REG - International PPL - Full year results to year ended 31 December 2023

International Public PartnershipsAnnouncement

28/03/2024 07:15

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RNS Number : 6679I  International Public Partnerships  28 March 2024

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JURISDICTION.

 

28 MARCH 2024

 

INTERNATIONAL PUBLIC PARTNERSHIPS LIMITED

('INPP', 'the Company')

FULL YEAR RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023

 

Robust, inflation-linked cash flows underpin progressive dividend policy

 

International Public Partnerships, the FTSE 250-listed infrastructure
investment company ('INPP' or the 'Company', is pleased to announce its
results for the year ended 31 December 2023.

 

Mike Gerrard, Chair of International Public Partnerships, said: "The Board
continues to believe in the robustness and resilience of INPP's low-risk
portfolio and the long-term investment case for generating predictable,
inflation-linked returns from investing responsibly in social and public
infrastructure. Even if the Company does not make any new investments, the
projected cash flows are sufficient to fulfil INPP's progressive dividend
policy for the next 20 years i ."

 

"We have proactively sought to improve shareholder returns by optimising the
portfolio through c.£200 million in asset realisations, repaying all cash
drawings under the Corporate Debt Facility ('CDF') and allocating up to £30
million to a share buyback programme. We have also announced a further
increase in INPP's full-year 2024 dividend target following another year of
strong operational and financial portfolio performance."

 

SHAREHOLDER RETURNS

 

·    The Company continued to deliver robust and predictable shareholder
returns with full-year dividend growth of 5% to 8.13 pence per share (31
December 2022: 2.5% growth to 7.74 pence per share) in line with the increased
dividend target announced at the Company's Interim Results for 2023.

 

·    Inflation remained elevated during the year and although it has now
moderated, the Board  is pleased to announce a further increase to the annual
dividend growth target of 3% for 2024 to 8.37 pence per share ii .

 

·    The Board reiterates its long-term projected annual dividend growth
rate of 2.5% thereafter such that the 2025 dividend target is currently
forecast to be 8.58 pence per share(ii).

 

·    The Company has maintained its track record of growing the dividend
every year since its 2006 IPO, with 2023 dividend cover of 1.1x iii  (31
December 2022: 1.3x)

 

·    Strong inflation-linkage of 0.7% has also been maintained, generating
long-term real rates of shareholder returns notwithstanding volatile
macroeconomic conditions; and

 

·     The Board previously announced a reassessment of the Company's
long-term total return target of 7% given the changes in the macroeconomic
environment. Following the reassessment, the Board has confirmed the static
target will be replaced by qualitative factors to inform its assessment of new
investments, including: (i) the Company's share price relative to its NAV,
(ii) the Company's weighted average discount rate, and (iii) any pertinent
economic or strategic considerations prevailing at the time of investment.

VALUATION

 

·    The Company's Net Asset Value iv  ('NAV') decreased by 4.1% to £2.9
billion, or 152.6 pence per share (31 December 2022: 159.1 pence).

 

·    The NAV reduction reflects, among other factors, the dividends paid
during the year as well as a modest increase in the discount rates used to
value the forecast cash flows.

 

·    IFRS profit before tax was £28.0 million (31 December 2022: £326.8
million), principally reflective of the unrealised fair value loss on the
portfolio in the year.

 

·    The Company's shares maintained low correlation to the FTSE All-Share
Index, of 0.4 over the 12 months to 31 December 2023 (31 December 2022: 0.33).

 

CAPITAL ALLOCATION AND DISCOUNT MANAGEMENT

 

The Board and its Investment Adviser continue to believe the discount to the
NAV at which the Company's shares are trading materially undervalues the
Company. At the time of Company's 2023 Interim Results, the Board committed to
taking a number of actions to optimise the portfolio and reallocate capital to
improve shareholder returns. The Company has made good progress against these
commitments as can be seen from the updates set out below. Notwithstanding
that, consistent with the wider investment trust sector, the share price
continues to trade at a discount to the NAV and therefore the Board and the
Investment Adviser continue to maintain a focus on actively managing the
portfolio to ensure the Company remains well positioned for the long-term. In
addition to increasing the dividend targets for 2023 and 2024, the following
measures have been undertaken:

 

Approximately £212m in cash proceeds raised from asset realisations

 

·   In December 2023, the Company generated cash proceeds of c.£200
million from the realisation of four Offshore Transmission ('OFTO') senior
debt investments as well as the addition of prudent leverage to the Lincs
OFTO. The four senior debt investments were realised at a modest premium to
the Company's half-year valuation.

·    In July 2023, the Company generated cash proceeds of c.£12 million
following the divestment of its stake in Airband, a leading alternative
network provider in the UK. The divestment was through the Amber-advised
National Digital Infrastructure Fund ('NDIF') and the sales proceeds were in
line with INPP's 30 June 2023 valuation.

 

Fully repaid the Corporate Debt Facility

 

·    During the year, using surplus free cash flow as well as proceeds
from the Airband divestment and OFTO realisations, cash drawings under the CDF
were reduced to £65 million and post year-end, all cash drawings were fully
repaid such that the £350 million CDF currently has no cash drawings but with
£14 million in letters of credit supporting long-standing investment
commitments.

 

Launched £30m share buyback programme

 

·    Following the full repayment of the CDF, up to £30 million in cash
proceeds from the OFTO realisation were allocated to fund a 12-month share
buyback programme. As at 27 March 2024, c.£5 million shares have been bought
back.

 

·     The sustainability and predictability of projected cash receipts
from the Company's portfolio mean that even if no further investments are
made, the Company's projected cash receipts are sufficient to continue meeting
its existing progressive dividend policy (of c.2.5% annual growth) for at
least the next 20 years(i).

 

INVESTMENT ACTIVITY

 

The Company made £108.1 million of new cash investments during the year,
which included completing acquisitions which the Company had committed to
invest in prior to the current volatile macroeconomic environment. The Company
also marked its first acquisition in New Zealand during the year.

 

·    PPP portfolio, New Zealand: In June 2023, the Company acquired a
portfolio of five infrastructure assets in New Zealand, including three groups
of schools, a correctional facility, and a purpose-built student accommodation
facility at the Auckland University of Technology. The investments are
operational and delivering long-term stable cash flows linked to inflation.

 

·     Ealing Building Schools for the Future ('BSF'), UK: In March 2023,
the Company acquired a further 20% investment in Ealing BSF, increasing its
holding to 100%. This BSF scheme provides education facilities to over 1,400
pupils.

 

In addition, in December 2023 the Company committed to acquire its eleventh
OFTO investment, Moray East OFTO. This acquisition, totalling c.£77 million,
was completed in February 2024 (post-year end) 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.

 

The Company continues to assess further investment opportunities, particularly
where they are favourable to alternative capital allocation options and align
to relevant strategic KPIs.

 

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 OFTO investments.

 

Ofgem continues its consultation process regarding the potential regulatory
developments underpinning an extension to the OFTO revenue stream. In January
2024, Ofgem published decisions which confirmed the regulator'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 with their preferred approach being to promote
bilateral negotiation with the incumbent OFTO when setting any extension
revenue stream.

 

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.

 

Gas distribution | SDG 9: Industry innovation and infrastructure

 

Cadent continues to support the UK Government in meeting its net zero target,
working closely with the Department for Energy Security and Net Zero ('DESNZ')
in supporting its Heat and Buildings Strategy, and Hydrogen Strategy, to
consider hydrogen as a component of the UK's future energy mix. Cadent also
continues to actively engage with the UK Government and regulators to build
awareness of the opportunities offered by green cases in the UK's net zero
transition.

 

While Cadent is largely insulated from changes in gas prices and the
associated energy price caps, aside from where the changes can cause timing
differences in certain cash flows, the Company continues to closely monitor
the implications of changes in gas prices and other developments in the
sector.

 

Wastewater | 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. Construction has continued to progress, with overall works over 90%
complete at 31 December 2023 and the project remaining on course to be fully
operational in 2025.

 

The project continues to progress well. Notable milestones being reached
during the year, include the completion of the secondary lining and the
opening of the first new area of public realm. The estimated cost of the
project remains in line with the £4.5 billion stated in INPP's Half-yearly
Financial Report for the six months to 30 June 2023 and the cost to customers
remains well within the initial estimate provided at the outset of the
project.

 

Tideway continues to monitor developments in relation to the financial
position of Thames Water which is being reported on by the media. The matter
is not expected to have a material impact on the Company's investment in
Tideway. Whilst Thames Water possesses a licence requirement to collect
Tideway's revenues from its customers, and pass those amounts onto Tideway,
statutory and regulatory protections are afforded to Tideway which are
designed to mitigate the risk of disruption to the receipt of revenues in the
event that Thames Water's financial standing changes.

 

Digital infrastructure | SDG 9: Industry, innovation and infrastructure

 

During the year, the Company completed the sale of its stake in Airband
through the Amber-managed NDIF. INPP first invested in Airband in 2018 and
supported the business in expanding its fibre network to cover more than
290,000 homes in the West of England. INPP has two remaining investments in
digital assets - toob and Community Fibre.

 

In May 2023, the Company expressed its intention to invest a further c.£13
million into toob, alongside additional capital from NDIF. The Company's
investment is expected to be made during 2024 and 2025. toob has a current
fibre network covering 190,000 premises in the South of England. INPP's
further investment is part of a wider potential £300 million of additional
funding raised by the business, to expand its reach across 600,000 premises.

 

OUTLOOK

 

The Board and Investment Adviser remain confident in the proactive measures
initiated to date to optimise the portfolio and reallocate capital to address
the discount at which the Company's shares are trading.

 

The Board and Investment Adviser will continue to monitor the extent to which
these initiatives are having the anticipated impact on the Company's valuation
and remain open to further mechanisms that can support in narrowing the
discount and generating further returns for shareholders.

 

The Company's prospects are highly attractive. INPP's investment case is
underpinned by the long-term nature of the portfolio and the inflation-linkage
of the Company's projected cash receipts. As such, the Board and Investment
Adviser are confident the Company will continue to meet its investment
objectives, supported by diligent asset management and a prudent approach to
portfolio management, as well as a sustained focus on robust shareholder
returns as evidenced during the year.

 

OTHER INFORMATION

 

The 2023 Annual Report and financial statements for the year ended 31 December
2023 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/?

 

A recording of the Company's recent Capital Markets Day, held on 27 February
2024, can also be found on the website and accessed at
https://www.internationalpublicpartnerships.com/investors/capital-markets-day-27-february-2024/
(https://www.internationalpublicpartnerships.com/investors/capital-markets-day-27-february-2024/)

 

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

 

 Amber Infrastructure   FTI Consulting
 Erica Sibree           Ed Berry / Mitch Barltrop / Jenny Boyd

 +44 (0) 7557 676 499   +44 (0) 7703 330 199 / (0) 7807 296 032 / (0) 7971 005 577

 

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, New Zealand and North America. INPP seeks to
provide its shareholders with both a long-term yield and capital growth.

 

Amber Fund Management Limited ('AFML'), the Investment Adviser to INPP, is
part of the Amber Infrastructure Group ('Amber') which 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  This is reflective of the increased 2023 dividend and the 2024 dividend
target, and 2.5% annual dividend growth thereafter.

 ii  Future profit projection and dividends cannot be guaranteed. Projections
are based on current estimates and may vary in future.

 iii  Cash dividend payments to investors are paid from net operating cash
flows before capital activity as detailed on pages 25 to 26 of the 2023 Annual
Report. Movements in the level of coverage from period to period can be
expected due to the profile of projected distribution receipts from the
portfolio over time (see chart on page 31 of the 2023 Annual Report), and are
not necessarily a reflection of changes in the level of asset performance.

 iv  The methodology used to determine the NAV is described in detail on pages
27 to 34 of the 2023 Annual Report.

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