Brookfield Infrastructure Partners L.P. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; this is an annual report, not standalone fourth-quarter results. Amounts are U.S. dollars unless noted. Financial statements use IFRS. FFO, AFFO, Adjusted EBITDA, and proportionate debt are non-IFRS measures and may not be comparable across issuers.
Business context
Brookfield Infrastructure owns and operates global utilities, transport, energy, and data infrastructure businesses. Management says approximately 95% of Adjusted EBITDA is supported by regulated or contracted revenues. The partnership depends on cash distributions from subsidiaries and investments to fund its own obligations and distributions.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Revenue | $6.597 billion | $4.652 billion | Up 42%; acquisitions and organic growth drove gains, partly offset by foreign exchange. |
| Net income | $650 million | $806 million | Down 19%; 2018 included a $209 million after-tax gain on sale of an electricity transmission investment. |
| Net income attributable to partnership | $233 million | $410 million | Down; reported basic and diluted net income per limited partnership unit was $0.07 versus $0.59. |
| FFO | $1.384 billion; $3.40/unit | $1.231 billion; $3.11/unit | Total up 12%; per-unit FFO up 9%. |
| AFFO | $1.096 billion | $982 million | Up 12%; after $288 million of maintenance capital expenditure. |
| Adjusted EBITDA | $1.891 billion | $1.613 billion | Up 17%. |
| Operating cash flow | $2.143 billion | $1.362 billion | Higher with acquisitions and organic growth; prior year included tax paid on the Chilean transmission sale. |
| Cash from investing activities | $(11.372) billion | $(5.564) billion | Higher acquisition and investment deployment. |
| Cash from financing activities | $9.542 billion | $4.418 billion | Reflects greater financing needs, including capital from non-controlling interests and debt. |
| Cash and cash equivalents | $827 million | $540 million | At year end. |
| Corporate borrowings | $2.475 billion | $1.993 billion | At year end. |
| Non-recourse borrowings | $18.544 billion | $13.113 billion | At year end; primarily increased with acquisitions and growth. |
| Proportionate net debt | $12.121 billion | $10.098 billion | Non-IFRS measure; proportionate net debt-to-capitalization was 57%, versus 55%. |
| Group-wide liquidity | $2.967 billion | $3.377 billion | Management said liquidity was sufficient for present requirements. |
| Distributions per unit | $2.01 | $1.88 | 2019 FFO payout ratio 74% and AFFO payout ratio 94%. |
The reported 2019 FFO payout ratio exceeded the 60–70% target, which management attributed to the lag between the July equity raise and deployment of proceeds and depreciation of the Brazilian real; excluding those factors, management estimated a 70% ratio. Segment Adjusted EBITDA increased year over year in utilities ($759 million), transport ($722 million), energy ($514 million), and data infrastructure ($175 million). Transport and energy Adjusted EBITDA margins were 52% and 51%, respectively; data infrastructure margin was 52%.
Material changes and notable items
- Revenue growth reflected recent acquisitions, including a gas pipeline in India, North American residential energy infrastructure, data businesses, and a full-year contribution from prior acquisitions. Foreign exchange reduced reported revenue by $305 million.
- Energy and data infrastructure grew substantially: segment FFO rose to $412 million from $269 million and to $136 million from $77 million, respectively. Utilities FFO was broadly flat at $577 million; transport FFO rose to $530 million from $518 million.
- Acquisitions and growth investment expanded the balance sheet: total assets rose to $56.3 billion from $36.6 billion. Acquisition-related goodwill increased to $6.553 billion from $3.859 billion.
- In 2019, the partnership raised $825 million gross from a unit offering and concurrent Brookfield placement, issued C$500 million of medium-term notes, and completed asset sales including an Australian district energy business and a partial interest in Chilean toll roads.
- IFRS 16 adoption added $1.2 billion of right-of-use assets and lease liabilities. It reduced 2019 net income by $31 million, while increasing proportionate EBITDA by $45 million and FFO by $20 million.
- In February 2020, the partnership approved a 7% increase in annual distributions to $2.15 per unit ($0.5375 quarterly), starting with the March 2020 payment.
Outlook, risks, and contingencies
Management targets long-term annual asset returns of 12–15%, distribution growth of 5–9% annually, and a distribution payout ratio of 60–70% of FFO. Its stated strategy is to grow cash flows through acquisitions, organic capital projects, and recycling mature assets into higher-return investments. It reported approximately $1.5 billion of committed backlog and $2.2 billion of capital expected to be commissioned over the following two to three years; completion, timing, and returns are not assured. Management anticipated acquisitions closed during 2019 would begin contributing meaningfully to FFO in early 2020.
- Key risks include significant leverage at operating entities, refinancing and interest-rate exposure, currency movements, capital-intensive operations, regulatory and political change, commodity demand, construction execution, customer concentration, and extreme weather, environmental, and cyber risks.
- The filing specifically identifies a Brazilian gas transmission operation’s dependence on one customer and flags a draft Brazilian gas distribution tariff issued in December 2019; the partnership was in discussions with the regulator and could not assure a favorable outcome.
- The annual report discusses the emerging coronavirus outbreak and states that its impact was difficult to predict. It also notes Brexit-related uncertainty and the transition away from LIBOR.
- Group-wide liquidity fell from $3.4 billion to $3.0 billion, mainly due to acquisition and growth-capital deployment. Operating cash flow did not cover the year’s investing outflows; financing flows were a major funding source.
- Contractual cash commitments were $3.801 billion, in addition to scheduled debt principal and interest and lease obligations. Guarantees and letters of credit were also outstanding; litigation and indemnification exposure cannot be fully quantified in the filing.
- Brookfield owns approximately 29.4% on an assumed exchange basis, controls the general partner, provides management services, and receives a base fee and incentive distributions. The filing describes extensive potential conflicts and limited unitholder voting rights.
The auditor issued an unqualified opinion on the IFRS financial statements and internal controls. Internal controls for certain recently acquired businesses—representing approximately 30% of assets, 38% of partnership capital, 4% of revenue, and 15% of net income—were excluded from management’s assessment and the auditor’s internal-control audit.
Important facts for investors to verify
- Reconcile reported IFRS earnings with FFO, AFFO, Adjusted EBITDA, and proportionate debt; confirm the definitions and adjustments used.
- Review acquisition performance and integration, including G&W, the Indian gas pipeline, and recent data infrastructure investments, as well as provisional purchase-price allocations.
- Assess debt maturities, asset-level refinancing capacity, interest-rate hedges, and whether available liquidity remains adequate after planned acquisitions and capital projects.
- Track the FFO payout ratio against management’s target and confirm that distribution growth is supported by recurring cash generation rather than asset sales or additional financing.
- Monitor the Brazilian tariff matter, customer concentration, foreign-exchange effects, and the timing and proceeds of announced asset sales and acquisitions.
- Consider the valuation uncertainty inherent in revalued property, plant, and equipment: the auditor identified this and the recoverability of equity-accounted investments as critical audit matters.
- Review Brookfield-related fees, incentive distributions, governance protections, and conflicts, alongside the partnership’s limited unitholder consent rights.