Full year results for the twelve months ended 31 December 2020
Full year results for the twelve months ended 31 December 2020
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION.
Operational highlights
- The Company had a successful year in 2020 particularly against the wider backdrop of the global Covid-19 pandemic
- The overall resilience of the portfolio has supported a 2.5% full-year dividend increase to 7.36 pence per share. The Company’s Board is pleased to reaffirm its dividend target for 2021 of 7.55 pence per share, and to provide new guidance for 2022 of 7.74 pence per share[i]
- Throughout the pandemic the Company has continued to deliver long-term benefits for all its stakeholders by investing in and responsibly managing 130 public and social infrastructure assets which deliver essential public services internationally
- The pandemic has, to date, had only a limited impact on the overall financial and operational performance of the Company. However, there continues to be uncertainty relating to specific assets in the portfolio including Tideway and the Northern Diabolo Rail Link (‘Diabolo’) which have, respectively, ongoing construction activities and revenues that are indirectly linked to usage
- Whilst contractual mitigants exist on both these assets and these risks are being actively managed by the Investment Adviser, the Company has adopted a cautious approach to these risks which has contributed to a 1.7% decrease in the NAV to £2.38 billion (December 2019: £2.43 billion). This represents a NAV per share decrease of 2.3% to 147.1 pence per share (December 2019: 150.6 pence per share)
- The Company completed £30 million in new investments during 2020 and has an investment pipeline consisting of projects where it is preferred bidder, or equivalent, of c.£220 million, including its tenth UK offshore energy transmission project (‘OFTO’)
- The Company’s Investment Adviser submitted its inaugural PRI transparency report, obtaining an A+ ranking for both the strategy and governance, and the infrastructure modules. The Company draws on the Sustainable Development Goals (‘SDGs’) to help drive environmental and social progress across its investments and has resolved to align its reporting with the recommendations of the Task Force on Climate-related Financial Disclosures (‘TCFD’)
Financial highlights[ii]
- NAV per share of 147.1 pence per share (31 December 2019: 150.6 pence per share)
- Full-year dividend increase of 2.5% to 7.36 pence per share (31 December 2019: 7.18 pence per share) supported by strong 2020 cash dividend cover of 1.2x[iii]
- IFRS profit before tax of £60.8 million (31 December 2019: 137.8 million). The decrease in valuation for the period overall as a result of the uncertainty caused by Covid-19 contributed to the reduction in profit before tax compared to previous years
- 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.)[iv]
- Despite wider equity market volatility, the Company’s shares maintained a continued low correlation to the FTSE All Share Index of 0.38 over the five years to 31 December 2020 (31 December 2019: 0.19)[v]
- The Company will target full-year dividends for 2021 and 2022 of 7.55 and 7.74 pence per share, respectivelyi
Operational update
Thames Tideway Tunnel, UK (‘Tideway’) | SDG 6, 9 & 11: clean water and sanitation, industry, innovation and infrastructure and making sustainable cities and communities
The tunnelling of a new “super sewer” beneath the Thames reached 60% completion during 2020, despite delays to the project’s construction timetable as a result of the first UK national lockdown in March 2020, where only essential and safety-critical works were carried out, as well as ongoing distancing requirements. With appropriate processes and procedures in place to protect the health and safety of workers and the wider community, construction activities progressed over the period and the final tunnel boring machine was launched in January 2021. In August 2020, Tideway indicated that Covid-19 will cause the project cost to increase from £3.9 billion to £4.1 billion and the completion date to be delayed from June 2024 to March 2025. Existing contractual and regulatory safeguards will help mitigate the financial impact on investors (the Company is a 16% shareholder in Tideway) and Tideway is in discussions with Ofwat, its regulator, regarding a package of further mitigations. The Company has adopted a cautious approach by reflecting the latest cost and schedule information within the 31 December 2020 valuation, including a prudent assessment of the further mitigations.
Diabolo, Belgium | SDG 11: Making sustainable cities and communities
The Company’s investment in Diabolo, a rail infrastructure investment which integrates Brussels Airport with Belgium’s national rail network, runs until 2047. The majority of revenues from Diabolo are linked to passenger use of either the rail link itself or the wider Belgian rail network, and as a result of the impact of the Covid-19 pandemic on international travel and national lockdowns in Belgium, passenger numbers were significantly lower over the course of 2020. Following proactive discussions with the project’s lenders and the Belgian state railway since the onset of the pandemic, and as announced in December 2020, INPP committed £9.1 million in December 2020 to protect Diabolo’s liquidity position and ensure its debt covenants will continue to be met. A further £12.6 million in contingent funding was committed to support the project’s future liquidity position and ensure compliance with debt covenants, noting that any unutilised funding will be cancelled. To inform the 2020 valuation of Diabolo, the Company commissioned advice from a specialist independent technical adviser to help forecast future passenger numbers as lockdown restrictions ease and international travel resumes. The Company has continued to take a cautious approach to near-term uncertainty by assuming that no distributions will be made by Diabolo until 2023.
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. Cadent’s revenues have remained largely unaffected by Covid-19, but an increase in costs from delays to planned works and new working protocols to accommodate social distancing is likely. Separately, Cadent’s management team has engaged intensively with the UK energy regulator, Ofgem, to ensure the best possible outcome for Cadent’s customers and investors for the next five-year regulatory period due to start in April 2021 (‘RIIO-2’). 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 (‘CMA’) as it believes this approach will best serve Cadent’s customers’ interests. Notwithstanding the appeal’s outcome due later in 2021, the Company has sought to reflect the final determination issued by Ofgem in its revised cash flow forecasts for Cadent.
Investment activity
During 2020, the Company completed £30 million of additional investments across the education, transport, and digital sectors; all of which help generate long-term, inflation-linked returns by growing the Company’s dividend and creating potential for capital appreciation.
Digital infrastructure, UK | SDG 9: industry, innovation and infrastructure
The need to reduce the digital divide has become acutely apparent during 2020, with the pandemic highlighting the importance of reliable digital connectivity across the UK. Of the Company’s initial £45 million commitment to the National Digital Infrastructure Fund (‘NDIF’), £37.3 million has now been drawn, following £9.5 million of additional investment during 2020 in three of NDIF’s existing investments. The Company made two partial realisations in two alternative network providers, Community Fibre and Airband; the valuations reflected a positive return on the Company’s initial investment.
Schools, UK | SDG 4 & 9: Quality education, and industry, innovation and infrastructure
The Company invested £11.4 million in additional stakes in three Building Schools for Future (‘BSF’) projects in Essex, Bradford and Lewisham, and Blackburn and Darwen, respectively. These availability-based investments are expected to be accretive to the Company’s returns and provide education facilities to over 23,000 pupils.
Energy transmission, UK | SDG 7 & 13: Affordable and clean energy, and climate action
The Company was appointed as preferred bidder on the East Anglia One OFTO in December 2020 and expects to invest up to £90 million in what is the Company’s tenth such appointment in the UK offshore transmission sector. The East Anglia One offshore wind farm is located c.50km off the coast of Suffolk and has an installed capacity of 714MW providing enough green energy to power over 630,000 homes.
Asset stewardship and responsible investment
The Company’s portfolio of investments continues to deliver sustainable non-financial benefits for all stakeholders. The Investment Adviser and its c.135 staff have continued to work with public sector counterparties to maintain the delivery of essential public services and ensure strong ongoing asset performance. The Company has delivered, among other things:
- Asset availability of 99.7% and 0.1% asset performance deductions;
- The repurposing of certain social infrastructure assets, including schools, blue light facilities and other public buildings, to support the wider community where these locations would otherwise have been vacant due to the Covid-19 pandemic; and
- Over 1,100 commissioned contract variations on the Company’s PPP projects, resulting in a combined value of over £26 million of additional project work to be completed on behalf of the commissioning body.
The Company’s Board has established a dedicated ESG Committee to enhance its approach to managing ESG risks and opportunities. It has also resolved to align with TCFD framework to facilitate the tracking of the Company’s carbon footprint to support its consideration and disclosure of transition and physical risks of climate change. The Company is pleased to report its Investment Adviser achieved an A+ in the UN-backed PRI 2020 assessment for both the strategy and governance and the infrastructure modules in its first year of participation.
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The high-quality, diverse nature of the Company’s investment portfolio has proven resilient against the headwinds our market is facing as a result of the Covid-19 pandemic.
Mike Gerrard
Chair
- International Public Partnerships
Outlook
Since the outbreak of the Covid-19 pandemic at the beginning of 2020, there has been broad recognition of governments’ responsibility to ensure resilience against future threats, as well as 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 continues to offer a significant degree of protection for investors.
The Company will continue to play its part in helping societies and communities meet the challenges presented by the pandemic, by ensuring assets and businesses remain as available and resilient as possible. The Company is confident in a positive outlook for private sector investment into public infrastructure to support the post-Covid-19 recovery.
Mike Gerrard, Chair of International Public Partnerships, said: “The high-quality, diverse nature of the Company’s investment portfolio has proven resilient against the headwinds our market is facing as a result of the Covid-19 pandemic. Thanks to the dedication of our Investment Adviser in actively managing these implications, the Company has again met its full-year dividend target and I am pleased to declare two-year dividend guidancei which reaffirms the confidence we have in the Company’s ability to generate long-term, inflation-linked returns to our shareholders.
2020 has proven how critical public infrastructure is in delivering essential services to our economies and local communities, and our strong pipeline of investment opportunities coupled with our market-leading asset management expertise means the Company will be a net beneficiary of what I hope will be a stronger, greener economic recovery.”
Erica Sibree / Amy Joslin
Ed Berry / Mitch Barltrop
+44 (0)20 7939 0558 / 0587
+44 (0)7703 330 199 / +44 (0)7807 296 032
Amber Infrastructure
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 approximately 135 staff who are responsible for the management of, advice on and origination of infrastructure investments.
Important Information
This announcement contains information that is inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014.
This announcement is an advertisement. It 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.
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 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 Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.
[i] There can be no assurance that these targets will be met or that the Company will make any distributions at all. Whilst we generally have good forward-visibility of cash flows generated by the Company’s investments, the current Covid-19 pandemic creates additional uncertainty.
[ii] For the full year ended 31 December 2020 unless otherwise stated.
[iii] Cash dividend payments to investors are paid from net operating cash flow before non-recurring operating costs.
[iv] Projected increase in portfolio return for a 1.00% p.a. increase in the inflation rate assumed in the current valuation analysis for each asset in the portfolio.
[v] Correlation (R) from Bloomberg – five years to 31 December 2020.