Directors' Valuation of PPP concessions
The Directors’ Valuation is intended to provide an indicator of the value of the PPP investment portfolio. By using a consistent methodology over time, it has served to illustrate movements in the underlying value of the portfolio, rather than seeking to provide an open market valuation.
However disposals of UK assets over the last few years have highlighted the growing difference between the Directors’ Valuation and the values achievable for our UK investments in the open market. After reviewing recent disposals, it was concluded that the previous methodology no longer provided a good indicator of value. We therefore revised the valuation methodology in light of knowledge from our previous transactions and observed movements in the secondary PPP market, to bring the Directors’ Valuation closer to a more meaningful proxy for market value. The revised methodology was published on 27 August 2014.
The review resulted in a number of changes to the methodology used in calculating the Directors’ Valuation. The changes to the UK portfolio can be broadly categorised into three areas: reduced discount rates, improved cash flow assumptions and revised macroeconomic assumptions. In North America the nature of our projects is somewhat different to those in the UK, and there are only a limited number of market transactions against which to benchmark valuations. However, as our portfolio has matured we have reviewed the discount rates applied. With these revisions to the methodology, the Directors’ Valuation now provides a more meaningful proxy for market value.
Directors’ Valuation now provides a more meaningful proxy for market value.