Interim Management Statement

RNS Number : 1559H

International Public Partnership Ld

15 May 2014

 



International Public Partnerships Limited

Interim Management Statement

For the period 1 January to 14 May 2014

15 May 2014

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 ("IMS") for the period 1 January to 14 May 2014.

Highlights

·        The portfolio of 115 public infrastructure investments continues to perform in line with expectations.

·        Three additional investments have been made in the course of 2014 so far.  These include a 100% ownership interest in the BMBF project which is in the course of constructing a new headquarters for the German Federal Education Ministry and a further investment into the Kent and Wolverhampton Building Schools for the Future projects.

·        The Company also made a disposal in the period to which this IMS relates of a minority interest in some other Building Schools for the Future projects where the Company had determined that no realistic possibility existed of increasing the Company's stake to a majority position.  These disposals were made at a price well in excess of the Company's carrying value.

·        The Company continues to target approximately £200m of further investment in the course of 2014.  In the year to date, the Company's Investment Adviser has reviewed 34 opportunities on behalf of the Company.

·        In the period covered by this IMS, the Company announced its 2013 Annual Result for period to 31 December 2013 reporting an increase in Net Asset Value ("NAV") per share to 123.0 pence (31 December 2012: 121.0 pence per share).

·        Since that time the portfolio has continued to perform well and assets in construction continue to progress as planned.  At the macro economic level, AUD has strengthened and CAD and EUR have weakened against GBP since 31 December 2013. In the government bond market there has been a net decrease in the weighted average government bond yields observed since 31 December 2013. These movements would be expected to lead to an increase in NAV compared to 31 December 2013 NAV, other things being equal.

·        A second half year 2013 dividend of 3.075 pence per share was declared on 27 March 2014 and is expected to be paid on 13 June 2014.

·        The Company has announced dividend guidance for both 2014 and 2015 - minimum dividend targets for the 2014 and 2015 financial years¹ of 6.30 and 6.45 pence per share (respectively) are being targeted.

·        Total investment in the period to which this IMS relates amounted to £17.0 million and total divestment to £18.8 million.

·        The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 14 May 2014 of 86.5%².

Portfolio performance

The Company's portfolio of 115 assets continues to perform well with revenues and cash receipts in line with forecasts and levels of satisfaction remaining high amongst public sector clients.    

Good progress continued to be made on the circa 8% of assets in the portfolio that are currently under construction which all remain on schedule.  The proportion of assets in construction increased due to the investment in the German Education Ministry project.

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 14 May 2014, the portfolio^a could be summarised as detailed below:

Geographic Split	14 May 2014 %	Sector breakdown	14 May 2014 %
United Kingdom	62	Education	28
Belgium	15	Transport	23
Australia	11	Energy	19
Canada	5	Health	11
Germany	5	Courts	9
Ireland	2	Police Authority	5
France	<1	Custodial	1
Italy	<1	Government Offices/Other	4

Concession Length	31 Dec 2013 %	Project Stake	31 Dec 2013 %
10-20 years	30	100%	74
20-30 years	50	50% - 100%	6
30> years	20	<50%	20

a.     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.

At 14 May 2014, 21% (31 December 2013: 22%) of the Company's investments were into infrastructure project companies that had no external finance (ie the Company owns the project without any external borrowing) and 79% (31 December 2013: 78%) of the Company's portfolio was invested into the equity and subordinated debt of infrastructure project companies financed in part by external non recourse project finance debt.

Top Ten Investments

The Top Ten Investments of the Company as at 14 May 2014 were:

Investment	%
Diabolo Project	15
Ormonde offshore energy transmission project	14
Building Schools for the Future portfolio3	7
Royal Children's Hospital	5
BeNEX	4
Hereford & Worcester Magistrates Courts	4
Northampton Schools	4
Alberta Schools	3
Strathclyde Police Training Centre	3
Tower Hamlets Schools	2

Acquisitions, divestments gearing and cash position

During the period to 14 May 2014 £17.0 million of investment was made into three projects.

In January, the Company acquired a 97% equity interest and 100% of the subordinated debt for £9.7 million in the Federal German Ministry of Education and Research headquarters in Berlin ("BMBF").  The Ministry provides funding for research projects and institutions and sets general educational policy, including providing student loans, in Germany.  The investment is expected to complete construction in July 2014.

The Company has also entered into a number of UK schools PFI transactions with respect to Building Schools for the Future ("BSF") portfolio.  Two investments were made in existing BSF projects:

·     The acquisition of 60% of Kier Project Investments' 80% interest in the Kent BSF (UK PFI schools) project for £6.8 million.  When all aspects of the transaction are completed later in 2014 the Company will own 58% of the project

·     A follow-on investment of £0.5 million in the Wolverhampton BSF (UK PFI schools) project where the Company had the opportunity to invest on a minority basis.  The project involves the design, construction, financing and operation of two high schools in the second phase of the Wolverhampton BSF programme delivered using a PFI structure

In addition, minority interests in the Hull, Leeds, Newcastle, Rochdale, Sandwell and Leicester BSF projects were disposed for £18.8 million.  The divestments were made as the Company had determined that it had no realistic scope to increase its holdings in these particular projects to majority controlling holdings and therefore considered that, based on the price offered; a sale would be in the best interests for the Company. 

The proceeds of sale are substantially in excess of the price paid for the same stakes on acquisition, offering a significant premium to the Company and illustrates the strength of the secondary market for these assets. 

Taking into account these acquisitions and divestments, the Company had approximately £80.2 million of cash available for investment as at 14 May 2014 (excluding the anticipated amount of the second half 2013 cash dividend, due to be paid in June 2014).  In addition, the Company has £175 million corporate debt facility and as at 14 May 2014, the facility was undrawn.

Valuation

The Company reports its NAV every six months when it publishes its full and interim results each year. 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 31 December 2013 (NAV: 123.0 pence per share), government bond yield movements have been mixed, though on a weighted average portfolio basis we have seen a slight net decrease. The net decrease in these rates could, other things being equal, be expected to have a positive effect on the Company's NAV.

Over the same period, foreign exchange ("FX") movements have seen GBP weaken against AUD and strengthen against CAD and EUR which the Company has exposure. The net FX movements, other things being equal, are expected to have a positive effect on the Company's NAV.

Based on these two macroeconomic updates alone (other things being equal) the NAV could be expected to have increased since 31 December 2013. 

In the course of its normal practice the Company also reviews market based evidence (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 2013, there has been further evidence - both through the Company's own experience of assets it has disposed together with sales by third parities - that there continues to be strong market demand for assets such as those the Company invests in and that there continues to be further upward pressure on values.    These pressures have reinforced the Company's determination to be disciplined in its approach to additional investment.  The Company is aware of a number of large transactions currently in the market and it will be interesting to see where pricing comes out on these. 

Distribution

On 27 March 2014, the 2012 second half year distribution of 3.075 pence per share was declared for shareholders on the register as at 25 April 2014. This distribution was for the period 1 July 2013 to 31 December 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 is expected to be made on 13 June 2014. 

The Board of Directors announced minimum targets for the 2014 and 2015 distributions of 6.30 pence per share and 6.45 pence per share (respectively),⁴ 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 INPP's IPO in 2006.

Outlook and Pipeline

The Company's portfolio continues to perform well and the Directors are confident that there continues to be a number of attractive infrastructure opportunities in the UK and in the overseas jurisdictions in which it is active - this is particularly (but not exclusively) the case where the Company has the ability to be the primary investor in new infrastructure assets (such as offshore transmission opportunities). 

Overall, the Directors and the Investment Advisor continue to have a very positive long term view of the market.  Government support for private sector investment in infrastructure continues to feature as a high public priority.  Investor demand for infrastructure assets remains at a high level which supports the value of the Company's existing assets and the market perception of infrastructure being a firmly established class of investment asset.

New investment volumes have remained low for the Company in the period as the Company has continued to be very selective, only progressing the acquisition of assets that it believes have a clear benefit to the portfolio.  Nevertheless the Investment Advisor has identified around £200 million of likely investment for the Company which is at preferred bidder stage which it anticipates will be invested over the remainder of 2014.

If this investment is made as anticipated such investment will fully utilise the Company's currently available funds including its debt facility.  In addition to these potential investments the Company and its Investment Advisor have a significantly larger number of transactions which are at an earlier stage of development, under review.

Key areas of current activity within the Company and/or its Investment Advisor (or associates) include:

·     Continued activities in the area of UK offshore transmission where the Company has one transaction at preferred bidder stage and another in development

·     Other UK and European primary investment opportunities (for instance in UK healthcare and Irish schools)

·     Acquisition of additional investments in projects where the Company already has an investment.  Typically these will arise under pre-emption and similar rights.  This was a key area of focus in 2013 which is likely to continue in 2014

·     New developments in UK public policy with respect to the financing of PPP projects in the UK

·     The growing range of opportunities in Ireland

·     Further growth in social infrastructure projects in Germany, Belgium, Australia and New Zealand which conform to the existing risk profile within the Company's portfolio

·     Opportunities arising in the UK health and social care sphere where an active pipeline of small to medium sized opportunities continues to exist

·     Appropriately priced proposals from third parties seeking to dispose of projects meeting the Company's investment criteria which have synergies with the Company's existing portfolio

Notwithstanding the projects mentioned above, it should be noted that the Company's performance is not, in the view of the Directors, dependent upon making additional investments in order to deliver its projected returns.  Further investment opportunities will be judged by their anticipated contribution to overall portfolio returns.

^1.         Note this is a dividend target and not a profit forecast

^2.         Source: Bloomberg

^3.         This represents the minority shareholdings only.

^4.         Provided for guidance only.  This is a target and not a profit forecast.  There can be no guarantee that any distribution will be paid.

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 123 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 of over 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.

 

END

 

 

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