Despite foreign exchange fluctuations, which shaved about $75 million off earnings, Brookfield Infrastructure Partners (BIP) posted “record results” in 2015, the Toronto-based firm said in a statement on Wednesday.
“The increase in net income is attributable to higher earnings generated predominantly from our utilities and transport operations, the gain on the sale of our New England electricity transmission operation,” BIP said referring to the sale of Cross Sound Cable, a 39-kilometre submarine transmission cable linking Connecticut to Long Island, New York, which Brookfield sold to Argo Infrastructure Partners in April.
Brookfield did not disclose the deal's financial details but in his Letter to Unitholders, BIP chief executive Sam Pollock said the sale of Cross Sound Cable generated an internal rate of return of around 30 percent.
The firm has also launched two other sale processes as part of its ‘capital recycling programme’, which it expects will generate more than $300 million in net proceeds, Pollock stated in the letter without providing details. One of them is already complete: Great Lakes Power, BIP’s electricity transmission business in Ontario, was sold to Hydro One for about C$370 million (€241.94 million; $268.74 million) last week.
Funds from operations (FFO) – BIP’s key measure defined as net income excluding the impact of depreciation and amortisation, deferred income taxes, breakage and transaction costs and other non-cash items – totalled $808 million in 2015, an increase of 11.6 percent year on year.
The utilities segment generated FFO of $387 million, a 5 percent rise compared to the previous year, thanks in part to Brookfield Utilities UK, Brookfield’s UK regulated distribution business. According to Pollock, the UK business continues to outperform expectations “and the outlook is exceptional.”
“In 2016, we will be increasing our offering to six products with the addition of smart meters,” Pollock said in his letter to unitholders, adding that the firm will soon sign an agreement to acquire up to 700,000 smart meters over the next two years, an investment of around $220 million, with a view to participating in the UK’s government-mandated smart meter rollout programme.
BIP’s transportation segment, which was up 1.5 percent compared to 2014, generating FFO of $398 million, benefited from Brookfield’s rail operations in Australia, Brookfield Rail, as well as from VLI, the firm’s Brazilian rail and logistics business.
Brookfield’s energy platform experienced a 32.4 percent jump in FFO year on year, generating $90 million in 2015, mainly due to organic growth initiatives.
Last December, BIP and Kinder Morgan increased their respective stakes in the Natural Gas Pipeline Company of America (NGPL), one of the largest interstate gas pipeline systems in the US, to 50 percent each. NGPL is in the process of expanding its Gulf Coast mainline system to increase its southbound capacity.
“We have received considerable interest regarding our Gulf Coast reversal project that enables the southbound flow of natural gas to delivery points in Texas and Louisiana where several LNG projects and new hubs are developing,” Pollock stated in the letter. “Our pipeline is also well positioned to connect with new natural gas infrastructure being developed in Mexico to access low cost US shale gas production,” he added.
Looking ahead, BIP expects the market to remain choppy in 2016. The firm’s primary focus will be completing the various strategic initiatives it has announced, which once realised will significantly expand its transportation and energy segments. At the same time it will focus on its capital recycling program, looking to sell mature assets depending on private market pricing.
Pollock referred to Brookfield’s attempt to acquire Australian port operator Asciano, reiterating that the Australian Competition and Consumer Commission is due to announce a decision on both Brookfield’s and Qube’s rival bid by February 18. He said that Brookfield would consider revising its proposal to satisfy the Commission’s concerns even agreeing to reduce Brookfield’s participation in the transaction.
One strategic initiative the firm has decided to abandon is the acquisition of a 25 percent stake in Brazil’s Invepar, a toll road, airport and urban mobility company, from Brazilian construction company OAS, which filed for bankruptcy protection in 2015.
Brookfield could not reach an acceptable agreement with various stakeholders, Pollock explained in his letter but added “our due diligence effort has not gone to waste.” Instead, BIP will fund about R$500 million (€115.76 million $128.36 million) of a R$2 billion shareholder loan directly into Invepar.
“The loan is indexed to inflation, bears interest at approximately 20 percent and is repayable with any asset sale proceeds,” Pollock stated.