PORTFOLIO UPDATE FOR THE PERIOD 1 JANUARY 2019 TO 31 MAY 2019
4 June 2019
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 January 2019 to 31 May 2019.
OPERATIONAL HIGHLIGHTS
· The Company's portfolio of 130 investments in global public and social infrastructure assets continues to operate and perform in line with expectations
· The portfolio continues to deliver consistent operational performance and strong financial returns offering the prospect of continued dividend growth for shareholders
· During the period, the Company made three investment commitments which it believes will bring additional value to its existing portfolio:
- The Company entered into a sale and purchase agreement to acquire a further 51% shareholding in BeNEX GmbH. The transaction will increase INPP's ownership to 100%
- In April 2019, the Company announced that it will invest up to £12.4 million of additional risk capital in the Midlands Batch Priority Schools Project as part of a successful recapitalisation of the project
- As part of its £45 million commitment to the National Digital Infrastructure Fund ('NDIF'), the Company made a further investment into toob, a full fibre broadband provider, in March 2019
· The Company confirms, that as previously announced in March 2017 and April 2018, it is due to make a further investment of approximately £155 million into Cadent Gas Limited ('Cadent') by the end of June 2019 in order to bring its stake to 7.25%, and qualify for a permanent right to a board seat in that business
FINANCIAL HIGHLIGHTS
· On 28 March 2019, the Company announced its results for the 12 months to 31 December 2019 reporting:
o 2.1% increase in Net Asset Value ('NAV') per share to 148.1 pence for the 12 months to 31 December 2018 (31 Dec 2017: 145.0p)
o The portfolio maintains a high level of inflation-linkage such that a 1.00% increase in inflation leads to a 0.82% increase in return1
o A second half-year 2018 dividend of 3.50 pence per share was declared on 28 March 2019 and is expected to be paid on 10 June 2019
o A target dividend for the 2019 and 2020 financial years has been set at 7.18 and 7.36 pence per share, respectively, consistent with the average annual increase of c.2.5%2
· The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 31 May 2019 of 174.1% or 8.4% on an annualised basis3.
PORTFOLIO PERFORMANCE
The portfolio currently has 11.1%4 of assets still in physical construction. The weighted average investment life of the portfolio is currently 35 years5 with a weighted average (non-recourse) debt tenor of 32 years5. As at 31 March 2019, with adjustments for subsequent transactions, 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 |
71.9% |
Energy Transmission |
21.8% |
Belgium |
10.0% |
Transport |
20.1% |
Australia |
9.5% |
Education |
19.6% |
United States |
3.1% |
Gas Distribution |
12.3% |
Germany |
2.6% |
Waste Water |
10.7% |
Canada |
1.8% |
Health |
4.2% |
Ireland |
1.0% |
Courts |
3.3% |
Italy |
<0.1% |
Military Housing |
3.1% |
|
|
Other |
4.9% |
Investment life |
Investment Fair Value % |
Investment stake % |
Investment Fair Value % |
<20 years |
52.4% |
100% |
48.9% |
20 - 30 years |
21.5% |
<50% |
7.2% |
>30 years |
26.1% |
50% - 100% |
43.9% |
Debt facility, gearing and cash position
The Company has a £400 million corporate debt facility (available until July 2021) and as at 31 May 2019, the facility was undrawn with £1.4 million committed via letters of credit, leaving £398.6 million undrawn to support the Company's nearer term investment commitments and other future investments.
Portfolio Developments
During the period since 1 January 2019, the Company successfully invested and committed up to approximately £62.1 million in new or follow-on investments.
In April 2019, the Company announced that it had entered into a sale and purchase agreement to acquire a further 51% shareholding in BeNEX, a rail and bus operating business in Germany. The transaction will see INPP's ownership increase from 49% to 100%. The Company has agreed to invest up to €54 million of which part will be subscribed immediately as additional capital to BeNEX and the remainder will be used to acquire the additional 51% shareholding. The payment to acquire the shareholding will be deferred and is expected to be paid over the period to 2026 and to be funded by a return of capital from BeNEX over the same period.
As reported in the Company's annual result, a small amount of construction work remains outstanding on the fourth batch of the Priority Schools Building programme, where the Company originally provided debt to the project. During the period, INPP announced a recapitalisation of that project which saw the Company commit to invest up to £12.4 million of additional risk capital such that it now additionally owns 92.5% of the equity in that project.
As part of its £45 million commitment to the National Digital Infrastructure Fund ('NDIF'), in March 2019 the Company made an investment commitment into toob. toob is a new full fibre broadband provider, and the expectation is that the funding will support the delivery of gigabit broadband speeds to more than 100,000 premises by the end of 2021. To date, c.£17 million of INPP's £45 million commitment has been called by NDIF, supporting NDIF's four investments.
As previously announced, the Company is due to invest a further c.£155 million in Cadent by the end of June 2019. Following the additional investment, the Company will have a 7.25% ownership interest in Cadent, providing it with a permanent right to appoint a board director. We believe that Cadent remains an attractive asset for the Company and continues to exhibit key characteristics that we seek for the portfolio, including fully inflation-linked revenues, attractive cash yield, with no exposure to commodity or demand-risk and insulated from GDP trends.
The Company successfully completed the refinancing of the senior debt in Blackburn Building Schools for Future (Phase 1). The refinancing delivered significant financial benefit to Blackburn with Darwen Council, demonstrating the Company's Investment Adviser, Amber's active asset management approach across the portfolio where it seeks to add and deliver value for money to all stakeholders.
Top Ten Investments
As at 31 March 2019, 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 |
12.3% |
2 |
Thames Tideway Tunnel |
10.7% |
3 |
Diabolo Rail Link |
9.5% |
4 |
Lincs Offshore Transmission |
9.2% |
5 |
Ormonde Offshore Transmission |
6.0% |
6 |
Reliance Rail |
4.3% |
7 |
Angel Trains |
3.6% |
8 |
U.S. Military Housing |
3.1% |
9 |
Dudgeon Offshore Transmission |
2.3% |
10 |
BeNEX |
2.0% |
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.
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 31 December 2018 of 148.1 pence per share when it released its 2018 full year results on 28 March 2019. Since that date, government bond yields have decreased in all jurisdictions in which INPP is invested. 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 31 December 2018, Sterling has strengthened against the Australian Dollar, the Euro and the US Dollar, and weakened against the Canadian Dollar. 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.
DISTRIBUTIONS
On 28 March 2019, the 2018 second half year distribution of 3.50 pence per share was declared for shareholders on the register as at 12 April 2019. This distribution was made in respect of the period 1 July 2018 to 31 December 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 is expected to be paid on 10 June 2019.
The Board of Directors have previously announced targets for the 2019 and 2020 distributions of 7.18 pence per share and 7.36 pence per share, respectively, providing additional guidance to investors as to the Company's future intentions. The targeted payments would represent a 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 for the type of assets in which the Company invests remains fundamentally strong, and overall governments and regulators in the countries in which we invest remain committed to the principle of long-term private sector investment.
In particular we note HM Treasury and the Infrastructure and Projects Authority's current consultation on the mechanisms for the delivery of infrastructure finance which the Company, though its Investment Adviser, is actively engaged in. This forward-looking consultation will help provide a road map for the financing of significant infrastructure in the UK, including the pivotal role that the private sector will play within it.
At the same time the Company is also mindful that the political landscape is currently somewhat uncertain; not least because of the proposed plans of the UK opposition party's proposal to nationalise regulated infrastructure in the UK, including railways, water and energy companies, therefore potentially impacting some of the Company's investments. Whilst the Company and Amber believe that there are number of practical mitigants that exist to the implementation of the proposals that have been made by the UK Labour Party, we continue to monitor the political risks very closely.
The Company also continues to monitor the risks associated with all potential outcomes of the UK leaving the EU and their potential impact on the Company. The Investment Adviser has adopted a position of readiness and is in continuous communication with the Company's key contractors, so that as much early warning as possible can be given to enable mitigating measures to be implemented should it be necessary.
Notwithstanding these headwinds, the Company remains focused on the completion of its existing commitments, together with continuing to develop suitable opportunities from its strong and well diversified investment pipeline, with particular focus outside the UK. Finally, the Company remains confident in its ability to continue to deliver predictable, long-term, inflation-linked returns which it recognises are fundamental to the investment case for its shareholders.
ENDS.
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 0.82% 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 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 31 March 2019 calculated utilising a discounted cash flow methodology as stated in the valuation section.
5. This includes non-concession entities which have potentially a perpetual life but are assumed to have finite lives.
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, which meets societal and environmental needs, both now, and into the future.
INPP is a responsible, long-term investor in 130 infrastructure projects and businesses, including utility and transport businesses, transmission projects, schools, courts and police headquarters in the UK, Europe, Australia and North America. INPP seeks to provide its shareholders with both a long-term yield and capital growth.
Amber Infrastructure Group ('Amber') is the Investment Adviser to INPP and consists over 120 staff who are responsible for the management of, advice on and origination of infrastructure investments.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
