TIDMINPP
RNS Number : 9327P
International Public Partnership Ld
01 June 2018
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.GBP8 million out of its
GBP45 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 GBP255m 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 return(1) .
-- 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
basis(3) .
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 GBP1.5 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 years(5) with a weighted average (non-recourse) debt
tenor of 34 years(5) . As at 31 March 2018 the portfolio comprised
economic interests in 129 projects with a composition as detailed
below(4) :
Geographic Investment Sector Investment
breakdown Fair Value breakdown 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 Investment Investment Investment
life Fair Value stake % 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 GBP26 million of the credit
available to it under its corporate debt facility by way of GBP1.2
million of letters of credit, and GBP24.8 million cash drawn,
leaving GBP374 million of the GBP400 million facility available for
investment. Of this c.GBP255 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 GBP35-40 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 GBP45 million commitment to the National Digital
Infrastructure Fund ('NDIF'), the Company invested c.GBP8 million
during the period. This enabled NDIF to invest GBP18 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 below(4) :
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 2006(2) .
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.
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END
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