Business context and reporting period
Brookfield Infrastructure Partners L.P. filed this Form 20-F for the fiscal year ended December 31, 2017. It owns interests in utilities, transport, energy and communications infrastructure across the Americas, Europe and Asia-Pacific. The financial statements are prepared under IFRS and report U.S. dollars unless noted. This is an annual filing; it does not provide separate fourth-quarter results.
Financial performance and position
Amounts below are in U.S. dollars unless indicated. FFO, AFFO, Adjusted EBITDA and proportionate net debt are non-IFRS measures defined by the partnership and may not be comparable with other issuers’ measures.
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $3.535 billion | $2.115 billion |
| Net income, consolidated | $574 million | $528 million |
| Net income attributable to the partnership | $125 million | $487 million |
| Basic and diluted earnings per limited partnership unit | $(0.04) | $1.13 |
| FFO / FFO per unit | $1.170 billion / $3.11 | $944 million / $2.72 |
| AFFO | $941 million | $771 million |
| Adjusted EBITDA | $1.564 billion | $1.322 billion |
| Cash from operating activities | $1.481 billion | $753 million |
| Cash used in investing activities | $5.721 billion | $1.058 billion |
| Cash from financing activities | $3.814 billion | $899 million |
Revenue increased 67%; management attributed growth mainly to acquisitions, particularly Brazilian regulated gas transmission, and organic growth. Consolidated net income rose 9%, but income attributable to the partnership fell sharply and per-unit earnings turned negative. Management cited non-cash foreign-exchange hedge movements and $190 million of prior-year non-recurring gains attributable to the partnership. The filing does not provide a clear single operating-margin figure.
At December 31, 2017, total assets were $29.477 billion, cash and cash equivalents $374 million, total liabilities $16.003 billion, corporate borrowings $2.101 billion and non-recourse borrowings $8.063 billion. Proportionate net debt was $9.628 billion, up from $7.722 billion; the filing reports proportionate net debt-to-capitalization of 56%. Separately, a consolidated financial-statement note reports net debt-to-capitalization of 42%, using a different calculation basis.
Group-wide liquidity was $2.865 billion, down from $3.895 billion, including corporate cash, committed facilities, cash retained in businesses and subsidiary facility availability. The partnership reported a 4.6% weighted-average cash interest rate and seven-year average debt term. Its FFO payout ratio was 68% (target range 60–70%); AFFO payout ratio was 84%. Distributions were $1.74 per unit for 2017.
Material changes versus the prior comparable period
- The April 2017 NTS acquisition added a Brazilian regulated gas transmission business: the partnership acquired an effective 28% economic interest for approximately $1.6 billion, including $1.306 billion cash and $262 million deferred consideration. Through voting arrangements, it obtained control and consolidated NTS.
- Revenue growth also reflected higher volumes and tariffs at toll roads, a full-year contribution from the Australian ports acquisition, and growth in U.K. regulated distribution and district energy. The Australian regulated terminal’s rate reset reduced its segment contribution.
- Corporate borrowings increased by $1.099 billion, principally from credit-facility draws and debt issuance; non-recourse borrowings increased by $739 million. Cash declined by $412 million.
- Cash from operations nearly doubled, while investing cash outflow rose substantially, principally due to acquisitions, including NTS. The partnership raised $992 million net through unit issuance and $220 million through preferred-unit issuance.
- Utilities segment FFO rose to $610 million from $399 million, transport to $532 million from $423 million, and energy to $209 million from $175 million. Communications infrastructure FFO was $76 million versus $77 million.
Outlook, management commentary and risks
The board approved an 8% increase in the annual distribution to $1.88 per unit, or $0.47 quarterly, beginning with the March 2018 payment. Management targets annual distribution growth of 5–9% and long-term asset returns of 12–15%; these are targets, not guarantees. The partnership planned to commission more than $650 million of backlog over the next 12–18 months, continued Brazilian transmission development, and expected $1.5–$2.0 billion of asset-sale proceeds over the next few years. It reported approximately $2.1 billion of committed backlog and approximately $2.6 billion of capital expected to be commissioned over two to three years.
A December 2017 agreement to sell the partnership’s 27.8% interest in Chilean electricity transmission for $1.3 billion remained subject to closing conditions, third-party consents and regulatory approvals, with closing expected in the first half of 2018. Other disclosed transactions, including an agreement to acquire a stake in a Colombian gas distribution business and an Indian toll-road acquisition, were also subject to conditions or approvals.
Key risks include leverage and refinancing, foreign-exchange and interest-rate exposure, regulatory resets, commodity-linked demand, construction delays and cost overruns, customer concentration and contract renewal, political and environmental risks, and the dependence on Brookfield for management and sourcing opportunities. The filing states that one customer generated $938 million of 2017 revenue, more than 10% of total revenue. Brookfield’s affiliated service provider received a $230 million base management fee in 2017; the agreement also provides for incentive distributions, and the filing describes potential conflicts of interest and limits on Brookfield’s duties and liability.
Other notable disclosures: subsidiaries had $106 million of letters of credit outstanding at year-end; contractual commitments were $1.448 billion. The partnership said it had no material off-balance-sheet arrangements. Management and the auditor reported effective internal control over financial reporting, but NTS—acquired in 2017 and representing 27% of revenue and 86% of net income—was excluded from the controls assessment and related audit scope. Deloitte issued an unqualified opinion on the IFRS financial statements and internal controls.
Important facts for investors to verify
- Whether the Chilean transmission sale closed on the expected terms and timing, and how proceeds were deployed.
- NTS’s sustainable cash contribution, deferred payment obligations, customer concentration and integration results; reconcile its reported revenue and net income contribution with partnership-attributable earnings.
- The basis and reconciliation of the 56% proportionate versus 42% consolidated net-debt-to-capitalization measures, and liquidity after acquisition and growth spending.
- How much of FFO and AFFO growth is organic and recurring versus acquisition-related, foreign exchange, hedge marks and non-recurring items; review the non-IFRS reconciliations.
- Whether the distribution increase and 5–9% growth target remain supported by cash generation, maintenance needs, debt service and the stated payout targets.
- Execution and funding of the capital backlog, transaction approvals, customer and contract risks, and the terms and oversight of Brookfield fees and related-party arrangements.