BIPH

Business Context and Reporting Period

Company: Brookfield Infrastructure Partners L.P.
Filing Type: Form 20-F (Annual Report)
Period Ended: December 31, 2014
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 primary segments: Utilities, Transport, Energy, and Communications Infrastructure. Operations are located in North and South America, Australia, and Europe. The Company is managed by Brookfield Asset Management (Brookfield) under a Master Services Agreement.

Key Financial Metrics

Per Unit Data (2014): Net Income of $0.67; FFO of $3.45; Distributions of $1.92.
Debt Profile: Total proportionate debt was $7,354 million with an average term of 10 years. The net debt-to-capitalization ratio was 59%.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 5% to $1,924 million, driven by acquisitions in U.S. district energy, UK regulated distribution, Australian rail, and Colombian distribution. This was partially offset by a $54 million negative impact from foreign currency depreciation (AUD, CLP, COP).
• Profitability: Net income attributable to the partnership improved significantly from a loss of $58 million in 2013 to $184 million in 2014. This reversal was largely due to the absence of a $275 million impairment charge on the North American gas transmission business recorded in 2013 (classified as discontinued operations).
• FFO Growth: FFO increased 6% to $724 million, with per-unit FFO growing 5% to $3.45. Growth was driven by organic performance and new investments, offset by asset sales.
• Balance Sheet: Total assets increased by $813 million due to new acquisitions ($1,449 million) and revaluation gains ($519 million), partially offset by foreign currency translation losses ($1,145 million).
• Discontinued Operations: The North American natural gas transmission business was classified as discontinued in Q4 2014 following a plan to dispose of the interest. Timber operations were sold in 2013.

Guidance, Outlook, and Risks

Management Commentary & Outlook:

• Distribution Policy: The Board approved a 10% increase in the quarterly distribution to $0.53 per unit, effective March 2015. The target payout ratio is 60% to 70% of FFO (2014 actual was 62%).
• Growth Targets: The Company targets a total return of 12% to 15% per annum and 5% to 9% annual distribution growth.
• Capital Allocation: Growth capital expenditures were $611 million in 2014. The Company intends to fund recurring growth capex with operating cash flow and debt, while evaluating equity issuance for large-scale projects.

Key Risks & Contingencies:

• Foreign Currency: Significant exposure to AUD, CLP, BRL, and CAD. Depreciation of these currencies against the USD negatively impacted reported results by $54 million in revenue and $18 million in operating expenses.
• Regulatory & Political: Operations are subject to economic regulation in multiple jurisdictions. Risks include changes in government policy, nationalization, and regulatory decisions affecting rate bases.
• Commodity Exposure: Certain operations (e.g., Australian rail, coal terminal) rely on demand for commodities like iron ore and coal. Long-term downturns could impact financial performance.
• Brookfield Relationship: The Company relies on Brookfield for management services and acquisition sourcing. Conflicts of interest exist, and Brookfield has no fiduciary duty to act in the best interests of unitholders under the Master Services Agreement.

Investor Verification Checklist

• Discontinued Operations: Verify the status and expected timeline for the sale of the North American natural gas transmission business.
• Foreign Exchange Sensitivity: Assess the impact of continued USD strength on future reported earnings and cash flows from non-USD assets.
• Debt Maturities: Review the schedule of principal repayments, noting that 30% of debt is floating rate (though hedged to fixed via swaps).
• Acquisition Pipeline: Confirm the closing status of the TDF (French tower infrastructure) acquisition announced in November 2014.
• Related Party Fees: Monitor the base management fee (1.25% of market value) and incentive distributions paid to Brookfield, which increased to $107 million in 2014.