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John Laing Group plc  -  JLG   

Full Year Results

Released 07:00 08-Mar-2018

RNS Number : 0527H
John Laing Group plc
08 March 2018
 

 

This announcement contains inside information.

 

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

 

John Laing Group plc (John Laing or the Company or the Group) announces its audited results for the year ended 31 December 2017.

 

Highlights

 

·    10.5% increase in Net Asset Value (NAV), from £1,016.8 million at 31 December 2016 to £1,123.9 million

·    13.5% increase in NAV including dividends paid in 2017

·    NAV per share at 31 December 2017 of 306p (31 December 2016 - 277p)1

·    New investment commitments of £382.9 million2 (2016 - £181.9 million), well ahead of guidance

·    Realisations of £289.0 million from the sale of eight investments (2016 - £146.6 million), well ahead of guidance

·    Profit before tax of £126.0 million compared to £192.1 million in 2016 

·    Earnings per share of 34.7p (2016 - 51.9p)

·    12% increase in external Assets under Management (AuM) from £1,472.3 million at 31 December 2016 to £1,648.5 million3 at 31 December 2017

·    Cash yield from investment portfolio of £40.2 million (2016 - £34.8 million)

·    Strong investment pipeline, including nine shortlisted PPP positions

·    Final dividend of 8.70p per share in line with policy (including a special dividend of 4.88p per share), giving a total 2017 dividend of 10.61p (2016 - total dividend of 8.15p), an increase of 30.2% from 20164

·    1 for 3 rights issue announced on 8 March 2018

 

 

 

Olivier Brousse, John Laing's Chief Executive Officer, commented:

"2017 was a strong year for John Laing. We made record investment commitments, driven in large part by our success in our core Asia Pacific and North America markets. We continued to grow our pipeline, 95% of which is now made up of opportunities outside the UK, and to scale up our business. We are exclusively focused on investment in greenfield projects that meet our strict criteria, and our strategy remains to generate value for shareholders though growth in NAV and dividends."

 

 

Notes:  

1.     Calculated as NAV at 31 December 2017 of £1,123.9 million (31 December 2016 - £1,016.8 million) divided by number of shares in issue at 31 December 2017 of 366.96 million (31 December 2016 - 366.92 million).

2.     Based on new investment commitments secured in the year ended 31 December 2017; for further details see the Primary Investment section of the Strategic Report.

3.     External AuM based on published portfolio values of JLIF at 30 September 2017 and JLEN at 31 December 2017.

4.     Before adjustment for the rights issue announced on 8 March 2018.

 

A presentation for analysts and investors will be held at 8:30am (London time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED. A conference call facility will also be available using the dial-in details below.

 

Conference call dial in details:

 

UK: 020 3936 2999

Other locations: +44 (0) 20 3936 2999

Participant access code: 60 35 12

 

Participant URL for live access to the on-line presentation:

 

http://www.investis-live.com/john-laing/5a8fe81b2ce689130086caeb/wmyz

 

A copy of the presentation slides will be available at www.laing.com later today.

 

 

Analyst/investor enquiries:

 

Olivier Brousse, Chief Executive Officer                                                       +44 20 7901 3200

Patrick O'D Bourke, Group Finance Director                                                +44 20 7901 3200

 

Media enquiries:

 

James Isola, Maitland                                                                                +44 20 7379 5151

 

 

This announcement may contain forward looking statements. It has been made by the Directors of John Laing in good faith based on the information available to them up to the time of their approval of this announcement and should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward looking information.

 

 

Summary financial information

 


Year

ended

or as at

31 December

2017

Year

ended

or as at

31 December

2016

£ million (unless otherwise stated)



 

 

 

Net asset value

1,123.9

1,016.8

NAV per share1

306p

277p

Retirement benefit obligations

(40.3)

(69.3)

Profit before tax

126.0

192.1

Earnings per share (EPS)2

34.7p

51.9p

Dividends per share3

10.61p

8.15p

 

 

 

Primary Investment portfolio

580.3

696.3

Secondary Investment portfolio

613.5

479.6

Total investment portfolio

1,193.8

1,175.9

Future investment commitments backed by letters of credit and cash collateral

335.4

186.3

Gross investment portfolio

1,529.2

1,362.2

New investment committed during the period4

382.9

181.9

Proceeds from investment realisations5

289.0

146.6

Cash yield from investments

40.2

34.8

PPP investment pipeline4

1,585

1,408

Renewable energy pipeline4

565

451

 

 

 

Asset Management

 

 

Internal Assets under Management6

1,518.9

1,352.2

External Assets under Management7

1,648.5

1,472.3

Total Assets under Management

3,167.4

2,824.5

Notes:

(1)   Calculated as NAV at 31 December 2017 of £1,123.9 million (31 December 2016 - £1,016.8 million) divided by the number of shares in issue at 31 December 2017 of 366.96 million (31 December 2016 - 366.92 million).

(2)   Basic EPS; see note 5 to the Group financial statements.

(3)   Before adjustment for the rights issue announced on 8 March 2018.

(4)   For further details, see the Primary Investment section of the Strategic Review.

(5)   Represents cash proceeds received on realisations for the year ended 31 December 2017, including £1.9 million consideration deferred to 2018.

(6)   Gross investment portfolio, less shareholding in JLEN valued at £10.3 million (31 December 2016 - £10.0 million).

(7)   External AUM at 31 December 2017 is based on published portfolio values of JLIF as at 30 September 2017 and JLEN as at 31 December 2017.

 

 

Chairman's Statement

 

This is my last report to shareholders as Chairman and I am pleased to be leaving the business well positioned for future growth. Since I became Chairman in January 2010, John Laing has evolved significantly in a number of ways: it's a simpler business, with non-core activities divested; it's a much more international business, with three well-established geographical regions and the potential for expansion into further jurisdictions; and it's a stronger business, with the ability to access new capital, having undertaken a successful IPO three years ago. In addition, we have launched two successful independent secondary funds, JLIF and JLEN, which are the purchasers of a number of our investments once the underlying projects reach the operational stage.

 

As well as announcing our results, we are today launching a 1 for 3 rights issue to raise £210 million, net of costs. The rights issue will enable the Group to take advantage of a higher proportion of the attractive opportunities currently available to it and is consistent with the Board's intention to increase the scale of the business over the medium term. We plan to use the proceeds to invest in public private partnership (PPP) projects, renewable energy assets, and in other appropriate greenfield infrastructure assets which fit our business model and meet our investment criteria. The Board considers the rights issue to be in the best interests of John Laing and its shareholders as a whole.

 

During 2017, as in earlier years, we kept our strategy focused but also flexible. Our business model has stood the test of time and allows the management team to concentrate on the core tasks of origination of greenfield projects; active management of construction and operational risk; and timely realisations in order to monetise investments.

 

We committed capital to each of our three core regions - Asia Pacific, Europe and North America - in the year. The US market in particular is now showing the potential we have been anticipating for some time. As well as two further renewable energy projects, we invested in the I-66 Managed Lanes project in Virginia. We continue to see strong demand for new greenfield infrastructure in each of our regions.

 

 

The business delivered another strong performance in 2017:

 

·      Net Asset Value (NAV) grew by 10.5% to £1,123.9 million or 306p per share at 31 December 2017, from £1,016.8 million or 277p per share at 31 December 2016;

·      Investment commitments reached £382.9 million, our highest ever and significantly ahead of our guidance of approximately £200 million;

·      Realisations of investments were £289.0 million, again well ahead of our guidance for 2017 of approximately £200 million;

·      Our total external Assets under Management grew to £1,648.5 million, an increase of 12.0%; and

·      We are proposing a final dividend for 2017, before adjustment for the rights issue, of 8.70p per share made up of a base dividend of 3.82p per share and a special dividend of 4.88p per share.

 

In December 2017, Will Samuel joined the Board as Chairman Designate and will take over from me when I stand down at the Annual General Meeting (AGM) in May 2018. In the few months since he joined us, Will has met all the key members of management and has already got his feet well under the table. He brings with him a wealth of experience both as a chairman of listed and private companies as well as from his successful executive career. I am confident I will leave the Board and the Company in capable hands.

 

During the year under review, the Board complied with all applicable provisions of the UK Corporate Governance Code (the Code). We have an experienced Board which has been strengthened by the addition of Will Samuel. As well as regular Board meetings, we held reviews in June and in October 2017 to address the future strategy and direction of the business. These recognised the robustness and flexibility of our existing business model and reconfirmed our commitment to creating further shareholder value from growth in NAV.

 

I will be sorry to say goodbye to the many members of staff I have met and worked with during my time at John Laing and, on behalf of the Board, I would like to thank all of them for their contribution during my chairmanship and to these results in particular. I would also like to extend the Board's thanks to all the Group's stakeholders for their continued support.

 

Our dividend policy has two parts:

 

·      a base dividend of £20 million (starting from 2015) growing at least in line with inflation; the Board is recommending a final base dividend for 2017 of 3.82p per share, before adjustment for the rights issue; and

 

·      a special dividend of approximately 5% - 10% of gross proceeds from the sale of investments on an annual basis, subject to specific investment requirements in any one year. The Board is recommending a special dividend for 2017 of 4.88p per share, before adjustment for the rights issue. This reflects 6.2% of 2017 realisations of £289.0 million.

 

The total final dividend therefore amounts to 8.70p per share, which, together with the interim dividend of 1.91p per share paid in October 2017, makes a total dividend for 2017 of 10.61p per share, an increase of 30.2% over 2016, reflecting the significant level of realisations achieved in 2017. The final dividend will be put to shareholders for their approval at the Company's AGM which will be held on 10 May 2018. At the Company's last AGM on 11 May 2017, all resolutions were approved by shareholders.

 

Our business is in good shape and, based on our investment pipeline, we anticipate a strong level of deal flow over the coming years in each of our core markets.

 

 

Phil Nolan

Chairman

 

 

Chief Executive Officer's Review

 

I am pleased to report that in 2017 we significantly increased our investment commitments, while maintaining our track record of strong results. This was achieved despite the impact of lower power price forecasts which affected a number of our renewable energy investments and without the benefit of the significant foreign exchange gain in 2016.

The highlights included:

·      10.5% increase in NAV, from £1,016.8 million at 31 December 2016 to £1,123.9 million at 31 December 2017;

·      13.5% increase in NAV including dividends paid in 2017;

·      NAV per share at 31 December 2017 of 306p (31 December 2016 - 277p);

·      New investment commitments of £382.9 million (2016 - £181.9 million);

·      Realisations of £289.0 million from the sale of eight investments;

·      Profit before tax of £126.0 million compared to £192.1 million in 2016;

·      12% increase in external Assets under Management (AuM) to £1,648.5 million;

·      Cash yield from investment portfolio of £40.2 million (2016 - £34.8 million); and

·      Final dividend of 8.70p per share, giving a total 2017 dividend of 10.61p per share (2016 - total dividend of 8.15p per share), an increase of 30.2% from 2016, before adjustment for the rights issue.

 

Outlook for our markets

The overall market for greenfield infrastructure is driven by a number of factors, but especially population growth, urbanisation and climate change. In the case of urbanisation, some commentators forecast that within 20 years, two out of every three people will live in a city. Other factors which influence infrastructure spending include governmental policy towards regulation and investment, the demand for energy and the availability of capital, both private and public sector. 

Most of these factors apply to each of the sectors in which we operate: transport and transport-related infrastructure, such as roads, tunnels, bridges and rail assets; environmental infrastructure, such as renewable energy, water treatment and waste management; and social infrastructure, such as schools and hospitals. We are proud of the fact that many of the assets we invest in provide a public benefit.

We operate in a wider infrastructure market in which there has been historical under-investment. This provides a strong incentive for governments to use public private partnerships (PPPs) to procure greenfield infrastructure. As well as access to private capital, PPP arrangements enable governmental and other public sector bodies to benefit from fixed price arrangements which transfer very significant risks to the private sector, especially design, construction and operational delivery risks. The growing international adoption of PPPs as a procurement model for infrastructure is acknowledged by the World Bank which publishes a PPP Reference Guide.

Our Primary Investment teams benefit from a robust and diverse pipeline of future opportunities in each of the three regions where we currently operate: North America (Canada and the US); Asia Pacific (Australia and New Zealand); and Europe (including the UK). We have focused strongly on developing our relationships with international partners, including construction companies, rolling stock manufacturers and renewable energy developers and this is resulting in more investment opportunities. We entered 2018 with strong positions in nine shortlisted PPP consortiums and with four exclusive renewable energy opportunities.

·      North America: six of the nine shortlisted PPP positions are for potential investments in North America. In Canada, we continue to see a strong commitment to PPPs from federal authorities, as evidenced by the recent establishment of the Canadian Infrastructure Board. The most active province is Ontario, especially in the transport sector. In the US, 2017 has been a breakthrough year for John Laing. We have taken advantage of increased activity in PPPs, and made further investments in renewable energy. The US is a market where procurement for greenfield assets takes place predominantly at state or city, rather than federal, level, and where the need for greenfield infrastructure has been highlighted by states or cities introducing specific local tax increases to raise funds for new assets required. 

·      Asia Pacific: we remain very active in the PPP markets in both Australia and New Zealand. In Australia, following a very successful year in 2017, we see fewer PPP projects reaching financial close in 2018, but a very active pipeline thereafter. In renewable energy, we have benefited from the impetus given to the market by the Federal Renewable Energy Target in Australia.

·      Europe: three of the nine shortlisted PPP positions are for potential investments in Europe. While the PPP market in some European countries remains subdued, we are concentrating on those jurisdictions which have, or will be, initiating active PPP road programmes, such as the Netherlands, Spain, Germany and Norway. While the political climate in the UK is currently not favourable towards PPP, it only accounts for 5% of our total pipeline.

Outside the current pipeline and beyond the PPP and renewable energy markets, we continue to research other infrastructure asset classes that could potentially fit our business model in order to feed future growth. The due diligence we carry out before investing in new markets follows a rigorous process that eventually rules out many opportunities. Over the last three years, we have made our first investments in managed lanes and in offshore wind, and expect these sectors to offer a number of investment opportunities in the future.  We also continue to research new geographies where we see potential opportunities to invest alongside established partners at appropriate returns. These include selected countries in Latin America and South East Asia.

 

Business model

Our business model has three key areas of activity:

·      Primary Investment: we source, originate, bid for and win greenfield infrastructure projects, typically as part of a consortium in the case of PPP projects. Our Primary Investment portfolio comprises interests in infrastructure projects which are in the construction phase.

·      Secondary Investment: we own a substantial portfolio of investments in operational infrastructure projects, almost all of which were previously part of our Primary Investment portfolio.

·      Asset Management: we actively manage our own Primary and Secondary Investment portfolios and provide investment advice and asset management services to two external funds, John Laing Infrastructure Fund (JLIF) and John Laing Environmental Assets Group (JLEN), through John Laing Capital Management Limited (JLCM), which is regulated by the Financial Conduct Authority (FCA).

Our business model is based on our specialist infrastructure investment and asset management capabilities and the continuing demand for operational infrastructure assets as an attractive investment class.

We aim to invest in new greenfield infrastructure projects which, post-construction, produce long-term predictable cash flows that meet our rate of return targets. The projects we invest in are held within special purpose vehicles (SPVs) which we (often in conjunction with other investors) fund with equity, and which are structured so that providers of third party debt finance have no contractual recourse to equity investors beyond their equity commitment.

The principal value creation mechanism inherent in our business model is the difference between the hold-to-maturity IRR at the financial close of a greenfield investment and the discount rate applied to that investment once the underlying project has reached the operational phase. Although we have in recent years experienced pressure on hold-to-maturity IRRs as our Primary Investment teams bid for new greenfield projects, this has typically been accompanied by a reduction in secondary discount rates. This has allowed the Group to maintain attractive "yield shifts" which drive one of the principal measures applied to the Group's investments, namely annualised rate of return.

When investments become part of our Primary Investment portfolio, their value should grow progressively with a reasonable degree of predictability as the underlying assets move through the construction phase and their risk correspondingly reduces. Once the projects reach the operational stage, investments move from our Primary to our Secondary Investment portfolio where they can be held to maturity or sold to secondary market investors, who are targeting a lower rate of return consistent with the reduction in risk.

Our asset management activities focus on management and reduction of project risks, especially during the construction phase, and enhancement of project cash flows. The latter involves identifying and implementing value enhancement initiatives that can increase future cash flows to project investors compared to those originally forecast at the start of the project. We look at a wide range of such value enhancements. Opportunities may arise at any time during a project's life and may vary significantly from one investment to another.

 

Objectives and outcomes

Our overall strategy is to create value for shareholders through originating, investing in and managing infrastructure assets internationally. In that respect, we see NAV growth and dividends as key measures of our success:

·      In 2017, our NAV grew by 10.5% from £1,016.8 million at 31 December 2016 to £1,123.9 million at 31 December 2017. This was 13.5% if we add back the dividends paid in 2017.

·      We are proposing total dividends of 10.61p per share for 2017 compared to dividends of 8.15p per share for 2016. This represents growth of 30.2% over 2016, reflecting the significant increase in realisations during 2017.

To deliver our strategy, we have set ourselves the core objectives below, while maintaining the discipline and analysis required to mitigate against the delivery, revenue and operational risks associated with investments in infrastructure projects:

·      growth in primary investment volumes (new investment capital committed to greenfield infrastructure projects) over the medium term;

·      growth in the value of external AuM and related fee income; and

·      management and enhancement of our investment portfolio, with a clear focus on active management during construction, accompanied by realisations of investments which, combined with our corporate banking facilities and operational cash flows, enable us to finance new investment commitments.

 

Growth in primary investment volumes over the medium term

We operate in a broad market for new infrastructure with a strong pipeline of future opportunities.

Throughout the year, we maintained a disciplined approach to making new investments. Using detailed financial analysis and investment appraisal processes, we assess the specific risk profiles for each prospective investment with the aim of optimising risk-adjusted returns and securing only those new investments which are likely to meet the investment appetites of secondary market investors when the underlying assets become operational.

Our resources are concentrated on countries or geographical regions carefully selected against five key criteria:

·      a stable political, legal, regulatory and taxation framework;

·      a commitment to the development of privately-financed infrastructure;

·      the ability to form relationships with strong supply chain partners, preferably companies we have worked with before;

·      the likelihood of target financial returns, on a risk-adjusted basis, being realised; and

·      the existence of a market for operational investments or a strong expectation that such a market will develop.

Our total commitment to new investments in 2017 was £382.9 million, made up of £142.5 million in renewable energy and £240.4 million in PPP assets. This was a record level for John Laing and significantly ahead of investment commitments of £181.9 million in 2016 and our guidance. Our international growth continued with all our investment commitments being made outside the UK, including the following:

·      I-66 Managed Lanes (US) - £118.0 million

·      Rocksprings Wind Farm (US) - £62.9 million

·      New Grafton Correctional Centre (Australia) - £79.3 million

·      Melbourne Metro (Australia) - £43.1 million.

 

Growth in the value of external AuM and related fee income

Our strategy to grow the value of our external AuM is linked to our activities as an investment adviser to JLIF and JLEN. JLCM not only advises and provides management services to the portfolios of JLIF and JLEN, but also sources new investments on their behalf. During the year, both JLIF and JLEN successfully undertook secondary equity issues and made acquisitions both from John Laing and from third parties. Both funds have the benefit of a right of first offer over certain investments should they be offered for sale by the Group.

During the year, the value of external AuM grew from £1,472 million to £1,649 million, an increase of 12%. Fee income from external AuM was £16.7 million for 2017, up from £15.8 million in 2016.

 

Management and enhancement of our investment portfolio

For John Laing, being an active investor means not only participating actively in consortiums at the bidding stage, but also being actively involved in the project during the construction phase in order to protect the value of our investment and provide advice and/or assistance when delays occur or problems arise. This time last year, we reported on the work of our team on the New Royal Adelaide Hospital project in helping to resolve the sometimes competing priorities of the Government of South Australia, the bank lending consortium, and the construction contractor. This situation had arisen principally because construction of the hospital had been delayed. At the half year, we reported that the hospital had successfully achieved technical completion in mid-March 2017 followed by commercial acceptance in mid-June 2017. Our team played a key part in the achievement of this stage. Patients were first admitted to the hospital in early September 2017.

Like many assets in the early operational stage, certain aspects of service provision are still being addressed and, as we have previously reported, remaining disputes are being dealt with through a process of arbitration.  The important thing from our perspective is that the hospital is delivering under its contract to the people of South Australia. 

As regards Manchester Waste, we reported in September 2017 that our investment in Manchester Waste VL Co had been acquired by the Greater Manchester Waste Disposal Authority (GMWDA). While this resulted in a reduction compared to the value of this investment at 31 December 2016, it is important to note that the cash received of £23.5 million, together with previous distributions, resulted in a positive return on the investment versus our original commitment in 2009. We remain shareholders in Manchester Waste TPS Co where the underlying asset, a combined heat and power station which burns refuse-derived fuel, is performing well.

We regularly apply our active management skills when issues arise. Wherever we operate, we believe our investing, contracting and banking partners appreciate and value the investment experience and active management we provide. We continue to make good use of this expertise to monitor and guide our investments through construction while protecting investment base cases and, where appropriate, seeking to find additional value.

At 31 December 2017, our portfolio comprised investments in 41 infrastructure projects plus our shareholding in JLEN (31 December 2016 - 42 projects plus shareholding in JLEN). Our year end portfolio value, including the shareholding in JLEN, was £1,193.8 million (31 December 2016 - £1,175.9 million). The portfolio value decreased by £142.8 million as a result of cash flows in the year, with proceeds from realisations and cash yield received from project companies partly offset by cash invested in projects. Fair value movements of £160.7 million, or 15.6% of the cash rebased portfolio value, increased the portfolio value to £1,193.8 million at 31 December 2017. This growth is analysed further in the Portfolio Valuation section.

The portfolio valuation represents our assessment of the fair value of investments in projects on a discounted cash flow basis and assuming that each asset is held to maturity, other than shares in JLEN which are held at market value. At 31 December 2017, investments with availability-based cashflows made up 58.8% of our portfolio by value.

The cash yield in 2017 was £40.2 million (2016 - £34.8 million), a yield of 7.4% (2016 - 7.6%) on the average Secondary Investment portfolio, in line with our guidance of a 6.5% to 8.5% yield. Cash yield represents cash receipts in the form of dividends, interest and shareholder loan repayments from project companies and listed investments. 

During the year, we agreed realisations totalling £298.9 million, including the agreed sale of five UK PPP investments to JLIF for a total of £104.6 million, one of which is not expected to complete until later in March 2018. This left us with realisations for 2017 of £289.0 million which were well ahead of our original guidance for 2017 of approximately £200 million.

Consistent with our self-funding model, we are actively considering a number of realisations which are yet to be confirmed. One potential realisation, which is at a reasonably advanced stage, is the disposal of our remaining 15% shareholding in IEP (Phase 1) which could be announced in the next few weeks.

The percentage of our portfolio value attributable to UK investments has fallen from 58% at 31 December 2014 to 34% at 31 December 2017.

 

Profit before tax

Our profit before tax was £126.0 million in 2017, compared to £192.1 million in 2016. Profit before tax is primarily driven by the fair value movement on our investment portfolio. As set out in the Portfolio Valuation section, the main reasons for the lower fair value movement were:

·      The impact of lower power price forecasts (£54.8 million negative in 2017 compared to £17.6 million negative in 2016);

·      Adverse foreign exchange movements (£11.0 million negative in 2017 compared to £74.7 million positive in 2016, as a result of the significant weakening of Sterling in 2016);

offset by:

·      A higher value uplift on financial closes (£50.1 million in 2017 versus £31.0 million in 2016);

·      Higher value enhancements and other changes (£15.1 million positive in 2017 versus £17.2 million negative in 2016), including in 2017 the value reduction in the Manchester Waste investments; and

·      A benefit from revised macroeconomic assumptions of £4.1 million (£13.8 million negative in 2016).

 

Funding

In October 2017, the Group's corporate banking facilities were increased from £400 million to £475 million. The facilities comprise a five-year committed corporate banking facility and associated ancillary facilities, all of which expire in March 2020. The Group also held surety facilities of £50 million backed by two £25 million committed liquidity facilities both expiring in March 2018. In early 2018 these liquidity facilities were extended to February 2019.

The Group's facilities enable us to issue letters of credit and/or put up cash collateral to back investment commitments. We finance our new investments through a combination of cash flow from existing assets, the above corporate banking facilities and realisations of investments in operational projects.

 

Organisation and staff

Our staff numbers were 158 at 31 December 2017 compared to 160 at the end of 2016.  We now have 39% of staff located outside the UK (31 December 2016 - 36%), consistent with our increasing internationalisation.

In January 2018, we initiated an internal reorganisation under which the Primary Investment and Asset Management teams in each of our three geographical regions will in future report to a single regional head, each of whom in turn reports to me. The principal objective behind this revised structure is to enable us to focus more effectively on value creation in each region, while allowing our business to scale up.

I visited our international offices regularly during 2017. We are lucky to have high quality individuals and experienced teams across our business and it is my privilege to thank them for all they have done this year. As I have said before, our success depends on our people.

 

 

Current trading and guidance

Our total investment pipeline at 31 December 2017 was £2,150 million and includes £1,585 million of PPP opportunities looking out three years as well as nearer term renewable energy opportunities of £565 million. Within the pipeline is one preferred bidder position related to the MBTA fare collection project in Boston, US as well as nine shortlisted PPP positions with an investment opportunity of approximately £200 million and four exclusive renewable energy positions with an investment opportunity of approximately £150 million. The current pipeline does not include potential opportunities in new jurisdictions or take account of late entry investment opportunities which may arise.

As stated earlier, we achieved a record level of investment commitments in 2017. As our investment pipeline continues to grow, our aim is to keep on growing investment commitments, but not necessarily year on year, giving our teams the time to select the best opportunities. In 2018, our guidance is for investments commitments of approximately £250 million. We expect realisations to be at a broadly similar level to our investment commitments, consistent with our self-funding model.

As set out in the Chairman's statement, we have today launched a 1 for 3 rights issue to raise £210 million, net of costs, which will enable us to take advantage of a higher proportion of the attractive investment opportunities currently available to the Group. With the benefit of the rights issue, we will have greater ability both to position ourselves for, and execute on, investment commitments in excess of £250 million in 2018.

We have a proven business model and we believe we are in a good position to take advantage of opportunities for investment in greenfield infrastructure in a growing market. Since we re-listed in 2015, we have delivered steady growth despite changing governmental policies and macroeconomic environments. Against this background, we have confidence in the future.

 

Olivier Brousse

Chief Executive Officer

 

Primary Investment

 

Our Primary Investment activities are focused on greenfield infrastructure projects. These are principally those awarded under PPP programmes as well as renewable energy assets and may also include similar long-term infrastructure projects which have a strong private-sector (rather than governmental) counterparty. Asset management services in respect of the Primary Investment portfolio during the construction period are provided by John Laing's Asset Management division. When underlying projects reach the end of construction, the investments transfer into our Secondary Investment portfolio.

 

The Group's Primary Investment portfolio at 31 December 2017 comprised shareholdings in 11 PPP projects and in three renewable energy projects, which were in the construction phase. This portfolio was valued at £580.3 million (31 December 2016 - £696.3 million).

New investment commitments

During 2017, the Primary Investment team successfully secured seven new investments, resulting in total commitments of £382.9 million:

 

·    North America - we continued to increase our activities in the market, most notably through committing £118.0 million to the I-66 Managed Lanes PPP project in Virginia. We also invested £47.6 million in the Buckthorn Wind Farm project and £62.9 million in the Rocksprings Wind Farm, both in Texas.

·    Asia Pacific - the New Grafton Correctional Centre in New South Wales reached financial close in June 2017 with an investment commitment of £79.3 million, and this was followed by an investment commitment in December 2017 of £43.1 million to the Melbourne Metro project. Both these investments further strengthen the Group's presence in the PPP market in this region.

·    Europe - we made a £22.0 million commitment to Solar House, a rooftop solar energy project in France.

 

Our investment commitments for 2017 are summarised in the table below:

 

 

Investment commitments

Region

PPP

£ million

RE*

£ million

Total

£ million

New Grafton Correctional Centre

Asia Pacific

79.3

-

79.3

Hornsdale 3 Wind Farm

Asia Pacific

-

10.0

10.0

Solar House

Europe

-

22.0

22.0

Buckthorn Wind Farm

North America

-

47.6

47.6

Rocksprings Wind Farm

North America

-

62.9

62.9

I-66 Managed Lanes

North America

118.0

-

118.0

Melbourne Metro

Asia Pacific

43.1

-

43.1

Total

 

240.4

142.5

382.9

*RE = renewable energy

 

Activities

The Primary Investment teams are responsible for all the Group's bid development activities. The teams take responsibility for developing and managing a pipeline of opportunities, including market research, project selection, bid co-ordination and negotiations with public sector authorities, vendors and lenders. In each of our target markets of North America, Asia Pacific and Europe, we work with strong delivery partners. For instance, in the Asia Pacific and North American regions, the Group is currently working with leading international and domestic contractors and service providers, including Acciona, ACS Group, Aecom, Akuo, Alstom, Ansaldo, Astaldi, Bechtel, Bombardier, Bouygues, Brookfield Multiplex, Capella, Ferrovial, Cubic, Downer, Fluor, Fulton Hogan, John Holland, Leighton/CIMIC, Lend Lease, NRG, Serco, SNC Lavallin, Spotless, Transdev, Vestas and Vinci.

 

We target a wide range of infrastructure sectors:

 

•    Transport - rail (including rolling stock), roads, street lighting and highways maintenance;

•    Environmental - renewable energy (including wind power, solar power and biomass), water treatment and waste management;

•    Social infrastructure - healthcare, education, justice, stadiums, public sector accommodation and social housing.

 

We also continually assess opportunities in other infrastructure sectors where we believe our business model could be successfully applied. Potential sectors which have been or are being considered include: broadband; water resource management; energy storage; and other forms of renewable energy, such as pumped storage.

 

Project finance

In Europe and Asia Pacific, the projects we invest in tend to be financed with long-term commercial bank debt whereas in Canada and the US projects tend to be financed in the long-term debt capital markets. In Australia and New Zealand, the tenor of PPP project finance debt tends to be more medium-term than long-term. Overall, financial markets in the regions in which the Group is active supported our growing levels of investment with a large number of international banks being active in these markets and we expect this to continue in 2018.

 

Pipeline

At 31 December 2017, our overall investment pipeline of £2,150 million was higher than the pipeline of £1,859 million at 31 December 2016. The pipeline comprises opportunities to invest equity in PPP projects with the potential to reach financial close over the next three years, while the renewable energy pipeline relates to the next two years. The growth compared to 2016 reflects an increase in the renewable energy pipelines in Asia Pacific and North America.

 

Our overall pipeline is constantly evolving as new opportunities are added and other opportunities drop out. We budget a win rate of 30% for PPP bids.

 

Our total pipeline broken down by bidding stage is as follows:

 

Pipeline at 31 December 2017 by bidding stage

Number of

projects

PPP

£ million

RE

£ million

Total

£ million

Preferred bidder

1

19

-

19

Shortlisted/exclusive

13

197

141

338

Other active bids

6

112

129

241

Other pipeline

64

1,257

295

1,552

Total

84

1,585

565

2,150

 

The preferred bidder position related to a fare collection project in Boston, US. The shortlisted PPP projects at 31 December 2017 comprised two broadband upgrade projects (one in the Republic of Ireland and one in Pennsylvania, US), a rental car centre at Los Angeles airport and six availability-based transportation projects, spread across the US, Canada and Europe. These should all reach financial close in the next eighteen months.

 

In terms of geography, our pipeline is well spread across our target markets:

 

Pipeline at 31 December 2017 by target market

PPP

£ million

RE

£ million

Total

£ million

Asia Pacific

431

174

605

North America

631

233

864

Europe (including the UK)

523

158

681

Total

1,585

565

2,150

 

In North America (the US and Canada), which makes up 40% of the pipeline, our focus is on what is becoming a very substantial US PPP market, whilst continuing to progress our presence in the renewable energy market, where we made two further investments during 2017. We continue to explore PPP opportunities primarily in the transportation sector and social infrastructure sectors. The Canadian market also continues to demonstrate strong PPP deal flow, which we are actively pursuing.

 

Some 28% of our pipeline relates to the Asia Pacific region which continues to offer substantial opportunities. In this region, the Group's current bidding activities are focused on Australia and New Zealand, where the Group has built up a strong base. Our growing presence in the renewable energy sector in Australia offers significant potential in the coming years.

 

The balance of our pipeline is in Europe, where PPP activity remains at a satisfactory level in countries such as the Netherlands. The focus is on those countries which have, or will be, initiating active PPP programmes such as the Netherlands, Spain, Germany and Norway.

 

Our overall renewable energy pipeline was £565 million at 31 December 2017, higher than at 31 December 2016. Selected countries in Europe, Asia Pacific and North America will provide our main focus in 2018. The pipeline includes many potential wind and solar projects as well as investment opportunities in biomass and other less developed technologies.

 

In addition to the above, the Group continues to monitor new geographic markets which offer the potential to invest alongside established partners. These include countries in South America, such as Chile and Colombia, and other countries in the Asia Pacific region, which are currently not in the pipeline.

 

 

Secondary Investment

 

At 31 December 2017, the Secondary Investment portfolio comprised 11 PPP projects and 16 renewable energy projects with a book value of £603.2 million (31 December 2016 - £469.6 million). The Secondary Investment portfolio also included a 2.5% shareholding in JLEN valued at £10.3 million at 31 December 2017 (31 December 2016 - 3.3% shareholding valued at £10.0 million). The increase in the Secondary Investment portfolio between 31 December 2016 and 31 December 2017 was primarily due to investments transferring from the Primary Investment portfolio, net of the realisations completed in 2017.

 

Asset management services in respect of the Secondary Investment portfolio are provided by John Laing's Asset Management division.

Investment realisations

During the year, we agreed realisations totalling £298.9 million, one of which, Lambeth Social Housing, is not expected to complete until later in March 2018, giving us realisations for the year of £289.0 million:

 

·       Our investments in two PPP road projects, A1 Poland and M6 Hungary, were sold to third parties for £120.4 million and £22.7 million respectively in March 2017;

·       Our investment in one PPP project, Croydon and Lewisham Street Lighting, was sold to JLIF in June 2017 for £8.2 million;

·       Our investments in five further PPP projects, including a further 9% in IEP (Phase 1), were sold to JLIF in October 2017 for £104.6 million; and

·       Our investment in Llynfi Wind Farm was sold to JLEN for £43.0 million.

 

Taking agreed realisations for the year as a whole, prices were in line with the most recent portfolio valuation.

 

Realisations announced

Shareholding

Purchaser

Total

£ million

A1 Poland Road

29.69%

Third party

120.4

M6 Hungary Road

30%

Third parties

22.7

Croydon & Lewisham Street Lighting

50%

JLIF

8.2

Lambeth Social Housing

50%

JLIF

)                   

)                   

) >        104.6

)                   

 )                   

Coleshill Parkway

100%

JLIF

Aylesbury Vale Parkway

50%

JLIF

City Greenwich Lewisham (DLR)

5%

JLIF

IEP (Phase 1)

9%

JLIF

Llynfi Wind Farm

100%

JLEN

 43.0

Total

 

 

298.9

 

Transfers from the Primary Investment portfolio

During the year, 14 investments transferred from the Primary Investment portfolio to the Secondary Investment portfolio as the underlying projects moved into the operational stage. Of these 14 investments, the investment in Llynfi Wind Farm was sold before the year end leaving the following 13 investments still in the Secondary Investment portfolio at 31 December 2017.

 

New Royal Adelaide Hospital, Australia (17.26% interest)

Designed to admit 80,000 patients per annum, the hospital achieved technical completion in mid-March, commercial acceptance in mid-June and admitted its first patients in September 2017, resulting in the project moving into a fully operational status. The project company has recently agreed with its syndicate of senior lenders a two year extension of the project's senior debt facility beyond June 2018 to allow a sufficient period for refinancing. Since the start of full operations, the project company has been closely monitoring the performance of the facilities management services, which is steadily improving. 

 

 

Lambeth Social Housing, UK (50% interest, sale agreed in October 2017)

This project comprises the construction of 808 new build homes and the modernisation and refurbishment of 172 existing homes in Lambeth, South London. John Laing agreed to sell its interest in this project to JLIF in October 2017.

 

Glencarbry Wind Farm, Republic of Ireland (100% interest)

This project comprises seven 3.3 MW turbines and five 2.5 MW turbines with total installed capacity of 35.6 MW, and is our first renewable energy investment in the Republic of Ireland. Full operation commenced in July 2017, with revenue supported by the Renewable Energy Feed-in Tariff.

 

Hornsdale Wind Farm Phase Two, Australia (20% interest)

The project comprises a 32 turbine wind farm in South Australia with an installed capacity of 102 MW. The project benefits from a 20 year offtake arrangement from a government counterparty (Australian Capital Territory).

 

Hornsdale Wind Farm Phase Three, Australia (20% interest)

The project comprises a 35 turbine wind farm in South Australia with an installed capacity of 109 MW. The project benefits from a 20 year offtake arrangement from a government counterparty (Australian Capital Territory).

 

Speyside Biomass, UK (43.35% interest)

This 14 MWe Combined Heat and Power biomass plant in Speyside, Scotland, supplies heat in the form of steam to the adjacent Macallan distillery and electricity to the grid. Its fuel is low-grade wood harvested locally and supplied by a consortium of provincial growers and forest industry suppliers. 

 

Sterling Wind Farm, US (92.5% interest)

This 30 MW wind farm located in New Mexico was the Group's  first renewable energy investment in the US. Operations commenced in late 2017 and the wind farm benefits from a 15 year fixed price power purchase agreement.

 

Rocksprings Wind Farm, US (95.3% interest)

Located in Texas, this project has a total capacity of 149 MW. Operations commenced in late 2017 and the wind farm benefits from power purchase agreements with two investment grade corporate offtakers.

 

New Perth Stadium, Western Australia (50% interest)

This 60,000 seater stadium is a major sporting and entertainment venue, capable of staging national and international events. Construction was completed in December 2017 in time for the start of the 2018 Australian Rules Football season and on 28 January 2018 the stadium hosted its first one-day cricket international between Australia and England.

 

Kiata Wind Farm, Australia (72.3% interest)

Located in South Australia, the project comprises nine Vestas V126 WTG turbines with a total installed capacity of 30 MW. Full operation commenced in December 2017. The project benefits from a 10 year offtake agreement with the Victorian Government.

 

Nordergründe Offshore Wind Farm, Germany (30% interest)

Located in the North Sea north of Wilhelmshaven, Germany, this is the Group's first investment in offshore wind. This project comprises 18 Senvion 6.2 M126 turbines with a total capacity of 110.7 MW. Following installation of the offshore sub-station in September 2017, all 18 turbines were subsequently commissioned in the fourth quarter of 2017 and the project became fully operational.

 

Sommette Wind Farm, France (100% interest)

Located in Picardie, France, this project comprises 9 Nordex N117 turbines and has a total capacity of 21.6 MW. Operations commenced in December 2017 and the wind farm benefits from a 15 year feed-in-tariff arrangement.

 

Buckthorn Wind Farm, US (90.05% interest)

Located in Texas, this project has a total capacity of 100 MW. Partial operations commenced in November 2017 with full operations commencing in January 2018. The wind farm benefits from a 13 year power purchase agreement.

Asset Management

 

The Asset Management division's activities comprise Investment Management Services and Project Management Services.

Investment Management Services

Investment Management Services (IMS) are provided to both JLIF and JLEN and also to our own investment portfolio.

 

External IMS JLCM provides advisory services to JLIF and JLEN under investment advisory agreements. As at 31 December 2017, JLIF's and JLEN's latest published portfolio values were £1,227.8 million at 30 September 2017 and £420.7 million at 31 December 2017 respectively. JLCM has an independent chairman and two separate dedicated fund management teams whose senior staff are authorised and regulated by the FCA. The teams focus their advice primarily on sourcing new investments for and arranging capital raisings by the two funds. They operate behind information barriers in view of the market sensitive nature of their activities and to ensure the separation of "buy-side" and "sell-side" teams if John Laing is selling investments to either fund. Both funds have a right of first offer over certain investments should they be offered for sale by the Group, and both are stand-alone entities separate from the Group. Each fund maintains an independent board of directors and is independently owned.

 

Fee income from external IMS grew from £15.8 million in 2016 to £16.7 million in 2017.

 

Internal IMS John Laing actively manages its own Primary and Secondary Investment portfolios. Our objective is to deliver the base case returns on our investments as a minimum and additionally to enhance those returns through active asset management. There are two main strategies, value protection and value enhancement:

 

Value protection - examples

 

•    Where possible, to target PPP projects which have revenue streams based on availability of the underlying infrastructure asset rather than revenues based on patronage or volume.

•    To ensure construction risks associated with design, workmanship, cost overruns and delays lie with our construction supply chain partners who are best able to manage them.

•    To ensure project operational performance and cost risks lie principally with our service supply chain partners.

•    To eliminate the risk of increased interest costs on third party project debt finance over the life of an infrastructure project by swapping variable interest rates to fixed interest rates.

•    To reduce the impact of short-term volatility on revenues from the projects underlying our renewable energy investments by entering into short or medium-term power purchase agreements with electricity suppliers.

 

Value enhancement - examples

 

•    To promote a culture of continuous improvement with public sector counter-parties: responding to their need for changes over the life of PPP infrastructure projects, reducing the public sector burden and, where possible, to generate incremental revenues therefrom.

•    To optimise SPV management costs and project insurance premiums through bulk purchasing or efficiency gains, thereby increasing investor returns.

•    To optimise major maintenance and asset renewal costs over the life of an infrastructure project and thereby increase investor returns.

•    To maximise working capital efficiency within project companies.

•    To ensure projects are efficiently financed over their concessions or useful lives.

 

The total IMS income for the year ended 31 December 2017 of £19.0 million (2016 - £17.8 million) includes £2.3 million (2016 - £2.0 million) of fee income for the provision by John Laing of directors to project company boards.

Project Management Services

The Group also provides Project Management Services (PMS), largely of a financial or administrative nature, to project companies in which John Laing, JLIF or JLEN are investors. These services are provided under Management Services Agreements (MSAs).

 

The Group earned revenues of £6.1 million from the provision of PMS during 2017 (year ended 31 December 2016 - £14.9 million). In November 2016, the Group divested its PMS activities in the UK to HCP Management Services Limited (HCP). The activities sold contributed £7.9 million of the total PMS revenues of £14.9 million in 2016.

 

The remaining PMS activities are principally focused on MSAs relating to projects outside the UK. At 31 December 2017, the Group held 24 MSAs (31 December 2016 - 19 MSAs).

 

Projects Under Construction

John Laing's investments in projects are managed by the Asset Management division. For each project we invest in, the Asset Management division closely monitors the construction stage and provides active input where necessary to ensure that deadlines are met. Despite this, since the projects we invest in are principally large, sophisticated, infrastructure assets, delays can occur. In all instances, the impact of construction delays and a judgement as to potential outcomes are taken into account when the portfolio valuation is prepared.

 

An update on significant projects under construction is set out below.

Intercity Express Programme (IEP), UK (Phase 1 - 15% interest; Phase 2 - 30% interest)

John Laing is in partnership with Hitachi to manage the contracts that cover the design, manufacture, finance and delivery into daily service and maintenance of a fleet of 122 intercity express trains for the UK's Great Western Main Line (Phase 1 - 15 % interest) and the East Coast Main Line (Phase 2 - 30% interest). With a total capital expenditure across the two phases of £3.4 billion, it is one of the largest PPP projects to be awarded.

 

In the last quarter of 2017, the first ten trains for IEP (Phase 1) were accepted into passenger operations, achieving a key milestone for the project known as Minimum Fleet Acceptance. As at 31 December 2017, 15 trains had been accepted into operational service. Total fleet acceptance for Phase 1 is expected in late 2018 and commencement of train deliveries for Phase 2 is also expected in late 2018.

Denver Eagle P3, Colorado, US (45% interest)

This project is to design, build, finance, maintain and operate two new commuter rail lines and a section of a third in the Denver Metropolitan area. The three rail lines run for a total of 36 miles, connecting Denver International Airport and Denver Union Station to each other and to other parts of the Denver Metropolitan area. The fleet of rolling stock has been completed.

 

Following opening of the "A" line in 2016 and the "B" line in 2017, testing and commissioning of the "G" line is currently underway. The project company is appealing against the Colorado Public Utility Commission's decision not to issue the required permit for the level crossings on the "A" line. The outcome should be known in the second quarter of 2018.

I-4 Ultimate, Florida, US (50% interest)

This availability-based road project has total capital expenditure of US$2.3 billion and involves reconstructing 15 major interchanges, building more than 140 bridges, adding four variable toll Express Lanes, and completely rebuilding the general use lanes of 21 miles of the existing I-4 interstate in central Florida. Construction is expected to be completed in 2021.

 

New Generation Rollingstock, Queensland, Australia (40% interest)

The project involves the provision and maintenance of 75 new six-car trains for the state of Queensland, which will be operated by Queensland Rail, as well as a new maintenance facility at Wulkuraka, Queensland. Whilst the programme is currently behind schedule, the maintenance facility has been completed and nine trains are currently in passenger service. Additional trains are expected to be accepted and enter passenger service ahead of the Commonwealth Games that start on the Australian Gold Coast in April 2018.

 

Sydney Light Rail, New South Wales, Australia (32.5% interest)

This light rail project will form an integral part of Sydney's public transport infrastructure network and pedestrianise one of its busiest streets, providing a commuter route into the Central Business District and access to the south east of the city. While the overall programme is approximately 12 months behind schedule, the first light rail vehicles arrived in Australia in 2017 and the total length of track installed is now 12.9 kilometres, more than 50% of the total.

 

 

Portfolio Valuation

 

The portfolio valuation at 31 December 2017 was £1,193.8 million compared to £1,175.9 million at 31 December 2016. After adjusting for realisations, cash yield and cash invested, this represented a positive movement in fair value of £160.7 million (15.6%):

 


Investments

in projects

£ million

Listed

investment

£ million

Total

£ million

Portfolio valuation at 1 January 2017

1,165.9

10.0

1,175.9

- Cash invested

209.9

-

209.9

- Cash yield

(39.6)

(0.6)

(40.2)

- Proceeds from realisations

(289.0)

-

(289.0)

- Cash received on acquisition of Manchester Waste VL Co by GMWDA

(23.5)

-

(23.5)

Rebased valuation

1,023.7

9.4

1,033.1

  - Movement in fair value

159.8

   0.9

160.7

Portfolio valuation at 31 December 2017

1,183.5

10.3

1,193.8

 

Cash investment in respect of four new renewable energy assets and one new PPP asset entered into during 2017 totalled £115.0 million. In addition, equity and loan note subscriptions of £94.9 million were injected into existing projects in the portfolio as they progressed through, or completed, construction.

 

During 2017, the Group completed the realisation of seven entire investments and part of one other investment for a total consideration of £289.0 million, including £1.9 million of consideration deferred to 2018. In addition, the Group received £23.5 million on the acquisition of its investment in Manchester Waste VL Co by the Greater Manchester Waste Disposal Authority (GMWDA). Cash yield on the portfolio during the year totalled £40.2 million.

 

The movement in fair value of £160.7 million is analysed in the table below.

 


Year ended

31 December 2017

£ million

Year ended

31 December 2016

£ million

Unwinding of discounting

80.0

77.1

Reduction of construction risk premia

53.6

52.7

Impact of foreign exchange movements

(11.0)

74.7

Change in macroeconomic assumptions

4.1

(13.8)

Change in power and gas price forecasts

(54.8)

(17.6)

Change in operational benchmark discount rates

23.6

27.5

Value uplift on financial closes

50.1

31.0

Value enhancements and other changes

15.1

(17.2)

Movement in fair value

160.7

214.4

 

The net movement in fair value comprised unwinding of discounting (£80.0 million), the reduction of construction risk premia (£53.6 million), the reduction in operational benchmark discount rates (£23.6 million), uplift on financial closes (£50.1 million), movements in macroeconomic forecasts (£4.1 million) and a net movement from value enhancements and other changes (£15.1 million), offset by adverse movements from lower power and gas price forecasts (£54.8 million) and adverse foreign exchange movements (£11.0 million). Foreign exchange movements are addressed further in the Financial Review section. The net benefit of £23.6 million from the amendment of benchmark discount rates for a number of investments is in response to our understanding and experience of the secondary market.

 

There was a net increase of £32.3 million in value enhancements and other changes from 2016 to 2017. The Group achieved higher value enhancements in 2017 compared to 2016. Further, in 2016 there were value reductions in relation to the Group's investment in New Royal Adelaide Hospital, which made a positive contribution in 2017. In 2017, the value reduction of £25.5 million on the two Manchester Waste investments announced at the half year was partly offset by improvements in the valuation of Manchester Waste TPS Co once it became unleveraged.     

 

 

The split between primary and secondary investments is shown in the table below:

 


31 December 2017

31 December 2016


£ million

%

£ million

%

Primary Investment

580.3

48.6

696.3

59.2

Secondary Investment

613.5

51.4

479.6

40.8

Portfolio valuation

1,193.8

100.0

1,175.9

100.0

 

The decrease in the Primary Investment portfolio is due to transfers to the Secondary Investment portfolio of £413.1 million and investment realisations of £82.5 million, offset by a positive movement in fair value of £172.9 million, including value enhancements and financial closes achieved during the year, and cash invested of £206.7 million.

 


Primary

Investment

£ million

Portfolio valuation at 1 January 2017

696.3

  - Cash invested

206.7

  - Cash yield

-

  - Proceeds from realisations

(82.5)

  - Transfers to Secondary Investment

(413.1)

Rebased valuation

407.4

  - Movement in fair value

172.9

Portfolio valuation at 31 December 2017

580.3

 

The increase in the Secondary Investment portfolio is due to transfers from the Primary Investment portfolio of £413.1 million and a cash investment of £3.2 million, offset by a negative movement in fair value of £12.2 million, investment realisations during the year of £230.0 million and cash yield of £40.2 million.

 


Secondary

Investment

£ million

Portfolio valuation at 1 January 2017

479.6

  - Cash invested

3.2

  - Cash yield

(40.2)

  - Proceeds from realisations

(206.5)

  - Cash received on acquisition of Manchester Waste VL Co by GMWDA

(23.5)

  - Transfers from Primary Investment

413.1

Rebased valuation

625.7

  - Movement in fair value

(12.2)

Portfolio valuation at 31 December 2017

613.5

 

Methodology

A full valuation of the investment portfolio is prepared every six months, at 30 June and 31 December, with a review at 31 March and 30 September, principally using a discounted cash flow methodology. The two principal inputs are (i) forecast cash flows from investments and (ii) discount rate. The valuation is carried out on a fair value basis assuming that forecast cash flows from investments are received until maturity of the underlying assets.

 

Under the Group's valuation methodology, a base case discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect additional project-specific risks. In addition, risk premia are added to reflect the additional risk during the construction phase. The construction risk premia reduce over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operational stage.

 

The discounted cash flow valuation is based on future cash distributions from projects forecast as at 31 December 2017, derived from detailed financial models for each underlying project. These incorporate the Group's expectations of likely future cash flows, which are stated net of project tax, and therefore reflect changes in tax legislation as at 31 December 2017 in the jurisdictions in which the Group operates, including recent changes in the US. Expectations of future cash flows also include expected value enhancements and the Group's expectations of future macroeconomic factors such as inflation and, for renewable energy projects, power and gas prices.

 

For the 31 December 2017 valuation, the overall weighted average discount rate was 8.8% compared to the weighted average discount rate at 31 December 2016 of 8.9%. The decrease was primarily due to reductions in operational discount rates for certain investments and progress in construction, partially offset by the impact of new investments. The weighted average discount rate at 31 December 2017 was made up of 9.3% (31 December 2016 - 9.1%) for the Primary Investment portfolio and 7.9% (31 December 2016 - 8.4%) for the Secondary Investment portfolio.

 

The overall weighted average discount rate of 8.8% is closer to the weighted average discount rate for the Primary Investment portfolio, reflecting the fact that project cash flows for investments in the Primary Investment portfolio tend to have a longer duration than for investments in the Secondary Investment portfolio.

 

The discount rate ranges used in the portfolio valuation at 31 December 2017 were as set out below:

 

Sector

Primary

Investment

%

Secondary

Investment

%

PPP investments

7.6% - 11.8%

7.0% - 9.0%

Renewable energy investments

8.0% - 10.2%

6.8% - 10.0%

 

 

The shareholding in JLEN was valued at its closing market price on 31 December 2017 of 109.25p per share (31 December 2016 - 106p per share).

 

The Directors have obtained an independent opinion from a third party, which has considerable expertise in valuing the type of investments held by the Group, that the investment portfolio valuation represented a fair market value in the market conditions prevailing at 31 December 2017.

Macroeconomic assumptions

During 2017, higher than previously forecast actual inflation and deposit rates receivable on cash balances within projects had a positive impact on the majority of forecast project cash flows within the portfolio. Deposit rates are anticipated to remain at low levels in the short-term. As mentioned above, movements of foreign currencies against Sterling over the year to 31 December 2017 resulted in net adverse foreign exchange movements of £11.0 million (excluding the effect of foreign exchange hedges as described in the Financial Review section) (2016 - £74.7 million net favourable foreign exchange movements).

 

Investments in overseas projects are fair valued based on the spot exchange rate on the balance sheet date. As at 31 December 2017, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.£38 million.

 

At 31 December 2017, based on a sample of six of the larger PPP investments by value, a 0.25% increase in inflation is estimated to increase the value of PPP investments by £15 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investments by £14 million. Certain of the underlying project companies incorporate some inflation hedging.

 

On each valuation and review of the portfolio, the Group updates the detailed financial model of each renewable energy project to reflect the impact of the latest power and gas forecast prices on the project's revenue to the extent that prices are not fixed by governmental support mechanisms and/or offtake arrangements. The Group obtains forecasts for power and gas prices from external parties who are recognised as experts in the market in the relevant region, including by potential secondary market buyers. During 2017, a reduction in forecast power and gas prices resulted in a £54.8 million adverse fair value movement (2016 - adverse fair value movement of £17.6 million). At 31 December 2017, based on a sample of seven of the larger renewable energy investments by value, a 5% increase in power price forecasts is estimated to increase the value of renewable energy investments by £15 million and a 5% decrease in power price forecasts is estimated to decrease the value of renewable energy investments by £14 million.

 

The table below summarises the main macroeconomic assumptions used in the portfolio valuation:

 

Assumption



31 December

2017

31 December

2016

Long-term inflation

UK

RPI & RPIX

2.75%

2.75%

 

Europe

CPI

1.75% - 2.00%

1.60% - 2.00%

 

US

CPI

2.25% - 2.50%

2.25% - 2.50%

 

Asia Pacific

CPI

2.25% - 2.75%

2.00% - 2.75%

Exchange rates

 

GBP/EUR

1.1252

1.1708

 

 

GBP/AUD

1.7311

1.7094

 

 

GBP/USD

1.3527

1.2329

 

 

GBP/NZD

1.9055

1.7754

Discount rate sensitivity

The weighted average discount rate applied at 31 December 2017 was 8.8% (31 December 2016 - 8.9%). The table below shows the sensitivity of a 0.25% change in this rate.

 

Discount rate sensitivity

Portfolio valuation

£ million

Increase/(decrease) in valuation

£ million

+0.25%

1,153.1

(40.7)

-

1,193.8

-

-0.25%

1,236.4

42.6

 

Further analysis of the portfolio valuation is shown in the following tables:

by time remaining on project concession/OPERATIONAL life

 

31 December 2017

31 December 2016

 

£ million

%

£ million

%

Greater than 25 years

740.1

62.0

630.3

53.6

20 to 25 years

247.3

20.7

309.8

26.3

15 to 20 years

167.9

14.1

183.1

15.6

10 to 15 years

19.4

1.6

21.0

1.8

Less than 10 years

8.8

0.7

21.7

1.8

Listed investment

10.3

0.9

10.0

0.9

 

1,193.8

100.0

1,175.9

100.0

 

PPP projects are based on long-term concessions and renewable energy assets have long-term useful economic lives. As demonstrated in the table above, 62.0% of the portfolio by value had a greater than 25-year unexpired concession term or useful economic life remaining at 31 December 2017, compared to 53.6% at 31 December 2016.

split between PPP and renewable energy

 

31 December 2017

31 December 2016

 

£ million

%

£ million

%

Primary PPP

541.7

45.4

548.3

46.6

Primary renewable energy

38.6

3.2

148.0

12.6

Secondary PPP

229.0

19.2

345.6

29.4

Secondary renewable energy

374.2

31.3

124.0

10.5

Listed investment

10.3

0.9

10.0

0.9

 

1,193.8

100.0

1,175.9

100.0

 

Primary PPP investments made up the largest part of the portfolio, representing 45.4% of the portfolio value at 31 December 2017, with Secondary renewable energy investments representing a further 31.3%.

 

 

by revenue type

 

31 December 2017

31 December 2016

 

£ million

%

£ million

%

Availability

702.2

58.8

855.0

72.7

Volume

461.9

38.7

287.5

24.4

Shadow toll

19.4

1.6

23.4

2.0

Listed investment

10.3

0.9

10.0

0.9

 

1,193.8

100.0

1,175.9

100.0

 

Availability-based investments continued to make up the majority of the portfolio, representing 58.8% of the portfolio value at 31 December 2017. Renewable energy investments comprised the majority of the volume-based investments. The investment in JLEN, which holds investments in PPP and renewable energy projects, is shown separately.

by sector

 

31 December 2017

31 December 2016

 

£ million

%

£ million

%

Social infrastructure

140.4

11.8

122.1

10.4

Transport - other

288.1

24.1

395.3

33.6

Transport - rail rolling stock

296.8

24.9

280.4

23.8

Environmental - wind and solar

369.2

30.9

252.9

21.5

Environmental - waste and biomass

89.0

7.4

115.2

9.8

Listed investment

10.3

0.9

10.0

0.9

 

1,193.8

100.0

1,175.9

100.0

 

Wind and solar investments represented 30.9% of the portfolio value at 31 December 2017, with rail rolling stock accounting for a further 24.9%. Other transport investments (excluding rail rolling stock) made up 24.1% of the portfolio by value, while social infrastructure investments and waste and biomass investments made up 11.8% and 7.4% respectively. The portfolio underlying the JLEN shareholding consists of investments in a mix of renewable energy and environmental projects.

by currency

 

31 December 2017

31 December 2016

 

£ million

%

£ million

%

Sterling

415.3

34.8

510.4

43.4

Euro

204.1

17.1

341.2

29.0

Australian dollar

269.4

22.6

181.4

15.4

US dollar

283.2

23.7

121.0

10.3

New Zealand dollar

21.8

1.8

21.9

1.9

 

1,193.8

100.0

1,175.9

100.0

 

The percentage of investments denominated in foreign currencies increased from 56.6% to 65.2%. This is  consistent with our pipeline and the overseas jurisdictions we target.

by geographical region


31 December 2017

31 December 2016


£ million

%

£ million

%

UK

405.0

33.9

500.4

42.5

Continental Europe

204.1

17.1

341.2

29.0

North America

283.2

23.7

121.0

10.3

Asia Pacific

291.2

24.4

203.3

17.3

Listed investment

10.3

0.9

10.0

0.9

 

1,193.8

100.0

1,175.9

100.0

 

Investments in the UK decreased to 33.9% of the portfolio value at 31 December 2017. Asia Pacific was the next largest category at 24.4%. Investments in projects located in North America made up 23.7% and investments in Continental Europe made up 17.1%. A substantial majority of the JLEN portfolio consists of investments in UK-based projects.

 

 

by investment size


31 December 2017

31 December 2016


£ million

%

£ million

%

Five largest projects

469.4

39.3

520.2

44.2

Next five largest projects

233.8

19.6

236.4

20.1

Other projects

480.3

40.2

409.3

34.8

Listed investment

10.3

0.9

10.0

0.9

 

1,193.8

100.0

1,175.9

100.0

 

The top five investments in the portfolio made up 39.3% of the portfolio at 31 December 2017, a decline from 44.2% at 31 December 2016. The next five largest investments made up a further 19.6%, with the remaining investments in the portfolio comprising 40.2%.

 

 

Investment portfolio as at 31 DECEMBER 2017

 


Primary Investment


Secondary investment

Social infrastructure




Health





Alder Hey Children's Hospital

40%

New Royal Adelaide Hospital
17.26%



Justice and emergency services

New Grafton Correctional Centre

80%




Auckland South Corrections Facility
30%




Defence





DARA Red Dragon
100%




Other accommodation





Lambeth Housing
50%

New Perth Stadium
50%





















Transport









Other

A6 Parkway

Netherlands

85%

Denver Eagle P3

45%

I-4 Ultimate

50%


A1 Germany

42.5%

A15 Netherlands

28%

A130

100%

Severn River Crossing

35%


I-66 Managed Lanes

10%

I-77 Managed Lanes

10%

Melbourne Metro

30%







Sydney Light Rail
32.5%








Rail rolling stock

IEP (Phase 1)
15%

IEP (Phase 2)
30%

New Generation Rollingstock

40%















Environmental









Waste and biomass

Cramlington Biomass

44.7%




Speyside Biomass
43.35%

Manchester Waste TPS Co
37.43%



Wind and solar

 

Solar House

80%

St Martin Wind Farm

100%



Buckthorn Wind Farm

90.05%

Glencarbry Wind Farm

100%

Horath Wind Farm

81.82%

Hornsdale 1 Wind Farm

30%





Hornsdale 2 Wind Farm

20%

Hornsdale 3 Wind Farm

20%

Kiata Wind Farm

72.3%

Klettwitz Wind Farm

100%





Nordergründe Wind Farm

30%

Pasilly Wind Farm

100%

Sommette Wind Farm

100%

Sterling Wind Farm

92.5%






Svartvallsberget Wind Farm
100%

Rammeldalsberget Wind Farm
100%

Rocksprings Wind Farm

95.3%


 

 

Financial Review

 

Basis of preparation

The financial information has been prepared on the historical cost basis except for the revaluation of the Group's investment in John Laing Holdco Limited, through which the Group indirectly holds its investment portfolio, and financial instruments that are measured at fair value at the end of each reporting period. The Company meets the definition of an investment entity set out in IFRS 10 Consolidated Financial Statements. Investment entities are required to account for all investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss (FVTPL), except for those directly-owned subsidiaries that provide investment-related services or engage in permitted investment related activities with investees (Service Companies). Service Companies are consolidated rather than recorded at FVTPL.

 

Project companies in which the Group invests are described as "non-recourse", which means that providers of debt to such project companies do not have recourse to John Laing beyond its equity commitments in the underlying projects. Subsidiaries through which the Company holds its investments in project companies, which are held at FVTPL, and subsidiaries that are Service Companies, which are consolidated, are described as "recourse".

 

Re-presented financial RESULTS

As described above, the Company meets the criteria for being an investment entity under IFRS 10 and accordingly the Company is required to fair value its investments in its subsidiaries, joint ventures and associates except for those directly-owned subsidiaries that provide investment-related services, and do not themselves qualify as investment entities; it consolidates such subsidiaries on a line by line basis.

 

Included within the subsidiaries that the Company fair values in its financial statements are recourse subsidiaries through which the Company holds its investments in non-recourse project companies. These recourse subsidiaries have, in addition to investments in non-recourse project companies, other assets and liabilities, including recourse cash balances, which are included within the Company's investments at FVTPL. For management reporting purposes, these other assets and liabilities are reported separately from the investments in non-recourse project companies as are certain income and costs that do not arise directly from these investments. Under management reporting, it is the investments in non-recourse project companies that are considered as investments of the Group.

 

The Directors of the Company use the management reporting basis when making business decisions, including when reviewing the level of financial resources and deciding where these resources should be utilised. Therefore, the Directors believe it is helpful to readers of these financial statements to set out in this Financial Review the Group Income Statement, the Group Balance Sheet and the Group Cash Flow Statement on the management reporting basis. When set out on the management reporting basis, these statements are described as "re-presented".

 

Re-presented income statement

Preparing the re-presented income statement involves a reclassification of certain amounts within the Group Income Statement principally in relation to the net gain on investments at FVTPL. The net gain on investments at FVTPL in the Group Income Statement includes fair value movements from the portfolio of investments in non-recourse project companies and also comprises income and costs that do not arise directly from investments in this portfolio, including investment fees earned from project companies by recourse subsidiaries that are held at FVTPL.

 

 

Year ended 31 December

2017


2016d




Group Income Statement

Adjustments

Re-presented income statement


Re-presented income statement


Re-presented income statement line items


£ million

£ million

£ million


£ million











Fair value movements - investment portfolio

160.7

-

160.7


214.4


Fair value movements - investment portfolio

Fair value movements - other

(1.5)

(0.6)a

(2.1)


(3.2)


Fair value movements - other

Investment fees from projects

7.1

-

7.1


7.0


Investment fees from projects

Net gain on investments at fair value through profit or loss

166.3

(0.6)

165.7


218.2











IMS revenue

19.0

-

19.0


17.8


IMS revenue

PMS revenue

6.1

-

6.1


14.9


PMS revenue

Recoveries on financial close

3.7

-

3.7


7.5


Recoveries on financial close

Other income

1.6

(1.6)b

-


-



Other income

30.4

(1.6)

28.8


40.2











Operating income

196.7

(2.2)

194.5


258.4











Third party costs

(11.3)

-

(11.3)


(9.8)


Third party costs

Staff costs

(33.9)

-

(33.9)


(34.1)


Staff costs

General overheads

(12.4)

(0.3) a,b

(12.7)


(11.1)


General overheads

Other net costs

-

2.1a,b

2.1


(0.7)


Other net costs

Pension and other charges

(1.3)

1.3c

-


-



Administrative expenses

(58.9)

3.1

(55.8)


(55.7)











Profit from operations

137.8

0.9

138.7


202.7











Finance costs

(11.8)

1.7a,c

(10.1)


(7.7)


Finance costs

Pension and other charges

-

(2.6)c

(2.6)


(2.9)


Pension and other charges









Profit before tax

126.0

-

126.0


192.1



 

Notes:

a)    Adjustments comprise £0.6 million income reclassified from 'fair value movements - other' to 'other net costs'; £0.4 million of costs reclassified from 'fair value movements - other' to 'general overheads' and £0.4 million interest income reclassified from 'fair value movements - other to 'finance costs'.

b)    Adjustments comprise £1.5 million part proceeds received from the sale of the PMS UK business reclassified from 'other income' to 'other net costs' and £0.1 million of other income from projects reclassified from 'other income' to 'general overheads'.

c)     Under IAS 19 Employee Benefits, the costs of the pension schemes comprise a service cost of £1.3 million, included in administrative expenses in the Group Income Statement, and a finance charge of £1.3 million, included in finance costs in the Group Income Statement. These amounts are combined together under management reporting.

d)   For a reconciliation between the Group Income Statement and re-presented income statement for the year ended 31 December 2016, refer to the 2016 Annual Report and Accounts.

 

The results for the year are also shown by operating segment in the table below.

 


Primary

Investment

Secondary

Investment

Asset

Management

Total


2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

Profit before tax for reportable segments

137.3

113.1

(31.9)

57.1

18.8

19.9

124.2

190.1

Post-retirement charges

 

 

 

 

 

 

(2.6)

(2.9)

Other net gain

 

 

 

 

 

 

4.4

4.9

Profit before tax

 

 

 

 

 

 

126.0

192.1

 

Profit before tax for the year ended 31 December 2017 was £126.0 million (2016 - £192.1 million). The main reason for the lower profit before tax was a lower fair value movement compared to 2016.

 

·    The main profit contributor in 2017 was the Primary Investment division. Its contribution was higher than last year primarily because of a higher fair value movement, which in turn was principally as a result of higher value uplift on financial closes of new investments and value enhancements offset by adverse foreign exchange rate movements.

·    The lower contribution in 2017 from the Secondary Investment division was primarily as a result of adverse foreign exchange rate movements as well as lower power and gas price forecasts and a value reduction in relation to the Group's investment in the Manchester Waste VL Co project.

·    The lower contribution in 2017 from the Asset Management division was principally due to lower fee income from PMS as a result of the sale of the UK activities of PMS in late 2016 offset by higher fee income from IMS as a result of increased external AuM.

 

The movement in fair value on the portfolio for the year ended 31 December 2017, after adjusting for the impact of investments, cash yield and realisations, was a £160.7 million gain (2016 - £214.4 million gain). For further details of the movement in fair value on the portfolio, see the Portfolio Valuation section.

 

Negative other fair value movements of £2.1 million for the year ended 31 December 2017 principally comprised net foreign exchange losses outside the investment portfolio of £3.9 million (see the Foreign Currency Exposure section in this review for further details) and a disposal proceeds adjustment payment of £3.6 million offset by fair value gains of £0.7 million in respect of non-portfolio investments in small joint ventures and £4.7 million of tax income.

 

The Group earned IMS revenue of £19.0 million (2016 - £17.8 million) for investment advisory and asset management services primarily to the external funds, JLIF and JLEN, with the increase from last year due to the higher level of external Assets under Management.

 

The Group also earned PMS revenue of £6.1 million (2016 - £14.9 million) with the reduction from 2016 a result of the sale of the Group's PMS activities in the UK to HCP in November 2016. The activities sold contributed approximately £7.9 million of the £14.9 million PMS revenues for the year ended 31 December 2016.

 

The Group achieved recoveries of bidding costs on financial closes of £3.7 million in 2017 (2016 - £7.5 million).

 

Staff costs by division are shown below:

 


Primary

Investment

Secondary

Investment

Asset

Management

Central

Total


2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

Staff costs

10.2

9.6

-

-

13.9

17.1

9.8

7.4

33.9

34.1

 

Included within Asset Management staff costs are costs relating to:

 


Investment Management

Services

Project Management

Services

Total Asset

Management


2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

Staff costs

10.0

9.0

3.9

 8.1

13.9

17.1

 

The small decrease in overall staff costs is principally due to the sale of the PMS UK activities in November 2016 offset by higher costs of share-based incentive schemes under IFRS 2 Share-based Payment with costs in the year ended 31 December 2017 of £3.2 million compared to £2.0 million in the prior year. See note 6 of the Group financial statements for further details on the share-based incentive schemes.

Finance costs of £10.1 million in 2017 (2016 - £7.7 million) include costs arising on the corporate banking facilities net of any interest income, with the increase from last year primarily due to a higher average usage of the corporate banking facilities, resulting from the increased level of investments, and lower interest earned on cash collateral balances.  

 

The Group's overall tax credit on profit on continuing activities for 2017 was £6.2 million (2016 - credit of £4.8 million). This comprised a net tax credit of £1.5 million (2016 - £1.8 million charge) in recourse subsidiaries that are consolidated (shown in the 'Tax credit/(charge)' line on the Group Income Statement), primarily in relation to group relief receivable from entities held at FVTPL, and a net tax credit of £4.7 million (2016 - £6.6 million) in recourse subsidiaries that are held at FVTPL (shown in the 'net gain on investments at fair value through profit or loss' line on the Group Income Statement), including (i) group relief payable to recourse subsidiaries that are consolidated, together with (ii) group/consortium relief received from project companies.

 

The contributions made to JLPF are tax deductible when paid and, as a result, there is minimal tax payable by the UK holding and asset management activities of the Group. Capital gains from the realisation of investments in projects are generally exempt from tax under the UK's Substantial Shareholding Exemption for shares in trading companies or under the overseas equivalent. To the extent this exemption is not available, gains may be sheltered using current year losses or losses brought forward within the Group's recourse subsidiaries. There are no losses in the Company but there are tax losses in recourse subsidiaries that are held at FVTPL.  

 

In late 2017, the UK Government enacted legislation, effective from 1 April 2017, which introduced a Fixed Ratio Rule to cap the amount of tax deductible net interest to 30% of a company's UK EBITDA. This was in response to OECD recommendations. In the US, new legislation came into effect on 1 January 2018, including a restriction on interest deductibility for certain US entities paying interest to foreign entities. The impact from both the changes to UK and US tax is reflected in the fair value at 31 December 2017 of the Group's investments in those jurisdictions.

 

Re-presented balance sheet

The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2017 below. The re-presented balance sheet involves the reclassification of certain amounts within the Group Balance Sheet principally in relation to assets and liabilities of £152.6 million (31 December 2016 - £81.6 million) within the Company's recourse subsidiaries that are included in investments at FVTPL in the Group Balance Sheet as a result of the requirement under IFRS 10 to fair value investments in these subsidiaries.

 

 

31 December

2017


2016g




Group Balance Sheet

Adjustments

Re-presented balance sheet


Re-presented balance sheet


Re-presented balance sheet line items


£ million

£ million

£ million


£ million



Non-current assets








Plant and equipment

0.1

(0.1)c

-


-



Investments at FVTPL

1,346.4

(152.6)a

1,193.8


1,175.9


Portfolio value


-

133.1b

133.1


23.7


Cash collateral balances


-

0.3b

0.3


0.3


Non-portfolio investments

Deferred tax assets

0.5

(0.5)c

-


-




-

2.1c,e

2.1


3.7


Other long-term assets


1,347.0

(17.7)

1,329.3


1,203.6











Current assets








Trade and other receivables

7.6

(7.6)d

-


-



Cash and cash equivalents

2.5

12.1b

14.6


53.1


Cash and cash equivalents


10.1

4.5

14.6


53.1



Total assets

1,357.1

(13.2)

1,343.9


1,256.7











Current liabilities









-

(3.7)b,d,e

(3.7)


(5.6)


Working capital and other balances

Current tax liabilities

(1.4)

1.4d

-


-



Borrowings

(173.2)

(2.8)e

(176.0)


(165.0)


Cash borrowings

Trade and other payables

(17.3)

17.3d

-


-




(191.9)

12.2

(179.7)


(170.6)



Net current liabilities

(181.8)

16.7

(165.1)


(117.5)











Non-current liabilities








Retirement benefit obligations

(40.3)

8.0f

(32.3)


(61.3)


 

 

Pension deficit (IAS 19)


-

(8.0)f

(8.0)


(8.0)


Other retirement benefit obligations

Provisions

(1.0)

1.0d

-


-




(41.3)

1.0

(40.3)


(69.3)



Total liabilities

(233.2)

13.2

(220.0)


(239.9)











Net assets

1,123.9

-

1,123.9


1,016.8



 

Notes:

a)    Investments at FVTPL of £1,346.4 million comprise: portfolio valuation of £1,193.8 million and other assets and liabilities within recourse investment entity subsidiaries of £152.6 million (see note 12 to the Group financial statements).  

b)    Other assets and liabilities within recourse investment entity subsidiaries of £152.6 million referred to in note (a) include: (i) cash and cash equivalents of £145.2 million, of which £133.1 million is held to collateralise future investment commitments and £12.1 million is other cash balances, (ii) net positive working capital and other balances of £7.1 million and (iii) non-portfolio investments of £0.3 million.

c)     Plant and equipment and deferred tax assets are combined as other long-term assets.

d)    Trade and other receivables (£7.6 million), current tax liabilities (£1.4 million), trade and other payables (£17.3 million) and provisions (£1.0 million) are combined as working capital and other balances.

e)    Borrowings of £173.2 million comprise cash borrowings of £176.0 million less unamortised financing costs of £2.8 million, with the non-current portion of unamortised financial costs of £1.5 million re-presented as other long-term assets and the current portion of £1.3 million re-presented as working capital and other balances.

f)      Total retirement benefit obligations are shown in their separate components as in note 19 to the Group financial statements.

g)    For a reconciliation between the Group Balance Sheet and re-presented balance sheet as at 31 December 2016, refer to the 2016 Annual Report and Accounts.

 

  Net assets are also shown by operating segment in the table below.

 


Primary

Investment

Secondary

Investment

Asset

Management

Total

As at 31 December

2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

2017

£ million

2016

£ million

Portfolio valuation

580.3

696.3

613.5

479.6

-

-

1,193.8

1,175.9

Other net current liabilities

 

 

 

 

 

 

(1.3)

(1.6)

Group net borrowings1

 

 

 

 

 

 

(28.3)

(88.2)

Post-retirement obligations

 

 

 

 

 

 

(40.3)

(69.3)

Group net assets

 

 

 

 

 

 

1,123.9

1,016.8

Note:

(1)  Short-term cash borrowings of £176.0 million (31 December 2016 - £165.0 million) net of cash balances of £147.7 million (31 December 2016 - £76.8 million), of which £133.1 million was held to collateralise future investment commitments (31 December 2016 - £23.7 million). 

 

Net asset value increased from £1,016.8 million at 31 December 2016 to £1,123.9 million at 31 December 2017.

 

The Group's portfolio of investments in project companies and listed investments was valued at £1,193.8 million at 31 December 2017 (31 December 2016 - £1,175.9 million). The valuation methodology and details of the portfolio value are provided in the Portfolio Valuation section.

 

The Group held cash balances of £147.7 million at 31 December 2017 (31 December 2016 - £76.8 million) of which £133.1 million (31 December 2016 - £23.7 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details). Of the total Group cash balances of £147.7 million, £145.2 million was in recourse subsidiaries held at FVTPL, including the cash collateral balances, that are included within investments at FVTPL on the Group Balance Sheet. The remaining £2.5 million was in the Company and recourse subsidiaries that are consolidated and shown as cash and cash equivalents on the Group Balance Sheet (see the re-presented balance sheet for further details).    

 

Working capital and other balances (a negative amount) were lower than prior year primarily because of a net positive fair value at 31 December 2017 on foreign exchange hedges, lower provisions and higher trade receivables as a result of increased fund management income.

 

The combined accounting deficit in the Group's defined benefit pension and post-retirement medical schemes at 31 December 2017 was £40.3 million (31 December 2016 - £69.3 million). The Group operates two defined benefit schemes in the UK - the John Laing Pension Fund (JLPF) and the John Laing Pension Plan (the Plan). Both schemes are closed to new members and future accrual. Under IAS 19, at 31 December 2017, JLPF had a deficit of £35.2 million (31 December 2016 - £64.2 million) whilst the Plan had a surplus of £2.9 million (31 December 2016 - £2.9 million). The liability at 31 December 2017 under the post-retirement medical scheme was £8.0 million (31 December 2016 - £8.0 million).    

 

The pension deficit in JLPF is based on a discount rate applied to pension liabilities of 2.50% (31 December 2016 - 2.80%) and long-term RPI of 3.10% (31 December 2016 - 3.20%). The amount of the deficit is dependent on key assumptions, principally: inflation rate, discount rate and life expectancy of members. The discount rate, as prescribed by IAS 19, is based on yields from high quality corporate bonds. The deficit (under IAS 19) has decreased since 31 December 2016 primarily as a result of the Group's cash contribution to JLPF of £24.5 million in March 2017.

 

In December 2016, following a triennial actuarial review of the JLPF as at 31 March 2016, a seven-year deficit repayment plan was agreed with the JLPF Trustee. It was agreed to repay the actuarial deficit of £171 million at 31 March 2016 as follows:

 

By 31 March

£ million

2017

24.5

2018

26.5

2019

29.1

2020

24.9

2021

25.7

2022

26.4

2023

24.6

Re-presented cash flow statement

The Group Cash Flow Statement includes the cash flows of the Company and those recourse subsidiaries that are consolidated (Service Companies). The Group's recourse investment entity subsidiaries, through which the Company holds its investments in non-recourse project companies, are held at fair value in the financial statements and accordingly cash flows relating to investments in the portfolio are not included in the Group Cash Flow Statement. Investment-related cash flows are disclosed in note 12 to the Group financial statements.

 

The re-presented cash flow statement shows all recourse cash flows that arise in both the consolidated group (the Company and its consolidated subsidiaries) and in the recourse investment entity subsidiaries.

 

Year ended 31 December

2017

2016

 

Re-presented cash flows

Re-presented cash flows

 

£ million

£ million

Cash yield

40.9

36.8

Operating cash flow

(17.3)

(10.9)

Net foreign currency exchange impact

(1.3)

(18.2)

Total operating cash flow

22.3

7.7

 

 

 

Cash investment in projects

(209.9)

(301.5)

Proceeds from realisations

287.1

146.6

Cash received from acquisition of Manchester Waste VL Co by the GMWDA

23.5

-

Net investing cash inflow/(outflow)

100.7

(154.9)

 

 

 

Finance charges

(8.3)

(6.8)

Cash contributions to JLPF (including PPF levy)

(24.7)

(18.4)

Dividend payments

(30.1)

(26.2)

Net cash outflow from financing activities

(63.1)

(51.4)

 

 

 

Recourse group cash inflow/(outflow)

59.9

(198.6)

Recourse group opening net debt/cash balances

(88.2)

110.4

Recourse group closing net debt balances

(28.3)

(88.2)

 

 

 

Reconciliation to line items on re-presented balance sheet

 

 

Cash collateral balances1

133.1

23.7

Cash and cash equivalents1

14.6

53.1

Total cash balances

147.7

76.8

 

 

 

Cash borrowings

(176.0)

(165.0)

Net debt

(28.3)

(88.2)

 

 

 

Reconciliation of cash borrowings to Group Balance Sheet

 

 

Cash borrowings as per re-presented balance sheet

(176.0)

(165.0)

Unamortised financing costs

2.8

3.6

Borrowings as per Group Balance Sheet

(173.2)

(161.4)

 

1 For reconciliation of these amounts to the Group Balance Sheet see the re-presented balance sheet above.

 

Cash yield comprises £40.2 million (2016 - £34.8 million) from the investment portfolio (see the Portfolio Valuation section for further details) and £0.7 million (2016 - £2.0 million) from non-portfolio investments.

 

The net operating cash outflow in the year ended 31 December 2017 of £17.3 million was higher than the outflow in 2016 principally due to higher bid costs net of recoveries.

Total operating cash flow in the year ended 31 December 2017 was higher than in 2016 primarily due to an adverse impact on foreign exchange hedges in 2016.

 

In the year, in addition to the payment of the PPF levy of £0.2 million (2016 - £0.3 million), the Group made a cash contribution to JLPF of £24.5 million (2016 - £18.1 million).   

 

During the year, cash of £209.9 million (2016 - £301.5 million) was invested in project companies. In the same period, investments in eight projects were realised (including five investments to JLIF, one to JLEN and two investments to third parties) for total proceeds of £289.0 million, of which £287.1 million was received in the year and £1.9 million was deferred to 2018 (2016 - £140.2 million from the realisation of six investments (including four investments to JLIF and two investments to JLEN) and sale of a 2.2% shareholding in JLEN for £6.4 million). The above proceeds were in addition to the cash received on the acquisition of Manchester Waste VL Co by the GMWDA of £23.5 million.

 

Finance charges were higher in 2017 due to higher average usage of the corporate banking facilities as well as lower interest income received on cash collateral balances.

 

Dividend payments of £30.1 million in the year ended 31 December 2017 comprised the final dividend for 2016 of £23.1 million and the interim dividend for 2017 of £7.0 million (2016 - final dividend for 2015 of £19.4 million and interim dividend for 2016 of £6.8 million).  

 

FINANCIAL RESOURCES

 

At 31 December 2017, the Group had principal committed corporate banking facilities of £475 million (31 December 2016 - £400 million), expiring in March 2020, which are primarily used to back investment commitments. The Group also had surety facilities of £50 million backed by two £25 million committed liquidity facilities both expiring in March 2018. Since the year end, these liquidity facilities have been extended to February 2019. Net available financial resources at 31 December 2017 were £153.1 million (31 December 2016 - £168.1 million).

 

Analysis of Group financial resources


31 December

2017

£ million

31 December

2016

£ million

Total committed facilities

525.0

450.0

Letters of credit issued under corporate banking facilities (see below)

(152.3)

(112.6)

Letters of credit issued under surety facilities (see below)

(50.0)

(50.0)

Other guarantees and commitments

(7.5)

(6.5)

Short-term cash borrowings

(176.0)

(165.0)

Utilisation of facilities

(385.8)

(334.1)

Headroom

139.2

115.9

 

 

 

Cash and bank deposits1

14.6

53.1

Less unavailable cash

(0.7)

(0.9)

Net available financial resources

153.1

168.1

1 Cash and bank deposits exclude cash collateral balances. Of the total cash and bank deposit balances of £14.6 million, £2.5 million was in the Company and recourse subsidiaries that are consolidated and therefore shown as cash and cash equivalents on the Group Balance Sheet, with the remaining £12.1 million in recourse subsidiaries held at FVTPL which are included within investments at FVTPL on the Group Balance Sheet (see the re-presented balance sheet).

 

Letters of credit issued under the committed corporate banking facilities of £152.3 million (31 December 2016 - £112.6 million) and under additional surety facilities of £50.0 million (31 December 2016 - £50.0 million) together with cash collateral represent future cash investment by the Group into underlying projects in the Primary Investment portfolio.

 


31 December

2017

£ million

31 December

2016

£ million

Letters of credit issued

202.3

162.6

Cash collateral

133.1

23.7

Future cash investment into projects

335.4

186.3

 

The table below shows the letters of credit issued analysed by investment and the date or dates when cash is expected to be invested into the underlying project at which point the letter of credit would expire:

 

Project

Letter of
credit issued

£ million

Expected

date of cash

investment

IEP (Phase 2)

72.7

Feb 2018 - Mar 2018

New Grafton Correctional Centre

76.4

Dec 2018 - Jul 2019

Buckthorn Wind Farm

9.5

Jan 2018

Melbourne Metro

43.7

Oct 2019 - Dec 2019

Total

202.3

 

 

 

The table below shows the cash collateral balance at 31 December 2017 analysed by investment and the dates when the cash collateral is expected to be invested into the underlying project:

 

Project

Cash

collateral

amount

£ million

Expected

date of cash

investment

I-77 Managed Lanes

18.3

Apr 2018 - Nov 2018

I-66 Managed Lanes

114.8

May 2020 - Dec 2022

Total

133.1

 

 

Cash collateral is included within 'investments at fair value through profit or loss' in the Group Balance Sheet.

 

There are significant non-recourse borrowings within the project companies in which the Group invests. The interest rate exposure on the debt of such project companies is, in most circumstances, fixed on financial close, through a long-dated bond or fixed-rate debt, or through the fixing of floating rate bank debt via interest rate swaps. Given this, the impact on the Group's returns from investments in project companies of changes in interest rates on project borrowings is minimal. There is an impact from changes in interest rates on the investment income from monies held on deposit both at Group level and within project companies but such an effect is not material in the context of the Group Balance Sheet.

 

 

FOREIGN CURRENCY EXPOSURE

 

The Group regularly reviews the sensitivity of its balance sheet to changes in exchange rates relative to Sterling and to the timing and amount of forecast foreign currency denominated cash flows. As set out in the Portfolio Valuation section, the Group's portfolio comprises investments denominated in Sterling, Euro, and Australian, US and New Zealand dollars. As a result of foreign exchange movements in the year ended 31 December 2017, there was a net adverse fair value movement of £11.0 million in the portfolio valuation, which was net of a £3.0 million gain on the divestment of the Group's investment in the A1 Poland project where the proceeds were hedged (see below). Sterling strengthened against the US, Australian and New Zealand dollars between 31 December 2016 and 31 December 2017, but weakened against the Euro.

 

The Group may apply an appropriate hedge to a specific currency transaction exposure, which could include borrowing in that currency or entering into forward foreign exchange contracts. An analysis of the portfolio value by currency is set out in the Portfolio Valuation section. In the year, there was a net loss of £3.9 million from foreign exchange movements outside the portfolio, which was primarily as a result of a loss of £3.0 million on forward foreign exchange contracts taken out to hedge the proceeds from the divestment of the Group's investment in the A1 Poland project.

 

Letters of credit in issue at 31 December 2017 of £202.3 million (31 December 2016 - £162.6 million) are analysed by currency as follows:

 

Letters of credit by currency

31 December

2017

£ million

31 December

2016

£ million

Sterling

72.7

99.7

US dollar

9.5

18.1

Australian dollar

120.1

44.8

 

202.3

162.6

 

 

Cash collateral at 31 December 2017 of £133.1 million (31 December 2016 - £23.7 million) is analysed by currency as follows:

Cash collateral by currency

31 December

2017

£ million

31 December

2016

£ million

Sterling

-

0.3

US dollar

133.1

20.1

Australian dollar

-

3.3

 

133.1

23.7

 

GOING CONCERN

 

The Group has committed corporate banking facilities until March 2020 and has sufficient resources available to meet its committed capital requirements, investments and operating costs for the foreseeable future. Accordingly, the Group has adopted the going concern basis in the preparation of its financial statements for the year ended 31 December 2017.    

 

 

Patrick O'D Bourke

Group Finance Director

 

 

PRINCIPAL Risks AND RISK MANAGEMENT

 

The effective management of risks within the Group is essential to the successful delivery of the Group's objectives. The Board is responsible for ensuring that risks are identified and appropriately managed across the Group and has delegated to the Audit & Risk Committee responsibility for reviewing the effectiveness of the Group's internal controls, including the systems established to identify, assess, manage and monitor risks. The Group's risk appetite when making decisions on investment commitments or potential realisations is assessed by reference to the expected impact on NAV.

 

The principal internal controls that operated throughout 2017 and up to the date of this Annual Report include:

 

·      an organisational structure which provides adequate segregation of responsibilities, clearly defined lines of accountability, delegated authority to trained and experienced staff and extensive reporting;

·      clear business objectives aligned with the Group's risk appetite;

·      risk reporting, including identification of risks through Group-wide risk registers, that is embedded in the regular management reporting of business units and is communicated to the Board; and

·      an independent Internal Audit function, which reports to the Audit & Risk Committee. The external auditor also reports to the Audit & Risk Committee on the effectiveness of financial controls relevant to the audit.

 

The Group's Internal Audit function has several objectives, in particular to provide:

 

·      independent assurance to the Board, through the Audit & Risk Committee, that internal control processes, including those related to risk management, are relevant, fit for purpose, effective and operating throughout the business;

·      a deterrent to fraud;

·      another layer of assurance that the Group is meeting its FCA regulatory requirements; and

·      advice on efficiency improvements to internal control processes.

Internal Audit is independent of the business and reports functionally to the Group Finance Director and directly to the Chairman of the Audit & Risk Committee. The Head of Internal Audit meets regularly with senior management and the Audit & Risk Committee to discuss key findings and management actions undertaken. The Head of Internal Audit can call a meeting with the Chairman of the Audit & Risk Committee at any time and meets privately with the Audit & Risk Committee, without senior management present, as and when required, but at least annually. 

 

A Management Risk Committee, comprising senior members of management, assists the Board, Audit & Risk Committee and Executive Committee in formulating and enforcing the Group's risk management policy. During 2017, this committee was chaired by the Group Finance Director but from 2018 will be chaired by the Group's Chief Risk Officer. The Head of Internal Audit attends each meeting of the Management Risk Committee. The Management Risk Committee reports formally to the Audit & Risk Committee.

 

The Directors confirm that they have monitored throughout the year and carried out (i) a review of the effectiveness of the Group's risk management and internal control systems and (ii) a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. No material weaknesses were identified from the review of the Group's risk management and internal control systems. The Group risk register is reviewed at every meeting of the Audit & Risk Committee and Management Risk Committee and every six months by the Board.

 

The above controls and procedures are underpinned by a culture of openness of communication between operational and executive management. All investment decisions are scrutinised in detail by the Investment Committee and, if outside the Investment Committee's terms of reference, also by the Board. All divestment decisions are scrutinised by the Divestment Committee and approved by the Board.

 

The Directors' assessment of the principal risks applying to the Group is set out below, including the way in which risks are linked to the three strategic objectives set out in the Chief Executive Officer's Review. Additional risks and uncertainties not presently known to the Directors, or which they currently consider not to be material, may also have an adverse effect on the Group.

 

The Group's three strategic objectives are:

 

1.   Growth in primary investment volumes (new investment capital committed to greenfield infrastructure projects) over the medium term.

2.   Growth in the value of external AuM and related fee income.

3.   Management and enhancement of the Group's investment portfolio, with a clear focus on active management during construction, accompanied by realisations of investments which, combined with the Group's corporate banking facilities and operational cash flows, enable it to finance new investment commitments.

 

Risk

Link to strategic objectives above

Mitigation

Change
in risk since 31 December 2016

Governmental policy

Changes to legislation or public policy in the jurisdictions in which the Group operates or may wish to operate could negatively impact the volume of potential opportunities available to the Group and the returns from existing investments.

 

The use of PPP programmes by governmental entities may be delayed or may decrease thereby limiting opportunities for private sector infrastructure investors in the future, or be structured such that returns to private sector infrastructure investors are reduced.

 

Governmental entities may in the future seek to terminate or renegotiate existing projects by introducing new policies or legislation that result in higher tax obligations on existing PPP or renewable energy projects or otherwise affect existing or future PPP or renewable energy projects.

 

Changes to legislation or public policy relating to renewable energy could negatively impact the economic returns on the Group's investments in renewable energy projects, which would adversely affect the demand for and attractiveness of such projects.

 

Compliance with the public tender regulations which apply to PPP projects is complex and the outcomes may be subject to third party challenge and reversed.

 

1, 2, 3

 

Thorough due diligence is carried out in order to assess a specific country's risk (for example economic and political stability, tax policy, legal framework and local practices) before any investment is made.

 

Where possible the Group seeks specific contractual protection from changes in governmental policy and law for the projects it invests in. General change of law is considered to be a normal business risk. During the bidding process for investment in a project, the Group takes a view on an appropriate level of return to cover the risk of non-discriminatory changes in law.

 

PPP projects are normally structured so as to provide significant contractual protection for equity investors (see also counterparty risk).

 

During the bidding process for investment in a project, the Group assesses the sensitivity of the project's forecast returns to changes in factors such as tax rates and/or, for renewable energy projects, governmental support mechanisms. The Group targets jurisdictions which have a track record of support for renewable energy investments and which continue to demonstrate such support.

 

Through its track record of more than 130 investment commitments, the Group has developed significant expertise in compliance with public tender regulations.

 

 

 

 

Increased

Macroeconomic factors

To the extent such factors cannot be hedged, changes in inflation and interest rates and foreign exchange all potentially impact the return generated from an investment and its valuation.

 

Changes in factors which affect energy prices, such as the future energy demand/supply balance and the oil price, could negatively impact the economic returns on the Group's investments in renewable energy.

 

Weakness in the political and economic climate in a particular jurisdiction could impact the value of, or the return generated from, any or all of the Group's investments located in that jurisdiction.

 

1, 2, 3

 

Factors which have the potential to adversely impact the underlying cash flows of an investment, and hence its valuation, are hedged wherever possible at a project level and sensitivities are considered during the investment appraisal process.

 

Systemic risks, such as potential deflation, or appreciation/depreciation of Sterling versus the currency in which an investment is made, are assessed in the context of the portfolio as a whole.

 

The Group seeks to reduce the extent to which its renewable energy investments are exposed to energy prices through governmental support mechanisms and/or offtake arrangements.

 

The Group monitors closely the level of investments it has exposed to foreign currencies, including regularly testing the sensitivity of the financial covenants in its corporate banking facilities to a significant change in the value of individual currencies.

 

Where possible, specific clauses relating to potential currency change within a particular jurisdiction are incorporated in project documentation.

 

No change

Liquidity in the secondary market

Weakness in the secondary markets for investments in PPP or renewable energy projects, for example as the result of a lack of economic growth in relevant markets, actual or potential governmental policy, regulatory changes in the banking sector, liquidity in financial markets, changes in interest and exchange rates and project finance market conditions may affect the Group's ability to realise full value from its divestments.

 

The secondary market for investments in renewable energy projects may be affected by, inter alia, changes in energy prices, in governmental policy, in the value of governmental support mechanisms and in project finance market conditions.

 

The ability of JLIF and JLEN to raise finance for further investments may have an impact on both the Group's ability to sell investments in PPP and renewable energy projects and on the Group's asset management business more generally.

 

1, 2, 3

 

Projects are appraised on a number of bases, including being held to maturity. Projects are also carefully structured so that they are capable of being divested, if appropriate, before maturity.

 

Over recent years, the secondary markets for both PPP and renewable energy investments have grown.

 

While JLIF and JLEN are natural buyers of a number of the Group's PPP and renewable energy investments respectively, the size and breadth of secondary markets and the growth of operational infrastructure as an asset class, plus the Group's recent experience, all provide the Group with confidence that it can sell investments to other purchasers.

 

No change

Financial resources

Any shortfall in the financial resources that are available to the Group to satisfy its financial obligations may make it necessary for the Group to constrain its business development, refinance its outstanding obligations, forego investment opportunities and/or sell existing investments.

 

Inability to secure project finance could hinder the ability of the Group to make a bid for an investment opportunity, or where the Group has a preferred bidder position, could negatively impact whether an underlying project reaches financial close.

 

The inability of a project company to satisfactorily refinance existing maturing medium-term project finance facilities periodically during the life of a project could affect the Group's projected future returns from investments in such projects and hence their valuation in the Group's Balance Sheet.

 

Adverse financial performance by a project company which affects the financial covenants in its project finance debt documents may result in the project company being unable to make distributions to the Group and other investors, which would impact the valuation of the Group's investment in such project company, and may ultimately enable public-sector counterparties (through cross default links to other project agreements) and/or project finance debt providers to declare default and, in the latter case, to exercise their security.

 

1, 3

 

The Group has corporate banking facilities totalling £475 million which mature in March 2020 as well as additional liquidity facilities (£50 million) committed until February 2019. Available headroom is carefully monitored and compliance with the financial covenants and other terms of these facilities is closely observed. The Group also monitors its working capital, cash collateral and letter of credit requirements and maintains an active dialogue with its banks. It operates a policy of ensuring that sufficient financial resources are maintained to satisfy committed and likely future investment requirements. A Divestment Committee was set up in 2017 to provide oversight and recommendations on all potential divestments that were previously under the remit of the Executive Committee.

 

The Group believes that there is currently sufficient depth and breadth in project finance markets to meet the financing needs of the projects it invests in. The Group works closely with a wide range of project finance providers, including banks and other financial institutions. In markets such as Australia and New Zealand, where the tenor of project finance facilities at financial close tends to be medium term, certain PPP projects in which the Group has invested are due for refinancing in due course. One such project, Auckland South Corrections Facility, was successfully refinanced in late 2017.

 

Prior to financial close, all proposed investments are scrutinised by the Investment Committee. This scrutiny includes a review of sensitivities to adverse performance of investment returns and financial ratio tests as well as an assessment of a project's ability to be refinanced if the tenor of its project finance debt is less than the term of the concession or the project's useful life. The Group maintains an active dialogue with the banks and other financial institutions which provide project finance to the projects in which it invests. Monitoring of compliance with financial covenant ratios and other terms of loan documents continues throughout the term of the project finance loan.

 

No change

Pensions

The amount of the deficit in the Group's main defined benefit pension scheme (JLPF) can vary significantly due to gains or losses on scheme investments and movements in the assumptions used to value scheme liabilities (in particular life expectancy, discount rate and inflation rate). Consequently the Group is exposed to the risk of increases in cash contributions payable, volatility in the deficit reported in the Group Balance Sheet, and gains/losses recorded in the Group Statement of Comprehensive Income.

 

1, 3

 

The Group's two defined benefit pension schemes are overseen by corporate trustees, the directors of which include independent and professionally qualified individuals. The Group works closely with the trustees on the appropriate funding strategy for the schemes and takes independent actuarial advice as appropriate. Both schemes are closed to future accrual and accordingly have no active members, only deferred members and pensioners. A significant proportion of the liabilities of JLPF is matched by a bulk annuity buy-in agreement with Aviva. Other hedging is also in place.

 

The next actuarial valuation of JLPF is due as at 31 March 2019.

 

No change

Future investment activity

The Group operates in competitive markets and may not be able to compete effectively or profitably.

 

The Group's investment pipeline is not a guarantee of actual bidding activity or future investments.

 

The Group's historical win rate for PPP projects may decline and is an uncertain indicator of new investments by the Group.  

 

1

 

The Group believes that its experience and expertise as an active investor and asset manager accumulated over more than 20 years, together with its flexibility and ability to respond to market conditions will continue to enable it to compete effectively and secure attractive investments.

Both the PPP and the renewable energy pipelines are diversified by geography and number of and type of project.

 

The Group budgets a 30% win rate for PPP projects and has achieved an average win rate for the three years ended 31 December 2017 ahead of this.

 

No change

Valuation

The valuation of an investment in a project may not reflect its ultimate realisable value, for instance because of changes in operational benchmark discount rates.

 

In circumstances where the revenue derived from a project is related to volume (i.e. customer usage or wind energy yield), actual revenues may vary materially from assumptions made at the time the investment commitment is made. In addition, to the extent that a project company's actual costs incurred differ from forecast costs, for example, because of late construction, and cannot be passed on to sub-contractors or other third parties, investment returns and valuations may be adversely affected.

 

Revenues from renewable energy projects may be affected by the volume of power production (e.g. from changes in wind or solar yield), the availability of fuel (in the case of biomass projects), operational issues, restrictions on the electricity network, the reliability of electrical connections or other factors such as noise and other environmental restrictions, as well as by changes in energy prices and to governmental support mechanisms.

 

The valuation of the Group's investment portfolio is affected by movements in foreign exchange rates, which are reflected through the Group's financial statements. In addition, there are foreign exchange risks associated with conversion of foreign currency cash flows relating to an investment into and out of Sterling.

 

The valuation of the Group's investment portfolio could be affected by changes in tax legislation, for instance changes which limit tax-deductible interest (see Taxation section).

 

During the construction phase of an infrastructure project, there are risks that either the works are not completed within the agreed time-frame or that construction costs overrun. Where such risks are not borne by sub-contractors, or sub-contractors fail to meet their contractual obligations, this can result in delays in the receipt of project income and/or cost overruns, which may adversely affect the valuation of and return on the Group's investments. If construction or other long stop dates are exceeded, this may enable public sector counter-parties and/or project finance debt providers to declare a default and, in the case of the latter, to exercise their security.

 

The Group is reliant on the performance of third parties in constructing an asset to an appropriate standard as well as subsequently operating it in a manner consistent with contractual requirements. Consistent under-performance by, or failure of, such third parties may result in the ability of public sector counter parties and/or project finance debt providers to declare a default and consequently the impairment or loss of the Group's investment.

 

A significant portion of the Group's portfolio valuation is, and may in the future be, in a small number of projects, and changes to the value of these projects could materially affect the Group's financial position and results of operations.

 

A project company or a service provider to a project company may fail to manage contracts efficiently or effectively.

 

3

 

The discount rates used to value investments are derived from publicly available market data and other market evidence and are updated regularly.

 

The Group has a good track record of realising investments at prices consistent with the fair values at which they are held.

 

The Group's investments are in projects which are principally availability-based (where the revenue does not generally depend on the level of use of the project asset). Where patronage or volume risk is taken, the Directors review revenue assumptions and their sensitivities in detail prior to any investment commitment.

 

Where the revenue from investments is related to patronage or volume (e.g. with regard to investments in renewable energy projects), risks are mitigated through a combination of factors, including (i) the use of independent forecasts of future volumes (ii) lower gearing versus that of availability-based projects (iii) stress-testing the robustness of project returns against significant falls in forecast volumes. In addition, where possible, fixed-price arrangements are entered into to mitigate the impact of changes in future energy prices.

 

The Group typically hedges cash flows arising from investment realisations or significant distributions in currencies other than Sterling.

 

During the bidding process for investment in a project, the Group assesses the sensitivity of the project's forecast returns to changes in tax rates.

 

The intention is that projects are structured such that (i) day-to-day service provision is sub-contracted to qualified sub-contractors supported by appropriate security packages (ii) cost and price inflation risk in relation to the provision of services lies with sub-contractors (iii) performance deductions in relation to non-availability lie with sub-contractors (iv) future major maintenance costs and ongoing project company costs are reviewed annually and cost mitigation strategies adopted as appropriate.

 

The Group has procedures in place to ensure that project companies in which it invests appoint competent sub-contractors with relevant experience and financial strength. If project construction is delayed, sub-contracting arrangements contain terms enabling the project company to recover liquidated damages, additional costs and lost revenue, subject to limits. In addition, the project company may terminate its agreement with a sub-contractor if the latter is in default and seek an alternative sub-contractor.

 

The terms of the sub-contracts into which project companies enter provide some protections for investment returns from the poor performance of third parties.

 

The ability to replace defaulting third parties is supported by security packages to protect against price movement on re-tendering.

 

If long stop dates are exceeded, the Group has significant experience as an active manager in protecting its investments by working with all parties to a project to agree revised timetables and/or other restructuring arrangements.

 

The Group monitors the concentration risk within its portfolio. Since 31 December 2014, the percentage of its portfolio value attributable to UK investments has reduced from 58% to 34% at 31 December 2017.

 

The performance of project companies and service providers to project companies is regularly monitored by the Asset Management team.

 

No change

Counterparty risk

The Group is exposed to counterparty credit risk with regards to (i) governmental entities, sub-contractors, lenders and suppliers at a project level and (ii) consortium partners, financial institutions and suppliers at a Group level.

 

Public sector counter-parties to PPP projects may seek to renegotiate contract terms and/or terminate contracts, as a result of changes in governmental policy or otherwise, in a way which impacts the valuation of one or more of the Group's investments.

 

In overseas jurisdictions, the Group's investments backed by governmental entities may ultimately be subject to sovereign risk.

 

Project companies are exposed to counterparty credit risk and counterparty performance risk with regards to public sector bodies, sub-contractors, lenders, supplier and consortium partners.

 

Worsening of general economic conditions in the UK as a result of the UK's withdrawal from the European Union could affect project companies in the UK through, for example, heightened counterparty risk.

 

 

3

 

The Group works with multiple clients, joint venture partners, sub-contractors and institutional investors so as to reduce the probability of systemic counterparty risk in its investment portfolio. In establishing project contractual arrangements prior to making an investment, the credit standing and relevant experience of a sub-contractor are considered. Post financial close, the financial standing of key counterparties is monitored to provide an early warning of possible financial distress.

 

PPP projects are normally structured so as to provide significant contractual protection for equity investors. Such protection may include "termination for convenience" clauses which enable public sector counter-parties to terminate projects subject to payment of appropriate compensation, including to equity investors.

 

PPP projects are normally supported by central and local government covenants, which significantly reduce the Group's risk. Risk is further reduced by the increasing geographical spread of the Group's investments.

 

The performance of service providers to project companies is regularly monitored by the Asset Management team.

 

Counterparties for cash deposits at a Group level, project debt swaps and deposits within project companies are required to be banks with a suitable credit rating and are monitored on an ongoing basis.

 

Entry into new geographical areas which have a different legal framework and/or different financial market characteristics is considered by the Board separately from individual investment decisions.

 

Typically, a substantial proportion of the revenue generated by renewable energy projects is backed by governmental support mechanisms.

 

No change

Major incident

A major incident at any of the Group's main locations or any of the projects invested in by the Group, such as a terrorist attack, war or significant cyber-attack, could lead to a loss of crucial business data, technology, buildings and reputation and harm to the public, all of which could collectively or individually result in a loss of value for the Group.

 

Such an incident affecting any of the projects invested in by the Group could also affect the Group's ability to sell its investment in that project.

 

Failure to maintain secure IT systems and to combat cyber and other security risks to information and to physical sites could adversely affect the Group.

 

2, 3

 

At financial close, projects benefit from comprehensive insurance arrangements, either directly or through contractors' insurance policies.

 

Business continuity plans at project level have been designed and are tested at frequent/regular intervals. Business continuity procedures are also regularly updated in order to maintain their relevance.

 

John Laing believes that proper attention to the health and safety of its employees, subcontractors, and the community within which the Group operates is a key element of effective business management and sees health and safety as an important measure of business performance and essential to our reputation. The Group is committed to ensuring the health, safety and welfare of all its employees and all other persons who may be affected by its direct activities, or those under its control.

 

The projects in which the Group invests each have their own health and safety policies and business continuity plans.

 

The Group's IT requirements are outsourced to a third party. A re-tender process is currently underway.

 

Within the outsourced arrangements, cyber risk is addressed through (i) the Group's organisational structure which includes segregation of responsibilities, delegated lines of accountability, delegated authorities and (ii) specific controls, including controls over payments and access to IT systems.

 

No change

Investment adviser agreements with JLIF and JLEN

A loss of JLCM's investment adviser agreements with JLIF and/or JLEN respectively would be detrimental to the Group's Asset Management business.

 

2

 

Through JLCM, and supported by other parts of the Asset Management division, the Group focuses on delivering a high quality service to both funds.

 

No change

Future returns from investments

The Group's historical returns and cash yields from investments may not be indicative of future returns.

 

The Group's expected hold-to-maturity internal rates of return from investments are based on a variety of assumptions which may not be correct at the time they are made and may not be achieved in the future.

 

1, 2, 3

 

In bidding for new projects, the Group sets a target internal rate of return taking account of historical experience, current market conditions and expected returns once the project becomes operational. The Group continually looks for value enhancement opportunities which would improve the target internal rate of return and projected annualised return.

 

At the appraisal stage, investments in projects are tested for their sensitivity to changes in key assumptions.

 

Increased

Taxation

The Group may be exposed to changes in taxation in the jurisdictions in which it operates, or it may cease to satisfy the conditions for relevant reliefs. Tax authorities may disagree with the positions that the Group has taken or intends to take.

 

Project companies may be exposed to changes in taxation in the jurisdictions in which they operate.

 

In 2015, the OECD published its recommendations for tackling BEPS by international companies. It identified the use of tax deductible interest as one of the key areas where there is opportunity for BEPS by international companies. It is up to the governments of OECD countries to decide how to implement the OECD's recommendations into their domestic law. To the extent that one or more of the jurisdictions in which the Group operates changes its rules to limit tax deductible interest, this could significantly impact (i) the tax payable by subsidiaries of the Group, (ii) the valuation of existing investments and (iii) the way in which future project-financed infrastructure investments are structured, in each case in such jurisdictions.

 

1, 3

 

Tax positions taken by the Group are based on industry practice and/or external tax advice.

 

At the appraisal stage, investments in projects are tested for their sensitivity to changes in tax rates. Project valuations are regularly updated for changes in tax rates.

 

In late 2017, the UK Government enacted legislation, effective from 1 April 2017, which introduced a Fixed Ratio Rule to cap the amount of tax deductible net interest to 30% of a company's UK EBITDA. This was in response to OECD recommendations.

 

In the US, new legislation came into effect on 1 January 2018, including a restriction on interest deductibility for certain US entities paying interest to foreign entities. The impact from both the changes to UK and US tax is reflected in the fair value at 31 December 2017 of the Group's investments in those jurisdictions.

 

The Group monitors closely the way in which other governments are implementing the OECD recommendations.

 

 

Increased

Personnel

The Group may fail to recruit or retain key senior management and skilled personnel in, or relocate high-quality personnel to, the jurisdictions in which it operates or seeks to expand.

 

Following the decision to leave the EU, the UK Government has made some proposals regarding EU nationals living and working in the UK but their position has not been resolved. This uncertainty could impact the Group's ability to recruit and retain EU nationals in the UK.

 

1, 2, 3

 

The Group regularly reviews pay and benefits to ensure they remain competitive. The Group's senior managers participate in long-term incentive plans. The Group plans its human resources needs carefully, including appropriate local recruitment, when it bids for overseas projects.

 

The Group has the ability to recruit EU nationals in its Amsterdam office or could open further offices in other EU jurisdictions if necessary.

 

No change

 

 

Statement of Directors' Responsibilities

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and Article 4 of the IAS Regulation and have also chosen to prepare the parent company financial statements under IFRS as adopted by the EU. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that the Directors:

 

•    properly select and apply accounting policies;

•    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

•    provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

•    make an assessment of the Company's ability to continue as a going concern.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility statement

 

We confirm that to the best of our knowledge:

 

•    the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

•    the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces; and

•    the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

 

This responsibility statement was approved by the Board of Directors on 7 March 2018 and is signed on its behalf by:

 

 

Olivier Brousse

Patrick O'D Bourke

Chief Executive Officer

Group Finance Director

7 March 2018

7 March 2018

 

 

Independent Auditor's Report to the Shareholders of John Laing Group plc on the Audited Financial Results of John Laing Group plc

 

We confirm that we have issued an unqualified opinion on the full financial statements of John Laing Group plc.

 

Our audit report on the full financial statements sets out the following risks of material misstatement which had the greatest effect on our audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team, together with how our audit responded to those risks:

 

Risk description

How the scope of our audit responded to the risk

Valuation of investments

The Group holds a range of investments in PPP and Renewable Energy assets. The total value of these assets at 31 December 2017 was £1,194 million (31 December 2016 - £1,176 million) as disclosed in note 12 to the Group financial statements. These investments are held across a range of different sectors comprising transport, environmental (including renewable energy) and social infrastructure, and a range of geographies including the UK, Europe, North America and Asia Pacific.

The valuation of investments is a significant judgement underpinned by a number of key assumptions and estimates. The key estimate is the discount rates adopted. Given the level of judgement involved, we also considered whether there was potential for fraud through the possible manipulation of these rates. Other key sources of estimation uncertainty include forecast project cash-flows, in particular future power prices which impact the value of the Group's investments in renewable energy projects.

A full valuation of the investment portfolio is prepared every six months, at 30 June and 31 December, with a review at 31 March and 30 September, principally using a discounted cash flow methodology. An independent opinion is obtained from a third party that the portfolio as a whole represents fair market value at the balance sheet date.

 

 

 

·    We assessed the design and implementation of the controls in place to value the Group's investments.

 

·    We obtained evidence to substantiate the discount rate(s) adopted including benchmarking management's discount rates against market data, including the Group's disposals in the current and previous period. We also benchmarked the discount rates on key assets to each other to ensure that we understood why projects have different rates and why there had been a change in the rates since the prior year. We performed this work in conjunction with our own valuation specialists.

 

·    We met with the Group's external valuer to understand the process undertaken by them in arriving at their opinion that the portfolio as a whole represents fair market value. This included assessing how the discount rates adopted by the Group benchmarked against those of the external valuer. We also assessed the competence and independence of the external valuer.

 

·    We reviewed the key changes in cash flows since the prior year within a sample of project models which included checking that the latest forward power price curves had been correctly incorporated into a sample of project models.

 

·      We checked that the disclosures in the financial statements were appropriate particularly in respect of the judgements taken and the sensitivities disclosed.

Key observations

 

·    While there are both upside and downside risks on the value of individual assets we consider the judgements adopted in valuing the Group's investments as a whole (including the discount rates adopted) to be appropriate. 

 

·    We consider the disclosures around the valuation of investments to be appropriate.

 

 

Valuation of defined benefit pension schemes

The Group has two defined benefit pension schemes (The John Laing Pension Fund and The John Laing Pension Plan) which had a combined deficit of £32 million at 31 December 2017 (£61 million at 31 December 2016).

The valuation of the deficit is subject to a number of assumptions including the adoption of the appropriate (i) discount rate (ii) inflation rate and (iii) mortality assumptions.  We considered whether there was potential for fraud through the possible manipulation of these assumptions.

There is also a judgement concerning the Group's ability to recover a surplus under the rules of the John Laing Pension Fund and consequently the consideration of minimum funding requirements under IFRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction'.

 

 

 

 

·      We assessed the design and implementation of the controls in place when valuing the Group's defined benefit pension schemes including the setting of actuarial assumptions.

 

·      In conjunction with our internal actuarial specialists, we compared the Group's key assumptions, including the discount rate, mortality assumptions and inflation rate against our expected benchmarks and those adopted by other companies in the market.

 

 

·      In assessing the impact of IFRIC 14, we examined the nature of the Group's funding commitments to the schemes and reviewed the scheme rules, the external legal advice obtained by management and the actuarial schedule of contributions.

 

·      We checked that the disclosure requirements of IAS 19R Employee Benefits had been fulfilled.

Key observations

 

·    We consider the judgements adopted by the Group in valuing the pension scheme liabilities to be appropriate.

 

·    We concur that the Group has the ability to recover any surplus under the rules of the John Laing Pension Fund and consequently is not subject to a minimum funding requirement under IFRIC 14.

 

·    We also consider the disclosures around the valuation of the defined benefit pension schemes to be appropriate.

 

 

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we did not provide a separate opinion on these matters.

 

Our liability for this report and for our full audit report on the financial statements is to the Company's members as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.  Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for our audit report or this report, or for the opinions we have formed.

 

 

Deloitte LLP
Statutory Auditor

7 March 2018

 

 

Group Income Statement

for the year ended 31 December 2017

 



Year ended

31 December 2017

Year ended

31 December 2016

Notes

£ million

£ million

Net gain on investments at fair value through profit or loss

12

166.3

218.8

Other income

7

30.4

42.0

Operating income

4

196.7

260.8

Administrative expenses


(58.9)

(58.4)

Profit from operations

8

137.8

202.4

Finance costs

10

(11.8)

(10.3)

Profit before tax

4

126.0

192.1

Tax credit/(charge)

11

1.5

(1.8)

Profit for the year attributable to the Shareholders of the Company


127.5

190.3

Earnings per share (pence)


 

 

Basic

5

34.7

51.9

Diluted

5

34.3

51.4

 

 

Group Statement of Comprehensive Income

for the year ended 31 December 2017

 




Year ended

31 December 2017

Year ended

31 December 2016


Note


£ million

£ million

Profit for the year



127.5

          190.3






Exchange differences on translation of overseas operations



0.1

                                0.3

Actuarial gain/(loss) on retirement benefit obligations

19


6.4

(39.2)

Other comprehensive income/(loss) for the year



6.5

       (38.9)

Total comprehensive income for the year



134.0

                   151.4

 

The only movement which could subsequently be recycled to the Group Income Statement is the exchange difference on translation of overseas operations.

 

 

Group Statement of Changes in Equity

for the year ended 31 December 2017

 


Note

Share capital

£ million

Share premium

£ million

Other reserves

£ million

Retained earnings

£ million

Total equity

£ million

Balance at 1 January 2017


36.7

218.0

2.7

759.4

1,016.8

Profit for the year


-

-

-

127.5

127.5

Other comprehensive income for the year


-

-

-

6.5

6.5

Total comprehensive income for the year


-

-

-

134.0

134.0

Share-based incentives

6

-

-

3.2

-

3.2

Dividends paid1


-

-

-

(30.1)

(30.1)

Balance at 31 December 2017


36.7

218.0

5.9

863.3

1,123.9

 


 

 

 

 

 

 

for the year ended 31 December 2016

 


Note

Share capital

£ million

Share premium

£ million

Other reserves

£ million

Retained earnings

£ million

Total

equity

£ million

Balance at 1 January 2016


36.7

218.0

0.7

634.2

889.6

Profit for the year


-

-

-

190.3

190.3

Other comprehensive loss for the year


-

-

-

(38.9)

(38.9)

Total comprehensive income for the year


-

-

-

151.4

151.4

Share-based incentives

6

-

-

2.0

-

2.0

Dividends paid1


-

-

-

(26.2)

(26.2)

Balance at 31 December 2016


36.7

218.0

2.7

759.4

1,016.8

 


 

 

 

 

 

 

1 Dividends paid:


Year ended

31 December

2017

pence

Year ended

31 December

2016

pence

Dividends on ordinary shares

 

 

Per ordinary share:

 

 

- final paid

6.30

5.30

- interim proposed and paid

1.91

1.85

- final proposed

8.70

6.30

 

The total estimated amount to be paid in May 2018 in respect of the proposed final dividend for 2017 is £31.9 million. These amounts have not been adjusted for the rights issue announced on 8 March 2018.

 

 

Group Balance Sheet

as at 31 December 2017

 


Notes

31 December 2017

£ million

31 December 2016

£ million

Non-current assets


 

 

Plant and equipment

 

0.1

0.3

Investments at fair value through profit or loss

12

1,346.4

1,257.5

Deferred tax assets

18

0.5

1.0

 


1,347.0

1,258.8

Current assets


 

 

Trade and other receivables

13

7.6

7.4

Cash and cash equivalents


2.5

1.6

 


10.1

9.0

Total assets


1,357.1

1,267.8

Current liabilities


 

 

Current tax liabilities


(1.4)

(4.1)

Borrowings

15

(173.2)

(161.4)

Trade and other payables

14

(17.3)

(14.7)

 


(191.9)

(180.2)

Net current liabilities


(181.8)

(171.2)

Non-current liabilities


 

 

Retirement benefit obligations

19

(40.3)

(69.3)

Provisions

20

(1.0)

(1.5)

 


(41.3)

(70.8)

Total liabilities


(233.2)

(251.0)

Net assets


1,123.9

1,016.8

Equity


 

 

Share capital

21

36.7

36.7

Share premium

22

218.0

218.0

Other reserves


5.9

2.7

Retained earnings


863.3

759.4

Equity attributable to the Shareholders of the Company


1,123.9

1,016.8

 

 

The financial statements of John Laing Group plc, registered number 05975300, were approved by the Board of Directors and authorised for issue on 7 March 2018. They were signed on its behalf by:

 

 

 

Olivier Brousse

Patrick O'D Bourke

Chief Executive Officer

Group Finance Director

7 March 2018

7 March 2018

 

 

Group Cash Flow Statement

for the year ended 31 December 2017

 



Year ended

31 December 2017

Year ended

31 December 2016


Notes

£ million

£ million

Net cash outflow from operating activities

23

(47.3)

(37.1)

Investing activities


 

 

Net cash transferred from/(to) investments at fair value through profit or loss

12

77.4

 

(73.4)

Purchase of plant and equipment


(0.1)

(0.1)

Net cash from/(used in) investing activities


77.3

(73.5)

Financing activities


 

 

Dividends paid


(30.1)

(26.2)

Finance costs paid


(10.0)

(8.9)

Proceeds from borrowings


11.0

165.0

Repayment of borrowings


-

(19.0)

Net cash (used in)/from financing activities


(29.1)

110.9

Net increase in cash and cash equivalents


0.9

0.3

Cash and cash equivalents at beginning of the year


1.6

1.1

Effect of foreign exchange rate changes


-

0.2

Cash and cash equivalents at end of the year


2.5

1.6

 

 

Notes to the Group Financial Statements

for the year ended 31 December 2017

 

1     General information

The results of John Laing Group plc (the "Company" or the "Group") are stated according to the basis of preparation described below. The registered office of the Company is 1 Kingsway, London, WC2B 6AN. The principal activity of the Company is the origination, investment in and management of international infrastructure projects.

 

The financial information is presented in pounds sterling and prepared in accordance with IFRS as adopted by the EU.

2     Accounting policies

a)      Basis of preparation

The Group financial statements have been prepared on the historical cost basis except for the revaluation of the investment portfolio and other financial instruments that are measured at fair value at the end of each reporting period. The Company has concluded that it meets the definition of an investment entity as set out in IFRS 10 Consolidated Financial Statements, paragraph 27 on the following basis:

 

(i)    as an entity listed on the London Stock Exchange, the Company is owned by a number of investors;

(ii)    the Company holds a substantial portfolio of investments in project companies through intermediate holding companies. The underlying projects have a finite life and the Company has an exit strategy for its investments which is either to hold them to maturity or, if appropriate, to divest them. Investments take the form of equity and/or subordinated debt;

(iii)   the Group's strategy is to originate, invest in, and manage infrastructure assets. It invests in PPP and renewable energy projects and aims to deliver predictable returns and consistent growth from its investment portfolio. The underlying project companies have businesses and activities that the Group is not directly involved in. The Group's returns from the provision of management services are small in comparison to the Group's overall investment-based returns; and

(iv)   the Group measures its investments in PPP and renewable energy projects on a fair value basis. Information on the fair value of investments forms part of monthly management reports reviewed by the Group's Executive Committee, who are considered to be the Group's key management personnel, and by its Board of Directors.

 

Although the Group has a net defined benefit pension liability, IFRS 10 does not exclude companies with non-investment related liabilities from qualifying as investment entities.

 

Investment entities are required to account for all investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss (FVTPL), except for those directly owned subsidiaries that provide investment related services or engage in permitted investment related activities with investees (Service Companies). Service Companies are consolidated rather than recorded at FVTPL.

 

Project companies in which the Group invests are described as "non-recourse", which means that providers of debt to such project companies do not have recourse to John Laing beyond its equity and/or subordinated debt commitments in the underlying projects. Subsidiaries through which the Company holds its investments in project companies, which are held at FVTPL, and subsidiaries that are Service Companies, which are consolidated, are described as "recourse".

 

Unconsolidated project company subsidiaries are part of the 'non-recourse' business. Based on  arrangements in place with those subsidiaries, the Group has concluded that there are no:

 

a)   significant restrictions (resulting from borrowing arrangements, regulatory requirements or contractual arrangements) on the ability of an unconsolidated subsidiary to transfer funds to the Group in the form of cash dividends or to repay loans or advances made to the unconsolidated subsidiary by the Group; and

 

b)   current commitments or intentions to provide financial or other support to an unconsolidated subsidiary, including commitments or intentions to assist the subsidiary in obtaining financial support, beyond the Group's original investment commitment.

 

Transactions and balances receivable or payable between recourse subsidiary entities held at fair value and those that are consolidated are eliminated in the Group financial statements. Transactions and balances receivable or payable between non-recourse project companies held at fair value and recourse entities that are consolidated are not eliminated in the Group financial statements.

 

For details of the subsidiaries that are consolidated, see note 13 to the Company financial statements.

b)      Adoption of new and revised standards

The Group has adopted the following amendments to IFRS in 2017, none of which has had a material impact on the financial statements with the exception of the Amendments to IAS 7 Statement of Cash Flows Disclosure Initiative which has led the Group to present a reconciliation of the changes in liabilities arising from financing activities. This reconciliation can be found on note 24 of the Group financial statements.

 

·      Amendments to IAS 7 Statement of Cash Flows Disclosure Initiative

·      Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses

·      Amendments to IFRS 12 Disclosure of Interest in Other Entities included in Annual Improvements to IFRS Standards 2014-2016 Cycle

 

At the date of authorisation of these financial statements, there are a number of standards and interpretations which are in issue but not yet effective and in some cases have not yet been adopted by the EU. These include:

 

Issued and endorsed by the EU

·      IFRS 9 Financial Instruments

·      IFRS 15 Revenue from Contracts with Customers

·      IFRS 16 Leases

·      Amendments resulting from Annual Improvements to IFRS 2014-2016 Cycle

 

The Group's principal revenue stream is net gain on investments held at FVTPL, which is accounted for under IAS 39 Financial Instruments Recognition and Measurement rather than IFRS 15. The Group's other revenue stream is other income comprising fees from asset management services and recovery of bid costs on financial close. The Group does not expect IFRS 15 to have a material impact on the accounting for these revenue streams.

 

The adoption of IFRS 16 will require the Group to bring its operating leases on to the Group Balance Sheet. The Group does not have material operating leases (total outstanding commitments under operating leases at 31 December 2017 are £6.4 million) and therefore adopting the standard is not expected to have a significant impact.

 

It is not expected that IFRS 9, when it becomes effective, will have a significant impact on the measurement of the Group's financial assets and liabilities as the Group's principal financial assets are investments held at fair value through profit or loss which are not impacted by the adoption of IFRS 9. IFRS 9 also changes the classification of financial assets and implements new rules around hedge accounting. The Group does not have any financial assets whose classification will be impacted by adoption of IFRS 9 nor does it apply hedge accounting to any of its derivatives.

 

 

Issued and not endorsed by the EU

·      Amendments resulting from Annual Improvements to IFRS 2015-2017 Cycle

·      Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

·      Amendments to IAS 40 Transfers of Investment Property

·      Amendments to IFRS 9 Prepayment Features with Negative Compensation

·      Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures

·      IFRIC 22 Foreign Currency Transactions and Advance Consideration

·      IFRIC 23 Uncertainty over Income Tax Treatments

·      IFRS 17 Insurance Contracts.

 

While the Group is still undertaking an assessment of the impact of the new standards, it is not anticipated that they will have a material impact on the Group.

 

The principal accounting policies applied in the preparation of these Group financial statements are set out below. These policies have been applied consistently to each of the years presented, unless otherwise stated.

c)      Going concern

The Directors have reviewed the Group's financial projections and cash flow forecasts and believe, based on those projections and forecasts, that it is appropriate to prepare the financial statements of the Group on the going concern basis.

 

In arriving at their conclusion, the Directors took into account the Group's approach to liquidity and cash flow management and the availability of its £475 million corporate banking facilities committed until March 2020, together with the additional £50 million of liquidity facilities committed until February 2019. The Directors are of the opinion that, based on the Group's forecasts and projections and taking into account expected bidding activity and operational performance, the Group will be able to operate within its bank facilities and comply with the financial covenants therein for the foreseeable future.

 

In determining that the Group is a going concern, certain risks and uncertainties, some of which arise or increase as a result of the economic environment in some of the Group's markets, have been considered. The Directors believe that the Group is adequately placed to manage these risks. The most important risks and uncertainties identified and considered by the Directors are set out in the Principal Risks and Risk Management section. In addition, the Group's policies for management of its exposure to financial risks, including liquidity, foreign exchange, credit, price and interest rate risks are set out in note 17.

d)      Revenue

 

                   The key accounting policies for the Group's material revenue streams are as follows:

 

(i)    Dividend income

Dividend income from investments at FVTPL is recognised when the shareholders' rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Dividend income is recognised gross of withholding tax, if any, and only when approved and paid.

 

(ii)    Net gain on investments at FVTPL

Net gain on investments at FVTPL excludes dividend income referred to above. Please refer to accounting policy f)(i) for further detail.

 

(iii)   Other income

 

        Fees from asset management services

Fees from asset management services to projects in which the Group invests and to external parties are recognised as the services are provided in accordance with IAS 18 Revenue.

 

When it is probable that the expected outcome over the life of a management services contract will result in a net outflow of economic benefits or overall loss, a provision is recognised immediately. The provision is determined based on the net present value of the expected future cash inflows and outflows.

 

Recovery of bid costs on financial close

Costs incurred in respect of bidding for new primary investments are charged to the Group Income Statement until such time as the Group is virtually certain that it will recover the costs. Virtual certainty is generally achieved when an agreement is in place demonstrating that costs are fully recoverable even in the event of cancellation of a project. From the point of virtual certainty, bid costs are held in the Group Balance Sheet as a debtor prior to achieving financial close. On financial close, the Group recovers bid costs by charging a fee to the relevant project company in the investment portfolio.

 

Other income excludes VAT and the value of intra-group transactions between recourse subsidiaries held at FVTPL and those that are consolidated.

e)      Dividend payments

Dividends on the Company's ordinary shares are recognised when they have been appropriately authorised and are no longer at the Company's discretion. Accordingly, interim dividends are recognised when they are paid and final dividends are recognised when they are declared following approval by shareholders at the Company's AGM. Dividends are recognised as an appropriation of shareholders' funds.

f)       Financial instruments

Financial assets and financial liabilities are recognised on the Group Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

 

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognised immediately in profit or loss.

 

(i)       Financial assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at FVTPL, which are initially measured at fair value.

 

Financial assets are classified into the following specified categories: cash and cash equivalents, financial assets at FVTPL; 'held-to-maturity' investments; 'available-for-sale' financial assets; or 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

 

The financial assets that the Group holds are classified as financial assets at FVTPL, loans and receivables and cash and cash equivalents:

 

•    Financial assets at FVTPL comprise the Group's investment in John Laing Holdco Limited (through which the Group indirectly holds its investments in projects) which is valued based on the fair value of investments in project companies, the Group's investment in JLEN and other assets and liabilities of investment entity subsidiaries. Investments in project companies and in JLEN are designated upon initial recognition as financial assets at FVTPL. Subsequent to initial recognition, investments in project companies are measured on a combined basis at fair value principally using discounted cash flow methodology. The investment in JLEN is valued at the quoted market price at the end of the period.

 

The Directors consider that the carrying value of other assets and liabilities held in investment entity subsidiaries approximates to their fair value, with the exception of derivatives which are measured in accordance with accounting policy f)(v).

 

Changes in the fair value of the Group's investment in John Laing Holdco Limited are recognised within operating income in the Group Income Statement.

 

•    Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Loans and receivables are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables' in the Group Balance Sheet.

 

•    Cash and cash equivalents in the Group Balance Sheet comprise cash at bank and in hand and short-term deposits with original maturities of three months or less. For the purposes of the Group Cash Flow Statement, cash and cash equivalents comprise cash and short-term deposits as defined above, net of bank overdrafts.

 

Deposits held with original maturities of greater than three months are shown as other financial assets.

 

(ii)      Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indications of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events which have occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss.

 

(iii)     Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

 

(iv)     Financial liabilities

Interest-bearing bank loans and borrowings are initially recorded at fair value, being the proceeds received net of direct issue costs, and subsequently at amortised cost using the effective interest rate method. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are accounted for on an accruals basis in the Group Income Statement and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

 

Other non-derivative financial instruments are measured at amortised cost using the effective interest method less any impairment losses.

 

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

 

(v)      Derivative financial instruments

The Group treats forward foreign exchange contracts and currency swap deals it enters into as derivative financial instruments at FVTPL. All the Group's derivative financial instruments are held by subsidiaries which are recorded at FVTPL and consequently the fair value of derivatives is incorporated into investments held at FVTPL.

g)      Provisions

Provisions are recognised when:

 

•    the Group has a legal or constructive obligation as a result of past events;

•    it is probable that an outflow of resources will be required to settle the obligation; and

•    the amount has been reliably estimated.

 

Where there are a number of similar obligations, the likelihood that an outflow will be required on settlement is determined by considering the class of obligations as a whole.

h)      Finance costs

Finance costs relating to the corporate banking facilities, other than set-up costs, are recognised in the year in which they are incurred. Set-up costs are recognised over the remaining facility term.

 

Finance costs also include the net interest cost on retirement benefit obligations and the unwinding of discounting of provisions.

i)       Taxation

The tax charge or credit represents the sum of tax currently payable and deferred tax.

 

Current tax

Current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Group Income Statement because it excludes both items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible, which includes the fair value movement on the investment in John Laing Holdco Limited. The Group's liability for current tax is calculated using tax rates that have been enacted, or substantively enacted, by the balance sheet date.

 

Deferred tax

Deferred tax liabilities are recognised in full for taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise to allow all or part of the assets to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the Group Income Statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets and current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

j)       Foreign currencies

The individual financial statements of each Group subsidiary that is consolidated (i.e. a Service Company) are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the financial statements, the results and financial position of each Group subsidiary are expressed in pounds sterling, the functional currency of the Company and the presentation currency of the financial statements.

 

Monetary assets and liabilities expressed in foreign currency (including investments measured at fair value) are reported at the rate of exchange prevailing at the balance sheet date or, if appropriate, at the forward contract rate. Any difference arising on the retranslation of these amounts is taken to the Group Income Statement with foreign exchange movements on investments measured at fair value recognised in operating income as part of net gain on investments at FVTPL. Income and expense items are translated at the average exchange rates for the period.

k)      Retirement benefit costs

The Group operates both defined benefit and defined contribution pension arrangements. Its two defined benefit pension schemes are the John Laing Pension Fund (JLPF) and the John Laing Pension Plan, which are both closed to future accrual. The Group also provides post-retirement medical benefits to certain former employees.

 

Payments to defined contribution pension arrangements are charged as an expense as they fall due. For the defined benefit pension schemes and the post-retirement medical benefit scheme, the cost of providing benefits is determined in accordance with IAS 19 Employee Benefits (revised) using the projected unit credit method, with actuarial valuations being carried out at least every three years. Actuarial gains and losses are recognised in full in the year in which they occur and are presented in the Group Statement of Comprehensive Income. Curtailment gains arising from changes to members' benefits are recognised in full in the Group Income Statement.

 

The retirement benefit obligations recognised in the Group Balance Sheet represent the present value of: (i) defined benefit scheme obligations as reduced by the fair value of scheme assets, where any asset resulting from this calculation is limited to past service costs plus the present value of available refunds; and (ii) unfunded post-retirement medical benefits.

 

Net interest expense or income is recognised within finance costs.

l)       Leasing

All leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

m)     Share capital

Ordinary shares are classified as equity instruments on the basis that they evidence a residual interest in the assets of the Group after deducting all its liabilities.

 

Incremental costs directly attributable to the issue of new ordinary shares are recognised in equity as a deduction, net of tax, from the proceeds in the period in which the shares are issued.

n)      Employee benefit trust

In June 2015, the Group established the John Laing Group Employee Benefit Trust (EBT) as described further in note 6. The Group is deemed to have control of the EBT and it is therefore treated as a subsidiary and consolidated for the purposes of the accounts. Any investment by the EBT in the Company's shares is deducted from equity in the Group Balance Sheet as if such shares were treasury shares. No investment was made in the year. Other assets and liabilities of the EBT are recognised as assets and liabilities of the Group.

 

Any shares held by the EBT are excluded for the purposes of calculating earnings per share.

3  Critical accounting judgements and key sources of estimation uncertainty

 

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying value of assets and liabilities. The key areas of the financial statements where the Group is required to make critical judgements and material accounting estimates (which are those estimates where there is a risk of material adjustment in the next reporting period) are in respect of the fair value of investments and accounting for the Group's defined benefit pension liabilities.

 

Fair value of investments

 

Critical accounting judgements in applying the Group's accounting policies

The Company measures its investment in John Laing Holdco Limited at fair value. Fair value is determined based on the fair value of investments in project companies and the Group's investment in JLEN (together the Group's investment portfolio) and other assets and liabilities of investment entity subsidiaries. A full valuation of the Group's investment portfolio is prepared on a consistent, principally discounted cash flow basis at 30 June and 31 December. The key inputs, therefore, to the valuation of each investment are (i) the discount rate; and (ii) the cash flows forecast to be received from such investment. Under the Group's valuation methodology, a base case discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect additional project-specific risks. In addition, risk premia are added to reflect the additional risk during the construction phase. The construction risk premia reduce over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operational stage. The valuation (excluding the investment in JLEN) assumes that forecast cash flows are received until maturity of the underlying assets. The cash flows on which the discounted cash flow valuation is based are those forecast to be distributable to the Group at each balance sheet date, derived from detailed project financial models. These incorporate a number of assumptions with respect to individual assets, including: dates for construction completion; value enhancements; the terms of project debt refinancing (where applicable); the outcome of any disputes; the level of volume-based revenue; future rates of inflation and, for renewable energy projects, energy yield and future energy prices. Value enhancements are only incorporated when the Group has sufficient evidence that they can be realised.        

 

Key sources of estimation uncertainty

A key source of estimation uncertainty in valuing the investment portfolio is the discount rate applied to forecast project cash flows. A base case discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect project-specific risks. In addition, risk premia are added during the construction phase to reflect the additional risks throughout construction. These premia reduce over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operational stage. The discount rates applied to investments at 31 December 2017 were in the range of 6.8% to 11.8% (31 December 2016 - 7.0% to 11.6%). Note 17 provides details of the weighted average discount rate applied to the investment portfolio as a whole and sensitivities to the investment portfolio value from changes in discount rates.

 

The key sources of estimation uncertainty present in the forecast cash flows to be received from investments are the forecasts of future energy prices on renewable energy projects and forecasts for long-term inflation. Note 17 provides details of the sensitivities to the investment portfolio value from changes in forecast energy prices and forecast long-term inflation. The Group does not consider the other factors that affect cash flows, as described in the critical accounting judgements in applying the Group's accounting policies above, to be key sources of estimation uncertainty. They are based either on reliable data or the Group's experience and individually not considered likely to materially deviate year on year.

 

Pension and other post-retirement liability accounting

 

Critical judgements in applying the Group's accounting policies

The combined accounting deficit in the Group's defined benefit pension and post-retirement medical schemes at 31 December 2017 was £40.3 million (31 December 2016 - £69.3 million). In determining the Group's defined benefit pension liability, consideration is also given to whether there is a minimum funding requirement under IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction which is in excess of the IAS 19 Employee Benefits liability. If the minimum funding requirement is higher, an additional liability would need to be recognised. Under the trust deed and rules of JLPF, the Group has an ultimate unconditional right to any surplus, accordingly the excess of the minimum funding requirement over the IAS 19 Employee Benefits liability has not been recognised as an additional liability.

 

Key sources of estimation uncertainty

The value of the pension deficit is highly dependent on key assumptions including price inflation, discount rate and life expectancy. The assumptions applied at 31 December 2017 and the sensitivity of the pension liabilities to certain changes in these assumptions are illustrated in note 19.

4     Operating segments

Information is reported to the Group's Board (the chief operating decision maker under IFRS 8 Operating Segments) for the purposes of resource allocation and assessment of segment performance based on the category of activities undertaken within the Group. For the year ended 31 December 2017, the principal categories of activity, and thus the reportable segments under IFRS 8, were: Primary Investment, Secondary Investment and Asset Management.

 

The results included within each of the reportable segments comprise:

 

Primary Investment - costs and cost recoveries associated with originating, bidding for and winning greenfield PPP and renewable energy infrastructure projects; investment returns from and growth in the value of the Primary Investment portfolio, net of associated costs.

 

Secondary Investment - investment returns from and growth in the value of the Secondary Investment portfolio, net of associated costs.

 

Asset Management - fee income and associated costs from investment management services in respect of both the Primary and Secondary Investment portfolios and in respect of JLIF's and JLEN's portfolios and the PPP assets in JLPF's portfolio plus fee income and associated costs from project management services.

 

The Board's primary measure of profitability for each segment is profit before tax.

 

For the year ended 31 December 2017, the Board did not monitor on an ongoing basis the results of the Group on a geographical basis. An analysis of the Group's investments at FVTPL by foreign currency can be found in note 17.

 

The following is an analysis of the Group's operating income and profit before tax for the years ended 31 December 2017 and 31 December 2016:


Year ended 31 December 2017


Reportable segments






Primary

Investment

£ million

Secondary

Investment

£ million

Asset

Management

£ million

Segment

Sub-total

£ million

Inter-

segment

£ million

Non-

segmental

results

£ million

Total

£ million

Net gain on investments at FVTPL

179.9

(21.5)

-

158.4

-

7.9

166.3

Other income

3.7

-

42.4

46.1

(17.3)

1.6

30.4

Operating income

183.6

(21.5)

42.4

204.5

(17.3)

9.5

196.7

 

 

 

 

 

 

 

 

Administrative expenses

(37.9)

(8.2)

(23.6)

(69.7)

17.3

(6.5)

(58.9)

Profit from operations

145.7

(29.7)

18.8

134.8

-

3.0

137.8

 

 

 

 

 

 

 

 

Finance costs

(8.4)

(2.2)

-

(10.6)

-

(1.2)

(11.8)

Profit before tax

137.3

(31.9)

18.8

124.2

-

1.8

126.0

 


Year ended 31 December 2016


Reportable segments






Primary

Investment

£ million

Secondary

Investment

£ million

Asset

Management

£ million

Segment

Sub-total

£ million

Inter-

segment

£ million

Non-

segmental

results

£ million

Total

£ million

Net gain on investments at FVTPL

144.4

66.9

-

211.3

-

7.5

218.8

Other income

7.5

-

47.4

54.9

(14.7)

1.8

42.0

Operating income

151.9

66.9

47.4

266.2

(14.7)

9.3

260.8

 

 

 

 

 

 

 

 

Administrative expenses

 

(33.3)

 

(7.6)

 

(27.5)

 

(68.4)

14.7

(4.7)

(58.4)

Profit from operations

 

118.6

 

59.3

 

19.9

 

197.8

-

4.6

202.4

 

 

 

 

 

 

 

 

Finance costs

(5.5)

(2.2)

-

(7.7)

-

(2.6)

(10.3)

Profit before tax

113.1

57.1

19.9

190.1

-

2.0

192.1

 

 

 

 

 

 

 

 

Non-segmental results include results from corporate activities.

 

For the year ended 31 December 2017, the Group had three (2016 - two) investments from each of which it received more than 10% of its operating income. The operating income from the three investments was £36.1 million, £37.3 million and £27.5 million, all of which was reported within the Primary Investment sector. The Group treats each investment in a project company as a separate customer for the purpose of IFRS 8.

 

The Group's investment portfolio, comprising investments in project companies and a listed fund included within investments at FVTPL (see note 12) is allocated between primary and secondary investments. The Primary Investment portfolio includes investments in projects which are in the construction phase. The Secondary Investment portfolio includes investments in operational projects.

 

Segment assets

31 December

2017

£ million

31 December

2016

£ million

Primary Investment

580.3

696.3

Secondary Investment

613.5

479.6

Total investment portfolio

1,193.8

1,175.9

Other investments

0.3

0.3

Other assets and liabilities

152.3

81.3

Total investments at FVTPL

1,346.4

1,257.5

Other assets

10.7

10.3

Total assets

1,357.1

1,267.8

 

 

 

Retirement benefit obligations

(40.3)

(69.3)

Other liabilities

(192.9)

(181.7)

Total liabilities

(233.2)

(251.0)

Group net assets

1,123.9

1,016.8

 

Other assets and liabilities above include cash and cash equivalents, trade and other receivables and trade and other payables within recourse group investment entity subsidiaries.

5     Earnings per share

The calculation of basic and diluted earnings per share is based on the following information:

 


 Year ended
31 December 2017

 Year ended
31 December 2016


£ million

£ million

Earnings



Profit for the purpose of basic and diluted earnings per share

127.5

          190.3

Profit for the year

127.5

 190.3




Number of shares



Weighted average number of ordinary shares for the purpose of basic earnings per share

366,952,621

366,923,076

Dilutive effect of ordinary shares potentially issued under share-based incentives (note 6)

4,892,369

3,313,330

Weighted average number of ordinary shares for the purpose of diluted earnings per share

371,844,990

370,236,406




Earnings per share from continuing operations (pence/share)



Basic

34.7

51.9

Diluted

34.3

51.4

 

6     Share-based incentives

Long-term incentive plan

The Group operates share-based incentive arrangements for Executive Directors, senior executives and other eligible employees under which awards are granted over the Company's ordinary shares. Awards are conditional on the relevant employee completing three years' service (the vesting period). The awards vest three years from the grant date, subject to the Group achieving a target market-based performance condition, total shareholder return (50% of the award), and a non-market based performance condition, NAV per share growth (50% of the award). The Group has no legal or constructive obligation to repurchase or settle the awards in cash.

 

The movement in the number of shares awarded is as follows:


Number of shares awarded


2017

2016

At 1 January

3,774,330

1,763,030

Granted

1,557,430

2,094,460

Adjustment to awards granted in prior periods

35,500

-

Lapsed

(108,290)

(83,160)

At 31 December

5,258,970

3,774,330

 

The weighted average fair value of awards granted during the year was 136.26p per share (2016 - 167.25p per share) for the market-based performance condition, determined using the Stochastic valuation model, and 291.09p per share (2016 - 226.49p per share) for the non-market based performance condition determined using the Black Scholes model. The weighted average fair value of awards granted during the year from both models is 213.69p per share (2016 - 196.87p per share). The significant inputs into the model were the weighted average share price of 291.2p per share (2016 - 226.5p per share) at the grant date, expected volatility of 12.79% (2016 - 12.55%), expected dividend yield of 2.80% (2016 - 3.10%), an expected award life of three years and an annual risk-free interest rate of 0.14% (2016 - 0.4%). The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over three years.

 

The total expense recognised in the Group Income Statement for awards granted under share-based incentive arrangements for the year ended 31 December 2017 was £3.2 million (2016 - £2.0 million).

 

Of the 5,258,970 outstanding awards (2016 - 3,774,330), none were exercisable at 31 December 2017 (2016 - nil). The weighted average exercise price of the awards granted during 2017 was £nil (2016 - £nil). There were no awards forfeited, exercised or expired during the year ended 31 December 2017 (2016 - nil). During the year ended 31 December 2017, there were 108,290 awards (2016 - 83,160) that lapsed.

 

Of the awards outstanding at the end of the year, 1,703,090 vest on 15 April 2018, 1,998,450 vest on 15 April 2019 and 1,557,430 vest on 18 April 2020 subject to the conditions described above. The weighted average exercise price of the awards outstanding at 31 December 2017 was £nil (31 December 2016 - £nil).

 

Deferred Share Bonus Plan

In accordance with the Deferred Share Bonus Plan, 9,762 shares were awarded on 17 March 2017 to Executive Directors and certain senior executives in relation to that part of their annual bonus for 2016 which exceeded 60% of their base salary. These awards vest in equal tranches on the first, second and third anniversary of grant, normally subject to continued employment. For further details on this plan, refer to the Directors' Remuneration Report.

 

The movement in the number of shares awarded is as follows:

 


Number of shares awarded


2017

2016

At 1 January

84,439

-

Granted

9,762

84,439

Adjustment to awards granted in the prior period

5,000

-

Vested in the period

(36,080)

-

At 31 December

63,121

84,439

In addition to the 36,080 shares that vested as per the table above, a further 978 shares were awarded in lieu of dividends payable since the grant date on the vested shares.

Employee Benefit Trust

On 19 June 2015 the Company established the EBT to be used as part of the remuneration arrangements for employees. The purpose of the EBT is to facilitate the ownership of shares by or for the benefit of employees by the acquisition and distribution of shares in the Company. The EBT purchases shares in the Company to satisfy obligations under the Company's share-based payment plans.

 

During the year the EBT purchased no shares in John Laing Group plc and as at 31 December 2017 the EBT held no shares in the Company.

 

7     Other income


Year ended

31 December 2017

Year ended

31 December 2016


£ million

£ million

Fees from asset management services

26.7

34.5

Recoveries on financial close

3.7

7.5

 

30.4

42.0

 

In November 2016 the Group sold its UK Project Management Services business for £4.0 million, of which £1.9 million was received in 2016 and £2.1 million was deferred and recognised in January 2017 on transfer of the final underlying MSA contracts. Total costs of the sale were £1.6 million with £0.2 million recognised in 2017 (in administrative expenses) giving a total profit on sale recognised in the year ended 31 December 2017 of £1.9 million. A profit of £0.5 million was recognised in the year ended 31 December 2016 on initial transfer of the MSA contracts, leading to an overall profit on sale of £2.4 million.

 

8     Profit from operations


 Year ended
31 December 2017

 Year ended
31 December

2016


£ million

£ million

Profit from operations has been arrived at after charging:



Fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries

(0.3)

                            (0.2)

Total audit fees

(0.3)

                (0.2)




Other assurance services

(0.1)

 -

Total non-audit fees

(0.1)

 -




Operating lease charges:



- rental of land and buildings

(1.2)

                (1.3) 

Depreciation of plant and equipment

(0.3)

                (0.6)

Amortisation of intangible assets

-

       (0.2) 

 

The fee payable to the Company's auditor for the audit of the Company's annual accounts was £6,566 (2016 - £6,375). The fees payable to the Company's auditor for the audit of the Company's subsidiaries were £277,094 (2016 - £241,560). The fees payable to the Company's auditor for non-audit services comprised: £48,500 (2016 - £40,000) for other assurance services and £12,500 (2016 - £4,800) for a FCA regulatory review.

 

9     Employee costs and directors' emoluments




 Year ended
31 December 2017

 Year ended
31 December 2016




£ million

£ million

Employee costs comprise:



Salaries


(25.1)

(26.8)

Social security costs

(2.9)

(2.9)

Pension charge




 - defined benefit schemes (note 19)

(1.3)

(1.6)


 - defined contribution

(1.1)

(1.3)

Share-based incentives (note 6)

(3.2)

(2.0)




(33.6)

(34.6)

 

 

Annual average employee numbers (including Directors):


Year ended

31 December 2017

No.

Year ended

31 December 2016

No.

Staff

160

248

UK

101

191

Overseas

59

57

 

 

 

Activity

 

 

Primary investments, asset management and central activities

160

248

 

Details of Directors' remuneration for the year ended 31 December 2017 can be found in the audited sections of the Directors' Remuneration Report.

 

10   Finance costs


Year ended

31 December

2017

£ million

Year ended

31 December

2016

£ million

Finance costs on corporate banking facilities

(9.2)

(7.9)

Amortisation of debt issue costs

(1.3)

(1.1)

Net interest cost of retirement obligations (note 19)

(1.3)

(1.3)

Total finance costs

(11.8)

(10.3)

 

11   Tax credit/(charge)

 

The tax credit/(charge) for the year comprises:


Year ended

31 December

2017

£ million

Year ended

31 December

2016

£ million

Current tax:

 

 

UK corporation tax credit/(charge) - current year

0.5

(1.9)

UK corporation tax credit - prior year

1.6

0.5

Foreign tax charge

(0.1)

-

 

2.0

(1.4)

Deferred tax:

 

 

Deferred tax charge - current year

-

(0.2)

Deferred tax charge - prior year

(0.5)

(0.2)

 

(0.5)

(0.4)

Tax credit/(charge)

1.5

(1.8)

 

The tax credit/(charge) for the year can be reconciled to the profit in the Group Income Statement as follows:

 


Year ended

31 December 2017

Year ended

31 December 2016  


£ million

£ million

Profit before tax

126.0

192.1

Tax at the UK corporation tax rate

(24.3)

(38.4)

Tax effect of expenses and other similar items that are not deductible

(1.1)

(0.6)

Non-taxable movement on fair value of investments

32.0

43.8

Adjustment for management charges to fair value group

(6.1)

(6.6)

Other movements

(0.1)

(0.3)

Prior year - current tax credit

1.6

0.5

Prior year - deferred tax charge

(0.5)

(0.2)

Total tax credit/(charge)

1.5

(1.8)

 

 

 

 

The above tax credit/(charge) of the Company and the recourse group subsidiary entities that are consolidated is primarily in relation to a group relief credit/(charge) with recourse group subsidiary entities held at FVTPL, where there are tax losses primarily as a result of the tax deduction from the payment of contributions to JLPF obtained by a recourse subsidiary held at FVTPL. There is a corresponding tax (charge)/credit within 'net gain on investments at FVTPL' on the Group Income Statement.        

 

For the year ended 31 December 2017 a tax rate of 19.25% has been applied (2016 - 20.0%). The UK Government has announced its intention to reduce the main corporation tax rate by 1% to 19% from 1 April 2017 and by a further 2% to 17% from 1 April 2020.

 

The Group expects that the majority of deferred tax assets will be realised after 1 April 2020 and therefore the Group has measured its deferred tax assets at 31 December 2017 at a tax rate of 17% (31 December 2016 - 17%).

 

12   Investments at fair value through profit or loss

 



31 December 2017


Investments in project

companies

£ million

Listed

investment

£ million

Portfolio valuation sub-total

£ million

Other assets

and liabilities

£ million

Total

£ million

Opening balance

1,165.9

10.0

1,175.9

81.6

1,257.5

Distributions

(39.6)

(0.6)

(40.2)

40.2

-

Investment in equity and loans

209.9

 

-

 

209.9

(209.9)

-

Realisations from investment portfolio

(289.0)

-

(289.0)

289.0

-

Proceeds received on acquisition of Manchester Waste VL Co by GMWDA

(23.5)

-

(23.5)

23.5

-

Fair value movement

159.8

0.9

160.7

5.6

166.3

Net cash transferred from investments at FVTPL

-

-

-

(77.4)

(77.4)

Closing balance

1,183.5

10.3

1,193.8

152.6

1,346.4

 

 



31 December 2016


Investments in project

companies

£ million

Listed

investment

£ million

Portfolio valuation sub-total

£ million

Other assets

and liabilities

£ million

Total

£ million

Opening balance

825.3

16.1

841.4

123.9

965.3

Distributions

(33.9)

(0.9)

(34.8)

34.8

-

Investment in equity and loans

301.5

-

301.5

(301.5)

-

Realisations from investment portfolio

(140.2)

(6.4)

(146.6)

146.6

-

Fair value movement

213.2

1.2

214.4

4.4

218.8

Net cash transferred to investments at FVTPL

-

-

 

-

73.4

73.4

Closing balance

1,165.9

10.0

1,175.9

81.6

1,257.5

 

Included within other assets and liabilities at 31 December 2017 above is cash collateral of £133.1 million (31 December 2016 - £23.7 million) in respect of future investment commitments to the I-66 Managed Lanes and I-77 Managed Lanes projects (31 December 2016 - IEP (Phase 1), I-77 Managed Lanes and New Perth Stadium).

 

The investment disposals that have occurred in the years ended 31 December 2017 and 2016 are as follows:

 

Year ended 31 December 2017

During the year ended 31 December 2017, the Group disposed of shares and subordinated debt in eight PPP and renewable energy project companies for £289.0 million (including £1.9 million deferred to 2018). In addition, the Group's shareholding in Viridor Laing (Greater Manchester) Limited was acquired by the Greater Manchester Waste Development Authority (GMWDA) for £23.5 million.

 

Details were as follows:


Date of

completion

 

Original

holding

%

Holding

disposed of

%

Retained

holding

%

Acquired by John Laing Environmental Assets Group Limited (JLEN)





Llynfi Afan Renewable Energy Park (Holdings) Limited

12 December 2017

100.0

100.0

-

 

 

 

 

 

Acquired by John Laing Infrastructure Fund Limited (JLIF)

 

 

 

 

Aylesbury Vale Parkway Limited

20 October 2017

50.0

50.0

-

City Greenwich Lewisham Rail Link plc

20 October 2017

5.0

5.0

-

Croydon & Lewisham Lighting Services (Holdings) Limited

1 June 2017

50.0

50.0

-

John Laing Rail Infrastructure Limited

20 October 2017

100.0

100.0

-

Rail Investments (Great Western) Limited*

26 October 2017

80.0

30.0

50.0


 

 

 

 

Acquired by GMWDA

 

 

 

 

Viridor Laing (Greater Manchester) Limited

28 September 2017

50.0

50.0

-

 

 

 

 

 

Sold to other parties

 

 

 

 

Gdansk Transport Co. SA

2 March 2017

29.69

29.69

-

MAK Mecsek Autopálya Koncessziós Zrt.

29 March 2017

30.0

30.0

-

 

 

 

 

 

* This entity held a 30% interest in IEP (Phase 1) as at 31 December 2017, resulting in a 15% indirect interest in IEP (Phase 1) by the Company.

 

Year ended 31 December 2016

During the year ended 31 December 2016, the Group disposed of shares and subordinated debt in six PPP and renewable energy project companies as well as part of its shareholding in JLEN. Total proceeds from all disposals were £146.6 million. In addition, the Group sold its interest in UK Highways Limited for £0.3 million as part of its disposal of the UK activities of PMS.

 

Details were as follows:


Date of

completion

 

Original

holding

%

Holding

disposed of

%

Retained

holding

%

Acquired by John Laing Environmental Assets Group Limited (JLEN)

 

 

 

 

Dreachmhor Wind Farm (Holdings) Limited

29 June 2016

100.0

100.0

-

New Albion Wind (Holdings) Limited

21 July 2016

100.0

100.0

-

 

 

 

 

 

Acquired by John Laing Infrastructure Fund Limited (JLIF)

 

 

 

 

Inspiral Oldham Holdings Company Limited

27 May 2016

95.0

95.0

-

Rail Investments (Great Western) Limited*

29 December 2016

100.0

20.0

80.0

Services Support (BTP) Holdings Limited

29 February 2016

54.2

54.2

-

UK Highways (A55) Holdings Limited

22 December 2016

100.0

100.0

-

 

 

 

 

 

Sold to other parties

 

 

 

 

John Laing Environmental Assets Group Limited

2 November 2016

5.5

2.2

3.3

UK Highways Limited

30 November 2016

100.0

100.0

-

 

 

 

 

 

* This entity held a 30% interest in IEP (Phase 1) as at 31 December 2016, which resulted in a 24% indirect interest in IEP (Phase 1) by the Company.

 

 

13   Trade and other receivables

 



31 December 2017

£ million

31 December 2016

£ million

Current assets

 

 

 

  Trade receivables

 

6.2

6.3

    Other taxation

 

0.1

-

  Other receivables

 

0.3

0.6

  Prepayments and accrued income

 

1.0

0.5

 

 

7.6

7.4

 

In the opinion of the Directors the fair value of trade and other receivables is equal to their carrying value.

 

The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:

 



31 December 2017

£ million

31 December 2016

£ million

Sterling

 

6.9

5.9

Other currencies

 

0.7

1.5

 

 

7.6

7.4

 

Other currencies mainly comprise trade and other receivables in Canadian dollars (31 December 2016 - Euros).

 

Included in the Group's trade receivables are debtors with a carrying value of £0.1 million which were overdue at 31 December 2017 (31 December 2016 - £0.4 million). The overdue balances have an ageing of up to 120 days (31 December 2016 - up to 120 days). The Group has not provided for these debtors as they are considered fully recoverable. The Group does not hold any collateral against these balances.

 

Included in the Group's trade receivables are debtors with a carrying value of £nil which were impaired at 31 December 2017 (31 December 2016 - £nil).

 

14   Trade and other payables

 



31 December 2017

£ million

31 December 2016

£ million

Current liabilities

 

 

 

  Trade payables

 

(1.5)

(1.9)

  Other taxation and social security

 

(0.7)

(1.6)

  Accruals

 

(15.0)

(11.1)

  Deferred income

 

(0.1)

(0.1)

 

 

(17.3)

(14.7)

 

 

15   Borrowings

 



31 December 2017

£ million

31 December 2016

£ million

Current liabilities

 

 

 

Interest-bearing loans and borrowings net of unamortised financing costs (note 16 c and note 17)

 

(173.2)

(161.4)

 

 

(173.2)

(161.4)

 

16   Financial instruments

a)      Financial instruments by category

 

31 December 2017

Cash and cash equivalents

£ million

Loans and

receivables

£ million

Assets at

FVTPL

£ million

Financial

liabilities at

amortised

cost

£ million

Total

£ million

Fair value measurement method

n/a

n/a

Level 1 / 3*

n/a

 

Non-current assets

 

 

 

 

 

Investments at FVTPL*

-

-

1,346.4

-

1,346.4

Current assets

 

 

 

 

 

Trade and other receivables

-

6.9

-

-

6.9

Cash and cash equivalents

2.5

-

-

-

2.5

Total financial assets

2.5

6.9

1,346.4

-

1,355.8

Current liabilities

 

 

 

 

 

Interest-bearing loans and borrowings

-

-

-

 

(173.2)

 

(173.2)

Trade and other payables

-

-

-

(16.5)

(16.5)

Total financial liabilities

-

-

-

(189.7)

(189.7)

Net financial instruments

2.5

6.9

1,346.4

(189.7)

1,166.1

 

 

31 December 2016

Cash and cash equivalents

£ million

Loans and

receivables

£ million

Assets at

FVTPL

£ million

Financial

liabilities at

amortised

cost

£ million

Total

£ million

Fair value measurement method

n/a

n/a

Level 1 / 3*

n/a

 

Non-current assets

 

 

 

 

 

Investments at FVTPL*

-

-

1,257.5

-

1,257.5

Current assets

 

 

 

 

 

Trade and other receivables

-

7.0

-

-

7.0

Cash and cash equivalents

1.6

-

-

-

1.6

Total financial assets

1.6

7.0

1,257.5

-

1,266.1

Current liabilities

 

 

 

 

 

Interest-bearing loans and borrowings

-

-

-

(161.4)

(161.4)

Trade and other payables

-

-

-

(13.0)

(13.0)

Total financial liabilities

-

-

-

(174.4)

(174.4)

Net financial instruments

1.6

7.0

1,257.5

(174.4)

1,091.7

 

* Investments at FVTPL are split between: Level 1, JLEN, which is a listed investment fair valued at £10.3 million (31 December 2016 - £10.0 million) using a quoted market price; and Level 3 investments in project companies fair valued at £1,183.5 million (31 December 2016 - £1,165.9 million). Level 1 and Level 3 investments are fair valued in accordance with the policy and assumptions set out in note 2 f). The investments at FVTPL include other assets and liabilities as shown in note 12. Such other assets and liabilities are recorded at amortised cost which the Directors believe approximates to their fair value.

 

The tables in section a) provide an analysis of financial instruments that are measured subsequent to their initial recognition at fair value.

 

•    Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

•    Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

•    Level 3 fair value measurements are those derived from valuation techniques that include inputs to the asset or liability that are not based on observable market data (unobservable inputs).

There were no transfers between Levels 1 and 2 during either year. There were no transfers out of Level 3.

Reconciliation of Level 3 fair value measurement of financial assets and liabilities

 

An analysis of the movement between opening and closing balances of assets at FVTPL is given in note 12. Level 3 financial assets are those relating to investments in project companies. The carrying amounts of financial assets and financial liabilities in these financial statements reflect their fair values.

 

b)      Foreign currency and interest rate profile of financial assets (excluding investments at FVTPL)

 


31 December 2017

31 December 2016

Currency

Floating rate

£ million

Non-interest

bearing

£ million

Total

Non-interest

bearing

£ million

Sterling

0.5

6.5

7.0

5.9

Euro

-

0.2

0.2

1.5

Canadian dollar

-

0.4

0.4

0.4

US dollar

-

0.3

0.3

0.4

New Zealand dollar

-

0.7

0.7

-

Australian dollar

-

0.8

0.8

0.4

Total

0.5

8.9

9.4

8.6

 

c)      Foreign currency and interest rate profile of financial liabilities

The Group's financial liabilities at 31 December 2017 were £189.7 million (31 December 2016 - £174.4 million), of which £173.2 million (31 December 2016 - £161.4 million) related to short-term cash borrowings of £176.0 million (31 December 2016 - £165.0 million) net of unamortised finance costs of £2.8 million (31 December 2016 - £3.6 million).

 


31 December 2017

31 December 2016

Currency

Fixed

rate

£ million

Non-interest

bearing

£ million

Total

£ million

Fixed

rate

£ million

Non-interest

bearing

£ million

Total

£ million

 

Sterling

(173.2)

(12.0)

(185.2)

(161.4)

(9.8)

(171.2)

 

Euro

-

(1.0)

(1.0)

-

(0.5)

(0.5)

 

US dollar

-

(1.2)

(1.2)

-

(0.9)

(0.9)

 

Australian dollar

-

(1.9)

(1.9)

-

(1.4)

(1.4)

 

Other

-

(0.4)

(0.4)

-

(0.4)

(0.4)

 

Total

(173.2)

(16.5)

(189.7)

(161.4)

(13.0)

(174.4)

 

 

17   Financial risk management

The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange rate risk, interest rate risk and inflation risk), credit risk, price risk (including power price risk which impacts the fair value of the Group's investments in renewable energy projects), liquidity risk and capital risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

 

For the parent company and its recourse subsidiaries, financial risks are managed by a central treasury operation which operates within Board approved policies. The various types of financial risk are managed as follows:

 

Market risk - foreign currency exchange rate risk

As at 31 December 2017 the Group held investments in 31 overseas projects (31 December 2016 - 26 overseas projects) all of which are fair valued based on the spot rate at 31 December 2017 (31 December 2016 - spot rate at 31 December 2016). The Group's foreign currency exchange rate risk policy is to determine the total Group exposure to individual currencies; it may then enter into hedges against certain individual investments. The Group's exposure to exchange rate risk on its investments is disclosed below.

 

In addition, the Group's policy on managing foreign currency exchange rate risk is to cover significant transactional exposures arising from receipts and payments in foreign currencies, where appropriate and cost effective. There were eight forward currency contracts open as at 31 December 2017 (31 December 2016 - 21). The fair value of these contracts was a net asset of £1.3 million (31 December 2016 - net asset of £3.5 million) and is included in investments at FVTPL.

 

At 31 December 2017, the Group's most significant currency exposure was to the US dollar

(31 December 2016 - Euro).

 

Foreign currency exposure of investments at FVTPL:

 


31 December 2017

31 December 2016


Project

companies

£ million

Listed

investment

£ million

Other assets

and liabilities

£ million

Total

£ million

Project

companies

£ million

Listed

investment

£ million

Other assets

and liabilities

£ million

Total

£ million

Sterling

405.0

10.3

2.1

417.4

500.4

10.0

41.5

551.9

Euro

204.1

-

5.8

209.9

341.2

-

10.5

351.7

Australian dollar

269.4

-

2.7

272.1

181.4

-

5.5

186.9

US dollar

283.2

-

142.0

425.2

121.0

-

23.7

144.7

New Zealand dollar

21.8

-

-

21.8

21.9

-

0.4

22.3

 

1,183.5

10.3

152.6

1,346.4

1,165.9

10.0

81.6

1,257.5

 

Investments in project companies are fair valued based on the spot rate at the balance sheet date. As at 31 December 2017, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.£38 million. The Group's profit before tax would be impacted by the same amounts. There would be no additional impact on equity.

 

Market risk - interest rate risk

The Group's interest rate risk arises due to fluctuations in interest rates which impact on the value of returns from floating rate deposits and expose the Group to variability in interest payment cash flows on variable rate borrowings. The Group has assessed its exposure to interest rate risk and considers that this exposure is low as its variable rate borrowings tend to be short term, its finance costs in relation to letters of credit issued under the corporate banking facilities are at a fixed rate and the interest earned on its cash and cash equivalents minimal.

 

The exposure of the Group's financial assets to interest rate risk is as follows:

 


31 December 2017

31 December 2016


Interest-bearing

floating rate

£ million

Non-interest

bearing

£ million

Total

£ million

Interest- bearing

floating rate

£ million

Non-interest

bearing

£ million

Total

£ million

Financial assets

 

 

 

 

 

 

Investments at FVTPL

-

1,346.4

1,346.4

-

1,257.5

1,257.5

Trade and other receivables

-

6.9

6.9

-

7.0

7.0

Cash and cash equivalents

0.5

2.0

2.5

-

1.6

1.6

Financial assets exposed to interest rate risk

0.5

1,355.3

1,355.8

-

1,266.1

1,266.1

 

An analysis of the movement between opening and closing balances of investments at FVTPL is given in note 12. Investments in project companies are principally valued on a discounted cash flow basis. At 31 December 2017, the weighted average discount rate was 8.8% (31 December 2016 - 8.9%). For investments in project companies, changing the discount rate used to value the underlying instruments would alter their fair value. As at 31 December 2017 a 0.25% increase in the discount rate would reduce the fair value by £40.7 million (31 December 2016 - £32.1 million) and a 0.25% reduction in the discount rate would increase the fair value by £42.6 million (31 December 2016 - £33.6 million). The Group's profit before tax would be impacted by the same amounts. There would be no additional impact on equity.

 

The exposure of the Group's financial liabilities to interest rate risk is as follows:

 


31 December 2017


31 December 2016


Interest -bearing
fixed rate

Non-interest bearing

Total


Interest -bearing
fixed rate

Non-interest bearing

Total


£ million

£ million

£ million


£ million

£ million

£ million

Interest-bearing loans and borrowings

(173.2)

(173.2)               


(161.4)  

         - 

(161.4) 

Trade and other payables

-

(16.5)

(16.5)


(13.0)  

(13.0)  

Total financial liabilities

(173.2)

(16.5)

(189.7)


(161.4)

(13.0)

(174.4)

 

 

Market risk - inflation risk

The Group has limited direct exposure to inflation risk, but the fair value of investments is determined by future project revenue and costs which can be partly linked to inflation. Sensitivity to inflation can be mitigated by the project company entering into inflation swaps. Where PPP investments are positively correlated to inflation, an increase in inflation expectations will tend to increase the value of PPP investments. However, all other things being equal, an increase in inflation expectations would also tend to increase JLPF's pension liabilities.

 

Based on a sample of six of the larger PPP investments by value at 31 December 2017, a 0.25% increase in inflation is estimated to increase the value of PPP investments by c.£15 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investment by c.£14 million. Certain of the underlying project companies incorporate some inflation hedging.

 

Credit risk

Credit risk is managed on a Group basis and arises from a combination of the value and term to settlement of balances due and payable by counterparties for both financial and trade transactions.

 

In order to minimise credit risk, cash investments and derivative transactions are limited to financial institutions of a suitable credit quality and counterparties are carefully screened. The Group's cash balances are invested in line with a policy approved by the Board, capped with regard to counter-party credit ratings.

 

A significant number of the project companies in which the Group invests receive revenue from government departments, public sector or local authority clients and/or directly from the public. As a result, these projects tend not to be exposed to significant credit risk.

 

Price risk

The Group's investments in PPP assets have limited direct exposure to price risk. The fair value of many such project companies is dependent on the receipt of fixed fee income from government departments, public sector or local authority clients. As a result, these projects tend not to be exposed to price risk.

 

The Group also holds investments in renewable energy projects whose fair value may vary with forecast energy prices to the extent they are not economically hedged through short to medium-term fixed price purchase agreements with electricity suppliers, or do not benefit from governmental support mechanisms at fixed prices. At 31 December 2017, based on a sample of seven of the larger renewable energy investments by value, a 5% increase in power price forecasts is estimated to increase the value of renewable energy investments by £15 million and a 5% decrease in power price forecasts is estimated to decrease the value of renewable energy investments by £14 million. The Group's profit before tax would be impacted by the same amounts. There would be no additional impact on equity.

 

The Group's investment in JLEN is valued at its closing market share price at 31 December 2017.

 

Liquidity risk

The Group adopts a prudent approach to liquidity management by maintaining sufficient cash and available committed facilities to meet its current and upcoming obligations.

 

The Group's liquidity management policy involves projecting cash flows in major currencies and assessing the level of liquid assets necessary to meet these.

Maturity of financial assets

The maturity profile of the Group's financial assets (excluding investments at FVTPL) is as follows:

 


31 December

2017

Less than

one year

£ million

31 December

2016

Less than

one year

£ million

Trade and other receivables

6.9

7.0

Cash and cash equivalents

2.5

1.6

Financial assets (excluding investments at FVTPL)

9.4

8.6

 

Other than certain trade and other receivables, as detailed in note 13, none of the financial assets is either overdue or impaired.

 

The maturity profile of the Group's financial liabilities is as follows:

 


31 December

2017

£ million

31 December

2016

£ million

In one year or less, or on demand

(189.7)

(174.4)

Total

(189.7)

(174.4)

 

The following table details the remaining contractual maturity of the Group's financial liabilities. The table reflects undiscounted cash flows relating to financial liabilities based on the earliest date on which the Group is required to pay. The table includes both interest and principal cash flows:

 

 

Weighted average

effective interest rate

%

In one year

or less

£ million

Total

£ million

31 December 2017

 

 

 

Fixed interest rate instruments - loans and borrowings

3.00

(173.2)

(173.2)

Non-interest bearing instruments*

n/a

(16.5)

(16.5)

 

 

(189.7)

(189.7)

 

 

 

 

31 December 2016

 

 

 

Fixed interest rate instruments - loans and borrowings

2.75

(161.4)

(161.4)

Non-interest bearing instruments*

n/a

(13.0)

(13.0)

 

 

(174.4)

(174.4)

 

* Non-interest bearing instruments relate to trade payables and accruals.

 

Capital risk

The Group seeks to adopt efficient financing structures that enable it to manage capital effectively and achieve the Group's objectives without putting shareholder value at undue risk. The Group's capital structure comprises its equity (as set out in the Group Statement of Changes in Equity) and its net borrowings. The Group monitors internally net debt and a reconciliation of net debt can be found in note 24.

 

At 31 December 2017, the Group had committed corporate banking facilities of £475 million, expiring in March 2020, together with additional liquidity facilities of £50 million. The liquidity facilities originally expiring in March 2018, were extended in early 2018 until February 2019.

 

Issued at 31 December 2017 were letters of credit of £202.3 million (31 December 2016 - £162.6 million), related to future capital and loan commitments, and contingent commitments and performance and bid bonds of £7.5 million (31 December 2016 - £6.5 million).

 

The Group has requirements for both borrowings and letters of credit, which at 31 December 2017 were met by its £525.0 million committed facilities and related ancillary facilities (31 December 2016 - £450.0 million). The committed facilities are summarised below:

 


31 December 2017


Total facilities

£ million

Loans drawn

£ million

Letters of credit

in issue/other

commitments

£ million

Total

undrawn

£ million

Committed corporate banking facilities

475.0

(176.0)

(159.8)

139.2

Surety facilities backed by committed liquidity facilities

50.0

-

(50.0)

-

Total

525.0

(176.0)

(209.8)

139.2

 


31 December 2016


Total facilities

£ million

Loans drawn

£ million

Letters of credit

in issue/other

commitments

£ million

Total

undrawn

£ million

Committed corporate banking facilities

400.0

(165.0)

(119.1)

115.9

Surety facilities backed by committed liquidity facilities

50.0

-

(50.0)

-

Total

450.0

(165.0)

(169.1)

115.9

 

18   Deferred tax

The movements in the deferred tax asset relating to other deductible temporary differences were:

 

 



31 December 2017

 31 December 2016



£ million

£ million

Opening asset


1.0

 1.4

Charge to income - prior year

 

(0.5)

              (0.2)

Charge to income - current year

 

-

              (0.2)

Closing asset


0.5

 1.0

 

The Group has no tax losses within its entities which are consolidated but there are tax losses in investment entity subsidiaries which are held at FVTPL.

 

19   Retirement benefit obligations


31 December

2017

£ million

31 December

2016

£ million

Pension schemes

(32.3)

(61.3)

Post-retirement medical benefits

(8.0)

(8.0)

Retirement benefit obligations

(40.3)

(69.3)

a)      Pension schemes

The Group operates two defined benefit pension schemes in the UK (the Schemes) - The John Laing Pension Fund (JLPF) which commenced on 31 May 1957 and The John Laing Pension Plan (the Plan) which commenced on 6 April 1975. JLPF was closed to future accrual from 1 April 2011 and the Plan was closed to future accrual from September 2003. Neither Scheme has any active members, only deferred members and pensioners. The assets of both Schemes are held in separate trustee-administered funds.

 

UK staff employed since 1 January 2002, who are entitled to retirement benefits, can choose to be members of a defined contribution stakeholder scheme sponsored by the Group in conjunction with Legal and General Assurance Society Limited. Local defined contribution arrangements are available to overseas staff.

 

JLPF

An actuarial valuation of JLPF was carried out as at 31 March 2016 by a qualified independent actuary, Willis Towers Watson. At that date, JLPF was 85% funded on the technical provision funding basis. This valuation took into account the Continuous Mortality Investigation Bureau (CMI Bureau) projections of mortality.

The Group agreed to repay the actuarial deficit of £171.0 million at 31 March 2016 over seven years as follows:

By 31 March

£ million

2017

24.5

2018

26.5

2019

29.1

2020

24.9

2021

25.7

2022

26.4

2023

24.6

 

The next triennial actuarial valuation of JLPF is due as at 31 March 2019.

 

During the year ended 31 December 2017, John Laing made deficit reduction contributions of £24.5 million (2016 - £18.1 million) in cash. At 31 December 2017, JLPF's assets included PPP investments valued at £nil (31 December 2016 - £37.8 million).

 

The liability at 31 December 2017 allows for indexation of deferred pensions and post 5 April 1988 GMP pension increases based on the Consumer Price Index (CPI).

 

The Plan

No contributions were made to the Plan in the year ended 31 December 2017 (2016 - none). At its last actuarial valuation as at 31 March 2017, the Plan had assets of £13.1 million and liabilities of £12.0 million resulting in an actuarial surplus of £1.1 million. The next triennial actuarial valuation of the Plan is due as at 31 March 2020.

 

An analysis of the members of both Schemes is shown below:

 

31 December 2017

Deferred

Pensioners

Total

JLPF

4,126

3,960

8,086

The Plan

106

334

440

 

31 December 2016

Deferred

Pensioners

Total

JLPF

4,385

3,883

8,268

The Plan

109

328

437

 

The financial assumptions used in the valuation of JLPF and the Plan under IAS 19 at 31 December were:

 


31 December

2017

%

31 December

2016

%

Discount rate

2.50

2.80

Rate of increase in non-GMP pensions in payment

3.00

3.10

Rate of increase in non-GMP pensions in deferment

2.00

2.10

Inflation - RPI

3.10

3.20

Inflation - CPI

2.00

2.10

 

The amount of the JLPF deficit is highly dependent upon the assumptions above and may vary significantly from period to period. The impact of possible future changes to some of the assumptions is shown below, without taking into account any inter-relationship between the assumptions. In practice, there would be inter-relationships between the assumptions. The analysis has been prepared in conjunction with the Group's actuarial adviser. The Group considers that the changes below are reasonably possible based on recent experience.

 


(Increase)/decrease

in pension liabilities at

31 December 2017


Increase in

assumption

£ million

Decrease in

assumption

£ million

0.25% on discount rate

45.6

(48.5)

0.25% on inflation rate

(34.2)

33.3

1 year post-retirement longevity

(50.5)

48.3

 

Mortality

Mortality assumptions at 31 December 2017 were based on the following tables published by the CMI Bureau:

 

•    SAPS S2 normal (S2NA) year of birth tables for staff members with mortality improvements in line with CMI 2016 core projections with a long-term improvement rate of 1.25% per annum and a smoothing parameter of 7.5; and

•    SAPS S2 light (S2NA_L) year of birth tables for executive members with mortality improvements in line with CMI 2016 core projections with a long-term improvement rate of 1.25% per annum and a smoothing parameter of 7.5.

 

Mortality assumptions at 31 December 2016 were based on the following tables published by the CMI Bureau:

 

•    SAPS S2 normal (S2NA) year of birth tables for staff members with mortality improvements in line with CMI 2015 core projections with a long-term trend rate of 1.25% per annum and

•    SAPS S2 light (S2NA_L) year of birth tables for executive members with mortality improvements in line with CMI 2016 core projections with a long-term trend rate of 1.25% per annum.

 

The table below summarises the life expectancy implied by the mortality assumptions used:

 


31 December

2017

Years

31 December

2016

Years

Life expectancy - of member reaching age 65 in 2017

 

 

  Males

22.3

22.4

  Females

24.2

24.5

Life expectancy - of member aged 65 in 2032

 

 

  Males

23.3

23.6

  Females

25.4

25.9

 

Analysis of the major categories of assets held by the Schemes

 


31 December 2017

31 December 2016


£ million

%

£ million

%

Bond and other debt instruments

 

 

 

 

UK corporate bonds

84.4

 

80.9

 

UK government gilts

192.4

 

141.6

 

UK government gilts - index linked

157.4

 

192.7

 

 

434.2

37.5

415.2

37.3

Equity instruments

 

 

 

 

UK listed equities

140.7

 

152.0

 

European listed equities

39.9

 

34.3

 

US listed equities

132.6

 

73.8

 

Other international listed equities

92.6

 

114.6

 

 

405.8

35.1

374.7

33.8

Aviva bulk annuity buy-in agreement

231.0

20.0

234.1

21.1

Property

 

 

 

 

Industrial property

2.1

 

1.8

 

 

2.1

0.2

1.8

0.2

Derivatives

 

 

 

 

Inflation swaps

-

 

(6.1)

 

 

-

-

(6.1)

(0.5)

Cash and equivalents

82.9

7.2

52.4

4.7

UK PPP investments

-

-

37.8

3.4

Total market value of assets

1,156.0

100.0

1,109.9

100.0

Present value of Schemes' liabilities

(1,188.3)

 

(1,171.2)

 

Net pension liability

(32.3)

 

(61.3)

 


Virtually all equity and debt instruments held by JLPF have quoted prices in active markets (Level 1). Derivatives can be classified as Level 2 instruments and property and UK PPP investments as Level 3 instruments. It is the policy of JLPF to use inflation swaps to hedge its exposure to inflation risk. The JLPF Trustee invests in return seeking assets, such as equity and property, whilst balancing the risks of inflation and interest rate movements through the annuity buy-in agreement, inflation swaps and interest rate hedging.

 

In late 2008, the JLPF Trustee entered into a bulk annuity buy-in agreement with Aviva to mitigate JLPF's exposure to changes in liabilities. At 31 December 2017, the underlying insurance policy was valued at £231.0 million (31 December 2016 - £234.1 million), being substantially equal to the IAS 19 valuation of the related liabilities.

 

The pension liability of £32.3 million at 31 December 2017 (31 December 2016 - £61.3 million) is net of a surplus under IAS 19 of £2.9 million in the Plan (31 December 2016 - £2.9 million).

 

Analysis of amounts charged to operating profit

 


Year ended

31 December

2017

£ million

Year ended

31 December

2016

£ million

Current service cost*

(1.3)

(1.6)

 

* The Schemes no longer have any active members. Therefore, under the projected unit method of valuation the current service cost for JLPF will increase as a percentage of pensionable payroll as members approach retirement. The current service cost has been included within administrative expenses.

 

Analysis of amounts charged to finance costs


Year ended

31 December

2017

£ million

Year ended

31 December

2016

£ million

Interest on Schemes' assets

30.8

35.3

Interest on Schemes' liabilities

(31.9)

(36.3)

Net charge to finance costs

(1.1)

(1.0)

 

Analysis of amounts recognised in Group Statement of Comprehensive Income


 Year ended
31 December

 Year ended
31 December


2017

2016


£ million

£ million

Return on Schemes' assets (excluding amounts included in interest on Schemes' assets above)

55.9

151.5

Experience loss arising on Schemes' liabilities

(5.1)

(5.7)

Changes in financial assumptions underlying the present value of Schemes' liabilities

(61.1)

(185.6)

Changes in demographic assumptions underlying the present value of Schemes' liabilities

17.0

(1.1)

Recognition of surplus in the Plan

-

2.7

Actuarial gain/(loss) recognised in Group Statement of Comprehensive Income

6.7

(38.2)

 

The cumulative gain recognised in the Group Statement of Changes in Equity is £6.7 million (31 December 2016 - £nil).

 

Changes in present value of defined benefit obligations


2017

2016


£ million

£ million

Opening defined benefit obligation

(1,171.2)

(992.9)

Current service cost

(1.3)

(1.6)

Interest cost

(31.9)

(36.3)

Experience loss arising on Schemes' liabilities

(5.1)

(5.7)

Changes in financial assumptions underlying the present value of Schemes' liabilities

(61.1)

(185.6)

Changes in demographic assumptions underlying the present value of Schemes' liabilities

17.0

(1.1)

Benefits paid (including administrative costs paid)

65.3

52.0

Closing defined benefit obligation

(1,188.3)

  (1,171.2)

 

The weighted average life of JLPF liabilities at 31 December 2017 is 16.4 years (31 December 2016 - 16.8 years).

 

Changes in the fair value of Schemes' assets


31 December

31 December


2017

2016


£ million

£ million

Opening fair value of Schemes' assets

1,109.9

           956.7

Interest on Schemes' assets

30.8

35.3  

Return on Schemes' assets (excluding amounts included in interest on Schemes' assets above)

55.9

151.5

Contributions by employer

24.7

18.4

Benefits paid (including administrative costs paid)

(65.3)

(52.0)

Closing fair value of Schemes' assets

1,156.0

1,109.9

 

 

Analysis of the movement in the deficit during the year


 31 December

31 December


2017

2016


£ million

£ million

Opening deficit

(61.3)

            (38.9)

Current service cost

(1.3)

(1.6)

Finance cost

(1.1)

(1.0)

Contributions

24.7

18.4

Actuarial gain/(loss)

6.7

(38.2)

Pension deficit

(32.3)

(61.3)

 

 

History of the experience gains and losses


Year ended

31 December

2017

Year ended

31 December

2016

Difference between actual and expected returns on assets:

 

 

Amount (£ million)

55.9

151.5

% of Schemes' assets

4.8

13.6

Experience loss on Schemes' liabilities:

 

 

Amount (£ million)

(5.1)

(5.7)

% of present value of Schemes' liabilities

0.4

0.5

Total amount recognised in the Group Statement of Comprehensive Income (excluding deferred tax):

 

 

Amount (£ million)

6.7

(38.2)

% of present value of Schemes' liabilities

(0.6)

3.3

 

b) Post-retirement medical benefits

 

The Company provides post-retirement medical insurance benefits to 60 former employees. This scheme, which was closed to new members in 1991, is unfunded.

 

The present value of the future liabilities under this arrangement has been assessed by the Company's actuarial adviser, Lane Clark & Peacock LLP, and has been included in the Group Balance Sheet under retirement benefit obligations as follows:

 


31 December

31 December


2017

2016


£ million

£ million

Post-retirement medical benefits liability - opening

(8.0)

        (7.3)

Other finance costs

(0.2)

(0.3)

Contributions

0.5

0.5

Experience loss*

(0.2)

(0.2)

Changes in financial assumptions underlying the present value of scheme's liabilities*

(0.2)

(0.9)

Changes in demographic assumptions underlying the present value of liabilities*

0.1

0.1

Curtailment and settlements

-

0.1

Post-retirement medical benefits liability - closing

(8.0)

        (8.0)

 

* These amounts are actuarial (losses)/gains that go through the Group Statement of Comprehensive Income.

 

The annual rate of increase in the per capita cost of medical benefits was assumed to be 5.1% in 2017 (2016 - 5.2%). It is expected to increase in 2018 and thereafter at RPI plus 2.0% per annum (2016 - at RPI plus 2.0% per annum).

 

Medical cost inflation has a significant effect on the liability reported. A 1% change in assumed medical cost inflation would result in the following liability at 31 December 2017:

 


1% increase

£ million

1% decrease

£ million

Post-retirement medical liability

(8.9)

(7.3)

 

Life expectancy also has a significant effect on the liability reported. A one-year increase or decrease in life expectancy would result in the following liability at 31 December 2017:

 


1 year increase

£ million

1 year decrease

£ million

Life expectancy

(8.7)

(7.4)

 

20   Provisions

 

Non-current provisions

At 1 January

2017

£ million

Reclassification

£ million

Credit to   Group

Income Statement

£ million

Utilised

£ million

At 31 December

2017

£ million

Retained liabilities

(1.5)

-

0.5

-

(1.0)

Total provisions

(1.5)

-

0.5

-

(1.0)

 

 


At 1 January

2016

£ million

Reclassification

£ million

Credit/(charge) to Group

Income Statement

£ million

Utilised

£ million

At 31 December

2016

£ million

Retained liabilities

(4.2)

-

(0.7)

3.4

(1.5)

Employee related liabilities

(0.1)

-

0.1

-

-

Total provisions

(4.3)

-

(0.6)

3.4

(1.5)

Classified as:

 

 

 

 

 

Continuing operations

(0.1)

(4.2)

(0.6)

3.4

(1.5)

Discontinued operations

(4.2)

4.2

-

-

-

Provisions on continuing operations are analysed as:

 

 

 

 

 

Non-current provisions

(0.1)

 

 

 

(1.5)

 

(0.1)

 

 

 

(1.5)

 

In 2016, provisions relating to retained liabilities were reclassified from discontinued operations to continuing operations as they were no longer sufficiently material to show separately as discontinued operations.

 

Provisions of £1.0 million as at 31 December 2017 (31 December 2016 - £1.5 million) relate to retained liabilities from the sale of the Laing Construction business in 2001. 

21   Share capital

 



31 December

2017

No.

31 December

2016

No.

Authorised:

 

 

 

Ordinary shares of £0.10 each

 

366,960,134

366,923,076

Total

 

366,960,134

366,923,076

 


31 December 2017

31 December 2016


No.

£ million

No.

£ million

Allotted, called up and fully paid:

 

 

 

 

At 1 January

366,923,076

36.7

366,923,076

36.7

Issue of 37,058 ordinary shares of £0.10 each

37,058

-

-

-

At 31 December

366,960,134

36.7

366,923,076

36.7

 

37,058 shares were issued in the year ended 31 December 2017 (2016 - nil) in relation to share awards vesting under the Group's Deferred Share Bonus Plan (see note 6 for further details).

 

The Company has one class of ordinary shares which carry no right to fixed income.

22   Share premium

 


31 December 2017

31 December 2016


£ million

 £ million

Opening balance

         218.0

         218.0

Closing balance

218.0

218.0

 

23   Net cash outflow from operating activities

 


 Year ended
31 December

 Year ended
31 December


2017

2016


£ million

£ million

Profit before tax

            126.0

          192.1  




Adjustments for:



Finance costs

11.8

              10.3

Unrealised profit arising on changes in fair value of investments (note 12)

(166.3)

            (218.8) 

Depreciation of plant and equipment

0.3

                0.6 

Amortisation of intangible assets

                   -

                0.2 

Share-based incentives

3.2

2.0

IAS 19 service cost

1.3

1.6

Contribution to JLPF

(24.7)

            (18.4) 

Decrease in provisions

(0.5)

              (2.8)

Operating cash outflow before movements in working capital

(48.9)

   (33.2) 

Decrease in trade and other receivables

0.6

            1.2 

Increase/(decrease) in trade and other payables

1.0

             (5.1)

Net cash outflow from operating activities

(47.3)

           (37.1) 

 

24   Reconciliation of net debt

 


At 1

January 2017

Cash movements

Non-cash movements

At 31 December 2017


£ million

£ million

£ million

£ million

Cash and cash equivalents

1.6

0.9

-

2.5

Borrowings

(161.4)

(11.0)

(0.8)

(173.2)

Net debt

(159.8)

(10.1)

(0.8)

(170.7)

 


At 1

January 2016

Cash movements

Non-cash movements

At 31 December 2016


£ million

£ million

£ million

£ million

Cash and cash equivalents

1.1

0.5

-

1.6

Borrowings

(14.9)

(146.0)

(0.5)

(161.4)

Net debt

(13.8)

(145.5)

(0.5)

(159.8)

 

25   Guarantees, contingent assets and liabilities and other commitments

 

At 31 December 2017, the Group had future equity and loan commitments in PPP and renewable energy projects of £335.4 million (31 December 2016 - £186.3 million) backed by letters of credit of £202.3 million (31 December 2016 - £162.6 million) and cash collateral of £133.1 million (31 December 2016 - £23.7 million). There were also contingent commitments, performance and bid bonds of £7.5 million (31 December 2016 - £6.5 million).

 

The Group has given guarantees to lenders