Interim Management Statement

RNS Number : 9862S

International Public Partnership Ld

14 November 2013

 



International Public Partnerships Limited

Interim Management Statement

For the period 1 July 2013 to 13 November 2013

14 November 2013

International Public Partnerships Limited ("INPP", "the Company"), a listed infrastructure investment company which invests in global public infrastructure projects including those developed under public private partnership ("PPP"), private finance initiative ("PFI"), regulated asset and similar procurement methods, today issues the following Interim Management Statement for the period 1 July 2013 to 13 November 2013.

Highlights

·        The portfolio of 122 public infrastructure investments continues to perform fully in line with expectations;

·        In the period covered by this IMS, the Company announced its 2013 Interim Result for the period to 30 June 2013, reporting an increase in Net Asset Value ("NAV") per share to 121.5 pence (31 December 2012: 121.0 pence per share);

·        Since that time the portfolio has continued to perform well and assets in construction have progressed as planned.  Overall, the Company has seen NAV accretion since 30 June 2013;

·        A first half year 2013 dividend of 3.075 pence per share was declared on 29 August 2013 and was paid on 23 October 2013.  A full year 2013 dividend[1] of 6.15 pence per share is currently targeted (up 2.5% from full year 2012);

·        The remaining 25% economic interest in the Northern Diabolo Project was acquired for £28.1m in September. The Company now owns 100% of the economic interest in this asset;

·        The proposal to modify the terms of the Investment Advisory Agreement and remove any ongoing incentive fee payable to the Investment Adviser, received shareholder approval at the Extraordinary General Meeting on 23 September;

·        Inflation linkage in the portfolio remains strong and is likely to be strengthened if the pipeline of projects currently under development is invested in successfully;

·        The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 13 November 2013 of 76%^[2].

Acquisition

During the period the Company acquired the remaining 25% economic interest in the Northern Diabolo Project not already owned by it from a subsidiary of HSH Nordbank.

The opportunity to make the additional investment arose through the pre-emptive rights that were obtained when the Company's existing 75% economic interest was acquired in 2007.  The additional 25% stake was acquired for €33.3 million (£28.1 million) and is expected to be accretive to the portfolio.  In addition, the Project has a high degree of linkage to the inflation rate in Belgium and, all things being equal, this should increase the expected return for any inflation running above the assumed rate.

The Company now owns 100% of the economic interest in the Project and the proportion of its total assets in respect of which INPP owns 100% will increase to 70.6% on a value basis.  The Company believes that the market applies a valuation premium with respect to 100% owned assets.

The acquisition was funded through INPP's existing cash resources.

Portfolio performance

The Company's portfolio of 122 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.    

Consistent with its existing approach to assist its public sector clients in achieving savings from existing PFI/PPP contacts, during the period the Investment Advisor became a signatory to the Code of Conduct for Operational PFI/PPP Contracts developed in the UK by HM Treasury. The Code is voluntary and assists in identifying and delivering efficiencies and savings in operational PFI and PPP contracts.

Good progress was also made on the circa 7% of assets in the portfolio that are currently under construction.  

Valuation benefits from successful completion of the construction phases of these projects are expected to be realised throughout the next year as sustained operational performance is demonstrated.  All construction currently within the portfolio is due to be completed by December 2014.

As at 13 November 2013, the portfolio comprised economic interests in 122 projects with a geographical split as detailed below:

Geographic Split - As at 13 Nov 2013		Sector Breakdown - As at 13 Nov 2013
UK	60%	Education	27%
Belgium	16%	Transport	24%
Australia	12%	Energy	19%
Canada	5%	Health	12%
Germany	4%	Courts	9%
Ireland	2%	Police Authority	5%
Italy	<1%	Custodial	1%
France	<1%	Other	3%

Note: This breakdown is based on the fair value market valuation of the Group's investments calculated utilising discounted cash flow methodology, adjusted for European Private Equity and Venture Capital Association (EVCA) guidelines.

Top Ten Investments

The Top Ten Investments of the Company as at 13 November 2013 were:

Rank	Asset	% of Net Asset Value
1	Diabolo Rail Link Project	15.9
2	Ormonde offshore transmission project	14.3
3	Royal Children's Hospital	5.5
4	BeNEX	4.3
5	Hereford & Worcester Courts	4.1
6	Alberta Schools	3.8
7	Northampton Schools	3.4
8	Strathclyde Police Training Centre	3.1
9	Orange Hospital	2.5
10	Tower Hamlet Schools	2.2

Valuation

The Company reports its Net Asset Value (NAV) every six months when it publishes its full and interim results. In addition, the Company provides quarterly NAV guidance predominantly based on movements in the government bond yields of countries where INPP holds investments and changes to relevant foreign exchange rates. This quarterly guidance does not reflect any changes (positive or negative) in NAV arising from matters specific to individual investments (eg changes in asset specific risks, timing implications of delayed or accelerated cashflows, changes to cashflow projections and assumptions, indexation adjustments due to changes in inflation etc). Such matters are reflected in the half year directors' valuations published with the Company's full and interim results.

Since 30 June 2013 (NAV: 121.5 pence per share), the majority of government bond rates in the jurisdictions in which the Company invests have increased. The net increase in these rates could, other things being equal, be expected to have a negative effect on the Company's NAV.

Over the same period, GBP has strengthened against the three currencies to which the Company has exposure. The strengthened foreign exchange position of GBP could be expected, other things being equal, to have a negative effect on the Company's NAV.

Based on these two macroeconomic updates alone (other things being equal) the NAV could be expected to have decreased since 30 June 2013. 

However, it is the Company's normal practice to review market based evidence (market intelligence and its own experience bidding in the secondary market) in its assessment of NAV. Since 30 June 2013, assets comparable to those owned by the Company have continued to show evidence of valuation shifts at least in line with the cumulative net effect of such macroeconomic factors over recent periods.  The Company has also benefited from continuing NAV accretion as assets which are in ramp-up phase progress to full operational status.

Distributions

On 29 August 2013, the 2013 first half year distribution of 3.075 pence per share was declared for shareholders on the register as at 13 September 2013. This distribution was for the period 1 January 2013 to 30 June 2013 and was a 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 made on 23 October 2013. 

The Board also confirms that the target distribution from income received in the year 1 January 2013 to 31 December 2013 of 6.15 pence per share, which represents a 2.5% increase over the previous year and a sixth consecutive annual increase. The Board continues to expect to increase distributions in future years at least in line with its current long term inflation assumption of 2.5% per annum.[3]

Gearing and cash position

As at 13 November, the Company had approximately £77 million of cash available for investment.  In addition, the Company has £100 million of capacity within its corporate debt facility available for re-draw by the Company, representing 100% of the facility.

Changes to accounting standards

The Company has previously advised that it is considering the timing and impact of the revised IFRS standards (Investment Entities - amendments to IFRS 10, IFRS 12 and IAS 27).  The changes address the accounting of interests held in investment companies.  This suite of revised accounting standards (of which IFRS 10 - Investment Entities is earmarked for EU consideration for endorsement by the end of this year) would require the Company to prepare its financial statements with all underlying investment entities accounted for at fair value rather than consolidated or equity accounted for. The impact of such a change is considered by the Company to be a positive change that would further align the financial reporting with the investment performance of the Company.

Governance

The Board was pleased to announce that John Stares was appointed to the Board with effect of 28 August 2013.  John has over 30 years of business experience and will bring a breadth of knowledge in the geographies and sectors, including infrastructure, in which the Company operate and is a valuable addition to the Board.

On 23 September 2013, an Extraordinary General Meeting (EGM) was held which approved changes to the Investment Advisory Agreement which had the effect of reducing future contingent expense liabilities of the Company.  These changes were retrospective in effect from 1 July 2013.

Further details of these changes can be found in the EGM Circular previously sent to shareholders and also available on the Company's website. 

Investment environment and outlook

The Company's portfolio continues to perform well and the Company continues to have good relations with its public sector stakeholders.  There continues to be a satisfactory number of attractive new infrastructure investment opportunities for INPP in the UK and in overseas jurisdictions in which the Company and the Investment Advisor is represented and where it is knowledgeable. These include the preferred bidder and other preferential positions held by the Company which have a combined investment value anticipated to exceed the amount of cash and debt facility currently available to the Company. 

Currently the company has, through its Investment Adviser, potential access to investment opportunities at "preferred bidder" stage with an investment value in excess of £170m.   These are currently expected to be available for investment in the next six months.  It is a frustration for the Company that the current pipeline of opportunities has not come through more quickly, but this is outside its control or that of the Investment Adviser.  The Company is nonetheless determined to pursue a disciplined approach to opportunities for further investment, continuing to be cautious on the pricing it sees in opportunities arising in the secondary market and preferring the better value it anticipates from the pipeline of assets in which it has the potential to be the first investor.

The Company has continued to review mature investment opportunities brought to it by third party developers and their advisors over the period although the Company's analysis has meant that the majority of these opportunities were unattractive at the prices paid by the successful buyers.  Notwithstanding this, the Company continues to keep an active eye on investment opportunities from such sources.

The recent commitments to infrastructure procurement by the UK Government and governments in other jurisdictions in which the Company invests continue to give confidence in the longer term likelihood of a supply of attractive investment opportunities and we are encouraged by continued investor demand for the infrastructure sector.

Overall, the prospects for the Company in 2013 and into 2014 remain positive: the existing portfolio is performing well; there is a good pipeline of opportunities that are expected to enhance the quality of the current portfolio (particularly with respect to UK inflation linkage); and, in the longer term the attractions of infrastructure both to government to stimulate economies and to investors as a source of long term income come to be seen ever more clearly.  This latter trend also continues to have positive implications for the value of the Company's existing portfolio.

End

For further information:

Erica Sibree                                                    [phone]

Amber Fund Management Limited                                

Nick Westlake/Hugh Jonathan                            [phone]/1263

Numis Securities       

Ed Berry/Jack Hickey                                        [phone]/7196
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), private finance initiative (PFI), regulated asset and other similar procurement methods.

Listed in 2006, INPP is a long-term investor in 122 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and utility and transmission projects in the U.K., Europe, Australia and Canada. INPP seeks to provide its shareholders with both a long-term yield and capital growth through investment across both construction and operational phases of 25-40 year concessions.

Amber Infrastructure Group (Amber) is the Investment Advisor to INPP and consists approximately 70 dedicated staff who manage, advise on and originate projects for INPP.

Visit the INPP website at www.internationalpublicpartnerships.com for more information.

This interim management statement has been prepared solely to provide additional information to shareholders as a body to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules and the interim management statement should not be relied on by any other party or for any other purpose.  It does not constitute an invitation to subscribe for or otherwise acquire or dispose of securities in the Company (defined below) in any jurisdiction.  The information contained in this interim management statement about the Issue is subject to updating and amendment, and does not purport to be full or complete.  No reliance may be placed for any purpose on the information contained in this interim management statement in connection with the Issue or the purchase of securities in the Company.  This interim management statement does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any investments nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract or commitment whatsoever.  Any decision to purchase shares should be made solely on the basis of the information contained in the final prospectus issued by the Company.

The potential acquisition by the Company of any of the investments referred to in this interim management statement is subject, among other things, to those projects reaching legal completion and to the Company having conducted satisfactory due diligence in relation to such investments. Although the Company has a right of first refusal for investments disposed of by the Amber group, any acquisitions will be subject to agreement having been reached between the Company and the relevant counterparty as to the terms of the acquisitions.  In addition, some of the investment opportunities are those where Amber or the Company is currently undergoing a bidding process.  There is no guarantee that they will be successful in any such bidding process. There is therefore no guarantee that any of the investments will be acquired and if they are on what terms. 

Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.  Subject to their legal and regulatory obligations, International Public Partnerships  and its Investment Advisor expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

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[1] Note this is a dividend target and not a profit forecast

[2] Source: Bloomberg

[3] Provided for guidance only.  This is a target and not a profit forecast.  There can be no guarantee that any distribution will be paid.

 

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