Business context and reporting period
Brookfield Infrastructure Corporation (BIPC) filed its annual report for the fiscal year ended December 31, 2021, prepared under IFRS in U.S. dollars. Although the request refers to 2021 Q4, this is an annual filing; it also reports quarterly results. At year-end, BIPC’s operations were regulated utilities in the U.K. and Brazil. Its February 2022 acquisition of an approximately 10% interest in Australian utility AusNet is a subsequent event, not part of 2021 operating results.
BIPC’s exchangeable shares are intended to provide an economic return equivalent to Brookfield Infrastructure Partners’ units. BIPC is externally managed by Brookfield affiliates and reports a consolidated business that includes non-controlling interests.
Key financial metrics
| Metric (US$ millions unless noted) | 2021 | 2020 |
|---|---|---|
| Revenue | 1,643 | 1,430 |
| Net income (loss) | 27 | (232) |
| Net income (loss) attributable to the partnership | (368) | (552) |
| Adjusted EBITDA (non-IFRS) | 581 | 512 |
| FFO (non-IFRS) | 436 | 401 |
| AFFO (non-IFRS) | 415 | 388 |
| Cash from operating activities | 839 | 730 |
| Cash from (used by) investing activities | 326 | (399) |
| Cash used by financing activities | (868) | (317) |
| Cash and cash equivalents at year-end | 469 | 192 |
| Non-recourse borrowings | 3,556 | 3,477 |
| Total assets / total liabilities | 10,086 / 11,510 | 9,344 / 9,916 |
| Total equity | (1,424) | (572) |
Margins are not clearly provided as a reported metric in the filing. The non-IFRS measures FFO, AFFO and Adjusted EBITDA are management-defined and are not standardized; the filing cautions that they may not be comparable across issuers.
BIPC’s share of non-recourse debt was $2.249 billion; after its share of cash, reported net debt was $2.084 billion. Company liquidity was reported as $338 million (including $165 million of cash and $173 million of available credit facilities). Group-wide liquidity was $5.380 billion. The filing also reports two reciprocal $1 billion revolving facilities with Brookfield Infrastructure; no amounts were drawn at year-end.
For Q4 2021, revenue was $414 million, net loss was $165 million and net loss attributable to the partnership was $269 million. Q4 2020 figures were $375 million, $17 million and $102 million, respectively. The filing attributes quarterly net income volatility primarily to remeasurement of exchangeable shares classified as liabilities.
Material changes versus the prior comparable period
- Annual revenue rose $213 million (about 15%) from 2020. Brazil gas transmission revenue increased with inflation indexation; U.K. connections revenue benefited from higher construction activity and recovery from pandemic restrictions. Currency movements partly offset growth, particularly the weaker Brazilian real.
- Adjusted EBITDA increased $69 million and FFO increased $35 million. Benefits from a 24% inflationary tariff adjustment in Brazil, a higher ownership interest in the Brazilian operation, capital commissioned into rate base and stronger U.K. connection activity were partly offset by the smart-meter portfolio sale and higher management fees and interest expense.
- IFRS net income improved to $27 million from a $232 million loss, while the partnership-attributable loss narrowed to $368 million from $552 million. Results include $447 million of remeasurement losses on exchangeable and class B shares in 2021, compared with $511 million in 2020. These shares are classified as liabilities and are remeasured based on the partnership unit price.
- Operating cash flow rose $109 million. Investing cash flow turned positive, primarily reflecting proceeds from the smart-meter sale. Financing cash use increased to $868 million, including non-controlling-interest distributions, acquisition funding and intercompany debt repayments.
- Non-recourse borrowings increased $79 million. BIPC’s attributable net debt declined to $2.084 billion from $2.258 billion, reflecting the company’s share of cash and debt.
- Year-end cash increased to $469 million, including a $1.093 billion demand deposit receivable from Brookfield Infrastructure; this related-party receivable is distinct from the $165 million cash figure used in the company-liquidity calculation.
Outlook, risks and unusual items
- Management targets long-term total returns of 12%–15% per year on infrastructure assets. The partnership’s distribution policy targets a 60%–70% FFO payout ratio and 5%–9% annual distribution growth; these are targets, not guarantees. In February 2022, the partnership and BIPC announced a 6% increase to $0.54 per unit/share quarterly, or $2.16 annualized, beginning in March 2022.
- Brazil’s gas transportation capacity was fully contracted under inflation-adjusted ship-or-pay agreements, with an average remaining term of eight years. Legislation enacted in April 2021 extended pipeline authorizations in perpetuity and enabled an entry-exit market model.
- The U.K. smart-meter portfolio was sold in May 2021 for approximately $820 million gross consideration; BIPC received approximately $340 million net proceeds after debt repayment and working-capital requirements. The sale generated a gain; the filing cites $175 million in its non-IFRS reconciliation and approximately $155 million as BIPC’s share in the financial-statement note.
- A U.K. future tax-rate increase from 19% to 25%, enacted in May 2021, contributed a non-recurring deferred tax expense. Total income tax expense was $405 million, up from $269 million.
- Risks include regulation and tariff resets, foreign-exchange exposure, interest rates and refinancing, capital-intensive operations, environmental and climate matters, supply-chain disruption, COVID-19, cybersecurity and customer concentration. One Brazilian customer generated $1.074 billion, approximately 65% of 2021 consolidated revenue.
- BIPC depends on subsidiaries for cash and has guarantees supporting certain Brookfield Infrastructure debt obligations. Brookfield affiliates manage the company, control its voting structure and receive management fees; the filing describes potential conflicts and notes BIPC cannot independently terminate the Master Services Agreement.
- Property, plant and equipment is valued using Level 3 discounted cash-flow estimates. The auditor identified this revaluation as a critical audit matter because of significant judgment in forecasts, terminal multiples and discount rates. The 2021 revaluation gain was $134 million.
Most important facts for investors to verify
- Reconcile IFRS net income with the partnership-attributable loss and non-IFRS FFO/AFFO, including the effects of exchangeable-share remeasurement and non-controlling interests.
- Review the Brazilian customer concentration, contract terms, tariff indexation and the practical effects of the new gas-market legislation.
- Assess the $1.093 billion related-party demand deposit, its repayment terms and 0.2% interest rate, alongside BIPC’s cash, available facilities, guarantees and debt maturities.
- Evaluate assumptions behind the $134 million property revaluation and the sensitivity of asset values to discount rates, terminal multiples and operating forecasts.
- Confirm the post-year-end AusNet investment, the announced dividend increase and the partnership’s distribution targets in subsequent filings; neither the acquisition nor the 2022 dividend forms part of 2021 results.