PORTFOLIO UPDATE FOR THE PERIOD 1 JANUARY 2018 TO 31 MAY 2018
1 June 2018
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 January 2018 to 31 May 2018.
OPERATIONAL HIGHLIGHTS
· The Company's portfolio of 129 investments in public and social infrastructure assets and related businesses is operating well and is delivering very high levels of operational performance to its public sector clients and consumers.
· The strong and consistent level of operational performance in the portfolio continues to drive a strong and sustainable ongoing financial performance for shareholders.
· During the period, the Company made two investment commitments which it believes will bring additional long-term value to its portfolio:
o In April 2018 the Company invested c.£8 million out of its £45 million commitment to digital infrastructure investment in a business called Community Fibre.
o In May 2018, INPP entered into an option to acquire a further put and call option arrangement relating to the Cadent Gas Distribution Network ('Cadent') business in which it already has an investment. Upon exercise of this and the existing put and call option entered into at the time of the original acquisition, the Company will have a 7.25% shareholding in Cadent.
· In March 2018, the Company undertook a further refinancing of one of its education assets under the Building Schools for Future ('BSF') programme, adding to the two schemes that were refinanced last year. These refinancings demonstrate the Investment Adviser's active asset management approach seeking to add value where it is able to do so. At the same time, refinancing benefits are shared with the public sector and thus offer added value for money to the Company's public sector clients.
· Following the collapse of Carillion plc in January 2018, which affected 24 individual facilities in which the Company is invested, the Company has made good progress with services successfully transitioned to new providers at 22 of the 24 projects. All facilities have been available with continuation of service delivery to all the Company's public sector clients.
· The Company continues to benefit from an exciting 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 which include commitments amounting to approximately £255m over the next two years.
FINANCIAL HIGHLIGHTS
· 2% increase in Net Asset Value ('NAV') per share to 145.0 pence for the twelve months to 31 December 2017 (31 Dec 2016: 142.2p).
· The portfolio maintains a high level of inflation-linkage such that a 1.00% increase in inflation leads to a 0.79% increase in return1.
· A second half-year 2017 dividend of 3.41 pence per share was declared on 21 March 2018 and is expected to be paid on 15 June 2018.
· A minimum target dividend for the 2018 and 2019 financial years has been set at 7.00 and 7.18 pence per share, respectively; in line with an average increase of c.2.5%2 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 31 May 2018 of 147.5% or 8.2% on an annualised basis3.
PORTFOLIO PERFORMANCE
The Company's portfolio of assets continues to perform well with revenues and cash receipts at least in line with management forecasts and levels of satisfaction remaining high amongst public sector clients.
The portfolio currently has 11.4%4 of assets still in physical construction, with Thames Tideway Tunnel ('Tideway') representing 10.8%. Construction progress is on schedule with c.27% of construction now completed. Preparations are now underway for horizontal tunnelling, which is due to commence later this year.
As at May 2018, the Company's Investment Adviser has successfully transitioned 22 of 24 projects to new facilities managers on substantially the same terms as the existing contracts and all on-site ex-Carillion personnel will be offered continuity of employment on the same terms; in the case of 14 of these locations this is on a permanent basis and in the case of eight facilities this is on an interim basis, but with the expectation that the transferee will take a permanent transfer shortly. At the remaining two facilities, commercial terms of the transfer have been agreed and the Company awaits final consent. The cost of transitioning will be immaterial (less than £1.5 million), and overall there will be minimal impact on the Company's valuation.
The Company notes the increased political commentary led by the Labour party in the U.K. around projects procured under Private Finance Initiative ('PFI'). The Company's exposure to such projects is relatively modest, currently 8.2%4 of the Company's portfolio is comprised of equity investment in assets considered to have been developed under "classic" PFI in the U.K. and a further 10.2%4 is comprised of equity investment in schools developed under the BSF Programme (a successor programme developed by the government between 2004 and 2010 with similarities to (but also significant differences from) the original PFI structures). An additional 3.8%4 is comprised of senior debt investments of 'classic' PFI assets and schools under the revised programme of the U.K. government.
The weighted average investment life of the portfolio is currently 37 years5 with a weighted average (non-recourse) debt tenor of 34 years5. As at 31 March 2018 the portfolio comprised economic interests in 129 projects with a composition as detailed below4:
Geographic breakdown |
Investment Fair Value % |
Sector breakdown |
Investment Fair Value % |
|
United Kingdom |
71.6% |
Transport |
20.4% |
|
Australia |
10.1% |
Education |
19.8% |
|
Belgium |
9.8% |
Energy Transmission |
19.6% |
|
United States |
2.9% |
Gas Distribution |
14.2% |
|
Germany |
2.7% |
Waste Water |
10.8% |
|
Canada |
1.8% |
Health |
4.4% |
|
Ireland |
1.0% |
Other |
4.4% |
|
Italy |
<0.1% |
Courts |
3.5% |
|
|
|
Military Housing |
2.9% |
|
|
|
|
|
|
Investment life |
Investment Fair Value % |
Investment stake % |
Investment Fair Value % |
<20 years |
43.2% |
100% |
46.6% |
20 - 30 years |
28.9% |
<50% |
7.4% |
>30 years |
27.9% |
50% - 100% |
46.0% |
|
|
|
|
|
|
|
|
Debt facility, gearing and cash position
The Company has now deployed all the capital it raised in December 2017 and has utilised £26 million of the credit available to it under its corporate debt facility by way of £1.2 million of letters of credit, and £24.8 million cash drawn, leaving £374 million of the £400 million facility available for investment. Of this c.£255 million is currently committed to fund existing investment commitments including Dudgeon Offshore Transmission Project ('OFTO'), on which the Company is currently the preferred bidder, and further investments into Cadent, digital infrastructure, and the Offenbach Police Headquarters in Germany. In addition, the Company continues to maintain cash balances sufficient for working capital purposes and the payment of dividends.
Investments
During the period since 1 January 2018, the Company announced its third and final investment commitment in Cadent, expected to be between £35-40 million by way of entering into a put and call option agreement which, as with the previous put and call option agreed in March 2017, will be exercisable in 2019. Following the exercise of these options (expected in 2019), the Company will have a 7.25% stake in Cadent which will entitle it to a permanent board seat.
As part of its £45 million commitment to the National Digital Infrastructure Fund ('NDIF'), the Company invested c.£8 million during the period. This enabled NDIF to invest £18 million into Community Fibre, a company aiming to make ultra-fast full-fibre internet service available to around a further 100,000 homes by 2019, covering social and private housing estates across London.
Top Ten Investments
As at 31 March 2018, with adjustments for subsequent transactions, the Top Ten Investments of the Company in terms of value were as set out below4:
Rank |
Asset |
Investment Fair Value % |
1 |
Cadent |
14.2% |
2 |
Thames Tideway Tunnel |
10.8% |
3 |
Diabolo Rail Link |
9.8% |
4 |
Lincs Offshore Transmission |
9.2% |
5 |
Ormonde Offshore Transmission |
6.4% |
6 |
Reliance Rail |
4.3% |
7 |
Angel Trains |
3.4% |
8 |
U.S. Military Housing |
2.9% |
9 |
BeNEX Rail |
2.1% |
10 |
Royal Children's Hospital |
1.9% |
VALUATION
The Company's investment portfolio valuation is determined semi-annually by the Directors after advice from the Investment Adviser 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, 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 31 December 2017 of 145.0 pence per share when it released its 2017 full year results on 21 March 2018. Since that date, government bond yields have increased in the UK, Canada, Germany and the US, and have decreased in Australia, Belgium, Ireland and Italy. On a net basis and other things being equal, the increase in government bond yields could be expected to have a small negative impact on the Company's NAV.
Since 31 December 2017, sterling has strengthened against all four currencies that the Company is exposed to. The net impact of these foreign exchange rate movements could also be expected, other things being equal, to have a small negative impact on the Company's 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 small positive impact on the Company's NAV.
In the course of its normal practice, the Company also reviews market-based evidence (i.e. 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 31 December 2017, the Company has seen continued evidence of rising valuations for assets of the type it owns which could be expected to have a positive impact on the Company's NAV.
DISTRIBUTIONS
On 21 March 2018, the 2017 second half year distribution of 3.41 pence per share was declared for shareholders on the register as at 27 April 2018. This distribution was made in respect of the period 1 July 2017 to 31 December 2017 and represents a c.2.5% increase on the distribution paid in the previous corresponding period. The dividend is expected to be paid on 15 June 2018 and all qualifying shareholders will receive the 2017 second half year distribution of 3.41 pence per share on 15 June 2018 in cash with no scrip dividend alternative for this period.
The Board of Directors have previously announced minimum targets for the 2018 and 2019 distributions of 7.00 pence per share and 7.18 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.
CORPORATE GOVERNANCE
The Company announced the intention of Rupert Dorey to retire as chairman in due course. Rupert has been on the Board of the Company since 2006 and will continue in the role until a suitable replacement has been identified and appropriate transition period has taken place.
The Board has also noted announcements by other funds of their decision to seek U.K. Investment Trust status. While the Board as a matter of course keeps its structure under regular review and believes that there is no current need to re-organise it will continue to monitor broader market developments and review options where appropriate.
INVESTMENT ENVIRONMENT AND OUTLOOK
Infrastructure continues to rank highly on government agendas and the development of public infrastructure is accepted as a key component of long-term economic policy, helping drive efficiency and productivity gains in the jurisdictions where the Company operates.
The Company has a number of potential opportunities currently under review by the Investment Adviser, including current bids, preferred bidder opportunities and opportunities to acquire additional investments including under pre-emption/ first refusal rights, that meet the Company's risk-return profile.
In addition to INPP's existing commitments to Cadent, Dudgeon OFTO, Offenbach Police Headquarters and further investments into digital infrastructure, the Company has a strong pipeline of longer term potential opportunities in OFTOs, accommodation and transport projects which may be progressed further subject to the Company's usual rigorous review.
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. In aggregate, the weighted average return of the portfolio would be expected to increase by 0.79% 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 31 December 2017.
2. 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.
3. Source: Bloomberg, share price appreciation plus income.
4. This is based on the fair valuation of the Company's investments as at 31 March 2018 calculated utilising a discounted cash flow methodology as stated in the valuation section, adjusted to reflect the Company's investments in Cadent and Community Fibre which were made subsequent to the 31 March 2018 valuation date.
5. This includes non-concession entities which have potentially a perpetual life but are assumed to have finite lives.
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.
Listed in 2006, INPP is a long-term investor in 129 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.
