PORTFOLIO UPDATE FOR THE PERIOD 1 JULY 2018 TO 16 NOVEMBER 2018
19 November 2018
International Public Partnerships Limited ('INPP', the 'Company'), the listed investment company which invests in global public infrastructure projects and businesses, today issues the following portfolio update for the period 1 July 2018 to 16 November 2018.
OPERATIONAL HIGHLIGHTS
· The Company's portfolio of 130 investments in public and social infrastructure assets and related businesses are operating and performing in line with expectations.
· The solid and consistent level of operational performance in the portfolio continues to drive strong and sustainable ongoing financial performance for shareholders with continued dividend growth.
· Successful completion of a £116 million capital raising during the period. A portion of the proceeds were used to repay the Company's cash drawn portion of the existing debt facility. The remainder will be deployed into the Company's strong pipeline of opportunities where the Company has existing committed near term future investment obligations.
· The Company made an additional c.£51.8 million of investments during the period, including a c.£46 million investment in the Company's seventh offshore transmission investment (OFTO), Dudgeon and further investment into UK digital infrastructure.
· The Company successfully completed the refinancing of the senior debt in Durham Building Schools for Future. The refinancing delivered a significant financial benefit to Durham County Council and demonstrates Amber's, the Investment Adviser, active asset management approach across the portfolio where it seeks to add and deliver value for money to all stakeholders.
· The Company has previously announced its commitment to acquire a further investment into the Cadent gas distribution business to a level that enabled the permanent right to appoint a board director. It now expects it will make a further investment of c.£150-155 million (subject to price adjustment per the terms of the option agreements) into Cadent gas distribution network by the end of June 2019, following National Grid's announcement that it has elected to exercise the options that it held with the Quadgas consortium, of which INPP is a member.
FINANCIAL HIGHLIGHTS
· 0.9% increase in Net Asset Value ('NAV') per share to 146.3 pence for the six months to 30 June 2018 (31 Dec 2017: 145.0p).
· The portfolio maintains a high level of inflation-linkage such that a 1.00% increase in inflation leads to a 0.81% increase in return1.
· A first half-year 2018 dividend of 3.50 pence per share was declared on 6 September 2018 and was paid on 8 November 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 16 November 2018 of 172.5% or 8.7% 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. The weighted average investment life of the portfolio is currently 36 years5 with a weighted average (non-recourse) debt tenor of 33 years5. As at 30 September 2018, the portfolio comprised economic interests in 130 projects and businesses with a composition as detailed below4:
Geographic breakdown |
Investment Fair Value % |
Sector breakdown |
Investment Fair Value % |
United Kingdom |
71.4% |
Transport |
20.6% |
Belgium |
10.0% |
Education |
19.6% |
Australia |
9.9% |
Energy Transmission |
19.5% |
United States |
3.0% |
Gas Distribution |
14.1% |
Germany |
2.8% |
Waste Water |
10.8% |
Canada |
1.9% |
Health |
4.2% |
Ireland |
1.0% |
Courts |
3.4% |
Italy |
<0.1% |
Military Housing |
3.0% |
|
|
Other |
4.8% |
|
|
|
|
Investment life |
Investment Fair Value % |
Investment stake % |
Investment Fair Value % |
<20 years |
46.5% |
100% |
46.9% |
20 - 30 years |
25.6% |
<50% |
7.4% |
>30 years |
27.9% |
50% - 100% |
45.7% |
Debt facility, gearing and cash position
Following the successful renewal of the corporate debt facility in July 2018 for a further three years on improved terms, the Company has now repaid the £72.8 million cash drawn on the corporate debt facility during the period using the proceeds from the capital raise in October 2018. At 16 November 2018, the Company has a cash balance of c.£42 million available and the £400 million revolving credit facility is currently undrawn to support the c.£200 million of nearer term investment commitments.
Investments
During the period since 1 July 2018, the Company made new investments of c.£51.8 million.
In November 2018, the Company invested c.£46 million into the Dudgeon OFTO. The project is the Company's seventh OFTO investment and relates to the transmission cable connection to the offshore wind farm located 32km off the coast of Cromer in North Norfolk. Dudgeon OFTO transmits clean power to over 410,000 UK homes by generating electricity using 67 6MW offshore wind turbines. In total, the Company's OFTO investments transmit approximately 1.5GW of renewable electricity - or roughly 10 per cent of the UK's current installed and operational wind capacity - to power the equivalent of over 1.5 million UK homes.
As part of its £45 million commitment to the National Digital Infrastructure Fund ('NDIF'), in November 2018, the Company made an investment commitment of up to c.£9.9 million into Nextgenaccess Ltd, a developer of ultrafast wholesale and custom fibre infrastructure. The funding will help finance plans to deploy over 1,000km of new strategic high-capacity fibre routes across the UK by the end of 2020. Additionally, in August 2018, the Company made an investment commitment of up to £8.5 million in Airband Community Internet Limited, a leading wireless and fibre internet service provider that has benefited from government subsidies for rural and isolated areas of England and Wales.
On 8 November 2018, National Grid announced that it has elected to exercise the options to sell its remaining 39% shareholding of Cadent gas distribution network to Quadgas Consortium, of which INPP is a member. The Company previously announced the put/call options that had been entered into, and as a result of the exercise of those options by National Grid, the Company expects that it will make a further investment of c.£150-155 million (subject to price adjustment in accordance with the terms of the option agreements) into Cadent gas distribution network with execution due by the end of June 2019. On conclusion of these arrangements, the Company will hold a 7.25% ownership interest in Cadent giving it the permanent right to appoint a board director. This has been the Company's long-term target level of shareholding in the Cadent business. This further investment is forecast to be accretive to the Company's current portfolio in terms of discount rate, yield contribution and inflation indexation.
The Company also continues to follow the delivery of the construction works at the fourth batch of the Priority Schools Building Programme - Aggregator ('PSBP Midlands Limited') where the Company provides debt to the project. As reported in the Company's interim results on 6 September 2018 (for the period to 30 June 2018), these works predominately relate to the outstanding construction of a sports hall at one of the eight schools in the fourth batch. The sports hall's construction was due to be completed in April 2019, subject to a new construction provider being appointed to replace Carillion Construction Limited ('Carillion'), following its liquidation. A replacement construction provider has been identified but is yet to be approved by the project lenders (including the Company). The Company through its Investment Adviser is maintaining an active dialogue with PSBP Midlands and other stakeholders in the project to agree a plan to resolve the outstanding works.
Top Ten Investments
As at 30 September 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 |
14.1% |
2 |
Thames Tideway Tunnel |
10.8% |
3 |
Diabolo Rail Link |
10.0% |
4 |
Lincs Offshore Transmission |
9.2% |
5 |
Ormonde Offshore Transmission |
6.2% |
6 |
Reliance Rail |
4.2% |
7 |
Angel Trains |
3.5% |
8 |
U.S. Military Housing |
3.0% |
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. This semi-annual valuation is published within the Company's interim and annual accounts.
It is normal practice for the Company to review market-based evidence of pricing (e.g. market intelligence and its own experience of the secondary market) for assets such as those owned by the Company as part of its semi-annual valuation process. Since 30 June 2018, the Company has seen continued evidence of rising valuations for the type of assets it owns, most notably the takeover of JLIF, which could be expected to have a modest positive impact on the Company's NAV. The Company will undertake a thorough review of such market data to ensure the valuation implications of the transactions seen during the year to date are appropriately reflected in the Company's 31 December 2018 annual accounts.
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 matters occurring in the period can be expected to be reported on separately in this quarterly update.
The Company published its NAV at 30 June 2018 of 146.3 pence per share when it released its 2018 interim results on 6 September 2018. Since that date, government bond yields have decreased in the UK, Australia, Canada, Belgium and Germany, and have increased in Ireland, Italy and the US. On a net basis and other things being equal, the decrease in government bond yields could be expected to have a positive impact on the Company's NAV.
Since 30 June 2018, sterling strengthened against the Australian dollar, and weakened against the Canadian dollar, the euro and the US dollar. The net impact of these foreign exchange rate movements could also be expected, other things being equal, to have a small positive 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.
DISTRIBUTIONS
On 6 September 2018, the 2018 first half year distribution of 3.50 pence per share was declared for shareholders on the register as at 21 September 2018. This distribution was made in respect of the period 1 January 2018 to 30 June 2018 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 8 November 2018.
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 consistently monitors political developments as Brexit negotiations progress. As outlined in previous reports, while we see obvious risks in possible market and other dislocations arising from anything other than an orderly Brexit, we do not anticipate that the Company is unusually exposed to such risks or that there will necessarily be a significant impact on the Company's existing investments.
Mr Mike Gerrard was appointed to the Board as a Non-Executive Director on 4 September 2018. It is anticipated that Mr Gerrard will assume the role as Chairman upon Rupert Dorey's retirement on 31 December 2018. Mr Gerrard has extremely strong infrastructure experience having been involved in some of the largest infrastructure projects and programmes delivered in the UK and globally.
INVESTMENT ENVIRONMENT AND OUTLOOK
The market for the type of assets in which the Company invests remains buoyant and governmental and regulatory environments in which we operate continue to be supportive of long-term investment into public infrastructure. Market sentiment has continued to improve throughout the period and the share price has continued to trade at a premium to NAV. Recent transactions have demonstrated the continued strong investor demand to access infrastructure assets and the inherent underlying value of high-quality infrastructure portfolios. As mentioned above, we continue to monitor the market to ensure that valuations reflect the latest market-based evidence of pricing.
The Company has identified a pipeline of additional opportunities that are currently under review by the Investment Adviser, including current bids, preferred bidder opportunities and opportunities to acquire additional investments include pre-emption/first refusal rights, that meet the Company's risk-return profile.
The Company remains focused on the completion of its existing commitments, as well as a strong pipeline of longer-term potential opportunities including regulated utilities (including offshore transmission), health, judicial, other accommodation and transport projects.
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 0.81% 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 2018.
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 30 September 2018 calculated utilising a discounted cash flow methodology as stated in the valuation section, adjusted to reflect the Company's investments in digital infrastructure and Dudgeon OFTO which were made subsequent to the 30 September 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/Amy Joslin +44 (0)20 7939 0558/0587
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 and businesses.
Listed in 2006, INPP is a long-term investor in 130 infrastructure projects and businesses, 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 120 dedicated staff who manage, advise on and originate investments for INPP.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
