Half year results for the six months ended 30 June 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THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME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 Update

• The high quality of the Company’s investments and the active stewardship of the portfolio by the Investment Adviser, Amber Infrastructure Group (‘Amber’), has ensured that the portfolio has continued to perform well, both for shareholders and wider stakeholders.
• The Company has to date, experienced limited impact from Covid-19 on its financial and operational performance and net cash flows received in the period were consistent with expectations prior to the pandemic.
• However, there are a few specific risk areas which the Company has previously indicated, relating principally to Tideway, the Company’s largest asset under construction, and where the Company is exposed to elements of demand-based risk, the most significant example being the Diabolo Rail Link.
• Notwithstanding the ongoing uncertainty caused by Covid-19 and the Company’s deliberately cautious approach to managing associated risks, the reliability of the portfolio’s operational performance and cash flow has supported a 2.5% increase in half-year fully-covered cash dividend distribution of 3.68 pence per share.[i] The Company has also reaffirmed its current dividend guidance for the full year 2020 and 2021[ii].
• The Company’s liquidity position remains robust with a £400 million revolving debt facility (maturing in July 2021) of which only c.£28.3 million is currently utilised[iii].

Covid-19 Risk Mitigation

• The Company has taken a cautious approach and sought to reflect the anticipated financial impact of Covid-19 within its 30 June 2020 cash flow forecasts and valuations. This cautious approach has contributed to a 0.7% decrease in Net Asset Value (‘NAV’) to £2.41 billion (31 December 2019: £2.43 billion). The implications and risks of Covid-19 are most significant on Tideway and the Diabolo Rail Link. Further information on these two investments is set out below:
• Tideway, UK: In February 2020, the excavation of the main tunnel reached the halfway mark of the new 25km super sewer. However, in response to Covid-19, progress has slowed owing to new working protocols and safety measures required and in order to ensure the safety of Tideway workers and the wider community. As a result, in August 2020, Tideway published an update which indicated that the project cost could increase from c.£3.9bn to c.£4.1bn and the completion date could be delayed to the first half of 2025. The impact on Tideway investors (the Company is a 16% shareholder in Tideway) is mitigated by existing contractual and regulatory safeguards. The estimated impact on the Company after applying judgement in respect of the anticipated mitigating factors is reflected in our 30 June 2020 valuation.
• Diabolo Rail Link, Belgium: As a result of Covid-19, passenger numbers have been materially lower during 2020 to date compared to previous periods. In the event of prolonged under-performance without remedial action, the Company is unlikely to receive distributions from this investment for some time and a technical default may be triggered under the terms of the debt secured on that investment. We have strong, long-term relationships with our stakeholders and constructive discussions are ongoing with project lenders and the Belgian state railway in order to agree how to overcome any potential liquidity or compliance issues. In addition, if required the project benefits from a contractual mechanism which permits an adjustment to the passenger fee in the event that passenger numbers and returns fall below a certain threshold. Notwithstanding these nearer term uncertainties, which have been reflected within our cash flow forecasts, the Company maintains a positive view on the quality of this investment and remains reassured by the contractual protections and the length of the contract term, which runs until 2047.

Financial Highlights[iv]

• NAV per share of 149.2 pence (31 December 2019: 150.6 pence).
• Interim dividend increase of 2.5% to 3.68 pence per share (30 June 2019: 3.59 pence per share).
• Total Shareholder Return (‘TSR’) of 219% since IPO, equivalent to an annualised TSR of 8.9%.[v]
• IFRS profit before tax of £35.4 million (30 June 2019: £83.7 million). The reduction compared to the prior corresponding period was principally reflective of the BeNEX transaction being recognised in the prior period, as well as the current period decrease in valuation of the portfolio overall as a result of factoring in additional uncertainty caused by Covid-19.
• Strong inflation protection was maintained with a projected increase in return of 0.78% p.a. in the event of a 1.00% p.a. increase in inflation over and above the assumed rates (31 December 2019: 0.82% p.a.).[vi]
• Low long-term correlation to the FTSE All Share Index of 0.37 over the five years to 30 June 2020.[vii]
• Interim cash dividend cover of 1.3x (HY 2019: 1.3x).[viii]

Portfolio Highlights

• £11.7 million of new cash investments were made during the first half of 2020 as the Company continues to leverage the breadth and scale of Amber’s resource to undertake additional investment activity alongside actively managing the existing portfolio. All acquisitions in the period were funded through the Company’s existing cash balances.
  • UK schools: taking further advantage of its pre-emption rights, the Company invested £6.7 million in the Essex Building Schools for Future (‘BSF’) project which provides education facilities to over 3,700 secondary school pupils across the country of Essex, UK. Post-period end, the Company acquired additional stakes in six BSF project companies that own 14 schools across Bradford and Lewisham.
  • UK digital infrastructure: as part of the £45 million commitment to the National Digital Infrastructure Fund (‘NDIF’), the Company invested a further £5 million in three of NDIF’s existing investments, which include urban and rural alternative network providers offering ultrafast fibre connectivity to UK homes and businesses. Post-period end, NDIF partially realised an initial investment in Community Fibre which reflected a positive return on the Company’s original investment and will support the further growth of Community Fibre in delivering fibre connectivity across London.

Asset Stewardship

• Along with the management team at Cadent (a UK gas distribution network) and its co-investors, the Company – via its Investment Adviser – has continued to engage with Ofgem concerning the regulatory settlement for the five-year period beginning April 2021. Cadent, the Company and other market participants will continue to work towards the best possible outcome for both customers and investors in the final determination that Ofgem is expected to publish in December 2020.
• Over 400 commissioned contract variations on the Company’s PPP projects resulted in c.£12 million of additional project work conducted on behalf of the respective commissioning bodies. The Company also repurposed several social infrastructure assets – including schools, blue light facilities and other public buildings – to help support the wider community in response to Covid-19. For those investments whose performance is measured by both availability and performance, the availability of those assets was 99.6% for the six months to 30 June 2020.
• The Company integrates the UN Sustainable Development Goals into its investment lifecycle in order to improve the ESG performance of its underlying assets. The Company’s Investment Adviser, a signatory to the United Nations backed Principles of Responsible Investment, was awarded an A+ ranking in its inaugural assessment for both the strategy, governance and the infrastructure modules as testament to the responsible investment approach the Company remains committed to.

Outlook

The full implications of Covid-19 remain difficult to fully ascertain. However, the wider market for new infrastructure investment remains positive and the Company is supportive of governments around the world using infrastructure spending as a tool for fiscal stimulus to foster global economic recovery. The asset valuations seen in the secondary market continue to support the Company’s existing valuations. The Investment Adviser’s team have been very active during the period and the Company have reviewed over 40 different investment opportunities. We will continue to deploy shareholders capital prudently towards an identified global pipeline, including c.£100m of new investment opportunities at preferred bidder stage or equivalent. More information is detailed on pages 16 of the Interim Report.

Michael Gerrard, Chairman of International Public Partnerships Limited, said: “Many aspects of modern society have been tested by the Covid-19 pandemic and our social and public infrastructure is not immune. However, the Company’s portfolio continues to show considerable resilience. As a result of the high-quality, diversified investments carefully originated and actively managed by our Investment Adviser’s dedicated team, we have continued to generate consistent and growing returns for our shareholders. The near-term uncertainty due to the implications of Covid-19 will likely result in some short to medium term headwinds for some of our investments, but together with our track record of successfully solving asset management issues and the contractual protections we have in place to protect downside risks, I remain fully confident in the Company’s ability to generate positive outcomes for all our stakeholders.”

ENDS.

A copy of the results presentation can be downloaded here.

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 130 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.

Endnotes:

^{[i] The forecast date for payment of the dividend relating to the six months to 30 June 2020 is 13 November 2020. The 2.5% stated increase relates to the comparable interim dividend payment in 2019.
[ii] 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.
[iii] As at 9 September 2020.
[iv] For the half year ended 30 June 2020 unless otherwise stated.
[v] Since inception in November 2006. Source: Bloomberg. Share price appreciation plus dividends assumed to be reinvested.
[vi] 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.
[vii] Correlation (R) from Bloomberg – 5 years to 30 June 2020.
[viii] Cash dividend payments to investors are paid from net operating cash flow before non-recurring operating costs as detailed.}