MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED SGX Quarterly Report for the quarter and year ended 31 December 2013
CONTENTS REPORT SUMMARY... 1 REPORT SUMMARY PERFORMANCE REVIEW OF MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED... 4 INTRODUCTION REVIEW OF NET INCOME ON AN ADJUSTED BASIS FINANCIAL STATEMENTS FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2013... 10 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME EARNINGS PER SHARE STATEMENTS OF CHANGES IN EQUITY CHANGES IN SHARE CAPITAL CONSOLIDATED STATEMENT OF CASH FLOWS RECONCILIATION OF NET INCOME ON AN ADJUSTED BASIS TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME MANAGEMENT REVIEW: FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2013... 20 REVIEW OF REVENUE AND EXPENSES FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2013 REVIEW OF NET ASSETS AND STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 INVESTMENT PORTFOLIO DISCUSSION OUTLOOK CONFIRMATION OF THE BOARD PURSUANT TO RULE 705(5) OF THE LISTING MANUAL DISCLAIMERS
REPORT SUMMARY MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 1
REPORT SUMMARY KEY HIGHLIGHTS Net income of S$14.2 million Dividend declared of 0.8 Singapore cents per share (cps) for the six months to 31 December 2013 FINANCIAL HIGHLIGHTS Macquarie International Infrastructure Fund Limited (MIIF or Company) reported net income on an adjusted basis (net income) of S$14.2 million for the 12 months ended 31 December 2013, down S$43.2 million from the prior corresponding period. Total income from investments was S$20.0 million (2012: S$68.2 million). The reduction is due to the cessation of distribution income from Taiwan Broadband Communications (TBC) and Changshu Xinghua Port (CXP) following the disposal of these businesses. MIIF s NAV as at 31 December 2013 was S$170.7 million 1 (or 14.8 cps). It should be noted that no provision for a potential success fee to be earned by MIIF s manager has been made as at 31 December 2013 (refer to footnote 1 for more details). OPERATIONAL HIGHLIGHTS Operational highlights for Hua Nan Expressway (HNE) are as follows: Total traffic volumes of 18.2 million for the quarter ended 31 December 2013 was 19.1% higher than the prior corresponding period due to favourable traffic drivers, such as the continued positive impact of Guanghe Expressway, a complementary feeder road which opened in December 2011, on-going driver recognition of HNE s lower toll rates following the toll rate standardisation and the partial closure of Xinguang Expressway. HNE s revenue for the quarter was RMB139.6 million, 18.4% higher than prior corresponding period (two periods with the same toll rates). Overall, HNE s revenue of RMB517.5 million for the 12 months to 31 December 2013 was 3.0% higher than the prior corresponding period driven by an 18.3% increase in traffic for the period. HNE achieved higher revenue despite the offsetting impact of tolling revisions that came into effect on 1 June 2012 across Guangdong Province and the nationwide directive allowing passenger vehicles to travel for free during the Chinese New Year, Qing Ming Festival, Labour Day and National Day holidays. INITIATIVES UPDATE Reference is made to the outcome of MIIF s strategic review announced on 18 December 2012, noting that significant progress has been made on the implementation of the initiatives identified by the Board. The initiatives implemented include: Divestment of MIIF s 47.5% interest in TBC via an initial public offering of Asian Pay Television Trust on the SGX-ST on 29 May 2013. As a result of the divestment, MIIF distributed the proceeds as a return of capital of S$522.0 million (or 45.4 cps) to MIIF s shareholders; Divestment of MIIF s 38.0% effective interest in CXP to a wholly-owned subsidiary of Pan-United Infrastructure Pte Ltd and Petroships Investment Pte Ltd on 25 September 2013. As a result of the divestment, MIIF distributed the proceeds as a return of capital of S$111.5 million (or 9.7 cps) to MIIF s shareholders; and 1 Reference is made to the amended management fee arrangement with MIIF s manager, MIMAL, which was approved by MIIF s shareholders at the MIIF Annual General Meeting on 8 March 2013. MIMAL will be entitled to a success fee when a certain level of divestment proceeds is achieved from the successful divestment of MIIF s businesses. However, since the conditions for MIIF to pay the success fee have not been met, there is no present obligation and accordingly a provision for a potential success fee has not been made as at 31 December 2013. Refer to note K(x) on page 40 PAGE 2 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
Divestment of MIIF s 100% interest in Miaoli Wind to Challenger Emerging Market Infrastructure Fund Pte Ltd for a total cash consideration of NT$2.25 million (S$94,768) 2. MIIF is currently focused on divesting HNE in a timely manner whilst maximising proceeds for MIIF s shareholders. OUTLOOK HNE is expected to continue benefitting from favourable traffic drivers, such as the continued positive impact of Guanghe Expressway, a complementary feeder road which opened in December 2011, and on-going driver recognition of HNE s lower toll rates following the toll rate standardisation in Guangdong province. MIIF will continue to pursue the divestment of HNE and in accordance with MIIF s continuous disclosure obligations; MIIF will keep the market appropriately informed of further developments. DIVIDEND MIIF has declared a final dividend of 0.8 Singapore cents per share for the six months to 31 December 2013. The exdividend date is 10 March 2014 with the final dividend expected to be paid on 21 March 2014. 2 S$/NT$ exchange rates are based on a rate of 23.7421 as at 19 June 2013 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 3
PERFORMANCE REVIEW OF MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 4 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
INTRODUCTION ABOUT MIIF Macquarie International Infrastructure Fund Limited (MIIF or the Company), a Bermuda-registered mutual fund company, is an Asia-listed owner and operator of private infrastructure businesses. MIIF was the first infrastructure company to list on the Main Board of the Singapore Exchange Securities Trading Limited (SGX-ST). MIIF listed on the SGX-ST on 27 May 2005 and has approximately 7,900 shareholders. MIIF is managed by Macquarie Infrastructure Management (Asia) Pty Limited (MIMAL), a subsidiary of Macquarie Limited. As at 31 December 2013, MIIF s portfolio comprises the following: Investment Portfolio Percentage Ownership (%) Percentage of Portfolio by Value (%) Hua Nan Expressway (HNE) 81.0% 90.6% Cash and cash equivalents N/A 9.4% MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 5
DIVIDEND POLICY MIIF intends to pay out as ordinary dividends to shareholders the majority of normal distributions that it receives or expects to receive from its investments and not to retain significant cash balances in excess of prudent reserves. Prudent reserves are required to ensure that MIIF remains solvent and that, amongst other things, operating costs such as finance costs, audit fees, registry fees and hedging costs are adequately provided for. MIIF has historically declared and paid regular semi-annual cash dividends on all outstanding shares. However, investors should note the distribution policy statement on page 22. As a Bermudian incorporated company, MIIF is governed by the Bermuda Companies Act 1981. The Bermuda Companies Act 1981 allows companies that are governed by it to declare and pay dividends to shareholders in excess of accounting profits and reserves. Consequently, it is possible that the dividends that MIIF s Board of Directors (the Board) intends to declare and pay for the period may exceed the total of MIIF s retained earnings and accounting profits generated for the period. Such situations may arise as a result of unrealised losses that MIIF is required to recognise due to movements in its foreign exchange rates, changes in the value of MIIF s unlisted securities and other business specific and general economic factors. These unrealised losses do not impact MIIF s cash flow and its ability to pay dividends in the current period. DIVIDENDS The Board has declared a final dividend of 0.80 cents per ordinary share (cps) for the half year ended 31 December 2013 (the Final Dividend). For the half-year ended 31 December 2013 For the half-year ended 31 December 2012 Name of Dividend Final Final Dividend Rate Ordinary 0.80 cents per ordinary share 2.75 cents per ordinary share Dividend Rate Special - 3.00 cents per ordinary share Announcement Date 27 February 2014 21 January 2013 Ex-dividend Date 10 March 2014 01 February 2013 Book Closure Date 12 March 2014 05 February 2013 Date Payable 21 March 2014 13 February 2013 Breakdown of Total Annual Dividend For the year ended 31 December 2013 For the year ended 31 December 2012 Ordinary 17,248 1 63,739 Special - 34,496 Total 17,248 98,235 1 Includes an amount of $9.2 million which is to be paid on 21 March 2014 PAGE 6 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
The table below provides details of MIIF s historical dividends: Period ended Singapore cents per share 30 June 2005 2.20 31 December 2005 3.10 30 June 2006 3.95 31 December 2006 4.00 30 June 2007 4.15 31 December 2007 4.25 30 June 2008 4.25 31 December 2008 3.00 30 June 2009 1.50 31 December 2009 1.50 30 June 2010 1.50 31 December 2010 1.50 30 June 2011 2.75 31 December 2011 2.75 30 June 2012 2.75 31 December 2012 2.75 31 December 2012 Special dividend 3.00 30 June 2013 0.70 31 December 2013 (to be paid on 21 March 2014) 0.80 The table above does not include the following returns of capital paid to shareholders: On 31 May 2013 of 44.36 cps and on 6 June 2013 of 1.04 cps following the disposal of Taiwan Broadband Communications (TBC); On 29 October 2013 of 9.70 cps following the disposal of Changshu Xinghua Port (CXP). TAXATION As MIIF is incorporated in Bermuda and is not a resident in Singapore for tax purposes, dividends paid by MIIF will be regarded as foreign-sourced income. The foreign dividend is subject to Singapore corporate income tax when received in Singapore by corporate shareholders. Foreign dividends received by foreign investors with no permanent establishment in Singapore are generally not subject to Singapore income tax. Foreign dividends received by individuals in Singapore (whether resident or otherwise) are exempt from Singapore income tax. Note: Each shareholder and prospective investor is advised to consult their professional tax adviser about the particular or potential tax consequences of their investment in MIIF shares. STATEMENTS OF COMPREHENSIVE INCOME ANALYSIS Net income on an adjusted basis as set out on page 8 represents the earnings of MIIF that underpins the payment of dividends to shareholders, and as such is one of the key measures that the Board focuses on to determine the amount of dividends that are ultimately paid to shareholders. This measure excludes all unrealised gains or losses on investments and other balance sheet items that are ordinarily captured in a statement of comprehensive income prepared in accordance with all applicable accounting standards. The following table compares the unaudited actual results for the quarter and year ended 31 December 2013 to the quarter and year ended 31 December 2012. MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 7
REVIEW OF NET INCOME ON AN ADJUSTED BASIS NET INCOME ON AN ADJUSTED BASIS 1 Revenue Note (Page 21-24) Quarter ended Quarter ended Income from investments A - 1,055 20,023 68,150 Interest income B (i) 8 38 35 275 Realised net foreign exchange (loss)/gain B (ii) - (100) 13 559 Total revenue 8 993 20,071 68,984 Expenses Base management fees C (i) (209) (2,404) (1,947) (8,760) Directors fees C (ii) (114) (89) (434) (361) Lending fees C (iii) - (51) (277) (201) Other operating expenses C (iv) (298) (1,285) (3,187) (2,254) Total operating expenses (621) (3,829) (5,845) (11,576) Net (loss)/income on an adjusted basis (613) (2,836) 14,226 57,408 Amounts not included in the above analysis Unrealised foreign exchange movement on 83 (500) 80 555 hedged transactions Unrealised foreign exchange movement on (123) 5 (166) 216 balance sheet items held in foreign currencies Net (loss)/gain on the movement in the fair (27) 529 56,715 (121,180) value of MIIF s financial assets Total GAAP adjustments (67) 34 56,629 (120,409) Net (loss)/income on an unconsolidated (680) (2,802) 70,855 (63,001) basis 2 Consolidation adjustments to net income (1,459) 3,873 (8,694) 3,533 Net (loss)/income on a consolidated basis (2,139) 1,071 62,161 (59,468) 1 2 All figures, unless stated otherwise are presented in Singapore dollars, which is MIIF s functional and presentation currency. The notes to net income on an adjusted basis can be found on pages 21 to 24 Please refer to page 19 for reconciliation to consolidated statement of comprehensive income PAGE 8 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
REVIEW OF NET INCOME ON AN ADJUSTED BASIS For the year ended 31 December 2013, MIIF reported a net income on an adjusted basis of $14.2 million, $43.2 million lower than the prior corresponding period (pcp). Income from investments of $20.0 million (2012: $68.2 million) was 70.6% lower than the pcp. The reduction is due to the cessation of distribution income from TBC and CXP following the disposal of these businesses. In 2013, TBC distributions amounted to $7.9 million (2012: $43.7 million) and CXP made no distributions (2012: $7.0 million). MIIF s remaining business, HNE, distributed $12.1 million (2012: $17.4 million) during the year. The reduction in income is primarily due to the impact of the toll rate standardisation enforced by the Guangdong Provincial Government on HNE from 1 June 2012. Total revenue of $20.1 million includes interest income generated from the investment of surplus cash balances and realised net foreign exchange gain. MIIF s total operating expenses of $5.8 million for the year ended 31 December 2013 were $5.7 million lower compared to the pcp. The decrease in total operating expenses was predominantly due to a reduction in base management fees of $6.8 million. This was offset by higher other operating expenses which increased by $0.9 million compared to the pcp. The increase in other operating expenses was due primarily to legal and advisory costs associated with the implementation of the initiatives identified following the strategic review undertaken by MIIF Board (Strategic Review). MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 9
MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED FINANCIAL STATEMENTS FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2013 PAGE 10 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Financial statements of the Company include the results and balances of the parent entity only, i.e. MIIF. MIIF is required to produce financial statements which include balances from all entities that are controlled by MIIF. These entities are listed in note K(ix) on page 39. The material additional balances are in respect of South China Highway Development (H.K.) Limited, the holding company of Hua Nan Expressway. as at 31 December 2013 as at 31 December 2012 Company as at 31 December 2013 Company as at 31 December 2012 Note Assets Current assets Cash and cash equivalents D (i) 16,113 80,281 16,020 78,565 Trade and other receivables D (ii) 743 2,268 150 1,640 Financial assets at fair value through profit or D (iii) 172,436 746,583 155,200 731,489 loss & (iv) Other assets 35 107 35 34 189,327 829,239 171,405 811,728 Non-current assets Intangible assets D (v) - 73,389 - - Other assets - 372 - - - 73,761 - - Total assets 189,327 903,000 171,405 811,728 Liabilities Current liabilities Trade and other payables E (i) 6,962 10,567 695 4,126 Financial liabilities at fair value through profit or E (iii) - 88 - - loss Borrowings E (ii) - 20,460 - - 6,962 31,115 695 4,126 Non-current liabilities Financial liabilities at fair value through profit or E (iii) - 3,241 - - loss Provision for other liabilities and charges - 482 - - Borrowings E (ii) - 38,216 - - - 41,939 - - Total liabilities 6,962 73,054 695 4,126 Net assets 182,365 829,946 170,710 807,602 Equity Share capital 531,740 1,165,321 531,740 1,165,321 Foreign currency translation reserve (33,677) (29,813) - - Accumulated losses (333,393) (321,388) (361,030) (357,719) 164,670 814,120 170,710 807,602 Non-controlling interest E (iv) 17,695 15,826 - - Total equity 182,365 829,946 170,710 807,602 Notes to the consolidated statements of financial position can be found on pages 25 to 29 Contingent liability in respect of the potential success fee payable to the manager has been disclosed in Note K(x) on page 40 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 11
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Income Quarter ended Quarter ended Power supply revenue - 3,776-11,604 Interest income 8 43 35 317 Net foreign exchange (loss)/gain (1,246) 2,262 4,092 1,840 Net gain/(loss) on financial assets at fair 1 value through profit or loss 83 805 78,695 (64,402) Others 2 152 929 1,722 4,121 Total income (1,003) 7,815 84,544 (46,520) Expenses Base management fees (209) (2,404) (1,947) (8,760) Finance costs - (789) - (3,308) Repair & maintenance expenses - (405) - (1,577) Professional services (299) (1,105) (2,108) (1,479) Directors fees (296) (267) (723) (753) Amortisation - (1,367) - (5,497) Lending fees - (51) (277) (201) Net loss on disposal of subsidiary - - (12,859) - Other operating expenses (264) (748) (2,325) (3,305) Total operating expenses (1,068) (7,136) (20,239) (24,880) Effect on deconsolidation 3 - - 95 - (Loss)/profit before income tax (2,071) 679 64,400 (71,400) Income tax expense - - - - (Loss)/profit after income tax (2,071) 679 64,400 (71,400) (Loss)/profit attributable to: Owners of the parent (2,139) 1,071 62,161 (59,468) Non-controlling interest 68 (392) 2,239 (11,932) (Loss)/profit after income tax (2,071) 679 64,400 (71,400) 1 2 3 4 Income from investments is shown as part of Net gain on financial assets at fair value through profit or loss as per MIIF s accounting policies and International Financial Reporting Standards (IFRS) Includes income MIIF earns from the provision of management services to its associates Effect on deconsolidation is the net gain recognised due to deconsolidation of Miaoli Wind on 14 November 2013 as shown in note K(ix) on page 38 Contingent liability in respect of the potential success fee payable to the manager has been disclosed in Note K(x) on page 40 PAGE 12 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Quarter ended Quarter ended (Loss)/profit after income tax (2,071) 679 64,400 (71,400) Other comprehensive income: Foreign currency translation reserve 1,112 (2,327) (4,234) (1,179) Total comprehensive income (959) (1,648) 60,166 (72,579) Total comprehensive income attributable to: Owners of the parent (899) (1,230) 58,297 (60,950) Non-controlling interest (60) (418) 1,869 (11,629) Total comprehensive income (959) (1,648) 60,166 (72,579) MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 13
EARNINGS PER SHARE Quarter ended Quarter ended Weighted average number of shares in issue used in calculation of basic earnings per share ( 000) 1,149,857 1,150,079 1,149,857 1,170,686 Weighted average number of shares in issue used in calculation of diluted earnings per share ( 000) 1,149,857 1,150,079 1,149,857 1,170,686 Earnings per share (Loss)/profit attributable to owners of the parent () (2,139) 1,071 62,161 (59,468) Basic earnings per share (cents per share) (0.19) 0.09 5.41 (5.08) Diluted earnings per share (cents per share) (0.19) 0.09 5.41 (5.08) PAGE 14 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
STATEMENTS OF CHANGES IN EQUITY Consolidated Statement of Changes in Shareholders Equity Share capital Accumulated losses Foreign currency translation reserve Total Noncontrolling interest Total equity Balance as at 1 January 2013 1,165,321 (321,388) (29,813) 814,120 15,826 829,946 Changes in equity for the year ended 31 December 2013 Return of capital (633,581) - - (633,581) - (633,581) Dividends paid - (74,166) - (74,166) - (74,166) Total comprehensive income for the year - 62,161 (3,864) 58,297 1,869 60,166 Balance as at 31 December 2013 531,740 (333,393) (33,677) 164,670 17,695 182,365 Balance as at 1 October 2013 643,276 (331,254) (34,917) 277,105 17,755 294,860 Changes in equity for the quarter ended 31 December 2013 Return of capital (111,536) - - (111,536) - (111,536) Total comprehensive income for the period - (2,139) 1,240 (899) (60) (959) Balance as at 31 December 2013 531,740 (333,393) (33,677) 164,670 17,695 182,365 Balance as at 1 January 2012 1,191,094 (197,269) (28,331) 965,494 27,455 992,949 Changes in equity for the year ended 31 December 2012 Share buy-back (25,773) - - (25,773) - (25,773) Dividends paid - (64,651) - (64,651) - (64,651) Total comprehensive income for the year - (59,468) (1,482) (60,950) (11,629) (72,579) Balance as at 31 December 2012 1,165,321 (321,388) (29,813) 814,120 15,826 829,946 Balance as at 1 October 2012 1,168,094 (322,459) (27,512) 818,123 16,244 834,367 Changes in equity for the quarter ended 31 December 2012 Share buy-back (2,773) - - (2,773) - (2,773) Total comprehensive income for the period - 1,071 (2,301) (1,230) (418) (1,648) Balance as at 31 December 2012 1,165,321 (321,388) (29,813) 814,120 15,826 829,946 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 15
STATEMENTS OF CHANGES IN EQUITY Statement of Changes in Shareholders Equity of MIIF Share capital Accumulated losses Total equity Balance as at 1 January 2013 1,165,321 (357,719) 807,602 Changes in equity for the year ended 31 December 2013 Return of capital (633,581) - (633,581) Dividends paid - (74,166) (74,166) Total comprehensive income for the year - 70,855 70,855 Balance as at 31 December 2013 531,740 (361,030) 170,710 Balance as at 1 October 2013 643,276 (360,350) 282,926 Changes in equity for the quarter ended 31 December 2013 Return of capital (111,536) - (111,536) Dividends paid - - - Total comprehensive income for the period - (680) (680) Balance as at 31 December 2013 531,740 (361,030) 170,710 Balance as at 1 January 2012 1,191,094 (230,067) 961,027 Changes in equity for the year ended 31 December 2012 Share buy-back (25,773) - (25,773) Dividends paid - (64,651) (64,651) Total comprehensive income for the year - (63,001) (63,001) Balance as at 31 December 2012 1,165,321 (357,719) 807,602 Balance as at 1 October 2012 1,168,094 (354,917) 813,177 Changes in equity for the quarter ended 31 December 2012 Share buy-back (2,773) - (2,773) Total comprehensive income for the period - (2,802) (2,802) Balance as at 31 December 2012 1,165,321 (357,719) 807,602 PAGE 16 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
CHANGES IN SHARE CAPITAL RETURN OF CAPITAL As set out in the announcements dated 30 April 2013 and 29 May 2013, post the completion of the divestment of TBC to Macquarie APTT Management Pte. Limited (the Trustee-Manager) of Asian Pay Television Trust (APTT), MIIF distributed the proceeds from the divestment to shareholders as a return of capital. MIIF received the consideration from the divestment in the form of units in APTT (the MIIF APTT Units) and pursuant to the distribution, Entitled Depositors and Entitled Scrip-based shareholders of MIIF were entitled to MIIF APTT Units in proportion to the number of issued Shares of MIIF held by them as at the Record Date (fractional entitlements disregarded) (the Entitlement) or could elect, using the Notice of Cash Election, to receive in cash all but not part of such Entitlement (the Cash Election). Shareholders who did not exercise the Cash Election had the number of MIIF APTT Units comprised in their Entitlement allotted to them and (in the case of Entitled Depositors) credited to their respective Securities Account. Shareholders who exercised the Cash Election received the cash amount equivalent to the initial public offering price of the Units multiplied by the number of MIIF APTT Units comprised in their Entitlement (the Cash Distribution). Subsequent to the divestment of TBC, the share premium amount was reduced by $522.0 million for the capital returned to MIIF shareholders. In addition, following the divestment of CXP, MIIF declared a capital return to its shareholders of $111.5 million on 25 September 2013, which was paid on 29 October 2013 resulting in a further reduction in the share premium account. There were no share buy-backs during the year ended 31 December 2013. During the year ended 31 December 2012, MIIF bought back and cancelled 46,836,000 shares for $25.8 million (including brokerage). The average price paid for the shares was $0.5495 per share (excluding brokerage). MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 17
CONSOLIDATED STATEMENT OF CASH FLOWS Quarter ended Quarter ended Cash flows from operating activities (Loss)/profit after income tax (2,071) 679 64,400 (71,400) Adjustments for non cash items: Amortisation - 1,367 2,269 5,497 Unrealised foreign exchange loss/(gain) 1,112 (3,249) (6,945) (1,074) Amortisation of transaction costs - 23 39 93 Revaluation of financial assets & liabilities at fair value through profit or loss (83) (604) (20,699) 130,936 Gain on divestment in unlisted securities - - (39,473) - Net loss on disposal of subsidiary - - 12,859 - Changes in working capital: (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables, provisions and charges (158) 23,716 621 1,963 123 1,079 (3,425) (757) Decrease/(increase) in other assets 34 84 (259) 35 Net cash (outflow)/inflow from operating activities Cash flows from investing activities Disposal of financial asset at fair value through profit and loss (1,043) 23,095 9,387 65,293 - - 634,305 - Disposal of subsidiary, net of cash disposed off 95-95 - Net cash inflow from investing activities 95-634,400 - Cash flows from financing activities Payment for buy-back of shares - (2,773) - (25,773) Return of capital (111,536) - (633,581) - Repayments of borrowings - (6,974) - (10,765) Dividends paid - - (74,166) (64,651) Movement in restricted cash - 5,215 1,421 4,474 Net cash outflow from financing activities (111,536) (4,532) (706,326) (96,715) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of financial period Cash and cash equivalents at end of financial period (112,484) 18,563 (62,539) (31,422) 128,597 60,089 78,652 110,074 16,113 78,652 16,113 78,652 PAGE 18 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
RECONCILIATION OF NET INCOME ON AN ADJUSTED BASIS TO THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME The income statement on page 8 of this report, and specifically the line titled Net income on an adjusted basis, has been prepared so as to present the earnings out of which MIIF dividends will be paid over time. However, income in excess of distributions in one year may be used to cover small shortfalls in other years. The income statement on page 8 has not been prepared in accordance with applicable accounting standards. The consolidated statement of comprehensive income on page 12 has been prepared in accordance with International Financial Reporting Standards (IFRS). The table below reconciles net income on an adjusted basis for the year ended 31 December 2013 presented in the income statement on page 8 of this report to the consolidated statement of comprehensive income (MIIF and its subsidiaries) for the year ended 31 December 2013 disclosed on page 12. Income Net income 1 on an adjusted basis GAAP adjustments 2 Consolidation adjustments 3 MIIF 4 Income from investments 20,023 (20,023) - - Interest income 35 - - 35 Net foreign exchange gain/(loss) 13 (166) 4,245 4,092 Net gain on financial assets at fair value through profit or loss - 75,692 3,003 78,695 Others - 1,126 596 1,722 Total income 20,071 56,629 7,844 84,544 Expenses Base management fees (1,947) - - (1,947) Professional services (1,785) - (323) (2,108) Directors fees (434) - (289) (723) Lending fees (277) - - (277) Net loss on disposal of subsidiary - - (12,859) (12,859) Other operating expenses (1,402) - (923) (2,325) Total operating expenses (5,845) - (14,394) (20,239) Effect on deconsolidation 5 - - 95 95 1 2 3 4 5 Profit/(loss) before income tax 14,226 56,629 (6,455) 64,400 Income tax expense - - - - Profit/(loss) after income tax 14,226 56,629 (6,455) 64,400 Non-controlling interest - - (2,239) (2,239) Profit/(loss) attributable to owners of the parent This is the net income on an adjusted basis presented in the income statement on page 8 14,226 56,629 (8,694) 62,161 These are adjustments that must be made to the net income on an adjusted basis to arrive at the net income on an unconsolidated basis, prepared in accordance with IFRS This column includes adjustments made to MIIF s stand-alone income statement to include results of its subsidiaries as shown in note K(ix) on page 39. This materially comprises the results of South China Highway Development (H.K.) Limited This is the consolidated statement of comprehensive income of the MIIF disclosed on page 12 Effect on deconsolidation is the net gain recognised due to deconsolidation of Miaoli Wind on 14 November 2013 as shown in note K(ix) on page 38 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 19
MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED MANAGEMENT REVIEW: FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2013 PAGE 20 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
REVIEW OF REVENUE AND EXPENSES FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2013 Presented in the income statement disclosed on page 8 REVIEW OF REVENUE Income from investments of $20.0 million (2012: $68.2 million) was 70.6% lower than the pcp. The reduction is due to the cessation of distribution income from TBC and CXP following the disposal of these businesses. In 2013, TBC distributions amounted to $7.9 million (2012: $43.7 million) and CXP made no distributions (2012: $7.0 million). MIIF s remaining business, HNE, distributed $12.1 million (2012: $17.4 million) during the year. The reduction in income is primarily due to the impact of the toll rate standardisation enforced by the Guangdong Provincial Government on HNE from 1 June 2012. Total revenue of $20.1 million includes interest income generated from the investment of surplus cash balances and realised net foreign exchange gain. A) INCOME FROM INVESTMENTS MIIF s income from investments is derived from the following sources: Distributions and other income arising from the normal operating earnings of the investments. These distributions and other income from the investments are recurring in nature. One-off distributions arising from capital management initiatives such as but not limited to refinancing or asset sales. These one-off distributions are non-recurring in nature. There were no such items in the current period or pcp. The table below provides a detailed breakdown of the income from investments recognised by MIIF during the following reporting periods: Income from investments Quarter ended Quarter ended CXP - 185-7,049 HNE - - 12,105 17,378 Miaoli Wind - - - - TBC - 870 7,918 43,723 Total income from investments - 1,055 20,023 68,150 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 21
Distribution Policies The distribution policy of MIIF s businesses is to distribute all net cash flows generated from operations, reduced for debt servicing costs and maintenance capital expenditure, subject to legal requirements and prudent reserves. As outlined in the announcement on 18 December 2012, the Board decided to undertake a number of initiatives including the pursuit of the orderly divestments of MIIF s interest in its investments. As at 31 December 2013, MIIF has disposed of its interests in CXP, TBC and Miaoli Wind. Accordingly, MIIF will not receive distributions from these businesses going forward. MIIF presently has only one business (HNE) from which it expects to receive distributions. However, we note that the Board is continuing with its stated initiatives to divest all of MIIF s investments. The following table shows the typical historic frequency of distributions from HNE: Investment Portfolio Frequency per annum Distribution declaration period HNE 1 September Due to local regulatory and legal requirements, there is a time delay between the date distributions from the asset is generated and the date they are declared and received by MIIF. HNE has paid its distributions in respect of the 2012 financial year in the third quarter of 2013. Dividends paid by MIIF will be made only out of surplus cash not needed for working capital purposes or for prudent reserves. As HNE pays a dividend once a year, it is expected that MIIF will also now pay an annual dividend. However, it is stressed that a sale of HNE is being pursued and should this occur in advance of the next scheduled distribution there will be no further dividend payments made by MIIF. A sale would be subject to shareholder approval and any proceeds would be returned to MIIF shareholders in the form of a return of capital. B) OTHER REVENUE ITEMS Interest income Interest income for the year ended 31 December 2013 was $0.04 million (2012: $0.3 million). During the year, MIIF had invested in short term commercial paper earning an annualised interest of approximately 0.2%. Realised net foreign exchange gain Realised net foreign exchange gain for the year ended 31 December 2013 was $0.01 million (2012: $0.6 million). PAGE 22 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
C) REVIEW OF EXPENSES Expenses Quarter ended Quarter ended Base management fees 209 2,404 1,947 8,760 Directors fees 114 89 434 361 Lending fees - 51 277 201 Other operating expenses 298 1,285 3,187 2,254 Total operating expenses 621 3,829 5,845 11,576 MIIF s total operating expenses of $5.8 million for the year ended 31 December 2013 were $5.7 million lower compared to the pcp. The decrease in total operating expenses was predominantly due to a reduction in base management fees of $6.8 million. This was offset by higher other operating expenses which increased by $0.9 million compared to the pcp. The increase in other operating expenses was due primarily to legal and advisory costs associated with the implementation of the initiatives identified following the Strategic Review. An analysis of MIIF s expense items are as follows: (i) Base management fees MIIF s manager, MIMAL, receives a quarterly fee that is calculated on MIIF s net investment value (NIV) for that quarter. NIV for any quarter equals the market capitalisation of the Company, plus external borrowings and any firm commitment by the Company to make further investments, less the amount of cash and cash equivalents held by the Company and its wholly owned special purpose entities. At the MIIF Annual General Meeting on 8 March 2013, shareholders approved the amendment of the management agreement (Management Agreement) entered into between MIIF and MIMAL. The amended Management Agreement reduced the base fee to 0.75% per annum on MIIF s NIV with effect from 1 January 2013, instead of the previous rate of 1.50% per annum. Also, post the divestment of TBC, CXP and Miaoli Wind, MIIF s share price has traded at levels much lower than the pcp. As a result, base management fees for the year ended 31 December 2013 of $1.9 million were $6.8 million lower than the pcp. The following table provides a reconciliation of the movement in base management fees compared to the pcp. Quarter ended Quarter ended MIIF Market Capitalisation 126,865 716,298 301,704 3 656,366 3 MIIF Net (Cash)/Debt 1 (16,090) (78,576) (42,090) 3 (72,366) 3 Net Investment Value 110,775 637,722 259,614 584,000 Base Management Fee 2 209 2,404 1,947 8,760 1 Refers to net (cash)/debt held by MIIF and its wholly owned subsidiaries 2 Calculated using base fee rate of 0.75% for year ended 31 December 2013 (1.50% for year ended 31 December 2012) 3 MIIF s market capitalisation for the year ended is the average of the four relevant calculation periods from Quarter 1 to Quarter 4. MIIF s net (cash)/debt for the year ended is an average of the balances at each quarter end reporting date MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 23
(ii) Directors fees Each independent director is entitled to receive an annual director s fee of US$72,500. Following the appointment of two independent directors on 25 March 2013, one to replace a resigning independent director, the Board comprises six members, of which five are independent of Macquarie. The remaining Board director, who is an executive of Macquarie, is not entitled to be paid a director s fee. Please see note I(ii) on page 35 for details on the directors fees. (iii) Lending fees Lending fees of $0.3 million include a one-off cancellation fee paid during the quarter ended 31 March 2013 to cancel MIIF s $100.0 million company level debt facility thereby removing all future lending fees. (iv) Other operating expenses Other operating expenses were $3.2 million for the year ended 31 December 2013 and include a number of legal and professional fees incurred on the implementation of Strategic Review. In addition, ongoing items that are reflected in this category relate to MIIF s normal day-to-day operations. These items include fees paid for share registrar services, SGX-ST listing and administration services, general legal services, audit services and other professional services. PAGE 24 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
REVIEW OF NET ASSETS AND STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 As presented in the statements of financial position disclosed on page 11 D) ASSETS (i) Cash and cash equivalents Stand-alone company level cash and cash equivalents decreased from $78.6 million as at 31 December 2012 to $16.0 million as at 31 December 2013. The decrease in cash and cash equivalents is predominantly due to payment of the combined final ordinary and special dividend of $66.1 million during the quarter ended 31 March 2013 and interim dividend of $8.0 million during the quarter ended September 2013, being partially offset by receipts of income from investments. cash and cash equivalents decreased from $80.3 million as at 31 December 2012 to $16.1 million as at 31 December 2013 largely due to movements at the company level as explained above. (ii) Trade and other receivables Stand-alone current trade and other receivables decreased from $1.6 million as at 31 December 2012 to $0.2 million as at 31 December 2013 due primarily to the settlement of management fees receivable following the divestment of TBC. current trade and other receivables decreased from $2.3 million as at 31 December 2012 to $0.7 million as at 31 December 2013. The movement at level is due to the disposal of Miaoli Wind and movement at the company level as explained above. (iii) Stand-alone financial assets at fair value through profit or loss On 18 December 2012, the Board announced that it intends to pursue the orderly divestment of MIIF s interests in its financial assets. Accordingly, the non-current financial assets at fair value through profit or loss were re-classified as current financial assets at fair value through profit or loss during the previous year. However, the Board does not guarantee that the disposal of financial assets will occur within 12 months. In line with its accounting policy, MIIF continues to hold its financial assets at fair value through profit or loss. The fair value of financial assets does not include transaction costs that may be incurred on disposal. Transaction costs are expensed as incurred in the statement of comprehensive income. Stand-alone current financial assets (excluding forward foreign currency contracts) at fair value through profit or loss decreased from $731.5 million as at 31 December 2012 to $155.1 million as at 31 December 2013. The decrease in valuation of MIIF s investments was substantially due to: Divestment of TBC and CXP; Offset by: Revaluation uplift of HNE of $21.7 million; and Net foreign exchange gain of $9.0 million arising from the translation of MIIF s assets from foreign currencies to Singapore dollars. MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 25
The following table sets out a reconciliation of the value of MIIF s investments from 31 December 2012 to 31 December 2013. Unlisted securities Company Balance at Investment / (divestment) Income received from Investments Foreign exchange effects Revaluation to Company Balance at HNE 136,491 - (12,105) 8,972 21,747 155,105 Others 72 (15) - - (42) 15 Investments (excluding TBC & CXP) 136,563 (15) (12,105) 8,972 21,705 155,120 TBC 494,228* (520,793)** (7,918) 2,146 32,337 - CXP 100,698 (112,176) - 5,496 5,982 - Total investments 731,489 (632,984) (20,023) 16,614 60,024 155,120 * Excludes $1.2 million of accrued management fees receivable from TBC, recognised in trade and other receivables **The outstanding balances in relation to management fee receivable from TBC and intercompany receivables were netted against the proceeds of $522.1 million The $21.7 million revaluation adjustment in HNE is primarily due to better than expected operating performance. In addition the valuation benefitted from $9.0 million favourable foreign exchange movements. (iv) financial assets at fair value through profit or loss non-current financial assets at fair value through profit or loss were re-classified as current financial assets at fair value through profit or loss during the previous year, in line with the classification at the company level. In line with its accounting policy, continues to hold its financial assets at fair value through profit or loss. The fair value of financial assets does not include transaction costs that may be incurred on disposal. Transaction costs are expensed as incurred in the consolidated statement of comprehensive income. current financial assets (excluding forward foreign currency contracts) at fair value through profit or loss decreased from $746.6 million as at 31 December 2012 to $172.4 million as at 31 December 2013. The explanation for the movement at level is materially the same as for the company level other than adjustments made to reflect the fair value of the s investments. (v) Intangible assets MIIF disposed off its interest in Miaoli Wind to Challenger Emerging Market Infrastructure Fund Pte. Ltd (EMIF), an unrelated entity, for cash consideration of NT$2.25 million ($0.095 million). The divestment to EMIF was negotiated on an arm s length commercial basis and, following receipt of the relevant regulatory approvals, financial completion occurred on 14 November 2013. Accordingly, the financial results of Miaoli Wind have not been consolidated as at 31 December 2013. Prior to such disposal, the fixed assets held by Miaoli Wind were recognised as intangible assets under International Financial Reporting Interpretations Committee, IFRIC 12: Service Concession Arrangements. PAGE 26 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
E) LIABILITIES (i) Trade and other payables Stand-alone current trade and other payables decreased from $4.1 million as at 31 December 2012 to $0.7 million as at 31 December 2013 primarily due to reduction in management fee payable as the base fee rate and NIV has reduced during the year. current trade and other payables decreased from $10.6 million as at 31 December 2012 to $7.0 million as at 31 December 2013 largely due to movements at the company level as explained above. (ii) Borrowings MIIF did not have any stand-alone company borrowings as at 31 December 2013 and 31 December 2012. Following the disposal of Miaoli Wind to EMIF on 14 November 2013, the financial results of Miaoli Wind have not been consolidated as at 31 December 2013. As at 31 December 2012, the borrowings related to the consolidation of Miaoli Wind s short and long term borrowings which were non-recourse to MIIF. Equipment, building, cash and shares of Miaoli Wind were pledged with the lender as collateral for the outstanding borrowings of $58.7 million as at 31 December 2012. The following table illustrates the ageing of MIIF s borrowings: as at as at Company as at Company as at Amount repayable in one year or less, or on - 20,460 - - demand Amount repayable after one year - 38,216 - - Total borrowings - 58,676 - - Amount secured - 58,676 - - Amount unsecured - - - - Total borrowings - 58,676 - - (iii) Financial liabilities at fair value through profit or loss As at 31 December 2013, there were no outstanding financial liabilities held at fair value through profit or loss at standalone and group level. The balance of financial liabilities held at fair value through profit or loss as at 31 December 2012 includes the fair value of Miaoli Wind s interest rate swaps and foreign currency forward contracts. (iv) Non-controlling interest Non-controlling interest represents the share of net asset value attributable to the minority shareholder of South China Highway Development (H.K.) Limited (a subsidiary holding MIIF s interest in HNE). MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 27
F) NET ASSET VALUE MIIF uses the discounted cash flow (DCF) approach to value its investments. These valuations reflect the fair value for which infrastructure assets could be exchanged between knowledgeable, willing parties in an orderly arm s length transaction. MIIF calculates the fair value of each of its assets at the end of each calendar quarter and adjusts the carrying value of each investment to its fair value. This process generates revaluation gains and losses, which are reported in the consolidated statement of comprehensive income as Net gain/(loss) on financial assets at fair value through profit or loss. To ensure that the DCF analysis continues to provide a fair value estimate that can be considered reliable, the valuation model is periodically benchmarked to other sources such as recent market transactions. It should be noted that the preparation of the financial report in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the accounting policies. Estimates and judgements are continually evaluated and are based on historic experience and other factors, including reasonable expectations of future events. Management believes the estimates used in preparation of the financial report are reasonable. Actual results in the future, however, may differ from those reported. The valuation of MIIF s investments has been determined by reference to changes to the respective asset s discount rate, adopted by the Board in accordance with its valuation framework. The discount rate applied to the cash flows of a particular asset comprises the risk free interest rate appropriate to the country in which the asset is located and a risk premium, reflecting the uncertainty associated with the cash flows. As the proposed actions to divest the assets of MIIF may take an undetermined time, MIIF will continue as a going concern and so no liquidation and other transaction costs are included and these have not been reflected in the consolidated statement of comprehensive income. (i) The investment valuation sensitivity to movements in the discount rate is disclosed in the table below: Change in valuation due to movement in discount rate Dec 13 1% higher Dec 13 1% lower Dec 12 1% higher Dec 12 1% lower CXP - - (8,615) 9,746 HNE (9,812) 10,750 (10,333) 11,474 Miaoli Wind - - -* -* TBC - - (23,957) 25,666 Total (9,812) 10,750 (42,905) 46,886 (ii) The investment valuation sensitivity to movements in the revenue forecasts are disclosed in the table below: Change in valuation due to movement in revenue forecast Dec 13 1% higher Dec 13 1% lower Dec 12 1% higher Dec 12 1% lower CXP - - 1,845 (1,845) HNE 4,518 (4,519) 4,344 (4,359) Miaoli Wind - - 460 -* TBC - - 6,520 (6,623) Total 4,518 (4,519) 13,169 (12,827) * The valuation of Miaoli Wind as at 31 December 2012 was nil due to the need to use all available cash to repay its ongoing debt obligation, which was non-recourse to MIIF. As a result, a change in discount rate and revenue forecast will not lead to a change in valuation. PAGE 28 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED
As at 1 As at Company As at 1 Company As at Net Asset Value Total net asset value () Total number of ordinary shares on issue used in calculation of net asset value per share ( 000) 182,365 829,946 170,710 807,602 1,149,857 1,149,857 1,149,857 1,149,857 Net asset value per ordinary share ($ per share) 0.16 0.72 0.15 0.70 MIIF s stand-alone NAV decreased from $807.6 million as at 31 December 2012 to $170.7 million (or 14.8 cps) as at 31 December 2013, decreasing its NAV per share to $0.15 at the end of the period. net assets decreased from $829.9 million as at 31 December 2012 to $182.4 million as at 31 December 2013. MIIF s NAV per share decreased from $0.70 at 31 December 2012 to $0.15 at 31 December 2013. The reduction in NAV per share of 55.0 cents from 31 December 2012 to 31 December 2013 was due primarily to the impact of the return of capital to shareholders of 45.4 cps and 9.7 cps following the divestment of MIIF s interest in TBC and CXP respectively. In addition, it should also be noted that no provisions for transaction costs or the potential success fee to be earned by MIIF s manager has been made as at 31 December 2013 (refer to footnote 1 for more details). Company As at Company As at 31 Mar 13 1 Company As at 30 Jun 13 1 Company As at 30 Sep 13 1 Company As at 1 Net asset value per ordinary share ($ per share) 0.70 0.66 0.24 0.25 0.15 1 Reference is made to the amended management fee arrangement with MIIF s manager, MIMAL, which was approved by MIIF s shareholders at the MIIF Annual General Meeting on 8 March 2013. MIMAL will be entitled to a success fee when a certain level of divestment proceeds is achieved from the successful divestment of MIIF s businesses. However, since the conditions for MIIF to pay the success fee have not been met, there is no present obligation and accordingly a provision for a potential success fee has not been made as at 31 December 2013. Refer to note K(x) on page 40 MACQUARIE INTERNATIONAL INFRASTRUCTURE FUND LIMITED PAGE 29