Portfolio Update: 1 January 2021 to 31 May 2021
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
PORTFOLIO UPDATE
FOR THE PERIOD 1 JANUARY 2021 TO 31 MAY 2021
3 June 2021
International Public Partnerships Limited ('INPP', the 'Company'), the FTSE 250 listed investment company which invests in global public infrastructure projects and businesses, has today issued the following portfolio update for the period 1 January 2021 to 31 May 2021.
OPERATIONAL HIGHLIGHTS
· The Company is performing successfully and its portfolio of 130 investments in public and social infrastructure projects and businesses continues to deliver essential services to all its stakeholders, maintaining high levels of asset availability
· There have been no material changes to the Company's operational or financial performance since it announced its results for the year ended 31 December 2020 on 25 March 2021
· The Company continues to have the benefit of a high-quality pipeline of near-term investment commitments equating to c.£200 million, including Beatrice, Rampion and East Anglia One Offshore Transmission Projects
· The Company has now delivered a Total Shareholder Return1 since IPO in November 2006 to 28 May 2021 of 243.3% or 8.8% on an annualised basis
· In line with previous forecasts a second half-year 2020 dividend of 3.68 pence per share was declared on 25 March 2021 supported by a strong 2020 cash dividend cover of 1.2x2
· Whilst in overall terms the Company's portfolio has experienced limited impact as a result of Covid-19, it continues to monitor certain specific risk areas, particularly relating to Tideway and the Diabolo Rail Link ('Diabolo'), as previously highlighted
· The Company retains a specific focus on highlighting its ESG performance and continues to evolve its sustainability reporting and align its disclosures with the recommendations of the Task Force on Climate-related Financial Disclosures ('TCFD'). The Company's ESG Committee meets at least twice a year
PORTFOLIO UPDATE
The Company's portfolio of assets continue to deliver successfully on the Company's objectives for its shareholders and wider stakeholders.
· The portfolio currently has 9.1%3 of assets still in physical construction. The weighted average investment life of the portfolio is currently 32 years4 with a weighted average (non-recourse) debt tenor of 30 years4.
· As at 31 December 2020, the portfolio comprised economic interests in 130 projects and businesses with a composition as detailed below. This has remained substantially unchanged to 31 May 2021:
|
Energy Transmission |
22% |
|
Transport |
19% |
|
Education |
19% |
|
Gas Distribution |
17% |
|
Waste Water |
9% |
|
Health |
4% |
|
Courts |
3% |
|
Military Housing |
3% |
|
Other |
4% |
PORTFOLIO REVIEW
The overall portfolio has continued to perform well. This section provides a brief update on key assets where there have been noteworthy developments since the Company's results for the year ended 31 December 2020 were published on 25 March 2021.
Tideway, UK | SDGs 6, 9 & 11: clean water and sanitation, industry, innovation and infrastructure and making sustainable cities and communities
Tideway is building a 25km 'super sewer' under the River Thames to create a healthier environment for London by cleaning up the city's greatest natural asset. The impact of Covid-19 on both the cost and schedule of the project was reported previously and it was noted that, in addition to existing contractual and regulatory safeguards, Tideway has been in discussions with Ofwat on a package of measures that would further mitigate the financial impact of Covid-19 on Tideway's shareholders (the Company is a 16% shareholder in Tideway). Since the release of the Company's annual results, progress has been made in these discussions and the proposed measures were the subject of a recent public consultation5 run by Ofwat. The consultation has now closed and Tideway expects the measures to be formally implemented via modifications to its licence before the end of 2021. The Company is pleased that these modifications seem likely to ensure a more appropriate allocation between stakeholders of the impact that Covid-19 is expected to have on the project's cost and schedule. At the time of writing, the project is approaching being 65% complete.
Diabolo, Belgium | SDG 11: Making sustainable cities and communities
Diabolo is a rail infrastructure investment which integrates Brussels Airport with Belgium's national rail network. The majority of revenues generated by Diabolo are linked to passenger use of either the rail link itself or the wider Belgian rail network. Accordingly, Diabolo has been impacted by the restrictions on international travel and national lockdowns implemented in Belgium as a result of the Covid-19 pandemic. As previously disclosed, the Company invested £9.1 million in December 2020, and made a further contingent commitment of £12.6 million, to protect Diabolo's liquidity position and ensure its debt covenants continue to be met. Since the release of the Company's annual results the asset has continued to operate fully in compliance with its contractual obligations and the Company is continuing to closely monitor passenger numbers. Whilst the full £12.6 million commitment referred to above remains available to support Diabolo's liquidity position, ensure debt covenants will continue to be met and protect the value of the Company's investment, the extent and timing of any further cash injections will depend upon the trajectory of the recovery in passenger numbers over the coming months.
Gas distribution, UK | SDG 7 & 9: affordable and clean energy, and industry, innovation and infrastructure
The Company's investment in the UK's largest gas distribution network which serves 11 million customers is the Company's largest asset by investment fair value. As previously announced, following Ofgem's final determination for Cadent in respect of RIIO-2 in December 2020, Cadent has sought an independent review by the Competition and Markets Authority as it believes this approach will best serve Cadent's customers' interests. The outcome of the appeal is due later in the year.
FINANCIAL HIGHLIGHTS
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. This semi-annual valuation is published within the Company's interim and annual accounts, the last of which was published with the Company's annual results for the year ended 31 December 2020 on 25 March 2021 reporting:
· A net asset value ('NAV') per share of 147.1 pence (31 Dec 2019: 150.6 pence)
· The Company's underlying revenues continue to be underpinned by strong inflation-linkage with a projected increase in return of 0.78% p.a. for a 1.00% p.a. increase in inflation (31 December 2019: 0.82% p.a.)6
· A second half-year 2020 dividend of 3.68 pence per share was declared on 25 March 2021 and is expected to be paid on 4 June 2021. This dividend is in respect of the period 1 July 2020 to 31 December 2020 and represents a c.2.5% increase on the dividend paid in the corresponding period in the prior year
· The Scrip Dividend Alternative Circular applicable to that dividend was available to investors and the associated scrip allotment or dividend payment is due to be paid on 4 June 2021
· The Company will target full-year dividends in respect of 2021 and 2022 of 7.55 and 7.74 pence per share, respectively, in line with the current targeted annual increase of c.2.5%7. Whilst the Company currently has good forward-visibility of the cash flows projected to be generated by its investments, the Company continues to monitor the portfolio for any impact from Covid-19 related risks, including those noted above
· In March 2021, the UK Government announced that the headline rate of corporation tax will be increased from 19% to 25% with effect from April 2023. This future tax rate increase was not reflected within the 31 December 2020 valuations owing to the timing of the announcement (which occurred following the period end) but was estimated to have a c.£30 million negative impact on the Company's NAV once the increase is reflected in the forecast investment cash flows. This is likely to be reflected within the 30 June 2021 valuations
As at 31 May 2021, the Company had utilised £60 million of the credit available to it under the debt facility, leaving £190 million of the new £250 million committed facility available for the Company's exiting investment commitments.
As previously announced, the Company is transitioning auditors from EY to PwC following a comprehensive assessment process. PwC will assume the role of the Company's auditor for the 2021 financial year. The transition process is progressing well.
INVESTMENT ENVIRONMENT AND OUTLOOK
· The Company's portfolio of investments provides essential infrastructure to over 13 million people, households and businesses daily across the countries in which it invests.
· Since the outbreak of Covid-19 in Q1 2020, there has been an increased focus on ensuring resilience against future threats and there is a broad recognition from governments of the pivotal role that infrastructure will play in supporting a sustainable economic recovery
· While the full consequences of the pandemic and its long-term effects, both economic and social, remain unclear, the Company believes its business model and investment objectives continue to offer a significant degree of protection for investors and there is sustained appetite for long-term responsible investment into public and social infrastructure across the geographies that the Company invests in
· The Company is monitoring the emerging requirements of The EU Sustainable Finance Disclosure Regulation, and will support its investors with relevant disclosures when required
· The pipeline for the types of assets the Company invests in remains strong and the Company continues to be confident in its ability to continue to source and develop quality, high-performing opportunities, across the Company's target geographies, that deliver long-term, predictable cash flows with strong inflation-linkage that meet the Company's risk-return profile
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. Source: Bloomberg. Share price appreciation plus dividends assumed to be reinvested.
2. Cash dividend payments to investors are paid from net operating cash flow before non-recurring operating costs.
3. This is based on the fair valuation of the Company's investments as at 31 December 2020 calculated utilising a discounted cash flow methodology.
4. This includes non-concession entities which have potentially a perpetual life but are assumed to have finite lives.
6. In aggregate, the weighted average return of the portfolio would be expected to increase by 0.78% 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 2020.
7. 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.
ENDS.
For further information:
Erica Sibree/Amy Edwards +44 (0)20 7939 0558/0587
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):
INPP is a listed infrastructure investment company that invests in global public infrastructure projects and businesses, which meets societal and environmental needs, both now, and into the future.
INPP is a responsible, long-term investor in 130 infrastructure projects and businesses. The portfolio consists of utility and transmission, transport, education, health, justice and digital infrastructure projects and businesses, in the UK, Europe, Australia and North America. INPP seeks to provide its shareholders with both a long-term yield and capital growth.
Amber Infrastructure Group ('Amber') is the Investment Adviser to INPP and consists of over 150 staff who are responsible for the management of, advice on and origination of infrastructure investments.
Visit the INPP website at www.internationalpublicpartnerships.com for more information.
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