International PPL - Half-year Results for Six Months to 30 June 2024
05/09/2024 07:00
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RNS Number : 9698C International Public Partnerships 05 September 2024
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5 SEPTEMBER 2024
INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED
('INPP', 'the Company')
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2024
International Public Partnership, the FTSE 250-listed infrastructure
investment company ('INPP' or the 'Company'), is pleased to announce its
results for the six months to 30 June 2024 in which it continued to provide
investors with predictable, long-term inflation-linked returns.
* Full-year target dividend growth of 3.0% to 8.37 pence per share
i (#_edn1)
(,
ii (#_edn2)
) (31 December 2023: 8.13 pence per share).
* Declaration of a fully cash covered interim dividend of 4.18 pence per share
for the six months to 30 June 2024.
* Strong inflation-linkage of 0.7%((
iii (#_edn3)
))(,) generating long-term real rates of shareholder returns.
* Fully repaid the cash drawings under the corporate debt facility ('CDF') and
the Board approved a reduction of the CDF from £350 million to £250 million.
* Realised proceeds of c.£235 million in the last 18 months through asset
realisations.
* Completed the acquisition of Moray East OFTO for c.£77 million in February
2024, which will further increase the Company's contribution to the UK's
transition to a net zero carbon economy.
Mike Gerrard, Chair of International Public Partnerships, said: "The Company's
solid performance in the period is a testament to the resilience of its
diversified, low-risk portfolio and fundamentals of the investment case. The
Company has a progressive dividend policy on which it has delivered every year
since its IPO in 2006. Moreover, the strength of the portfolio is such that no
further investments are needed to continue this policy for at least the next
20 years."
"The Board continues to believe the share price at which the Company is
currently trading relative to the NAV materially undervalues the Company.
Discount management is a primary focus for the Board and Investment Adviser,
having realised c.£235 million through asset recycling in the last 18 months.
The realisation proceeds achieved were in line with the last published
valuations. The Company expects further divestment activity and, as a
consequence, also expects to extend its existing share buyback programme,
increasing the programme to up to £60 million. This demonstrates our
confidence in the Company's valuation."
"Whilst the bar is high for new investment, we continue to originate
compelling opportunities to further enhance long-term shareholder value,
investing over £85 million in new investments in the energy transmission,
social and digital infrastructure sectors during the period."
VALUATION
· The Company's Net Asset Value ('NAV') decreased to £2.8 billion (3
December 2023: £2.9 billion) and the NAV per share decreased to 149.5 pence
(31 December 2023: 152.6 pence).
· The c.30bps increase in the weighted average of the discount rates
used to value the Company's investments principally contributed to the decline
in NAV. This increase is designed to reflect perceived changes in the rates of
return currently required by investors and, ultimately, ensure that these
point-in time valuations reflect prevailing market conditions.
· IFRS profit before tax for the six months to 30 June 2024 was £16.7
million (30 June 2023: £0.3 million).
· The Company's shares maintained low correlation to the FTSE All Share
Index, of 0.5 over the 12 months to 30 June 2024 (31 December 2023: 0.4).
SHAREHOLDER RETURNS
· The Company reconfirmed its 2024 target dividend of 8.37 pence per
share(i,ii), representing a further 3% growth, and has declared an interim
dividend of 4.18 pence per share for the six months to 30 June 2024.
· Beyond 2024, the Board expects to continue its long-term projected
annual dividend growth rate of 2.5% in line with the Company's historical
track record since the IPO in 2006(i,ii).
· In order to provide investors with a more regular income stream, the
Company intends to increase the frequency of its dividend payments, from
semi-annually to quarterly, commencing in 2025 iv (#_edn4) .
· The Company has delivered a total shareholder return v (#_edn5)
('TSR') of 197.2% since the IPO, equivalent to an annualised TSR of 6.4%.
CAPITAL ALLOCATION AND DISCOUNT MANAGEMENT
Whilst the discount to the NAV at which the Company's shares are trading has
narrowed, the Board and its Investment Adviser continue to believe that the
current share price materially undervalues the Company. For example, the
Company's share price on 30 June 2024 implied a projected net return of
9.3% vi (#_edn6) which was, in our view, an attractive 4.6% premium to that
offered by a 30-year UK government bond vii (#_edn7) .
The Board has resolved that as long as the Company's share price discount to
NAV persists, its capital allocation strategy will be guided by three
principles:
1. Prudent use of the Company's CDF;
2. Maintain a targeted programme of divestments to both demonstrate
underlying value and reallocate capital; and
3. Allocate divestment proceeds towards both, (i) increasing the share
buyback programme, and (ii) subject to the economics being more attractive
over the medium to long-term relative to a share buyback, making new,
accretive investments.
Significant progress has been made in executing this capital reallocation
strategy, including:
Fully repaid the Corporate Debt Facility
· During the period, cash drawings under the CDF were fully repaid and
the Board has since approved a reduction of the CDF from £350 million to
£250 million. The reduction assists with continuing disciplined cost
management while maintaining the flexibility for investment opportunities as
they may arise.
c.£235 million raised from divestments over the last 18 months
· In the 12 months to 30 June 2024, the Company realised proceeds of
c.£220 million through asset recycling. This included proceeds of c.£108
million which were received early in the period but related to the December
2023 OFTO realisation.
· Post-period end, the Company sold its investment in the Three Shires
portfolio raising c.£14 million. The portfolio comprised the design, build,
financing and maintenance of four community healthcare facilities, including
two in Derbyshire and the others in Lincolnshire and Leicestershire.
· All divestments made by the Company in the last 18 months have been
in line with the most recently published valuations. The Company and its
Investment Adviser continue to focus on actively pursuing divestment
opportunities within the portfolio to both demonstrate underlying intrinsic
value and reallocate capital to support shareholder value.
Increased size of existing share buyback programme to up to £60 million
· Intention to increase the existing share buyback programme from £30
million to up to £60 million and extend the programme to the end of Q1 2025
in expectation of further divestment activity.
· To date, c.£18 million has been used to buy the Company's shares
under the 12 month buyback programme which commenced in January 2024. Shares
will continue to be bought under the programme whilst they trade at a
significant discount to their net asset value.
INVESTMENT ACTIVITY
During the period, the Company made a number of attractive investments
totalling over £85 million, including in the energy transmission, social
infrastructure and digital sectors. These investments are in line with
previously published investment commitments and were funded from cash
generated through the Company's recent realisations:
· Moray East OFTO: In December 2023, the Company committed to acquire
its eleventh OFTO investment. This acquisition totalling c.£77 million was
completed in February 2024 using the proceeds from the previous OTFO
realisations and will further increase the Company's contribution to the UK's
transition to a net zero carbon economy. The investment has the capacity to
transmit sufficient renewable electricity to power the equivalent of c.1.0
million homes, increasing the total equivalent across the Company's OFTO
portfolio to c.3.7 million homes.
· Flinders University Health and Medical Research Buildings ('HMRB'):
The Company has a long-standing commitment to invest in the Flinders
University HMRB. Funding commenced in Q1 2024 with c.£4.3m invested during H1
2024. The HMRB collates research, clinical and technological platforms and
will further Flinders University's longstanding contributions to the health,
education and medical sectors.
· Gold Coast Light Rail - Stage 3: The Company also has a long-standing
commitment to invest in Gold Coast Light Rail - Stage 3. Funding commenced in
Q2 2024 with c.£0.5m invested during H1 2024. The Gold Coast project has been
developed to create a world-class sustainable, city changing integrated light
rail system for the future prosperity of the Gold Coast community.
· toob: As part of the Company's previously reported commitment to
invest a further c.£13 million, alongside additional capital from its
co-investors in the Amber-managed National Digital Infrastructure Fund
('NDIF'), throughout 2024 and 2025, INPP invested c.£4 million during the
period. This further investment is part of a wider potential £300 million of
additional funding raised by toob, which should enable it to reach over
600,000 premises.
The Company does not need to make additional investments to deliver current
projected returns. Further investment opportunities will be assessed against
the Company's relevant strategic KPIs and the overall level of returns will be
considered against alternative capital allocation options.
PORTFOLIO PERFORMANCE AND ASSET STEWARDSHIP
Energy transmission | SDG 7: Affordable and clean energy
The Company's OFTO investments are regulated by Ofgem, which has granted those
OFTOs licences to transmit electricity generated by offshore wind farms into
the onshore grid. INPP currently has a portfolio of 11 OFTOs.
The Ofgem consultation process regarding the potential regulatory developments
underpinning an extension of the OFTO revenue stream is ongoing. In January
2024, Ofgem published decisions on some of the questions raised in their 2022
consultation. This confirmed Ofgem's overarching objective to maximise the
combined operational lifetimes of both generation and transmission assets
where it is economic and efficient to do so. Ofgem expects incumbent OFTOs to
be best positioned to operate transmission assets in an extension period.
The Investment Adviser is actively engaged with all relevant industry
stakeholders. All parties recognise that the life extension of renewable
energy assets is required to meet the UK net zero emissions targets.
The Company notes that East Anglia One OFTO ('EA1') is currently operating at
half its physical capacity having suffered an offshore cable fault. Repair
works are scheduled to commence shortly with the asset expected to return to
full service in Q4 2024. Evidence gathered to date indicates that the cable
fault was beyond the reasonable control of the EA1 OFTO and therefore it
should be protected against any revenue penalties by the protections available
in its transmission licence. The cables remain under warranty from the
original manufacturer.
Gas distribution | SDGs 8, 9 & 11: Decent work and economic growth;
industry innovation and infrastructure; sustainable cities and communities
Cadent continues to support the UK Government in meeting its net zero target.
The transition to net zero will change the role of the gas network over time
as consumers gradually shift their consumption to lower carbon alternatives
such as renewable electricity and hydrogen alongside an expected decline in
natural gas. Cadent will play a critical role in energy decarbonisation in the
UK by, (i) continuing to safely and reliably provide gas and thereby
facilitate the increased use of cleaner albeit more intermittent technologies,
(ii) driving reductions in emissions while customers still need gas, and (iii)
converting and developing the network to enable the distribution of cleaner
fuels such as hydrogen to where it is needed when customers are ready.
Ofgem continues to consult stakeholders as part of its process for determining
the revenues that UK gas network companies will be able to earn in the next
five-year price control period which starts in 2026.
Post-period end, Ofgem announced that it does not anticipate significant
regulatory changes in the next price control period. The terms of the
announcement made by Ofgem were broadly consistent with the Company's
expectations and are another step in the consultation process, with the
regulator expected to finalise the revenue determinations in late 2025.
Waste water | SDGs 6, 8, 9 & 11: Clean water and sanitation; decent work
and economic growth; industry innovation and infrastructure; sustainable
cities and communities
Tideway remains one of the top investments in the Company's portfolio by fair
value. Major construction work on the project completed during the period, and
the commissioning phase will begin shortly with the project remaining on
course to be fully operational in 2025. The estimated cost of the project
remains in line with the £4.5 billion stated in INPP's 2023 Annual Report and
the cost to Thames Water customers remains well within the initial estimate
provided at the outset of the project.
Tideway continues to monitor developments in relation to the well-publicised
financial position of Thames Water. The matter is not expected to have a
material impact on the Company's investment in Tideway. Whilst Thames Water
has a licence obligation to pass revenues to Tideway, statutory and regulatory
protections are afforded to Tideway which are designed to mitigate the risk of
disruption to the receipt of revenues and would continue to apply should
Thames Water's status change.
Transport | SDG 8, 9 & 11: Decent work and economic growth; industry
innovation and infrastructure; sustainable cities and communities
Angel Trains, UK: A rolling stock leasing company which owns more than 4,000
vehicles. Angel Trains continues to perform well with its train on lease to
Train Operating Companies ('TOCs') across the UK. The UK's new Labour
government intends to establish Great British Railways ('GBR') to oversee the
British rail sector, following a review that was commissioned by the previous
government. The proposed establishment of GBR and the nationalisation of
operating services are not expected to have a material impact on Angel Trains.
The business continues to demonstrate its commitment to sustainable technology
to support the transition to net zero (e.g. through the pioneering trial to
replace a diesel engine with a battery on an intercity train.
BeNEX, Germany: BeNEX is an investor in both rolling stock and TOCs which
operate regional passenger rail franchises across Germany under contract with
numerous German federal states. During the period, BeNEX signed an agreement
to acquire Abellio's regional rail operations in Germany which principally
comprise two TOCs generating mostly availability-based revenues. The projected
economics of this c.£15 million investment are significantly more attractive,
over the medium to long-term, relative to the opportunity to engage in a share
buyback and the Company approved funding for this investment post period end.
It is anticipated that this acquisition will complete in Q4 2024 and will be
funded from existing cash reserves and/or proceeds expected to be generated
from near term divestment activity.
Notably, this transaction would see BeNEX enhance its contribution to the
decarbonisation of transport within Germany and increase its service volume
from c.49m train km per annum to c.64m train km per annum, becoming one of the
largest passenger rail operators in Germany by service volume.
Digital infrastructure | SDG 9: Industry, innovation and infrastructure
Following the sale of the Company's stake in Airband through the Amber-advised
NDIF in 2023, INPP has two remaining investments in digital assets - toob and
Community Fibre.
As previously reported, the Company has committed to invest a further c.£13
million into toob, alongside additional capital from its co-investors in the
Amber-managed NDIF, throughout 2024 and 2025. During the period, INPP invested
c.£4 million of its c.£13 million commitment, helping toob achieve the
significant milestone of connecting 50,000 customers, demonstrating the
attractiveness of the toob product and proposition.
Community Fibre continues to make strong progress and has now passed c.1.4
million homes with fibre and has over 300,000 customers. Community Fibre
remains London's largest 100% full fibre broadband provider.
OUTLOOK
Looking ahead, the Board remains confident that its strategy will enable the
Company to deliver consistent shareholder returns whilst navigating the
uncertainties of the macroeconomic environment. The Company reconfirms that
the projected investment receipts from the Company's investment portfolio as
at 30 June 2024 are such that even if no further investments are made, the
Company expect to be able to continue to meet its existing progressive
dividend policy(iv) for at least the next 20 years.
Significant progress has already been made following proactive measures to
optimise the portfolio and reallocate capital. The Board continues to actively
monitor its strategy to reduce the share price discount and remains focused on
creating long term shareholder value.
The outlook for infrastructure remains strong, and there continues to be a
significant need for infrastructure investment across the geographies in which
the Company invests. Governments have a pressing requirement to renew and
expand public infrastructure but continue to be fiscally constrained. The
potential for the Company to assist in the development and funding of new
infrastructure should provide the Company with highly attractive growth
opportunities in the longer term.
OTHER INFORMATION
The 2024 Interim Report and financial statements for the six months to 30 June
2024 has today been published on the Company's website, along with a copy of
the results presentation, and can be accessed and downloaded at
https://www.internationalpublicpartnerships.com/investors/reports-and-publications/
(https://www.internationalpublicpartnerships.com/investors/reports-and-publications/)
In compliance with LR 9.6.1, a copy of the 2023 Annual Report has been
submitted to the National Storage Mechanism and will shortly be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. In
accordance with DTR 6.3.5(1A), the regulated information required under DTR
6.3.5 is available in unedited full text within the 2023 Annual Report as
uploaded and available on the National Storage Mechanism and on the Company's
website as noted above.
ENDS
NOTES TO EDITORS
For further information:
Erica Sibree/Amy
Edwards
+44 (0) 7557 676 499 / (0) 7827 238 355
Amber Fund Management
Limited
Hugh
Jonathan
+44 (0)20 7260
1263
Numis Securities
Mitch Barltrop/ Jenny
Boyd
+44 (0) 7703 330 199 / (0) 7971 005 577
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 over 140 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 180 staff who are responsible for the management of, advice
on and origination of infrastructure investments.
Visit the INPP website at www.internationalpublicpartnerships.com
(http://www.internationalpublicpartnerships.com/) for more information.
Important Information
This announcement contains information that is inside information for the
purposes of the UK version of the Market Abuse Regulation (EU) No. 596/2014
which is part of UK law by virtue of the European Union (Withdrawal) Act 2018
(as amended and supplemented from time to time).
This announcement does not constitute a prospectus relating to the Company and
does not constitute, or form part of, any offer or invitation to sell or
issue, or any solicitation of any offer to purchase or subscribe for, any
shares in the Company in any jurisdiction nor shall it, or any part of it, or
the fact of its distribution, form the basis of, or be relied on in connection
with or act as any inducement to enter into, any contract therefor. The
issuance programme, as described in Part VI of the Prospectus issued by the
Company on 8 April 2022, available on the website, is closed.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These forward-looking statements speak only
as at the date of this announcement. The Company, Amber and Numis Securities
Limited expressly disclaim any obligation or undertaking to update or revise
any forward-looking statements contained herein to reflect actual results or
any change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so by the Financial Services and
Markets Act 2000, the Prospectus Regulation Rules of the Financial Conduct
Authority or other applicable laws, regulations or rules.
i (#_ednref1) As previously announced, acknowledging the high levels of
inflation, the Company increased its 2023 dividend by 5%, with the final 2023
dividend payment being made in June 2024. The Company also increased its 2024
dividend target by 3%. Beyond 2024, the Board expects to continue its
long-term projected annual dividend growth rate of 2.5%. The dividend in
respect of the six months to 30 June 2024 is expected to be paid on 19
December 2024.
ii (#_ednref2) Future profit projection and dividends cannot be guaranteed.
Projections are based on current estimates and may vary in future.
iii (#_ednref3) Calculated by running a 'plus 1.0%' inflation sensitivity
for each investment and solving each investment's discount rate to return the
original valuation. The inflation-linked return is the increase in the
weighted average discount rate.
iv (#_ednref4) The second and final dividend in respect of 2024 is
anticipated to be announced in March 2025 and paid in June 2025. This will be
the final dividend paid on a six-monthly basis. Following this, dividends will
be paid quarterly, commencing with the first of four interim dividends for the
financial year 2025 in September 2025.
v (#_ednref5) Since inception in November 2006. Source: Bloomberg. Share
price appreciation plus dividends assumed to be reinvested.
vi (#_ednref6) This is calculated based on INPP's weighted average discount
rate, less the ongoing charges ratio, adjusted to reflect the share price
discount to the NAV using published sensitivities.
vii (#_ednref7) As at 30 June 2024. 30-year bond used owing to the UK
weighting of the portfolio and the weighted average investment tenor of c.38
years.
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