Regulatory Story
Go to market news section View chart   Print
RNS
John Laing Group plc   -  JLG   

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

Released 07:00 03-Mar-2020

RNS Number : 7728E
John Laing Group plc
03 March 2020
 

CONFIDENTIAL - EMBARGOED UNTIL 3 MARCH 2020

John Laing Group plc

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019

John Laing Group plc (John Laing or the Company or the Group) announces its audited results for the year ended 31 December 2019.

 

Highlights: Strong performance in asset management and project delivery mitigates H1 write downs and lower power prices

 

·    NAV per share 337p at 31 December 2019 (31 December 2018 - 323p)

Strong project delivery and value enhancements offsetting H1 renewable energy write downs and lower power prices

4.3% increase since 31 December 2018; 7.2% increase before dividends paid

10.7% increase since 31 December 2018 at constant currency and before dividends paid1

·   NAV of £1,658 million at 31 December 2019 (31 December 2018 - £1,586 million)

·    Portfolio value £1,768 million at 31 December 2019, an 8.7% increase (or 12.2% at constant FX) on rebased portfolio value2 at 31 December 2018

·    Profit before tax (PBT) £100 million (2018 - £296 million) and earnings per share (EPS) of 20p (2018 - 63p)3

PBT lower than 2018 due to renewable energy write downs in 2019 and exceptional gain on IEP Phase 1 in 2018

·    Dividend:

Final dividend 7.66p per share including special dividend 3.98p per share

Total 2019 dividend 9.5p (2018 - total dividend of 9.5p)

·    Investment commitments £184 million (2018 - £302 million)4

·    Realisations £143 million (2018 - £296 million)

·    Wind & solar investments:

Modest improvement to H1 write downs in second half of the year

Following second half review, all new investments in standalone wind and solar generation to cease

·    Record pipeline: £3.2 billion at 31 December 2019 (2018 - £2.4 billion)

Significant growth in existing sectors, including transportation, telecoms and data, and geographies, particularly Latin America

Additional opportunities in new sectors such as energy transition

 

 

Notes:  

(1)   10.7% increase calculated after adding back net FX loss of £55 million in 2019

(2)   Rebased portfolio value is described in the Portfolio Valuation section

(3)   Basic EPS; see note 6 to the Group financial statements

(4)   Based on new investment commitments secured in the year ended 31 December 2019; for further details see the Chief Executive Officer's Review section

 

 

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

'John Laing delivered a solid performance overall in 2019. We are pleased to report further value enhancements in the second half as expected, which, along with the significant progress made on our large PPP projects, have helped to mitigate the impact of the first half write downs in our renewable energy portfolio and the impact of falling power prices. This demonstrates the resilience of the John Laing business model. 

 

We re-assessed the risk/return profile of standalone wind and solar generation assets during the second half and have decided that we will make no further new investments in this area. In line with our business model, we are preparing our existing portfolio of wind and solar assets for sale in the short to medium term to take advantage of strong demand for operational renewable energy assets. We are instead focusing on the opportunities presented by the wider energy transition. 

 

As a new decade begins, the drivers for new infrastructure remain as strong as ever, with climate change and the increasing role of big data providing added impetus.  Our model is flexible, and 2019 has been an important year for John Laing in terms of making inroads into new sectors and markets. This is reflected in a pipeline that stands at a record level.  We enter 2020 confident in our ability to continue to generate value from our existing portfolio, to make the most of attractive secondary markets and to convert a growing and rapidly evolving pipeline, supported by substantial financial resources and partner relationships.'

 

 

A presentation for investors and analysts will be held at 9:00am (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: 35 45 10

 

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

 

https://www.investis-live.com/john-laing/5e38331652202e0d0035563c/trdf

 

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

 

 

Investor/analyst enquiries:

 

Olivier Brousse, Chief Executive Officer                                        +44 (0)20 7901 3200

Luciana Germinario, Chief Financial Officer                                   +44 (0)20 7901 3200

 

Media enquiries:

 

Matthew Denham / Camilla Cunningham, Teneo                           +44 (0)20 7420 3186

                                                                           

 

 

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

2019

Year

ended

or as at

31 December

2018

£ million (unless otherwise stated)

 

 

 

 

 

Net asset value (NAV)

1,658

1,586

NAV per share1

337p

323p

Profit before tax

100

296

Earnings per share (EPS)2

20p

63p

Dividends per share

9.50p

9.50p

 

 

 

Primary Investment portfolio

907

868

Secondary Investment portfolio

861

692

Total investment portfolio

1,768

1,560

Future investment commitments backed by letters of credit or cash collateral

219

296

Gross investment portfolio

1,987

1,856

New investment committed during the period3

184

302

Cash invested into projects

267

342

Proceeds from investment realisations

143

296

Cash yield from investments

57

34

Investment pipeline3

3,172

2,373

 

 

Notes:

(1)   Calculated as NAV at 31 December 2019 of £1,658 million divided by the number of shares in issue at 31 December 2019 of 491.8 million

(2)   Basic EPS; see note 6 to the Group financial statements

(3)   For further details, see the Chief Executive Officer's Review

Chairman's Statement

 

We delivered a solid performance in 2019, despite facing challenges principally in our renewable energy portfolio. This highlights the resilience of our business model and is testament to the strength of our regional structure, which was put in place two years ago to enable our regional teams to focus more effectively on value creation. This model has delivered tangible benefits in 2019, with strong project delivery and value enhancements across the business. In a global environment where the development of responsible and sustainable infrastructure is key to economic growth and success, John Laing remains ideally placed to leverage new market opportunities in all four of our geographic regions.

 

Our purpose is clear. It is to create value for all our stakeholders by investing in, developing and actively managing infrastructure which respond to public needs, foster sustainable growth and improve the lives of communities around the world. John Laing is clearly differentiated from other participants in the infrastructure sector, focusing solely on greenfield infrastructure investment and investing its own capital.

 

Following the write-down taken in the first half of the year, we announced that we would be reassessing our activities in wind and solar generation investment. Having completed the review, we have taken the decision to cease investing in standalone wind and solar generation projects across all our geographies. In our view, these asset classes have become commoditised and returns for John Laing are insufficient to cover the external risks. As with all of our projects, our wind and solar assets are available for sale once construction is complete and steady operational performance has been achieved. We anticipate that these divestments will take place over the next two years and believe the secondary market for these assets to be strong. 

 

Our business model is nimble and flexible, enabling us to respond to opportunities in new markets and geographies. This has helped to drive growth in our pipeline, which now stands at a record level despite the removal of standalone wind and solar generation investment .  Alongside new opportunities in existing areas, such as transportation, the pipeline also includes new asset classes and new markets that fit our business model, which is centred on delivering innovative solutions for complex infrastructure problems. These new areas include digital infrastructure but currently do not include those related to the broader energy transition, such as the de-carbonisation of transport.   

 

We also continued to expand our international footprint in 2019 and, following our investment in the Ruta del Cacao PPP road project in Colombia, we have established Latin America as our fourth region.  In the year, we committed capital in each of our four regions, with the majority in North America and Latin America. Looking ahead, we expect this to continue as both regions have strong pipelines. Following a period of political uncertainty in Australia, we are seeing a pick-up in activities, while Europe is expected to remain relatively subdued, in-line with underlying markets. 

 

Since our IPO in 2015, we have grown NAV per share (including dividends paid) by 14% compound per annum (adjusted for the Rights Issue).  Despite some challenging headwinds, the business delivered a solid financial performance in 2019:

·      NAV grew to £1,658 million or 337p per share at 31 December 2019, from 323p per share at 31 December 2018, an increase of 7.2% including dividends (10.7% at constant currency);

·      Investment commitments totalled £184 million, with a record pipeline of £3.2 billion supporting our three-year investment target of £1 billion; and.

·      Realisations of investments were £143 million, with a great deal of activity in 2019 to prepare assets for sale in 2020 and 2021, supporting our three-year realisations target of £1 billion.

 

Turning to the Board, Luciana Germinario became Chief Financial Officer in May 2019 following the retirement of Patrick O'D Bourke, Group Finance Director. Luciana has quickly established herself in the business and in particular has strengthened the Group's divestment process.

 

Toby Hiscock is retiring as Non-Executive Director and Chair of the Audit & Risk Committee following the Annual General Meeting (AGM) on 7 May 2020, having joined John Laing in 2009. The Company owes much to Toby's diligence, experience and commitment for which I am most grateful. Philip Keller was appointed to the Board of Directors and became a member of the Audit & Risk Committee with effect from 1 January 2020. He will succeed Toby as the Chair of this Committee following Toby's retirement. Philip is also a member of the Nomination and Remuneration Committees with effect from 1 January 2020.

 

I am delighted to welcome Philip to the Board of John Laing.  He brings considerable financial and operational experience, with a deep understanding of investment businesses and global organisations, which will further strengthen the diverse mix of skills and experience on the Board.

After the year end, we also announced that Olivier Brousse had resigned from his position of Chief Executive Officer. He will remain with the Company to ensure a smooth transition. The process is underway to recruit a new Chief Executive Officer and we will provide updates as appropriate in due course. On behalf of the Board, I would like to express our sincere thanks to Olivier for his valuable contribution over the past five years, delivering the successful IPO and evolving the Group's geographic footprint and the diversification of the portfolio. Olivier will leave behind a strong management team and a Group that is in good shape.

As well as our regular Board meeting schedule, we took time away from the business in June and in October 2019 to address its future strategy and direction. In these reviews, we confirmed our commitment to the existing business model and to creating further shareholder value from growth in NAV; and we tested the resilience of our existing portfolio against a backdrop of political and economic uncertainty. We also reviewed our ESG approach and in particular, our approach to responsible investment and plans to improve diversity and to reduce the gender pay gap within the organisation. The Board complied with all applicable provisions of the UK Corporate Governance Code 2018 (the "2018 Code"), which was published in July 2018 and applies for the first time this year.

 

On behalf of the Board, I would like to thank all employees for their dedication and commitment during a year of change. I would also like to extend the Board's thanks to all the Group's stakeholders for their continued support.

 

Our current dividend policy is unchanged and has two parts:

·      an annual base dividend of £20 million (starting from 2015) growing at least in line with inflation; the Board is recommending a final base dividend for 2019 of 3.68p per share; 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. Proceeds from sale of investments completed in the year were £143 million. We are also close to completing one further disposal and in advanced negotiations on another for aggregate proceeds of approximately £63 million. We also have other disposal processes underway for completion later in 2020. The Board is recommending a special dividend of 3.98p, by applying 9.5% to proceeds of £206 million, which includes the two disposals expected to complete soon.

 

The total final dividend for 2019 therefore amounts to 7.66p per share, which, together with the interim dividend of 1.84p per share paid in October 2019, makes a total dividend for 2019 of 9.5p per share, maintaining the 2018 level. The final dividend will be put to shareholders for their approval at the Company's AGM which will be held on 7 May 2020. At the Company's last AGM on 9 May 2019, all resolutions were approved by shareholders.

 

Despite the challenges we have faced this year, we have delivered a solid performance and I am confident that we are well positioned to benefit from the opportunities that lie ahead. 

 

Will Samuel

Chairman

Chief Executive Officer's Review

2019 was an important year for John Laing on a number of fronts:

·      Strong year for asset management and project delivery: translating into a high level of value enhancements, starting in the first half of the year and sustained into the second half, which helped to offset the H1 wind and solar write downs, and the impact of falling power prices. This resulted in NAV per share growth, before dividends paid in the year, of 7.2%. Excluding the net adverse foreign exchange impact in the year of £55 million, the growth was 10.7%. With almost £1 billion of assets under construction, we see significant embedded value in our existing portfolio. However, the high level of value enhancements in 2019 reflects the initial impact of the move in 2018 to a regional model and an increased focus on asset management in the year. We therefore expect a more normalised level of value enhancements in 2020, in the region of 3% to 5% of the opening portfolio value.

·      Wind and solar: with the issues we encountered in Australia and Europe in the first half contained and appropriately priced, we have carefully re-assessed the risk/return profile of the wind and solar generation sector. Having concluded that the returns no longer reflect the risks, we have decided to cease investment in standalone wind and solar generation assets across all geographies. John Laing has built an attractive portfolio of operational wind and solar assets which, in-line with our model, we will divest into strong secondary markets over the next 1-2 years. 

·      Refocusing to capitalise on a rapidly changing energy landscape: wind and solar generation are only one part of the renewable energy industry, which itself represents only a portion of a wider the energy transition market that is rapidly gaining momentum. We believe John Laing is well positioned to provide solutions to some of the complex infrastructure requirements that energy transition will involve, particularly decarbonisation. We also remain active in renewable energy more generally, including in waste to energy where we made our first investment in Australia during the year, leveraging experience gained in the UK.

·      Significant inroads into a new region: with higher complexity and higher returns, Latin America is a region with an attractive pipeline, and our successful entry into Colombia demonstrates that the PPP model continues to be embraced in many regions.

 

Outlook for our markets and sectors

We believe the biggest drivers for new infrastructure to be a combination of population growth, urbanisation, the increasing role of data in societies and economies and climate change. As we enter a new decade these drivers are as strong as they have ever been.

We set our purpose to create value for all our stakeholders by investing in, developing and managing infrastructure projects which respond to public needs, foster sustainable growth and improve the lives of communities around the world. We believe John Laing is well positioned with the right experience and expertise to help governments make the right decisions and to contribute to achievement of their goals.

We see three major sectors in which we believe John Laing has an important part to play that are key to meeting this purpose: energy transition, including de-carbonisation of transport, managed lanes and telecoms/broadband.

The global energy transition is gaining momentum and, as such, wind and solar generation will continue to play a key role as critical enablers of decarbonisation. John Laing was at the forefront of wind and solar investment through the 2010's, investing approximately £850 million in 38 projects across Europe and in Australia and the US. However, wind and solar generation are increasingly mature and commoditised sectors and today they offer limited value creation potential for an investor such as John Laing. We believe we can contribute more and create better value for our stakeholders by playing an active part in many of the other emerging infrastructure opportunities driven by the global energy transition. These include: i) technologies that enable high penetration of renewables; ii) decarbonisation of other sectors e.g. electrification of transport; iii) delivering increased energy efficiency. We are now actively reviewing opportunities across these themes.

As part of this effort, John Laing officially joined the Hydrogen Council, a global group of industry and financial players focused on fostering the contribution of hydrogen-based technologies and solutions to decarbonisation of energy usage. We were among the first investors to join the Council and will look to bring our experience of complex project design and project finance discipline to facilitate the transition to models that allow efficient deployment of capital at a large scale.

Population growth and ongoing urbanisation are continuing to make the largest cities around the word more and more congested, placing further strains on existing transportation systems. There is an urgent need for the redevelopment and decarbonisation of transport systems to ease congestion and at the same time improve air quality. John Laing has expertise in both investing in and managing transport systems that would meet these needs. We currently invest in light-rail projects in Australia and Canada and we have invested in both phases of the Intercity Express Programme in the UK, which has already delivered 104 electric or bi-mode trains. Our biggest investment to date is in the I-66 Managed Lanes project, the second managed lanes project that we have invested in alongside Cintra Ferrovial, which will help to ease congestion in urban areas expecting population growth and already experiencing high levels of traffic.

The increasing role of data in modern societies is driving the need for investment in communications infrastructure. Broadband fibre networks are seen as the essential digital backbone of economies. Governments globally are actively supporting the deployment of networks, either directly by procuring or subsidising projects in low-density areas, or indirectly by promoting network competition as in the UK. The Conservative Government has stated its aim to deliver high-speed fibre broadband to all communities in the UK. This will require different models for urban and low density rural areas and offer opportunities for the public and private sectors to work together in an efficient and focused manner. We are now actively engaged in this space in a number of countries.      

There is an on-going need for new infrastructure around the world. Many countries are failing to keep pace with the changes brought about by these trends, with the infrastructure market as a whole historically under-invested.             

There will always be pressures on public sector finances. This creates a strong incentive for the continued use of PPPs for greenfield infrastructure. As well as access to private capital, PPPs 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.

 

Objectives and outcomes

Consistent with our purpose, our strategy focuses on NAV per share growth and dividends as key measures for shareholders:

·      In 2019, our NAV per share, before dividends paid in the year, increased from 323p per share at 31 December 2018 to 337p per share at 31 December 2019, representing growth of 7.2%. Excluding the net adverse impact from foreign exchange movements of £55 million, the growth was 10.7%.

·      We are proposing total dividends of 9.50p per share for 2019, maintaining the 2018 level.

 

The two core objectives in delivering our strategy are:

·      Growth in volume of primary investments in responsible and sustainable greenfield infrastructure projects over the medium term; and

·      Management and enhancement of our investment portfolio, with a clear focus on active management during construction and operational phases, 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 volume of primary investments

 

We have a healthy pipeline of new investment opportunities.  This has benefited from the continued strong infrastructure market in the US and Canada, a resurgence of the PPP market in Australia and new infrastructure opportunities in Europe and Israel. We have built on the success of our first investment in Colombia, and our growing Latin American pipeline reflects buoyant markets as well as a maintained focus on disciplined investing.  We are also seeing a strong pipeline of exciting projects in new asset classes, which we believe are a good match with our business model and offer the potential for good investment returns. Many of these new opportunities have come from our ongoing work to foster strong relationships with our international partners who see John Laing as a trusted partner for delivering complex infrastructure projects. At the same time, our funding position means we are well positioned to make the most of these opportunities. We will continue to focus on investments in public private partnership (PPP) but our business model is nimble and flexible enough to enable us to respond to opportunities in other asset classes, providing a strong pipeline for future growth.

Our investment commitments for 2019 were £184m.  While this was relatively low compared to previous years, this growing pipeline and a strong capital base underpins our guidance of £1 billion over the three-year period 2019 to 2021, although given the nature of PPP procurement and its potential for delays, this could be lumpy and back-ended.

Our new investment commitments for 2019 are summarised in the table below:

 

Investment commitments

Region

 

Sector

Total

£ million

 

 

 

 

University of Brighton student accommodation

Europe and Middle East

Social infrastructure

7

Live Oak wind farm

North America

Wind and solar generation

75

Ruta del Cacao road

Latin America

Roads and other

62

Hurontario light rail

North America

Rail and rolling stock

13

East Rockingham Resource Recovery Facility

Asia Pacific

Waste and biomass

27

 

 

 

 

Total

 

 

184

 

We entered 2020 with a strong pipeline of £3,172 million of investment opportunities expected to complete predominantly over the next three years. Within this pipeline, we have one preferred bidder position, seven shortlisted positions and one exclusive position representing a total potential investment of approximately £443 million.

·      North America: we built strong momentum in the US through 2017 and 2018 and whilst this year was quieter for us, with some deals being delayed, we see a lot of opportunities for investment over the next few years including managed lanes deals. We have four shortlisted positions on PPP deals. In the US, public sector procurement for greenfield infrastructure, including PPP, takes place predominantly at state or city, rather than federal, level and we are seeing some form of PPP-enabling legislation across all states with major metropolitan areas.

·      Asia Pacific: we remain very active in the Australian PPP market. We are working on a number of PPP bids in 2020 including three shortlisted positions which should reach financial close in 2020 and 2021. The longer-term pipeline also looks promising, particularly in the transportation sector, driven by the significant growth predicted in the populations of both Melbourne and Sydney. We continue to explore new sectors, like waste to energy - completing the East Rockingham Resource Recovery Facility investment in 2019 - social housing and energy storage.  We are also seeing infrastructure opportunities emerge in new countries in the region, with Vietnam of particular interest where there are strong infrastructure fundamentals supported by a need for major investment in sectors such as transport and healthcare.

·      Europe and Middle East: the market for new infrastructure projects across Europe is relatively subdued but, despite this, we have a preferred bidder position on the Via15 PPP project in the Netherlands and we continue to look at opportunities across the region. Most notably, our team is looking at opportunities in Poland, where we have invested successfully in the past, and Israel, which has an active pipeline of transport and renewable energy projects and which would be a new country for us. As part of our assessment of Israeli opportunities, we have taken a decision not to invest in any projects located in disputed territory.

·      Latin America: our current pipeline in Latin America reflects the progress we have made in the region. We have long seen the attraction in investing in Colombia, a country that joined the OECD in 2018 and has a substantial PPP programme, particularly in the transportation sector. We secured our first investment in Colombia in 2019 and we now have a well-established team in our Bogota office.  We continue to see a large pipeline of opportunities here and in other countries in Latin America such as Peru and Chile, which we continue to explore with our network of existing partners.

.

 

 

At 31 December 2019

 

At 31 December 2018

 

Pipeline - estimated equity investment

£ million

Asia Pacific

Europe and Middle East

 

 

North America

 

 

Latin America

Total

Asia Pacific

Europe and Middle East

 

 

North America

 

 

Latin America

Total

Transport

361

336

826

531

2,054

149

315

563

175

1,202

Social infrastructure

260

21

53

---

334

157

7

29

---

193

Environmental

175

42

75

---

292

28

18

---

---

46

Utilities

85

38

53

84

260

---

---

60

---

60

Telecoms

---

195

37

---

232

---

20

39

---

59

Wind & solar generation

---

---

---

---

---

370

56

387

---

813

Total

881

632

1,044

615

3,172

704

416

1,078

175

2,373

 

 

The total pipeline is broken down below according to the bidding stage of each project.

 

Pipeline by bidding stage at 31 December 2019

Number of

projects

Asia Pacific

£ million

Europe and Middle East

£ million

 

 

North America

£ million

 

 

Latin America

£ million

Total

£ million

Preferred bidder

1

---

22

---

---

22

Shortlisted / exclusive

8

181

20

220

---

421

Other

65

700

590

824

615

2,729

Total

74

881

632

1,044

615

3,172

 

 

 

 

 

The preferred bidder position and the shortlisted positions are detailed in the table below:

 

 

Project

Financial close expected by

Region

Description

Redfern Communities Plus, Australia

Q1 2021

Asia Pacific

Social Housing Development in Sydney, Australia

North East Link

Q4 2020

Asia Pacific

Freeway in Melbourne, Australia

PPP project

 

Asia Pacific

 

Jefferson Parkway, Colorado

Q2 2021

North America

9.2 mile four-lane limited access toll highway in Denver, Colorado

Dartmouth Green Energy, New Hampshire

Q4 2020

North America

Utility system project for Dartmouth College

NYS Thruway Service Plazas

 

Q3 2020

North America

Redevelopment of multiple rest stops located along New York Thruway, New York

Sepulveda Transit Corridor

 

H1 2024

North America

13 mile transit link in Los Angeles, California

Via15, Netherlands1

Q3 2020

Europe and Middle East

12km greenfield road including a major bridge in the east of the Netherlands

 

 

 

 

1 Preferred bidder position

 

Management and enhancement of our investment portfolio

At 31 December 2019, our portfolio comprised investments in 48 infrastructure projects (31 December 2018 - 48 projects plus our shareholding in JLEN). Our year end portfolio value was £1,768 million (31 December 2018 - £1,560 million). The portfolio value increased by £267 million as a result of cash invested in projects, offset by proceeds from realisations of £143 million and cash yield received from project companies of £57 million. Fair value movements of £141 million - equivalent to 8.7% of the cash rebased portfolio value or 12.2% excluding foreign exchange losses - increased the portfolio value to £1,768 million at 31 December 2019.

As described earlier, we wrote down the value of our wind and solar projects during the first half of the year, principally as a result of market-driven and other external factors such as transmission issues in Australia, lower wind yield on our European wind assets and lower power price forecasts. Active asset management by our teams resulted in a significant level of value enhancements across all of our portfolio which, together with the embedded growth, more than offset these losses. 

The fair value movement is analysed further in the Portfolio Valuation section.

Elsewhere in the portfolio our teams were instrumental in the Sydney Light Rail project reaching agreement on a settlement in June 2019 following a prolonged period of disputes. Subsequently, first passenger service commenced on 14 December 2019 and full service for both stages is expected by Q1 2020.

We also played a leading role in the Denver Eagle P3 project reaching substantial completion for the final line in March 2019, leading to full revenue service being achieved in April 2019.

Both are examples of our active asset management, helping to resolve complex issues before delivering completed assets and creating value for our stakeholders. 

In 2019, we completed realisations totalling £143 million from the sale of two PPP and two renewable energy investments, as well as the sale of our remaining shares in JLEN Environmental Assets Group Limited ("JLEN" - previously John Laing Environmental Assets Group Limited). The disposal of our interest in Optus Stadium was our first sale of an operational asset in Australia and the disposal of the Rocksprings and Sterling wind farms in the US were our first sales in the US. Aggregate prices achieved were in line with valuation.

The cash yield in 2019 was £57 million (2018 - £34 million), including a large distribution from the Denver Eagle P3 project following the end of construction.

Overall our investment portfolio is well diversified in terms of geography, currency, revenue type and sector.

Further details on the investment portfolio in each of our regions is provided in the following Regional Review section.

 

External asset management

In June 2019, the Company completed the sale of its remaining fund management activities by way of a novation of the Investment Advisory Agreement (IAA) with JLEN to Foresight Group, including the transfer of the investment advisory team. The sale allows the Company to focus on its core business of investment in and active management of greenfield infrastructure projects. The JLEN IAA made a relatively small contribution to our profits compared to the fair value movements from our investing activities.

The IAA with Jura Limited (formerly JLIF) formally terminated on 31 December 2019.

Organisation and staff

Our staff numbers were 153 at 31 December 2019 compared to 169 at the end of 2018. 24 staff left the Group during the year as we exited from the fund management business. Staff numbers increased in Latin America, as we grew the local team in Bogota, and in the Central teams as we continue to reinforce the oversight function, in particular in respect of risk management for new investments and of the portfolio. We now have 55% of staff located outside the UK (31 December 2018 - 44%), consistent with our increasing internationalisation. We have a diverse workforce comprising around 25 nationalities.

Our high-quality individuals and experienced teams responded to the issues in our wind and solar portfolio by achieving a significant level of value enhancements, above our long term average, across all regions and across the entire portfolio. This is evidence that the reorganisation we put in place at the beginning of 2018 is working well, where the Primary Investment and Asset Management teams in each of our regions report to single regional heads, each of whom in turn reports to me. This structure allows the teams to focus more effectively on growth and value creation across all stages of the investment and asset management cycle in their individual regions. I would like to thank our employees for their continued contribution in what was a challenging year.

 

Principles, People and Performance.

We distinguish ourselves from other investors by our clear commitment to making investment decisions that not only benefit the client and other commercial stakeholders but deliver benefits to local communities. These benefits include cleaner air, reduced congestion, better rehabilitation, improved public facilities, cheaper public transport and better accessibility.

We have a clear set of values that drive our work internally and externally:

·      Ownership

·      Empowerment

·      Growth mindset

·      Shared prosperity

These values reflect our purpose, which is to invest in responsible infrastructure projects that respond to public needs, empower sustainable growth and improve the lives of the communities in which we work. Our investment decisions are a function of this purpose and our values, as well as of our commercial considerations.

Current trading and guidance

We have a strong investment pipeline which at 31 December 2019 totalled £3.2 billion, including one preferred bidder position and eight shortlisted or exclusive positions with a total investment opportunity of approximately £443 million.  This supports our guidance of approximately £1 billion of new investment commitments over the three-year period 2019-2021.  The growth in our pipeline during the year is especially pleasing given our decision to cease investment in standalone wind and solar generation.  Investment activity over the next two years will therefore be concentrated on PPP opportunities where we see strong demand, albeit these are typically lumpier and their timing more reliant on public procurement processes. We expect investment activity to gain momentum during 2020, with this year's pipeline weighted to the second half.  

With a large and diverse secondary portfolio and several sales processes already underway, divestment activity should ramp up through the second half of 2020, and we continue to expect realisations over the same period to be broadly in line with investment commitments.

As set out in more detail in the Portfolio Valuation and Financial Review sections, certain of the Group's income earned in 2019 will either cease, in the case of fund management income, or return to more normalised levels in respect of fair value movements from the portfolio. At the same time, certain of the losses on the portfolio experienced in the year are not expected to reoccur. Overall, we enter 2020 with a renewed focus and confidence in our business model and its ability to benefit from the opportunities that lie ahead.

 

Olivier Brousse

Chief Executive Officer

 

 

REGIONAL REVIEW

ASIA PACIFIC

 

At 31 December 2019, our portfolio of investments in the region comprised 15 assets (31 December 2018 - 15) including seven in the Primary portfolio (31 December 2018 - eight) and eight in the Secondary portfolio (31 December 2018 - seven) with a total value of £587 million (31 December 2018 - £505 million). The increase in portfolio value of £82 million is due to cash invested in projects of £110 million and a net overall fair value gain of £12 million for the year, offset by disposals and cash yields received from projects totalling £40 million.

 

With regards to new investments, during the year, we secured an investment of £27 million in the East Rockingham Resource Recovery facility, a waste to energy plant in Perth, Western Australia. The Primary Investment team has also been successful in achieving three shortlisted position at 31 December 2019 on PPP deals in Australia, which are expected to close over the next 18 months.

 

Our active asset management in the region saw significant progress made on the Sydney Light Rail, New Generation Rollingstock and New Royal Adelaide Hospital projects.

 

Sydney Light Rail

·      Following a settlement agreed by all parties in June 2019, the first passenger service commenced on 14 December 2019 and full service for both stages is expected by the end of Q1 2020.

 

New Generation Rollingstock

·      All 75 trains have now been accepted, in line with the re-based train delivery schedule agreed with the State of Queensland.

·      The programme for undertaking various retrofitting and rectification issues is progressing well.

·      This asset has moved into our Secondary portfolio at 31 December 2019.

 

New Royal Adelaide Hospital

·      Settlement commercially agreed between project company and South Australian government including revised payment mechanism.

·      Arbitration proceedings are ongoing with regard to legacy issues arising from the construction phase.

 

From a divestment standpoint, we were pleased to achieve our first realisation of an operational asset in Australia, the disposal of our 50% shareholding in Optus Stadium, which completed in March 2019. We have also started divestment processes for our interest in the Auckland South Corrections Facility and for our wind and solar assets. 

 

Continued active asset management in the second half of the year has resulted in total year value enhancements for the APAC region of £47 million (2018 - £16 million) of which £6 million (2018 - £5 million) related to PPP assets and £41 million (2018 - £11 million) to renewable energy assets.  .

 

As was reported in our interim results, we, along with industry peers, experienced transmission issues relating to marginal loss factors ("MLFs") which negatively impacted three of our renewable energy assets. As a reminder, MLFs are defined as the portion of energy that is lost when electricity is transmitted across the transmission and distribution networks due to resistance. During the second half of the year, we have worked closely with external advisors to review their long-term MLF forecasts. These forecasts took into account the indicative MLFs for the July 2020 - June 2021 period that AEMO published in November 2019, which showed an improvement from the previous year on the three assets referred to above. Overall, the change in MLF forecasts led to net losses of £52million.

 

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of £17m for 2019. 

 

 

EUROPE AND MIDDLE EAST

 

At 31 December 2019, our portfolio of investments in the region comprised 18 assets (31 December 2018 - 19) including three in the Primary portfolio (31 December 2018 - three) and 15 in the Secondary portfolio (31 December 2018 - 16) with a total value of £599 million (31 December 2018 - £580 million). The increase in portfolio value of £19 million in 2019 is due to a positive fair value movement in the period of £20 million and cash invested into projects of £8 million offset by disposals and cash yields received from projects totalling £9 million.

 

With regards to new investments, we secured an investment of £7 million in a student accommodation project with the University of Brighton.  The Primary Investment team had also secured one preferred bidder PPP position in the Netherlands at 31 December 2019 and one exclusive pump storage opportunity in Israel, both of which are expected to close in 2020.

 

On IEP Phase 2, our largest investment, 47 of the 65 trains for the East Coast main line had been accepted by 31 December 2019 with public train services commencing in May 2019. All trains are expected to have been delivered on schedule by mid-2020.

 

Continued active asset management in the second half of the year has resulted in total year value enhancements for the Europe and Middle East region of £43 million (2018 - £40 million) of which £18 million (2018 - £40 million) related to PPP assets and £25 million (2018 - £nil) to renewable energy assets.

 

As reported in our interim results, we experienced operational performance issues on our wind farm assets, mainly driven by low levels of wind, which have translated into lower long-term energy yield forecasts and resulted in write downs of £51 million.

 

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of £15m for 2019. 

NORTH AMERICA

 

At 31 December 2019, our portfolio of investments comprised 14 assets (31 December 2018 - 14) including five in the Primary portfolio (31 December 2018 - six) and nine in the Secondary portfolio (31 December 2018 - eight) with a total value of £514 million (31 December 2018 - £465 million). The increase in portfolio value of £49 million during the year is principally due to a positive fair value movement of £98 million and cash invested into projects of £92 million, offset by disposals and cash yields received from projects totalling £141 million.

 

With regards to new investments, we secured an investment of £75 million in Live Oak wind farm and later in the year we secured an investment of £13 million in the Hurontario light rail project in Ontario, Canada. The Primary Investment team had also secured four shortlisted PPP positions at 31 December 2019.

 

The North America portfolio of investments performed in line with expectations.

 

Denver Eagle P3

·      Substantial completion of the third line, the G line, was achieved in March 2019.

·      The A line and the B line have been operating successfully since 2016 and have achieved above 97% on-time performance.

·      Full revenue service of the overall project was achieved in April 2019.

 

I-77 Managed Lanes

·      The I-77 Managed Lanes was fully open by the end of the year with the opening of the southern section in November 2019 following that of the northern section earlier in the year.

 

The sale of our interests in the Rocksprings wind farm in Texas and the Sterling wind farm in New Mexico in the first half of the year represented our first divestments in the US. Proceeds are subject to customary post-completion adjustments.

 

Continued active asset management in the second half of the year has resulted in total year value enhancements of £65 million (2018 - £24 million) of which £37 million (2018 - £18 million) related to PPP assets and £28 million (2018 - £6 million) to renewable energy assets.

 

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of £15m for 2019. 

 

LATIN AMERICA

 

In October 2019, after almost three years of due diligence, we closed our first investment in the region. We committed £62 million for a 30% interest in the Ruta del Cacao PPP road project in Colombia. We have one of our key international partners working with us on this project together with other leading investors and contractors. The project is progressing well, with construction almost 50% complete. During delivery, the project is improving the lives of the local communities through the building of new water treatment plants, schools and commercial facilities. 

 

Meanwhile, our pipeline of investment opportunities in the region has increased to £615 million as at 31 December 2019. This has been the result of the efforts of our strong team, with seven employees in our Bogota office, complemented by senior executives in Madrid and London.     

 

 

Portfolio Valuation

 

The portfolio valuation at 31 December 2019 was £1,768 million compared to £1,560 million at 31 December 2018. After adjusting for cash invested, cash yield and realisations, this represented a positive movement in fair value of £141 million (representing growth of 8.7% or 12.2% at constant FX).

 

 

Investments

in projects

£ million

Listed

investment

£ million

Total

£ million

Portfolio valuation at 1 January 2019

1,550

10

1,560

- Cash invested

267

-

267

- Cash yield

(57)

-

(57)

- Proceeds from realisations

(132)

(11)

(143)

Rebased valuation

1,628

(1)

1,627

  - Movement in fair value

140

1

141

Portfolio valuation at 31 December 2019

1,768

-

1,768

 

Cash invested into three new assets during 2019 totalled £140 million. In addition, £127million was injected into existing projects in the portfolio as they progressed through, or completed, construction.

 

During 2019, the Group completed the realisation of four investments for a total consideration of £132 million and also sold its remaining shares in JLEN for £11 million.

 

Cash yield from the investment portfolio during the year totalled £57 million.

 

The movement in fair value of £141 million is analysed in the table below.

 

 

 

Year ended

31 December 2019

£ million

Year ended

31 December 2018

£ million

Unwinding of discounting

110

98

Reduction of construction risk premia

73

43

Value uplift on financial closes

31

43

Value enhancements

157

79

Net losses from project performance

(23)

(36)

Movement in fair value before external factors and exceptional items

348

227

Wind yield - Europe

(51)

-

Transmission (MLF) - Australia

(52)

-

Change in power and gas price forecasts

(48)

(12)

Impact of foreign exchange movements

(57)

10

Change in macroeconomic assumptions

(11)

(1)

Change in operational benchmark discount rates

12

43

Exceptional gain on disposal of IEP Phase 1  

-

87

Movement in fair value

141

354

 

Unwinding of discounting and reduction of construction risk premia totalled £183 million for 2019 (2018 - £141 million). We expect further value uplift in the future from these factors currently embedded in the portfolio but at a lower level than 2019 given the profile of the portfolio.

 

Value uplift of £31 million was recognised on the financial close of new investments of £184 million in the year. We would expect higher value uplift on financial close next year if the level of new investments is increased.  

 

We have recognised £157 million of value enhancements in the year representing a strong result of our ongoing active asset management capability. Having recognised value enhancements of £78 million in the first half of the year, work in this area continued and we were able to deliver further value enhancements of £79 million in the second half. These enhancements were achieved in all regions and across the entire portfolio from a number of areas, including extension of asset lives, savings on operating costs and refinancing of project finance. However, the high level of value enhancements in 2019 reflects the initial impact of the move in 2018 to a regional model as well as an increased focus on asset management in the year. We therefore expect a more normalised level of value enhancements in 2020, in the region of 3% to 5% of the opening portfolio value.   

 

During the year, there were net losses from project performance of £23 million. This primarily reflects the impact of construction delays on certain of our projects, offset by a value uplift from reductions in project-specific risk premia, principally reflecting the good progress made in the year on certain PPP projects.

 

Losses of £51 million on the European wind assets and the £52 million of losses suffered on three of our Australian renewable energy asset projects as a result of adverse changes in MLFs are described further in the Regional Review section above.

 

Reduction in power and gas price forecasts, particularly in the second half of the year, resulted in losses of £48 million and strengthening of Sterling since 30 June 2019 has increase the adverse impact of foreign exchange movements to £57 million from just £2 million adverse in the first half.

 

The net benefit of £12 million from the change in operational benchmark discount rates was on a number of renewable energy investments in Europe in response to our understanding and experience of the secondary market. 

 

The split of the portfolio valuation between primary and secondary investments and the movements in the year within each are shown in the table below:

 

 

 

31 December 2019

31 December 2018

 

Number of projects

£ million

%

Number of projects

£ million

%

Primary Investment portfolio

16

907

51.3

17

868

55.7

Secondary Investment portfolio

32

861

48.7

31

692

44.3

Total portfolio

48

1,768

100.0

48

1,560

100.0

 

 

 

Primary

Investment

£ million

Portfolio valuation at 1 January 2019

868

  - Cash invested

258

  - Transfers to Secondary Investment

(377)

Rebased valuation

749

  - Movement in fair value

158

Portfolio valuation at 31 December 2019

907

 

 

 

Secondary

Investment

£ million

Portfolio valuation at 1 January 2019

692

  - Cash invested

9

  - Cash yield

(57)

  - Proceeds from realisations

(143)

  - Transfers from Primary Investment

377

Rebased valuation

878

  - Movement in fair value

(17)

Portfolio valuation at 31 December 2019

861

 

 

 

Methodology

The methodology for the valuation of the investment portfolio is unchanged from the methodology used as at 31 December 2018, as described in the 2018 Annual Report and Accounts.

 

In arriving at the valuation as at 31 December 2019, we considered and reflected changes to the two principal inputs, (i) forecast cash flows from investments in projects and (ii) discount rates.

 

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 as a whole represented a fair market value in the conditions prevailing at 31 December 2019.

 

Discount rates

For the 31 December 2019 valuation, the overall weighted average discount rate was 8.6% compared to the weighted average discount rate at 31 December 2018 of 8.6%. The weighted average discount rate at 31 December 2019 was made up of 9.1% (31 December 2018 - 8.8%) for the Primary Investment portfolio and 8.0% (31 December 2018 - 8.1%) for the Secondary Investment portfolio. The increase in the weighted average discount rate for primary investments was primarily the result of the investment in Ruta del Cacao. The small reduction in the weighted average discount rate for secondary investments was the result of reductions in project-specific risk premia on New Royal Adelaide Hospital and the A15 Netherlands investments, reflecting the progress made in the year, and reduction in the operational benchmark discount rates for select investments, offset by assets with higher discount rates transferring from the Primary portfolio.

 

The discount rate ranges used in the portfolio valuation at 31 December 2019 were as set out below:

 

 

 

At 31 December 2019

At 31 December 2018

Sector

Primary

Investment

Secondary

Investment

Primary

Investment

Secondary

Investment

PPP investments

7.1% - 12.4%

6.5% - 9.25%

6.9% - 11.7%

7.0% - 9.0%

Renewable energy investments

8.6% - 8.6%

6.4% - 12.4%

8.4% - 9.1%

6.8% - 10.0%

 

 

The table below shows the sensitivity of a 0.25% change in discount rates:

 

Discount rate sensitivity

Portfolio valuation

£ million

Increase/(decrease) in valuation

£ million

+0.25%

1,711

(57)

-

1,768

-

-0.25%

1,828

60

 

 

 

Energy yields

Revenues and therefore cash flows from investments in renewable energy projects may be affected by the volume of power production, for example from changes in wind or solar yield.

 

Our valuation of renewable energy projects assumes a P50 level of electricity output based on reports by technical consultants. The P50 output is the estimated annual amount of electricity generation (in MWh) that has a 50% probability of being achieved or exceeded and a 50% probability of being underachieved - both in any single year and over the long term. Hence the P50 is the expected level of generation forecast over the long term. A P75 output means a forecast with a 75% probability of  being achieved or exceeded and a P25 output means a forecast with a 25% probability of being achieved or exceeded.

 

The impact on the valuation at 31 December 2019 of a sample of renewable energy assets with total value of £293 million from changes in energy yield is shown below:

 

Energy yield sensitivity

Portfolio valuation of sample of assets

£ million

Increase/(decrease) in valuation

£ million

P75

255

(38)

P50

293

-

P25

330

37

 

The sensitivities shown above assume that changes in energy yields move in the same direction for all of the assets in the sample. However, across a portfolio of renewable energy assets, any actual change in forecast energy yields could be an increase for some assets and a decrease on others.

 

Macroeconomic assumptions

During 2019, updates for actual macroeconomic outcomes and assumptions had a net adverse impact of £11 million (2018 - £1 million net adverse impact) on the portfolio valuation. Movements of foreign currencies against Sterling over the year to 31 December 2019 resulted in net adverse foreign exchange movements of £57 million (2018 - £10 million net favourable foreign exchange movements). Additionally, a decrease in forecast power and gas prices resulted in a £48 million adverse fair value movement (2018 - adverse fair value movement of £12 million).

 

The table below summarises the main macroeconomic and exchange rate assumptions used in the portfolio valuation at 31 December 2019 and at 31 December 2018. The table also shows the impact from changes in these assumptions and from changes in power and gas prices and marginal loss factors in the year as well as the sensitivity to the portfolio value from changes in the future:

 

Assumption

 

 

31 December 2019

31 December 2018

 

Long-term inflation

 

UK

 

RPI & RPIX

 

3.00%

 

3.00%

 

Europe

CPI

1.25% - 2.50%

1.75% - 2.00%

 

North America

CPI

2.00% - 2.25%

2.20% - 2.50%

 

Asia Pacific

CPI

1.50% - 2.50%

2.00% - 2.75%

 

Latin America

CPI

3.20% - 3.40%

-

 

 

 

 

 

Impact recognised in the year

 

 

£(5) million

£(3) million

 

Sensitivity: change in value of five PPP investments with a total value of 

 

 

£596 million

£524 million

0.25% increase in inflation

0.25% decrease in inflation

 

 

c.£14 million c.£(13) million

 

c.£14 million

c.£(13) million

 

Exchange rates

 

 

GBP/EUR

 

1.1799

 

1.1134

 

 

GBP/AUD

1.8847

1.8096

 

 

GBP/USD

1.3241

1.2748

 

 

GBP/NZD

1.9641

1.9000

 

 

GBP/CAD

1.7174

-

 

 

GBP/COP

4,351.4000

-

 

 

 

 

 

Impact recognised in the year

 

 

£(57) million

£10 million

 

 

 

Sensitivity: 5% movement of each relevant currency against Sterling

+/- c.£64 million

+/- c.£59 million

 

 

Power and gas prices

 

 

 

 

 

Impact in the year

 

 

£(48) million

£(12) million

 

 

 

 

 

Sensitivity: change in value of seven renewable energy investments with a total value of  

 

 

£338 million

£343 million

5% increase in power and gas prices

 

 

c.£21 million

c.£18 million

5% decrease in power and gas prices

 

 

c.£(19) million

c.£(18) million

 

 

Marginal loss factors

 

 

 

 

 

Impact in the year

 

 

£(52) million

-

 

 

 

 

 

Sensitivity: change in value of a sample of renewable energy investments with a total value of  

 

 

£233 million

-

5% increase in marginal loss factors

 

 

c.£29 million

-

5% decrease in marginal loss factors

 

 

c.£(29) million

-

 

 

 

 

 

                       

 

The sensitivities shown above from changes in assumptions are on the basis that changes are in the same direction across all assets. In reality, there could be an increase for some assets and a decrease on others and, as a result, offsetting impacts.

 

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

by geographical region

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Europe and Middle East

599

33.9

580

37.2

North America

514

29.1

465

29.8

Asia Pacific

587

33.2

505

32.4

Latin America

68

3.8

-

-

Listed investment

-

-

10

0.6

 

1,768

100.0

1,560

100.0

There continues to be good diversification of the portfolio across our regions. All regions saw an increase in their portfolio values including Latin America where we made our first investment during the year.

by time remaining on project concession/OPERATIONAL life

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Greater than 25 years

1,113

63.0

1,113

71.4

20 to 25 years

402

22.7

262

16.8

15 to 20 years

62

3.5

133

8.5

10 to 15 years

122

6.9

42

2.7

Less than 10 years

69

3.9

-

-

Listed investment

-

-

10

0.6

 

1,768

100.0

1,560

100.0

 

 

by revenue type

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Availability

1,013

57.3

766

49.2

Volume

755

42.7

784

50.2

Listed investment

-

-

10

0.6

 

1,768

100.0

1,560

100.0

 

Availability-based investments made up the majority of the portfolio at 31 December 2019. Renewable energy investments comprise the majority of the volume-based investments. The increase in the value of availability-based investments primarily reflects the positive progress made on assets both in construction and operation, further investment in availability-based projects and value enhancements recognised in the year. The reduction in volume-based investments is primarily due to the disposal of two wind farms in the US as well as write downs on certain of the Australian and European renewable energy assets, offset by an investment in a wind farm in the US and value enhancements recognised. We expect to maintain balanced availability-based investments in the portfolio in the medium-term.

by sector

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Transport - rail and rolling stock

605

34.2

487

31.2

Transport - roads and other

344

19.5

214

13.7

Environmental - wind & solar generation

577

32.6

656

42.1

Environmental - waste & biomass

35

2.0

41

2.6

Social infrastructure

207

11.7

152

9.8

Listed investment

-

-

10

0.6

 

1,768

100.0

1,560

100.0

 

The disposal of two wind farms in the US in the first half of the year has contributed to the reduction in the value of wind & solar generation assets since 31 December 2018. Fair value losses in the year have resulted in a decrease in the value of waste and biomass assets. The listed investment was sold in the year. Cash injections and positive fair value movements have resulted in increases in value in other sectors.

by currency

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Sterling

417

23.6

371

23.8

Euro

182

10.3

219

14.0

Australian and New Zealand dollar

587

33.2

505

32.4

US and Canadian dollar

514

29.0

465

29.8

Colombian Peso

68

3.9

-

-

 

1,768

100.0

1,560

100.0

 

 

by investment size

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Five largest projects

692

39.1

598

38.4

Next five largest projects

311

17.6

276

17.7

Other projects

765

43.3

676

43.3

Listed investment

-

-

10

0.6

 

1,768

100.0

1,560

100.0

 

 

The valuation ranges for the five largest Primary Investments and the five largest Secondary Investments are shown in the tables below:

 

Primary

 

31 December 2019

 

£ million

IEP Phase 2

325 - 425

Clarence Correctional Centre

75 - 100

Sydney Light Rail

75 - 100

Ruta del Cacao

50 - 75

I-66 Managed Lanes

50 - 75

 

 

Secondary

 

31 December 2019

 

£ million

Denver Eagle P3

75 - 125

Cypress Creek solar farms

75 - 100

Live Oak Wind Farm

75 - 100

New Royal Adelaide Hospital

50 - 75

Finley Solar Farm

50 - 75

 

At 31 December 2019, the Group's largest investment was its shareholding in IEP Phase 2. Nine out of its ten largest investments were outside the UK.

 

Investment portfolio as at 31 DECEMBER 2019

 

 

 

Primary Investment

 

Secondary investment

Social infrastructure

 

 

 

Health

 

 

 

 

Alder Hey Children's Hospital

40% (EME)

New Royal Adelaide Hospital
17.26% (APAC)

 

 

Justice and emergency services

Clarence Correctional Centre

80% (APAC)

 

 

 

Auckland South Corrections Facility
30% (APAC)

 

 

 

Other

University of Brighton Student Accommodation

85% (EME )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transport

 

 

 

 

 

 

 

 

Roads and other

A16 Road

47.5% (EME)

I-4 Ultimate

50% (NA)

I-66 Managed Lanes

10% (NA)

 

A6 Parkway

Netherlands

85% (EME)

A15 Netherlands

28% (EME)

A130

100% (EME)

I-77 Managed Lanes

10% (NA)

I-75 Road

40% (NA)

MBTA Automated Fare Collection System

90% (NA)

Ruta del Cacao 30% (Latam)

 

 

 

 

 

Rail and rolling stock

Hurontario Light Rail 40% (NA)

IEP Phase 2
30% (EME)

Melbourne Metro

30% (APAC)

 

Denver Eagle P3

45% (NA)

New Generation Rollingstock

40% (APAC)

 

 

 

Sydney Light Rail
32.5% (APAC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Environmental

 

 

 

 

 

 

 

 

Waste and biomass

East Rockingham Waste 40% (APAC)

 

 

 

Speyside Biomass
43.35% (EME)

Cramlington Biomass

44.7% (EME)

 

 

Wind and solar

 

Cherry Tree Wind Farm

100% (APAC)

Granville Wind Farm

49.8% (APAC)

Sunraysia Solar Farm

90.1% (APAC)

 

Brantley Solar Farm*

100% (NA)

Buckleberry Solar Farm*

100% (NA)

Buckthorn Wind Farm

90.05% (NA)

Finley Solar Farm

100% (APAC)

 

 

 

 

 

Fox Creek Solar Farm*

100% (NA)

Glencarbry Wind Farm

100% (EME)

Horath Wind Farm

81.82% (EME)

Hornsdale 1 Wind Farm

30% (APAC)

 

 

 

 

Hornsdale 2 Wind Farm

20% (APAC)

Hornsdale 3 Wind Farm

20% (APAC)

IS54 Solar Farm* 100% (NA)

IS67 Solar Farm* 100% (NA)

 

 

 

 

Kiata Wind Farm

72.3% (APAC)

Klettwitz Wind Farm

100% (EME)

Live Oak Wind Farm 75% (NA)

Nordergründe Wind Farm

30% (EME)

 

 

 

 

 

Pasilly Wind Farm

100% (EME)

Rammeldalsberget Wind Farm
100% (EME)

Sommette Wind Farm

100% (EME)

St Martin Wind Farm

100% (EME)

 

 

 

 

 

Svartvallsberget Wind Farm
100% (EME)

 

 

 

 

 

 

 

 

 

 

 

 

 

APAC - Asia Pacific

EME - Europe and Middle East

NA - North America

Latam - Latin America

*Cypress Creek projects

 

 

Financial Review

 

Basis of preparation

There has been no change in the basis of preparation of the financial statements, as described in the Financial Review section of the 2018 Annual Report & Accounts, except as explained below.

 

There has been a change in the reportable segments under IFRS 8 Operating Segments since last year. Following an internal reorganisation, under which the Primary Investment and Asset Management teams in each of the four core geographical regions report to a single regional head, regional performance targets are set, and 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 performance on a regional basis. Accordingly, the reportable segments under IFRS 8 are now based on regions which are currently: Asia Pacific, Europe and Middle East, North America and Latin America. Further reportable segments are "Fund management", relating to the external fund management activities for Jura Infrastructure Limited ("Jura") and JLEN, which ceased in 2019, and "Central", which covers the corporate activities at the Group's headquarters.  

 

The Group adopted IFRS 16 Leases from 1 January 2019. For further details, see note 2 to the Group Financial Statements.

Re-presented financial RESULTS

As we have done in previous periods, we 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 fair value through profit or loss (FVTPL). The net gain on investments at FVTPL in the Group Income Statement includes 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

2019

 

2018c

 

 

Group Income Statement

Adjustments

Re-presented income statement

 

Re-presented income statement

 

 

£ million

£ million

£ million

 

£ million

 

 

 

 

 

 

 

 

Fair value movements - investment portfolio

141

-

141

 

354

 

Fair value movements - other

(1)

(1)a

(2)

 

3

 

Investment fees from projects

7

-

7

 

8

 

Net gain on investments at fair value through profit or loss

147

(1)

146

 

365

 

 

 

 

 

 

 

 

IMS revenue

20

-

20

 

20

 

PMS revenue

7

-

7

 

6

 

Recovery of bid costs

5

-

5

 

4

 

Other income

32

-

32

 

30

 

 

 

 

 

 

 

 

Operating income

179

(1)

178

 

395

 

 

 

 

 

 

 

 

Third party costs

(10)

 

(10)

 

(9)

 

Disposal costs

(4)

 

(4)

 

(4)

 

Staff costs

(37)

 

(37)

 

(37)

 

General overheads

(15)

 

(15)

 

(13)

 

Other net costs

-

 

-

 

(1)

 

Post-retirement charges

(2)

2b

-

 

-

 

Administrative expenses

(68)

2

(66)

 

(64)

 

 

 

 

 

 

 

 

Profit from operations

111

1

112

 

331

 

 

 

 

 

 

 

 

Finance costs

(11)

2a,b

(9)

 

(11)

 

Post-retirement charges

-

(3)b

(3)

 

(24)

 

 

 

 

 

 

 

 

Profit before tax

100

-

100

 

296

 

               

 

Notes:

a)    Adjustment comprises £1 million of interest income reclassified from 'fair value movements - other' to 'finance costs'.

b)    Under IAS 19 Employee Benefits, the costs of the pension schemes and the post-retirement medical benefits comprise a service cost of £2 million, included in administrative expenses in the Group Income Statement, and a finance charge of £1 million, included in finance costs in the Group Income Statement. These amounts are combined together as post-retirement charges under management reporting. The cost for 2018 also includes a one-off GMP equalisation charge of £21 million.

c)   For a reconciliation between the Group Income Statement and re-presented income statement for the year ended 31 December 2018, refer to the 2018 Annual Report and Accounts.

 

 

Profit before tax for the year ended 31 December 2019 was £100 million (2018 - £296 million). The main reason for the lower PBT compared to last year was the reduction in fair value movement in the investment portfolio.

 

There were positive fair value movements on the portfolio for 2019 was £141 million (2018 - £354 million). An analysis of the fair value movement is provided in the Portfolio Valuation section. A significant contributor to the fair value movement in 2018 was the gain of £87 million on disposal of the interest in IEP Phase 1. In contrast, despite significant value enhancements of £157 million, the fair value movement for 2019 suffered from losses of £52 million on three of our Australian renewable energy assets, as a result of the impact of marginal loss factors (see the Asia Pacific section above), and from wind yield losses of £51 million on our European wind and solar assets (see the Europe section above). We also experienced losses from the impact of foreign exchange movements (£57 million loss compared to a £10 million gain in 2018) and power and gas price forecasts (£48 million loss compared to a £12 million loss in 2018).

 

The Group earned IMS revenue of £20 million (2018 - £20 million) from investment advisory and asset management services primarily to Jura and JLEN. The proceeds received in the year from the sale of the IAA with JLEN of £5 million offset the loss of revenue from the IAA with Jura which terminated in 2019. Going forward, the Group will only earn IMS revenue from the provision of directors to project company boards (2019 - c£1 million; 2018 - c£2 million).   

 

The Group also earned PMS revenue of £7 million (2018 - £6 million) from the provision of services to project companies under management services agreements.

 

The Group achieved recoveries of bidding costs on financial closes of £5 million in 2019 (2018 - £4 million).  

 

Total staff costs for the year ended 31 December 2019 are broadly the same as last year due to the impact of pay increases in line with inflation (c£1 million), increase in average headcount for the period with new recruits at higher average salaries (c£2 million) and one-off staff costs incurred in the first half of 2019 in relation to the termination of the fund management business offsetting the reduction in staff costs from the transfer of staff with this business.

General overheads have increased from last year principally due to one-off project-related costs and development costs incurred in setting up in new regions and looking at new asset classes.

As the Group looks to grow the level of its activity, staff costs and overheads, which include third party bidding costs, will increase on a scalable basis. 

Finance costs of £9 million (2018 - £11 million) include costs of the corporate banking facilities, net of any interest income, with the decrease from last year primarily due to lower investment activity in the year.  

 

There was a tax credit for the year of £0.2 million (2018 - tax expense of £0.2 million) primarily as a result of the reversal of a tax provision held at 31 December 2018. The contributions made to one of the Group's defined benefit pension schemes 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 holding companies. There are no losses in the Company but there are tax losses in recourse group subsidiary entities that are held at FVTPL (£177 million as at 31 December 2018).

 

 

The re-presented income statement for years ended 31 December 2019 and 2018 by reportable segment is shown in the tables below:

 

 

Year ended 31 December 2019

 

Asia Pacific

Europe and Middle East

North America

Latin America

Fund Management

Central

Total

 

 

£ million

£ million

£ million

£ million

£ million

£ million

£ million

Net gain/(loss) on investments at FVTPL

12

18

100

12

 

4

146

Other income

2

3

6

-

20

1

32

Operating income

14

21

106

12

20

5

178

Staff costs

(7)

(6)

(7)

(1)

(3)

(13)

(37)

Other administrative expenses

(3)

(6)

(7)

(2)

(2)

(9)

(29)

Profit/(loss) from operations

4

9

92

9

15

(17)

112

Finance costs

-

-

-

-

-

(9)

(9)

Post-retirement charges

-

-

-

-

-

(3)

(3)

Profit/(loss) before tax

4

9

92

9

15

(29)

100

 

 

 

Year ended 31 December 2018

 

Asia Pacific

Europe and Middle East

North America

Latin America

Fund Management

Central

Total

 

 

£ million

£ million

£ million

£ million

£ million

£ million

£ million

Net gain/(loss) on investments at FVTPL

86

188

88

-

-

3

365

Other income

2

4

6

-

19

(1)

30

Operating income

88

192

94

-

19

2

395

Staff costs

(7)

(6)

(5)

-

(7)

(12)

(37)

Other administrative expenses

(3)

(11)

(4)

(1)

(2)

(6)

(27)

Profit/(loss) from operations

78

175

85

(1)

10

(16)

331

Finance costs

-

-

-

-

-

(11)

(11)

Post-retirement charges

-

-

-

-

-

(24)

(24)

Profit/(loss) before tax

78

175

85

(1)

10

(51)

296

 

 

Asia Pacific - the lower profit in 2019 compared to 2018 was mainly due to write downs of £52 million in the portfolio from adverse changes in MLFs on three of our renewable energy investments. For further details, see the Asia Pacific section in the Regional Review above.

 

Europe and Middle East - the lower profit in 2019 compared to 2018 was mainly due to performance issues on wind assets, which resulted in write downs in the period of £51 million.  In 2018, the Europe regional results benefited from a gain of £87 million on the disposal of our interest in the IEP Phase 1 project.

 

North America - good progress was made on the PPP assets in the US, which, together with value enhancements of £65 million, contributed to the marginally higher profit in 2019 compared to 2018. Increasing staff costs in North America reflect an increase in the headcount in that region, consistent with the increase in the level of activity. 

 

Latin America - the first investment in Latin America was secured in 2019 and this has led to an increase in profit from 2018.

 

Fund management - fund management activities ceased in the first half of 2019 following the sale of the JLEN IAA at the end of June 2019 and the termination of the Jura services at the end of April 2019. The increase in profit from 2018 was primarily due to the proceeds from the sale of the JLEN agreement of £5 million. There will be no further income or costs from fund management activities beyond the end of 2019.       

 

Central - the net gain on investments at FVTPL of £4 million in 2019 was primarily due to a gain on the JLEN shares as well as a foreign exchange gain outside of the portfolio (2018 - £1 million loss primarily due to foreign exchange losses outside of the portfolio). The overall loss for the Central segment reflects the costs of the Group's central support and overview functions, as well as the Group's finance costs and its post-retirement charges. The loss for 2019 of £29 million is lower than the loss for 2018 of £51 million primarily due to the one-off GMP equalisation charge of £21 million in 2018.  

 

Re-presented balance sheet

The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2019 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 £129 million (31 December 2018 - £140 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

2019

 

2018e

 

 

 

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

 

 

 

 

 

 

 

Right of use assets

4

-

4

 

-

 

Other long-term assets

Investments at FVTPL

1,897

(129)a

1,768

 

1,560

 

Portfolio value

 

 

118b

118

 

132

 

Cash collateral balances

Retirement benefit asset

13

-

13

 

-

 

Pension surplus (IAS 19)

 

1,914

(11)

1,903

 

1,692

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Trade and other receivables

6

(6)c

-

 

-

 

 

Cash and cash equivalents

2

5 b

7

 

8

 

Cash

 

8

(1)

7

 

8

 

 

Total assets

1,922

(12)

1,910

 

1,700

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

(6) b,c,d

(6)

 

(4)

 

Working capital and other balances

Borrowings

(236)

(3)d

(239)

 

(70)

 

Cash borrowings

Trade and other payables

(15)

15c

-

 

-

 

 

 

(251)

6

(245)

 

(74)

 

 

Net current liabilities

(243)

5

(238)

 

(66)

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

-

-

-

 

(33)

 

Pension deficit (IAS 19)

Retirement benefit obligations

(7)

-

(7)

 

(7)

 

Other retirement benefit obligations

Finance lease liabilities

(4)

4c

-

 

 

 

 

Provisions

(2)

2c

-

 

-

 

 

 

(13)

6

(7)

 

(40)

 

 

Total liabilities

(264)

12

(252)

 

(114)

 

 

 

 

 

 

 

 

 

 

Net assets

1,658

-

1,658

 

1,586

 

 

 

Notes:

a)    Investments at FVTPL of £1,897 million comprise: portfolio valuation of £1,768 million and other assets and liabilities within recourse investment entity subsidiaries of £129 million (see note 13 to the Group financial statements).

b)    Other assets and liabilities within recourse investment entity subsidiaries of £129 million referred to in note (a) include: (i) cash and cash equivalents of £123 million, of which £118 million is held to collateralise future investment commitments and £5 million is other cash balances and (ii) net positive working capital and other balances of £6 million.

c)     Trade and other receivables (£6 million), trade and other payables (£15 million), finance lease liabilities (£4 million) and provisions (£2 million) are combined in the re-presented balance sheet as working capital and other balances.

d)    Borrowings of £236 million comprise cash borrowings of £232 million from the main facilities and £7 million of short-term bank overdraft from uncommitted facilities less unamortised financing costs of £3 million, which are re-presented as working capital and other balances.

e)    For a reconciliation between the Group Balance Sheet and re-presented balance sheet as at 31 December 2018, refer to the 2018 Annual Report and Accounts.

Components of net assets, including reportable segments, are shown in the table below.

 

 

Asia Pacific

Europe and Middle East

North America

Latin America

Fund management

Central

Total

As at

31 Dec

2019

31 Dec

2018

31 Dec

2019

31 Dec

2018

31 Dec

2019

31 Dec

2018

31 Dec

2019

31 Dec

2018

31 Dec

2019

31 Dec

2018

31 Dec

2019

31 Dec

2018

31 Dec

2019

31 Dec

2018

 

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million

Portfolio valuation

587

505

599

580

514

465

68

-

-

-

-

10

1,768

1,560

Other net current liabilities

 

 

 

 

 

 

 

 

 

 

(2)

(4)

(2)

(4)

Group net (borrowings)/cash1

 

 

 

 

 

 

 

 

 

 

(114)

70

(114)

70

Net post-retirement assets/(obligations)

 

 

 

 

 

 

 

 

 

 

6

(40)

6

(40)

Group net assets

587

505

599

580

514

465

68

-

-

-

(110)

36

1,658

1,586

 

Note:

(1)  Comprising: short-term cash borrowings of £232 million (31 December 2018 - £55 million) and short-term bank overdraft of £7 million (31 December 2018 -  £15 million) net of cash balances of £125 million (31 December 2018 £140 million) 

 

Net assets increased from £1,586 million at 31 December 2018 to £1,658 million at 31 December 2019.

 

The Group's portfolio of investments was valued at £1,768 million at 31 December 2019 (31 December 2018 - £1,560 million). The valuation methodology and details of the portfolio value are provided in the Portfolio Valuation section.

 

The Group held cash balances of £125 million at 31 December 2019 (31 December 2018 - £140 million) of which £118 million (31 December 2018 - £132 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details). Of the total Group cash balances of £125 million, £123 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 million of cash 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).

 

The Group operates two defined benefit schemes in the UK - the John Laing Pension Plan (JLPF) and the John Laing Pension Plan (the Plan). Both schemes are closed to new members and future accrual.

 

 

The triennial actuarial valuation of JLPF as at 31 March 2019 is currently in process and is expected to be finalised by 30 June 2020. In December 2016, following a triennial actuarial valuation 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 set out below:

 

By 31 March

£ million

2017

25

2018

27

2019

29

2020

25

2021

26

2022

26

2023

25

 

The combined accounting surplus in the Group's defined benefit pension and post-retirement medical schemes at 31 December 2019 was £6 million (31 December 2018 - deficit of £40 million). Under IAS 19, at 31 December 2019, JLPF had a surplus of £12 million (31 December 2018 - deficit of £35 million) while the Plan had a surplus of £1 million (31 December 2018 - surplus of £2 million). The liability at 31 December 2019 under the post-retirement medical scheme was £7 million (31 December 2018 - £8 million).

 

The pension surplus in JLPF under IAS 19 is based on a discount rate applied to pension liabilities of 2.1% (31 December 2018 - 2.85%%) and long-term RPI of 3% (31 December 2018 - 3.20%). The amount of the surplus 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 surplus as at 31 December 2019 has moved from a deficit at 31 December 2018 primarily as a result of the Group's cash contribution to JLPF of £29 million in March 2019 and gains in the value of scheme assets.

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 13 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

2019

2018

 

Re-presented cash flows

Re-presented cash flows

 

£ million

£ million

Cash yield

57

34

Operating cash outflow

(24)

(10)

Net foreign exchange impact

1

(1)

Total operating cash inflow

34

23

 

 

 

Cash investment in projects

(267)

(342)

Proceeds from realisations

143

296

Disposal costs

(3)

(5)

Net investing cash outflow

(127)

(51)

 

 

 

Finance charges

(11)

(13)

Rights issue (net of costs)

-

210

Purchase of own shares related to share based incentives

(4)

-

Cash contributions to JLPF

(29)

(27)

Dividend payments

(47)

(44)

Net cash (outflow)/inflow from financing activities

(91)

126

 

 

 

Recourse group cash (outflow)/inflow

(184)

98

Recourse group opening cash/(net debt) balances

70

(28)

Recourse group closing (net debt)/cash balances

(114)

70

 

 

 

Reconciliation to line items on re-presented balance sheet

 

 

Cash collateral balances1

118

132

Cash and cash equivalents1

7

8

Total net cash balances

125

140

 

 

 

Cash borrowings

(239)

(70)

(Net debt)/cash

(114)

70

 

 

 

Reconciliation of cash borrowings to Group Balance Sheet

 

 

Cash borrowings as per re-presented balance sheet

(239)

(70)

Unamortised financing costs

3

4

Borrowings as per Group Balance Sheet

(236)

(66)

 

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

 

Cash yield comprised £57 million (2018 - £34 million) from the investment portfolio, including a large cash distribution from the Denver Eagle P3 project following construction completion in the first half of the year.

 

Operating cash flow in the year end 31 December 2019 was adverse compared to 2018 primarily due to higher payments for staff costs, partly due to payment of deferred bonuses from prior years for staff in the fund management business leaving the Group. There was also a small cash outflow in relation to tax in 2019 compared to cash inflows in 2018 from the surrender of tax losses to project companies.   

 

Total operating cash flow was net of a favourable foreign exchange impact of £1 million (2018 - adverse impact of £1 million).

 

During the period, cash of £267 million (2018 - £342 million) was invested in project companies and our interests in four projects as well as the remaining investment in JLEN were sold for total proceeds of £143 million (2018 - £296 million from the realisation of three investments). Offsetting proceeds from realisations were disposal costs paid of £3 million (2018 - £5 million). .

 

In the year, the Group made a cash contribution to JLPF of £29 million (2018 - £27 million).   

 

Dividend payments of £47 million in the year ended 31 December 2019 (2018 - £44 million) comprised the final dividend for 2018 of £38 million (2018 - final dividend for 2017 of £35 million) and the interim dividend for 2019 of £9 million (2018 - interim dividend for 2018 of £9 million).  

 

FINANCIAL RESOURCES

 

At 31 December 2019, the Group had principal committed revolving credit banking facilities of £650 million (31 December 2018 - £650  million), £500 million expiring in July 2023 and £150 million expiring in January 2022, which are primarily used to back investment commitments. Net available financial resources at 31 December 2019 were £314 million (31 December 2018 - £413 million).

Analysis of Group financial resources

 

31 December

2019

£ million

31 December

2018

£ million

Total committed facilities

650

650

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

(95)

(139)

Letters of credit issued under surety facilities (see below)

-

(25)

Other guarantees and commitments

(9)

(10)

Short-term cash borrowings

(232)

(55)

Bank overdraft (uncommitted)

(7)

(15)

Utilisation of facilities

(343)

(244)

Headroom

307

406

Available cash and bank deposits1

7

7

Net available financial resources

314

413

1 Cash and bank deposits exclude cash collateral balances. Of the total cash and bank deposit balances of £7 million, £2 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 £5 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 and cash collateral represent scheduled future injections of cash by the Group into projects in the Primary Investment portfolio.

 

 

31 December

2019

£ million

31 December

2018

£ million

Letters of credit issued and other guarantees

101

164

Cash collateral

118

132

Future cash investment into projects

219

296

 

Cash collateral is included within 'investments at fair value through profit or loss' in 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, Colombian Peso and Australian, US, Canadian and New Zealand dollars. As a result of foreign exchange movements in the year ended 31 December 2019, there was a net adverse fair value movement of £57 million in the portfolio valuation. Sterling strengthened against all relevant currencies between 31 December 2018 and 31 December 2019.

 

The Group does not typically hedge against foreign exchange movements in its portfolio value but may hedge for investments denominated in currencies that have been volatile in the past or expected to be so in the future. 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.

 

Letters of credit in issue at 31 December 2019 of £101 million (31 December 2018 - £164 million) are analysed by currency as follows:

 

Letters of credit by currency

31 December

2019

£ million

31 December

2018

£ million

Canadian dollar

12

-

US dollar

15

15

Australian dollar

68

149

Colombian peso

6

-

 

101

164

 

 

Cash collateral at 31 December 2019 of £118 million (2018 - £132 million) was all denominated in US dollar.

 

 

GOING CONCERN

 

The Group has committed corporate banking facilities until July 2023 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 2019.    

 

 

Luciana Germinario

Chief Financial Officer

 

 

PROSPECTS AND VIABILITY

 

The long term prospects and viability of the Group are a consistent focus of the Board when reviewing and determining the Group's strategy and business model.

 

The identification and mitigation of the Group's principal risks also form part of the Board's assessment of long term prospects and viability. The Directors have assessed the longer term prospects of the Group in accordance with provision 31 of the UK Corporate Governance Code 2018 ("the 2018 Code").

 

Assessing our prospects

John Laing has been successful in establishing itself as a valued and trusted partner for infrastructure investment. We have grown our investment portfolio over the last five years since IPO and expanded our footprint into new geographical markets and new asset classes. With this growth in footprint, together with the strengthening of both our partnerships with key players in the infrastructure sector and our capital base, we have also been able to grow our pipeline of future investment opportunities.

 

The key drivers for new infrastructure - population growth, urbanisation and climate change - are as strong now as they have ever been and we are confident that we are well placed to continue to see significant investment opportunities over the foreseeable future.

 

The Group adopts an annual business planning process which involves all of the Group's operating regions and senior management with review by the Board. The annual business plan looks out over the next three years with one budget year followed by two plan years. Detailed budgets for the coming financial year are established for both the Group and each of the regions, with performance targets set accordingly.         

 

This planning process is a significant part of the Board's assessment of the Group's prospects and is complemented by separate strategic reviews by the Board during the year. The Group's current market position, its strategy and business model and the potential impact of the principal risks are all taken into account in the Board's assessment of the prospects of the Group. In assessing the risks facing our business, we have considered the implications of the UK's withdrawal from the European Union at the end of the transition period. We believe our business model is robust enough and adaptable to weather any potential short-term disruption which might arise.

   

Assessing our viability

In accordance with provision 31 of the 2018 Code, the Directors have assessed the viability of the Group over a three year period to 31 December 2022.  The assessment carried out supports the Directors' statements both on viability, as set out below, and also in respect of going concern, as set out in the Financial Review section.

 

The use of a three year time horizon for the purpose of assessing the viability of the Group reflects the business model of the Group and the visibility the Group has over the future investment opportunities in its pipeline and is consistent with the period of the Group's business plan.

 

The Directors' assessment has been undertaken using projections from a detailed financial model which the Group uses continually and consistently both for forecasting purposes and to monitor compliance with the covenants in its corporate banking facilities. Key outputs from this model are reviewed at monthly treasury meetings as well as being used for monthly financial reporting and forecasting to the Executive Committee, the Board and in the annual business planning process. 

 

These projections include expected fair value movements from the existing portfolio and incorporate forecasts of the timing of new investment commitments and the disposal of investments as well as all cash flows of the Group and its working capital requirements.          

   

 

The key assumptions the Directors have made in making their assessment were as follows:

 

·      Stable government policy and macroeconomic factors and a continuing strong and liquid secondary market;

·      Availability of debt finance continues at Group level through the corporate banking facilities. Currently, the Group has committed corporate banking facilities of £650 million, of which £500 million matures in July 2023, beyond the end of the viability assessment period, and £150 million matures in January 2022. Our projections assume the facilities of £150 million are extended beyond January 2022 before the total facilities are increased to £800 million in March 2022, consistent with the forecast growth of the business. The Directors do not see the increase in facilities as being critical to the Group's viability over the assessment period, especially after taking into account the mitigating factors available to it as described below;

·      The remaining annual repayments to the John Laing Pension Fund under the existing seven-year deficit repayment plan, as detailed in the Financial Review section, do not significantly increase on the completion of the ongoing triennial actuarial valuation as at 31 March 2019; and

·      The value of the Group's investment portfolio is not significantly adversely impacted by changes in a number of key assumptions including: discount rates derived from the secondary market; macroeconomic factors such as exchange rates, taxation rates, inflation and deposit rates; the construction stage and operational performance of underlying assets; forecast project cash flows; volumes (where project revenue is linked to project usage); and forward energy prices and energy yields.

 

The Directors have also carried out a robust assessment of the principal risks facing the Group and how the Group manages these risks, including those that would threaten its strategy, business model, future operational and financial performance, solvency and liquidity.

 

The Group has considered the potential impact of these risks on the viability of the business. The projections and the underlying assumptions have been subjected to robust sensitivity analysis to stress test the resilience of the Group's forecasts to severe but plausible scenarios, together with the likely effectiveness of mitigating actions that would be expected by the Directors. The particular focus of the stress testing was on the available headroom under the banking facilities and to compliance with the key covenants under these facilities, including the adjusted asset cover ratio ("AACR").   

 

Similar stress testing is performed regularly throughout the year and reported to the Audit & Risk Committee.

 

For the viability assessment, the most severe scenarios tested are described below. This includes a description of the relevant principal risks from which an adverse impact is assumed under the scenario.    

 

Scenario 1

 

Scenario - the Group is unable to make any further investment realisations over the assessment period and accordingly materially reduces new investment activity.

 

Principal risks tested - a weakness in the secondary market (risk - 'liquidity in the secondary market'), both in terms of liquidity and appetite for particular infrastructure investments; a lower level of investment activity (risk - 'future investment activity'); shortfall in financial resources (risk - 'financial resources').

 

Mitigation - given the cyclical nature of the Group's disposal and reinvestment activity, there is an intrinsic mitigation to  a scenario of reduced realisation levels, by reducing new investment activity, and to a scenario of reduced future investment activity, by reducing disposal activity. In a scenario of being unable to make any further investment realisation, the Group can reduce its new investment activity which would also reduce its costs. The Group would also expect to receive a higher level of cash yield from its investment portfolio as it is maintaining a larger operational and yielding portfolio.

 

Result - under this scenario, with the likely mitigating actions available to the Directors, the projections show that the Group would be able to continue its operations and meet its liabilities as they fall due over the next three years to 31 December 2022 and to comply with the covenants in its banking facilities over this period.

 

 

Scenario 2

 

Scenario - the Group experiences a combination of a six month delay in forecast investment realisations and a significant write down, in one or more of its largest investments, to an amount of approximately 15% of the total portfolio value. This scenario demonstrates the downside that could be experienced without any mitigating actions before the minimum AACR under the Group's banking facilities was reached during the assessment period.

 

Principal risks tested - liquidity in the secondary market (risk - 'liquidity in the secondary market'); shortfall in financial resources (risk - 'financial resources'); adverse investment performance and valuation (risk - 'investment performance and valuation'); significant write down to the portfolio value (arising from one or more of the following risks - 'major incident', 'governmental policy', 'macroeconomic factors', 'counterparty risk').

 

Mitigation - this scenario assumes no mitigating action. The primary mitigating action available would be a reduction in investment activity, which the Group has the ability to manage and control.   

 

Result - under this combined downside scenario, the minimum AACR was only reached in December 2022, but there remained headroom under the banking facilities. Given the severity of the downside and the fact that available mitigating actions would likely be effective, the Directors believe this scenario proves there is a satisfactory level of robustness.

 

Based on the above assessment, the Directors have formed a reasonable expectation that the Group will be able to continue its operations and meet its liabilities as they fall due over the next three years to 31 December 2022.
 

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 Group uses the three lines of defence model of Risk Management:

 

·      Executive - central functions and regional teams that take ownership and manage risks

·      Management oversight - Executive Committee (EXCO), Management Risk Committee, Investment Committee, Divestment Committee and Project Review Committee that oversee and provide specialist risk management and compliance reviews

·      Independent Assurance - Internal Audit function and independent portfolio valuation

 

 

The principal internal controls that operated within this system throughout 2019 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 existing and emerging risks through a Group-wide risk register, that is embedded in the regular management reporting 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 external audit.

 

The Group's Internal Audit function's objectives are, inter alia, 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; and

·      advice on ongoing initiatives to strengthen internal control processes.

Internal Audit is independent of the business and reports functionally to the Chief Financial Officer 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 and chaired by the Chief Risk Officer, assists the Board, Audit & Risk Committee and Executive Committee in formulating and enforcing the Group's risk management policy. The Head of Internal Audit attends each meeting of the Management Risk Committee, which reports formally to the Audit & Risk Committee.

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 and approved 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 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. As part of this monitoring, the Group risk register is reviewed at every meeting of the Management Risk Committee and regularly by the Audit & Risk Committee and every six months by the Board.

 

 

With the Group facing a number of challenges with its renewable energy portfolio, resulting in significant losses in the year, the Directors have sought to re-affirm the effectiveness of the Group's risk management process. In conjunction with this, PwC has recently been engaged by the Group to perform a review of our governance of projects and is examining the role of the Investment Committee and the effectiveness of our project review process and wider risk management. We are committed to adopting all appropriate remedial actions to enhance our risk management approach and have started a process to enhance the internal audit function.

 

Overall, the Directors do not believe there are material weaknesses in the Group's internal control systems.

 

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 strategic objectives of the Group. 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 two strategic objectives are:

 

1.   Growth in volume of primary investments in responsible and sustainable to greenfield infrastructure projects over the medium term; and

2.   Management and enhancement of the Group's investment portfolio, with a clear focus on active management during the construction and operational phases, 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 and key controls

Change
in risk since 31 December 2018

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 projects or otherwise affect existing or future projects.

 

Changes to legislation or public policy relating to renewable energy could negatively impact the economic returns on the Group's existing 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.

 

The UK's withdrawal from the European Union may take place in a manner which affects: (i) the valuation of the Group's investments (ii) its ability to make future investments and/or divestments.

 

1, 2

 

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. The Group seeks to limit its exposure to any single governmental or public sector body and uses portfolio limits as guidance to manage this risk. These portfolio limits are reviewed when approving individual investments and on a regular basis by the Investment Committee.

 

 

 

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.

 

Through its track record of 150 investment commitments, the Group has developed significant expertise in compliance with public tender regulations.

 

The Group believes its business model is robust and able to weather potential short-term disruption as a result of the UK's withdrawal from the European Union from, for example, (i) changes in the value of Sterling, (ii) changes in financial markets and/or other macroeconomic factors (see Personnel risk).

 

No change

Macroeconomic factors

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

 

Changes in factors which affect power 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 and, as a result, the valuation of such investments.

 

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.

 

2

 

Factors which have the potential to adversely impact the underlying cash flows of an investment, and hence its valuation, may be hedged at a project level. In addition, unhedged exposures and associated sensitivities are considered during the investment appraisal process. In particular, prior to investment, renewable energy projects are assessed for their sensitivity to a number of variables, including future power prices.

 

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 its investments in 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.

 

The Group does not typically hedge investments in non-Sterling denominated currency for translation risk but may use hedging instruments to minimise the degree of fluctuation in foreign exchange rates for investments in more volatile currencies. The Group does typically hedge short term cash flows arising from investment realisations or significant distributions in currencies other than Sterling.

 

 

 

 

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.

 

2

 

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 substantially as operational infrastructure has matured as an asset class. The Group has developed strong relationships with many secondary investors in each of its markets. The Group completed the first disposals of operational  assets in Australia and the US during 2019.

 

 

 

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, 2

 

The Group has corporate banking facilities totalling £500 million which mature in July 2023 as well as additional facilities (£150 million) committed until January 2022. Available headroom is carefully monitored and compliance with the financial covenants and other terms of these facilities is closely observed. The Group also closely monitors short and medium term forecasts of its working capital, cash collateral and letter of credit requirements   and regularly performs stress testing of these forecasts. The Group 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 manages a rolling divestment programme across the Group's entire portfolio which considers funding requirements and opportunities for divestment in secondary markets. This Committee provides oversight and recommendations on all divestment processes.

 

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.

 

Prior to financial close, all proposed investments are scrutinised by the Investment Committee. This scrutiny includes a review of sensitivities of investment returns and financial ratios to adverse performance 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. Monitoring of compliance with financial covenant ratios and other terms of loan documents continues throughout the term of the project finance loan.

 

Small increase due to being one year closer to the main £500 million banking facilities maturing in July 2023. The Directors are confident of the Group's ability to refinance its current facilities before this date.

Pensions

The amount of the surplus/deficit on 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 surplus/deficit reported in the Group Balance Sheet, and gains/losses recorded in the Group Statement of Comprehensive Income.

 

1

 

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. As at 31 December 2019, hedging in place amounted to approximately 95% of JLPF's assets in respect of both interest rates and inflation.

 

The actuarial valuation of JLPF as at 31 March 2019 is currently in progress and is expected to be finalised by 30 June 2020.

 

Decreased as a result of the further cash contribution paid in 2019 and the improvement in the IAS 19 balance from a deficit at 31 December 2018 to a surplus at 31 December 2019.

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 and its strong relationships with international partners, will continue to enable it to compete effectively and secure attractive investments.

The Group's investment pipeline is diversified by geography and asset class.

 

The Group's business model is sufficiently flexible that when one asset class or geographical market becomes less attractive, either permanently or temporarily, we are able to look at new asset classes and geographical markets.

 

 

 

No change

Investment performance and 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 (e.g. customer/off-taker 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 and cost of fuel (in the case of biomass projects), operational issues, price differentials and other restrictions on the electricity network, the reliability of electrical connections or other factors such as noise, off-taker risk 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 could be affected by changes in tax legislation, for instance changes which limit tax-deductible interest .

 

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 resulting in 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 investments, and changes to the value of these investments 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.

 

2

 

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.

 

A substantial portion of the Group's investments are in projects which are 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 sensitivities thereto 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 offtake arrangements, including power purchase agreements, are entered into to mitigate the impact of changes in future energy prices.

 

 

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.

 

Typically, 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 project 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, typical 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 Group seeks to limit its exposure to any single sub-contractor.

 

The terms of the sub-contracts into which project companies enter typically provide some protection 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 the value of its investments by working with all parties to agree revised timetables and/or other restructuring arrangements.

 

The Group monitors the concentration risk within its portfolio to achieve a diversification by individual asset size, market and asset class.

 

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

 

No change

Counterparty risk

The Group is exposed to counterparty credit risk with regards to (i) governmental entities, sub-contractors, off-takers, 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.

 

Worsening of general economic conditions in any of the markets in which the Group operates could create heightened counterparty risk.

 

 

2

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/or local public sector covenants, which significantly reduce the Group's risk. Risk is further reduced by the increasing geographical spread of the Group's investments.

 

 

Counterparties for cash deposits at a Group level, project debt swaps and deposits within project companies are required to be institutions 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.

 

Since 2018, the Group uses portfolio counterparty exposure limits as guidance to manage counterparty risk. In 2019, a revised methodology for assessing counterparty exposures and for setting exposure limits (based on credit ratings) was established. Counterparty risk is reviewed at each investment approval and the aggregate exposures across the portfolio are reviewed on a six-monthly basis by the Management Risk Committee and reported to the Audit & Risk Committee. In addition, there is an alert system under which any red flags are immediately escalated to the relevant teams. 

 

 

 

 

 

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 work force fatalities during construction, a terrorist attack, natural disaster (including from the effects of climate change), 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

 

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

 

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

 

The Group is committed to ensuring the health, safety and welfare of all its employees, sub-contractors and all other persons in communities who may be affected by its direct activities, or those under its control and believes this is a key element of effective business management and essential to its reputation.

 

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 an experienced third party.

 

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.

 

Increased due to the heightened potential impact of climate change.

 

 

 

 

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.

 

Uncertainty arising from the UK's decision to leave the EU could impact the Group's ability to recruit and retain EU nationals in the UK.

 

 

1, 2

 

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 offices in Amsterdam and Madrid and could open further offices in other EU jurisdictions if necessary.

 

 

 

No change

ESG

The Group may not adequately address ESG considerations in making investment decisions. This could impact the reputation of the Group and the valuation of its investments.

 

We believe that climate change will result in an increased likelihood and intensity of extreme weather events such as extreme hot and cold weather or intense rainfall events, which could impact John Laing by causing physical damage to assets, such as road and rail infrastructure investments in the mid-and long-term. Increasing instances of such damage could lead to increases in insurance premiums for John Laing's projects, impacting the economic performance of investments. In the nearer term, changes in energy prices, driven by future energy demand/supply balancing and oil prices could impact negatively on the economic returns of the Group's investments in renewable energy and as a result the valuation of such investments.

 

 

 

The Group has embedded the consideration of ESG factors into its evaluation of new investments.

 

During the bidding process for investments, where appropriate, the Group takes technical advice to evaluate the exposure of the investment to climate change risk.

 

New risk this year.

 

 

 

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 2 March 2020 and is signed on its behalf by:

 

 

Olivier Brousse

Luciana Germinario

Chief Executive Officer

Chief Financial Officer

2 March 2020

2 March 2020

 

 

 

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 infrastructure assets. The total value of these assets at 31 December 2019 was £1,768 million (31 December 2018 - £1,560 million) as disclosed in note 13 to the Group financial statements. These investments are held across a range of different sectors comprising transport, environmental (including wind and solar generation assets) and social infrastructure, and a range of geographies comprising Europe, North America, Asia Pacific and Latin America.

 

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. The quantum and timing of value enhancements recognised in the portfolio was the other significant judgement identified in the current financial year. Given the level of judgement involved, we consider these areas to be fraud risks. Other key sources of estimation uncertainty include forecast project cash-flows, in particular future power prices, marginal loss factors and energy yields which impact the value of the Group's investments in Renewable Energy projects. In addition to Asia-Pacific assets, North American and European assets were valued locally by John Laing valuation teams in the current year.

 

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 valuation is obtained from a third party in respect of the fair market value of the portfolio as a whole at the balance sheet date. The level of transactional evidence over the past five years has increased as the Group has divested assets.

 

More information on the valuation and valuation methodology (including the discount rates adopted, the relevant sensitivity of the valuation of investments to a change in those rates and the relevant sensitivity of the valuation to a change in future power prices, marginal loss factors and energy yields) can be found in note 4 to the Group financial statements.

·      We obtained an understanding of the relevant controls in place to value the Group's investments.

 

·      We benchmarked 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.

 

·      A sample of value enhancements were agreed to underlying third party evidence to assess the value and timing of recognition in the portfolio valuation. We assessed consistency of certain enhancements across regions and asset classes.

 

·      We worked with Deloitte valuation specialists in Europe, Asia Pacific and North America who assessed the discount rates on a sample of assets.

 

·      We met with the Group's independent 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 independent valuer. We also assessed the competence and independence of the external valuer.

 

·      We assessed 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. For new investments we also reviewed the project model audit report. We agreed the marginal loss factor and energy yield forecasts to external third party re-ports.

 

·      We also visited the North America, Europe and Asia Pacific operations of the Group which included a site visit to a sample of assets. We discussed asset performance with members of the Asset Management team and considered the impact of operational challenges on the value of key projects.

 

·      We made enquiries of the project auditors of a sample of investments as to whether they were aware of any matters which may impact the fair value of those investments.

 

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

Key observations

·      We consider the judgements adopted in valuing the Group's investments as a whole to be appropriate and within an acceptable range.

 

·      We consider the disclosures in respect of the valuation of investments to be appropriate and in accordance with IFRS as adopted by the EU.

 

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 surplus of £13 million at 31 December 2019 (deficit of £33 million at 31 December 2018).

 

The valuation of the surplus is subject to a number of assumptions including the adoption of the appropriate (i) discount rate (ii) inflation rate and (iii) mortality assumptions.  We consider this to be a fraud risk due to the quantum of the defined benefit obligation liability, its sensitivity to the underlying assumptions and the management judgement involved in deciding on the underlying 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 Requirement and their Interaction.

 

For further information, see note 19 to the Group financial statements and the Group's disclosures around critical accounting judgements and key sources of estimation uncertainty in note 4 to the Group financial statements.

 

·      We obtained an understanding of the relevant 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 tested 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, 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 (including the discount, inflation and mortality assumptions) to be appropriate and consistent with our own internal benchmarks.

 

·      We concur with Management's judgement 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 and in accordance with IFRS as adopted by the EU.

 

 

 

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
Chartered Accountants and Statutory Auditor

2 March 2020

 

 

Group Income Statement

for the year ended 31 December 2019

 

 

 

Year ended

31 December 2019

Year ended

31 December 2018

Notes

£ million

£ million

 

Net gain on investments at fair value through profit or loss

13

147

 

366

Other income

8

32

31

Operating income

5

179

397

Administrative expenses (excluding GMP equalisation charge)

 

(68)

(66)

GMP equalisation charge

19

-

(21)

Total administrative expenses

 

(68)

(87)

Profit from operations

9

111

310

Finance costs

11

(11)

(14)

Profit before tax

5

100

296

Tax (charge)/credit

12

-

-

 

Profit for the year attributable to the Shareholders of the Company

 

100

 

296

 

Earnings per share (pence)

 

 

 

Basic

6

20.4

63.1

Diluted

6

20.2

62.4

Group Statement of Comprehensive Income

for the year ended 31 December 2019

 

 

 

 

Year ended

31 December 2019

Year ended

31 December 2018

 

Note

 

£ million

£ million

Profit for the year

 

 

100

296

 

 

 

 

 

Actuarial gain/(loss) on retirement benefit obligations

19

 

19

 

(3)

Other comprehensive income/(loss) for the year

 

 

19

(3)

Total comprehensive income for the year

 

 

119

293

 

 

 

Actuarial gain/(loss) on retirement benefit obligations will not be subsequently reclassified to the Group Income Statement.
 

Group Statement of Changes in Equity

for the year ended 31 December 2019

 

 

Notes

Share capital

£ million

Share premium

£ million

Other reserves

£ million

Retained earnings

£ million

Total equity

£ million

Balance at 1 January 2019

 

49

416

6

1,115

1,586

Profit for the year

 

-

-

-

100

100

Other comprehensive income for the year

 

-

-

-

19

19

Total comprehensive income for the year

 

-

-

-

119

119

Share-based incentives

7

-

-

4

-

4

Vesting of share-based incentives

7, 21

-

-

(4)

4

-

Purchase of own shares related to share-based incentives

21

-

-

(4)

-

(4)

Dividends paid1

 

-

-

-

(47)

(47)

Balance at 31 December 2019

 

49

416

2

1,191

1,658

 

 

 

 

 

 

 

 

for the year ended 31 December 2018

 

 

Notes

Share capital

£ million

Share premium

£ million

Other reserves

£ million

Retained earnings

£ million

Total

equity

£ million

Balance at 1 January 2018

 

37

218

6

863

1,124

Profit for the year

 

-

-

-

296

296

Other comprehensive loss for the year

 

-

-

-

(3)

(3)

Total comprehensive income for the year

 

-

-

-

293

293

Share-based incentives

7

-

-

3

-

3

Vesting of share-based incentives

7, 21

-

-

(3)

3

-

Net proceeds from issue of shares

21, 22

12

198

-

-

210

Dividends paid1

 

-

-

-

(44)

(44)

Balance at 31 December 2018

 

49

416

6

1,115

1,586

 

 

1 Dividends paid:

 

Year ended

31 December

2019

pence

Year ended

31 December

2018

pence

Dividends on ordinary shares

 

 

Per ordinary share:

 

 

- final paid

7.70

7.17a

- interim proposed and paid

1.84

1.80 

- final proposed

7.66

7.70

 

a The final dividend for 2017 was originally reported in the 2017 Annual Report and Accounts as 8.70p per share. This was adjusted for the Rights Issue to 7.17p per share and paid in May 2018.

 

The total estimated amount to be paid in May 2020 in respect of the proposed final dividend for 2019 is £38 million based on the number of shares in issue as at 31 December 2019. The final dividend paid for 2019 will depend on the number of share-based incentives vesting before the final dividend is paid.

 

 

Group Balance Sheet

as at 31 December 2019

Notes

31 December 2019

£ million

31 December 2018

£ million

Non-current assets

 

 

 

Right-of-use assets

 

4

-

Investments at fair value through profit or loss

13

1,897

1,700

Retirement benefit asset

19

13

-

 

 

1,914

1,700

Current assets

 

 

 

Trade and other receivables

14

6

8

Cash and cash equivalents

 

2

6

 

 

8

14

Total assets

 

1,922

1,714

Current liabilities

 

 

 

Borrowings

16

(236)

(66)

Trade and other payables

15

(15)

(20)

 

 

(251)

(86)

Net current liabilities

 

(243)

(72)

Non-current liabilities

 

 

 

Retirement benefit obligations

19

(7)

(40)

Finance lease liabilities

 

(4)

-

Provisions

20

(2)

(2)

 

 

(13)

(42)

Total liabilities

 

(264)

(128)

Net assets

 

1,658

1,586

Equity

 

 

 

Share capital

21

49

49

Share premium

22

416

416

Other reserves

 

2

6

Retained earnings

 

1,191

1,115

Equity attributable to the Shareholders of the Company

 

1,658

1,586

 

 

The financial statements of John Laing Group plc, registered number 05975300, were approved by the Board of Directors and authorised for issue on 2 March 2020. They were signed on its behalf by:

 

 

Olivier Brousse

Luciana Germinario

Chief Executive Officer

Chief Financial Officer

2 March 2020

2 March 2020

 

 

Group Cash Flow Statement

for the year ended 31 December 2019

 

 

 

Year ended

31 December 2019

Year ended

31 December 2018

 

Notes

£ million

£ million

Net cash outflow from operating activities

23

(61)

(54)

Investing activities

 

 

 

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

13

(50)

12

Net cash (outflow)/inflow from investing activities

 

(50)

12

Financing activities

Proceeds from issue of shares

 

-

210

Purchase of own shares related to share-based incentives

 

(4)

-

Dividends paid

 

(47)

(44)

Finance costs paid

 

(11)

(15)

Proceeds from borrowings

 

339

15

Repayment of borrowings

 

(170)

(121)

Net cash from financing activities

 

107

45

Net (decrease)/increase in cash and cash equivalents

 

(4)

3

Cash and cash equivalents at beginning of the year

 

6

3

Cash and cash equivalents at end of the year

 

2

6

 

 

Notes to the Group Financial Statements

for the year ended 31 December 2019

 

1     General information

The results of John Laing Group plc (the "Company" or the "Group") are stated according to the basis of preparation described in note 3 below. The Company is a public limited company incorporated in England and Wales and 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.

 

2      Adoption of new and revised standards

 

New and amended IFRS that are effective for the current year

 

In 2019, the Group adopted one new IFRS, together with a number of amendments to IFRS and Interpretations, issued by the International Accounting Standards Board (IASB) that are effective for an annual period that begins on or after 1 January 2019 (and have been endorsed for use within the EU).

 

·    IFRS 16 Leases

·    Amendments to IFRS 9 Prepayment Features with Negative Compensation

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

·    Annual Improvements to IFRS 2015 - 2017 Cycle: Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs

·    Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment and Settlement

·    IFRIC 23 Uncertainty over Income Tax Treatments

 

Other than IFRS 16, the other amendments and interpretations do not have an impact on the consolidated financial statements of the Group.

 

The nature and effect of the changes as a result of the adoption of IFRS 16 are described below.

 

Impact of initial application of IFRS 16 Leases

The Group adopted IFRS 16 Leases using the modified retrospective method of adoption with a date of application of 1 January 2019. This method involves measuring the right-of-use asset at an amount equal to the lease liability at the transition date. As permitted under this method, the Group has not restated comparatives for the 2018 reporting period. The Group elected to use the practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease  -  at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low value assets') being those assets with a value less than £5,000.

 

The Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate as of 1 January 2019. The Group's weighted average incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 2.75%.

 

The effect of adoption of IFRS 16 is as follows:

 

 

1 January 2019

£ million

Assets

 

Right-of-use assets

5

Total assets

5

 

 

Liabilities

 

Finance lease liability

(5)

Total liabilities

(5)

 

 

Equity

 

Retained earnings

-

Total equity

-

 

 

A reconciliation of the Group's outstanding commitments for future minimum lease payments under non-cancellable operating leases for land and buildings previously disclosed in the 2018 Annual Report & Accounts to the lease liability recognised under IFRS 16 is shown below. 

 

 

1 January 2019

£ million

 

 

 

 

Within one year

In the second to fifth years inclusive

(1)

(3)

After five years

(2)

 

(6)

 

 

 

 

 

Discount on lease liability

1

 

 

Total liabilities recognised under IFRS 16

(5)

 

 

 

         

 

The impact on the Group Income Statement for the year ended 31 December 2019 from recognising an interest expense on the lease liability and depreciation of the right-to-use asset in contrast to the operating lease charge, which would have been applied under IAS 17, was a net £0.1 million credit.

 

 

New and amended IFRS standards in issue but not yet effective

 

At the date of authorisation of these financial statements, the Group has not applied the following new and revised standards that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:

 

·      IFRS 17 Insurance Contracts

·      IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

·      Amendments to IFRS 3 Definition of a business

·      Amendments to IAS 1 and IAS 8  Definition of material

·      Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards

 

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.

 

3     Significant accounting policies

a)      Basis of preparation

The Group financial statements have been prepared in accordance with IFRS as adopted by the EU and are presented in pounds sterling. 

 

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 its investment in John Laing Holdco Limited and 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 in project companies take the form of equity and/or subordinated debt;

(iii)   the Group's business model is to originate, invest in, and actively manage infrastructure assets. It invests in infrastructure 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 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 surplus, IFRS 10 does not exclude companies with non-investment related balances 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.

 

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.

b)      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 £500 million corporate banking facilities committed until July 2023, together with additional £150 million facilities committed until January 2022. 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 banking 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 foreign exchange, credit, price, liquidity, interest rate and capital risks are set out in note 18.

 

c)      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 Company 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 e)(i) for further detail.

 

(iii)   Revenue from contracts with customers

 

        Fees from asset management services

Fees from asset management services comprise fees for the management of the Jura and JLEN funds under Investment Advisory Agreements as well as fees for providing services under Management Services Agreements to certain projects in which the Group and other parties invest. These fees are earned under contracts that have a single performance obligation which is to deliver asset management services to the customer. Revenue is recognised in accordance with the contract to the extent the performance obligation is met which is considered to be over time as the asset management services are provided.

 

Management services to the Jura and JLEN funds ceased to be provided in the year ended 31 December 2019.

 

Recovery of bid costs

The recovery of costs incurred in respect of bidding for new primary investments is recognised when a contract to recover costs is entered into with either the entity procuring the project or the project company, typically at financial close. This is the point at which the performance obligation has been met.   

 

Revenue from contracts with customers excludes VAT and the value of intra-group transactions between recourse subsidiaries held at FVTPL and those that are consolidated.

d)      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.

e)      Financial instruments

Financial assets and financial liabilities are recognised in the Group Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

 

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 recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

 

Classification of financial assets

Financial assets that meet the following conditions are measured subsequently at amortised cost:

·      the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

·      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

Financial assets that meet the following conditions are measured subsequently at fair value through other comprehensive income (FVTOCI):

·      the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and

·      the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

By default, all other financial assets are measured subsequently at FVTPL.

 

The financial assets that the Group holds are classified as follows:

 

·      Investments at FVTPL are measured subsequently at FVTPL.  

 

Investments 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 and other assets and liabilities of investment entity subsidiaries. Investments in project companies are recognised as financial assets at FVTPL. Subsequent to initial recognition, investments in project companies are measured on a combined basis at fair value principally using a discounted cash flow methodology.

 

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 e)(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.

 

·      Trade and other receivables and cash and cash equivalents are measured subsequently at amortised cost using the effective interest method. 

 

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period.

 

The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.

 

 

·      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 but exclude bank overdrafts unless there is a right to offset against corresponding cash balances.

 

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

 

(ii)      Impairment of financial assets

The Group recognises a loss allowance for expected credit losses on trade and other receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

 

The Group's financial assets classified as trade and other receivables at 31 December 2019 were only £4 million, or 0.2% of the Group's net assets, and therefore any credit risk in relation to the impairment of trade and other receivables is considered to be immaterial.

 

(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.

 

On derecognition of a financial asset measured at amortised cost, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

 

(iv)     Financial liabilities and equity

 

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

 

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

 

Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

 

Financial liabilities

All financial liabilities are measured subsequently at amortised cost using the effective interest method or at FVTPL.

 

The Group's financial liabilities, which comprise interest-bearing loans and borrowings and trade and other payables, are all measured at amortised cost using the effective interest method.

 

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

 

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 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.

 

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

 

(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. The Group does not apply hedge accounting to its derivative financial instruments.

f)       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.

g)      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 on a straight-line basis over the remaining facility term.

 

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

h)      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.

i)       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 that is consolidated 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.

j)       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 GMP equalisation charge for 2018 has been presented separately in the Group Income Statement as it was deemed to be a material amount in the context of total administrative expenses.

 

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.

k)      Leases

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (being those assets with a value less than £5,000). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

                                                                                           

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

 

The lease liability is presented as a separate line in the Group Balance Sheet.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

·     The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

·     The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).

·     A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

 

The Group did not make any such adjustments during the periods presented.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are presented as a separate line in the Group Balance Sheet.

The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss.

l)       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.

m)     Employee benefit trust

In June 2015, the Group established the John Laing Group Employee Benefit Trust (EBT) as described further in note 7. 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 as defined by IFRS. 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.

 

 

4  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 financial year) 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. The critical accounting judgement is how the investment in John Laing Holdco Limited is fair valued. Fair value is determined based on the fair value of investments in project companies (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, 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 a risk premium is added to reflect the additional risk during the construction phase. The construction risk premium reduces 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 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 (where relevant); 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, a risk premium is added during the construction phase to reflect the additional risks throughout construction. This premium reduces 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 2019 were in the range of 6.4% to 12.4% (31 December 2018 - 6.8% to 11.7%). Note 18 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 marginal loss factors impacting Australian wind and solar generation assets, future energy prices and energy yields impacting all renewable energy projects and forecasts for long-term inflation across the whole portfolio. Note 18 provides details of the sensitivities to the investment portfolio value from changes in forecast energy prices, marginal loss factors, energy yields 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 deviate materially year on year.

 

Pension and other post-retirement liability accounting

 

Critical judgements in applying the Group's accounting policies

The accounting surplus in the Group's defined benefit pension schemes at 31 December 2019 was £13 million (2018 - deficit of £33 million). In determining the Group's defined benefit pension surplus, 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 was 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 2019 and the sensitivity of the pension liabilities to certain changes in these assumptions are illustrated in note 19.  

 

Brexit

 

In assessing the risks facing our business, we have considered the implications of and the potential impact on the Group's results of the UK withdrawing from the European Union. We believe our business model is robust enough and adaptable to weather any potential short-term disruption which might arise through the transition period and beyond. The most likely impact would come from any resulting macroeconomic changes, including changes in interest rates, which could impact discount rates in relation to both the Group's investment portfolio and its retirement benefit obligations, inflation and sterling exchange rates. The above sections on key sources of estimation uncertainty provide more details in these areas.

 

 

5     Operating segments

 

Following an internal reorganisation, under which the Primary Investment and Asset Management teams in each of the four core geographical regions report to a single regional head, 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 performance on a regional basis. Regional performance targets have also been set. Accordingly, the reportable segments under IFRS 8 are based on regions which are currently: Asia Pacific, Europe and Middle East, North America and Latin America. Further reportable segments are "Fund management", relating to the external fund management activities for Jura and JLEN, which ceased in 2019, and "Central", which covers the corporate activities at the Group's headquarters. The prior period segmental information has been restated accordingly.

 

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

 

 

The following is an analysis of the Group's operating income and profit before tax for the years ended 31 December 2019 and 31 December 2018:

 

 

 

 

Year ended 31 December 2019

 

Asia Pacific

Europe and Middle East

North America

Latin America

Fund Management

Central

Total

 

 

£ million

£ million

£ million

£ million

£ million

£ million

£ million

 

 

 

 

 

 

 

 

Net gain on investments at FVTPL

12

18

100

12

-

5

147

Other income

2

3

6

-

20

1

32

Operating income

14

21

106

12

20

6

179

Administrative expenses

(10)

(12)

(14)

(3)

(5)

(24)

(68)

Profit from operations

4

9

92

9

15

(18)

111

Finance cots

-

-

-

-

-

(11)

(11)

Profit before tax

4

9

92

9

15

(29)

100

 

 

 

 

Year ended 31 December 2018 (restated)

 

Asia Pacific

Europe and Middle East

North America

Latin America

Fund Management

Central

Total

 

 

£ million

£ million

£ million

£ million

£ million

£ million

£ million

 

 

 

 

 

 

 

 

Net gain on investments at FVTPL

86

188

88

-

-

4

366

Other income

2

4

6

-

19

-

31

Operating income

88

192

94

-

19

4

397

Administrative expenses (excluding GMP equalisation charge)

(10)

(17)

(9)

(1)

(9)

(20)

(66)

GMP equalisation charge

-

-

-

-

-

(21)

(21)

Profit from operations

78

175

85

(1)

10

(37)

310

Finance costs

-

-

-

-

-

(14)

(14)

Profit before tax

78

175

85

(1)

10

(51)

296

 

 

For the year ended 31 December 2019, the Group had three investments (2018 - two investments)  from which it received more than 10% of its operating income. The operating income from the three investments was £54 million, £28 million and £26 million, which is reported within the Europe and Middle East and the North America segment. The Group treats each investment in a project company as a separate customer for the purpose of IFRS 8.

 

The Group's investment portfolio valuation is the aggregation of the values of the investment portfolios in each region where the investments are actively managed. Other assets and liabilities, including cash balances and borrowings as well as retirement benefit obligations, are also managed centrally.

 

31 December

2019

£ million

31 December

2018

£ million

Asia Pacific

587

505

Europe and Middle East

599

580

North America

514

465

Latin America

68

-

Central

-

10

Portfolio valuation

1,768

1,560

Other assets and liabilities

129

140

Investments at FVTPL

1,897

1,700

Retirement benefit assets

13

-

Other assets

12

14

Total assets

1,922

1,714

Retirement benefit obligations

(7)

(40)

Other liabilities

(257)

(88)

Total liabilities

(264)

(128)

Group net assets

1,658

1,586

 

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

 

 

 

6     Earnings per share

 

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

 

 

 Year ended
31 December 2019

 Year ended
31 December 2018

 

£ million

£ million

Earnings

 

 

Profit for the purpose of basic and diluted EPS

100

296

Profit for the year

100

296

 

 

 

Number of shares

 

 

Weighted average number of ordinary shares for the purpose of basic EPS

491,491,257

 

469,502,029

Dilutive effect of ordinary shares potentially issued under share-based incentives

4,825,962

 

5,535,545

Weighted average number of ordinary shares for the purpose of diluted EPS

496,317,219

 

475,037,574

 

 

 

EPS (pence/share)

 

 

Basic

20.4

63.1

Diluted

20.2

62.4

 

7     Share-based incentives

 

Long-term incentive plan (LTIP)

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 share-based performance condition, total shareholder return (TSR) (50% of the award), and a non-share 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 was as follows:

 

 

Number of share awards under LTIP

 

 

2019

2018

At 1 January

5,216,928

5,258,970

Granted

1,506,698

1,747,340

Adjustment for the Rights Issue bonus factor

-

436,067

Lapsed

(572,841)

(842,082)

Vested

(1,887,795)

(1,383,367)

At 31 December

4,262,990

5,216,928

 

In April 2019, 1,380,075 share awards were granted (2018 - 1,747,340). The weighted average fair value of the awards was 289.3p per share (2018 - 191p per share) for the share-based performance condition, determined using the Stochastic valuation model, and 393.4p per share (2018 - 285p per share) for the non-share based performance condition, determined using the Black Scholes model. The weighted average fair value of these awards from both models was 341.4p per share (2018 - 238.02p).  The significant inputs into the model were the share price of 394.2p (2018 - 286p) at the grant date, expected volatility of 17.91% (2018 - 17.28%), expected dividend yield of 2.41% (2018 - 3.12%), an expected award life of three years and an annual risk-free interest rate of 0.68% (2018 - 0.88%). 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 weighted average exercise price of the awards granted during 2019 was £nil (2018 - £nil).

 

A further 126,623 share awards were granted in May 2019 to the Chief Financial Officer on her appointment. The weighted average fair value of the awards was 270.1p per share for the share-based performance condition, determined using the Stochastic valuation model, and 367.9p per share for the non-share based performance condition, determined using the Black Scholes model. The weighted average fair value of these awards from both models was 319.1p per share.  The significant inputs into the model were the share price of 386.8p at the grant date, expected volatility of 17.34% , expected dividend yield of 2.41%, an expected award life of three years and an annual risk-free interest rate of 0.70%. 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 weighted average exercise price of the awards granted during 2019 was £nil.

 

The 2016 LTIP award vested in April 2019. As detailed in the Directors' Remuneration Report, vesting was at 95.63% of the maximum, taking into account the TSR and NAV performance conditions over the performance period, which resulted in 1,887,795 shares vesting and being exercised. In addition, a further 108,968 shares were issued in lieu of dividends payable since the grant date on the vested shares (see note 21).  

 

During the year ended 31 December 2019, a total of 572,841 awards lapsed (2018 - 842,082), of which 86,371 awards lapsed on the vesting of the 2016 LTIP award (2018 - 380,350) and a further 486,470 awards lapsed as a result of leavers in the year (2018 - 461,732).

 

Of the 4,262,990 awards outstanding at 31 December 2019 (2018 - 5,216,928), none were exercisable at 31 December 2019 (2018 - nil). 1,398,846 awards are due to vest or lapse on 15 April 2020, 1,415,556 awards are due to vest or lapse on 18 April 2021 and 1,448,588 awards are due to vest or lapse on 17 April 2022 subject to the conditions described above. The weighted average exercise price of the awards outstanding at 31 December 2019 was £nil (31 December 2018 - £nil).

                                                                                         

Deferred Share Bonus Plan

The Group operates a Deferred Share Bonus Plan (DSBP) for Executive Directors and certain senior executives under which the amount of any bonus above 60% of their base salary (or, for Executive Directors, where higher, 60% of maximum bonus potential) is awarded in deferred shares. Awards under the DSBP 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 was as follows:

 

 

Number of share awards under DSBP

 

2019

2018

At 1 January

175,141

63,121

Granted

112,554

138,987

Adjustment to awards granted in the prior period

-

(8)

Adjustment for the Rights Issue bonus factor

-

5,647

Lapsed

(13,781)

-

Vested

(115,049)

(32,606)

 

 

 

At 31 December

158,865

175,141

In April 2019, 112,554 share awards were granted (2018 - 138,987). The weighted average fair value of the awards was 394.5p per share (2018 - 286p per share).  The significant inputs into the model were the share price of 394.2p (2018 - 286p) at the grant date, expected volatility of 18.27% (2018 - 17.28%), expected dividend yield of 2.41% (2018 - 3.12%), an expected award life of three years and an annual risk-free interest rate of 0.68% (2018 - 0.88%).  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 weighted average exercise price of the awards granted during 2019 was £nil (2018 - £nil).

 

During the year ended 31 December 2019, 115,049 shares vested and were exercised under the 2016 DSBP, 2017 DSBP, 2018 DSBP and 2019 DSBP. A further 4,030 shares were awarded in lieu of dividends payable since the grant date on the vested shares (see note 22).

 

Of the 158,865 awards outstanding at 31 December 2019 (2018 - 175,141), 13,400 were exercisable at 31 December 2019 (2018 - nil). 60,397 awards are due to vest in March and April 2020, 58,206 awards are due to vest in March and April 2021 and 26,862 awards are due to vest in April 2022 subject to the conditions described above. The weighted average exercise price of the awards outstanding at 31 December 2019 was £nil (31 December 2018 - £nil).

 

Buy-out award

In May 2019, the Chief Financial Officer was granted six buy-out awards over a total number of 65,044 shares, in compensation for cash-based long-term incentive awards that were forfeited on leaving her previous employer. The awards vest between 4 months and 3 years and 4 months from the date of grant and are subject to continued employment and the Plan Rules. The first award of 24,314 shares vested in September 2019 leaving 40,730 awards outstanding at 31 December 2019.

 

The weighted average fair value of the awards was 388.97p per share.  The significant inputs into the model were the share price of 386.8p at the grant date, expected volatility of 17.89%, expected dividend yield of 2.46% , an expected award life of between four months and three and a third years and an annual risk-free interest rate of 0.72% .  The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over the period of time commensurate with the vesting time of the last tranche (three and a third years) immediately prior to the date of grant. The weighted average exercise price of the awards granted during 2019 was £nil.

 

During the year ended 31 December 2019, 24,314 shares vested and were exercised.

 

Of the 40,730 awards outstanding at 31 December 2019, none were exercisable at 31 December 2019 (2018 - nil). 16,710 awards are due to vest in 2020, 3,528 awards are due to vest in 2021 and 3,528 awards are due to vest in 2022 subject to the conditions described above. The weighted average exercise price of the awards outstanding at 31 December 2019 was £nil (31 December 2018 - £nil).

 

 

The total expense recognised in the Group Income Statement for awards granted under share-based incentive arrangements for the year ended 31 December 2019 was £4 million (2018 - £3 million).

Employee Benefit Trust (EBT)

On 19 June 2015, the Company established an 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 through the acquisition and distribution of shares in the Company. The EBT is able to acquire shares in the Company to satisfy obligations under the Company's share-based incentive arrangements.

 

 

8     Other income

 

Year ended

31 December 2019

Year ended

31 December 2018

 

£ million

£ million

Fees from asset management services

22

27

Sale of investment advisory agreement

5

-

Recovery of bid costs

5

4

Other income

32

31

 

Other income represents revenue from contracts with customers under IFRS 15 Revenue From Contracts with Customers.

 

The Company completed the sale of its remaining fund management activities by way of a novation of the Investment Advisory Agreement with JLEN and transfer of the investment advisory team to Foresight Group.

 

 

9     Profit from operations

 

 Year ended
31 December 2019

 Year ended
31 December

2018

 

£ 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 and Group financial statements

(0.2)

(0.1)

The audit of the annual accounts of the Company's subsidiaries

(0.2)

(0.2)

Total audit fees

(0.4)

(0.3)

 

 

 

Audit related assurance services

(0.1)

(0.1)

Other assurance services

-

-

Non-assurance related services

-

(0.3)

Total non-audit fees

(0.1)

(0.4)

 

 

 

Operating lease charges:

 

 

- rental of land and buildings

-

(1.5)

Depreciation of plant and equipment and right-of-use asset

(1.0)

(0.1)

 

 

 

 

The fee payable for the audit of the Company and consolidated financial statements was £202,117 (2018 - £151,576). The fees payable for the audit of the annual accounts of the Company's subsidiaries were £194,615 (2018 - £186,744).

 

Fees for audit related assurance services comprised £53,200 (2018 - £42,200) for a review of the Group interim report and £nil (2018 - £12,875) for a FCA regulatory review. Fees for other assurance services of £6,700 (2018 - £15,000) were paid for agreed upon procedures.

 

In 2018, fees of £276,000 for non-assurance related services was paid for reporting accountant services in relation to the Rights Issue of the Company in March 2019, which were deducted from share premium as an expense on the issue of equity shares.

 

Total non-audit fees for 2019 were £59,900 (2018 - £346,075).       

 

 

10   Employee costs and directors' emoluments

 

 

 

 Year ended
31 December 2019

 Year ended
31 December 2018

 

 

 

£ million

£ million

Employee costs comprise:

 

 

Salaries

 

(26)

(27)

Social security costs

(4)

(3)

Pension charge

 

 

 

 - defined benefit schemes (note 19)1

(2)

(23)

 

 - defined contribution

(1)

(2)

Share-based incentives (note 7)

(4)

(3)

 

 

 

(37)

(58)

 

1 The cost for 2018 includes a one-off GMP equalisation charge of £21 million.

 

Annual average employee numbers (including Directors):

 

 

Year ended

31 December 2019

No.

Year ended

31 December 2018

No.

Staff

153

168

UK

65

99

Overseas

88

69

 

 

 

Activity

 

 

Primary investments, asset management and central activities

153

168

 

Details of Directors' remuneration for the year ended 31 December 2019 can be found in the audited sections of the Directors' Remuneration Report.

 

 

11   Finance costs

 

Year ended

31 December

2019

£ million

Year ended

31 December

2018

£ million

Finance costs on corporate banking facilities

(9)

(10)

Amortisation of debt issue costs

(1)

(3)

Net interest cost of retirement obligations (note 19)

(1)

(1)

Finance costs

(11)

(14)

 

12   Tax (charge)/credit

 

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

 

Year ended

31 December

2019

£ million

Year ended

31 December

2018

£ million

Current tax:

 

 

UK corporation tax (charge) - current year

(1)

-

UK corporation tax credit - prior year

1

-

Tax (charge)/credit

-

-

 

 

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

 

 

Year ended

31 December 2019

Year ended

31 December 2018  

 

£ million

£ million

Profit before tax

100

296

Tax at the UK corporation tax rate

(19)

(56)

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

(1)

(5)

Non-taxable movement on fair value of investments

26

70

Adjustment for management charges to fair value group

(6)

(7)

Other movements

(1)

(2)

Prior year - current tax credit

1

-

Prior year - deferred tax charge

-

-

Total tax (charge)/credit

-

-

 

 

 

 

For the year ended 31 December 2019 a tax rate of 19% has been applied (2018 - 19%).

 

 

13   Investments at fair value through profit or loss

 

 

 

 

31 December 2019

 

Investments in project

companies

£ million

Listed

investment

£ million

Portfolio valuation sub-total

£ million

Other assets

and liabilities

£ million

Total investments at FVTPL

£ million

Opening balance

1,550

10

1,560

140

1,700

Distributions

(57)

-

(57)

57

-

Investment in equity and loans

267

-

267

(267)

-

Realisations from investment portfolio

(132)

(11)

(143)

143

-

Fair value movement

140

1

141

6

147

Net cash transferred to investments at FVTPL

-

-

-

50

50

Closing balance

1,768

-

1,768

129

1,897

 

 

 

 

31 December 2018

 

Investments in project

companies

£ million

Listed

investment

£ million

Portfolio valuation sub-total

£ million

Other assets

and liabilities

£ million

Total investments at FVTPL

£ million

Opening balance

1,184

10

1,194

152

1,346

Distributions

(33)

(1)

(34)

34

-

Investment in equity and loans

342

-

342

(342)

-

Realisations from investment portfolio

(296)

-

(296)

296

-

 

 

 

 

 

 

Fair value movement

353

1

354

12

366

Net cash transferred from investments at FVTPL

 

-

 

-

 

-

 

(12)

 

(12)

Closing balance

1,550

10

1,560

140

1,700

 

Of the fair value movement in the year ended 31 December 2019 of £147 million (2018 - £366 million), £10 million  (2018 - £nil) was received during the year as a dividend from John Laing Holdco Limited. 

 

Included within other assets and liabilities at 31 December 2019 above is cash collateral of £118 million (31 December 2018 - £132 million) in respect of future investment commitments to the I-66 Managed Lanes project (31 December 2018 - I-66 Managed Lanes and I-77 Managed Lanes).

 

The investment disposals that have occurred in the years ended 31 December 2019 and 2018 are as follows:

 

Year ended 31 December 2019

During the year ended 31 December 2019, the Group disposed of its interests in two PPP and two renewable energy project companies for £132 million as well as its holding of shares in JLEN.

 

Details of the disposals of project companies were as follows:

 

 

 

Date of

completion

 

Original

holding

%

Holding

disposed of

%

Retained

holding

%

 

 

 

 

 

Westadium Project Holdco Pty Limited

11 March 2019

50.0

50.0

-

John Laing Rocksprings Wind HoldCo Corp

2 May 2019

95.3

95.3

-

John Laing Sterling Wind HoldCo Corp

2 May 2019

92.5

92.5

-

A1 mobil GmbH & Co. KG

25 November 2019

42.5

42.5

-

 

Year ended 31 December 2018

During the year ended 31 December 2018, the Group disposed of shares and subordinated debt in three PPP project companies for £296 million.

 

Details were as follows:

 

 

 

Date of

completion

 

Original

holding

%

Holding

disposed of

%

Retained

holding

%

Acquired by Jura

 

 

 

 

Regenter Myatts Field North Holdings Company Limited

30 May 2018

50.0

50.0

-

 

 

 

 

 

Sold to other parties

 

 

 

 

Agility Trains West (Holdings) Limited

18 May 2018

15.0

15.0

-

 

 

 

 

 

INEOS Runcorn (TPS) Holding Limited

21 December 2018

37.43

37.43

-

 

 

14   Trade and other receivables

 

 

 

31 December 2019

£ million

31 December 2018

£ million

Current assets

 

 

 

  Trade receivables

 

2

7

    Other taxation

 

1

-

  Prepayments and contract assets

 

3

1

 

 

6

8

 

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 2019

£ million

31 December 2018

£ million

Sterling

 

3

7

Australian dollar

 

1

-

Other currencies

 

2

1

 

 

6

8

 

Other currencies mainly comprise trade and other receivables in Canadian dollars (31 December 2018 - Canadian dollars).

 

There were no significant overdue balances in trade receivables at 31 December 2019 and 31 December 2018.

 

15   Trade and other payables

 

 

 

31 December 2019

£ million

31 December 2018

£ million

Current liabilities

 

 

 

  Trade payables

 

(3)

(2)

  Other taxation and social security

 

(1)

(1)

  Accruals

 

(11)

(17)

 

 

(15)

(20)

16   Borrowings

 

 

 

31 December 2019

£ million

31 December 2018

£ million

Current liabilities

 

 

 

Interest-bearing loans and borrowings net of unamortised financing costs (note 17c and note 18)

 

(236)

 

(66)

 

 

(236)

(66)

 

 

17   Financial instruments

a)      Financial instruments by category

31 December 2019

Cash and cash equivalents

£ million

Receivables at amortised cost

£ 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*

-

-

1,897

-

1,897

Current assets

 

 

 

 

 

Trade and other receivables

-

4

-

-

4

Cash and cash equivalents

2

-

-

-

2

Total financial assets

2

4

1,897

-

1,903

Current liabilities

 

 

 

 

 

Interest-bearing loans and borrowings

-

-

-

 

(236)

 

(236)

Trade and other payables

-

-

-

(14)

(14)

Total financial liabilities

-

-

-

(250)

(250)

Net financial instruments

2

4

1,897

(250)

1,653

 

 

31 December 2018

Cash and cash equivalents

£ million

Receivables at amortised cost

£ 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*

-

-

1,700

-

1,700

Current assets

 

 

 

 

 

Trade and other receivables

-

7

-

-

7

Cash and cash equivalents

6

-

-

-

6

Total financial assets

6

7

1,700

-

1,713

Current liabilities

 

 

 

 

 

Interest-bearing loans and borrowings

-

-

-

 

(66)

 

(66)

Trade and other payables

-

-

-

(19)

(19)

Total financial liabilities

-

-

-

(85)

(85)

Net financial instruments

6

7

1,700

(85)

1,628

 

* Investments at FVTPL are split between: Level 1, investment in JLEN, which is a listed investment fair valued at £nil (31 December 2018 - £10 million) using a quoted market price; and Level 3 investments in project companies fair valued at £1,768 million (31 December 2018 - £1,550 million). Level 1 and Level 3 investments are fair valued in accordance with the policy and assumptions set out in note 3e). The investments at FVTPL include other assets and liabilities in investment entity subsidiaries as shown in note 13. Such other assets and liabilities are recorded at amortised cost which the Directors believe approximates to their fair value. These assets and liabilities are level 3.

 

The tables above 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 have been no transfers of financial instruments between levels of the fair value hierarchy. There are no non-recurring fair value measurements.

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 13. Level 3 financial assets are those relating to investments in project companies.

All items in the above table are measured at amortised cost other than the investments at FVTPL. The Directors believe that the amortised cost of these financial assets and liabilities approximates to their fair value.

 

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

 

 

31 December 2019

31 December 2018

 

Floating

Non-interest

 

Floating

Non-interest

 

 

rate

bearing

Total

rate

bearing

Total

Currency

£ million

£ million

£ million

£ million

£ million

£ million

Sterling

-

2

2

            1

 

7

 

8

Euro

-

1

1

             -  

   

     -

 

        -

Canadian dollar

-

1

1

             -  

       

  1

      

  1

US dollar

-

1

1

             -  

       

 1

   

  1

Australian dollar

-

1

1

             -  

        

 3

        

 3

Total

-

6

6

            1

       

12

 

 13

 

c)   Foreign currency and interest rate profile of financial liabilities

The Group's financial liabilities at 31 December 2019 were £250 million (31 December 2018 - £85 million), of which £236 million (31 December 2018 - £66 million) related to short-term cash borrowings of £239 million (31 December 2018 - £70 million) net of unamortised finance costs of £3 million (31 December 2018 - £4 million).

 

 

 

31 December 2019

 

31 December 2018

Currency

Fixed

rate

£ million

Floating

rate

£ million

Non-interest

bearing

£ million

Total

£ million

Fixed

rate

£ million

Floating

rate

£ million

Non-interest

bearing

£ million

Total

£ million

Sterling

(229)

(7)

(8)

(244)

(51)

(15)

(12)

(78)

Euro

-

-

(1)

(1)

-

-

(1)

(1)

US dollar

-

-

(2)

(2)

-

-

(2)

(2)

Australian dollar

-

-

(3)

(3)

-

 

-

 

(3)

 

(3)

Other

-

-

-

-

-

-

(1)

(1)

Total

(229)

(7)

(14)

(250)

(51)

(15)

(19)

(85)

                   

 

 

18   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 or revenue risk (including power price risk, marginal loss factors in Australia and energy yield 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 2019, the Group held investments in 42 overseas projects (31 December 2018 - 31 overseas projects) all of which are fair valued based on the spot exchange rate at 31 December 2019. 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 10 forward currency contracts open as at 31 December 2019 (31 December 2018 - 12). The fair value of these contracts was a net asset of £1 million (31 December 2018 - net asset of £1 million) and is included in investments at FVTPL.

 

At 31 December 2019, the Group's most significant currency exposure was to the US dollar (31 December 2018 - US dollar).

 

Foreign currency exposure of investments at FVTPL:

 

 

31 December 2019

31 December 2018

 

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

418

-

-

418

361

10

3

374

Euro

181

-

5

186

219

-

1

220

Australian dollar

568

-

7

575

483

-

5

488

US dollar

510

-

116

626

465

-

131

596

New Zealand dollar

19

-

1

20

22

-

-

22

Colombian Peso

68

-

-

68

-

-

-

-

Canadian dollar

4

-

-

4

-

-

-

-

 

1,768

-

129

1,897

1,550

10

140

1,700

 

Investments in project companies are fair valued based on the spot exchange rate at the balance sheet date. As at 31 December 2019, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.£64 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 direct exposure to interest rate risk is from 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 direct 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 2019

31 December 2018

 

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

-

1,897

1,897

-

1,700

1,700

Trade and other receivables

-

4

4

-

7

7

Cash and cash equivalents

-

2

2

1

5

6

Financial assets exposed to interest rate risk

-

1,903

1,903

1

1,713

1,713

 

 

The Group has indirect exposure to interest rate risk through the fair value of its investments at FVTPL which is determined on a discounted cash flow basis. The key inputs under this basis are (i) the discount rate and (ii) the cash flows forecast to be received from project companies. An analysis of the movement between opening and closing balances of investments at FVTPL is given in note 13.

 

The forecast cash flows are determined by future project revenue and costs, including interest income and interest costs which can be linked to interest rates. Project companies take out either fixed-rate borrowings or enter into interest rate swaps to fix interest rates on variable rate borrowings which mitigates this risk. The level of interest income in project companies is not significant and therefore the Group does not consider there is a significant risk from a movement in interest rates in this regard.

         

Movement in market interest rates can also have an impact on discount rates. At 31 December 2019, the weighted average discount rate was 8.6% (31 December 2018 -8.6%). As at 31 December 2019, a 0.25% increase in the discount rate would reduce the fair value by £57 million (31 December 2018 - £52 million) and a 0.25% reduction in the discount rate would increase the fair value by £60 million (31 December 2018 - £54 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 2019

 

31 December 2018

 

Interest-bearing
fixed rate

Interest-bearing
floating rate

Non-interest bearing

Total

 

Interest-bearing
fixed rate

Interest-bearing
floating rate

Non-interest bearing

Total

 

£ million

£ million

£ million

£ million

 

£ million

£ million

£ million

£ million

Interest-bearing loans and borrowings

(229)

(7)

-

(236)

 

(51)

(15)

-

      (66)

Trade and other payables

-

-

(14)

(14)

 

-

-

(19)

(19)

Total financial liabilities

(229)

(7)

(14)

(250)

 

(51)

(15)

(19)

(85)

 

 

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 their value. However, all other things being equal, an increase in inflation expectations would also tend to increase JLPF's pension liabilities.

 

At 31 December 2019, based on a sample of five of the larger PPP investments with a total value of £596 million, a 0.25% increase in inflation is estimated to increase the value of PPP investments by c.£14 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investment by c.£13 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 counterparty 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 or revenue risk

The Group's investments in PPP assets have limited direct exposure to price or revenue 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 and additionally, for Australia wind and solar generation projects, forecast marginal loss factors (MLF) 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 2019, based on a sample of seven of the larger renewable energy investments with a total value of £338 million, a 5% increase in power price forecasts is estimated to increase the value of renewable energy investments by £21 million and a 5% decrease in power price forecasts is estimated to decrease the value of renewable energy investments by £19 million.

 

At 31 December 2019, based on a sample of renewable energy investments with a total value of £233 million, a 5% increase in MLFs is estimated to increase their value by c.£29 million and a 5% decrease is estimated to decrease their value by c.£29 million.

 

With regards to energy yield risk, our valuation of renewable energy projects assumes a P50 level of electricity output based on reports by technical consultants. The P50 output is the estimated annual amount of electricity generation (in MWh) that has a 50% probability of being achieved or exceeded - both in any single year and over the long term - and a 50% probability of being underachieved. Hence the P50 is the expected level of generation over the long term. A P75 output means a forecast with a 75% probability of being achieved or exceeded and a P25 output means a forecast with a 25% probability of being achieved or exceeded. At a P75 level of electricity output, the valuation at 31 December 2019 of a sample of renewable energy assets with a total value of £293 million would reduce by £38 million and a P25 level of electricity output would increase the value by £36 million.

 

For all of the above sensitivities on the portfolio value as at 31 December 2019, the Group's profit before tax would be impacted by the same amounts described above. There would be no additional impact on equity.

 

For further information on these sensitivities, please refer to the Portfolio Valuation section.

 

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

2019

Less than

one year

£ million

31 December

2018

Less than

one year

£ million

Trade and other receivables

4

7

Cash and cash equivalents

2

6

Financial assets (excluding investments at FVTPL)

6

13

 

None of the financial assets is either overdue or impaired.

 

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

 

 

In one year or less, or on demand

(250)

(85)

Total

(250)

(85)

 

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 2019

 

 

 

Fixed interest rate instruments - loans and borrowings

2.71

(229)

(229)

Floating interest rate instruments - loans and borrowings

2.78

(7)

(7)

Non-interest bearing instruments*

n/a

(14)

(14)

 

 

(250)

(250)

 

 

 

 

31 December 2018

 

 

 

Fixed interest rate instruments - loans and borrowings

2.73

(51)

(51)

Floating interest rate instruments - loans and borrowings

2.78

(15)

(15)

Non-interest bearing instruments*

 

n/a

(19)

(19)

 

 

(85)

(85)

 

* 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 its net debt and a reconciliation of net debt can be found in note 24.

 

At 31 December 2019, the Group had committed corporate banking facilities of £650 million, £500 million expiring in July 2023 and £150 million expiring in January 2021 (extended in January 2020 until January 2022).

                                                                          

The Group has requirements for both borrowings and letters of credit, which at 31 December 2019 were met by its £650 million committed facilities and related ancillary facilities (31 December 2018 - £650 million). Issued at 31 December 2019 were letters of credit of £95 million (31 December 2018 - £164 million) and parent company guarantee of £6 million, related to future capital and loan commitments, and contingent commitments and performance and bid bonds of £3 million (31 December 2018 - £10 million). The committed facilities and amounts drawn therefrom are summarised below:

 

 

 

31 December 2019

 

Total facilities

£ million

Loans drawn

£ million

Bank overdraft

£ million

Letters of credit

in issue/other

commitments

£ million

Total

undrawn

£ million

Committed corporate banking facilities

650

(232)

(7)

(104)

307

Total

650

(232)

(7)

(104)

307

 

 

 

                      31 December 2018   

 

Total facilities

£ million

Loans drawn

£ million

 

 

Bank overdraft

£ million

Letters of credit

in issue/other

commitments

£ million

Total

undrawn

£ million

 

Committed corporate banking facilities

650

(55)

(15)

(174)

406

 

Total

650

(55)

(15)

(174)

406

 

               

 

 

19   Retirement benefit obligations

 

31 December

2019

£ million

31 December

2018

£ million

Pension schemes

13

(33)

Post-retirement medical benefits

(7)

(7)

Retirement benefit obligations

6

(40)

Retirement benefit asset

13

-

Retirement benefit obligations

(7)

(40)

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 million at 31 March 2016 over seven years as follows:

By 31 March

£ million

2017

25

2018

27

2019

29

2020

25

2021

26

2022

26

2023

25

 

The triennial actuarial valuation of JLPF as at 31 March 2019 is in progress and will be finalised by 30 June 2020.

 

During the year ended 31 December 2019, John Laing made deficit reduction contributions of £29 million (2018 - £27 million) in cash.

 

The liability at 31 December 2019 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 2019 (2018 - none). At its last actuarial valuation as at 31 March 2018, the Plan had assets of £13 million and liabilities of £12 million resulting in an actuarial surplus of £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 2019

Deferred

Pensioners

Total

JLPF

3,965

3,790

7,755

The Plan

78

266

344

 

31 December 2018

Deferred

Pensioners

Total

JLPF

3,928

4,015

7,943

The Plan

99

321

420

 

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

 

 

31 December

2019

%

31 December

2018

%

Discount rate

2.10

2.85

Rate of increase in non-GMP pensions in payment

2.90

3.10

Rate of increase in non-GMP pensions in deferment

1.90

2.10

Inflation - RPI

3.00

3.20

Inflation - CPI

1.90

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 (i) any hedging entered into by JLPF, (ii) 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 2019

 

Increase in

assumption

£ million

Decrease in

assumption

£ million

0.25% on discount rate

45

(48)

0.25% on inflation rate

(34)

33

1 year post-retirement longevity

(54)

53

 

Mortality

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

 

 

31 December

2019

31 December

2018

Base tables

 

 

Plan members

100% S2NA tables

100% S2NA tables

JLPF staff members

103%/107% (M/F) S3NA tables

100% S2NA tables

JLPF executive members

83%/109% (M/F) S3NA light tables

100% S2NA light tables

 

 

 

Improvements

 

 

All members

CMI 2018 projections, 1.25% pa long-term improvement rate, initial improvement of A=0% and a smoothing parameter of s=7

CMI 2017 projections, 1.25% pa long-term improvement rate and a smoothing parameter of s=7.5

 

 

 

 

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

 

31 December

2019

Years

31 December

2018

Years

Life expectancy - of member reaching age 65 in 2019

 

 

  Males

21.8

22.1

  Females

23.9

24.2

Life expectancy - of member aged 65 in 2039

 

 

  Males

23.1

23.1

  Females

25.3

25.3

 

Analysis of the major categories of assets held by the Schemes

 

 

31 December 2019

31 December 2018

 

£ million

%

£ million

%

Bond and other debt instruments

 

 

 

 

UK corporate bonds

97

 

89

 

UK government gilts

280

 

262

 

UK government gilts - index linked

213

 

147

 

 

590

48.0

498

45.8

Equity instruments

 

 

 

 

UK listed equities

95

 

106

 

European listed equities

45

 

36

 

US listed equities

163

 

127

 

Other international listed equities

97

 

83

 

Option1

(4)

 

-

 

 

396

32.2

352

32.4

Aviva bulk annuity buy-in agreement

229

18.6

 

218

 

20.0

Cash and equivalents

15

1.2

20

1.8

Total market value of assets

1,230

100.0

1,088

100.0

Present value of Schemes' liabilities

(1,217)

 

(1,121)

 

Net pension asset/(liability)

13

 

(33)

 

 

1 During 2019, the JLPF entered into a cap and collar option over 25% of its equity assets which limits losses to 10% and caps gains at 13.5%. 

 

Virtually all equity and debt instruments held by JLPF have quoted prices in active markets (Level 1). Equity options can be classified as Level 2 instruments.   The JLPF Trustee invests in return-seeking assets, such as equity, whilst balancing the risks of inflation and interest rate movements through the annuity buy-in agreement.

 

A significant proportion of JLPF's assets are held either as liability-matching holdings (including an Aviva bulk annuity buy-in agreement and index-linked UK government gilts) or to provide hedges against the impact on liabilities from movements in interest rates and inflation (other bonds and gilts). The JLPF Trustee has adopted a long-term asset allocation strategy that has been determined as being most appropriate to meet JLPF's current and future liabilities. JLPF's agreed investment strategy is such that, in combination with an agreed recovery plan, it is expected to reach full funding on a gilts flat basis between 2023 and 2028 ("the Journey Plan"). The Trustee has established a de-risking programme, whereby JLPF's funding level is monitored regularly, and if it moves ahead of the Journey Plan, the Trustee will lock-in the benefit by de-risking the portfolio to target a lower expected return.

 

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 2019, the underlying insurance policy was valued at £229 million (31 December 2018 - £218 million), being substantially equal to the IAS 19 valuation of the related liabilities.

 

The pension asset of £13 million at 31 December 2019 (31 December 2018 - liability £33 million) is a surplus under IAS 19 of £12 million in the Fund (31 December 2018 - liability £35 million) and a surplus £1 million in the Plan (31 December 2018 - £2 million).

 

Analysis of amounts charged to operating profit

 

 

Year ended

31 December

2019

£ million

Year ended

31 December

2018

£ million

Current service cost*

(2)

(2)

GMP equalisation charge**

-

(21)

 

(2)

(23)

 

* 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.

 

**Following the High Court ruling on the Lloyds Banking Group Guaranteed Minimum Pension (GMP) equalisation case in October 2018, a £21 million non-recurring charge was made in 2018. This represents the additional costs to JLPF arising from the judgement, estimated at 1.90% of JLPF's liabilities.

 

 

Analysis of amounts charged to finance costs

 

Year ended

31 December

2019

£ million

Year ended

31 December

2018

£ million

Interest on Schemes' assets

30

28

Interest on Schemes' liabilities

(31)

(29)

Net charge to finance costs

(1)

(1)

 

 

Analysis of amounts recognised in Group Statement of Comprehensive Income

 

 

Year ended
31 December 2019

£ million

 Year ended
31 December 2018

£ million

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

137

(62)

Experience loss arising on Schemes' liabilities

6

(4)

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

(117)

56

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

(6)

7

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

20

(3)

 

The cumulative gain recognised in the Group Statement of Changes in Equity is £24 million gain (31 December 2018 - £4 million).

 

 

Changes in present value of defined benefit obligations

 

2019

2018

 

£ million

£ million

Opening defined benefit obligation

(1,121)

(1,189)

Current service cost

(2)

(2)

Interest cost

(31)

(29)

GMP equalisation charge

-

(21)

Experience loss arising on Schemes' liabilities

6

(4)

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

(117)

56

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

(6)

7

Benefits paid (including administrative costs paid)

54

61

Closing defined benefit obligation

(1,217)

(1,121)

 

The weighted average life of JLPF liabilities at 31 December 2019 is 15.7 years (31 December 2018 - 15.6 years).

 

Changes in the fair value of Schemes' assets

 

31 December

31 December

 

2019

2018

 

£ million

£ million

Opening fair value of Schemes' assets

1,088

1,156

Interest on Schemes' assets

30

28

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

137

(62)

Contributions by employer

29

27

Benefits paid (including administrative costs paid)

(54)

(61)

Closing fair value of Schemes' assets

1,230

1,088

 

 

Analysis of the movement in the deficit during the year

 

 31 December

31 December

 

2019

2018

 

£ million

£ million

Opening deficit

(33)

(33)

Current service cost

(2)

(2)

GMP equalisation reserve

-

(21)

Finance cost

(1)

(1)

Contributions

29

27

Actuarial gain/(loss)

20

(3)

Pension deficit

13

(33)

 

 

History of the experience gains and losses

 

Year ended

31 December

2019

Year ended

31 December

2018

Difference between actual and expected returns on assets:

 

 

Amount (£ million)

137

(62)

% of Schemes' assets

11.0

5.7

Experience loss on Schemes' liabilities:

 

 

Amount (£ million)

6

(4)

% of present value of Schemes' liabilities

0.5

0.4

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

 

 

Amount (£ million)

20

(3)

% of present value of Schemes' liabilities

1.6

0.3

 

b) Post-retirement medical benefits

 

The Company provides post-retirement medical insurance benefits to 55 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

 

2019

2018

 

£ million

£ million

Post-retirement medical benefits liability - opening

(7)

(8)

Contributions

1

1

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

(1)

-

Post-retirement medical benefits liability - closing

(7)

(7)

 

* These amounts are actuarial gains/(losses) 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 5.0% in 2019 (2018 - 5.2%). It is expected to increase in 2020 and thereafter at RPI plus 2.0% per annum (2018 - at RPI plus 2.0% per annum).

 

The amount of the medical benefit liability is highly dependent upon the assumptions used and may vary significantly from period to period. The impact of possible future changes to some of the assumptions is shown below. In practice, there would be inter-relationships between the assumptions. The analysis has been prepared in conjunction with the Company's actuarial adviser. The Company considers that the changes below are reasonably possible based on recent experience.

 

 

 

 

 

 (Increase)/decrease in medical liabilities at
31 December 2019 before deferred tax

 

 

 

 

Increase in assumption

Decrease in assumption

 

 

 

 

£ million

£ million

1.0% change on medical cost trend inflation rate

 

(1)

1

1 year change in life expectancy

 

 

(1)

1

 

 

 

20   Provisions

 

Non-current provisions

At 1 January

2019

£ million

Charge to   Group

Income Statement

£ million

At 31 December

2019

£ million

Retained liabilities

(2)

-

(2)

Total provisions

(2)

-

(2)

 

Non-current provisions

At 1 January

2018

£ million

Charge to

Group

Income Statement

£ million

At 31 December

2018

£ million

Retained liabilities

(1)

(1)

(2)

Total provisions

(1)

(1)

(2)

 

Provisions of £2 million as at 31 December 2019 (31 December 2018 - £2 million) relate to retained liabilities from the legacy construction and home building businesses.

 

 

21   Share capital

 

 

 

31 December

2019

No.

31 December

2018

No.

Authorised:

 

 

 

Ordinary shares of £0.10 each

 

493,000,636

490,775,636

Total

 

493,000,636

490,775,636

 

 

31 December 2019

31 December 2018

 

No.

£ million

No.

£ million

Allotted, called up and fully paid:

 

 

 

 

At 1 January

490,774,825

49

366,960,134

37

Issued under Rights Issue

-

-

122,320,044

12

Issued under LTIP

1,887,795

 

1,383,367

 

Issued under LTIP - granted in lieu of dividends payable

108,968

 

77,115

 

Issued under DSBP

115,049

 

32,606

 

Issued under DSBP - granted in lieu of dividends payable

4,030

 

1,559

 

Issued under buy-out awards

24,314

 

 

 

Shares acquired by the EBT

(1,113,997)

 

 

 

Issued under share-based incentive arrangements - total

1,026,159

-

 

1,494,647

-

Shares in issue

491,800,984

49

490,774,825

49

Retained by EBT

1,199,652

-

811

-

At 31 December

493,000,636

49

490,775,636

49

 

 

During the year ended 31 December 2019, 2,225,000 shares were issued to the EBT to satisfy awards vesting under share-based incentive arrangements (see note 7). Of these, 1,996,763 (2018 - 1,460,482) shares were used to satisfy awards vested and exercised under the Group's LTIPs, 119,079 (2018 - 34,165) shares were used to satisfy awards vested and exercised under the Group's DSBPs and 24,314 were used to satisfy awards vested and exercised under buy-out awards leaving 84,844 held by the EBT.

 

Subsequent to the LTIP awards vesting and being exercised, certain employees elected to sell shares, partly in order to satisfy tax liabilities arising on the awards. Of the 1,288,377 shares elected to be sold, the EBT was able to sell 174,380 shares in the open market and acquired the remaining 1,113,997 shares. The acquisition of shares by the EBT was funded by the Company and as a result of this transaction, a charge of £4 million has been made through reserves in the Group Statement of Changes in Equity as if such shares were treasury shares as defined by IFRS. Including this acquisition, the total number of shares held by the EBT at 31 December 2019 was 1,199,652, which are excluded for the purposes of calculating earnings per share and NAV per share.

 

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

 

 

22   Share premium

 

 

31 December 2019

31 December 2018

 

£ million

 £ million

Opening balance

416

         218

Share premium on Rights Issue

-

204

Costs of Rights Issue

-

(6)

Closing balance

416

416

 

23   Net cash outflow from operating activities

 

 

 Year ended
31 December

 Year ended
31 December

 

2019

2018

 

£ million

£ million

Profit from operations

111

            310

 

 

 

Adjustments for:

 

 

Unrealised profit arising on changes in fair value of investments (note 13)

(147)

 

(366)

Share-based incentives

4

3

IAS 19 service cost

2

2

GMP equalisation reserve

-

21

Contribution to JLPF

(29)

(27)

Increase in provisions

-

1

Operating cash outflow before movements in working capital

(59)

(56)

(Increase)/decrease in trade and other receivables

2

-

(Decrease)/increase in trade and other payables

(4)

2

Net cash outflow from operating activities

(61)

(54)

24   Reconciliation of net debt

 

 

At 1

January 2019

Cash movements

Non-cash movements

At 31 December 2019

 

£ million

£ million

£ million

£ million

Cash and cash equivalents

6

(4)

-

2

Borrowings

(66)

(169)

(1)

(236)

Net debt

(60)

(173)

(1)

(234)

 

 

At 1

January 2018

Cash movements

Non-cash movements

At 31 December 2018

 

£ million

£ million

£ million

£ million

Cash and cash equivalents

3

3

-

6

Borrowings

(174)

106

2

(66)

Net debt

(171)

109

2

(60)

 

The cash movements from borrowings make up the net amount of proceeds from borrowings and repayment of borrowings in the Group Cash Flow Statement.

25   Guarantees and other commitments

 

At 31 December 2019, the Group had future equity and loan commitments in PPP and renewable energy projects of £219million (31 December 2018 - £296 million) backed by letters of credit and guarantees of £101 million (31 December 2018 - £164 million) and cash collateral of £118 million (31 December 2018 - £132 million). There were also contingent commitments, performance and bid bonds of £3 million (31 December 2018 - £10 million).

 

 

Claims arise in the normal course of trading which in some cases involve or may involve litigation. Full provision has been made for all amounts which the Directors consider are likely to become payable on account of such claims.

 

Following the adoption of IFRS 16 Leases for the year ended 31 December 2019, the Group does not have any significant leases classified as operating leases. The Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases for land and buildings as at 31 December 2018 falling due as follows:

 

 

 

 

 

 

 

 

 

 

 

31 December

2018

 

 

£ million

Within one year

 

1

 

3

After five years

 

2

 

 

6

 

26   Transactions with related parties

 

Details of transactions between the Group and its related parties are disclosed below.

Transactions with non-recourse entities

The Group entered into the following trading transactions with non-recourse project companies in which the Group holds interests:

 

 

 

31 December

2019

£ million

31 December

2018

£ million

For the year ended:

 

 

 

Services income*

 

11

9

 

 

 

 

Balances as at:

 

 

 

Amounts owed by project companies

 

1

1

Amounts owed to project companies

 

(1)

(1)

 

* Services income is generated from project companies through management services agreements and recoveries of bid costs on financial close.

 

 

Transactions with recourse subsidiary entities held at FVTPL

The Group had the following transactions and balances with recourse subsidiary entities held at FVTPL that are eliminated in the Group financial statements:

 

 

 

31 December

2019

£ million

31 December

2018

£ million

For the year ended:

 

 

 

Management charge payable to the Group by recourse subsidiary entities held at FVTPL

 

31

31

Net interest receivable by the Group from recourse subsidiary entities held at FVTPL 

 

4

 

4

Net cash transferred (to)/from investments at FVTPL (note 13)

 

(50)

 

12

 

 

 

 

Balances as at:

 

 

 

Net amounts owed to the Group by recourse subsidiary entities held at FVTPL

 

176

 

215

 

 

 

 

 

Transactions with other related parties

There were no transactions with other related parties during the year ended 31 December 2019.

 

 

Remuneration of key management personnel

The remuneration of the Directors of John Laing Group plc together with other members of the Executive Committee, who were the key management personnel of the Group for the period of the financial statements, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

 

 

 

Year ended

31 December

2019

£ million

Year ended

31 December

2018

£ million

Cash/vested basis

 

 

 

Short-term employee benefits

 

4

4

Post-employment benefits

 

-

-

Awards under long-term incentive plans

 

4

3

Social security costs

 

1

1

 

 

9

8

Award basis

 

 

 

Short-term employee benefits

 

4

4

Post-employment benefits

 

-

-

Awards under long-term incentive plans

 

1

1

Social security costs

 

1

1

 

 

6

6

 

The average number of key management personnel during 2019 was 15, an increase from 14 during 2018. This is primarily due to the addition during 2019 of Latin America as a core region.

 

The awards under long-term incentive plans on a cash/vested basis are the awards that vested in April 2019 in relation to the 2016 LTIP. The remuneration amount is based on the number of shares issued to key management valued at the market price of the shares on the day of vesting.

 

The awards under long-term incentive plans on an award basis are those outstanding during the year ended 31 December 2019 on all LTIPs, including the 2019 LTIP. The remuneration amount is calculated in accordance with IFRS 2 based on the fair value of the awards at the time of being granted, with an adjustment to the fair value for the non-share based performance condition depending on the Group's NAV per share.

 

27   Events after balance sheet date

 

There were no significant events after the balance sheet date.

 

 

 

Shareholder Information

 

Financial Diary

 

3 March 2020

Full year results presentation

23 April 2020

Ex-dividend date for final dividend

24 April 2020

Record date for final dividend

7 May 2020

Annual General Meeting

15 May 2020

Payment of final dividend

August 2020

Announcement of half year results

October 2020

Interim dividend expected to be paid

 

Updates to the financial calendar will be made on the Company's website www.laing.com when they become available.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR SSMEDEESSESD
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019 - RNS