International Public Partnerships Limited (INPP) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the International Public Partnership Market Update for the 12 Months Ended 31 December 2019. My name is Sherry, and I will be the operator for your call this morning. [Operator Instructions] I will now hand over to Erica Sibree. Please go ahead.

Thank you, and good morning, and welcome to the International Public Partnership market update. I'm joined by several of my Amber colleagues. As you hear from them that this market update is being hosted in lieu of the company's full year results, which have been postponed due to FCA and FRC moratorium on the issuance of results. We hope you find all systems safe and well in the current circumstances and to apologize for last-minute change to conference call facilities as our previous providers are struggling somewhat under a significant increase in demand. The agenda for today's call is for Giles Frost, Chairman of Amber, to take you through an overview of the current environment; and then for Chris Morgan, who's the Investment Director for Funds, to talk you through in more detail about the company's performance of the period ending 31 December 2019. Please note that if you haven't already received the presentation the team is speaking to, it's available on the company's website at international.publicpartnerships.com (sic) [ internationalpublicpartnerships.com ], where there is a direct link from the RNS on the homepage. After presentation, we'll open up the line to Q&A where various representatives will be available to address your questions, including Michael Gregory, who's the Head of our Asset Management team; and Muhammad Anwer, the Finance Director responsible for INPP. So with that, I'll hand over to Giles. Thank you.

Well, good morning, everybody, and thanks for joining us. As Erica says then, obviously, exceptional times. First and foremost, we think of all the personal impacts on everybody, extended INPP family, including our shareholders. So I hope you're all well, as Erica said. Unusual in a sense because until probably 3 or 4 days ago, we were expecting to release our full results today as normal and as previously advertised. They are, so far as we're concerned, ready and waiting to go. As many of you all know, the FCA asked for a moratorium on the publication of preliminary financial results last weekend. That was interpreted by most of the U.K. practices of the big 4 firms as a moratorium on signing accounts, full stop. So I just want to make sure that people see that in context. We've been told this morning that the FCA are looking to lift that moratorium potentially as early as April. We haven't yet got a new date for launching our results. But what we are doing today is talking through end-of-year valuations for 2019. But before my colleague, Chris Morgan does that, I think for most people, the current situation of coronavirus is obviously, at the top of everyone's agenda. So I thought I'd talk through a little bit on what we're doing and how we're responding to that. And as Erica said, Michael Gregory, who looks after the asset management function, is on the line as well and can help deal with any questions that people might have at the end. So fundamentally, we've obviously working very hard in terms of the reaction to coronavirus. We operate public facilities, and a lot of our facilities are key to provision of public services. As you know or many of you will know, we don't, in the U.K., operate any acute health care settings. Historically, that's been a benefit for different reasons mainly because of the kind of the historic kind of polarization of relationships in those sorts of relationships. But for now, obviously, it means that we're probably not as directly exposed as some others to some of the kind of frontline issues on fighting coronavirus. Nevertheless, we have a wide range of product set clients. And currently, in terms of asset performance, we're doing our best to make sure that those assets continue to perform the crucial services they perform to their users. And touch wood, that is going -- I think I start to say going very well indeed. So we have at moment, we believe, all our assets are fully available. We believe that our SM, service management, providers are responding fully, and we have 100% service to our various clients. And that obviously, in financial terms, has a knock-on effect to where we expect to be in terms of our financial receipts. So we do fully recognize that this is a evolving situation. We'll come on in a second to talk about 1 or 2 of the areas where we're paying special attention to the impact of coronavirus in our assets. But fundamentally, at the moment, from a INPP point of view, we see it as business as usual. And what I'd also say and probably pay tribute to you publicly really is that our public sector counterparties, I think not just in the U.K. but across the world, have currently gone above and beyond to reinforce their view of the strength of those relationships. I think relationships will come out of this potentially being enhanced rather than reduced. I think that where us and our service management providers have gone the extra mile, they have been appreciated. And I would say the public sector has gone the extra mile, particularly reassuring people like ourselves about the continuity of payments and the support for ongoing relationships that is going to persist through this crisis. So I think the relationships are very warm and that's an important background fact, I think. Dividend. We are expecting to pay the 2019 dividend as expected. So we will -- we expect to declare that when we sign our final results. So people shouldn't be concerned about that. And I'll ask Michael at the end to perhaps talk a little bit more about how Amber's resourcing, in terms of the operational support, it's giving to the various investments that INPP makes. And the short answer on that is that we are fully resourced. The Amber staff are working from home, that our technology is holding up very well indeed. And I would say we're working very close to maximum effectiveness, notwithstanding that we're all obviously geographically dispersed. I think it is appropriate to say that there are risks and that we cannot say at this stage that we have got a handle on every contingent risk coming out of the COVID-19 pandemic. I don't think any business can say that at this time. We simply don't know how it is going to unfold. We know that there may be staff shortages and supply chain breakdowns. Whilst these have not had a material impact on us to date, then the possibility of that exists. So we need to remain very aware of that. But currently, I think it's a reasonably positive story. And I think it's backed up really by the fact that certainly in respect to PPP assets, public-private partnerships, and also regulatory assets, these are designed to have a significant level of in-built risk protection from both foreseeable and less foreseeable risks. So there are, as many of you will know, for instance, in some regulated assets, the ability to reopen regulatory settlements should we need to do so in the event of significant excess costs being incurred for reasons outside our control. Now currently, I don't believe we are expecting that to be necessary. But obviously, there's a lot of reassurance from knowing that those sorts of protections exist. I think the only caution, and as I had mentioned about that, is that it's not always clear quite how these protective mechanisms work, and they probably do not work absolutely in real time. So if you lose GBP 1, you probably don't get that GBP 1 back in the same month. So there's probably cash flow implications just to think about in terms of that. But I say, at present time, that is a theoretical concern, not a present concern. Just bear with me because my computer has decided to shut itself down. Here we go. So turning on to sort of some specific focuses where we either had questions from people over the last few days or we think there's perhaps a particular point that people are interested to hear about. Then we'd comment on Tideway in particular. Tideway is the major construction asset in the portfolio, 9.2% of net asset value. Tideway, obviously, is an active construction site. Everyone will have followed the news about should construction sites be closed down or not. Tideway has benefited from specific advice from Cabin Office that the government would like to see works continue. But Tideway is prudently recognizing that inevitably some of its staff will be away and effectively is reducing its operation activities so that it maintains essential and safety critical works. So we do expect there's going to be some additional cost and delay to the Tideway project. Again, I would say that we've had very, very strong support from government and from Ofwat, the regulator, over the last couple of weeks. There's no polarization of debate around this, a lot of support. And I'd also remind people that the way the Tideway regulatory license works is that to the extent additional costs are borne, there's a sharing mechanism which shares those costs between investors, including INPP, the construction contractors, consumers and, ultimately, there's a government support package, which comes in and protects all of equity debt and consumers at a certain level. Now we currently do not expect that level to be reached. But again, it's good to know it's there, and I think it's helpful. There's also a number of additional provisions in the Tideway license relating to material changes, which again could be helpful in the event that we see significant costs. At present, however, I'd reemphasize that we don't see material current impact to the Tideway project. And in making this comment, we're simply evidencing where we are sensitive and paying a lot of attention. But people shouldn't read this as being a high-level concern. Second project to highlight I think is Diabolo. This is a PPP project. This is a project where a portion of the revenues are linked to demand. It's not quite as simple as saying it's just about people paying fares to use the rail. The demand linkage is indirect. We don't take farebox revenue on this particular project. But some of the payments we received from governments are linked: a, to the number of users on the specific piece of infrastructure, which connects the main rail network to the airport; and b, we get a percentage of total revenues from the entirety of the Belgian rail network. We haven't had ridership figures recently, but anecdotally, our operational staff can see that, clearly, the number of users are -- is down. Again, I don't want to cause any unnecessary alarm at this stage. Historically, over the last couple of years, ridership has been considered in excess of base case. This has brought us benefits. So we have some sort of buffer in terms of our prior year income. Moreover, there is, again, a contractual mechanism which kicks in to protect us in the event that ridership is below base case levels. We have used that before because in the early years of the contract, ridership was lower than base case, and this did operate effectively to give us additional revenue. So again, we would expect that Diabolo would respond appropriately. So whilst it's on our watch list, it's an area where we're paying particular attention, again, we do not feel there's any reason for undue pessimism. We've had a few questions about schools. Obviously, the majority of our schools are closed or largely closed. The -- a number of schools in the U.K. are partially open because they're providing continued childcare facilities for emergency workers. Those operations are going well. We have no reports whatsoever of operational difficulties or concerns around that. So currently, we see that we are performing at 100% of our schools portfolio, which is the biggest single component of the portfolio. And then I think I just make a sort of general point, which is in sort of an echo of the point I made a minute ago, which is that, fundamentally, we believe INPP is in a strong position. We're not saying that we are unaffected in all circumstances. We simply do not know it yet. But both from sort of first principles in terms of how portfolio is constructed and how the operational response has worked, we think things are going as well as expected as well as could be expected currently. And I think that we currently feel that the most likely impact, if there's one, could be in terms of just not so much loss of value because the value will be preserved, but timings of cash flows. But in most cases, we retain 100% ownership of assets. So we think that issue is one only on our minority holdings. And again, I'd reemphasize that is a theoretical concern. All of our assets are currently paid up to date. Nobody is suggesting they're not going to pay as expected. And again, the dividend flow from our assets is currently as we expect. So what I'm doing here is simply pointing out the areas where we are focusing our attention to management team. Fundamentally, INPP is in a very strong position. Our liquidity is strong. Our debt facility is a GBP 400 million revolving credit facility. That is scarcely drawn at all. I think we've got less than GBP 10 million drawn on that. We additionally have over GBP 70 million of cash on hand at holding company level, and there's additional cash in the underlying assets we could access, if needs be. So from a fundamental liquidity point of view, we believe INPP is in a strong position. Obviously, happy to take questions on all of that at the end. I think now I'm going to hand over to Chris, Chris Morgan, and he's going to talk through the year-end position in terms of net asset valuation. Chris?

Thanks, Giles, and good morning, everyone. I'd just like to spend a few minutes, as Giles said, talking about INPP's performance for the year ended 31 December 2019, and I'll start on Slide 7 with the financial highlights. As you can see, over the 12-month period to 31st of December 2019, the NAV per share increased by 2.5p from 148.1p to 150.6p. And if you couple that 2.5p capital gain along with the 7.1p of dividends that were paid during the year, you can see there's a total return over the period of 9.6p per share. Now given the principally availability-based or regulated nature of the underlying cash flows, we have a high level of [ cost at ] the annual distribution forecast for the underlying investments. And I'm pleased to say that investment distributions during 2019 were fully in line with our expectation, and this has enabled us to meet our target of growing near, a target we've met each year since the IPO in 2006. As you can see from the slide, the 2019 dividend was 2.6p (sic) [ 2.6% ] higher than the 2018 dividend and [ important ] grow that dividend whilst maintaining a very good level of dividend coverage. Now we've obviously seen a high level of volatility in the stock market recently, and INPP hasn't been immune to that. But over the long term, the company has maintained a low correlation to the wider market. As you can see from the 2 statistics on the slide, the correlation from -- to the FTSE All-Share over the 12-month and 5-year period to 31st of December 2019 was very low. So over the longer-dated term, the 5-year period, it was less than 0.2. Hopefully, that demonstrates to investors the returns over the long term should be insulated from macroeconomic trends. In terms of portfolio inflation linkage, this has remained at 0.82% and indicates the inflation runs at 1% above the rates used, then investors should see an 0.82% increase in returns and, hopefully, have provided some comfort that the real value of the returns are mostly protected in a high inflationary environment. And the final statistic on that page is the annualized TSR, total shareholder return, since the IPO and just demonstrates the annual return that shareholder would've generated had they invested in the IPO in 2006 and reinvested dividends that have been received to date. Just moving on to Slide 8, the discount rate slide. And given the long-term predictable nature of the cash flows, the investment valuations are determined using discounted cash flow valuation methodology where risk-adjusted discount rate is determined for each individual investment. And whilst we don't disclose the individual discount rates, hopefully this slide provides a good summary of rates used. And you can see we published 2 weighted average discount rates: the risk capital weighted average discount rate, which is a function of the discount rates used to value INPP subordinated debt and equity investments, and it's published to enable a comparison to those funds, which invest solely in infrastructure risk capital; and a portfolio of weighted average discount rates, which is a function of the discount rates used to value all of INPP's investments, including the lower-risk senior debt investments. And it's probably worth noting that as at 31st December 2019, the senior investments represented approximately 11% of the portfolio. In terms of the movement of the rates over the period, you can see that the risk capital weighted average discount rate remained broadly flat over the period whereas the portfolio weighted average discount rate has decreased by around [ 24 ] basis points. This reduction is due to the adjustments made to the underlying discount rates to reflect prevailing of market pricing, but also the additional senior debt investments. And this is the investment that was made as part of the OFTO restructuring and refinancing that was carried out in Q3 2019. And obviously, being a senior debt investment carried a much lower level of risk and warranted a lower discount rate, which had the effect of reducing the weighted average portfolio discount rate. In terms of the risk capital discount rate range, you can see that goes from 5.5% to 10.9%. And it's worth pointing out that the assets that are represented by the extremities of that range remain the same as per the previous valuation date. So the 5.5% discount rate applies to a U.K. subordinated debt investment, and the 10.9% rate applies to BeNEX Rail, which is a German business that both leases rolling stock and invest in train operating companies that operate rail franchises across Germany under contract with the relevant federal states. Just moving on to Slide 9, the net asset valuation slide. Now the chart on this slide is designed to identify the various components underpinning the net [ 10% ] increase in the period. So you can see that the NAV's increased from GBP 2.2 billion on left-hand side to GBP 2.4 billion on the right-hand side. The first item to point out is the amount of capital that the company raised during the period. So GBP 190.1 million was raised during the period across 2 processes, both of which were oversubscribed and had strong demand from both existing and new shareholders. And the proceeds from this capital raise was used to pay down the company's corporate debt facility, which was drawn following investments made earlier in 2019. Now the next 2 bars show the 2 components within the discount rates. So each discount rate has a government bond yield and a risk premium to come to an all-in discount rate. And what you can see here is that there's a significant reduction in government bond yields over the period, which drove the valuations up by GBP 191.8 million, and a compensatory adjustment was made to the investment risk premia to increase the discount rates back to a level where we thought represents the -- or we're sure that the valuations to which they're applied represent market-based evidence of pricing. The net impact of those 2 adjustments was at GBP 37.9 million. In terms of distributions made during the period, GBP 100 million of cash was distributed to shareholders, and this is in line with the guidance provided previously. As INPP makes semiannual dividend payments, there were 2 payments made during the year. The first was the final 3.5p dividend that was paid in respect to 2018, and the second payment was made during the year was the first payment paid in respect of 2019. And as Giles mentioned earlier, it's anticipated that the second 3.59p dividend that we'll pay in respect of 2019 will be declared at the time of the formal results announcements. I think it's appropriate to mention the macroeconomic factors, and yet they were somewhat of a minor headwind to the overall NAV growth generated during the period and, in particular, during the second half of the year, where we saw the net effect of FX rate movements over the period contributing to a GBP 23.4 million reduction in the sterling value of our overseas investments. This was principally due to the appreciation of sterling against dollar currencies in response to the result of the U.K. general election. And as a reminder, INPP is exposed to 4 different currencies: so the Australian dollar, the Canadian dollar, the euro and the U.S. dollar. And this exposure to the 4 different currencies typically provides somewhat of a natural hedge as you wouldn't necessarily expect all currency pairings to move in the same direction at the same time. In addition, it's provide us with a little bit more certainty we enter into short-term forward contracts to obtain certainty of sterling value of the overseas distribution to ensure that we can meet our dividend targets to INPP shareholders. Now I don't think we've talked about previously the contracts we put in place. The FX forwards span the next 4 years, and they refresh on a rolling annual basis. So we typically hedge 100% of year 1 non-GBP cash flows, 65% of year 2, 50% of year 3 and then 25% of year 4. As you can see from the chart, looking at the next bar across, there's also a GBP 14.8 million reduction in the NAV due to other changes in the macroeconomic assumptions. And I note significant item within here is the prudent assumption that the U.K. conservative party uphold their promise to appeal the previously enacted reduction to 17%. And therefore, within our valuations for our U.K. assets, we've assumed a corporation tax rate of 19%, and that has contributed to a circa GBP 12 million reduction in the NAV, which is part of the GBP 14.8 million you can see on the chart. In addition to that, we've also made more prudent deposit rate assumptions in order to reflect the lower-for-longer interest rate environment that we're currently in. If you're interested, there's a summary of all of the macroeconomic assumptions used within the valuations, and it's set out in the appendix. The final point I'd make on that slide is just in relation to the NAV return. NAV return in the period was GBP 138.5 million, and that represented a 6.3% return based on the opening NAV. And that's fully in line with our expectations for the year. Just moving on to Slide 10, the investments at fair value chart. This chart is obviously very similar to the one on previous page. But instead of focusing on the NAV, this is designed to identify the various components underpinning the increase in the portfolio valuation over the period. Looking at the first bar, the investments that we made during the period. We invested GBP 281 million. There are a number of investments made. I won't go through them all in detail, but just to touch upon the key ones. GBP 153 million was invested into Cadent. Cadent, as you know, is the largest U.K. gas distribution business, only 4 of the 8 regional gas distribution networks. Cadent generates regulated revenues based on its regulated asset base, and it takes no exposure to the volume of gas that travels through its network or the ultimate price of gas. The second-largest investment made in the period was the GBP 72 million senior debt investment that was made as part of the OFTO refinancing, restructuring. OFTO, as you know, transmit electricity from the offshore wind farms to the onshore substation. And as the owner of an OFTO, we take no exposure to the electricity produced by the wind farm or the ultimate price of electricity, but instead, an availability-based revenue stream for the term of the license, which is typically 20 to 25 years. The third-largest investment was GBP 29 million that was made into BeNEX, the German rail business I mentioned earlier. And the vast majority of BeNEX come from the [ public sector ] leasing of the rolling stock to the train operating companies and also the train operating companies [ itself ], which operate mostly gross concessions, and those are the concessions that don't take any market risk. In addition to those 3 investments, there are a number of smaller investments that were made into U.K. PPPs as well as the National Digital Infrastructure Fund. All these investments [ in ] existing cash as well as the company's corporate debt facility, which was subsequently paid down using raised proceeds I mentioned previously. And just as a reminder, I think Giles has already touched on this, but the company's corporate debt facility is a GBP 400 million multicurrency facility provided by 4 banks. It matures in July 2021 and is used as short-term financing for acquisitions rather than long-term structural debt. The investment distributions of GBP 159.6 million were very much in line with the forecast that we set in the subsequent year [ and in the quarter ]. Through distribution [ made ] INPP has paid dividend in the form of forward guidance provided previously and [ it maintained ] strong dividend coverage [ we made ]. Portfolio return is calculated 7.6% based on the Investment at Fair Value slide. And as per the NAV return, they're much in line with our forecast for the year. And the portfolio return includes all the amounts captured within the NAV return but is exclusive of fund level operating costs. Now the discount rate impact there is the net impact of the movement of the government bond yields and the investment risk premia I mentioned on the previous page. I think I've already touched upon these [ briefly ] all the rate movements and the changes in other macroeconomic assumptions. So I think at that point, I'll hand back over to Giles Frost, who will talk you through the market environment and opportunities.

Okay. Thanks, Chris. And apologies if anyone had any difficulty. Just a little static on the line there. I hope you can hear me okay. And I'm not going to dwell on this because I think most people are looking at present rather in the future, but I think we do have to look at the future in many ways. The sooner we start looking at future, the sooner we'll get through the present. And I mean -- and Chris remarked on one particular thing in the back end of last year, which was how FX movements had hurt our valuation. Obviously, we've seen in the first quarter this year the FX come off and that reversed. So you'd expect benefits to come through there. I think the other key change has been obviously that long-term rates have essentially come down in the first quarter this year from where they were at the end of last year. As many of you all know, lower long-term rates, generally speaking, is a positive for INPP's valuation. And I think, as Chris said, a lower-for-longer interest rate environment, which, to me, seems almost nailed on as a likelihood, should actually be very positive for those people who invest in long-duration real assets with an inflation linkage. So I'd like to think that we're in actually quite a good position in the longer term because of that. I think it's too early really to -- and perhaps even inappropriate to speculate too much on the kind of sort of longer-term impacts of pandemics, on government planning and so on. But I mean I don't think anything in the current crisis which suggests that the need for new infrastructure will reduce in the future. I think that pandemic preparedness and so on will probably increase that need, if anything. I continue to hold a view that, that cannot be financed with public capital alone, and therefore, there's a significant opportunity for private capital, such as INPP's capital, be used in that infrastructure expansion. So I think the sort of macros, if you like, are not changed by the current environment. And if anything, then there's likely to be probably a greater impetus on investments, partly to get the economy going again, but partly because I think that this will be a kick to politicians to really execute on some investment activities. We've got a sort of pipeline overview there. This is Slide 13. This really just indicates what we're looking at any one time. So on the lower half of that slide, we set out some known commitments. So we have a clear pipeline of opportunities to invest into at the moment. So we are preferred bidder on the 2 OFTOs you see there, Rampion and Beatrice. We've already signed the Offenbach Police Headquarters, but our cash goes in at the back end of that construction period. And we've got approximately another GBP 20 million of commitment to the Digital Infrastructure Fund, which is going in over remainder of this year, I would expect. The bigger numbers above really reflect projects we're tracking. There are some very big projects out there, obviously. We don't know to what extent those projects will require private finance or not. But we do put quite a lot of time and effort into both, just time with government and time looking at these big projects. Because clearly, if you get into these big projects as a kind of early entrant, you tend to be quite well positioned later on, even if at the early stage they haven't really decided quite how they're going to finance these projects. So we've spent quite a lot of efforts with governments and others trying to help sort of the design process of some of these mega projects. So in terms of outlook, then I think fundamentally, in the short term, we are obviously completely focused on the management of our existing assets, securing cash flows, keeping facilities working, supporting all our stakeholders, not just shareholders, but the people who depend on us. We want to be seen -- well, first of all, there's a genuine desire within the Amber team for -- to help people. We've had a large number of staff come to us and say they want to sign up to the NHS volunteering program, for instance, so a real strong level of goodwill amongst our own staff. But as regards to INPP's assets, then our -- first and foremost, we're looking at securing those, making sure they perform as well as they possibly can, currently to say we are in good shape on that. We are not complacent. Things may change. But currently, we're in as good shape as we possibly could be on that. Going forward, I think the INPP story isn't changed by this. I think we're still in a good place, and there's a long way to go. But I think that INPP should be in a strong position, particularly in the -- if, as we expect, we are in a longer-for-lower (sic) [ lower-for-longer ] environment. So I think I'll stop there and really invite questions at this stage.

[Operator Instructions] The first question comes from the line of Alex Wheeler, RBC.

Just on Diabolo Rail. Two questions, please. Firstly, how does that contractual mechanism actually work when you drop below the base case? And then secondly, typically, how far ahead of the base case have you been on average in previous years?

Right. Michael, do you want to answer that question?

Yes, I can do. Alex, so on Diabolo Rail, there's a revenue adjustment mechanism. And for that to work, passenger numbers have got to fall below 85% of the forecast over a 6-month period. And I think it was 6 years ago, we operated it previously. And what you do is you go and get an independent forecaster. They come back. They put the forecast forward. We agree that with Infrabel, and then the new passenger supplement is calculated on the basis of the new forecast numbers. The last time it operated, I think the passenger fee went up by about 63 cents. In terms of how far in front we are, we were quite in advance. And we were at the point where Infrabel, as the client, could've asked for a trigger event to actually take the passenger fee gain. So we're in reasonable position in terms of where the numbers were prior to this event.

Next question comes from the line of Monica Tepes, finnCap.

Apologies if you've answered the question, I didn't get it. But I guess for me, the key concerns is where -- what is the potential downside. So if I understand correctly on Tideway and Diabolo, there's counter floor beyond which you get compensation. So the question would be, what is that worst-case scenario? Sort of how much, I guess, I don't know, more money you have to put in the Tideway? Or how much from your model cash flow you would lose before you get to this floor or support level. Just as of investors sitting here, so if you value these assets today at GBP 100, in a worst case scenario that you hit those triggers, beyond which hopefully you don't have the impact, what would the repriced value of these assets would be on that basis?

Okay. Monica, deceptively complicated question, I'm afraid because -- I mean first and foremost, as we are today, we're not in that position. So it is a hypothetical question. So we're not in that position. The second point is I did -- and I sort of alluded to it earlier in the call, though perhaps not as clearly as I could have done. And I think it's fair to say that our working assumption, and it's a working assumption so it's not a guarantee, but our working assumption is that, over time, we should be held relatively harmless from these sort of costs by protective mechanisms. Now we have to go through that, and that's our working assumption rather than fact. But -- and the -- but is that the compensation, if that's the right word, may come in different forms from just a one-for-one replacements on our cash flow. So again, this is purely hypothetical. But as for instance, you could imagine that on Tideway, for instance, it may be that we are permitted to add any increased cost to our regulated asset base. That would give us a higher regulated return on a higher asset base. And in IRR terms, that might well keep you whole for whatever costs you had incurred, but you obviously have to find that cost yourself, self-fund extra capital yourselves, ourselves, in the interim period. So when you asked that question, I guess, there's 2 elements to it. One, are we protected in the long term and therefore is value impacted? And our cautious view on that is that we very much hope it wouldn't be. But we cannot be certain at this stage, and that's the point we're going to keep monitoring. And the second question is, what does that do to our cash flow? Because hypothetically, at least, it could result in less cash flow in the short term and more cash flow in the long term. We're not totally confident, but it applies in real time. Now equally, we've got substantial reserve in INPP. We've got quite a lot of liquidity. And I think what we're trying to do here is be very straightforward to people as to where we see the potential pressure points. These are not actual pressure points. But we've had a lot of questions from people, good questions, sophisticated questions, and we're trying to answer them as accurate as we can do. So that's sort of where we see a potential tension if there's one.

Okay. Sorry, I don't mean for that to come across as negative. If anything, it's more of the other way around, sort of in a worst-case scenario, really worst, these things are not going to go back. So it's more like if the worst was to happen, you might just lose that. So actually, I was -- for me, the answer is sort of positive although the question came across as negative. And I guess just another question, if I may, on the counterparties. So when you say that the majority are public sector, which again is great, it's good news, but can you just tell us how much it isn't? Give us a number and who's the largest. I expect Diabolo is probably the largest or one of the largest...

I think we'd say all our counterparties are public sector or they're backed up by a regulated regime. So we see all our -- we don't see any private sector clients or credits in our assets. I mean to be wholly accurate on that, a miniscule part of our revenues come from third-party private users. We've got various schools where we literally let out the school halls for weddings at weekends and so on. But that would be kind of less than basis points of revenue, I suspect, in totality. So no, we see all our revenues coming from the public sector or coming through legislative-regulated regimes.

The next question comes from the line of Iain Scouller from Stifel.

Giles, you've probably covered it. But I was just -- with a lot of corporates holding cash at the moment, I was just wondering if you could foresee a similar issue with some of your counterparties in the months ahead.

I mean, again, hypothetically, I can say here and now that we've received everything that we should have received to date. We received -- we've got a distribution in from Diabolo, which we talked earlier on this month and the next one is not due until September. So everything is going well. I'm aware of one asset, which is, I'm not going to name it, but it's less than 4% by NAV, where there's a discussion as to whether -- the cash is there, but discussion as to whether they should hold it back for exactly the reasons you mentioned. We'll see where that goes to. It's not material in terms of our cash flows. So -- I mean I think you raised a good point in the sense that, that is a possibility. But I mean the assets where we are, minority owners is itself a minority in the overall portfolio. So we watch this. We're conscious of it. There's a limit to what we can do about it if it happens, but it's not a pressing issue right now.

Next question comes from the line of Colette Ord from Numis.

A couple of things being covered for me, particularly helpful, thanks on the Diabolo Rail and the Tideway point in terms of potential adding to the regulated asset base over time. I just want a clarification on the liquidity of the resource. I think you talked about GBP 70-odd million in cash. Can you just confirm where that is in structure and how flexible that is to be used across the asset base where it to be needed?

Yes. Of course. I'll ask Muhammad to just deal with that point in a second. I just want to reemphasize, Colette, that on the Tideway point, that was a hypothetical. There's been no discussions or whatever about increasing the regular asset base or whatever. So that was just a potential route. So that's an issue hasn't risen and therefore been no discussions on that. Muhammad, can you deal with cash?

Sure. Colette, this is free cash. It can be used anywhere in the structure. So this is absolutely free, subject to our discretion.

[Operator Instructions] The next question comes from [ Charles Murphy, Mill Dam Investment ].

[ Charles, Charlie Murphy ] here. Two questions, one current and one looking forward. The current one is there's been a change to the U.K. train operating system. How does that impact Angel Trains? And then the other one is UK Statistical Authority is talking about changing how they calculate RPI. Okay. That's 10 years out or whatever. But how does that affect the valuations?

Okay. Let's deal with trains first. [ Charlie ], good to hear your voice. Then -- I mean I think it's a -- it's certainly a short-term positive because, effectively, the train system has been sort of semi-nationalized over the last week or so, not which obviously gives financial securities for train operating companies, which gives additional financial security to those people who lease trains to them, including Angel Trains. So I think for that business, it's a positive. Obviously, we have to kind of wait to see how the U.K. train kind of operating world evolves. We've already got the Williams Review, which is due to report on that, and so changes are afoot. I think we have to see what the longer-term implications are for new train fleet, ordering the rest of it. We simply don't know. But there's nothing I'm aware of which has changed negatively since we last reported. But short term, I think that's just a positive for Angel. I mean, in a sense, it probably just makes what was a less -- a more complex route to government just clearer because Angel's always had the benefit of the operator last resort system, which is the statutory obligation for the Department of Transport to step in and take over the obligations of a failed train operating company. And the announcements the last few days just really make that route just much more clear and obvious. Longer-term RPI, I mean, the government been trying to change RPI to CPI for what feels like years and years and years now, and it's been a slow process. And as yet, that is not really, really begun. And the financial world obviously depends on RPI as the key metric, and obviously, the market does too as of the government in terms of issuance of indexing gilts. So I don't think anything is going to happen anytime soon. Where our assets are contractually dependent on RPI, then -- which is mainly the U.K. PFI assets, then there is a clause in [ as far as ] where all of those contracts, but I'll just caveat that because we might want to check that, but we have looked at this previously, that makes sure that, in essence, we're in no better, no worse position as a result of change of index. So our provisional view there is that shouldn't be a concern. In terms of the regulated assets, then there is a move to using CPI. But for instance, in the current regulatory review affecting gas distribution, which affects our investments in Cadent, there's been a specific adjustments, financial adjustments, which holds Cadent harmless from that RPI to CPI change. So we're expecting the change to basically run through the portfolio as and when it happens, which, as we say, is not imminent. But as when it happens, we think it'll run through without a fundamental change to the economics of the portfolio.

The next question comes from the line of Chris Brown, JPMorgan.

So I think it cut out earlier, so I might have missed this bit. I was just trying to see -- I think it was mentioned there was some kind of demand risk on BeNEX. And also while we're talking about trains, I just wondered if there's any demand risk in Reliance Rail as well.

Michael, I'll let you deal with Reliance Rail. And then between Michael and Chris, you can deal with BeNEX.

Chris, do you want to take BeNEX and I'll take Reliance?

Yes. Of course, yes. In terms of BeNEX, at the year-end, BeNEX was 3.5% of the portfolio. But to answer your specific question, there are -- BeNEX invest in train operating companies, and I think those train operating companies, in aggregate, run around 12 concessions. Now the majority of those concessions, both I think in number and in size, are gross concessions where there is no demand risk, and some of those concessions are what I refer to as net concessions whereby the operator does take demand risk. And if you look at the revenues that relate to those demand risk concessions as overall revenues for BeNEX itself, taking into account the gross concessions and the fact that a large chunk of its revenues are generated by leasing the trains themselves, the revenues from the demand-based aspect is very small.

And then just picking up on Reliance Rail, that's fully availability-based and we're actually seeing more demand from Sydney. They're looking to actually put more trains on so they can properly effect social distancing. And then just to finish off, we've also got Gold Coast Light Rail, and again, that's availability-based. And as Giles mentioned, there's a tiny, tiny amount of retail revenue on that just from the chaos on the platforms, but that is a tiny amount.

This concludes our Q&A session. I would like to turn the conference back over to Giles Frost for any closing remark.

No. I would say stay healthy. Keep washing your hands. I seriously hope you and your families are all well. Those of us -- those of you who want to get in touch with us are welcome to. We are offering 1:1 meetings with investors, obviously, on the phone. So if you or any of your clients would like to avail yourself of that, then get in touch with the usual channels and we'll set something up. But thank you for your time. Good to talk to you all and see you soon, I hope. Bye for now.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Good bye.