International Public Partnerships Regulatory News (INPP)

28 August 2014

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

~ Strong underlying portfolio performance drives revenue and dividend growth ~

International Public Partnerships Limited (INPP), the listed infrastructure investment company which invests internationally in public infrastructure projects, today announces half year results for the six months ended 30 June 2014.

Financial Highlights (as at 30 June 2014 unless otherwise stated)

· Robust Net Asset Value ('NAV') growth of 1.8% to £952.1 million (31 December 2013: £935.4 million) with NAV per share of 124.8 pence (31 December 2013: 123.0 pence)1

· Half year 2014 fully covered cash dividend declared, up c.2.5% to 3.15 pence per share (30 June 2013: 3.075 pence per share)2

· Target dividend for 2014 financial year of 6.30 pence per share and 2015 of 6.45 pence per share, an increase of c.2.5%3 in each period

· IFRS profit before tax of £35.9 million (30 June 2013: £29.8 million)

· Total Shareholder Return since listing in 2006 of 91.1%, compared to 48.3% on the FTSE All Share over that same period4

Portfolio Performance

· Continued positive performance of underlying assets, generating 5.5% portfolio return during the six month period

· Investments of £20.1 million made during the half year and agreed divestments of £18.8 million in non-strategic assets

· Strength of public sector relationships proven in the Company's ability to create investment value from new primary assets and increase holdings in existing portfolio

· Increased majority owned assets to 81.5% (31 December 2013: 79.4%)

· Significant inflation linkage within the portfolio (0.81% p.a. projected increase in return for a 1% increase over anticipated average inflation across portfolio )

· Post period end activity:

- Further c.£70 million investment committed, including the INPP consortium's selection as preferred bidder to fund five batches of schools delivered through the Priority Schools Building Programme

- Construction completion of two overseas construction projects - Gold Coast Rapid Transit, Australia and the Federal German Ministry of Education and Research headquarters

Outlook

· Promising outlook underlined by significant pipeline of investment opportunities in new infrastructure assets, particularly in the education and offshore transmission assets

· Company well placed to avoid highly competitive secondary market acquisitions through its Investment Advisor's ability to self-originate attractive, off-market primary investments

· Ongoing support from investors and governments alike for private investment in infrastructure

Rupert Dorey, Chairman of International Public Partnerships Limited, commented:  "I am delighted to announce another sound financial performance during the half year period, driven by underlying growth across the portfolio of over 100 assets.

"We have continued to provide investors with a healthy dividend, taking our total shareholder return to 91.1% since the Company's listing in 2006.

"The increasingly competitive market backdrop has further underpinned the Investment Advisor's ability to source attractive off-market investment opportunities and make selective non-core disposals. The outlook for the sector continues to be positive and we remain confident in the group's ability to capitalise on the growth opportunities available."

Notes

1. See Half-yearly Financial Report for the six months ended 30 June 2014 for further details on NAV methodology

2. The forecast date for payment of the half year dividend is 24 October 2014

3. Future profit forecast and dividends cannot be guaranteed. Projections are based on the current individual asset financial models and may vary in the future.

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

ENDS.

INPP will be holding an analyst and investor presentation and conference call at 09.30am on the day.

Investors and analysts wishing to attend are asked to RSVP to Mitch Barltrop at FTI Consulting on +44 (0)20 3717 1039 / mitch.barltrop@fticonsulting.com. Investors and analysts wishing to join the conference call should dial +44 (0)20 3427 1906 and use the confirmation code 9226651.

A copy of the results presentation can be downloaded from the Company's website:

www.internationalpublicpartnerships.com

About International Public Partnerships:

International Public Partnerships (INPP) is a listed infrastructure investment company which invests in global public infrastructure projects developed under the public private partnerships (PPP), private finance initiative (PFI), regulated asset and other similar procurement methods.

Listed in 2006, INPP is a long-term investor in 115 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and utility and transmission projects in the U.K., Europe, Australia and Canada. INPP seeks to provide its shareholders with both a long-term yield and capital growth through investment across both construction and operational phases of 25-40 year concessions.

Amber Fund Management Limited is the Investment Advisor to INPP and consists of over 75 dedicated staff who manage, advise on and originate projects for INPP.

Visit the INPP website at www.internationalpublicpartnerships.com for more information.

Highlights

Company Overview - About the Company

International Public Partnerships Limited

International Public Partnerships Limited (the 'Company'), in accordance with its Investment Policy, indirectly invests in equity, subordinated/mezzanine debt and senior loans made to entities owning or operating infrastructure concessions, assets or related businesses.

Such investments have included schools, courts houses, health facilities, police stations, and other public sector buildings, rail operations, rolling stock leasing entities and offshore electricity transmission asset owning entities. The Company's investments are located in the UK, Europe, Australia and Canada.

Whilst the Company is able to invest in fully price regulated infrastructure and other forms of economic infrastructure projects, to date it has primarily invested in entities holding physical infrastructure and associated services procured under Private Public Partnerships ('PPP')/Private Finance Initiative ('PFI') and similar processes.

Key features of International Public Partnerships Limited and its investment portfolio are:

Key Features

> Geographically diversified with a portfolio across eight countries in a variety of sectors

> A mix of yielding operational investments and investments currently in construction with prospects for future capital appreciation

> A significant degree of inflation linkage to investment returns - 0.81% p.a. projected increase in return for a 1% increase over anticipated average inflation across portfolio

> The Investment Advisor has historical success in originating and developing investment opportunities in new sectors with low risks relative to returns

> A high degree of management and control of underlying investments to support sustained performance

> Access to a large pool of pre-emptive and other preferred rights to increase investment in assets that have proven performance within the existing portfolio

> Operational performance and income from underlying investments is predominantly founded on asset availability, not demand, usage or other non-controllable variables

> A significant portion (17%) of the portfolio is invested in secured senior debt (where no other debt ranks in preference to the Company's investment in the asset)

Shareholder Returns

> Strong track record of delivering consistent dividend growth and capital appreciation

> Share liquidity through listing and trading on the London Stock Exchange

> Total shareholder returns in line with the 8-9% p.a. target set at the time of initial public offering in 2006

Governance

> Experienced leadership and independent corporate governance

> Long-term alignment of interest with the Investment Advisor and asset manager

Market Information

> FTSE listed since November 2006 with an initial market capitalisation of £300 million

> Member of the FTSE 250 and FTSE All Share indices

> £1,018 million market capitalisation as at 30 June 2014 (31 December 2013: £972.9 million)

> 763.2 million shares in issue as at 30 June 2014 (31 December 2013: 760.6 million)

> The Company's shares are eligible for ISA/PEPs and SIPPs transfers

> The Company's shares are excluded from the Financial Conduct Authority restrictions which apply to non-mainstream investment products and can therefore be recommended by independent financial advisors to their clients

Investment Advisor fees

> Competitive fee structure

> 1.2% per annum of gross asset value ('GAV') of investments bearing construction risk 

> For fully operational assets:

o 1.2% per annum of the GAV (excluding uncommitted cash from capital raisings) up to £750 million

o 1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between £750 million and £1.5 billion

o 0.9% per annum where GAV (excluding uncommitted cash from capital raisings) exceeds £1.5 billion

> 1.5% asset origination fee of the value of new investments to cover acquisition due diligence

> No incentive or performance fees

>

Company Overview - Top Ten Investments

The Company's top ten largest investments are set out below. Further information about each of these investments together with other projects within the portfolio is available on the Company's website.

Significant movements in the Company's portfolio for the period ended 30 June 2014 can be found in Value Focused Portfolio Development section within the Financial and Operating Review.

1 Northern Diabolo Project revenues are dependent on availability but also include an element of linkage to passenger numbers. All other investments receive entirely availability based revenues

2 Risk capital includes both project level equity and subordinated shareholder debt

Chairman's Letter

Dear Shareholders,

I am pleased to report to you that your Company has continued to perform well over the six month period to 30 June 2014, delivering continued dividend growth together with strong underlying operational asset performance. While overall investment levels were lower compared to previous periods, the Company's near term pipeline remains very full, and a significant new investment is expected during the remainder of 2014.

Dividend Growth

The first six months of 2014 saw continued strong cash flows from the Company's assets. These robust returns allowed the Board to declare the targeted dividend of 3.15 pence per share for the six months to 30 June 2014, some c.2.5% growth on the previous period in accordance with our previously published targets.

Given this strong performance we remain confident in achieving our target dividend of 6.30 pence per share for the 2014 financial year and 6.45 pence per share for the 2015 financial year. As in previous periods, we expect that these dividends will be fully covered by operating cash flows.

Investment Activity and Market Conditions

During the period the Company made good progress on its pipeline of investments. Investments of £20.1 million were made across four projects. In addition, the Company also disposed of minority interests in several of its schools infrastructure projects, with expected proceeds of £18.8 million, very substantially in excess of the price paid for the same stakes on acquisition in August 2011. 

Following the period end, in July and August, the Company divested another small asset, a hospital project in France, for £0.3 million.

The divestments were agreed as the Company had determined that it had no realistic scope to increase its holdings in these particular projects to majority controlling holdings or were subscale and, based on the price offered, these opportunistic sales were attractive for the Company.

While the Company does not expect to trade assets regularly, preferring instead to retain the long-term income generation potential of its holdings, pricing in the secondary market has continued to be attractive to vendors. Such sales also validate the increased popularity and attractions of the asset class in which the Company is invested.

The market continues to be very strong in the sectors where we operate. Obviously this is good news in terms of values for our existing assets and where we seek to sell small, minority positions. The strength of the market means however that we have not seen value in the first half of 2014 in any major acquisitions of mature infrastructure projects from third parties. We will however continue to participate in this market where it makes sense to do so, and our participation provides good comparative evidence to validate the value of our own assets even if we choose not to invest in the mature projects on offer. In the short to medium term, we continue to believe that, special circumstances excepted, there is likely to be better value found in investing in new rather than pre-owned infrastructure investments.

The Company is on track to enter into a binding commitment into an investment in the Lincs OFTO1 later this year, likely to be the largest commitment the Company has made to a single project, OFTO assets exhibit all the key investment characteristics the Company seeks including secure government-backed cash flows and full inflation linkage and as such the Board believes that this is an excellent addition to the portfolio. The Company intends to draw on its existing cash resources and corporate debt facility to fund the financial close of the transaction which is expected by the end of the current financial year.

In July, following a number of months of intense development, the Company was also announced as being part of the winning consortium selected by the UK Education Funding Agency to provide finance to five batches of new schools (comprising 46 individual schools) being developed under the UK government's Priority Schools Building Programme. The Company will provide finance to a new innovative 'Aggregator' vehicle as part of a consortium which included the European Investment Bank and Aviva Investors, which has been mandated to provide finance for these new schools. The estimated development value of the project is approximately £700 million, of which the Company expects to commit around 10%.

Both these opportunities illustrate the flow of attractive project investment that continues to be available particularly for those willing and able to participate as original investors rather than rely on opportunities arising in auctions in the secondary market. We are confident that these additional investments along with the company's existing portfolio of assets will continue to provide investors with attractive risk adjusted returns over the long term.

Operational Performance

The operational performance of the Company's portfolio continues to be very strong. During the period we have focused on delivering our expected returns, managing our public sector customer relationships and managing the build-out of assets in construction. We consider that control over the operational performance of investments is vital as strong asset-level relationships with public sector clients are a key factor in both protecting our reputation and safeguarding investment performance.

Testament to this is the completion of two construction projects following the 30 June 2014 half year end. The Gold Coast Rapid Transit project in Australia and the Federal German Ministry of Education and Research ('BMBF'), in Berlin, Germany reached construction completion in July and August (respectively). Both projects have taken several years to come to fruition and were managed from the bidding phase through to final construction completion by the Company's Investment Advisor, Amber Infrastructure, with the projects being delivered successfully. The Company expects to be able to deliver capital appreciation from these assets as they move through the initial operational phase over the course of the next twelve months.

Corporate Governance

At the Company's Annual General Meeting, longstanding Board member Keith Dorrian resigned from the Board. Once again, I would like to thank Keith for his outstanding contribution to the Board, having been a Board member since the Company's inception and, until 1 January this year, the Company's Chair. Following Keith's resignation there are five Board members, four of whom are independent directors. We believe this is currently an appropriate level of resourcing and that the directors have a complementary mix of skills and experience. Further biographical information is provided in the Board of Directors section.

As part of its ongoing oversight of the Company's portfolio in June the Board visited the Company's newest acquisition, the BMBF facility in Berlin. It also met with the German-based members of the Investment Advisor's team together with the construction partner on that project, BAM Deutschland. In conjunction with the Investment Advisor, the Board also took the opportunity to take a step back from its usual tasks to spend time considering the Company's broader strategic approach including its position within the markets and future areas of focus for growth.

The Alternative Investment Fund Managers Directive which came into effect on 22 July 2013 requires the Company, being a self-managed Alternative Investment Fund ('AIF'), to follow the specific registration and other regulatory requirements within each EU member state in which it wishes to market new shares. In a small number of countries this may require the Company to incur additional regulatory compliance costs prior to marketing.

Changes to Presentation of Results and Report

At 31 December 2013, the Company early adopted new accounting standards which require investment companies to present financial statements on an investment basis. The financial statements for the six months ended 30 June 2014 follow the same presentation and reporting basis. We believe the new presentation assists investors by enabling greater consistency between the presentation of the financial statements and the key investment metrics used by management and shareholders. Importantly these changes have no impact on overall portfolio valuations. 

The international accounting standards board is currently consulting with the industry on further interpretation clarifications to the relevant standards. It is currently unclear whether the outcome from the consultation will have any significant impact on the financial statements. Our hope is that the current basis will continue to apply, for the reasons above, however, there is a risk that less transparent reporting will be required. This continues to be closely monitored by myself and fellow board members.

Going concern

In our consideration of going concern we have reviewed comprehensive cash flow forecasts prepared by management, which are based on market data and past experience and believe, based on those forecasts and an assessment of the Group's committed banking facilities and the available headroom, that it is appropriate to prepare the financial statements of the Group on the going concern basis.

In arriving at our conclusion that the Group has adequate financial resources, we were mindful that the Group had unrestricted cash of £43.7 million as at 30 June 2014 and undrawn banking facilities committed until December 2016 of £175.0 million although we note that the commitments to the Priority School Building Programme and the Lincs OFTO will likely draw down on these amounts during the second half of 2014. Forecasts indicate continuing full compliance with associated banking covenants.

Outlook

The outlook for the remainder of 2014 is promising and we remain confident in the Company's ability to generate increasing dividends in line with published expectations. The Company's portfolio continues to perform well and we are confident that there continues to be a number of attractive infrastructure opportunities in the UK and in the overseas jurisdictions in which it is active. This is particularly, but not exclusively, the case where the Company has the ability to be the primary investor in new infrastructure assets, such as offshore transmission opportunities and schemes like the Aggregator.

It should be noted that the Company's performance is not, in our view, dependent upon making additional investments in order to deliver its projected returns. We will therefore continue to be selective in our acquisitions to ensure they bring real long term benefits to the Company. Further details are provided within the Outlook section of the Financial and Operating Review.

Finally, I thank all shareholders for their continued support and look forward to continuing success in the remainder of 2014.

Rupert Dorey

27 August 2014

Chairman

[1] Offshore electricity transmission owner licensed entity.

Financial and Operating Review

Key Performance Indicators

The Company has identified ten priorities to assist it in meeting its Key Objectives. In order to assess performance in meeting these objectives the Company semi-annually reviews its performance against the following key performance indicators ('KPIs'). Progress against these KPIs for the six months to 30 June 2014 is summarised below. Further details of each of these elements are provided under the relevant headings in the sections that follow:

1 Cash dividends to shareholders are paid from net operating cash flow (including financing costs) before one off operating costs.

Profit before tax for the six months to 30 June 2014 was £35.9 million (30 June 2013 restated: £29.8 million) with earnings per share of 4.85 pence (30 June 2013 restated: 4.20 pence).

Income from portfolio investments in the period was £44.5 million (30 June 2013 restated: £45.3 million) including fair value movements, dividends and interest. These returns were offset by operating expenses (including finance costs) of £7.9 million (30 June 2013 restated: £17.7 million), of which £0.4 million (30 June 2013 restated: £11.1 million) was non-recurring.

These results allowed the Company to deliver the fully-covered dividend of 3.15 pence per share for the six months to 30 June 2014 (30 June 2013 restated: 3.075 pence per share), an increase of c.2.5% over the corresponding period last year.

The Company's Total Shareholder Return (share price growth plus reinvested distributions) for investors since the initial public offer of the Company in November 2006 to 30 June 2014 has been 91.1% (compounded annual growth rate, 'CAGR', of 8.8% per annum), compared to a total return on the FTSE All-Share index over the same period of 48.3% (CAGR of 5.3% per annum)1. The Company has exhibited relatively low levels of volatility compared to the market.

The Company reports a 1.8% increase in NAV, up to £952.1 million at 30 June 2014 from £935.4 million at 31 December 2013. This represents an increase of 1.5% of NAV per share to 124.8 pence per share from 123.0 pence per share at 31 December 2013.

The build-up of NAV is derived from a discounted cash flow calculation to determine the fair value of investments plus the value of cash and other net assets held within the Company's consolidated group. 

During the period, movements in government bond rates in jurisdictions where the Company is invested were mixed with UK and Australian yield increases being slightly offset by a decrease in Canadian and European rates. Overall, government bond yields decreased slightly and had a marginally positive impact on the NAV. 

However, the broadly positive impact of the change in government bond yields was offset by a net increase in discount rate risk premia. This resulted from, on the one hand, a reduction in the risk premium as assets moved out of the construction or defects liability phase and towards full operations (positive effect on NAV) and, on the other, risk adjustments to the Company's two assets in Belgium and Ireland which netted out the effect of recent government bond rate reductions in those countries pending confirmation that these rates can be sustained (negative impact on NAV).

In aggregate, foreign exchange movements had a marginal impact on the NAV during the period (adding £0.4 million to NAV) as, relative to Sterling, the strengthening Australian Dollar was largely offset by weakening in the Canadian Dollar and Euro.

Cash distributions of £20.2 million during the period represent the cash element of the dividend made to the Company's shareholders.

Return from investments had a £36.5 million positive impact on the NAV generated from underlying project returns partially offset by fund level operating costs such as the management fee paid to the Investment Advisor, transaction costs, other operating costs and net working capital movement. The Portfolio Performance and Return section below provides more detail on the composition of returns from the underlying portfolio of projects.

Portfolio Valuation

The Company's investments are expected to exhibit (and historically have exhibited) relatively predicable cash flows. As the Company has a large degree of visibility over expected income from its current investments the chart below sets out the Company's expectation for the evolution of investment receipts from its current portfolio (over the remaining life of current investments).

The majority of the receipts over the life of the concessions are investment income from the operational assets in the form of dividends from equity investments or interest and principal payments from senior and subordinated debt investments.

It is important for shareholders to note that the Company generally invests in infrastructure entities with finite lives (determined by concession or licence terms). As the remaining life of each of the Company's investments reduces the Company's receipts in respect of that investment will represent return of capital as well as income. The line in the chart below illustrates how, in the event that the Company never acquires any additional assets, nor raises any additional capital and other things being equal, the NAV of the Company would reduce to zero over time. It should however equally be recognised that any future acquisitions (or disposals) or changes to the projected cash flows of any investment (or the assumptions upon which they are based) will change this projection from time to time (although it can be expected to retain a similar general amortising profile).

The Company is aware that there are subtle differences in approach to the valuation of portfolios of investments among different infrastructure funds. To clarify the Company's position in this regard its key cash flow inputs and broad valuation principles include:

> That key macroeconomic variables (outlined in the section below) continue to be applicable

> That the contracts under which payments are made to the Company or its investments and its subsidiaries remain on track and are not terminated before their contractual expiry date

> That deductions suffered under such contracts are fully passed down to subcontractors

> That where possible lifecycle cost risks are not borne by the Company but are passed down to a third party such as a facilities management contractor

> That cash flows from and to the Company's subsidiaries and the infrastructure asset owning entities in which it has invested will be made and are received at the times anticipated

> That where assets are in construction they are either completed on time or any costs of delay are borne by the contractors not the Company

> That where the operating costs of the Company or the infrastructure asset owning entities in which it has invested are fixed by contract such contracts are performed, and where such costs are not fixed, that they remain within projected budgets

> That where the Company or the infrastructure asset owning entities in which it has invested owns the residual property value in the asset that the projected amount for this value is realised

> That where assets in which the Company invests are not GBP assets that foreign exchange rates remain consistent with current forward looking projections

The Company's investment portfolio is reviewed semi-annually by the Investment Advisor, and presented for approval by the Directors. The Directors' valuation of the portfolio, Investments at Fair Value, as at 30 June 2014 was £856.2 million, an increase of 1.4% since 31 December 2013 of £844.4 million. 

The portfolio return of £44.5 million represents a 5.5% increase in the value of investments (11.3% on an annualised compounded basis) and can be attributed to:

> Distributions received over and above the forecast amount due to active management of the Company's portfolio including initiatives such as negotiating and optimising project cash flows to ensure cash can be extracted from project vehicles earlier than forecast and optimising group tax loss surrender

> Unwinding of the discount factor whereby the movement of the valuation date has a positive impact on the portfolio as the valuation date approaches the peak of forecast portfolio distributions (currently forecast between 2028-2036)

> Value accretive divestments made during the period

> Updating and refinement of project model assumptions to reflect current expectations of future cash flows

The remaining movement relates to investments of £20.1 million less agreed divestments of £18.8 million, project distributions of £34.5 million, an increase in discount rates and minor revaluation following a change in foreign exchange assumptions.

The Company reviews the macroeconomic assumptions underlying its forecasts on a regular basis.

The key assumptions used as the basis for deriving the Company's portfolio valuation are summarised in the following table and further details are provided in note 11.4 in the financial statements. Across the portfolio the weighted average inflation assumption as at 30 June 2014 was 2.51% (31 December 2013: 2.52%) and the weighted average deposit rate assumption was 3.47% (31 December 2013: 3.47%). There was therefore no impact in relation to macro-economic assumptions on the valuation during the period. 

1 The portfolio valuation assumes deposit rates as currently received to 2017 and then as stated thereafter

2 The corporation taxation rate will reduce by 1% to 20% from 1 April 2015

The discount rate used for valuing each investment is based on the appropriate long-term Government Bond rate and a risk premium. The risk premium takes into account risks and opportunities associated with each project (including location, phase of operation/construction etc).

The majority (83%) of the Company's portfolio is invested in the 'risk capital' (equity and subordinated debt) of the underlying investments. 17% of the portfolio is invested as senior debt where the Company also holds the risk capital. The current discount rates used by the Company are given in the table below. These rates need to be considered against the assumptions and projections upon which the Company's anticipated cash flows are based.

The average blended discount rates need to be interpreted with care. In the Company's view they are relevant only in the context of the cash flows (and cash flow assumptions) they are applied to in calculating the fair value of investments. Comparison of discount rates between investment portfolios or funds is only meaningful if there is a comparable level of confidence in the quality of forecast cash flows (and assumptions) rates are applied to; the risk and return characteristics of different investment portfolios are understood; and the depth and quality of asset management employed to manage risk and deliver expected returns are identical across the compared portfolios.

1 Risk capital is equity and subordinated debt investments

Government bond rates

In the table above the Company has provided an analysis of the weighted average government bond rate used in calculating the discount rate. It should be noted that the nominal (i.e. non inflation linked) bond rate has been used in this calculation. 

The Company's NAV is based on the factors outlined above. The Company has also provided sensitivity analysis showing an indication of the impact on NAV per share from changes in macroeconomic assumptions and discount rates, as set out below. Further details can be found in note 11.5 in the financial statements. This analysis is provided as an indication of the likely impact of these variables on the NAV per share on the basis that they apply uniformly across the portfolio whereas in practice the impact is unlikely to be uniform. These sensitivities should be used only for general guidance and not as accurate predictors of outcomes. 

The Company's approach to determining the discount rate is described in detail above. Assuming all other things are equal, a reduction of 1% to the underlying project discount rates would increase the 30 June 2014 NAV per share by 11.5 pence. Should the underlying project discount rates increase by 1% the NAV per share would decrease by 9.9 pence.

In an environment where investors are increasingly focused on achieving real rates of return on their investments, inflation protection is an important consideration for the Company. At 30 June 2014 the majority of assets in the portfolio had some degree of inflation linkage and, in aggregate, the weighted average return of the portfolio can be expected to increase by 0.81% for a 1% inflation increase across the portfolio over currently assumed rates.

Where actual inflation is higher or lower than the assumed levels, it can be expected to impact on the Company's actual future cash flow in a correspondingly positive or negative manner other things being equal. If the underlying project inflation rates were to increase by 1% there would be a 9.0 pence increase to the NAV per share, conversely, if the rates were to decrease by 1% there would be an 8.1 pence decrease to the NAV per share.

The company has a geographically diverse portfolio and therefore non-GBP denominated investment returns and valuations are subject to foreign exchange rate risk. Whilst the Company enters into foreign exchange forward contracts to mitigate short-term exposures, longer term changes are likely to impact portfolio valuations. Should the assumed exchange rates increase by 10% this would lead to a 4.9 pence increase in the NAV per share while a 10% reduction in the exchange rates would result in a 4.0 pence decrease in NAV per share.

The long-term weighted average future deposit rate across the portfolio is 3.47% per annum. While operating cash balances tend to be low given the structured nature of the investments, project finance structures typically include reserve accounts to mitigate certain costs and therefore variations to deposit rates may impact the portfolio. All else being equal, a 1% increase in the underlying deposit rates would lead to a 1.9 pence increase in the NAV per share and a 1% decrease in deposit rates would lead to a 1.9 pence reduction in the NAV per share. 

The Company has a geographically diverse portfolio and therefore post-tax investment cash inflows are impacted by tax rates across all relevant jurisdictions. Should the assumed tax rates increase by 1% this would lead to a 0.8 pence decrease in the NAV per share while a 1% reduction in the tax rates would result in a 0.9 pence increase in NAV per share.

A project's lifecycle is the process of renewal required to keep the physical asset fit for use and at the standard required of it under the agreement with the occupying government body. The proportion of total cost that is lifecycle will depend on the nature of the asset. In order to enhance the certainty around cash flows, around 94% of the Company's assets (by value) are structured such that lifecycle cost risk is taken by a subcontractor for a fixed price isolating equity investors from such downside risk. As a result, the impact of any changes to the Company's lifecycle profile is relatively small. A 10% increase in lifecycle costs would lead to a 0.3 pence reduction in NAV per share. A 10% decrease in lifecycle costs would lead to a 0.4 pence increase in NAV per share.

Under UK tax group loss relief rules, losses within the UK group companies can be, subject to UK tax law, offset against taxable profits in other UK group companies (including project entities formerly part of the UK group). This group tax loss relief can reduce the overall tax charge across the portfolio and potentially reduce taxable profits substantially below the levels currently modelled by the Company. The Company has taken a conservative approach to the valuation of future tax losses and, to date, has not incorporated these into the NAV. 

The Company's net cash at 30 June 2014 was £66.8 million (31 December 2013: £80.6 million), a decrease of £13.8 million reflecting net cash flows from operations offset by new investments and dividend payments.

Cash inflow from the Company's investment portfolio was £35.5 million (30 June 2013: £30.6 million). The increased cash flow was mainly due to the timing of receipt of distributions from underlying investments.

Recurring operating costs have increased from £5.9 million to £6.1 million (30 June 2013), in line with the increase in the Company's NAV although, as detailed in the 'ongoing charges' table below, this was somewhat offset by a small reduction in other running costs. One-off operating costs of £2.3 million (30 June 2013: £0.1 million) mainly represent new acquisition transaction costs and costs associated with the refinancing of the corporate debt facility in the period.

Dividends paid in the period of £20.2 million (30 June 2013: £17.0 million) were in respect of the six month period ended 31 December 2013.

A breakdown of corporate operating costs paid is provided below:

1 The 30 June 2013 balance has been restated to reflect IFRS 10 consolidation expenses. Previously reported ongoing operating charges for 30 June 2013 were £6.3 million.

The increase in management fees paid to the Investment Advisor is in line with the growth in managed investments and the growth of the Company's portfolio.

1 The June 2013 balance has been restated to conform to the IFRS 10 grouping (the previously reported full consolidated ongoing charges in June 2013 was £12.4 million)

2 The Ongoing Charges ratio was prepared in accordance with the Association of Investment Companies' ('AIC') recommended methodology, noting this excludes non-recurring costs.

3 Average of published NAVs for the relevant period

Principal Risks and Uncertainties

The Board seeks to mitigate and manage risks relating to the Company through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Group's portfolio.

The principal risks facing the Company and their mitigation are set out on pages 28 to 31 in the 31 December 2013 Annual Report and Financial Statements and are detailed further in the Company's last Prospectus (the Placing, Open Offer and Offer for Subscription Prospectus published on 24 May 2012). These risks and uncertainties are expected to remain relevant to the Company for the next six months of its financial year and include (but are not limited to):

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

> Foreign exchange risk - The group has exposures to foreign currencies and therefore exposure to exchange rate fluctuations.

> Credit and counterparty risks - The risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.

> Liquidity risk - The ability to successfully access suitable financial resources in the debt, equity and related financial markets.

> Contract risk - the ability of counterparties to operate contracts to the detriment of the Company and the risk of default under contract whether by the Company, its subsidiaries or it or their counterparties.

> Other external risks - Includes the political and regulatory risks (including tax and accounting policies and practices) associated with the Company and its projects and changes in the competitive environment which may have an adverse impact on the Group.

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

During the period, investment cash flow from the Company's portfolio of 115 investments has continued to perform in line with the Company's forecasts. Ensuring that the Company's assets are available for use and are performing in accordance with contractual expectations is a critical task for the Company and its service providers.

The Investment Advisor, on behalf of the Company, closely monitors any availability and performance failures at a subcontractor level and works with these service providers to mitigate the risk of deductions. For example, all projects have a dedicated Asset Manager whose task it is to ensure that the project is meeting all targets required under the contract and that the public sector client is happy with the standard of service being achieved. Each month the Asset Managers review the performance and availability deductions data from the facilities manager contractor to identify any large or recurrent deductions. This not only ensures that remedial action can be taken in a timely manner but that the public sector client receives a high level of visibility regarding the performance of the asset.

All projects continue to perform to the required contractual standards as demonstrated by the continued low level of payment deductions. In addition projects such as Liverpool Central Library have been recognised as outstanding examples of public infrastructure with awards such as RIBA North West's Conservation Award 2014 and Regional Award April 2014, RICS Best Tourism & Leisure Project 2014, Best Community Benefit Project and Project of the Year 2014.

During the first six months of 2014 our public sector clients commissioned in excess of 400 variations resulting in over £13 million of additional works at the project level. All variations were overseen by the Investment Advisor as part of the day-to-day asset management activities it undertakes in conjunction with the project facilities manager and the public sector client. The ability to deliver these variations demonstrates the value and flexibility of PFI/PPP contracts to respond to the changing requirements of public sector clients. 

The day-to-day management of interfaces between the client, investors and construction partners is also of importance in relation to investments in the course of construction. For instance, at the Northamptonshire schools project when the need was identified for increased school places, the Investment Advisor worked with the procuring authority throughout the process to ensure its successful delivery. This included: the identification of a suitable building contractor to deliver the works; working with the facilities management contractor to identify the associated cost of the new facilities management services; and, liaison with the project's lawyers and other professionals to engage with the senior lenders to gain consent to the delivery of this major variation.

Valuation benefits from successful completion of the construction and defects correction phases of these projects and other construction projects recently completed are expected to continue to be realised in 2014 and 2015 as sustained operational performance is demonstrated. All construction currently within the portfolio is due to be completed by December 2014 with defects periods completed in 2015. In the first six months of the 2014 financial year the Company has increased its investments in construction stage projects as set out in the 'Value Focused Portfolio Development' section below. 

Projects under construction as at 30 June 2014 are set out in the table overleaf. As anticipated, post period end, two of these projects, the Gold Coast Rapid Transit and the BMBF project reached construction completion. Both projects are expected to continue to add to the Company's operational cash flows in the second half of the 2014 financial year and provide capital appreciation as the projects progress through the defects liability period and the discount rates associated with each project unwinds. Further details are provided in 'Value-focused portfolio development' section below.

1 Originally targeted construction completion in May 2014. While final construction completion was slightly delayed, this did not affect project returns as the construction contractor was levied late completion damages

2 Estimate based on the number of projects within the BSFI portfolio that were still in construction at 30 June 2014

The Company has further developed its portfolio through a series of acquisitions and divestments since the start of the 2014 financial year (summarised in the table below). These projects acquired were all self-originated, having either been sourced by the Investment Advisor i) from project inception (i.e. in response to an initial government procurement process); or ii) by way of further investment into the Company's existing assets. These methods of procurement remain the Company's preferred route to market as they necessarily avoid investment in the open secondary market which, as we have noted before, remains very competitive.

During the six months to 30 June 2014 the Company invested £20.1 million into four projects. In January, the Company acquired a 98% equity interest and 100% of the subordinated debt in a PPP project that will deliver the new headquarters of the Federal German Ministry of Education and Research in Berlin ('BMBF'). The Ministry provides funding for research projects and institutions and sets general educational policy, including providing student loans, in Germany.

The BMBF interests were acquired by an investment subsidiary of the Company from an associate of the Investment Advisor for approximately €11.9 million (£9.6 million). The acquisition process was fully managed in accordance with the Company's policy on dealing with conflicts of interest in such circumstances. This process, which is documented further in the Company's 2013 Annual Report, included the Company obtaining an independent valuation which valued the asset at a price slightly higher than the price at which it was acquired. This investment underlines the Company's ability to access a developed pipeline of international investment opportunities other than through a secondary market auction process. Construction of the project was completed in August this year.

The Company has also entered into a number of UK schools PFI transactions with respect to Building Schools for the Future ('BSF') portfolio. Three investments were made in existing BSF projects:

> The acquisition of 60% of Kier Project Investments' 80% interest in the Kent BSF (UK PFI schools) project for £7.2 million, taking the Company's ownership in this project to 58%

> A follow-on investment of £0.5 million in the Wolverhampton BSF (UK PFI schools) project where the Company had the opportunity to invest on a minority basis. The project involves the design, construction, financing and operation of two high schools in the second phase of the Wolverhampton BSF programme delivered using a PFI structure

> An additional £2.8 million investment in the second phase of the Nottingham BSF from Carillion Private Finance, taking the Company's interest from 10% to 82%

In addition, minority interests in the Hull, Leeds, Newcastle, Rochdale, Sandwell and Leicester BSF projects were disposed, with £18.8 million being realised. The divestments were agreed as the Company had determined that it had no realistic scope to increase its holdings in these particular projects to majority controlling holdings and therefore considered that, based on the price offered; a sale would be in the best interests for the Company. The proceeds of sale are substantially in excess of the price paid for the same stakes on acquisition in August 2011, offering a significant premium to the Company.

Since the close of the 30 June 2014 reporting period, the Company announced that it had been selected as the winning bidder to fund the Priority School Building Programme, a centrally managed UK government scheme designed to address schools most in need of urgent repair. The funding programme, known as the 'Aggregator' will see c.£700 million of investment directed into 46 schools across five batches. The Company's commitment is approximately 10% of the funding of each of these batches, with the residual funding being provided by consortium partners the European Investment Bank and Aviva. The investment will be made progressively over a twelve month period, as each batch of schools reaches financial close.

In addition, since 30 June 2014, the Company divested a further asset, the Amiens Hospital PPP project in France, realising a total of £0.3 million. The sale achieved a price in excess of the Company's valuation, and, consistent with the sales conducted in January of this year, was opportunistic and allows the Company to divest a non-strategic, subscale project, further streamlining the portfolio.

The Company is also pleased to advise that it expects to reach commercial close by October this year on its investment in the Lincs OFTO project. The project links the 270MW Lincolnshire windfarm via transmission cables to the National Grid via 100km of subsea cables and other related infrastructure including substations. The Company will take no exposure to electricity production or price risk, rather is paid a pre-agreed revenue stream over 20 years which is fully linked to UK inflation (RPI). The acquisition of the OFTO is expected to reach financial completion by the end of the current financial year at which time full details on the Company's financial commitment will be provided. The Company notes that the investment into the Lincs OFTO will be sizable and will likely be the Company's largest single portfolio investment.

The Company achieved a cash dividend to investors that was 1.3 times covered by net operating cash flow for the six months ended 30 June 2014. This compares to 1.4 for the dividend paid during the same period last year and is consistent with the Company's approach of having dividends that are fully covered from operating cash flow. The Company remains confident that it will be able to grow dividends from operating cash flows in the future. 

It remains the Company's policy not to have long-term corporate level debt and it is anticipated that to the extent that the corporate facility is drawn to fund acquisitions, this would be a short-term arrangement and equity funding, by means of a capital raising, would be sought to repay outstanding debt as soon as practicable. As at the date of this report, the corporate debt facility was undrawn.

Outlook

Current Market Environment and Future Opportunities

Overall the Company continues to have a very positive market outlook. Government support for private sector investment in infrastructure continues to feature as a high public priority. Also, secondary market competition is currently at a very high level, resulting in significant price inflation which augurs well for the value of the Company's existing assets and the market perception of infrastructure being a firmly established class of investment asset

New investment opportunity volumes have remained low in the period, driven by the Company having been very selective over assets and being determined to progress the acquisition of assets that it believes have a clear benefit to the portfolio. Such assets take longer to develop and reach financial close, but the Company is pleased to confirm its expectation of reaching financial close of Lincs OFTO project and its selection as preferred bidder for the next wave of financing of privately financed schools, later this year.

Overall, the Company is confident that its approach will be justified over time and that the Company continues to hold and build a portfolio of the highest quality.

Current Pipeline

Overall, the Company remains very positive about its prospects, both in terms of the performance of its existing investments and the opportunity to add high quality investments to the portfolio during 2014.

In addition to the anticipated commitment to the Lincs OFTO and the Priority Schools Building Programme Aggregator projects the Investment Advisor has a pipeline of other potential investment opportunities that are at an earlier stage of development, which subject to further review and other things being equal, will be progressed as investment opportunities for the Company.

Key areas of current activity within the Company and/or its Investment Advisor (or associates) include:

> Continued activities in the area of UK offshore transmission

> Other UK and European primary investment opportunities (for instance in UK healthcare and Irish schools)

> Acquisition of additional investments in projects where the Company already has an investment. Typically these will arise under pre-emption and similar rights

> New developments in UK public policy with respect to the financing of PPP projects in the UK

> The growing range of opportunities in Ireland

> Further growth in social infrastructure projects in Germany, Belgium, Australia and New Zealand which conform to the existing risk profile within the Company's portfolio

> Opportunities arising in the UK health and social care sphere where an active pipeline of small to medium sized opportunities continues to exist

> Appropriately priced proposals from third parties seeking to dispose of projects meeting the Company's investment criteria which have synergies with the Company's existing portfolio

Selected specific current opportunities identified by the Investment Advisor are outlined in the table below. Notwithstanding the projects listed above, it should be noted that the Company's performance is not dependent upon making additional investments in order to deliver its projected returns. Further investment opportunities will be judged by their anticipated contribution to overall portfolio returns.

The above represents opportunities currently under review by Amber Infrastructure Group including current bids, preferred bidder opportunities and estimated value of opportunities to acquire additional investments under pre-emption/first refusal rights. There is no certainty these will translate to investment opportunities for the Company. Unless otherwise stated the values referenced represent the current unaudited capital value of the relevant project and therefore includes both debt and equity and is not necessarily indicative of the eventual acquisition price for, or the value of, any interest that may be acquired

1 Represents the current unaudited capital value of the project and includes both debt and equity. The Company is likely to invest between £150 million to £200 million into the project on financial close.

2 Represents the Company's estimated investment value

Rupert Dorey John Whittle

27 August 2014 27 August 2014

Chairman Director

Board of Directors

Directors' Responsibilities Statement

The Directors are responsible for preparing the Half-yearly Financial Report in accordance with applicable law and regulations. The Directors confirm to the best of their knowledge:

a) The condensed set of financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting";

b) The interim financial and operating review includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) The interim financial and operating review includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Rupert Dorey John Whittle

27 August 2014 27 August 2014

Chairman Director

Independent Review Report to International Public Partnerships Limited

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2014 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Cash Flow Statement and the related Notes 1 to 20. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Guernsey

27 August 2014

Condensed Consolidated Statement of Comprehensive Income

(unaudited)

Six months ended 30 June 2014

All results are from continuing operations in the period.

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 period (June 2013: nil). The profit for the period approximates the Total Comprehensive Income for the period.

Condensed Consolidated Statement of Changes in Equity (unaudited)

Six months ended 30 June 2014

Condensed Consolidated Balance Sheet (unaudited)

As at 30 June 2014

The Half-yearly Financial Report was approved by the Board of Directors on 27 August 2014.

They were signed on its behalf by:

Rupert Dorey John Whittle

27 August 2014 27 August 2014

Chairman Director

Condensed Consolidated Cash Flow Statement (unaudited)

Six months ended 30 June 2014

1 Includes restricted cash of £23.1 million committed for investment.

2 Group tax losses surrendered.

Notes to the Condensed set of Financial Statements(unaudited)

Six months ended 30 June 2014

1. Basis of Preparation

International Public Partnerships Limited is a closed ended authorised investment company incorporated in Guernsey under The Companies (Guernsey) Law, 2008. The address of the registered office is given in the Contacts section. The nature of the Group's operations and its principal activities are set out in the Company Overview section.

These financial statements are presented in pounds Sterling as this is the currency of the primary economic environment in which the Company operates and represents the functional currency of the Parent and all values are rounded to the nearest (£'000), except when otherwise indicated.

The financial information for the year ended 31 December 2013 included in this Half-yearly Financial Report is derived from the 31 December 2013 Annual Report and Financial Statements and does not constitute statutory accounts as defined in The Companies (Guernsey) Law, 2008. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under section 263 (2) and (3) of The Companies (Guernsey) Law, 2008.

Accounting Policies

The annual financial statements of International Public Partnerships Limited are prepared in accordance with IFRS as adopted by the European Union. The set of condensed consolidated financial statements included in this Half-yearly Financial Report has been prepared in accordance with International Accounting Standard 34 - 'Interim Financial Reporting' as adopted by the European Union and should be read in conjunction with the consolidated financial statements for the year ended 31 December 2013, as they provide an update of previously reported information.

The same accounting policies, presentation and methods of computation are followed in this set of condensed financial statements as applied in the Group's latest annual audited financial statements for the year ended 31 December 2013. The new and revised IFRS and interpretations becoming effective in the period have had no impact on the accounting policies of the Group.

As disclosed in the annual financial statements for the year ended 31 December 2013, the Directors determined that International Public Partnerships Limited is an investment entity as defined by IFRS 10 and chose to adopt early the amendments to IFRS 10, IFRS 12 and IAS 27 ('Investment entities amendments'). The amendments require an investment entity as defined by IFRS 10 to consolidate only those subsidiaries that provide services relevant to its investment activities, such as management services, strategic advice and financial support to its investees. Subsidiaries that do not provide investment-related services are required to be measured at fair value through profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Comparative information as at 30 June 2013 has been restated to reflect this. The impact of the application of IFRS 10, IFRS 12 and IAS 27 'Investment entity amendments' on each of the line items in the 30 June 2013 condensed consolidated statement of comprehensive income (unaudited) is summarised below:

Going concern

The Directors have reviewed comprehensive cash flow forecasts prepared by management. Based on those forecasts and an assessment of the Group's ('parent and consolidated subsidiary entities') committed banking facilities, they have concluded that it is appropriate to prepare the financial statements of the Group on a going concern basis.

In arriving at their conclusion that the Group has adequate financial resources, the Directors were mindful that the Group had unrestricted cash of £43.7 million as at 30 June 2014. On 24 January 2014, the Company's corporate debt facility was renewed to £175 million (Dec 2013: £100 million) which is available for investment in new and existing projects and is committed until December 2016. The new facility is forecast to continue in full compliance with the associated banking covenants. The company also continues to fully cover costs and distributions from underlying operational investment cash flows pre new investment outflows.

2. Significant Judgments and Estimates

Service entities and consolidation group

Following the adoption of IFRS 10 Investment Entity Amendments, the condensed consolidated financial statements incorporate the financial statements of the Company and service entities controlled by the Company up to 30 June 2014. Typically a service entity provides management services, strategic advice and financial support to investee entities. Judgment is therefore required in assessing which entities meet these definitional requirements. The Directors have reviewed and assessed the criteria applied in the assessment of services entities based on the guidance in place as at 30 June 2014 and are satisfied with the resulting conclusion. Since 30 June 2014 the International Financial Reporting Interpretations Council has proposed the International Accounting Standards Board ('IASB') provide further clarity on the accounting treatment for investment service entities. The IASB has issued an exposure draft open for consultation, however, it is currently unclear if following the consultation period there will be any significant changes to the financial statements.

If future guidance or changes to IFRS 10 require investment service entities (such as those currently consolidated) to instead be accounted for at fair value this would have an impact on disclosures in the Financial Statements and could result in less transparency for investors. If this occurs, the Directors will consider whether additional non-audited disclosures would be beneficial (similar to the investment basis financial information currently presented).

Fair valuation of investments at fair value through profit or loss

Fair values are determined using the income approach which discounts the expected cash flows at a rate appropriate to the risk profile of each asset. In determining the discount rate and relevant long-term government bond yields, specific risks and the evidence of recent transactions are considered. Details of the valuation process and key sensitivities are provided in note 11.

3. Segmental Reporting

Based on a review of information provided to the chief operating decision makers in International Public Partnerships Limited, the Group has identified four reportable segments based on the geographical risk within the Group. The factors used to identify the Group's reportable segments are centered on the risk free rates and the maturity of the Infrastructure sector (particularly PFI/PPP) within each country. Further, foreign exchange and political risk are identified, as these also determine where resources are allocated. Management has concluded that the Group is currently organised into four reportable segments being UK, Europe (non UK), Australia and North America.

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

2 North American segment currently relates entirely to projects in Canada

Revenue from investee entities, representing more than 10% of the Group's interest and dividend income approximates £12.1 million (June 2013: £10.37 million).

4. Investment Income

All dividend income and interest income has resulted from transactions with unconsolidated subsidiary entities. Gains on investments at fair value through profit or loss are also recognised on investments in unconsolidated subsidiaries.

5. Gain on Disposal of Investments

In two separate transactions, International Public Partnerships Limited agreed to divest its minority interests in the Hull, Leeds, Newcastle, Rochdale and Sandwell BSF projects to the Dalmore Capital Fund, and its minority interest in the Leicester BSF project to Semperian Investments. As at 30 June 2014, the sales process is complete on all projects other than Rochdale resulting in INPP recognising a realized gain of £1.16 million. Sales proceeds have been collected in an unconsolidated subsidiary entity before 30 June 2014.

The sale of Rochdale is subject to completion of certain waivers and is therefore recognised as a current asset at fair value through profit or loss amounting to £1.9 million.

6. Other Operating (income)/expense

7. Management Costs

Up to 30 June 2013, the Investment Advisor was entitled to an additional incentive fee. The ability of the investment advisor to earn future incentive fees was removed as part of the rebased Investment Advisory Agreement approved by the Board on 29 August 2013, as detailed in note 17.

8. Transaction Costs

Details of investment advisory costs paid are provided in note 17.

9. Tax

Reconciliation of effective tax rate

Restated

The income tax credit above does not represent the full tax position of the entire group as the investment returns received by the Company are net of tax payable at the underlying investee entity level. As a consequence of the adoption of IFRS 10 investment entity consolidation exemption, underlying investment entity tax is not consolidated within these financial statements. Total forecasted corporation tax payable by the Group's underlying investments is £724 million over their full concession lives.

10. Earnings per Share

The calculation of basic and diluted earnings per share is based on the following data:

The denominator for the purposes of calculating both basic and diluted earnings per share is the same, as the Company has not issued any share options or other instruments that would cause dilution.

11. Financial Instruments

Financial assets and financial liabilities are recognised when contractual provisions of the instrument are entered into. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'. Financial liabilities are derecognised when the obligation is discharged, cancelled or expired.

11.1 Financial assets

1 Includes fair value of investments in associates amounting to £1.8 million (Dec 2013: £1.8 million).

11.2 Financial liabilities

The carrying value of other liabilities is considered to approximate their fair value.

11.3 Financial risk and management objectives

The Group's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Group's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Group's continuing profitability. The Group is exposed to market risk (which includes currency risk, interest rate risk and inflation risk), credit risk and liquidity risk arising from the financial instruments it holds. The Group's Investment Advisor is responsible for identifying and controlling risks. The Board of Directors supervises the Investment Advisor and is ultimately responsible for the overall risk management of the Group.

The Group's risk management framework and approach is set out within the Strategic Report in the 31 December 2013 annual financial statements.

Market risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as changes in inflation, foreign exchange rates and interest rates.

Inflation risk

The majority of the Group's cash flows from underlying investments are linked to inflation indices. Changes in inflation rates can have a positive or negative impact on the Group's cash flows from investments. The long-term inflation assumptions applied in the Group's valuation of investments at fair value through profit or losses are disclosed in the fair value hierarchy section 11.4.

The Company's portfolio of investments has been developed in anticipation of continued inflation at or above the levels used in the Group's valuation assumptions. Where inflation is at levels below the assumed levels, investment performance may be impaired. The level of inflation linkage across the investments held by the Company varies and is not consistent.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows from underlying investments therefore impacting the value of investments at fair value through profit or loss. The Group has limited exposure to interest rate risk as the underlying borrowings within the investee entities are either hedged through interest rate swap arrangements or are fixed rate loans. It is generally a requirement under a PFI/PPP concession that any borrowings are matched to the life of the concession. Hedging activities are aligned with the period of the loan, which also mirrors the concession period and are highly effective. The Group's corporate facility is unhedged on the basis it is utilised as an investment bridging facility and 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.

Foreign currency risk

The Group undertakes certain transactions denominated in foreign currencies and therefore is exposed to exchange rate fluctuations. Currency risk arises in financial instruments that are denominated in a foreign currency other than the functional currency in which they are measured. The carrying amounts of the Group's foreign currency denominated monetary financial instruments at the reporting date are set out in the table below:

The Group uses forward foreign exchange contracts to mitigate the risk of short-term volatility in foreign exchange on significant investment returns from overseas investments.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has adopted a policy of dealing only with creditworthy counterparties at the underlying entity level. PFI/PPP concessions are entered into with government, quasi government, and other public or equivalent low risk bodies.

Liquidity risk

Liquidity risk is defined as the risk that the Group would encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group invests in relatively illiquid investments (mainly non-listed equity and loans). As a closed-ended investment vehicle there are no automatic redemption of capital rights. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities and by continuously monitoring the forecast and actual cash flows. Cash flow forecasts assume full availability of underlying infrastructure to the public sector entities. Failure to maintain assets available for use or operating in accordance with pre-determined performance standards may entitle the public sector to stop (wholly or partially) paying the income that the Group has projected to receive.

The Directors review the underlying performance of each investment on a quarterly basis, allowing asset performance to be monitored. Contractual mechanisms also allow for significant pass-down of unavailability and performance risk to sub-contractors.

11.4 Fair value hierarchy

All financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

> Level 1 - Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities

> Level 2 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable)

> Level 3 - Valuation techniques (for which the lowest level input that is significant to the fair value measurement is unobservable)

During the period there were no transfers between Level 2 and Level 3 categories.

Level 1:

The Group has no financial instruments classified as level 1.

Level 2:

This category includes derivative financial instruments such as interest rate swaps, RPI swaps, currency forward contracts and investments at fair value through profit or loss. As at 30 June 2014, the Group's level 2 financial instruments include currency forward contracts amounting to an asset of £3.2 million (Dec 2013: asset of £3.7 million) and investments at fair value through profit or loss amounting to £1.9 million (Dec 2013: £nil).

During the half year, the Company decided to dispose of investments in two minority shareholdings and had agreed a transaction value of £1.9 million with a condition precedent. The transaction value represents an observable input to the valuation and accordingly these holdings are now classified as level 2 investments. Transfers between levels of the fair value hierarchy, are deemed to have occurred at the beginning of the reporting period.

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

Level 3:

This category consists of investments in equity and loan instruments in underlying unconsolidated subsidiary entities which are classified at fair value through profit or loss. At 30 June 2014, fair value of financial instruments classified as level 3 totalled £856.2 million (Dec 2013: £844.4 million).

Financial instruments are classified as Level 3 if their valuation incorporates significant inputs that are not based on observable market data (unobservable inputs). A valuation input is considered observable if it can be directly observed from transactions in an active market, or if there is compelling external evidence demonstrating an executable exit price.

Valuation process

Valuations are the responsibility of the Board of Directors of the Group. The valuation of unlisted equity and debt investments is performed on a quarterly basis by the Investment Advisor and reviewed by the senior members of the Investment Advisor. The valuations are also subject to quality assurance procedures performed by the Investment Advisor. The Investment Advisor verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to relevant project financial models and market information. In addition, the accuracy of the computation is tested. The latest valuation is also compared with the valuations in the preceding semi-annual and annual reporting periods. The senior members of the Investment Advisor consider the appropriateness of the valuation methods and inputs. On a quarterly basis, after the checks above have been performed the Investment Advisor presents the valuation results to the Audit and Risk Committee. This includes a discussion of the major assumptions used in the valuations, with an emphasis on the more significant investments. Any changes in valuation methods and assumptions are discussed and agreed with the Group's Audit Committee.

Valuation methodology

The valuation methodologies used are primarily based on discounting the underlying investee entities future projected net cash flows at appropriate discount rates. Valuations are also reviewed against recent market transactions for similar assets in comparable markets observed by the Group or Investment Advisor and adjusted where appropriate.

Projected net future cash flows:

Cash flow forecasts for each underlying investment are generated through detailed project specific financial models. Financial models forecast the project related cash flows for the full term of the underlying service concession. The cash flows included in the forecasts used to determine fair value are typically fixed under contracts however there are certain variable cash flows which are based on management estimation. These models also forecast the dividend, shareholder loan interest payments, capital repayments and senior debt repayments (where applicable) expected from the underlying investments. Key macroeconomic inputs and assumptions utilised in projecting the Group's net future cash flows include:

Discount rate:

The discount rate used for valuation of each investment is the aggregate of the following:

> yield on government bonds with an average life equivalent to the weighted average concession length of the Group, issued by the national government for the location of the asset ('government bond yield');

> a premium to reflect the inherent greater risk in investing in infrastructure assets over government bonds;

> a further premium to reflect the state of maturity of the asset with a larger premium applied to immature assets and/or assets in construction and/or to reflect any current asset specific or operational issues. Typically this risk premium will reduce over the life of any asset as an asset matures, its operating performance becomes more established, and the risks associated with its future cash flows decrease;

> a further adjustment reflective of market based transaction valuation evidence for similar assets.

Over the period, the weighted average government bond rate decreased by 0.08%. This was offset by a 0.11% increase in the weighted average project premium to reflect the transactions observed in the market and the decrease in risk premia relating to construction assets that are nearing or have reached completion.

1 Weighted average discount rate on risk capital only (equity and subordinated debt)

Reconciliation of Level 3 fair value measurements of financial assets:

11.5 Sensitivity analysis

The valuation requires management to make certain assumptions in relation to unobservable inputs to the model, the significant assumptions along with sensitivity analysis are provided below:

12. Investment Acquisitions

The BMBF interests were acquired by an unconsolidated subsidiary entity of the Company from an associate of the Investment Advisor on 27 January 2014.

13. Trade and Other Receivables

Other debtors include £16.8 million receivable from an unconsolidated subsidiary entity upon disposal of an investment and £3.4 million (Dec 2013: £3.7 million) of receivables from unconsolidated subsidiary entities for surrender of Group tax losses.

14. Trade and Other Payables

15. Share Capital and Reserves

Share capital

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

Other distributable reserve

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 in order to provide a distributable reserve to repurchase its shares if and when it is considered beneficial to do so by the directors. Following court approval, the distributable reserve account was created. The balance in the distributable and reserve account as at 30 June 2014 is £182.5 million (Dec 2013: £182.5 million).

Retained earnings

Distributions

The Board is satisfied that, in every respect, the solvency test as required by the Companies (Guernsey) Law, 2008, was satisfied for the proposed dividend and the dividend paid in respect of the period ended 30 June 2014.

The Board approved an interim distribution of 3.15p per share (6 months to June 2013: 3.075p per share).

Capital risk management

The Group seeks to efficiently manage its financial resources to seek to ensure that it is able to continue as going concern while providing improved returns to shareholders through the management of the debt and equity balances. The capital structure consists of the Group's corporate facility, cash and cash equivalents 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 on-going expenses and dividend payments.

The Group's Investment Advisor reviews the capital structure on a semi-annual basis. As part of this review, the Investment Advisor considers the cost of capital and the risks associated with each class of capital.

16. Net Assets per Share

17. Related Party Transactions

During the period, Group companies entered into certain transactions with related parties that were not members of the Group but were 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 Advisor, Amber Fund Management Limited ('AFML').

Under the Investment Advisory Agreement ('IAA'), AFML was appointed to provide investment advisory services to the Company including advising the Company as to the strategic management of its portfolio of investments.

AFML is a subsidiary company of Amber Infrastructure Group Holdings Limited ('Amber Group'), in which Mr. G Frost is a Director and also a substantial shareholder.

As Mr. G Frost is also a Director of International Public Partnerships Limited (the 'Company'); International Public Partnerships Lux 1 Sarl; (a wholly owned subsidiary of the Company); and the majority of other companies in which the Company 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 for Mr. G Frost's directorship of the Company are paid to his employer, Amber Infrastructure Limited.

The amounts of the transactions in the period that were related party transactions are set out in the table below

1 Represents amounts paid to related parties to acquire or make investments or advisory fees associated with investments which are subsequently recorded in the balance sheet

2 60% settled in shares as disclosed later in this note

On 24 January 2014 the Company, through an unconsolidated subsidiary entity, acquired an interest in BMBF from an associate of the Investment Advisor as disclosed in note 12.

Investment advisory and incentive fee arrangements

AFML, the Investment Advisor, is a related party of the Group. The aggregate fees payable to AFML in its capacity as Investment Advisor includes both base and incentive fees, however the amount is reduced by any base or incentive profit share that has been paid (or is due and payable) to International Public Partnerships GP Limited. The amount paid to AFML for the six months ended 30 June 2014 was £314,233 (June 2013 - £152,719) and relates to advisory fees on new acquisitions.

Investment advisory fees/incentive profit share payable during the period are calculated as follows:

For existing construction assets

> 1.2% per annum of gross asset value of investments bearing construction risk

> For existing fully operational assets

> 1.2% per annum of the gross asset value ('GAV') excluding uncommitted cash from capital raisings up to £750 million

> 1.0% per annum where GAV (excluding uncommitted cash from capital raisings) is between £750 million and £1.5 billion

> 0.9% per annum where GAV (excluding uncommitted cash from capital raisings) value exceeds £1.5 billion

> 1.5% asset origination fee of the value of new investments

Investment advisory fees in connection with new acquisitions are charged at a rate of 1.5% of the value of new acquisitions.

Changes to investment advisory and incentive fee arrangements

> Up to 30 June 2013, AFML was also entitled to an Incentive Fee in respect of each Incentive Period equal to 20% of the excess (if any) of the Ordinary Share Return over the Benchmark Return (as defined in the IAA) in the Incentive Period, provided that the Incentive Fee was only payable if and to the extent that the change in the Ordinary Share Return Index in the relevant Incentive Period was greater than the change in the Benchmark Return Index.

> The incentive fee was removed as part of the rebased IAA which was approved by the board on 29 August 2013.

> At the same time:

o The Company and the Investment Advisor agreed that retrospectively from 30 June 2013, the Base Fee payable to the Investment Advisor would reduce to the levels as set out above, which are currently in force.

o Provisions in relation to the termination of the Investment Advisor in the IAA were amended to replace the existing mechanism for early termination which was linked to the relative performance of the Company's shares to UK gilts, with (i) new mechanism allowing for early termination if less than 95% of the Company's assets are available for use for certain periods and the Investment Advisor fails to implement a remediation plan agreed with the Company, and (ii) enhanced rights for the Company to monitor and manage Amber in order to reflect certain changes to the Listing Rules that were effective from 1 August 2013. 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 Investment Advisory Agreement.

Incentive fee payments - partly settled in shares

No incentive fees are payable since the change to the IAA highlighted above. Details of Incentive fee payments that have been part settled through issue of Ordinary Shares by the Company historically are provided below: