Brookfield Infrastructure Corporation — FY2020 Form 20-F
Business context and period. Annual report for the fiscal year ended December 31, 2020, filed February 12, 2021. Figures are in U.S. dollars unless noted. The company owns regulated utility interests in the U.K. and Brazil: an 80%-owned U.K. distribution business and a Brazilian gas transmission business in which it reports 28% economic ownership and 90% voting interest. More than 90% of revenue is supported by regulation or long-term contracts. BIPC was formed in 2019, and the businesses were transferred from Brookfield Infrastructure in March 2020; pre-transfer comparative results are common-control carve-out information, not standalone historical results.
Financial performance and position
| Metric (US$ millions) | 2020 | 2019 | Change / context |
|---|---|---|---|
| Revenue | 1,430 | 1,619 | Down 189; mainly Brazilian real weakness, which reduced U.S.-dollar revenue by 283, partly offset by inflation indexation and U.K. growth. |
| Net income (loss) | (232) | 570 | Shift to loss, driven principally by a 511 non-cash remeasurement loss on exchangeable and class B shares and foreign-exchange effects. |
| Cash from operating activities | 730 | 1,083 | Down 353; currency, interest on intercompany loans and exchangeable shares, and lower U.K. connections revenue contributed. |
| Cash used in investing activities | (399) | (441) | Primarily asset investment, including U.K. connections and smart meters. |
| Cash used in financing activities | (317) | (514) | Included distributions and net borrowing activity. |
| Adjusted EBITDA (non-IFRS, proportionate) | 512 | 555 | Down 43. |
| FFO (non-IFRS, proportionate) | 401 | 432 | Down 31; management says FFO would have risen 4% excluding Brazilian currency weakness. |
| AFFO (non-IFRS, proportionate) | 388 | 415 | Down 27; includes 13 of maintenance capital expenditures in 2020. |
The filing does not provide a clear standalone operating-margin measure. FFO, AFFO, Adjusted EBITDA and proportionate debt are non-IFRS measures and may not be comparable across issuers.
Q4 comparison: Q4 2020 revenue was 375 and net loss 17, versus revenue of 406 and net income of 145 in Q4 2019. Net loss attributable to the partnership was 102 in Q4 2020, compared with income attributable to the partnership of 51 in Q4 2019. Quarterly earnings were materially affected by remeasurement of exchangeable shares classified as liabilities.
Balance sheet and liquidity: At year-end, cash was 192; total assets 9,344; non-recourse borrowings 3,477; loans payable to Brookfield Infrastructure 1,143; exchangeable and class B share liabilities 2,221; total liabilities 9,916; and total equity was negative 572, versus positive equity of 3,277 in 2019. The negative equity primarily reflects the transaction’s capital structure and liability classification of exchangeable securities, rather than being solely an operating loss measure. Related-party loans are payable within ten years and carry an approximately 5% weighted-average interest rate. Reported group-wide liquidity was 3,469, including 192 cash, 171 net undrawn credit facilities, and 3,106 of partnership liquidity; this is not solely BIPC standalone liquidity. The company said liquidity was sufficient for present requirements.
Scheduled non-recourse principal repayments include 1,335 in 2023 and 1,873 beyond 2025. Proportionate net debt was 2,201. Reported net debt to capitalization was 54%, compared with 50% in 2019. The company also had 820 of contractual commitments outstanding, mainly for growth projects.
Material changes, outlook and risks
- Currency and operating trends: The Brazilian real weakened 22% against the U.S. dollar at year-end and 23% on an average-rate basis, reducing translated revenue and asset values. U.K. distribution benefited from inflation indexation and commissioned capital, but lower construction activity reduced connections income.
- COVID-19: Government restrictions delayed construction and reduced U.K. connections and smart-meter activity. Management reported essential operations continued, no material counterparty credit issues to date, and no asset impairment at year-end; future effects remained uncertain.
- Capital and growth: Rate base was 3,485, up from 3,371, after 251 of commissioned capital and 146 of inflation/indexation, substantially offset by foreign exchange and other effects. The three-year capital backlog was 365, with 258 of construction work in progress. The company targets 12%–15% long-term returns on infrastructure assets. The partnership targets a 60%–70% FFO payout ratio and 5%–9% annual distribution growth; these are targets, not guarantees.
- Distribution: After year-end, the partnership approved a 5% increase to a quarterly distribution of 0.51 per unit, or 2.04 annualized, starting March 2021; BIPC approved the corresponding 0.51 quarterly dividend per exchangeable share. The company’s board retains discretion over dividends.
- Unusual accounting: Exchangeable shares are liability-classified under IFRS and remeasured with the unit price. The 511 remeasurement loss drove much of the reported net loss; the shares’ dividend payments are also presented as interest expense. Property, plant and equipment is revalued, with a 215 revaluation gain recorded in other comprehensive income. The audit identified revaluation of property, plant and equipment as a critical audit matter due to valuation assumptions and estimation uncertainty.
- Principal risks: Brazilian customer concentration (one customer generated 942, or about two-thirds of 2020 revenue), foreign exchange, regulation and tariff resets, contract renewal, leverage and refinancing, construction and maintenance capital needs, climate/environmental obligations, cyber risk, and COVID-19 effects. Brookfield controls approximately 79.8% of BIPC voting power, provides management, and may allocate opportunities among affiliated funds; conflicts, related-party costs, and limited ability to terminate the management agreement are material governance considerations. BIPC also discloses guarantees relating to certain Brookfield Infrastructure obligations; their scope and continuing exposure merit review.
Key facts investors should verify
- Reconcile the 511 share remeasurement loss and the 2,221 liability balance to the exchangeable-share terms, valuation and unit price.
- Assess standalone liquidity separately from the 3,469 group-wide figure, including access conditions and Brookfield-related credit facilities.
- Review the 1,143 related-party loan terms, maturity profile, management fees, guarantees and other Brookfield arrangements.
- Test the effects of further Brazilian real depreciation, including on revenue, equity, debt service and distributions.
- Evaluate customer concentration and the long-term contract, regulatory and authorization terms underpinning Brazilian revenue.
- Review the assumptions behind asset revaluation, impairment testing and the reported absence of COVID-19-related impairment.
- Confirm the basis and sustainability of the post-year-end dividend and the partnership’s distribution targets; BIPC does not provide a firm earnings forecast.