INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
PORTFOLIO UPDATE FOR THE PERIOD 1 JULY TO 15 NOVEMBER 2017
16 November 2017
International Public Partnerships Limited ('INPP', the 'Company'), the listed investment company which invests in global public infrastructure projects, today issues the following portfolio update for the period 1 July to 15 November 2017.
OPERATIONAL HIGHLIGHTS
· The Company's portfolio of 127 investments in regulated and public infrastructure projects is performing fully in line with expectations.
· An additional £38.4 million was invested into three projects and £45.0 million of investment commitment was made to digital infrastructure in the period.
· The portfolio currently has 12.9%1 of assets in physical construction, providing opportunities for capital growth as those assets progress to full operation.
· The Company maintains an attractive pipeline of investment opportunities across the UK, Northern Europe, Australia and North America, and will continue to deploy capital to meet its existing investment commitments to the landmark Thames Tideway Tunnel project.
FINANCIAL HIGHLIGHTS
· 1.8% increase in Net Asset Value ('NAV') per share to 144.7 pence for the six months to 30 June 2017 (31 Dec 2016: 142.2p).
· The portfolio maintains a leading level of inflation-linkage such that a 1.00% increase in inflation leads to a 0.83% increase in return2.
· A first half year 2017 dividend of 3.41 pence per share was declared on 7 September 2017 and was paid on 9 November 2017.
· A minimum target dividend for the 2017 and 2018 financial years has been set at 6.82 and 7.00 pence per share, respectively; in line with an average increase of c.2.5%3 or greater each year.
· The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 15 November 2017 of 165.6% or 9.3% on an annualised basis4.
PORTFOLIO PERFORMANCE
The Company's portfolio of assets continues to perform well with revenues and cash receipts in line with management forecasts and levels of satisfaction remaining high amongst public sector clients.
The portfolio currently has 12.9%1 of assets still in physical construction. The weighted average investment life of the portfolio is currently 37 years1 with a weighted average (non-recourse) debt tenor of 36 years1.
As at 30 September 2017 the portfolio comprised economic interests in 127 projects with a composition as detailed below1:
Geographic breakdown |
Investment Fair Value % |
Sector breakdown |
Investment Fair Value % |
United Kingdom |
74.9% |
Energy Transmission |
20.6% |
Belgium |
9.9% |
Education |
20.5% |
Australia |
6.1% |
Transport |
16.6% |
United States |
3.1% |
Gas Distribution |
14.9% |
Germany |
2.8% |
Waste Water |
10.9% |
Canada |
2.1% |
Health |
4.9% |
Ireland |
1.1% |
Courts |
3.8% |
Italy |
<0.1% |
Military Housing |
3.1% |
|
|
Other |
4.7% |
Investment life |
Investment Fair Value % |
Investment stake % |
Investment Fair Value % |
<20 years |
41.3% |
100% |
48.8% |
20 - 30 years |
29.7% |
<50% |
7.7% |
>30 years |
28.9% |
50% - 100% |
43.5% |
Debt facility, gearing and cash position
The Company has now deployed all of the capital it raised in May 2017 and has utilised £20.6 million of the credit available to it under its corporate debt facility by way of letters of credit, leaving £379.4 million of the £400.0 million facility available for investment.
Investments
During the period since 1 July 2017, £38.4 million was invested into three projects and £45.0 million was committed (but not yet invested) towards investment into the digital infrastructure sector.
Thames Tideway Tunnel
Progress on the Thames Tideway Tunnel construction is continuing. Work has started ahead of schedule at the key drive sites, with construction scheduled to complete in 2022. During the period an additional £500 million of long term financing was successfully raised by Tideway to support its construction activities bringing total long term financing raised since Financial Close to £1.8 billion.
Since 1 July 2017 the Company has invested a further £22.0 million into the Tideway project leaving £7.9 million to be invested during the remainder of 2017 (currently supported by a letter of credit).
Gold Coast Light Rail - Phase 2
In April 2016, the Company committed to invest into a 7.3km extension to the Gold Coast Light Rail PPP concession project in Queensland, Australia. In December 2016, INPP acquired a further 3.33% interest in the project from Aveng Group.
The commitment into this second phase of the project was supported by a letter of credit provided by the Company. £3.6 million of investment was made directly into the project during the period with £0.9 million still supported by the letter of credit.
Victoria Schools Project
In September 2015, the Company as part of a consortium was selected to design, build, finance and maintain the New Schools Public Private Partnership Project in Victoria, Australia. The project comprises the delivery of 15 schools across 12 sites which are due to be completed by 2018.
The Company provides 100% of the project risk capital which was supported by a letter of credit during construction. In the period from 1 July 2017, £12.8 million of investment was made into the project with £8.2 million still supported by letter of credit.
Digital infrastructure
The Company committed jointly with HM Government to make an investment in digital infrastructure and particularly fibre optic broadband connections. The Company sees long term parallels between the essential nature of broadband connectivity to the home and workplace, and the established businesses of gas and electricity distribution and transmission with which it is already experienced.
The investment that INPP has committed to will be made through a co-investment vehicle into which INPP has committed up to £45 million and HM Government has committed up to £150 million. This co-investment vehicle has been established as part of the UK Government's Digital Infrastructure Investment Fund initiative.
Top Ten Investments
As at 30 September 2017 with adjustments for subsequent transactions, the Top Ten Investments of the Company in terms of value were as set out below1:
Rank |
Asset |
Investment Fair Value % |
1 |
Cadent (gas distribution network) |
14.9% |
2 |
Thames Tideway Tunnel |
10.9% |
3 |
Diabolo Rail Link |
9.9% |
4 |
Lincs Offshore Transmission |
9.6% |
5 |
Ormonde Offshore Transmission |
6.7% |
6 |
Angel Trains |
3.7% |
7 |
U.S. Military Housing |
3.1% |
8 |
Royal Children's Hospital |
2.3% |
9 |
BeNEX Rail |
2.1% |
10 |
Northampton Schools |
1.6% |
VALUATION
The Company's investment portfolio valuation is determined semi-annually by the Directors after advice from the Investment Advisor and is reviewed by the Company's auditors, EY. In addition, the Company provides quarterly NAV guidance predominantly based on movements over the period in the government bond yields of countries where the Company holds investments and changes to relevant foreign exchange rates.
This quarterly guidance does not include any changes (positive or negative) in NAV arising from matters specific to individual investments (e.g. changes in asset specific risks, timing implications of delayed or accelerated cash flows, changes to cash flow projections and assumptions, indexation adjustments due to changes in inflation etc.), although any material investment-specific issues occurring in the period can be expected to be reported on separately in this quarterly update. The Directors' valuations published with the Company's full and interim results are reviewed by the Company's auditors and are updated to reflect both investment-specific and macroeconomic factors.
The Company published its NAV at 30 June 2017 of 144.7 pence per share when it released its 2017 first half year results (on 7 September 2017). Since that date government bond yields in the majority of jurisdictions in which the Company invests have decreased. On a net basis and other things being equal, the net decrease in government bond yields could be expected to have a positive effect on the Company's NAV.
Over the same period, the Sterling strengthened against the Australian Dollar and the U.S. Dollar but weakened against the Euro and the Canadian Dollar. The net impact of the foreign exchange rate movements could be expected, other things being equal, to have a broadly neutral effect on the NAV.
Inflation rates in the UK continue to run ahead of the current assumption used in the Company's UK investment valuations and, other things being equal, this is expected to have a positive impact on the Company's NAV.
In the course of its normal practice the Company also reviews market based evidence (market intelligence and its own experience of the secondary market for assets such as those owned by the Company) in its assessment of NAV. Since 30 June 2017 the Company has seen continued evidence of rising valuations for assets of the type it owns. The extent of the positive impact which this is likely to have on NAV is being considered and will be reported on more fully at the time of the Company's full year results.
DISTRIBUTIONS
On 7 September 2017, the 2017 first half year distribution of 3.41 pence per share was declared for shareholders on the register as at 29 September 2017. This distribution was made in respect of the period 1 January 2017 to 30 June 2017 and represents a c.2.5% increase on the distribution paid in the previous corresponding period.
The Scrip Dividend Alternative Circular applicable to that dividend was available to investors and the associated scrip allotment or dividend payment was paid on 9 November 2017.
The Board of Directors have previously announced minimum targets for the 2017 and 2018 distributions of 6.82 pence per share and 7.00 pence per share (respectively), providing additional guidance to investors as to the Company's future intentions. The targeted payments would represent a minimum c.2.5% increase on the preceding distributions and would continue to be in line with the growth target indicated at the time of the Company's IPO in 20062.
INVESTMENT ENVIRONMENT AND OUTLOOK
The market outlook for the Company remains positive. Infrastructure ranks highly on many government agendas and this asset class continues to be a key driver for economic growth and positive social impact. The global scale of the capital investment ambition of governments is significant and we anticipate this will generate more investment opportunities in the developed OECD geographies in which the Company invests.
Political uncertainty and consequential economic risk present potential market-wide challenges, which need to be analysed and assessed as and when they materialise. The nature of INPP's investment portfolio and the active approach we have adopted to asset management both provide a firm foundation from which to react to any emerging risks.
The Company notes the increasing public attention paid to the assessment of the value for money private sector investment in UK public infrastructure provides. As a long-standing and leading originator, investor and operator of public infrastructure projects globally, the Company firmly believes that the public private partnerships models with which it is involved, bring significant benefits to its public sector partners, and ultimately their end users.
These include the benefits of fixed-maturity, fixed-price contracts covering the whole of the life of the asset and the risk transfer to the private sector arising through detailed payment mechanisms imposing penalties where standards fall below those required by the project contracts.
The greatest volume of commentary relating to historical projects procured under the Project Finance Initiative (PFI) has been associated with large, acute hospital projects. The Company has no such projects in its portfolio in the UK.
Currently, 8.5%1 of the Company's portfolio is comprised by equity investment in assets considered to have been developed under "classic" PFI in the UK. A further 1.6%1 is comprised of debt investment in such assets.
A further 10.7%1 is comprised of equity investment in schools developed under the Building Schools for the Future Programme (a successor programme developed by the government between 2004 and 2010 with similarities to (but also significant differences from) the original PFI structures).
A further 2.5%1 of the Company's portfolio is invested in the senior debt of school investment projects developed under a revised programme of the UK government called Private Finance 2. This further successor programme was established in 2012.
The Company has strong, productive relationships with all its public sector customers on these projects.
Overall the Company remains positive about its prospects regarding both the performance of its existing investments and the opportunity to add high-quality investments to the portfolio in the short-to-medium term.
Notes to Editors:
While it is no longer a requirement under the Disclosure and Transparency Rules for the Company to issue Interim Management Statements, the Board believes it is in the interest of shareholders for the Company to provide quarterly updates in addition to its half year reports.
1. This is based on the fair valuation of the Group's investments as at 30 September 2017 calculated utilising a discounted cash flow methodology as stated in the valuation section and includes the Company's investments in the Gold Coast Light Rail and Victoria Schools projects which were made subsequent to the 30 September 2017 valuation date. As the Group's investment commitment to digital infrastructure has not yet been called, it has not been taken into account in the calculations above.
2. In aggregate, the weighted average return of the portfolio would be expected to increase by 0.83% per annum in response to a 1.00% per annum inflation increase over the currently assumed inflation rates across the whole portfolio. Based on analysis as at 30 June 2017.
3. Dividend targets are targets and not profit forecasts and there can be no guarantee they will be achieved. Projections are based on the current individual asset financial models and may vary in the future.
4. Source: Bloomberg, share price appreciation plus income.
ENDS.
For further information:
Erica Sibree +44 (0)20 7939 0558
Amber Fund Management Limited
Hugh Jonathan +44 (0)20 7260 1263
Numis Securities
Ed Berry/Mitch Barltrop +44 (0) 20 3727 1046/1039
FTI Consulting
About International Public Partnerships (INPP):
International Public Partnerships ('INPP') is a listed infrastructure investment company which invests in global public infrastructure projects developed under the public private partnerships ('PPP'), regulated asset and other similar procurement methods.
Listed in 2006, INPP is a long-term investor in 127 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and utility and transmission projects in the UK, Europe, Australia and North America. INPP seeks to provide its shareholders with both a long-term yield and capital growth through investment across both construction and operational phases typically of 25-40 year concessions.
Amber Infrastructure Group ('Amber') is the Investment Adviser to INPP and consists over 100 dedicated staff who manage, advise on and originate investments for INPP.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
Important Information
This announcement contains information that is inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014.
This announcement is an advertisement. It does not constitute a prospectus relating to the Company and does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract therefor.
Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement. The Company, Amber and Numis Securities expressly disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.
