Quarterly Update

RNS Number : 7106N

International Public Partnership Ld

20 May 2015

 



International Public Partnerships Limited

Quarterly Update

For the period 1 January 2015 to 19 May 2015

20 May 2015

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 quarterly update for the period 1 January 2015 to 19 May 2015.  

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.

Highlights

·        The Company has continued to invest during the period and the prospects for the future are also promising;

·        The Company's portfolio of 116 public infrastructure investments are performing fully in line with expectations;

·        In the period covered by this update, the Company announced its 2014 Full Year Results for the period to 31 December 2014, reporting an increase in Net Asset Value ('NAV') per share to 127.0 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 31 December 2014 as a consequence of the following:

o  The organic growth in value of the portfolio (including through the effects 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; and

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

·        A second half year 2014 dividend of 3.15 pence per share was declared on 26 March 2015 and is expected to be paid on 12 June 2015 with a full year 2014 dividend¹ of 6.30 pence per share (up 2.5% from full year 2013);

·        A minimum target dividend for the 2015 financial year of 6.45 pence per share has been set and in 2016 the minimum target dividend will be 6.65 pence per share, an average increase of c.2.5%¹ or greater in each year;

·        Good progress being made on pipeline opportunities with £40.8 million of investment made during the period.  The Company was also awarded preferred bidder status on its sixth offshore transmission asset with investment expected in the fourth quarter of 2015;

·        The Company has an attractive pipeline of new opportunities across the UK, Ireland, Belgium, Holland, Australia and the US;

·        Strategic partnership agreed between the Investment Adviser and Hunt Companies, Inc, providing an experienced and well-established partner with strong links to the public sector in the United States, one of the largest growth markets for infrastructure investment;

·        Successful renegotiation of the Company's corporate debt facility  from £175 million to £300 million with substantially reduced margins and a reduction in fees charged;

·        Inflation linkage in the portfolio remains strong such that a 1% increase in inflation leads to a 0.85% increase in return²; and,

·        The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 19 May 2015 of 107.4% or 8.9% on an annualised basis³.

Portfolio performance

The Company's portfolio of 116 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.    

As at 19 May 2015, the portfolio comprised economic interests in 116 projects with a geographical split as detailed below:

Geographic Split	19 May 2015 %	Sector breakdown	19 May 2015 %
United Kingdom	69%	Education	25%
Belgium	13%	Transport	19%
Australia	9%	Energy Transmission	33%
Canada	3%	Health	9%
Germany	4%	Courts	7%
Ireland	2%	Police Authority	3%
Italy	<1%	Custodial	1%
		Government Offices/Other	3%

Concession Length	19 May 2015 %	Project Stake	19 May 2015 %
<20 years	47%	100%	78%
20-30 years	37%	50% - 100%	5%
30> years	16%	<50%	17%

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 portfolio currently has 3% of assets still in physical construction although activities relating to commissioning, snagging and the transition to full operations are ongoing.  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 19 May 2015 were:

Rank	Asset	Investment Fair Value
1	Lincs Offshore Transmission	16.6%
2	Diabolo Rail Link	12.9%
3	Ormonde Offshore Transmission	12.3%
4	Royal Children's Hospital	4.3%
5	BeNEX Rail	3.4%
6	Hereford & Worcester Courts	3.2%
7	Northampton Schools	3.1%
8	Alberta Schools	2.6%
9	Strathclyde Police Training Centre	2.3%
10	Tower Hamlets Schools	2.0%

Acquisitions

During the period to 19 May 2015, £40.8 million of investment was made into four schools related projects.  Details of these investments are given below.

Priority Schools Building Programme 'Aggregator'

During the period the Amber Consortium of which INPP is part, reached financial close on c.£26.5 million of funding in relation to three of the five batches of schools being delivered through the Priority Schools Building Programme ('PSBP').

These projects use a unique financing model based upon the establishment of a funding vehicle known as the 'Aggregator'.  One of the key features of the Aggregator is the ability to warehouse loans and thereby aggregate total financing requirements across all five schools batches.  The Aggregator is financed by the Amber Consortium, which includes INPP, with Aviva Investors and the European Investment Bank providing senior debt. 

The Company expects to provide up to an additional c.£50 million funding to the remaining two batches.  Financial close of these schemes is expected during the course of 2015.

Additional investment in Lewisham Building Schools for the Future ('BSF') project

During the period, the Company acquired an additional 40% investment in the Lewisham BSF project, increasing the Company's overall exposure to between 40% and 50% in the underlying BSF assets.

The Company invested £14.3 million for the additional 40% interest from Babcock Project Investments Limited. The Lewisham project comprises four BSF schools located in the South East London borough, including Sedgehill and Conisborough Schools; Trinity School; Deptford Green School; and, Bonus Pastor, Pendergast and Drum Beat Schools.

Awarded Preferred Bidder on Westermost Rough offshore transmission project

Transmission Capital Partners, the consortium comprising INPP, Amber Infrastructure and Transmission Investment were appointed as preferred bidder for the long-term license and operation of a further offshore transmission project.

The scheme, comprising the transmission cable connection to Westermost Rough Offshore Wind Farm represents the sixth such project that Transmission Capital Partners has been appointed to, as preferred bidder.  The Company expects to invest around c.£30 million upon financial close, estimated in the fourth quarter of 2015.

Gearing and cash position

During the period, the Company successfully revised terms of its corporate debt facility, increasing the facility from £175 million to £300 million.  The overall cost of the facility has also been substantially reduced through an improvement in the margins and a reduction in fees charged.

The increase will support the strong pipeline of new projects over the next 12 months, particularly greenfield projects whereby bids are required to be fully underwritten at the time of submission.  As such, the facility is intended to provide the Company with the flexibility to invest in appropriate opportunities rather than serving as long-term, structural leverage.

The margins on drawn amounts of the main facility will reduce from 225 bps over Libor to 175 bps over Libor.  In addition, the availability of the facility to provide letters of credit has been increased to £300 million, providing the Company with flexibility, particularly around investments made during the construction phase of projects. The commitment fees on the facility are 70 bps with an arrangement fee payable of £750,000. 

Taking into account acquisitions during the period, the Company had approximately £27.7 million of unrestricted cash at 19 May 2015.  In addition, at 19 May 2015 the Company's corporate debt facility was £42.6 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 quarterly update.  The 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 31 December 2014 (NAV: 127.0 pence per share), government bond rates in all of 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, the GBP forward curve has strengthened against the three currencies to which the Company has exposure, particularly the Euro. 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 31 December 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 31 December 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 interim results.

Distributions

On 26 March 2015, the 2014 second half year distribution of 3.15 pence per share was declared for shareholders on the register as at 24 April 2015. This distribution was for the period 1 July 2014 to 31 December 2014 and was 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 will be made on 12 June 2015. 

The Board of Directors have previously announced minimum targets for the 2015 and 2016 distributions of 6.45 pence per share and 6.65 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 2006.¹

Investment Adviser

In March, the Company's Investment Adviser, Amber Fund Management Limited ('Amber'), agreed to the Hunt Companies ('Hunt'), a privately owned US group with similar activities to those of the Amber group of Companies, becoming a 50% shareholder in the holding company of Amber with existing director and management shareholders continuing to hold the remaining shares. 

The transaction offers the potential to expand the activities of both the Investment Adviser and the Company into the United States which is widely seen as one of the largest growth markets for infrastructure investment in the developed world. The Company believes that this is an exciting and forward looking transaction with an experienced and well-established partner who benefits from strong links to the public sector in the US. 

As part of this transaction, the Company has been granted a right of 'first look' on similar terms to the right it already enjoys with Amber which will extend to such of Hunt's activities in public infrastructure projects which meet the Company's investment criteria in the United States.

The terms of the transaction between management and Hunt prohibit any sale of shares by either Hunt or Amber's management for a minimum term of four years and there will be no changes to management personnel within Amber or the way in which the Investment Adviser and the Company interact.  The transaction was approved by the Financial Conduct Authority on 29 April 2015.

Investment environment and outlook

Overall, the Company remains positive about its prospects, both in terms of the performance of its existing investments and the opportunity to add high quality investments to the portfolio during 2015.  With respect to the latter, the Company is always selective to ensure an appropriate risk and return balance within the overall portfolio.

The Company's focus continues to be on investments originated directly from the public sector rather than via the secondary market, where competition remains intense.  These 'self originated' assets comprise 90% of the portfolio. 

Currently, the Investment Adviser has identified a significant investment pipeline for the Company.  In addition to these potential investments the Company and its Investment Adviser have a 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 Adviser (or associates) include:

·    Continued activities in the area of UK offshore transmission where the Company has recently closed its fifth project, Lincs OFTO, and is actively bidding each new opportunity as it comes to market;

·     Enhanced access to US P3 opportunities, particularly through the Hunt tie-up;

·    Other UK and European primary investment opportunities (for instance in the healthcare and judicial sectors);

·    Acquisition of additional investments in projects where the Company already has an investment.  Typically these will arise under pre-emption and similar rights; 

·    The growing range of opportunities in Ireland, Northern Europe and Australia and New Zealand which conform to the existing risk profile within the Company's portfolio; and

·    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.

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.   In aggregate, the weighted return of the portfolio would be expected to increase by 0.85% per annum in response to a 1% per annum inflation increase across the whole portfolio over the currently assumed inflation rates.

3.   Source: Bloomberg, share price appreciation plus income.

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 116 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 80 dedicated staff who manage, advise on and originate projects for INPP.

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

This quarterly update 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. 

The potential acquisition by the Company of any of the investments referred to in this quarterly update 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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