Interim Management Statement

RNS Number : 5320W

International Public Partnership Ld

10 November 2014

 



International Public Partnerships Limited

Interim Management Statement

For the period 1 July 2014 to 7 November 2014

10 November 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 July 2014 to 7 November 2014.

Highlights

·        The Company has had an active investment period and the prospects for the future are also promising;

·        The Company's portfolio of 112 public infrastructure investments continues to perform fully in line with expectations;

·        In the period covered by this IMS, the Company announced its 2014 Interim Result for the period to 30 June 2013, reporting an increase in Net Asset Value ("NAV") per share to 124.8 pence (31 December 2013: 123.0 pence per share);

·        Since that time the portfolio has continued to perform well and assets in construction have progressed as planned.  Overall, the Company expects further NAV accretion since 30 June 2014;

·        NAV accretion is anticipated as a consequence of each of the following:

o  The organic growth in value of the portfolio (including through the effect of recent acquisitions);

o  Continued upward pressure on valuations evidenced by the continued trend in secondary market transactions for assets such as those owned by the Company.  This evidence comes both from the Company's own experience in selling some minor assets in the period as well as other market based evidence; and

o  Macro economic factors including movements in government bond yields in the period.

·        A first half year 2014 dividend of 3.15 pence per share was declared on 28 August and was paid on 24 October.  A full year 2014 dividend¹ of 6.30 pence per share is currently targeted (up 2.5% from full year 2013);

·        Very good progress being made on pipeline opportunities.  Since 30 June 2014 announcements include:

o  Financial close reached on £171 million investment in Lincs offshore transmission project

o  Reached commercial close on Priority Schools Building Programme 'Aggregator' funding with up to £78 million to be invested across 5 schools 'batches'

o  Disposal of two non-strategic, minority stakes from its portfolio for £3.5 million, at values in excess of carrying value

·        In addition, an attractive pipeline of new opportunities that the Company anticipates will come to fruition in 2015 and later is being worked on in countries including the UK, Ireland, Belgium, Holland, Canada, Australia and New Zealand;

·        Inflation linkage in the portfolio strengthened with recent investments such that a 1% increase in inflation leads to a 0.84% increase in return (previously 0.81%);

·        On 5 November 2014 the Company announced it was seeking to raise £70 million by way of a tap issue;

·        The tap issue proceeds will be used to reduce the Company's current debt facility which will remain available for re-drawing to finance any future investments;

·        The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 7 November 2014 of 103.3%².

Portfolio performance

The Company's portfolio of 112 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.    

There has been a significant level of activity within the portfolio during the period including:

·        Angel Trains successful bid to provide 150 new, high quality Desiro City passenger carriages to Stagecoach South West Trains Limited ("SSWT") with a value of approximately £240 million.  The acquisition will be financed from Angel's internal resources.  The Company expects that the provision of the new trains will be accretive to its projected returns from its existing investment in Angel;

·           The Company's portfolio of four offshore transmission projects across the UK has a cumulative 12.4 year operating history and during this time period, performance on each of the assets has exceeded original base case forecasts;

·        On 1 Aug 2014 the Federal German Ministry of Education and Research in Berlin ("BMBF") Project reached construction completion.  Completion was achieved on time and the project has now formally been handed over to the commissioning authority;

·        Stage 2 construction works at the Royal Children's Hospital in Melbourne Australia were completed in early September, three months ahead of schedule;

·        Construction completion was reached on the Gold Coast Rapid Transit project in Queensland Australia.  The scheme's one millionth passenger was carried on 17 September 2014.

As a result of the completion of projects during the period the portfolio currently has less than 1% of assets still in physical construction although activities relating to commissioning, snagging and the transition to full operations are ongoing.  Other things being equal, the Company would expect to benefit from an uplift in valuation as the operational performance of completed projects is demonstrated over the course of the next 12 to 18 months.

As at 7 November 2014, the portfolio comprised economic interests in 112 projects with a geographical split as detailed below:

Geographic Split	7 Nov 2014 %	Sector breakdown	7 Nov 2014 %
United Kingdom	67%	Education	22%
Belgium	13%	Transport	19%
Australia	9%	Energy	33%
Canada	4%	Health	10%
Germany	5%	Courts	7%
Ireland	2%	Police Authority	4%
Italy	<1%	Custodial	1%
		Government Offices/Other	4%

Concession Length	7 Nov 2014 %	Project Stake	7 Nov 2014 %
<20 years	46%	100%	79%
20-30 years	38%	50% - 100%	5%
30> years	16%	<50%	16%

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

The weighted average concession life of the portfolio is currently 22 years with a weighted average (non recourse) debt tenor of 21 years.

Top Ten Investments

The Top Ten Investments of the Company as at 7 November 2014 were:

Rank	Asset	Investment Fair Value
1	Lincs Offshore Transmission	16.4%
2	Diabolo Rail Link	13.0%
3	Ormonde Offshore Transmission	12.2%
4	Royal Children's Hospital	4.5%
5	BeNEX Rail	3.5%
6	Hereford & Worcester Courts	3.3%
7	Northampton Schools	3.2%
8	Alberta Schools	2.7%
9	Strathclyde Police Training Centre	2.4%
10	Tower Hamlets Schools	2.0%

Acquisitions and divestments

During the period to 7 November 2014 £171 million of investment was made into the Lincs offshore transmission projects with up to a further £78 million earmarked for investment as the Priority Schools Building Programme 'Aggregator' scheme reaches financial close over the next 12 months.  In addition two divestments were made from the portfolio at prices in excess of the Directors' valuation, realising a total of £3.5 million.

Lincs offshore transmission project

During the period the Company achieved financial close and completed its investment in the Lincs offshore transmission project. This is the fifth offshore transmission project that Transmission Capital Partners has closed under Ofgem's tenders for the long-term licence and operation of offshore transmission assets in the United Kingdom.  It represents the Company's single largest investment to date.

The Company invested approximately £171 million to acquire 100% of the equity and junior debt of the project, with the senior debt provided by the European Investment Bank. The Company's projected returns from its investment in the Lincs project are expected to be consistent with the returns it is receiving from its existing portfolio of transmission assets and will be fully linked to inflation (RPI). This will enhance the proportion of revenues from investments in the Company's portfolio that are inflation linked to 84%. The investment is expected to provide immediate yield to the Company.

The project links the 270MW Lincs windfarm to the National Grid via 100 kilometers of subsea cables and other related infrastructure including substations.  The Company takes no exposure to electricity production or price risk but is paid a pre-agreed, availability-based revenue stream over 20 years.

Priority Schools Building Programme 'Aggregator'

During the period the UK Education Funding Agency ("EFA") announced that the Amber Consortium, of which INPP is part, had reached commercial close to fund five batches of schools being delivered through the Priority Schools Building Programme ("PSBP").

The PSBP is a centrally managed government programme set up to address the needs of the schools most in need of urgent repair. Through the programme, 261 schools in total will be rebuilt or have their condition improved through funding provided by the EFA.

As part of the programme, 46 schools in five batches with a value of circa £700 million are being delivered via private finance funding using the PF2 structure- the government's new approach to private finance.  These will be majority financed by the Amber Consortium.  The Company expects to provide up to £78 million to fund the five batches as they reach financial close over the next 12 months alongside debt provided by Aviva and the European Investment Bank. 

Divestment of non-strategic, minority assets

During the period the Company divested non-strategic, minority stakes in two of its assets - Amiens Hospital PPP in France, and its interest in the Sheffield Building Schools for the Future ("BSF") project.  The disposals realised £0.3 million and £3.2 million respectively with both sales were completed at prices in excess of director valuations. In the case of the Sheffield BSF asset, over 50% more than the value the asset was purchased for in 2011.  The ability to transact at these levels provides a continuing indication of the demand for assets in the secondary market.

Gearing and cash position

Taking into account these acquisitions and divestments, the Company had approximately £11.5 million of unrestricted cash at 7 November 2014.  In addition, the Company has a £175 million corporate debt facility and as at 7 November 2014 this was c. £110 million drawn.

Valuation

The Company's investment portfolio valuation is revised semi-annually by the Investment Advisor, and presented for approval by the Directors and reviewed by the Company's auditors, Ernst & Young.  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, timing implications of delayed or accelerated cashflows, changes to cashflow projections and assumptions, indexation adjustments due to changes in inflation etc.), although any material project specific issues occurring in the period can be expected to be reported on separately in this IMS.  The half year directors' valuations published with the Company's full and interim results are reviewed by the Company's auditors and updated to reflect both project-specific and macro economic factors.

Since 30 June 2014 (NAV: 124.8 pence per share), all government bond rates in the jurisdictions in which the Company invests have decreased. The 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, 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 the NAV could be expected to have increased since 30 June 2014 as the increase due to the reduction in government bond yields more than offsets the decrease due to GBP strengthening.

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 30 June 2014 the Company has seen continued evidence of rising valuations for assets of the type it owns in all the major countries where it invests.  The extent of the positive impact which this is likely to have on NAV is being considered and will be reported on more fully at the time of the Company's final results.

Distributions

On 28 August 2014, the 2014 first half year distribution of 3.15 pence per share was declared for shareholders on the register as at 19 October 2014. 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 24 October 2014. 

The Board of Directors have previously announced minimum targets for the 2014 and 2015 distributions of 6.30 pence per share and 6.45 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 2006.³

Investment environment and outlook

The Company's portfolio continues to perform well and the Company has maintained good relations with its public sector stakeholders.  A number of attractive new infrastructure investment opportunities are available for the Company in the UK and in overseas jurisdictions in which it and the Investment Advisor is represented and where it is knowledgeable.

In total, these opportunities have a combined anticipated investment value of between £150 million and £200 million.  These include preferred bidder status and other preferential positions (for instance pre-emptive rights over investments held by third parties).  As this potential investment would exceed the amount of cash and debt facility currently available to the Company, the Company is in the process of undertaking the aforementioned capital raising by way of tap issuance. 

During the period the Company continued to review mature investment opportunities brought to it by third party developers and their advisors.  No such assets were acquired by the Company in the period as the Company's view was that the majority of these opportunities would not have been accretive to projected returns at the prices paid by the successful buyers.  Notwithstanding this, the Company continues to review investment opportunities from such sources.

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

These trends, combined with the continued good performance of the existing portfolio and the strong pipeline of opportunities for further investment, lead the Company to have continued confidence in its overall prospects for the remainder of 2014 and into 2015. 

Notes:

1.   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.

2.   Source: Bloomberg

3.   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.

End

For further information:

Erica Sibree                                                    [phone]

Amber Fund Management Limited                                

Nick Westlake/Hugh Jonathan                            [phone]/1263

Numis Securities       

Ed Berry/Mitch Barltrop                                     [phone]/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 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 112 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 over 75 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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