BIPH

Business Context and Reporting Period

Company: Brookfield Infrastructure Partners L.P.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2013
Accounting Basis: International Financial Reporting Standards (IFRS)
Business Overview: The company owns and operates a globally diversified portfolio of high-quality infrastructure assets across three primary platforms: Utilities (regulated terminals, electricity transmission, distribution), Transport (railroads, toll roads, ports), and Energy (gas transmission, storage, distribution, district energy). The partnership is managed by Brookfield Asset Management under a Master Services Agreement.

Key Financial Metrics

Note: Net income includes a $275 million impairment charge and results from discontinued timber operations. FFO and AFFO are non-IFRS measures used by management to assess operating performance.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 20% to $1.826 billion, driven by acquisitions in the second half of 2012 (UK regulated distribution, district energy, Chilean toll roads) and the completion of the Australian railroad expansion.
• Net Loss: The partnership reported a net loss of $58 million compared to net income of $106 million in 2012. This was primarily due to a $275 million impairment charge at the North American gas transmission operation and losses from investments in associates.
• FFO Growth: FFO increased 48% to $682 million ($3.30 per unit), reflecting strong operational performance despite the impairment charge.
• Asset Base Reduction: Total assets decreased by $4.0 billion to $15.7 billion, primarily due to the sale of the timber business (reducing assets by ~$4.4 billion) and foreign currency translation losses, partially offset by new investments.
• Debt Reduction: Corporate borrowings decreased significantly to $377 million as proceeds from asset sales were used to repay the corporate credit facility. Non-recourse borrowings also declined due to asset dispositions and currency effects.
• Liquidity Improvement: Group-wide liquidity increased to $2.58 billion from $763 million, bolstered by asset sale proceeds, equity issuances, and an upsizing of the corporate credit facility.

Guidance, Outlook, and Risks

• Distribution Policy: Management targets a payout ratio of 60% to 70% of FFO. In March 2014, the quarterly distribution was increased by 12% to $0.48 per unit. The company targets 5% to 9% annual distribution growth.
• Strategic Outlook: The company aims for a total return of 12% to 15% per annum. Growth will be driven by organic expansion of rate bases, acquisitions, and capital reinvestment. The company recently announced plans to invest in North American container terminals and Brazilian rail/port logistics.
• Key Risks:
  • Regulatory Risk: Operations are subject to economic regulation; changes in policy or rate reviews could impact cash flows.
  • Commodity Risk: Certain operations (e.g., Australian railroad, gas transmission) are linked to commodity demand and prices.
  • Foreign Currency: Significant exposure to AUD, BRL, CLP, and GBP; depreciation against the USD impacts reported results.
  • Brookfield Relationship: The company relies on Brookfield for management services and acquisition sourcing. Conflicts of interest exist, though a conflicts protocol is in place. Brookfield holds approximately 28.1% of the partnership.
  • Capital Markets: Ability to refinance debt and access equity markets is critical for growth and maintaining liquidity.

Investor Verification Checklist

• Impairment Details: Verify the specific assumptions and future cash flow projections used for the $275 million impairment charge at the North American gas transmission business.
• Timber Sale Proceeds: Confirm the final net proceeds from the sale of U.S. and Canadian timberlands and the allocation of these funds toward debt reduction versus new investments.
• Foreign Exchange Sensitivity: Assess the impact of currency fluctuations on future earnings, given the significant portion of assets in Australia, Brazil, and Chile.
• Debt Maturity Profile: Review the schedule of principal repayments for non-recourse debt to ensure alignment with projected cash flows from regulated assets.
• Related Party Fees: Monitor the base management fee (1.25% of market value) and incentive distributions paid to Brookfield to understand their impact on distributable cash flow.
• Regulatory Rate Cases: Track upcoming regulatory reviews for key assets, particularly in the UK, Chile, and Ontario, which could alter revenue requirements.