Brookfield Infrastructure Partners L.P. annual report, Q4 FY2021

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Brookfield Infrastructure Partners L.P. — 2021 Form 20-F

Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS in U.S. dollars. Brookfield Infrastructure owns global utilities, transport, midstream and data assets; management says approximately 90% of Adjusted EBITDA is supported by regulated or contracted revenues.

Financial and operating performance

  • Revenue: $11.537 billion, up $2.652 billion (30%) from $8.885 billion in 2020. Growth reflected acquisitions—especially Inter Pipeline and the Indian telecom tower business—organic growth and foreign exchange.
  • Profit: IFRS net income was $2.719 billion, versus $904 million in 2020; net income attributable to the partnership was $1.093 billion versus $394 million. Net income per limited partnership unit was $1.74 versus $0.35.
  • Non-IFRS measures: FFO was $1.733 billion ($3.64 per unit), up 19% in total and 16% per unit. AFFO was $1.412 billion, and Adjusted EBITDA was $2.451 billion. Return on invested capital was 13%, compared with 12% in 2020. These measures are management-defined and may not be comparable across issuers.
  • Cash flow: Cash from operating activities was $2.772 billion, up from $2.530 billion. Investing activities used $1.173 billion, compared with $4.609 billion in 2020; financing activities used $995 million, compared with $2.126 billion provided in 2020.
  • Margins and segment measures: Adjusted EBITDA margin was 47% in transport (51% in 2020), 56% in midstream (66%), and 54% in data (51%). Utilities reported a 12% return on rate base, unchanged. Segment results are presented on a partnership-share basis and are not directly equivalent to consolidated IFRS figures.
  • Debt and liquidity: At year-end, consolidated borrowings were $29.253 billion. Partnership-attributable debt was $18.914 billion and net debt was $17.502 billion, up from $15.451 billion and $14.485 billion, respectively. Net debt to capitalization was 59%, versus 61%. Group-wide liquidity was $5.380 billion, including $3.715 billion of corporate liquidity; cash and cash equivalents were $1.406 billion.
  • Distributions: Distributions were $2.04 per unit in 2021, up 5%. The FFO payout ratio was 73% (target: 60–70%) and the AFFO payout ratio was 89%. Management attributed the elevated annual payout partly to timing of capital deployment; the fourth-quarter FFO payout ratio after the Inter Pipeline privatization was 68%.

Material changes and notable items

  • Brookfield Infrastructure acquired control of Inter Pipeline in August 2021 and completed the privatization in October, ending the year with an approximately 59% economic interest. The acquisition contributed materially to assets, revenue and debt; purchase-price allocations remained provisional.
  • Asset sales included the Canadian and U.S. district energy interests, the U.K. smart-meter portfolio and the remaining Chilean toll-road interest. These transactions generated substantial gains; the reconciliation of net income to FFO removes $2.118 billion of gains on dispositions in 2021.
  • Income tax expense rose to $614 million from $291 million. A U.K. future tax-rate increase from 19% to 25% resulted in $147 million of additional charges; a Colombian rate increase from 31% to 35% added $30 million.
  • Property, plant and equipment increased to $38.655 billion from $31.584 billion, reflecting acquisitions, capital additions and revaluation, partly offset by depreciation, dispositions and foreign exchange. Revaluation gains recognized in other comprehensive income were $252 million.
  • Growth capital expenditures were $1.153 billion, up 23%. Maintenance capital expenditures were $321 million. Management estimates annual maintenance capital needs of $375–$415 million across the segments.
  • The company reclassified depreciation and amortization into direct operating costs in 2021 and adjusted comparative presentation; management states the change had no effect on revenue, net income or per-unit earnings.

Outlook, risks and contingencies

  • Outlook: Management targets long-term asset returns of 12–15% annually and annual distribution growth of 5–9%. In February 2022, the board approved a 6% increase in the quarterly distribution to $0.54 per unit, or $2.16 annualized. Management cited expected contributions from commissioned projects and recent acquisitions.
  • Projects and capital deployment: The filing describes approximately $1.7 billion of committed backlog and about $4.5 billion of capital expected to be commissioned over the next two to three years. The Heartland Petrochemical facility was mechanically complete, with commissioning and mid-2022 start-up anticipated. Project timing, costs and completion are uncertain.
  • Near-term developments: After year-end, the partnership acquired an approximate 10% interest in AusNet Services for about $0.5 billion. It also reported an agreement to acquire a 50% interest in Intellihub, subject to closing conditions, and an expected sale of its Australian freehold landlord-port interest, also subject to closing conditions.
  • Debt and covenant risk: The filing reports approximately $41 million of partnership-attributable debt in breach of asset-level financial covenants, less than 1% of attributable debt, and says it expects refinancing or waivers. Separately, the consolidated debt disclosure reports approximately $145 million of covenant-breach debt. Borrowings are exposed to refinancing, interest-rate, covenant and credit-market risk; LIBOR transition adds uncertainty for affected facilities and derivatives.
  • Other risks: Key risks include regulation and tariff resets, commodity demand, foreign exchange, climate and environmental requirements, cyber incidents, supply-chain disruption, construction execution, COVID-19 impacts, customer concentration and access to capital. Brookfield controls the general partner and supplies management services; the filing highlights potential conflicts, limits on fiduciary duties and a management fee equal to 1.25% annually of the defined market-value base.
  • Contingencies and audit: Management reported no material governmental, legal or arbitration proceedings known to be pending or threatened, and no material off-balance-sheet arrangements. Bank and customs guarantees and letters of credit totaled $474 million, generally supported by cash on deposit. The auditor issued unqualified opinions on the financial statements and internal controls; the internal-control assessment excluded Inter Pipeline, acquired during 2021.

Important facts for investors to verify

  • Reconcile IFRS earnings and operating cash flow with FFO, AFFO, Adjusted EBITDA and the large disposition gains; confirm how much of the earnings increase is recurring.
  • Review Inter Pipeline’s final purchase-price allocation, integration results, acquired debt and the economics of exchangeable shares and units issued as consideration.
  • Confirm the status of covenant waivers or refinancing for the reported covenant-breach debt, and monitor maturities, interest costs and floating-rate exposure.
  • Assess whether liquidity, project commissioning and asset-sale proceeds support distributions and the stated 5–9% distribution-growth target; note the 2021 annual FFO payout ratio exceeded target.
  • Track completion, cost and commissioning of the Heartland facility and other committed growth projects, along with the status of post-year-end transactions.
  • Evaluate the assumptions behind IFRS asset revaluations and impairment testing, and the implications of the disclosed Brookfield management fee, incentive distributions and related-party conflicts.