BIPH

Business Context and Reporting Period

Company: Brookfield Infrastructure Partners L.P.
Filing Type: Form 20-F (Annual Report)
Period Ended: December 31, 2016
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: The company owns and operates a globally diversified portfolio of high-quality infrastructure assets across four segments: Utilities, Transport, Energy, and Communications Infrastructure. Approximately 90% of Adjusted EBITDA is supported by regulated or contracted revenues. Brookfield Asset Management serves as the Service Provider and holds an approximate 29.5% interest in the partnership on a fully exchanged basis.

Key Financial Metrics

Per Unit Data (2016): Net Income ($1.13), FFO ($2.72), AFFO ($2.22 implied), Adjusted Earnings ($1.66), Distributions ($1.55).

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 14% to $2.115 billion, driven by acquisitions (Australian ports, Indian/Peruvian toll roads, North American gas storage) and organic growth in utilities and energy segments. This was partially offset by a $96 million foreign exchange impact and asset dispositions.
• Profitability: Net income attributable to the partnership rose 59% to $474 million. Adjusted EBITDA increased 12% to $1.322 billion.
• Balance Sheet: Total assets grew 20% to $21.3 billion due to acquisitions and revaluation gains. Non-recourse borrowings increased 25% to $7.3 billion, primarily due to debt assumed in acquisitions.
• Liquidity: Group-wide liquidity improved significantly to $3.9 billion, up from $2.4 billion, supported by a $750 million equity issuance in December 2016.
• Capital Structure: Completed a three-for-two unit split in September 2016. Issued Series 5 Preferred Units in August 2016 and common units in December 2016.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Distribution Policy: Target payout ratio of 60-70% of FFO. Approved an 11% increase in annual distribution to $1.74 per unit (43.5 cents quarterly) effective March 2017.
• Growth Strategy: Focus on organic growth and acquisitions to achieve a total return of 12-15% per annum. Plans to commission over $1 billion of capital backlog in the next 12-18 months.
• Capital Recycling: Anticipates generating $1.5 billion to $2.0 billion from asset sales over the next few years to fund new investments.
• Market View: Management views current market conditions in Brazil and Mexico as potential long-term investment opportunities despite short-term economic weakness.

Key Risks & Contingencies:

• Regulatory Risk: Operations are subject to economic regulation; rate resets (e.g., Australian coal terminal) can reduce cash flows.
• Foreign Exchange: Significant exposure to non-USD currencies; fluctuations can materially impact reported results.
• Acquisition Execution: Pending transactions (e.g., NTS Acquisition in Brazil, Reliance Communications towers in India) are subject to regulatory approval and closing conditions.
• Brookfield Relationship: Dependence on Brookfield Asset Management for management services and deal sourcing; potential conflicts of interest exist.
• Commodity & Volume Risk: Certain assets (rail, coal terminal) rely on commodity demand, though contracts often include take-or-pay provisions.

Investor Verification Checklist

• NTS Acquisition Status: Verify the regulatory approval status and closing timeline for the $5.3 billion acquisition of Nova Transportadora do Sudeste (NTS) in Brazil.
• Foreign Exchange Hedging: Review the effectiveness of hedging strategies given the significant depreciation of foreign currencies against the USD in 2016.
• Capital Backlog Deployment: Monitor the execution of the $2.4 billion capital backlog to ensure projects are commissioned on time and within budget.
• Regulatory Resets: Track upcoming regulatory reviews for key assets, particularly in Australia (coal terminal) and South America (toll roads/transmission), to assess potential margin impacts.
• Debt Maturities: Review the schedule of non-recourse debt maturities, noting that 57% of total net debt is due beyond 5 years, but significant repayments are due in 2017 ($1.3 billion total borrowings).