEE |
|---|---|---|---|---|---|
| Maximum number | 4 | 5 | 4 | 1 | 3 |
| Mike Gerrard2 | 4 | n/a | 4 | 1 | 3 |
| Julia Bond | 4 | 5 | 4 | 1 | 3 |
| Stephanie Coxon3 | 4 | 5 | 4 | 1 | 3 |
| Sally-Ann David | 4 | 5 | 4 | 1 | 3 |
| Meriel Lenfestey | 4 | 5 | 4 | 1 | 3 |
| John Le Poidevin | 4 | 5 | 4 | 1 | 3 |
| Giles Frost4 | 4 | n/a | 4 | n/a | n/a |
| Claire Whittet5 | 2 | 2 | 2 | 0 | 1 |
1 Board Committee meetings are formed of any two or more members of the Board and do not require full attendance. All members of the Board are appraised of the matters to be discussed at the Committee meeting and have the opportunity to raise questions to the Board Chair, Investment Adviser or other advisers, as required.
2 Mike Gerrard is not a member of the Audit and Risk Committee but attended these meetings as an observer.
3 Stephanie Coxon was appointed to the Board on 1 January 2022.
4 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.
5 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 62 to 63 outlining the Board's approach to diversity and re-election.
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.
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.
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:
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.
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.
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.
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.
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 47 to 58.
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 sellside 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).
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.
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 60 to 61.
The Committee's agenda during the year included:
The Committee undertook the following activities in discharging its responsibilities during the year:
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.
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 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.
The Committee concluded that a consistent valuation methodology has been applied throughout the year and any forecast assumptions applied were appropriate.
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.
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.
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.
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.
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 preapproved by the Chair of the Committee; any services above this value require pre-approval by the full Audit and Risk Committee. Nonaudit 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.
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.
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.
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.
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 47.
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 58.
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.
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 49.
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').
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
The Directors present their Annual Report on the performance of the Company and Group for the year ended 31 December 2022.
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 62 to 69.
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.
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.
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.
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 58. The financial position, cash flows, liquidity position and borrowing of the Company and Group are described in the financial statements from page 81.
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.
Each person who is a Director at the date of approval of this Annual Report confirms that:
Chair Director 29 March 2023 29 March 2023
Mike Gerrard John Le Poidevin
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:
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.
The Directors each confirm to the best of their knowledge that:
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 | John Le Poidevin |
|---|---|
| Chair | Director |
| 29 March 2023 | 29 March 2023 |
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.
The Group's consolidated financial statements comprise:
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.
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.
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 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 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 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 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. |
|
| 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. |
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. |
| 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 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. |
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.
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.
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.
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.
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.
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.
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:
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.
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.
Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
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:
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:
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.
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
YEAR ENDED 31 DECEMBER 2022
| Year ended | Year ended | ||
|---|---|---|---|
| 31 December 2022 | 31 December 2021 | ||
| Notes | £'000s | £'000s | |
| Interest income | 4 | 93,817 | 81,930 |
| Dividend income | 4 | 64,845 | 45,247 |
| Net change in investments at fair value through profit or loss | 4 | 210,906 | 34,626 |
| Total investment income | 369,568 | 161,803 | |
| Other operating (expense) / income | 5 | (3,978) | 3,560 |
| Total income | 365,590 | 165,363 | |
| Management costs | 17 | (29,421) | (26,173) |
| Administrative costs | (2,415) | (2,281) | |
| Transaction costs | 6, 17 | (2,891) | (3,896) |
| Directors' fees | (479) | (393) | |
| Total expenses | (35,206) | (32,743) | |
| Profit before finance costs and tax | 330,384 | 132,620 | |
| Finance costs | 8 | (3,556) | (3,453) |
| Profit before tax | 326,828 | 129,167 | |
| Tax credit | 9 | 69 | 44 |
| Profit for the year | 326,897 | 129,211 | |
| Earnings per share | |||
| From continuing operations | |||
| Basic and diluted (pence) | 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.
YEAR ENDED 31 DECEMBER 2022
| Notes | Share capital and share premium £'000s |
Other distributable reserve £'000s |
Retained earnings £'000s |
Total £'000s |
|
|---|---|---|---|---|---|
| Balance at 1 January 2022 | 1,908,849 | 182,481 | 437,470 | 2,528,800 | |
| Profit for the year and total comprehensive income |
- | - | 326,897 | 326,897 | |
| Issue of ordinary shares | 15 | 327,273 | - | - | 327,273 |
| Issue costs applied to new shares | 15 | (4,846) | - | - | (4,846) |
| Dividends in the year | 15 | - | - | (138,285) | (138,285) |
| Balance at 31 December 2022 | 2,231,276 | 182,481 | 626,082 | 3,039,839 | |
| Share capital and share premium |
Other distributable reserve |
Retained earnings |
Total | ||
|---|---|---|---|---|---|
| Notes | £'000s | £'000s | £'000s | £'000s | |
| Balance at 1 January 2021 | 1,769,582 | 182,481 | 432,373 | 2,384,436 | |
| Profit for the year and total comprehensive income |
- | - | 129,211 | 129,211 | |
| Issue of ordinary shares | 15 | 140,629 | - | - | 140,629 |
| Issue costs applied to new shares | 15 | (1,362) | - | - | (1,362) |
| Dividends in the year | 15 | - | - | (124,114) | (124,114) |
| Balance at 31 December 2021 | 1,908,849 | 182,481 | 437,470 | 2,528,800 |
| Notes | 31 December 2022 £'000s |
31 December 2021 £'000s |
|
|---|---|---|---|
| Non-current assets | |||
| Investments at fair value through profit or loss | 11 | 2,947,959 | 2,579,434 |
| Total non-current assets | 2,947,959 | 2,579,434 | |
| Current assets | |||
| Trade and other receivables | 11, 13 | 44,096 | 57,378 |
| Cash and cash equivalents | 11 | 92,829 | 56,090 |
| Derivative financial instruments | 11 | - | 2,713 |
| Total current assets | 136,925 | 116,181 | |
| Total assets | 3,084,884 | 2,695,615 | |
| Current liabilities | |||
| Trade and other payables | 11, 14 | 13,919 | 10,597 |
| Derivative financial instruments | 8, 11 | 1,826 | - |
| Total current liabilities | 15,745 | 10,597 | |
| Non-current liabilities | |||
| Bank loans | 8, 11 | 29,300 | 156,218 |
| Total non-current liabilities | 29,300 | 156,218 | |
| Total liabilities | 45,045 | 166,815 | |
| Net assets | 3,039,839 | 2,528,800 | |
| Equity | |||
| Share capital and share premium | 15 | 2,231,276 | 1,908,849 |
| Other distributable reserve | 15 | 182,481 | 182,481 |
| Retained earnings | 15 | 626,082 | 437,470 |
| Equity attributable to equity holders of the parent | 3,039,839 | 2,528,800 | |
| Net assets per share (pence per share) | 16 | 159.1 | 148.2 |
The financial statements were approved by the Board of Directors on 29 March 2023.
They were signed on its behalf by:
| Mike Gerrard | John Le Poidevin |
|---|---|
| Chair | Director |
| 29 March 2023 | 29 March 2023 |
YEAR ENDED 31 DECEMBER 2022
| Notes | Year ended 31 December 2022 £'000s |
Year ended 31 December 2021 £'000s |
|
|---|---|---|---|
| Profit before tax in the Consolidated Statement of Comprehensive Income1 | 326,828 | 129,167 | |
| Adjusted for: | |||
| Gain on investments at fair value through profit or loss | 4 | (210,906) | (34,626) |
| Finance costs2 | 8 | 3,556 | 3,453 |
| Fair value movement on derivative financial instruments | 5, 11 | 4,539 | (2,445) |
| Working capital adjustments | |||
| Decrease / (increase) in receivables | 11,326 | (13,431) | |
| Increase in payables | 3,321 | 1,282 | |
| Income tax paid3 | (95) | (105) | |
| Net cash inflow from operations4 | 138,569 | 83,295 | |
| Investing activities | |||
| Acquisition of investments at fair value through profit or loss | 12 | (191,604) | (252,725) |
| Net repayments from investments at fair value through profit or loss | 33,985 | 53,350 | |
| Net cash outflow from investing activities | (157,619) | (199,375) | |
| Financing activities | |||
| Proceeds from issue of shares net of issue costs | 320,154 | 133,638 | |
| Dividends paid | 15 | (136,012) | (118,485) |
| Finance costs paid2 | (2,849) | (4,825) | |
| Loan drawdowns2 | 29,300 | 178,215 | |
| Loan repayments2 | (156,218) | (60,397) | |
| Net cash inflow from financing activities | 54,375 | 128,146 | |
| Net increase in cash and cash equivalents | 35,325 | 12,066 | |
| Cash and cash equivalents at beginning of year | 56,090 | 44,263 | |
| Effects of changes in foreign currency on cash and cash equivalents | 1,414 | (239) | |
| Cash and cash equivalents at end of year | 92,829 | 56,090 |
1 Includes interest received of £87.2 million (December 2021: £70.0 million) and dividends received of £64.8 million (December 2021: £45.2 million). 2 These cash flows represent the changes in liabilities arising from financing liabilities during the year in accordance with IAS 7, 44A-E.
3 Includes cash flows received from unconsolidated subsidiary entities in respect of surrender of tax losses.
4 Net cash flows from operations above are reconciled to net operating cash flows before capital activity* as shown in the Strategic Report on pages 29 to 30.
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.
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) Obtains funds from one or more investor(s) for the purpose of providing those investor(s) with investment management services;
b) Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
c) Measures and evaluates the performance of substantially all of its investments on a fair value basis.
Accordingly, these financial statements consolidate only those subsidiaries that provide services relevant to its investment activities, such as management services, strategic advice and financial support to its investees, and that are not themselves investment entities. Subsidiaries that do not provide investment-related services are required to be measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments.
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.
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.
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 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.
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.
| Year ended 31 December 2022 | |||||
|---|---|---|---|---|---|
| Europe | |||||
| UK | (Excl. UK) | North America | Australia | Total | |
| £'000s | £'000s | £'000s | £'000s | £'000s | |
| Segmental results | |||||
| Dividend and interest income | 117,621 | 9,974 | 9,228 | 21,839 | 158,662 |
| Fair value gain / (loss) on | 151,080 | 38,360 | 24,558 | (3,092) | 210,906 |
| investments | |||||
| Total investment income | 268,701 | 48,334 | 33,786 | 18,747 | 369,568 |
| Reporting segment profit1 | 230,025 | 47,263 | 32,185 | 17,424 | 326,897 |
| Segmental financial position | |||||
| Investments at fair value | 2,226,964 | 347,620 | 166,023 | 207,352 | 2,947,959 |
| Current assets | 136,925 | - | - | - | 136,925 |
| Total assets | 2,363,889 | 347,620 | 166,023 | 207,352 | 3,084,884 |
| Total liabilities | (45,045) | - | - | - | (45,045) |
| Net assets | 2,318,844 | 347,620 | 166,023 | 207,352 | 3,039,839 |
| Year ended 31 December 2021 | |||||
|---|---|---|---|---|---|
| Europe | |||||
| UK £'000s |
(Excl. UK) £'000s |
North America £'000s |
Australia £'000s |
Total £'000s |
|
| Segmental results | |||||
| Dividend and interest income | 99,428 | 8,487 | 7,111 | 12,151 | 127,177 |
| Fair value gain / (loss) on | 28,840 | (2,839) | 1,979 | 6,646 | 34,626 |
| investments | |||||
| Total investment income | 128,268 | 5,648 | 9,090 | 18,797 | 161,803 |
| Reporting segment profit1 | 92,142 | 7,803 | 8,868 | 20,398 | 129,211 |
| Segmental financial position | |||||
| Investments at fair value | 1,947,001 | 313,241 | 105,931 | 213,261 | 2,579,434 |
| Current assets | 116,181 | - | - | - | 116,181 |
| Total assets | 2,063,182 | 313,241 | 105,931 | 213,261 | 2,695,615 |
| Total liabilities | (166,815) | - | - | - | (166,815) |
| Net assets | 1,896,367 | 313,241 | 105,931 | 213,261 | 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).
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 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 includes all realised and unrealised fair value changes (including foreign exchange movements) other than interest and dividend income recognised separately.
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
| Year ended 31 December 2022 £'000s |
Year ended 31 December 2021 £'000s |
|
|---|---|---|
| Interest income | ||
| Interest on investments at fair value through profit or loss | 93,655 | 81,930 |
| Interest on financial assets at amortised cost | 162 | - |
| Total interest income | 93,817 | 81,930 |
| Dividend income | 64,845 | 45,247 |
| Net change in Investments at fair value through profit or loss | 210,906 | 34,626 |
| Total investment income | 369,568 | 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.
| Year ended | Year ended | |
|---|---|---|
| 31 December 2022 | 31 December 2021 | |
| £'000s | £'000s | |
| Fair value movement on foreign exchange contracts | (4,539) | 2,445 |
| Other gains on foreign exchange movements | 545 | 1,089 |
| Other income | 16 | 26 |
| Total other operating (expense) / income | (3,978) | 3,560 |
| Year ended 31 December 2022 |
Year ended 31 December 2021 |
|
|---|---|---|
| £'000s | £'000s | |
| Investment advisory costs | 2,891 | 3,896 |
| Total transaction costs | 2,891 | 3,896 |
Details of total transaction costs paid to the Investment Adviser are provided in note 17.
| Year ended 31 December 2022 |
Year ended 31 December 2021 |
|
|---|---|---|
| Fees payable to the Group's auditor (PWC CI LLP) for the audit of the Group's financial | £'000s | £'000s |
| statements | 587 | 542 |
| 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 |
18 | 11 |
| - The audit of the Group's unconsolidated subsidiaries |
209 | 20 |
| Total audit fees | 814 | 573 |
| Other fees | ||
| - Interim review |
77 | 73 |
| - Reporting Accountant fees |
106 | - |
| Total non-audit fees | 183 | 73 |
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).
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.
| Year ended | Year ended | |
|---|---|---|
| 31 December 2022 | 31 December 2021 | |
| £'000s | £'000s | |
| Current tax: | ||
| UK corporation tax – prior year | - | (2) |
| Other overseas tax – current year | (69) | (44) |
| Other overseas tax – prior year | - | 2 |
| Tax credit for the year | (69) | (44) |
| Year ended | Year ended | |
| Reconciliation of effective tax rate: | 31 December 2022 | 31 December 2021 |
| Profit before tax | £'000s 326,828 |
£'000s 129,167 |
| Exempt tax status in Guernsey | - | - |
| Application of overseas tax rates | (69) | (44) |
| Tax credit for the year | (69) | (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.
The calculation of basic and diluted earnings per share is based on the following data:
| Year ended 31 December 2022 |
Year ended 31 December 2021 |
|
|---|---|---|
| £'000s | £'000s | |
| Earnings for the purposes of basic and diluted earnings per share being net profit attributable | ||
| to equity holders of the parent | 326,897 | 129,211 |
| Number | Number | |
| Weighted average number of Ordinary Shares for the purposes of basic and diluted earnings | ||
| per share | 1,841,400,896 | 1,660,869,679 |
| Basic and diluted (pence) | 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.
International Public Partnerships Limited Annual Report and financial statements 2022
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.
| £'000s £'000s Investments at fair value through profit and loss 2,947,959 2,579,434 Financial assets at amortised cost Trade and other receivables 44,096 57,378 Cash and cash equivalents 92,829 56,090 Derivative financial instruments at fair value through profit or loss Foreign exchange contracts - 2,713 Total financial assets 3,084,884 2,695,615 |
31 December 2022 | 31 December 2021 |
|---|---|---|
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 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 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 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.
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.
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.
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| £'000s | £'000s | |
| Financial liabilities at amortised cost | ||
| Trade and other payables | 13,919 | 10,597 |
| Bank loans | 29,300 | 156,218 |
| Derivative financial instruments at fair value through profit or loss | ||
| Foreign exchange contracts | 1,826 | - |
| Total financial liabilities | 45,045 | 166,815 |
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
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.
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 47 to 58). The Board takes into account market, credit and liquidity risks in forming the Group's risk management strategy.
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.
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.
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.
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 overleaf.
Sensitivity analysis showing the impact of variations of the above risks on the fair value of investments is shown in note 11.5.
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| £'000s | £'000s | |
| Cash | ||
| Euro | 8,416 | 875 |
| Canadian Dollar | 1,014 | 250 |
| Australian Dollar | 15,222 | 6,220 |
| US Dollar | 100 | 1,603 |
| 24,752 | 8,948 | |
| Current receivables | ||
| Euro receivables | 17 | 712 |
| US Dollar receivables | 724 | - |
| 741 | 712 | |
| Investments at fair value through profit or loss | ||
| Euro | 335,682 | 299,262 |
| Danish Krone | 11,938 | 13,979 |
| Canadian Dollar | 43,240 | 39,439 |
| Australian Dollar | 207,352 | 213,261 |
| US Dollar | 122,783 | 66,492 |
| 720,995 | 632,433 | |
| Total | 746,488 | 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 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.
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.
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.
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
The Group has no financial instruments classified as Level 1.
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.
This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities and other noncontrolled 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.
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.
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 below.
1 Indicative valuations are calculated in respect of each at 31 March and 30 September.
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
11.4 FAIR VALUE HIERARCHY CONTINUED
| 31 December 2022 | 31 December 2021 | ||
|---|---|---|---|
| Inflation rates | UK | 7.00% until Dec 23, 2.00% thereafter (CPIH) | 2.75% RPI / 2.00% CPIH |
| 8.00% until Dec 23, 2.75% thereafter (RPI) | |||
| 5.25% until Dec 23, 3.00% until Dec 24, | |||
| Australia | 2.50% thereafter | 2.50% | |
| 5.00% until Dec 23, 2.50% until Dec 24, | |||
| Europe (excl. UK) | 2.00% thereafter | 2.00% | |
| 2.75% until Dec 23, 2.00% thereafter | |||
| Canada | N/A | 2.00% | |
| US1 | N/A | ||
| Long-term deposit | UK | 2.50% | 1.00% |
| rates2 | Australia | 2.75% | 2.00% |
| Europe (excl. UK) | 1.50% | 0.50% | |
| Canada | 2.50% | 1.50% | |
| US1 | N/A | N/A | |
| Foreign exchange | GBP/AUD | 1.77 | 1.86 |
| rates | GBP/DKK | 8.40 | 8.86 |
| GBP/EUR | 1.13 | 1.19 | |
| GBP/CAD | 1.64 | 1.72 | |
| GBP/USD | 1.21 | 1.35 | |
| Tax rates3 | UK | 19.00% / 25.00% | 19.00% / 25.00% |
| Australia | 30.00% | 30.00% | |
| Europe (excl. UK) | Various (12.50%-32.28%) | Various (12.50%-32.28%) | |
| Canada | Various (23.00%-26.50%) | Various (23.00%-26.50%) | |
| US1 | N/A | 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.
The discount rate used in the valuation of each investment is the aggregate of the following:
Over the year, the weighted average government bond yield increased by 217bps. The weighted average investment premium decreased, reflecting observable market-based evidence.
| 31 December | |||
|---|---|---|---|
| Valuation assumptions | 2022 | 31 December 2021 | Movement |
| Weighted Average Government Bond Yield | 3.13% | 0.96% | +217bps |
| Weighted Average Investment Risk Premium | 4.38% | 6.01% | (163bps) |
| Weighted Average Discount Rate | 7.51% | 6.97% | +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).
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
11.4 FAIR VALUE HIERARCHY CONTINUED
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| Reconciliation of Level 3 fair value measurements of financial assets | £'000s | £'000s |
| Balance at 1 January | 2,579,434 | 2,345,433 |
| Additional investments during the year | 191,604 | 252,725 |
| Net repayments during the year | (33,985) | (53,350) |
| Net change in Investments at fair value through profit or loss | 210,906 | 34,626 |
| Balance at 31 December | 2,947,959 | 2,579,434 |
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 |
Weighted average rate in base case valuations |
Sensitivity factor | Change in fair value of investment £'000s |
Sensitivity factor | Change in fair value of investment £'000s |
|---|---|---|---|---|---|
| Discount rate | 7.51% | +1.00% | (271,841) | -1.00% | 328,070 |
| Inflation rate (overall) | 2.35% | +1.00% | 260,036 | -1.00% | (227,357) |
| UK (CPI/RPI) | 2.00%/2.75% | +1.00% | 211,400 | -1.00% | (183,950) |
| Europe | 2.00% | +1.00% | 39,054 | -1.00% | (33,901) |
| North America | 2.00% | +1.00% | 821 | -1.00% | (764) |
| Australia | 2.50% | +1.00% | 8,761 | -1.00% | (8,742) |
| FX rate | N/A | +10.00% | 72,128 | -10.00% | (72,132) |
| Tax rate | 25.39% | +1.00% | (14,101) | -1.00% | 12,358 |
| Deposit rate | 1.02% | +1.00% | 24,235 | -1.00% | (24,100) |
| Significant assumptions 31 December 2021 |
Weighted average rate in base case valuations |
Sensitivity factor | Change in fair value of investment £'000s |
Sensitivity factor | Change in fair value of investment £'000s |
|---|---|---|---|---|---|
| Discount rate | 6.97% | +1.00% | (245,454) | -1.00% | 295,025 |
| Inflation rate (overall) | 2.37% | +1.00% | 231,029 | -1.00% | (197,787) |
| UK (CPI/RPI) | 2.00%/2.75% | +1.00% | 179,431 | -1.00% | (151,850) |
| Europe | 2.00% | +1.00% | 40,393 | -1.00% | (35,843) |
| North America | 2.00% | +1.00% | 738 | -1.00% | (1,218) |
| Australia | 2.50% | +1.00% | 10,451 | -1.00% | (8,875) |
| FX rate | N/A | +10.00% | 63,273 | -10.00% | (63,279) |
| Tax rate | 25.47% | +1.00% | (13,757) | -1.00% | 13,541 |
| Deposit rate | 1.04% | +1.00% | 24,626 | -1.00% | (13,723) |
FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED
| Date of investment | Description | Consideration £'000s |
% Ownership post investment |
|---|---|---|---|
| April – June 2022 | The Group made further investments into the National Digital Infrastructure Fund, UK |
1,205 | 45.0% |
| June 2022 | The Group made follow on investments into a portfolio of Building Schools for the Future assets, UK |
1,455 | Various |
| June – July 2022 | The Group made a follow-on investment into the Diabolo Rail Link project, Belgium |
4,753 | 100.0% |
| September 2022 | The Group made a follow-on investment into Tideway, UK | 41,943 | 17.9% |
| December 2022 | The Group made a follow-on investment into FHSP, US | 36,507 | 100.0% |
| December 2022 | The Group made an investment in the East Anglia 1 offshore transmission project, UK |
105,741 | 100.0% |
| Total capital spend on investments during the year | 191,604 |
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.
| Date of investment | Description | Consideration £'000s |
% Ownership post investment |
|---|---|---|---|
| April 2021 | The Group made an investment into toob, utilising part of its commitment to invest in digital infrastructure, UK |
14,270 | 46.1% |
| June 2021 | The Group made an investment into the Offenbach police centre, Germany |
8,073 | 45% |
| July 2021 | The Group made an investment in the Beatrice offshore transmission project, UK |
49,751 | 100% |
| September 2021 | The Group made an investment to acquire an additional interest in Angel Trains, UK |
97,496 | 10% |
| November 2021 | The Group made an investment in the Rampion offshore transmission project, UK |
35,400 | 100% |
| November 2021 | The Group made an investment to acquire interests in a portfolio of Building Schools for the Future and UK PPP projects, UK |
29,074 | Various |
| December 2021 | The Group made an investment to acquire an interest in a portfolio of Danish PPP projects, Denmark |
14,045 | 66.7% |
| December 2021 | The Group made an investment to acquire interests in a small portfolio UK PPP projects, UK |
3,053 | Various |
| December 2021 | The Group made a follow on investment into the Diabolo Rail Link Project, Belgium |
1,563 | 100% |
| Total capital spend on investments during the year | 252,725 |
| 31 December 2022 £'000s |
31 December 2021 £'000s |
|
|---|---|---|
| Accrued interest receivable | 40,327 | 52,657 |
| Other debtors | 3,769 | 4,721 |
| Total trade and other receivables | 44,096 | 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.
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| £'000s | £'000s | |
| Accrued management fee | 9,798 | 8,308 |
| Other creditors and accruals | 4,121 | 2,289 |
| Total trade and other payables | 13,919 | 10,597 |
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| shares | shares | |
| Share capital | '000s | '000s |
| Authorised and in issue at 1 January | 1,706,104 | 1,620,953 |
| Issued for cash | 203,762 | 81,818 |
| Issued as a scrip dividend alternative | 1,377 | 3,333 |
| Authorised and in issue at 31 December – fully paid | 1,911,243 | 1,706,104 |
| Share capital | 31 December 2022 £'000s |
31 December 2021 £'000s |
|---|---|---|
| Balance at 1 January | 1,908,849 | 1,769,582 |
| Issued for cash (excluding issue costs) | 325,000 | 135,000 |
| Issued as a scrip dividend alternative | 2,273 | 5,629 |
| Total share capital issued in the year | 327,273 | 140,629 |
| Costs on issue of Ordinary Shares | (4,846) | (1,362) |
| Balance at 31 December | 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.
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| Other distributable reserve | £'000s | £'000s |
| Balance at 1 January | 182,481 | 182,481 |
| Movement in the year | - | - |
| Balance at 31 December | 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 | 31 December 2022 £'000s |
31 December 2021 £'000s |
|---|---|---|
| Balance at 1 January | 437,470 | 432,373 |
| Net profit for the year | 326,897 | 129,211 |
| Dividends paid1 | (138,285) | (124,114) |
| Balance at 31 December | 626,082 | 437,470 |
1 Includes scrip element of £2.3 million in 2022 (December 2021: £5.6 million).
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:
| Year ended 31 December 2022 £'000s |
Year ended 31 December 2021 £'000s |
|
|---|---|---|
| Amounts recognised as distributions to equity holders for the year ended 31 December | 138,2851 | 124,114 |
| Declared and proposed | ||
| Interim dividend for the period 1 January to 30 June 2022 was 3.87 pence per share (2021: | 73,965 | 64,463 |
| 3.78 pence per share) | ||
| Interim dividend for the period 1 July to 31 December 2022 was 3.87 pence per share2 | 73,965 | 64,320 |
| (2021: 3.77 pence per share) |
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.
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 59.
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.
| 31 December 2022 | 31 December 2021 | |
|---|---|---|
| £'000s | £'000s | |
| Net assets attributable to equity holders of the parent | 3,039,839 | 2,528,800 |
| Number | Number | |
| Number of shares | ||
| Ordinary Shares outstanding at the end of the year | 1,911,243,132 | 1,706,103,581 |
| Net assets per share (pence per share) | 159.1 | 148.2 |
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).
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 |
For the year ended 31 December 2021 |
At 31 December 2022 |
At 31 December 2021 |
|
| £'000s | £'000s | £'000s | £'000s | |
| International Public Partnerships GP Limited1 | 29,421 | 26,173 | 9,798 | 8,308 |
| Amber Fund Management Limited2 | 2,891 | 3,896 | 2,134 | 247 |
| Total | 32,312 | 30,069 | 11,932 | 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:
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 relatedparty transactions, the Company sought an independent valuation.
Shares acquired by Directors in the year are disclosed below:
| Number of New Ordinary Shares | ||
|---|---|---|
| Year ended | Year ended | |
| Director | 31 December 2022 | 31 December 2021 |
| Mike Gerrard | 84,266 | - |
| Julia Bond | 34,098 | 24,072 |
| Stephanie Coxon | 10,000 | - |
| Sally Ann David | - | 30,303 |
| Meriel Lenfestey | 15,163 | - |
| John Le Poidevin | 167,245 | 30,303 |
| Giles Frost | - | 27,567 |
| Claire Whittet (retired May 2022) | 37,854 | 1,654 |
| Total purchased | 348,626 | 113,899 |
Remuneration paid to the Non-Executive Directors is disclosed on page 63. Directors received dividends on total shares held as disclosed on page 64, in accordance with the approved dividends detailed under note 15.
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.
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.
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.
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.
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 | Place of incorporation (or registration) and operation |
Proportion of ownership interest % |
|---|---|---|
| Abingdon Limited Partnership | UK | 100 |
| Aggregator PLC | UK | 100 |
| Access Justice Durham Limited | Canada | 100 |
| AKS Betriebs GmbH & Co. KG | Germany | 98 |
| Arden Partnership (Derby) Limited | UK | 50 |
| Arden Partnership (Lincolnshire) Limited | UK | 50 |
| Arden Partnership (Leicester) Limited | UK | 50 |
| BBPP Alberta Schools Limited | Canada | 100 |
| Blackburn with Darwen Phase 1 Limited | UK | 100 |
| Blackburn with Darwen Phase 2 Limited | UK | 100 |
| BPSL No. 2 Limited Partnership | UK | 100 |
| Building Schools for the Future Investments LLP | UK | 100 |
| Calderdale Schools Partnership | UK | 100 |
| CHP Unit Trust | Australia | 100 |
| Derby City BSF Limited | UK | 90 |
| Derbyshire Courts Limited Partnership | UK | 100 |
| Derbyshire Schools | UK | 100 |
| Derbyshire Schools Phase Two Partnership | UK | 100 |
| Essex Schools Limited | UK | 100 |
| Future Ealing Phase 1 Limited | UK | 80 |
| 4 Futures Phase 1 Limited | UK | 90 |
| 4 Futures Phase 2 Limited | UK | 90 |
| Hertfordshire Schools Building Partnership Phase 1 Limited | UK | 100 |
| H&W Courts Limited Partnership | UK | 100 |
| INPP Infrastructure Germany GmbH & Co. KG | Germany | 100 |
| Inspire Partnership Limited Partnership | UK | 100 |
| IPP CCC Limited Partnership | Ireland | 100 |
| Inspiredspaces Durham (Project Co 1) Limited | UK | 100 |
| Kent PFI (Project Co 1) Limited | UK | 58 |
| Inspiredspaces Nottingham (Project Co 1) Limited | UK | 90 |
| Inspiredspaces Nottingham (Project Co 2) Limited | UK | 90 |
| Inspiredspaces STaG (Project Co 1) Limited | UK | 90.1 |
| Inspiredspaces STaG (Project Co 2) Limited | UK | 90.1 |
| Inspiredspaces Wolverhampton (Project Co 1) Limited | UK | 100 |
| Inspiredspaces Wolverhampton (Project Co 2) Limited | UK | 100 |
| Transform Islington (Phase 1) Limited | UK | 90 |
International Public Partnerships Limited Annual Report and financial statements 2022
| Place of incorporation | Proportion of | |
|---|---|---|
| Name | (or registration) and operation | ownership interest % |
| Transform Islington (Phase 2) Limited | UK | 90 |
| IPP (Moray Schools) Holdings Limited | UK | 100 |
| LCV Project Trust | Australia | 100 |
| Lewisham Schools for the Future SPV Limited | UK | 90 |
| Lewisham Schools for the Future SPV 2 Limited | UK | 90 |
| Lewisham Schools for the Future SPV 3 Limited | UK | 90 |
| Lewisham Schools for the Future SPV 3 Limited | UK | 81 |
| Maesteg School Partnership | UK | 100 |
| Norfolk Limited Partnership | UK | 100 |
| Northampton Schools Limited Partnership | UK | 100 |
| Northern Diabolo N.V. | Belgium | 100 |
| Oldham BSF Limited | UK | 99 |
| OPP Hobro Tinglysningsret A/S | Denmark | 66.7 |
| OPP Ørstedskolen A/S | Denmark | 66.7 |
| OPP Vildbjerg Skole A/S | Denmark | 66.7 |
| OPP Randers P-Hus A/A | Denmark | 66.7 |
| PSBP Midlands Limited | UK | 92.5 |
| Pinnacle Healthcare (OAHS) Trust | Australia | 100 |
| Plot B Partnership | UK | 100 |
| St Thomas More School Partnership | UK | 100 |
| PPP Solutions (Long Bay) Partnership | Australia | 100 |
| PPP Solutions (Showgrounds) Trust | Australia | 100 |
| Strathclyde Limited Partnership | UK | 100 |
| TH Schools Limited Partnership | UK | 100 |
| TC Robin Rigg OFTO Limited | UK | 100 |
| TC Barrow OFTO Limited | UK | 100 |
| TC Gunfleet Sands OFTO Limited | UK | 100 |
| TC Ormonde OFTO Limited | UK | 100 |
| TC Lincs OFTO Limited | UK | 100 |
| TC Westermost Rough OFTO Limited | UK | 100 |
| TC Dudgeon OFTO PLC | UK | 100 |
| TC Beatrice OFTO Limited | UK | 100 |
| TC Rampion OFTO Limited | UK | 100 |
| TC East Anglia OFTO Limited | UK | 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.
The subsidiary undertakings of the Company, all of which have been included in these consolidated financial statements are as follows:
| Name | Place of incorporation (or registration) and operation |
Proportion of ownership interest % |
|---|---|---|
| International Public Partnerships Limited Partnership | UK | 100 |
| International Public Partnerships Lux 1 Sarl | Luxembourg | 100 |
| International Public Partnerships Lux 2 Sarl | Luxembourg | 100 |
| IPP Bond Limited | UK | 100 |
| IPP Holdings 1 Limited | UK | 100 |
| IPP Investments UK Limited | UK | 100 |
| IPP Investments Limited Partnership | UK | 100 |
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.
| Status at | ||||
|---|---|---|---|---|
| Investment Name | Country | 31 December 2022 |
Per cent. Risk Capital Owned by the Group1 |
Investment end |
| UK | ||||
| UK PPP Assets | ||||
| Calderdale Schools | UK | Operational | 100.0 | April 2030 |
| Derbyshire Schools Phase Two | UK | Operational | 100.0 | February 2032 |
| Northamptonshire Schools | UK | Operational | 100.0 | December 2037 |
| Derbyshire Courts | UK | Operational | 100.0 | August 2028 |
| Derbyshire Schools Phase One | UK | Operational | 100.0 | April 2029 |
| North Wales Police HQ | UK | Operational | 100.0 | December 2028 |
| St Thomas More Schools | UK | Operational | 100.0 | April 2028 |
| Tower Hamlets Schools | UK | Operational | 100.0 | August 2027 |
| Norfolk Police HQ | UK | Operational | 100.0 | December 2036 |
| Strathclyde Police Training Centre | UK | Operational | 100.02 | September 2026 |
| Hereford & Worcester Courts | UK | Operational | 100.02 | September 2025 |
| Abingdon Police Station | UK | Operational | 100.0 | April 2030 |
| Bootle Government Offices | UK | Operational | 100.0 | December 2022 |
| Maesteg Schools | UK | Operational | 100.0 | July 2033 |
| Moray Schools | UK | Operational | 100.0 | February 2042 |
| Liverpool Library | UK | Operational | 100.0 | November 2037 |
| Three Shires – Derbyshire | UK | Operational | 50.0 | October 2037 |
| Three Shires – Leicestershire | UK | Operational | 50.0 | June 2037 |
| Three Shires – Lincolnshire | UK | Operational | 50.0 | May 3028 |
| Townlands Hospital | UK | Operational | 100.0 | November 2041 |
| Priority Schools Building Aggregator Programme | ||||
| Batch 1 – Schools in North East England | UK | Operational | 0.02 | August 2040 |
| Batch 2 – Schools in Hertfordshire, | ||||
| Luton and Reading | UK | Operational | 0.02 | November 2040 |
| Batch 3 – Schools in North West of England | UK | Operational | 0.02 | August 2041 |
| Batch 4 – Schools in the Midlands Region | UK | Operational | 92.52 | December 2041 |
| Batch 5 – Schools in Yorkshire | UK | Operational | 0.02 | September 2041 |
| OFTOs | ||||
| Robin Rigg OFTO | UK | Operational | 100.02 | March 2031 |
| Gunfleet Sands OFTO | UK | Operational | 100.02 | July 2031 |
| Barrow OFTO | UK | Operational | 100.02 | March 2030 |
| Ormonde OFTO | UK | Operational | 100.02 | July 2032 |
| Lincs OFTO | UK | Operational | 100.0 | November 2034 |
| Westermost Rough OFTO | UK | Operational | 100.0 | February 2036 |
| Dudgeon OFTO | UK | Operational | 100.0 | November 2038 |
| Beatrice OFTO | UK | Operational | 100.0 | April 2045 |
| Rampion OFTO | UK | Operational | 100.0 | November 2041 |
| East Anglia OFTO | UK | Operational | 100.0 | December 2044 |
| Building Schools for the Future Portfolio | ||||
| Minority Shareholdings in 17 | ||||
| Building Schools for the Future Projects | UK | Operational | Various | Various |
| Blackburn with Darwen Phase One | UK | Operational | 100.0 | September 2036 |
| Blackburn with Darwen Phase Two | UK | Operational | 100.0 | September 2039 |
| Derby City | UK | Operational | 90.0 | August 2037 |
| Durham Schools | UK | Operational | 100.0 | January 2036 |
| Ealing Schools Phase One | UK | Operational | 80.0 | March 2038 |
| Essex Phase Two | UK | Operational | 100.0 | December 2036 |
| Hertfordshire Schools Phase One | UK | Operational | 100.0 | August 2037 |
| Islington Phase One | UK | Operational | 90.0 | August 2034 |
| Islington Phase Two | UK | Operational | 90.0 | March 2039 |
21. INVESTMENTS CONTINUED
| Per cent. Risk | ||||
|---|---|---|---|---|
| Investment Name | Country | Status at 31 December 2022 |
Capital Owned by the Group1 |
Investment end |
| Lewisham Phase 1 | UK | Operational | 90.0 | December 2034 |
| Lewisham Phase 2 | UK | Operational | 90.0 | August 2037 |
| Lewisham Phase 3 | UK | Operational | 90.0 | August 2037 |
| Lewisham Phase 4 | UK | Operational | 81.0 | March 2038 |
| Oldham Schools | UK | Operational | 99.0 | August 2037 |
| Tameside Schools One | UK | Operational | 46.0 | August 2036 |
| Tameside Schools Two | UK | Operational | 46.0 | August 2037 |
| Nottingham Schools One | UK | Operational | 90.0 | August 2034 |
| Nottingham Schools Two | UK | Operational | 90.0 | August 2038 |
| South Tyneside and Gateshead Schools One | UK | Operational | 90.1 | October 2034 |
| South Tyneside and Gateshead Schools Two | UK | Operational | 90.1 | September 2036 |
| Southwark Phase One | UK | Operational | 90.0 | January 2036 |
| Southwark Phase Two | UK | Operational | 90.0 | December 2036 |
| Wolverhampton Schools Phase One | UK | Operational | 100.0 | September 2037 |
| Wolverhampton Schools Phase Two | UK | Operational | 100.0 | August 2040 |
| Kent Schools | UK | Operational | 58.0 | August 2035 |
| NHS LIFT Portfolio | ||||
| Beckenham Hospital | UK | Operational | 49.8 | December 2033 |
| Garland Road Health Centre | UK | Operational | 49.8 | December 2031 |
| Alexandra Avenue Primary Care Centre, Monks | ||||
| Park Health Centre (two projects) | UK | Operational | 49.8 | June 2031 |
| Gem Centre Bentley Bridge, Phoenix Centre | ||||
| (two projects) | UK | Operational | 49.8 | December 2030 |
| Sudbury Health Centre | UK | Operational | 49.8 | November 2032 |
| Mt Vernon | UK | Operational | 49.8 | December 2033 |
| Lakeside | UK | Operational | 49.8 | November 2032 |
| Fishponds Primary Care Centre, Hampton | ||||
| House Health Centre (two projects) | UK | Operational | 33.4 | January 2031 |
| Shirehampton Primary Care Centre, Whitchurch | ||||
| Primary Care Centre (two projects) | UK | Operational | 33.4 | May 2032 |
| Blackbird Leys Health Centre, East Oxford Care | ||||
| Centre (two projects) | UK | Operational | 33.4 | May 2031 |
| Brierley Hill | UK | Operational | 34.3 | April 2035 |
| Ridge Hill Learning Disabilities Centre, | ||||
| Stourbridge Health & Social Care Centre | ||||
| (two projects) | UK | Operational | 34.3 | October 2031 |
| Harrow NRC (three projects) | UK | Operational | 49.8 | June 2034 |
| Goscote Palliative Care Centre | UK | Operational | 49.8 | November 2035 |
| South Bristol Community Hospital | UK | Operational | 33.4 | February 2042 |
| East London LIFT Project One (four projects) | UK | Operational | 30.0 | October 2030 |
| East London LIFT Project Two (three projects) | UK | Operational | 30.0 | April 2033 |
| East London LIFT Project Three | ||||
| (Newby Place) | UK | Operational | 30.0 | May 2037 |
| East London LIFT Project Four (two projects) | UK | Operational | 30.0 | August 2036 |
| Eltham Community Hospital | UK | Operational | 49.8 | January 2040 |
| Other UK | ||||
| Angel Trains | UK | Operational | 10.0 | December 2058 |
| Tideway | UK | Construction | 17.9 | March 2150 |
| Cadent | UK | Operational | 7.25 | June 2069 |
| National Digital Infrastructure Fund | UK | Operational | 45.0 | July 2027 |
| Australia | ||||
| Royal Melbourne Showgrounds | Australia | Operational | 100.0 | August 2031 |
| Long Bay Forensic & Prisons Hospital Project | Australia | Operational | 100.0 | July 2034 |
| Reliance Rail | Australia | Operational | 33.0 | February 2044 |
| Royal Children's Hospital | Australia | Operational | 100.0 | December 2036 |
| Orange Hospital | Australia | Operational | 100.0 | December 2035 |
| NSW Schools | Australia | Operational | 25.0 | December 2035 |
International Public Partnerships Limited Annual Report and financial statements 2022
| Status at 31 December |
Per cent. Risk Capital | |||
|---|---|---|---|---|
| Investment Name | Country | 2022 | Owned by the Group1 | Investment end |
| Gold Coast Rapid Transport | Australia | Operational | 30.0 | May 2029 |
| Victoria Schools Two | Australia | Operational | 100.0 | December 2042 |
| Flinders University | Australia | Construction | 100.0 | March 2049 |
| North America | ||||
| Alberta Schools | Canada | Operational | 100.0 | June 2040 |
| Durham Courts | Canada | Operational | 100.0 | November 2039 |
| FHSP | US | Operational | 100.02 | October 2052 |
| Europe (ex UK) | ||||
| Diabolo Rail Link | Belgium | Operational | 100.0 | June 2047 |
| Dublin Courts | Ireland | Operational | 100.0 | February 2035 |
| BeNEX | Germany | Operational | 100.0 | December 2049 |
| Federal German Ministry of Education and | ||||
| Research Headquarters | Germany | Operational | 98.0 | July 2041 |
| Pforzheim Schools | Germany | Operational | 98.0 | September 2039 |
| Offenbach Police Centre | Germany | Construction | 45.0 | June 2050 |
| Hobro Court | Denmark | Operational | 66.7 | December 2027 |
| Randers Hospital Parking Facility | Denmark | Operational | 66.7 | April 2041 |
| Ørsted School | Denmark | Operational | 66.7 | June 2038 |
| Vildbjerg School | Denmark | Operational | 66.7 | 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.
The Company's Annual General Meeting
Association of Investment Companies'
Amber Fund Management Limited, a member of the Amber Group
The Company's Investment Adviser (Amber Fund Management Limited and its corporate group).
Amber Infrastructure Group Holdings Limited and its subsidiaries
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
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
Building schools for future projects
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.
The Company's corporate debt facility
Connecting Europe Facility
Competition and Markets Authority
Corporate Social Responsibility
Consumer Price Index
CPIH
CPI (including owner occupied housing costs)
Corporate Sustainability Reporting Directive
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
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
European Financial Reporting Advisory Group
ESG Environmental, Social and Governance
EU Taxonomy for Sustainable Activities
FCA Financial Conduct Authority
The Company's Family Housing for Service Personnel investment
Financial Market Participant
FRC The Financial Reporting Council
GAV Gross asset value
GFSC
The Guernsey Financial Services Commission
GHG
Greenhouse gas emissions
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)
IPA
IPO
IRA
IRR The internal rate of return
ISSB International Sustainability Standards Board
Hunt Amber's long-term investor, US Group, Hunt Companies LLC
KID The Company's Key Information Document
KPIs Key performance indicators
The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London
International Public Partnerships Limited Annual Report and financial statements 2022
National Digital Infrastructure Fund
Investment Adviser Amber (see above)
Infrastructure and Projects Authority
Initial public offering
Inflation Reduction Act
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
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.
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 28
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
National Infrastructure Strategy
Organisation for Economic Co-operation and Development
OFTO Offshore Electricity Transmission project
Water Services Regulation Authority
PCAF Partnership for Carbon Accounting Financials
Projects and private finance initiative
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
Public-private partnerships
The UN-backed Principles for Responsible Investment
Packaged Retail and Insurance-based Investment Product
The Company's auditors PricewaterhouseCoopers CI LLP
Regulatory news service
UK Retail Price Index
EU Commission's Regulatory Technical Standards relating to the SFDR
Scope 2 emissions
indirect emissions from the generation of purchased energy.
all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions
Sustainable Development Goals
The proposed UK Sustainability Disclosure Requirements
The EU Sustainable Finance Disclosure Regulation
Senior Independent Director
SONIA is the effective reference for overnight indexed swaps for unsecured transactions in the Sterling market
Special Purpose Vehicle
Task Force on Climate-related Financial Disclosures
International Public Partnerships Limited
Train operating companies
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 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
UN Global Compact
Willis Towers Watson
Amber Fund Management Limited 3 More London Riverside London SE1 2AQ
PO Box 286 Floor 2, Trafalgar Court Les Banques Guernsey Channel Islands GY1 4LY
Ocorian Administration (Guernsey) Limited PO Box 286 Floor 2, Trafalgar Court Les Banques Guernsey Channel Islands GY1 4LY
PricewaterhouseCoopers CI LLP PO Box 321 Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey Channel Islands GY1 4ND
Carey Olsen PO Box 98, Carey House Les Banques Guernsey Channel Islands GY1 4BZ
1 Glategny Esplanade
St Peter Port Guernsey Channel Islands GY1 4BQ
Royal Bank of Scotland International
Numis Securities Limited 31 Gresham Street London EC2V 7QA
FTI Consulting 200 Aldersgate Aldersgate Street London EC1A 4HD
Product name: International Public Partnerships Ltd (the "Company") Legal entity identifier: International Public Partnerships Ltd
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.
how the environmental or social characteristics promoted by the financial product are attained.
| 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 |
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:
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.
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;
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.
100% of the portfolio aligned with the Company's minimum Governance standards. Please refer to page 41 of this report for more information.
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:
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.
Information regarding the performance of the Company's investments against its sustainability indicators is provided from page 20 of the Company's Sustainability Report.
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.
The Company promotes environmental or social characteristics but does not have as its objective sustainable investment.
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 investments must also not significantly harm any environmental or social objectives.
Principal adverse impacts are the most significant negative impacts of investment decisions on sustainability factors relating to environmental, social and employee matters, respect
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 |
Largest investments | Sector | % Assets | Country |
|---|---|---|---|---|
| constituting the greatest proportion |
Cadent | Gas Distribution | 14.5% | UK |
| of investments of | Tideway | Waste water | 13.5% | UK |
| the financial product | Diabolo | Transport | 7.2% | Belgium |
| during the reference period which is: 1 |
Lincs OFTO | Energy Transmission | 6.3% | UK |
| January to 31 | Angel Trains | Transport | 6.0% | UK |
| December 2022 | FHSP | Other | 4.1% | US |
| East Anglia One OFTO | Energy Transmission | 3.6% | UK | |
| Ormonde OFTO | Energy Transmission | 3.5% | UK | |
| Reliance Rail | Transport | 2.9% | Australia | |
| BeNEX | Transport | 2.4% | Germany |
Asset allocation describes the share of investments in specific assets.
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.
97% of the Company's investments were used to attain the environmental or social characteristics of the Company.
#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.
To 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.
activities for which low-carbon alternatives are not yet available and among others have greenhouse gas emission levels corresponding to the best performance.
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.
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.
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 activities that comply with the EU Taxonomy are laid down in Commission Delegated Regulation (EU) 2022/1214.
sustainable investments with an environmental objective that do not take into account the criteria for environmentally
sustainable economic activities under Regulation (EU) 2020/852. Taxonomy-aligned activities are expressed as a share of:
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 exposures
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
Not applicable
What was the share of socially sustainable investments?
Not applicable
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.
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:
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.
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
Reference benchmarks are indexes to measure whether the financial product attains the environmental or social characteristics that they promote.
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