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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| John Laing Group Plc | LSE:JLG | London | Ordinary Share | GB00BVC3CB83 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 402.60 | 402.60 | 402.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMJLG
RNS Number : 8693O
John Laing Group plc
24 August 2017
JOHN LAING GROUP PLC
RESULTS FOR THE SIX MONTHSED 30 JUNE 2017
John Laing Group plc (John Laing or the Company or the Group) announces its unaudited results for the six months ended 30 June 2017.
Highlights
-- Net asset value (NAV) of GBP1,040.4 million at 30 June 2017 - 2.3% increase since 31 December 2016 - 4.6% increase including dividend paid in May 2017 -- NAV per share at 30 June 2017 of 284p (31 December 2016 - 277p)(1)
-- GBP111.3 million in investment commitments (six months ended 30 June 2016 - GBP76.0 million)(2)
-- Realisations of GBP151.3 million from the sale of investments in project companies (six months ended 30 June 2016 - GBP57.7 million)
-- Profit before tax of GBP36.6 million (six months ended 30 June 2016 - GBP108.3 million) and earnings per share (EPS) of 10.2p (six months ended 30 June 2016 - 29.1p)(3)
-- 7.4% increase in external Assets under Management to GBP1,582 million(4) since 31 December 2016
-- Interim dividend of 1.91p per share payable in October 2017 (six months ended 30 June 2016 - 1.85p per share)
-- New Royal Adelaide Hospital operational; agreement reached on Manchester Waste -- Strong pipeline, including 11 shortlisted PPP positions -- 2017 guidance for investment commitments and realisations maintained
Olivier Brousse, John Laing's Chief Executive Officer, commented:
"It has been an active year so far and I am pleased to report growth in NAV, after taking into account the reduction in value on our two Manchester Waste investments. We have made good progress on investment commitments and disposals and are on track to achieve our full year guidance on both fronts. As regards our portfolio, the New Royal Adelaide Hospital reached a key milestone with its commercial acceptance by the Government of South Australia in June, and our team was instrumental in getting to this stage. Looking to the second half and beyond, our teams continue to bring forward a steady stream of new investments, while the asset management teams are actively managing projects through the construction phase. We continue to see strong opportunities for attractive growth in our business by scaling up our model in our three core regions: North America, Asia Pacific and Europe."
Notes:
(1) Calculated as NAV at 30 June 2017 of GBP1,040.4 million (31 December 2016 - GBP1,016.8 million) divided by number of shares in issue at 30 June 2017 of 366.96 million (31 December 2016 - 366.92 million)
(2) Based on new investment commitments secured in the six months ended 30 June 2017; for further details see the Primary Investment section of the Business Review
(3) Basic EPS; see note 7 to the Condensed Group Financial Statements (4) Based on published portfolio values of JLIF and JLEN at 31 March 2017
A presentation for analysts and investors will be held at 9:00am (London time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED. A webcast of the presentation and a conference call facility will be accessible using the details below.
Conference call dial in details:
UK: 020 3059 8125
Other locations: +44 (0) 20 3059 8125
Participant password: John Laing Conference Call
Participant URL for live access to the on-line presentation:
http://www.investis-live.com/john-laing/59775a3ec6702b0a00a35fbe/fgde
A copy of the presentation slides will be available at www.laing.com later today.
Analyst/investor enquiries:
Olivier Brousse, Chief Executive Officer +44 (0)20 7901 3200
Patrick O'D Bourke, Group Finance Director +44 (0)20 7901 3200
Media enquiries:
James Isola, Maitland +44 (0)20 7379 5151
This announcement may contain forward looking statements. It has been made by the Directors of John Laing in good faith based on the information available to them up to the time of their approval of this announcement and should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward looking information.
John Laing is an international originator, active investor and manager of greenfield infrastructure projects. The Group aims to create value for shareholders through originating, investing in and managing infrastructure assets internationally.
We are focused on major transport, energy, social and environmental infrastructure projects in regions of the world where we have expertise and where there is a legal and commercial environment supportive of long-term investment. We hold a portfolio of investments in projects awarded under government backed Public-Private Partnership (PPP) programmes and renewable energy projects and have developed capabilities in other closely linked sectors which have similar operational and financial characteristics.
We typically invest in infrastructure projects at the greenfield, pre-construction stage. We apply our management, engineering and technical expertise and invest equity and subordinated debt into special purpose companies which have rights to the underlying infrastructure asset. These special purpose companies are typically also financed with ring-fenced medium to long-term senior debt.
Our business, which integrates origination, investment and asset management capabilities, has three key areas of activity:
-- Primary Investment: we source, originate, bid for and win greenfield infrastructure projects, typically as part of a consortium in the case of PPP projects. Our Primary Investment portfolio comprises interests in infrastructure projects which are in the construction phase.
-- Secondary Investment: we own a substantial portfolio of investments in operational infrastructure projects, almost all of which were previously part of our Primary Investment portfolio.
-- Asset Management: we actively manage our own Primary and Secondary Investment portfolios and provide investment advice and asset management services to two external funds, John Laing Infrastructure Fund (JLIF) and John Laing Environmental Assets Group (JLEN), through John Laing Capital Management (JLCM) which is regulated by the Financial Conduct Authority, as well as in respect of a small number of PPP assets held by John Laing Pension Fund (JLPF).
Further information is available at www.laing.com.
Summary financial information
Hot Features
Premium
Six months Six months Year
ended ended ended
or as or as or as
at at at
30 June 30 June 31 December
2017 2016 2016
GBP million (unless otherwise stated)
----------------------------------------------- ----------- ----------- -------------
Net asset value 1,040.4 963.7 1,016.8
NAV per share 284p(1) 263p 277p
Retirement benefit obligations (38.2) (43.6) (69.3)
Profit before tax 36.6 108.3 192.1
Earnings per share (EPS)(2) 10.2p 29.1p 51.9p
Dividends per share 1.91p 1.85p 8.15p
----------------------------------------------- ----------- ----------- -------------
Primary Investment portfolio 656.5 486.8 696.3
Secondary Investment portfolio 462.8 458.4 479.6
----------------------------------------------- ----------- ----------- -------------
Total investment portfolio 1,119.3 945.2 1,175.9
Future investment commitments backed by
letters of credit and cash collateral 220.5 295.3 186.3
----------------------------------------------- ----------- ----------- -------------
Gross investment portfolio 1,339.8 1,240.5 1,362.2
----------------------------------------------- ----------- ----------- -------------
New investment committed during the period(3) 111.3 76.0 181.9
Proceeds from investment realisations 151.3 57.7 146.6
Cash yield from investments 14.7 18.3 34.8
PPP investment pipeline(3) 1,383 1,337 1,408
Renewable energy pipeline(3) 502 441 451
----------------------------------------------- ----------- ----------- -------------
Asset Management
Internal Assets under Management(4) 1,329.7 1,225.3 1,352.2
External Assets under Management 1,581.7(5) 1,277.5 1,472.3
----------------------------------------------- ----------- ----------- -------------
Total Assets under Management 2,911.4 2,502.8 2,824.5
----------------------------------------------- ----------- ----------- -------------
Notes:
(1) Calculated as NAV at 30 June 2017 of GBP1,040.4 million divided by the number of shares in issue at 30 June 2017 of 366.96 million.
(2) Basic EPS; see note 7 to the Condensed Group Financial Statements. (3) For further details, see the Primary Investment section of the Business Review.
(4) Gross investment portfolio, less shareholding in JLEN valued at GBP10.1 million (30 June 2016 - GBP15.2 million; 31 December 2016 - GBP10.0 million).
(5) Based on published portfolio values of JLIF and JLEN at 31 March 2017.
BUSINESS REVIEW
Overview and outlook
Our NAV increased from GBP1,016.8 million at 31 December 2016 to GBP1,040.4 million at 30 June 2017. This represents growth of 2.3% and is net of a GBP25.5 million reduction in the value of the Group's two Manchester Waste investments. After adding back last year's final dividend of GBP23.1 million paid in May 2017, growth in NAV was 4.6%. In line with our dividend policy, we are declaring an interim dividend for 2017 of 1.91p per share, a 3.2% increase versus 2016.
Our investment portfolio was valued at GBP1,119.3 million at 30 June 2017. After adjusting for realisations, cash yield and new investments made in the period, the value of our portfolio increased by GBP53.3 million or 5.0%. In absolute terms, the portfolio reduced by GBP56.6 million from GBP1,175.9 million at 31 December 2016 reflecting the realisations completed in the first half (see the Portfolio Valuation section for further details) net of fair value growth and cash invested. Cash yield from investments was in line with our expectations.
The first half highlights included:
-- Disposal of investments in three projects - A1 Poland, M6 Hungary and Croydon & Lewisham Street Lighting - totalling GBP151.3 million; and
-- Investment commitments to three projects - New Grafton Correctional Centre, Solar House and Hornsdale 3 Wind Farm - totalling GBP111.3 million.
We have a strong and diversified pipeline of both PPP and renewable energy opportunities and are currently part of 11 shortlisted PPP bids due to close within the next 18 months.
Profit before tax in the period was GBP36.6 million (six months ended 30 June 2016 - GBP108.3 million). This was lower than the first half of last year primarily because of the value reduction on the Manchester Waste investments of GBP25.5 million and the strongly positive foreign exchange movement of GBP49.4 million in the six months ended 30 June 2016 largely as a result of the EU referendum.
Our external Assets under Management grew to GBP1,581.7 million (31 December 2016 - GBP1,472.3 million). Both JLIF and JLEN have grown their portfolios since 31 December 2016.
Since 30 June 2017, we have made a further investment commitment amounting to GBP47.6 million, giving us a total of GBP158.9 million year to date. This is consistent with our full year guidance for investment commitments of approximately GBP200 million, which we are maintaining. Similarly, we are maintaining our guidance that we expect realisations to be at a broadly similar level to our investment commitments.
As regards our two Manchester Waste investments, legally-binding heads of terms have been entered into between the Greater Manchester Waste Disposal Authority (GMWDA), Manchester Waste VL Co (VL Co) and its shareholders, and the operator, Viridor Waste. The heads of terms envisage a number of transactions which are intended to complete by the end of September 2017 and which would result in termination of the PFI contract between VL Co and the GMWDA, as well as acquisition of VL Co by the GMWDA. As part of the same set of transactions, it is also intended that certain changes will be made to the long term contractual arrangements between Manchester Waste TPS Co (TPS Co - in which John Laing has a 37.43% interest) and the GMWDA. TPS Co would continue to be held by its three existing shareholders. The transactions are subject to strict confidentiality arrangements and a number of conditions and consents.
The estimated financial effect of the transactions on John Laing in the investment portfolio valuation at 30 June 2017, taking into account certain compensation receivable in respect of VL Co, is a reduction in the valuation of the two Manchester Waste investments by GBP25.5 million from their valuation at 31 December 2016. In arriving at its decision to enter into the heads of terms, the Company took the view that the alternative could have been long and costly legal proceedings with an uncertain outcome for the valuation of its two investments.
As previously stated, taken together, the fair value of the two investments represented 8% of John Laing's investment portfolio of GBP1,175.9 million at 31 December 2016. Like all John Laing's investments, the two investments are made on a non-recourse basis.
Looking to the second half and beyond, we continue to see strong opportunities for attractive growth in our business by scaling up our model in our three core regions of North America, Asia Pacific and Europe.
Primary Investment
Our Primary Investment portfolio of shareholdings in 10 PPP and 8 renewable energy projects was valued at GBP656.5 million at 30 June 2017 (31 December 2016 - GBP696.3 million). The decrease resulted principally from transfers of investments to the Secondary Investment portfolio once the underlying projects had completed construction (see the Portfolio Valuation section below for further details).
Our Primary Investment team is responsible for all the Group's bid development activities. The team targets a wide range of infrastructure sectors in Europe (including the UK), North America and Asia Pacific:
-- Transport - rail (including rolling stock), roads, street lighting and highways maintenance;
-- Environmental - renewable energy (including wind power, solar power, energy storage and biomass), water treatment and waste management; and
-- Social infrastructure - healthcare, education, justice, stadiums, public sector accommodation, broadband and social housing.
During the first half of 2017, the Primary Investment team successfully achieved three investment commitments totalling GBP111.3 million:
-- In the PPP sector, we made a GBP79.3 million investment commitment to the New Grafton Correctional Centre PPP project in New South Wales, Australia;
-- In the renewable energy sector, we committed to an onshore wind farm investment for GBP10.0 million in South Australia, Australia; and to a rooftop solar energy project in France with a total investment commitment of GBP22.0 million.
Since 30 June 2017, we have committed GBP47.6 million for a 90% shareholding in the Buckthorn Wind Farm in Texas, US.
Our investment commitments to date in 2017 are summarised in the table below:
PPP Renewable Total
GBP energy GBP
Investment commitments Region million GBP million million
-------------------------- --------------- --------- ------------- ---------
New Grafton Correctional
Centre Asia Pacific 79.3 - 79.3
Hornsdale 3 Wind Farm Asia Pacific - 10.0 10.0
Solar House Europe - 22.0 22.0
Total at 30 June 2017 79.3 32.0 111.3
------------------------------------------- --------- ------------- ---------
July 2017: Buckthorn
Wind Farm North America - 47.6 47.6
-------------------------- --------------- --------- ------------- ---------
Total YTD 79.3 79.6 158.9
------------------------------------------- --------- ------------- ---------
At 30 June 2017, our total pipeline of investment opportunities stood at GBP1,885 million, a similar level to that as at 31 December 2016 (GBP1,859 million). The PPP pipeline, which comprises opportunities to invest equity in PPP projects with the potential to reach financial close over the next three years, amounted to GBP1,383 million, compared to GBP1,408 million at 31 December 2016.
Estimated equity
investment
PPP pipeline at 30 June 2017 GBP million
------------------------------ -----------------
Europe (including the UK) 497
North America 522
Asia Pacific 364
------------------------------ -----------------
Total 1,383
------------------------------ -----------------
The renewable energy pipeline at 30 June 2017 was GBP502 million, compared to GBP451 million at 31 December 2016.
The total pipeline is broken down below according to the bidding stage of each project. Our overall pipeline is constantly evolving as new opportunities are added and other opportunities drop out.
Number Renewable
of PPP energy Total
Pipeline by bidding stage at 30 June 2017 projects GBP million GBP million GBP million
Shortlisted / exclusive* 19 244 294 538
Other active bids 6 18 208 226
Pipeline 46 1,121 - 1,121
--------------------------------------------- ---------- ------------- ------------- -------------
71 1,383 502 1,885
--------------------------------------------- ---------- ------------- ------------- -------------
*includes eight renewable energy projects in exclusive positions.
As at mid-August 2017, we were part of 11 PPP bids which were shortlisted or had preferred bidder status as summarised in the table below:
Financial
close expected
Shortlisted PPP Projects by Region Description
George Massey Bridge, Nov 17 North A bridge replacing a tunnel between
British Columbia America Richmond and Delta in British Columbia
Central 70 Road, Colorado Dec 17 North An availability-based road project
America in Colorado
Melbourne Metro, Australia* Dec 17 Asia Pacific A rail project in central Melbourne
for twin 9 km rail tunnels and five
underground stations
MBTA Fare Collection, Feb 18 North An automated fare collection system
Massachusetts America on behalf of the Massachusetts Bay
Transportation Authority
Gordie Howe International Jun 18 North A bridge between the US (Detroit) and
Bridge, Ontario America Canada (Windsor, Ontario)
A16 Netherlands Jun 18 Europe A road project connecting Rotterdam
to Terbregseplein
Hurontario LRT, Ontario Jul 18 North A light rail system in the Greater
America Toronto area
Hamilton Rail, Ontario Sept 18 North
America A light rail system in Hamilton, Ontario
National Broadband, Sept 18 Europe A project to bring high speed broadband
RoI to rural premises in the Republic of
Ireland
LAX CONRAC, California Dec 18 North A facility to accommodate multiple
America car rental outlets at Los Angeles airport
Silvertown Tunnel, Jan 19 Europe A tunnel below the Thames linking Greenwich
UK and Silvertown in London
*John Laing's consortium was chosen as preferred bidder in July 2017.
We continue to monitor further PPP markets which offer potential in the medium to long term, including certain countries in Latin America. In renewable energy, our main focus is on projects which offer support mechanisms, in each of our three geographical regions. In addition, we are continually assessing opportunities in infrastructure sectors linked to our existing PPP and renewable energy sectors.
Secondary Investment
At 30 June 2017, our Secondary Investment portfolio comprised investments in 14 PPP projects and 10 renewable energy projects with a book value of GBP452.7 million (31 December 2016 - GBP469.6 million). The Secondary Investment portfolio also included a 2.8% shareholding in JLEN valued at GBP10.1 million (31 December 2016 - 3.3% shareholding valued at GBP10.0 million). The decrease in the Secondary Investment portfolio between 31 December 2016 and 30 June 2017 is primarily due to the disposals completed in the first half, net of investments transferring from the Primary Investment portfolio.
During the first half, six investments transferred from the Primary Investment portfolio to the Secondary Investment portfolio:
-- Glencarbry Wind Farm -- Hornsdale 2 Wind Farm -- Lambeth Housing -- Llynfi Wind Farm -- New Royal Adelaide Hospital -- Speyside Biomass
Also during the first half, we received proceeds of GBP151.3 million from realisations of three investments, achieving returns consistent with our historic track record:
-- Our investments in two PPP road projects, A1 Poland and M6 Hungary, were sold to third parties for GBP120.4 million and GBP22.7 million respectively in March 2017
-- Our investment in one PPP project, Croydon and Lewisham Street Lighting, was sold to JLIF in June 2017.
Our realisations are summarised in the table below:
Total
Realisations Shareholding Purchaser GBP million
--------------------------- ------------- -------------- -------------
A1 Poland Road 29.69% Third party 120.4
M6 Hungary Road 30% Third parties 22.7
Croydon & Lewisham Street
Lighting 50% JLIF 8.2
Total 151.3
--------------------------- ------------- -------------- -------------
A number of further disposal processes are currently underway.
Asset Management
The Asset Management team manages our Primary and Secondary Investment portfolios and also generates fee income from the provision of (i) Investment Management Services (IMS) to JLIF, JLEN and JLPF and (ii) Project Management Services (PMS) directly to project companies.
In South Australia, the New Royal Adelaide Hospital successfully achieved technical completion in mid-March followed by commercial acceptance in mid-June. The investment therefore moved into the Secondary Investment portfolio as at 30 June 2017.
Key projects under construction, which made up 85.3% of the Primary Investment portfolio by value at 30 June 2017, are progressing:
-- Intercity Express Programme (IEP), UK - acceptance of the first batch of trains for Phase 1 is expected to occur as scheduled in late 2017;
-- I-4 Ultimate road project, Florida - construction is currently running a few weeks behind schedule, but the expected completion date in 2021 has not changed;
-- Denver Eagle P3, Colorado - testing and commissioning of the third line (the G line), together with the overall project, are expected to be completed by the end of 2017;
-- New Perth Stadium, Western Australia - construction of the stadium remains on track for completion in advance of the 2018 Australian Football League season;
-- Nordergründe offshore wind farm, Germany - installation of the offshore sub-station is scheduled to take place in September 2017 and full operations are due to start later in the year;
-- Sydney Light Rail, New South Wales, Australia - the first light rail vehicles have recently arrived in Australia and services are scheduled to begin in the first half of 2019; and
-- New Generation Rollingstock, Queensland, Australia - 15 trains at the new purpose built maintenance facility in Queensland are in the final stages of testing. The manufacturer is required to carry out some rectification works to achieve provisional acceptance for the first few trains and all parties are working together to assess the impact on the overall delivery timetable.
We earned revenues of GBP9.1 million from the provision of IMS during the first half of the year (six months ended 30 June 2016 - GBP8.0 million). These revenues principally represent fees earned from investment advisory agreements with JLIF and JLEN. As at 30 June 2017, John Laing had external Assets under Management, based on the latest published portfolio values of JLIF and JLEN at 31 March 2017, of GBP1,581.7 million, a 7.4% increase since 31 December 2016. External Assets under Management also included a small number of PPP investments held by JLPF.
We earned revenues of GBP2.8 million from the provision of PMS during the first half of the year (six months ended 30 June 2016 - GBP7.8 million), in respect of administrative and financial services provided under Management Services Agreements directly to project companies in which John Laing, JLIF or JLEN are investors. The UK activities of PMS sold to HCP Management Services Limited (HCP) in November 2016 contributed GBP4.7 million of the GBP7.8 million PMS revenues for the six months ended 30 June 2016.
PORTFOLIO VALUATION
The portfolio valuation at 30 June 2017 was GBP1,119.3 million compared to GBP1,175.9 million at 31 December 2016. After adjusting for realisations, cash yield and cash invested, this represented a positive movement in fair value of GBP53.3 million (5.0%):
Investments Listed
in projects investment Total
GBP million GBP million GBP million
--------------------------------------- ------------- ------------- -------------
Portfolio valuation at 1 January 2017 1,165.9 10.0 1,175.9
- Cash invested 56.1 - 56.1
- Cash yield (14.4) (0.3) (14.7)
- Proceeds from realisations (151.3) - (151.3)
Rebased valuation 1,056.3 9.7 1,066.0
- Movement in fair value 52.9 0.4 53.3
--------------------------------------- ------------- ------------- -------------
Portfolio valuation at 30 June 2017 1,109.2 10.1 1,119.3
--------------------------------------- ------------- ------------- -------------
Cash investment in respect of two new renewable energy investments entered into during the first half of 2017 totalled GBP10.8 million. In addition, equity and loan note subscriptions of GBP45.3 million were injected into existing projects in the portfolio as they progressed through, or completed, construction.
During the first half of 2017, the Group completed the realisation of three investments for a total consideration of GBP151.3 million. Cash yield on the portfolio during the first half of 2017 totalled GBP14.7 million.
The movement in fair value of GBP53.3 million is analysed in the table below. The fair value movement includes a net benefit of GBP20.2 million from the amendment of benchmark discount rates for a number of investments in response to our understanding and experience of the secondary market.
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
------------------------------------------------ ------------- ------------- -------------
Unwinding of discounting 37.8 36.6 77.1
Reduction of construction risk premia 21.6 17.4 52.7
Impact of foreign exchange movements 3.2 49.4 74.7
Change in macroeconomic assumptions (2.1) (12.6) (13.8)
Change in power and gas price forecasts (22.9) (16.3) (17.6)
Change in operational benchmark discount rates 20.2 27.5 27.5
Uplift on financial closes 4.4 5.0 31.0
Value enhancements and other changes (8.9) 21.2 (17.2)
------------------------------------------------ ------------- ------------- -------------
Movement in fair value 53.3 128.2 214.4
------------------------------------------------ ------------- ------------- -------------
Value enhancements and other changes in the table above include a reduction in the valuation of the Group's two Manchester Waste investments of GBP25.5 million compared to their valuation at 31 December 2016.
The net movement in fair value comprised unwinding of discounting (GBP37.8 million), the reduction of construction risk premia (GBP21.6 million), the reduction in operational benchmark discount rates (GBP20.2 million) and favourable foreign exchange movements of GBP3.2 million, offset by adverse movements from lower power and gas price forecasts (GBP22.9 million), adverse movements in macroeconomic forecasts (GBP2.1 million) and net value enhancements (including uplift on financial closes of new investment commitments) and other negative changes (GBP4.5 million). Foreign exchange movements are addressed further in the Financial Review section.
The split between primary and secondary investments is shown in the table below:
30 June 2017 31 December 2016
GBP million % GBP million %
---------------------- ------------ ------ ------------ ------
Primary Investment 656.5 58.6 696.3 59.2
Secondary Investment 462.8 41.4 479.6 40.8
---------------------- ------------ ------ ------------ ------
Portfolio valuation 1,119.3 100.0 1,175.9 100.0
---------------------- ------------ ------ ------------ ------
The decrease in the Primary Investment portfolio is due to transfers to the Secondary Investment portfolio of GBP166.7 million offset by a movement in fair value of GBP71.6 million, including value enhancements and financial closes achieved during the period, and cash invested of GBP55.3 million.
Primary
Investment
GBP million
--------------------------------------- -------------
Portfolio valuation at 1 January 2017 696.3
- Cash invested 55.3
- Cash yield -
- Transfers to Secondary Investment (166.7)
--------------------------------------- -------------
Rebased valuation 584.9
- Movement in fair value 71.6
--------------------------------------- -------------
Portfolio valuation at 30 June 2017 656.5
--------------------------------------- -------------
The decrease in the Secondary Investment portfolio is due to investment realisations during the year of GBP151.3 million, a negative movement in fair value of GBP18.3 million and cash yield of GBP14.7 million offset by transfers from the Primary Investment portfolio of GBP166.7 million and cash invested of GBP0.8 million.
Secondary
Investment
GBP million
--------------------------------------- -------------
Portfolio valuation at 1 January 2017 479.6
- Cash invested 0.8
- Cash yield (14.7)
- Proceeds from realisations (151.3)
- Transfers from Primary Investment 166.7
--------------------------------------- -------------
Rebased valuation 481.1
- Movement in fair value (18.3)
--------------------------------------- -------------
Portfolio valuation at 30 June 2017 462.8
--------------------------------------- -------------
Methodology
A full valuation of the investment portfolio is prepared every six months, at 30 June and 31 December, with a review at 31 March and 30 September, principally using a discounted cash flow methodology. The valuation is carried out on a fair value basis assuming that forecast cash flows from investments are received until maturity of the underlying assets.
Under the Group's valuation methodology, a base case discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect additional project-specific risks. In addition, risk premia are added to reflect the additional risk during the construction phase. The construction risk premia reduce over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operational stage.
The discounted cash flow valuation was based on future cash distributions from projects forecast as at 30 June 2017, derived from detailed financial models for each underlying project. These incorporate the Group's expectations of likely future cash flows, including value enhancements.
For the 30 June 2017 valuation, the overall weighted average discount rate was 8.6% compared to the weighted average discount rate at 31 December 2016 of 8.9%. The decrease was primarily due to reductions in operational benchmark discount rates for certain investments. The weighted average discount rate at 30 June 2017 was made up of 8.9% (31 December 2016 - 9.1%) for the Primary Investment portfolio and 7.8% (31 December 2016 - 8.4%) for the Secondary Investment portfolio.
The overall weighted average discount rate of 8.6% reflects the fact that project cash flows for investments in the Primary Investment portfolio tend to have a longer duration than for investments in the Secondary Investment portfolio.
The discount rate ranges used in the portfolio valuation at 30 June 2017 were as set out below:
Primary Secondary
Investment Investment
Sector % %
-------------------------- ------------ ------------
PPP projects 7.4 - 11.1 7.0 - 10.0
Renewable energy projects 7.5 - 11.3 6.9 - 10.3
-------------------------- ------------ ------------
The shareholding in JLEN was valued at its closing market price on 30 June 2017 of 107.75p per share (31 December 2016 - 106p per share).
The Directors have obtained an independent opinion from a third party, which has considerable expertise in valuing the type of investments held by the Group, that the investment portfolio valuation represented a fair market value in the market conditions prevailing at 30 June 2017.
Macroeconomic assumptions
During the first half of 2017, lower than previously forecast actual inflation and deposit rates receivable on cash balances within projects had a slight net negative impact on the majority of forecast project cash flows within the portfolio. Deposit rates are anticipated to remain at low levels in the short-term. As mentioned above, movements of foreign currencies against Sterling over the six months to 30 June 2017 resulted in net favourable foreign exchange movements of GBP3.2 million (excluding the effect of foreign exchange hedges as described in the Financial Review section) (six months ended 30 June 2016 - GBP49.4 million net favourable foreign exchange movement).
Investments in overseas projects are fair valued based on the spot exchange rate on the balance sheet date. As at 30 June 2017, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.GBP30 million.
At 30 June 2017, based on a sample of five of the larger PPP investments by value, a 0.25% increase in inflation is estimated to increase the value of PPP investments by GBP16 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investments by GBP15 million. Certain of the underlying project companies incorporate some inflation hedging.
A 5% increase or decrease in power price forecasts is estimated to increase or decrease the total portfolio valuation at 30 June 2017 by 1.0%.
The table below summarises the main macroeconomic assumptions used in the portfolio valuation:
30 June 31 December
Assumption 2017 2016
--------------------- -------------- ------------ -------------- --------------
Long term inflation UK RPI & RPIX 2.75% 2.75%
Europe CPI 1.75% - 2.00% 1.60% - 2.00%
US CPI 2.25% - 2.50% 2.25% - 2.50%
Asia Pacific CPI 2.00% - 2.75% 2.00% - 2.75%
--------------------- -------------- ------------ -------------- --------------
Exchange rates GBP/EUR 1.1382 1.1708
GBP/AUD 1.6921 1.7094
GBP/USD 1.2986 1.2329
GBP/NZD 1.7742 1.7754
------------------------------------------------- -------------- --------------
Discount rate sensitivity
The weighted average discount rate applied at 30 June 2017 was 8.6% (31 December 2016 - 8.9%). The table below shows the sensitivity of each 0.25% change in this rate of up to plus or minus 0.75%.
Increase/(decrease) in
Portfolio valuation valuation
Discount rate sensitivity GBP million GBP million
-------------------------- -------------------- -----------------------
+0.75% 1,022.7 (96.6)
+0.50% 1,053.5 (65.8)
+0.25% 1,085.6 (33.7)
- 1,119.3 -
-0.25% 1,154.5 35.2
-0.50% 1,191.5 72.2
-0.75% 1,230.1 110.8
-------------------------- -------------------- -----------------------
Further analysis of the portfolio valuation is shown in the following tables:
by time remaining on project concession/life
30 June 2017 31 December 2016
GBP million % GBP million %
----------------------- ------------ ------ ------------ ------
Greater than 25 years 672.6 60.0 630.3 53.6
20 to 25 years 233.0 20.9 309.8 26.3
15 to 20 years 165.9 14.8 183.1 15.6
10 to 15 years 21.3 1.9 21.0 1.8
Less than 10 years 16.4 1.5 21.7 1.8
Listed investment 10.1 0.9 10.0 0.9
----------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
----------------------- ------------ ------ ------------ ------
PPP projects are based on long-term concessions and renewable energy assets have long-term useful economic lives. As demonstrated in the table above, 60.0% of the portfolio by value had a greater than 25-year unexpired concession term or useful economic life remaining at 30 June 2017, compared to 53.6% at 31 December 2016. The investment in JLEN, which represented 0.9% (31 December 2016 - 0.9%) of the portfolio valuation, is shown separately.
split between PPP and renewable energy
30 June 2017 31 December 2016
GBP million % GBP million %
---------------------------- ------------ ------ ------------ ------
Primary PPP 556.6 49.7 548.3 46.6
Primary renewable energy 99.9 8.9 148.0 12.6
Secondary PPP 244.4 21.9 345.6 29.4
Secondary renewable energy 208.3 18.6 124.0 10.5
Listed investment 10.1 0.9 10.0 0.9
---------------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
---------------------------- ------------ ------ ------------ ------
Primary PPP investments made up the largest part of the portfolio, representing 49.7% of the portfolio valuation at 30 June 2017, with Secondary PPP investments representing a further 21.9%.
by revenue type
30 June 2017 31 December 2016
GBP million % GBP million %
------------------- ------------ ------ ------------ ------
Availability 771.8 69.0 855.0 72.7
Shadow toll 11.7 1.0 23.4 2.0
Volume 325.7 29.1 287.5 24.4
Listed investment 10.1 0.9 10.0 0.9
------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
------------------- ------------ ------ ------------ ------
Availability-based investments continued to make up the majority of the portfolio, representing 69.0% of the portfolio valuation at 30 June 2017. Renewable energy investments comprised the majority of the volume-based investments. The investment in JLEN, which holds investments in PPP and renewable energy projects, is shown separately.
by sector
30 June 2017 31 December 2016
GBP million % GBP million %
----------------------------------- ------------ ------ ------------ ------
Social infrastructure 143.9 12.9 122.1 10.4
Transport - other 254.9 22.8 395.3 33.6
Transport - rail rolling stock 331.6 29.6 280.4 23.8
Environmental - wind and solar 295.0 26.3 252.9 21.5
Environmental - waste and biomass 83.8 7.5 115.2 9.8
Listed investment 10.1 0.9 10.0 0.9
----------------------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
----------------------------------- ------------ ------ ------------ ------
Rail rolling stock investments made up the largest proportion of the portfolio valuation, representing 29.6% of the portfolio at 30 June 2017, with transport sector investments (excluding rail rolling stock) accounting for a further 22.8%. Wind and solar investments made up 26.3% of the portfolio by value, social infrastructure investments - 12.9% and waste and biomass investments - 7.5%. The portfolio underlying the JLEN shareholding consists of a mix of renewable energy and environmental projects.
by currency
30 June 2017 31 December 2016
GBP million % GBP million %
-------------------- ------------ ------ ------------ ------
Sterling 502.1 44.9 510.4 43.4
Euro 208.5 18.6 341.2 29.0
Australian dollar 251.5 22.5 181.4 15.4
US dollar 133.8 11.9 121.0 10.3
New Zealand dollar 23.4 2.1 21.9 1.9
-------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
-------------------- ------------ ------ ------------ ------
The percentage of investments denominated in foreign currencies decreased slightly from 56.6% to 55.1% reflecting the realisation of two overseas investments in the first half, net of new investment commitments outside the UK.
by geographical region
30 June 2017 31 December 2016
GBP million % GBP million %
-------------------- ------------ ------ ------------ ------
UK 492.0 44.0 500.4 42.5
Continental Europe 208.5 18.6 341.2 29.0
North America 133.8 12.0 121.0 10.3
Asia Pacific 274.9 24.5 203.3 17.3
Listed investment 10.1 0.9 10.0 0.9
-------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
-------------------- ------------ ------ ------------ ------
Investments in the UK continued to make up the largest single region in the portfolio valuation, representing 44.0% of the portfolio at 30 June 2017. Investments in projects located in the Asia Pacific region increased to 24.5% to become the next largest category. Investments in North America made up 12.0% and investments in Europe 18.6%. A substantial majority of the JLEN portfolio consists of investments in UK based projects.
by investment size
30 June 2017 31 December 2016
GBP million % GBP million %
---------------------------- ------------ ------ ------------ ------
Five largest projects 506.0 45.2 520.2 44.2
Next five largest projects 203.4 18.2 236.4 20.1
Other projects 399.8 35.7 409.3 34.8
Listed investment 10.1 0.9 10.0 0.9
---------------------------- ------------ ------ ------------ ------
1,119.3 100.0 1,175.9 100.0
---------------------------- ------------ ------ ------------ ------
The top five investments in the portfolio made up 45.2% of the portfolio at 30 June 2017. The next five largest investments made up a further 18.2%, with the remaining investments in the portfolio comprising 35.7%. The shareholding in JLEN made up 0.9% of the portfolio.
Investment portfolio as at 30 June 2017
Primary Investment Secondary investment
-------------------------------------------------- -----------------------------------------------------------------------
Social
infrastructure
Health Alder Hey New Royal
Children's Adelaide
Hospital Hospital
40% 17.26%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Justice and New Grafton Auckland
Emergency Correctional South
Services Centre Corrections
80% Facility
30%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Defence DARA Red
Dragon
100%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Regeneration Lambeth
Housing
50%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Other New Perth
Accommodation Stadium
50%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Transport
Roads A6 Parkway I-4 Ultimate I-77 Managed A1 Germany Severn A130 A15 Netherlands
Lanes River Crossing
85% 50% 10% 42.5% 35% 100% 28%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Rail IEP (Phase Denver Eagle New Generation Coleshill Aylesbury City Greenwich
1) P3 Rollingstock Parkway Vale Parkway Lewisham
(DLR)
24% 45% 40% 100% 50% 5%
IEP (Phase Sydney Light
2) Rail
30% 32.5%
Environmental
Waste Manchester Manchester
Waste VL Waste TPS
Co Co
50% 37.43%
--------------- ------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Renewable Cramlington Solar House* Hornsdale Svartvallsberget Rammeldalsberget Klettwitz Hornsdale
Energy Biomass 80% 3 Wind Farm Wind Farm Wind Farm Wind Farm 1 Wind
44.7% 20% 100% 100% 100% Farm
30%
------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
Kiata Wind Nordergründe Sommette Pasilly Horath Glencarbry Hornsdale
Farm Wind Farm Wind Farm Wind Farm Wind Farm Wind Farm 2 Wind
72.3% 30% 100% 100% 81.82% 100% Farm
20%
------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
St Martin Sterling Llynfi Speyside
Wind Farm Wind Farm Wind Farm Biomass
100% 92.5% 100% 43.35%
------------- ------------------ --------------- ----------------- ----------------- --------------- ----------------
* Commercial close (reached financial close on 21 July 2017)
FINANCIAL REVIEW
Basis of preparation
The interim financial information has been prepared on the historical cost basis except for the revaluation of the Group's investment in John Laing Holdco Limited through which the Group holds its investment portfolio and financial instruments that are measured at fair value at the end of each reporting period. The Company meets the definition of an investment entity set out in IFRS 10. Investment entities are required to account for all investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss (FVTPL), except for those directly-owned subsidiaries that provide investment-related services or engage in permitted investment related activities with investees (Service Companies). Service Companies are consolidated rather than recorded at FVTPL.
Project companies in which the Group invests are described as "non-recourse", which means that providers of debt to such project companies do not have recourse to John Laing beyond its equity commitments in the underlying projects. Subsidiaries through which the Company holds its investments in project companies, which are held at FVTPL, and subsidiaries that are Service Companies, which are consolidated, are described as "recourse".
Re-presented financial RESULTS
As described above, the Company meets the criteria for being an investment entity under IFRS 10 and accordingly the Company is required to fair value its investments in its subsidiaries, joint ventures and associates except for those directly-owned subsidiaries that provide investment-related services, and do not themselves qualify as Investment Entities; it consolidates such subsidiaries on a line by line basis.
Included within the subsidiaries that the Company fair values in its financial statements are recourse subsidiaries through which the Company holds its investments in non-recourse project companies. These recourse subsidiaries have, in addition to investments in non-recourse project companies, other assets and liabilities, including recourse cash balances, which are included within the Company's investments at FVTPL. For management reporting purposes, these other assets and liabilities are reported separately from the investments in non-recourse project companies as are certain income and costs that do not arise directly from these investments in project companies. Under management reporting, it is the investments in non-recourse project companies that are considered as investments of the Group.
The Directors of the Company use the management reporting basis, including when reviewing the level of financial resources and deciding where these resources should be utilised, when making business decisions. Therefore, the Directors believe it is helpful to readers of the Company's financial statements to set out in this Financial Review the Condensed Group Income Statement, the Condensed Group Balance Sheet and the Condensed 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 Condensed Group Income Statement principally in relation to the net gain on investments at FVTPL. The net gain on investments at FVTPL in the Condensed Group Income Statement includes fair value movements from the portfolio of investments in non-recourse project companies but also comprises income and costs that do not arise directly from investments in this portfolio, including investment fees earned from project companies.
Six months ended
30 June 2017 2016(d)
--------------------------------------------------- ------------------
Re-presented
Condensed Group Re-presented Re-presented income statement
Income Statement Adjustments income statement income statement line items
----------------- ------------ ------------------ ------------------ ------------------
GBP million GBP million GBP million GBP million
Fair value Fair value
movements - movements -
investment investment
portfolio 53.3 - 53.3 128.2 portfolio
Fair value
movements - Fair value
other (0.8) (0.6)(a) (1.4) (9.1) movements - other
Investment fees Investment fees
from projects 2.3 - 2.3 4.1 from projects
------------------ ----------------- ------------ ------------------ ------------------ ------------------
Net gain on
investments at
fair value
through profit
or loss 54.8 (0.6) 54.2 123.2
IMS revenue 9.1 - 9.1 8.0 IMS revenue
PMS revenue 2.8 - 2.8 7.8 PMS revenue
Recoveries on Recoveries on
financial close 1.4 - 1.4 1.0 financial close
Other income 1.7 (1.7)(b) - -
------------------ ----------------- ------------ ------------------ ------------------ ------------------
Other income 15.0 (1.7) 13.3 16.8
Operating income 69.8 (2.3) 67.5 140.0
Third party bid
costs (3.5) - (3.5) (3.4) Third party costs
Staff costs (17.0) - (17.0) (16.8) Staff costs
General overheads (6.3) - (6.3) (5.9) General overheads
Other net Other net
income/(costs) (0.4) 2.3(a,b) 1.9 (1.2) income/(costs)
Pension and other
charges (0.6) 0.6(c) - -
Administrative
expenses (27.8) 2.9 (24.9) (27.3)
Profit from
operations 42.0 0.6 42.6 112.7
Finance costs (5.4) 0.7(c) (4.7) (2.9) Finance costs
Pension and other Pension and other
charges - (1.3)(c) (1.3) (1.5) charges
Profit before tax 36.6 - 36.6 108.3
------------------ ----------------- ------------ ------------------ ------------------ ------------------
Notes:
a) Adjustment comprises reclassifying costs incurred in relation to divestments from 'other net income/(costs)' to 'fair value movement - other'.
b) Adjustment comprises reclassifying the deferred proceeds received in 2017 from the sale of the UK PMS activities in November 2016 from 'other income' to 'other net income/(costs)'.
c) Under IAS 19, the costs of the pension schemes, including the post-retirement medical benefits, comprise a service cost of GBP0.6 million (2016 - GBP0.7 million), included in administrative expenses in the Condensed Group Income Statement, and a finance charge of GBP0.7 million (2016 - GBP0.8 million), included in finance costs in the Condensed Group Income Statement. These amounts are combined together under management reporting.
d) For a reconciliation between the Condensed Group Income Statement and re-presented income statement for the six months ended 30 June 2016, please see the Additional Financial Information.
The results for the period are also shown by operating segment in the table below.
Primary Secondary Asset
Investment Investment Management Total
Six months 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
ended 2017 2016 2017 2016 2017 2016 2017 2016
------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million GBP million
Profit
before tax
for
reportable
segments 53.3 43.5 (27.7) 59.2 8.2 9.0 33.8 111.7
Post
retirement
charges (1.3) (1.5)
Other net
gain/(loss) 4.1 (1.9)
Profit
before tax 36.6 108.3
------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
Profit before tax for the six months ended 30 June 2017 was GBP36.6 million (2016 - GBP108.3 million). The main reasons for the lower profit before tax were the value reduction on the two Manchester Waste investments of GBP25.5 million and the positive foreign exchange movement in the first half last year of GBP49.4 million compared to GBP3.2 million in the first half this year.
-- The main profit contributor in the first half of 2017 was the Primary Investment division. Its contribution was higher than last year primarily because of a higher fair value movement, which in turn was principally as a result of higher value enhancements and other changes to project cash flows offset by foreign exchange movements adverse to the first half of 2016 by GBP29.1 million.
-- The lower contribution in the first half of 2017 from the Secondary Investment division was primarily due to the reduction in value of the two Manchester Waste investments of GBP25.5 million and foreign exchange movements adverse to the first half of 2016 of GBP17.1 million.
-- The lower contribution in the first half of 2017 from the Asset Management division was principally due to lower fee income from PMS as a result of the sale of the UK activities of PMS in late 2016 offset by higher fee income from IMS as a result of increased external Assets under Management.
The movement in fair value on the portfolio for the six months ended 30 June 2017, after adjusting for the impact of investments, cash yield and realisations, was a GBP53.3 million gain (2016 - GBP128.2 million gain). The lower value uplift is primarily due to positive foreign exchange movements in the first half of 2016 and the reduction in the value of the two Manchester Waste investments, as detailed above. The fair value movement also reflects the impact of lower power and gas price forecasts of GBP22.9 million (six months ended 30 June 2016 - GBP16.3 million). For further details of the movement in fair value on the portfolio, see the Portfolio Valuation section.
Other fair value movements for the six months ended 30 June 2017 comprised a GBP1.4 million loss which included net foreign exchange losses of GBP4.1 million (see the foreign currency exposure section in this Financial Review for further details) offset by GBP3.2 million of income for group relief surrendered. For the six months ended 30 June 2016, other negative fair value movements of GBP9.1 million primarily comprised net foreign exchange losses.
The Group earned IMS revenue of GBP9.1 million (2016 - GBP8.0 million) for investment advisory and asset management services primarily to the external funds JLIF and JLEN, with the increase from last year due to the higher level of external Assets under Management.
The Group also earned PMS revenue of GBP2.8 million (2016 - GBP7.8 million). On 30 November 2016, the Group completed the sale of the business and assets of its PMS activities in the UK to HCP. The activities sold contributed approximately GBP4.7 million of the GBP7.8 million PMS revenues for the six months ended 30 June 2016.
The Group achieved recoveries of bidding costs on financial closes of GBP1.4 million in the six months ended 30 June 2017 (2016 - GBP1.0 million).
Staff costs by division are shown below:
Primary Secondary Asset
Investment Investment Management Central Total
Six
months 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
ended 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
--------- -------- ----------- -------- ----------- -------- ----------- -------- -------- -------- --------
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
million million million million million million million million million million
--------- -------- ----------- -------- ----------- -------- ----------- -------- -------- -------- --------
Staff
costs 5.3 4.8 - - 7.3 8.7 4.4 3.3 17.0 16.8
--------- -------- ----------- -------- ----------- -------- ----------- -------- -------- -------- --------
Included within Asset Management staff costs are costs relating to:
Investment Management Project Management Total Asset
Services Services Management
Six months ended 30 June 30 June 30 June 30 June 30 June 30 June
2017 2016 2017 2016 2017 2016
------------------ ------------ ------------ ------------ ------------ ------------ ------------
GBP million GBP million GBP million GBP million GBP million GBP million
------------------ ------------ ------------ ------------ ------------ ------------ ------------
Staff costs 5.4 4.5 1.9 4.2 7.3 8.7
------------------ ------------ ------------ ------------ ------------ ------------ ------------
The slight increase in staff costs was principally due to higher costs under IFRS 2 of share-based incentive schemes with costs in the six months ended 30 June 2017 of GBP1.6 million compared to GBP1.0 million in the same period in 2016, offset by lower PMS costs. There is a corresponding credit for the IFRS 2 charge in the Condensed Group Statement of Changes in Equity. See note 8 to the Condensed Group Financial Statements for further details on the share-based incentive schemes.
Finance costs of GBP4.7 million (2016 - GBP2.9 million) include costs arising on the corporate banking facilities net of any interest income, with the increase from last year primarily due to a lower level of borrowings in the first half of 2016 and the GBP50 million increase in facilities in June 2016.
The Group's overall tax credit on profit on continuing activities for 2017 was GBP4.0 million (2016 - credit of GBP2.9 million). This comprised a tax credit of GBP0.8 million (2016 - charge of GBP1.6 million) in recourse group subsidiary entities that are consolidated (shown in the 'Tax' line of the Condensed Group Income Statement), primarily in relation to group relief payable to entities held at FVTPL, and a tax credit of GBP3.2 million (2016 - GBP4.5 million) in recourse group subsidiary entities that are held at FVTPL (included within 'net gain on investments at fair value through profit or loss' on the Condensed Group Income Statement), including (i) group relief with recourse group subsidiary entities that are consolidated, together with (ii) group/consortium relief received from project companies. The contributions made to JLPF are tax deductible when paid and, as a result, there is minimal tax payable by the UK holding and asset management activities of the Group. Capital gains from the realisation of investments in projects are generally exempt from tax under the UK's Substantial Shareholding Exemption for shares in trading companies or under the overseas equivalent. To the extent this exemption is not available, gains may be sheltered using current year losses or losses brought forward within the Group's holding companies. There are no losses in the Company but there are tax losses in recourse group subsidiary entities that are held at FVTPL.
A second UK 2017 Finance Bill has been announced and draft provisions published, including provisions to restrict tax deductible interest to 30% of a UK company's earnings before interest, tax, depreciation and amortisation (EBITDA) effective from 1 April 2017. This follows a consultation by HM Treasury in 2016 on Base Erosion and Profit Shifting (BEPS) to which the Company responded as part of industry representative forums. The Company holds a provision as at 30 June 2017 for the estimated impact of the proposed legislation; this provision is not material in the context of the Company's net asset value at this date.
Re-presented balance sheet
The re-presented balance sheet is reconciled to the Condensed Group Balance Sheet at 30 June 2017 below. The re-presented balance sheet involves the reclassification of certain amounts within the Condensed Group Balance Sheet principally in relation to assets and liabilities of GBP27.4 million (31 December 2016 - GBP81.6 million) within certain of the Company's recourse subsidiaries that are included in investments at FVTPL in the Condensed Group Balance Sheet as a result of the requirement under IFRS 10 to fair value investments in these subsidiaries.
As at 30 June 2017 31 December
2016(g)
----------------------------------------------------- ------------------
Re-presented
Condensed Group Re-presented Re-presented balance sheet
Balance Sheet Adjustments balance sheet balance sheet line items
------------------ ------------- ------------------ ------------------ ------------------
GBP million GBP million GBP million GBP million
Non-current assets
Plant and
equipment 0.1 (0.1)(c) - -
Investments at Portfolio book
FVTPL 1,146.7 (27.4)(a) 1,119.3 1,175.9 value
Cash collateral
- 20.5(b) 20.5 23.7 balances
Non-portfolio
- 0.3(b) 0.3 0.3 investments
Deferred tax
assets 0.5 (0.5)(c) - -
Other long term
- 2.4(c) 2.4 3.7 assets
------------------ ------------- ------------------ ------------------
1,147.3 (4.8) 1,142.5 1,203.6
------------------ ------------- ------------------ ------------------
Current assets
Trade and other
receivables 6.9 (6.9)(d) - -
Cash and cash Cash and cash
equivalents 1.7 3.9(a) 5.6 53.1 equivalents
------------------ ------------- ------------------ ------------------
8.6 (3.0) 5.6 53.1
------------------ ------------- ------------------ ------------------
Total assets 1,155.9 (7.8) 1,148.1 1,256.7
------------------ ------------- ------------------ ------------------
Current
liabilities
Working capital
and other
- (4.8)(b,d,e) (4.8) (5.6) balances
Current tax
liabilities (1.4) 1.4(d) - -
Borrowings (61.7) (3.0)(c,e) (64.7) (165.0) Cash borrowings
Trade and other
payables (12.7) 12.7(d) - -
------------------ ------------- ------------------ ------------------
(75.8) 6.3 (69.5) (170.6)
------------------ ------------- ------------------ ------------------
Net current
liabilities (67.2) 3.3 (63.9) (117.5)
------------------ ------------- ------------------ ------------------
Non-current
liabilities
Retirement benefit Pension deficit
obligations (38.2) 8.1(f) (30.1) (61.3) (IAS 19)
Other retirement
benefit
- (8.1)(f) (8.1) (8.0) obligations
Provisions (1.5) 1.5(d) - -
------------------ ------------- ------------------ ------------------
(39.7) 1.5 (38.2) (69.3)
------------------ ------------- ------------------ ------------------
Total liabilities (115.5) 7.8 (107.7) (239.9)
------------------ ------------- ------------------ ------------------
Net assets 1,040.4 - 1,040.4 1,016.8
------------------ ------------- ------------------ ------------------
Notes:
a) Investments at fair value through profit or loss (FVTPL) comprise: portfolio valuation of GBP1,119.3 million (31 December 2016 - GBP1,175.9 million) and other assets and liabilities within recourse investment entity subsidiaries of GBP27.4 million (31 December 2016 - GBP81.6 million) (see note 9 to the Condensed Group Financial Statements). Re-presented cash and cash equivalents increased from GBP1.7 million (31 December 2016 - GBP1.6 million) on the Condensed Group Balance Sheet because of the inclusion of available cash balances in recourse group investment subsidiaries of GBP3.9 million (31 December 2016 - GBP51.5 million) excluding cash collateral balances of GBP20.5 million (31 December 2016 - GBP23.7 million); see the Financial Resources section in this Financial Review.
b) Other assets and liabilities within recourse investment entity subsidiaries of GBP27.4 million (31 December 2016 - GBP81.6 million) referred to in note (a) include (i) cash and cash equivalents of GBP24.4 million (31 December 2016 - GBP75.2 million), of which GBP20.5 million (31 December 2016 - GBP23.7 million) is held to collateralise future investment commitments, (ii) positive working capital and other balances of GBP2.7 million (31 December 2016 - GBP6.1 million) and (iii) other small investments at FVTPL not included in the portfolio valuation of GBP0.3 million (31 December 2016 - GBP0.3 million).
c) Plant and equipment and deferred tax assets are combined as other long term assets together with the non-current portion of unamortised financing costs disclosed in note e) below.
d) Trade and other receivables, current tax liabilities, trade and other payables and provisions are combined as working capital and other balances.
e) Borrowings comprise cash borrowings of GBP64.7 million (31 December 2016 - GBP165.0 million) net of unamortised financing costs of GBP3.0 million (31 December 2016 - GBP3.6 million), with the non-current portion of GBP1.8 million (31 December 2016 - GBP2.4 million) re-presented as other long term assets and the current portion of GBP1.2 million (31 December 2016 - GBP1.2 million) re-presented as working capital and other balances.
f) Total retirement benefit obligations are shown in their separate components as in note 11 to the Condensed Group Financial Statements.
g) For a reconciliation between the Condensed Group Balance Sheet and re-presented balance sheet as at 31 December 2016, please refer to the 2016 Annual Report and Accounts.
Net assets are also shown by operating segment in the table below.
Primary Secondary Asset
Investment Investment Management Total
As at 30 June 31 Dec 30 June 31 Dec 30 June 31 Dec 30 June 31 Dec
2017 2016 2017 2016 2017 2016 2017 2016
----------------- ---------- ----------- ---------- ----------- ---------- ----------- ----------- -----------
GBP GBP GBP GBP GBP GBP GBP GBP
million million million million million million million million
----------------- ---------- ----------- ---------- ----------- ---------- ----------- ----------- -----------
Portfolio
valuation 656.5 696.3 462.8 479.6 - - 1,119.3 1,175.9
Other net
current
liabilities (2.1) (1.6)
Group net
borrowings(1) (38.6) (88.2)
Post-retirement
obligations (38.2) (69.3)
----------------- ---------- ----------- ---------- ----------- ---------- ----------- ----------- -----------
Group net assets 1,040.4 1,016.8
----------------- ---------- ----------- ---------- ----------- ---------- ----------- ----------- -----------
Note:
(1) Short-term cash borrowings of GBP64.7 million (31 December 2016 - GBP165.0 million) net of cash balances of GBP26.1 million (31 December 2016 - GBP76.8 million), of which GBP20.5 million (31 December 2016 - GBP23.7 million) was held to collateralise future investments commitments.
Net asset value increased from GBP1,016.8 million at 31 December 2016 to GBP1,040.4 million at 30 June 2017.
The Group's portfolio of investments in project companies and listed investments was valued at GBP1,119.3 million at 30 June 2017 (31 December 2016 - GBP1,175.9 million). The valuation methodology and details of the portfolio value are provided in the Portfolio Valuation section.
The Group held cash balances of GBP26.1 million at 30 June 2017 (31 December 2016 - GBP76.8 million) of which GBP20.5 million (31 December 2016 - GBP23.7 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details).
Working capital and other balances (a negative amount) were slightly lower primarily because of higher receivables as a result of increased fund management fees and lower provisions at 30 June 2017, offset by a lower fair value at 30 June 2017 on foreign exchange hedges.
The combined accounting deficit in the Group's defined benefit pension and post-retirement medical schemes at 30 June 2017 was GBP38.2 million (31 December 2016 - GBP69.3 million). The Group operates two defined benefit schemes in the UK - the John Laing Pension Fund (JLPF) and the John Laing Pension Plan (the Plan). Both schemes are closed to new members and future accrual. Under IAS 19, at 30 June 2017, JLPF had a deficit of GBP32.9 million (31 December 2016 - GBP64.2 million) whilst the Plan had a surplus of GBP2.8 million (31 December 2016 - GBP2.9 million). The liability at 30 June 2017 under the post-retirement medical scheme was GBP8.1 million (31 December 2016 - GBP8.0 million).
The pension deficit in JLPF is based on a discount rate applied to pension liabilities of 2.70% (31 December 2016 - 2.80%) and long term RPI of 3.2 % (31 December 2016 - 3.2%). The amount of the deficit is dependent on key assumptions, principally: inflation, the discount rate used and the anticipated longevity of members. The discount rate, as prescribed by IAS 19, is based on yields from high quality corporate bonds. The deficit (under IAS 19) has decreased since the year end primarily as a result of the Group's cash contribution to JLPF of GBP24.5 million in March 2017.
In December 2016, following a triennial actuarial review of the JLPF as at 31 March 2016, a seven-year deficit repayment plan was agreed with the JLPF Trustee. The actuarial deficit of GBP171 million at 31 March 2016 is to be repaid through annual contributions as follows:
By 31 March GBP million ------------- ------------ 2017 24.5 2018 26.5 2019 29.1 2020 24.9 2021 25.7 2022 26.4 2023 24.6 ------------- ------------
Re-presented cash flow statement
The Condensed Group Cash Flow Statement includes the cash flows of the Company and certain 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 Condensed Group Cash Flow Statement. Investment-related cash flows are disclosed in note 9 to the 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.
Six months ended 30 June 2017 2016
------------------------ ------------------------
Re-presented cash flows Re-presented cash flows
GBP million GBP million
Cash yield 15.1 19.2
Operating cash flow (7.0) (11.1)
Net foreign exchange impact (0.1) (3.5)
Total operating cash flow 8.0 4.6
------------------------------------------------------------ ------------------------ ------------------------
Cash investment in projects (57.7) (53.5)
Proceeds from realisations 151.3 57.7
------------------------------------------------------------ ------------------------ ------------------------
Net investing cash flows 93.6 4.2
------------------------------------------------------------ ------------------------ ------------------------
Finance charges (4.4) (3.9)
Cash contributions to JLPF (24.5) (18.1)
Dividend payments (23.1) (19.4)
Net cash outflow from financing activities (52.0) (41.4)
------------------------------------------------------------ ------------------------ ------------------------
Recourse group cash inflow/(outflow) 49.6 (32.6)
------------------------------------------------------------ ------------------------ ------------------------
Recourse group opening net (debt)/cash balances (88.2) 110.4
------------------------------------------------------------ ------------------------ ------------------------
Recourse group closing net (debt)/cash balances (38.6) 77.8
------------------------------------------------------------ ------------------------ ------------------------
Reconciliation to line items on re-presented balance sheet
------------------------------------------------------------ ------------------------ ------------------------
Cash collateral balances 20.5 145.2
------------------------------------------------------------ ------------------------ ------------------------
Other cash balances 5.6 32.6
------------------------------------------------------------ ------------------------ ------------------------
Total cash and cash equivalents 26.1 177.8
------------------------------------------------------------ ------------------------ ------------------------
Cash borrowings (64.7) (100.0)
------------------------------------------------------------ ------------------------ ------------------------
Net (debt)/cash (38.6) 77.8
------------------------------------------------------------ ------------------------ ------------------------
Cash yield comprised GBP14.7 million (2016 - GBP18.3 million) from the investment portfolio and GBP0.4 million (2016 - GBP0.9 million) from non-portfolio investments.
Operating cash flow in the six months ended 30 June 2017 was less adverse than in 2016 primarily due to lower staff costs (in cash terms) and lower payments in relation to provisions.
Total operating cash flow was net of an adverse foreign exchange impact of GBP0.1 million (2016 - adverse impact of GBP3.5 million).
During the period, cash of GBP57.7 million (2016 - GBP53.5 million) was invested in project companies comprising GBP56.1 million into the investment portfolio and a GBP1.6 million advance payment for a future investment commitment. In the same period, investments in three projects were realised (including one investment to JLIF and two investments to third parties) for total proceeds of GBP151.3 million (2016 - GBP57.7 million from the realisation of two investments).
In the period, the Group made a cash contribution to JLPF of GBP24.5 million (2016 - GBP18.1 million).
Dividend payments of GBP23.1 million in the six months ended 30 June 2017 comprised the final dividend for 2016 (2016 - final dividend for 2015 of GBP19.4 million).
FINANCIAL RESOURCES
At 30 June 2017, the Group had principal committed corporate banking facilities of GBP400.0 million (31 December 2016 - GBP400.0 million), expiring in March 2020, which are primarily used to back investment commitments. The Group also had surety facilities of GBP50.0 million backed by committed liquidity facilities expiring in March 2018. Net available financial resources at 30 June 2017 were GBP187.9 million (31 December 2016 - GBP168.1 million).
Analysis of Group financial resources
30 June 31 December
2017 2016
GBP million GBP million
------------------------------------------------------------- ------------- -------------
Total committed facilities 450.0 450.0
------------------------------------------------------------- ------------- -------------
Letters of credit issued under corporate banking facilities (150.0) (112.6)
Letters of credit issued under surety facilities (50.0) (50.0)
Other guarantees and commitments (2.3) (6.5)
Short term cash borrowings (64.7) (165.0)
------------------------------------------------------------- ------------- -------------
Facility utilisation (267.0) (334.1)
------------------------------------------------------------- ------------- -------------
Facility headroom 183.0 115.9
Cash and bank deposits(1) 5.6 53.1
Less unavailable cash (0.7) (0.9)
------------------------------------------------------------- ------------- -------------
Net available financial resources 187.9 168.1
------------------------------------------------------------- ------------- -------------
(1) Cash and bank deposits excluding cash collateral balances
Letters of credit issued under the committed corporate banking facilities of GBP150.0 million (31 December 2016 - GBP112.6 million) and under additional surety facilities of GBP50.0 million (31 December 2016 - GBP50.0 million) and cash collateral together represent future cash investments by the Group into underlying projects in the Primary Investment portfolio.
30 June 31 December
2017 2016
GBP million GBP million
-------------------------------------- ------------- -------------
Letters of credit issued 200.0 162.6
Cash collateral 20.5 23.7
-------------------------------------- ------------- -------------
Future cash investment into projects 220.5 186.3
-------------------------------------- ------------- -------------
The table below shows the letters of credit in issue analysed by investment and the date or dates when cash is expected to be invested into the underlying project at which point the letter of credit would expire:
Letter
of
credit Expected
issued date of cash
Project GBP million investment
-------------------------------------------- ------------- --------------
Cramlington Biomass, UK 27.0 December 2017
IEP (Phase 2), UK 72.8 March 2018
Kiata Wind Farm, Australia 4.4 July 2017
to October
2017
New Generation Rollingstock, Australia 7.2 July 2017
to October
2017
New Grafton Correctional Centre, Australia 78.1 December 2018
to June 2019
Sterling Wind Farm, US 10.5 July 2017
Total 200.0
-------------------------------------------- ------------- --------------
The table below shows the cash collateral balances at 30 June 2017 analysed by investment and the date when the cash collateral is expected to be invested into the underlying project:
Cash
collateral Expected
amount date of cash
Project GBP million investment
------------------------------ ------------- --------------
IEP (Phase 1), UK 0.3 September
2017
I-77 Managed Lanes, US 19.1 October 2017
to November
2018
New Perth Stadium, Australia 1.1 July 2017
to December
2017
Total 20.5
------------------------------ ------------- --------------
Cash collateral is included within 'investments at fair value through profit or loss' in the Condensed Group Balance Sheet.
There are significant non-recourse borrowings within the project companies in which the Group invests. The interest rate exposure on the borrowings of such project companies is, in most circumstances, fixed on financial close, through a long-dated bond or fixed rate debt, or through the fixing of floating rate bank debt via interest rate swaps. Given this, the impact on the Group's returns from investments in project companies of changes in interest rates on project borrowings is minimal. There is an impact from changes in interest rates on the investment income from monies held on deposit both at Group level and within project companies but such an effect is not material in the context of the Condensed Group Balance Sheet.
FOREIGN CURRENCY EXPOSURE
The Group regularly reviews the sensitivity of its balance sheet to changes in exchange rates relative to Sterling and to the timing and amount of forecast foreign currency denominated cash flows. As set out in the Portfolio Valuation section, the Group's portfolio comprises investments denominated in Sterling, Euro, and Australian, US and New Zealand Dollars. As a result of foreign exchange movements in the six months ended 30 June 2017, there was a net favourable fair value movement of GBP3.2 million in the portfolio valuation, GBP3.0 million of which represented a gain on the divestment of the Group's investment in the A1 Poland project where the proceeds were hedged (see below). In the first half, Sterling weakened against the Euro and Australian and New Zealand Dollars between 31 December 2016 and 30 June 2017, but strengthened against the US Dollar.
The Group may apply an appropriate hedge to a specific currency transaction exposure, which could include borrowing in that currency or entering into forward foreign exchange contracts. An analysis of the portfolio value by currency is set out in the Portfolio Valuation section. In the first half of the year, there was a net loss of GBP4.1 million from foreign exchange movements outside the portfolio, which was primarily as a result of a loss of GBP3.0 million on forward foreign exchange contracts taken out to hedge the proceeds from the divestment of the Group's investment in the A1 Poland project, which was completed in the first half of 2017.
Letters of credit in issue at 30 June 2017 of GBP200.0 million (31 December 2016 - GBP162.6 million) are analysed by currency as follows:
30 June 31 December
2017 2016
Letters of credit by currency GBP million GBP million
------------------------------- ------------- -------------
Sterling 99.8 99.7
US dollar 10.5 -
Euro - 18.1
Australian dollar 89.7 44.8
------------------------------- ------------- -------------
200.0 162.6
------------------------------- ------------- -------------
Cash collateral at 30 June 2017 of GBP20.5 million (31 December 2016 - GBP23.7 million) is analysed by currency as follows:
30 June 31 December
2017 2016
Cash collateral by currency GBP million GBP million
----------------------------- ------------- -------------
Sterling 0.3 0.3
US dollar 19.1 20.1
Australian dollar 1.1 3.3
----------------------------- ------------- -------------
20.5 23.7
----------------------------- ------------- -------------
PRINCIPAL Risks AND RISK MANAGEMENT
The effective management of risks within the Group is essential to the successful delivery of the Group's objectives. The Board is responsible for ensuring that risks are identified and appropriately managed across the Group and has delegated to the Audit & Risk Committee responsibility for reviewing the effectiveness of the Group's internal controls, including the systems established to identify, assess, manage and monitor risks. The Group's risk appetite when making decisions on investment commitments or potential realisations is assessed by reference to the expected impact on NAV.
The principal internal controls that operated throughout the first half of 2017 and up to the date of this announcement include:
-- an organisational structure which provides adequate segregation of responsibilities, clearly defined lines of accountability, delegated authority to trained and experienced staff and extensive reporting;
-- clear business objectives aligned with the Group's risk appetite;
-- risk reporting, including identification of risks through Group-wide risk registers, that is embedded in the regular management reporting of business units and is communicated to the Board; and
-- an independent internal audit function, which reports to the Audit & Risk Committee. The external auditor also reports to the Audit & Risk Committee on the effectiveness of financial controls relevant to the audit.
The Group's Internal Audit function has several objectives, in particular:
-- to provide independent assurance to the Board, through the Audit & Risk Committee, that internal control processes, including those related to risk management, are relevant, fit for purpose, effective and operating throughout the business;
-- to provide a deterrent to fraud and to provide another layer of assurance that the Group is meeting its FCA regulatory requirements; and
-- to provide advice on efficiency improvements to internal control processes.
Internal Audit is independent of the business and reports functionally to the Group Finance Director and directly to the Chairman of the Audit & Risk Committee. The Group Head of Internal Audit meets regularly with senior management and the Audit & Risk Committee to discuss key findings and management actions undertaken.
The Group 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 Group Finance Director, 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. It reports formally to the Audit & Risk Committee.
The Group risk register is reviewed at every meeting of the Audit & Risk Committee and Management Risk Committee and every six months by the Board.
The above controls and procedures are underpinned by a culture of openness of communication between operational and executive management. All investment decisions are scrutinised in detail by the Investment Committee and, if outside the Investment Committee's terms of reference, also by the Board.
The Directors' assessment of the principal risks applying to the Group is set out below, including the way in which risks are linked to the three strategic objectives set out in the Chief Executive Officer's Review in the 2016 Annual Report and Accounts. These risks are not expected to change significantly in the second half of 2017. Additional risks and uncertainties not presently known to the Directors, or which they currently consider not to be material, may also have an adverse effect on the Group.
The Group's three strategic objectives are:
1. Growth in primary investment volumes (new capital committed to greenfield infrastructure projects) over the medium term.
2. Growth in the value of external Assets under Management and related fee income.
3. Management and enhancement of the Group's investment portfolio, with a clear focus on active management during construction, accompanied by realisations of investments which, combined with the Group's corporate banking facilities and operational cash flows, enable it to finance new investment commitments.
Change
Link in risk
to strategic since
objectives 31 December
Risk above Mitigation 2016
------------------------------------------ -------------- ------------------------------------------- -------------
Governmental policy 1, 2, The Board limits its exposure No change
Changes to legislation or public 3 to any single jurisdiction.
policy in the jurisdictions in Thorough due diligence is carried
which the Group operates or may out in order to assess a specific
wish to operate could negatively country's risk (for example
impact the volume of potential economic and political stability,
opportunities available to the tax policy, legal framework
Group and the returns from existing and local practices) before
opportunities. any investment is made.
The use of PPP programmes by Where possible the Group seeks
governmental entities may be specific contractual protection
delayed or may decrease thereby from changes in government policy
limiting opportunities for private and law for the projects it
sector infrastructure investors invests in. General change of
in the future, or be structured law is considered to be a normal
such that returns to private business risk. During the bidding
sector infrastructure investors process for a project, the Group
are reduced. takes a view on an appropriate
Governmental entities may in level of return to cover the
the future seek to terminate risk of non-discriminatory changes
or renegotiate existing projects in law.
for example to introduce new During the bidding process for
policies or legislation that a project, the Group assesses
result in higher tax obligations the sensitivity of the project's
on existing PPP or renewable forecast returns to changes
energy projects or otherwise in factors such as tax rates
affect existing or future projects. and/or, for renewable energy
Changes to legislation or public projects, governmental support
policy relating to renewable mechanisms.
energy could negatively impact The Group targets jurisdictions
the economic returns on the Group's which have a track record of
investments in renewable energy support for renewable energy
projects, which would adversely investments and which continue
affect the demand for and attractiveness to demonstrate such support.
of such projects. Through its track record of
Compliance with the public tender 130 investment commitments,
regulations which apply to PPP the Group has developed significant
projects is complex and the outcomes expertise in compliance with
may be subject to third party public tender regulations.
challenge and reversed.
------------------------------------------ -------------- ------------------------------------------- -------------
Macroeconomic factors 1, 2, Factors which have the potential No change
To the extent such factors cannot 3 to impact adversely the underlying
be hedged, inflation, interest cash flows of an investment,
rates and foreign exchange all and hence its valuation, are
potentially impact the return hedged wherever possible at
generated from an investment a project level and sensitivities
and its valuation. are considered during the investment
Weakness in factors which affect appraisal process.
energy prices, such as the oil Systemic risks, such as potential
price, could negatively impact deflation, or appreciation/depreciation
the economic returns on the Group's of Sterling versus the currency
investments in renewable energy. in which an investment is made,
Weakness in the political and are assessed in the context
economic climate in a particular of the portfolio as a whole.
jurisdiction could impact the The Group seeks to reduce the
value of, or the return generated extent to which its renewable
from, any or all of the Group's energy investments are exposed
investments located in that jurisdiction. to energy prices through governmental
support mechanisms and/or off-take
arrangements.
The Group monitors closely the
level of investments it has
exposed to foreign currencies,
including regularly testing
the sensitivity of the financial
covenants in its corporate banking
facilities to a significant
change in the value of individual
currencies.
Where possible, specific clauses
relating to potential currency
change within a particular jurisdiction
are incorporated in project
documentation.
------------------------------------------ -------------- ------------------------------------------- -------------
Liquidity in the secondary market 1, 2, Projects are appraised on a No change
Weakness in the secondary markets 3 number of bases, including being
for investments in PPP or renewable held to maturity. Projects are
energy projects, for example also carefully structured so
as the result of a lack of economic that they are capable of being
growth in relevant markets, regulatory divested, if appropriate, before
changes in the banking sector, maturity.
liquidity in financial markets, Over recent years, the secondary
changes in interest and exchange markets for both PPP and renewable
rates and project finance market energy investments have grown.
conditions may affect the Group's While JLIF and JLEN are natural
ability to realise full value buyers of the Group's PPP and
from its divestments. renewable energy investments
The secondary market for investments respectively, the size and breadth
in renewable energy projects of secondary markets provide
may be affected by, inter alia, the Group with confidence that
changes in energy prices, in it can sell investments to other
governmental policy, in the value purchasers.
of governmental support mechanisms
and in project finance market
conditions.
The ability of JLIF and JLEN
to raise finance for further
investments may have an impact
on both the Group's ability to
sell investments in PPP and renewable
energy projects and on the Group's
asset management business more
generally.
------------------------------------------ -------------- ------------------------------------------- -------------
Financial resources 1, 3 The Group has corporate banking No change
Any shortfall in the financial facilities totalling GBP400.0
resources that are available million which mature in March
to the Group to satisfy its financial 2020. In December 2016, additional
obligations may make it necessary surety facilities (GBP50.0 million)
for the Group to constrain its became committed until March
business development, refinance 2018. Available headroom is
its outstanding obligations, carefully monitored and compliance
forego investment opportunities with the financial covenants
and/or sell existing investments. and other terms of these facilities
Inability to secure project finance is closely observed. The Group
could hinder the ability of the also monitors its working capital,
Group to make a bid for an investment cash collateral and letter of
opportunity, or where the Group credit requirements and maintains
has a preferred bidder position, an active dialogue with its
could negatively impact whether banks. It operates a policy
an underlying project reaches of ensuring that sufficient
financial close. financial resources are maintained
The inability of a project company to satisfy committed and likely
to satisfactorily refinance existing future investment requirements.
maturing medium-term project The Group believes that there
finance facilities periodically is currently sufficient depth
during the life of a project and breadth in project finance
could affect the Group's projected markets to meet the financing
future returns from investments needs of the projects it invests
in such projects and hence their in. The Group works closely
valuation in the Group's balance with a wide range of project
sheet. finance providers, including
Adverse financial performance banks and other financial institutions.
by a project company which affects PPP projects in which the Group
the financial covenants in its has invested in markets such
project finance loan documents as Australia and New Zealand,
may result in the project company where the tenor of project finance
being unable to make distributions facilities at financial close
to the Group and other investors, tends to be medium term, will
which would impact the valuation need to be refinanced in due
of the Group's investment in course.
such project company, and may Prior to financial close, all
enable project finance debt providers proposed investments are scrutinised
to declare default on the financing by the Investment Committee.
terms and exercise their security. This scrutiny includes a review
of sensitivities to adverse
performance of investment returns
and financial ratio tests as
well as an assessment of a project's
ability to be refinanced if
the tenor of its debt is less
than the term of the concession
or the project's useful life.
The Group maintains an active
dialogue with the banks and
other financial institutions
which provide project finance
to the projects in which it
invests. Monitoring of compliance
with financial covenant ratios
and other terms of loan documents
continues throughout the term
of the project finance loan.
------------------------------------------ -------------- ------------------------------------------- -------------
Pensions 1, 3 The Group's two defined benefit No change
The amount of the deficit in pension schemes are overseen
the Group's main defined benefit by corporate trustees, the directors
pension scheme (JLPF) can vary of which include independent
significantly due to gains or and professionally qualified
losses on scheme investments individuals. The Group works
and movements in the assumptions closely with the trustees on
used to value scheme liabilities the appropriate funding strategy
(in particular life expectancy, for the schemes and takes independent
discount rate and inflation rate). actuarial advice as appropriate.
Consequently the Group is exposed Both schemes are closed to future
to the risk of increases in cash accrual and accordingly have
contributions payable, volatility no active members, only deferred
in the deficit reported in the members and pensioners. A significant
Group Balance Sheet, and gains/losses proportion of the liabilities
recorded in the Group Statement of JLPF is matched by a bulk
of Comprehensive Income. annuity buy-in agreement with
Aviva. Other hedging is also
in place.
The actuarial valuation of JLPF
as at 31 March 2016 was finalised
in December 2016. The next actuarial
valuation is due as at 31 March
2019.
------------------------------------------ -------------- ------------------------------------------- -------------
Competition 1 The Group believes that its No change
The Group operates in competitive experience and expertise as
markets and may not be able to an active investor and asset
compete effectively or profitably. manager accumulated over more
than 20 years, together with
its flexibility and ability
to respond to market conditions
will continue to enable it to
compete effectively and secure
attractive investments.
------------------------------------------ -------------- ------------------------------------------- -------------
Valuation 3 The discount rates used to value No change
The valuation of an investment investments are derived from
in a project may not reflect publicly available market data
its ultimate realisable value. and other market evidence and
In circumstances where the revenue are updated regularly.
derived from a project is related The Group has a good track record
to patronage (i.e. customer usage), of realising investments at
actual revenues may vary materially prices consistent with the fair
from assumptions made at the values at which they are held.
time the investment commitment The Group's investments are
is made. In addition, to the in projects which are principally
extent that a project company's availability-based (where the
actual costs incurred differ revenue does not generally depend
from forecast costs, for example, on the level of use of the project
because of late construction, asset). Where patronage or volume
and cannot be passed on to risk is taken, the Directors
sub-contractors review revenue assumptions and
or other third parties, investment their sensitivities in detail
returns and valuations may be prior to any investment commitment.
adversely affected. The Group's intention is to
Revenues from renewable energy maintain a majority of availability
projects may be affected by the - based investments by value
volume of power production (e.g. in its portfolio.
from changes in wind or solar Where the revenue from investments
yield), the availability of fuel is related to patronage or volume
(in the case of biomass projects), (e.g. with regard to investments
operational issues, restrictions in renewable energy projects),
on the electricity network, the risks are mitigated through
reliability of electrical connections a combination of factors, including
or other factors such as noise (i) the use of independent forecasts
and other environmental restrictions, of future volumes (ii) lower
as well as by changes in energy gearing versus that of availability-based
prices and to governmental support projects (iii) stress-testing
mechanisms. the robustness of project returns
The valuation of the Group's against significant falls in
investment portfolio is affected forecast volumes.
by movements in foreign exchange The Group typically hedges cash
rates, which are reflected through flows arising from investment
the Group's financial statements. realisations or significant
In addition, there are foreign distributions in currencies
exchange risks associated with other than Sterling.
conversion of foreign currency The intention is that projects
cash flows relating to an investment are structured such that (i)
into and out of Sterling. day-to-day service provision
The valuation of the Group's is sub-contracted to qualified
investment portfolio could be sub-contractors supported by
affected by changes in tax legislation, appropriate security packages
for instance changes to limit (ii) cost and price inflation
tax-deductible interest (see risk in relation to the provision
Taxation section). of services lies with sub-contractors
During the construction phase (iii) performance deductions
of an infrastructure project, in relation to non-availability
there are risks that either the lie with sub-contractors (iv)
works are not completed within future major maintenance costs
the agreed time-frame or that and ongoing project company
construction costs overrun. Where costs are reviewed annually
such risks are not borne by and cost mitigation strategies
sub-contractors, adopted as appropriate.
or sub-contractors fail to meet The Group has procedures in
their contractual obligations, place to ensure that project
this can result in delays in companies in which it invests
the receipt of project income appoint competent sub-contractors
and/or cost overruns, which may with relevant experience and
adversely affect the valuation financial strength. If project
of and return on the Group's construction is delayed, sub-contracting
investments. If construction arrangements contain terms enabling
or other long stop dates are the project company to recover
exceeded, this may enable public liquidated damages, additional
sector counter-parties and/or costs and lost revenue, subject
project finance debt providers to limits. In addition, the
to declare a default and, in project company may terminate
the case of the latter, to exercise its agreement with a sub-contractor
their security. if the latter is in default
The Group is reliant on the performance and seek an alternative sub-contractor.
of third parties in constructing The terms of the sub-contracts
an asset to an appropriate standard into which project companies
as well as operating it in a enter provide some protections
manner consistent with contractual for investment returns from
requirements. Poor performance the poor performance of third
by, or failure of, such third parties.
parties may result in the impairment The ability to replace defaulting
or loss of an investment. third parties is supported by
security packages to protect
against price movement on re-tendering.
If long stop dates are exceeded,
the Group has significant experience
as an active manager in protecting
its investments by working with
all parties to a project to
agree revised timetables and/or
other restructuring arrangements.
------------------------------------------ -------------- ------------------------------------------- -------------
Counterparty risk 3 The Group works with multiple No change
The Group is exposed to counterparty clients, joint venture partners,
credit risk with regards to (i) sub-contractors and institutional
governmental entities, sub-contractors, investors so as to reduce the
lenders and suppliers at a project probability of systemic counterparty
level and (ii) consortium partners, risk in its investment portfolio.
financial institutions and suppliers In establishing project contractual
at a Group level. arrangements prior to making
Public sector counter-parties an investment, the credit standing
to PPP projects may seek to renegotiate and relevant experience of a
contract terms and/or terminate sub-contractor are considered.
contracts in a way which impacts Post contract award, the financial
the valuation of one or more standing of key counterparties
of the Group's investments. is monitored to provide an early
In overseas jurisdictions, the warning of possible financial
Group's investments backed by distress.
governmental entities may ultimately PPP projects are normally structured
be subject to sovereign risk. 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 compensation, including equity
investors.
PPP projects are normally supported
by central and local government
covenants, which significantly
reduce the Group's risk. Risk
is further reduced by the increasing
geographical spread of the Group's
investments.
Counterparties for deposits
at a Group level, project debt
swaps and deposits within project
companies are required to be
banks with a suitable credit
rating and are monitored on
an ongoing basis.
Entry into new geographical
areas which have a different
legal framework and/or different
financial market characteristics
is considered by the Board separately
from individual investment decisions.
Typically, a substantial proportion
of the revenue generated by
renewable energy projects is
backed by governmental support
mechanisms.
------------------------------------------ -------------- ------------------------------------------- -------------
Major incident 2, 3 At financial close, projects No change
A major incident at any of the benefit from comprehensive insurance
Group's main locations or any arrangements, either directly
of the projects invested in by or through contractors' insurance
the Group, such as a terrorist policies.
attack, war or significant cyber-attack, Detailed business continuity
could lead to a loss of crucial plans have been designed and
business data, technology, buildings are tested at frequent/regular
and reputation and harm to the intervals. Business continuity
public, all of which could collectively procedures are also regularly
or individually result in a loss updated in order to maintain
of value for the Group. their relevance.
John Laing operates to independent,
third party-certified management
systems in respect of health
and safety (OHSAS 18001:2007).
In addition, it routinely monitors
health, safety and environmental
issues in the projects it invests
in or manages.
Cyber risk is addressed through
(i) the Group's organisational
structure which includes segregation
of responsibilities, delegated
lines of accountability, delegated
authorities and outsourced IT
arrangements, as well as (ii)
specific controls, including
controls over payments and access
to IT systems.
------------------------------------------ -------------- ------------------------------------------- -------------
Investment adviser agreements 2 Through JLCM, and supported No change
with JLIF and JLEN by other parts of the Asset
A loss of JLCM's investment adviser Management division, the Group
agreements with JLIF and/or JLEN focuses on delivering a high
respectively would be detrimental quality service to both funds.
to the Group's Asset Management
business.
------------------------------------------ -------------- ------------------------------------------- -------------
Future returns from investments 1, 2, In bidding for new projects, No change
The Group's historical returns 3 the Group sets a target internal
and cash yields from investments rate of return taking account
may not be indicative of future of historical experience, current
returns. market conditions and expected
The Group's expected hold-to-maturity returns once the project becomes
internal rates of return from operational. The Group continually
investments are based on a variety looks for value enhancement
of assumptions which may not opportunities which would improve
be correct at the time they are the target rate of return.
made and may not be achieved At the appraisal stage, investments
in the future. in projects are tested for their
sensitivity to changes in key
assumptions.
------------------------------------------ -------------- ------------------------------------------- -------------
Taxation 1, 3 Tax positions taken by the Group No change
The Group may be exposed to changes are based on industry practice
in taxation in the jurisdictions and/or external tax advice.
in which it operates, or it may At the appraisal stage, investments
cease to satisfy the conditions in projects are tested for their
for relevant reliefs. Tax authorities sensitivity to changes in tax
may disagree with the positions rates. Project valuations are
that the Group has taken or intends regularly updated for changes
to take. in tax rates.
Project companies may be exposed The UK Government confirmed
to changes in taxation in the its intention to introduce a
jurisdictions in which they operate. Fixed Ratio Rule to cap the
In 2015, the OECD published its amount of tax deductible net
recommendations for tackling interest to 30% of a company's
BEPS by international companies. UK EBITDA. This was in response
It identified the use of tax to OECD recommendations and
deductible interest as one of followed a detailed consultation
the key areas where there is in 2016. The legislation is
opportunity for BEPS by international expected to be enacted later
companies. It is up to the governments in 2017 but to be effective
of OECD countries to decide how from 1 April 2017 (see also
to implement the OECD's recommendations the Financial Review section).
into their domestic law. To the The Group's understanding is
extent that one or more of the that not all governments will
jurisdictions in which the Group implement the OECD recommendations
operates changes its rules to in the same way. Some believe
limit tax deductible interest, their existing rules are adequate
this could significantly impact to limit the scope for BEPS.
(i) the tax payable by subsidiaries Others may take advantage of
of the Group (ii) the valuation grandfathering provisions or
of existing investments (iii) the potential for exemptions
the way in which future project-financed for projects with a public benefit.
infrastructure investments are The recourse Group's tax payments
structured, in each case in such tend to be lower than the standard
jurisdictions. rate of UK corporation tax principally
because of certain tax attributes
including the fact that the
contributions the Group makes
to JLPF are deductible for tax
purposes. Capital gains from
the realisation of investments
in projects are also generally
exempt due to the availability
of the UK's substantial shareholding
exemption.
------------------------------------------ -------------- ------------------------------------------- -------------
Personnel 1, 2, The Group regularly reviews No change
The Group may fail to recruit 3 pay and benefits to ensure they
or retain key senior management remain competitive. The Group's
and skilled personnel in, or senior managers participate
relocate high-quality personnel in long term incentive plans.
to, the jurisdictions in which The Group plans its human resources
it operates or seeks to expand. needs carefully, including appropriate
The UK Government has made some local recruitment, when it bids
proposals regarding EU nationals for overseas projects.
living and working in the UK The Group has the ability to
but their position has not been recruit EU nationals in its
resolved. This uncertainty could Amsterdam office or could open
impact the Group's ability to further offices in other EU
recruit and retain EU nationals jurisdictions if necessary.
in the UK.
------------------------------------------ -------------- ------------------------------------------- -------------
Related party transactions
Related party transactions are disclosed in note 15 to the Condensed Group Financial Statements.
There have been no other related party transactions in the first six months of the financial year or the comparative period in 2016 that have had a material effect on the financial position or performance of the Group.
Going concern
The Group has committed corporate banking facilities which mature in March 2020 and has sufficient resources available to meet its committed capital requirements, investment commitments and operating costs for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Condensed Group Financial Statements.
Signed on behalf of the Directors
Olivier Brousse Patrick O'D Bourke Chief Executive Group Finance Officer Director 23 August 2017 23 August 2017
Responsibility statement
We confirm that to the best of our knowledge:
-- The Condensed Group Financial Statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'; and
-- The Business Review includes a fair review of the information required by:
a) the Disclosure and Transparency Rules (DTR) rule 4.2.7R, being an indication of important events during the first six months and a description of principal risks and uncertainties for the remaining six months of the year; and
b) DTR rule 4.2.8R, being the disclosure of related party transactions and changes therein.
By order of the Board
Olivier Brousse Patrick O'D Bourke Chief Executive Group Finance Officer Director 23 August 2017 23 August 2017
INDEPENT REVIEW REPORT TO JOHN LAING GROUP PLC
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprise the Condensed Group Income Statement, the Condensed Group Statement of Comprehensive Income, the Condensed Group Statement of Changes in Equity, the Condensed Group Balance Sheet, the Condensed Group Cash Flow Statement and the related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
23 August 2017
Condensed Group Income Statement
for the six months ended 30 June 2017
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Notes Unaudited Unaudited Audited
--------------------------------------- ------ ------------- ------------- -------------
Continuing operations
Net gain on investments at fair value
through profit or loss 9 54.8 123.1 218.8
Other income 5 15.0 17.6 42.0
--------------------------------------- ------ ------------- ------------- -------------
Operating income 3 69.8 140.7 260.8
Administrative expenses (27.8) (28.0) (58.4)
--------------------------------------- ------ ------------- ------------- -------------
Profit from operations 42.0 112.7 202.4
Finance costs (5.4) (4.4) (10.3)
--------------------------------------- ------ ------------- ------------- -------------
Profit before tax 3 36.6 108.3 192.1
Tax credit/(charge) 6 0.8 (1.6) (1.8)
--------------------------------------- ------ ------------- ------------- -------------
Profit for the period attributable to
the shareholders of the Company 37.4 106.7 190.3
--------------------------------------- ------ ------------- ------------- -------------
Earnings per share (pence)
Basic 7 10.2 29.1 51.9
Diluted 7 10.1 28.9 51.4
Condensed Group Statement of Comprehensive Income
for the six months ended 30 June 2017
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
------------------------------------------------------ ------------ ------------ -----------------------
Profit for the period 37.4 106.7 190.3
Exchange difference on translation of overseas
operations 0.1 0.2 0.3
Actuarial gain/(loss) on post retirement obligations 7.6 (14.4) (39.2)
------------------------------------------------------ ------------ ------------ -----------------------
Other comprehensive income/(loss) for the period 7.7 (14.2) (38.9)
------------------------------------------------------ ------------ ------------ -----------------------
Total comprehensive income for the period 45.1 92.5 151.4
------------------------------------------------------ ------------ ------------ -----------------------
The only movement which could subsequently be recycled to the Condensed Group Income Statement is the exchange difference on translation of overseas operations.
Condensed Group Statement of Changes in Equity
for the six months ended 30 June 2017
Share Share Other Retained
capital premium reserves earnings Total equity
GBP million GBP million GBP million GBP million GBP million
------------------------------------------- ------------- ------------- ------------- ------------- -------------
Balance at 1 January 2017 36.7 218.0 2.7 759.4 1,016.8
Profit for the period - - - 37.4 37.4
Other comprehensive income for the period - - - 7.7 7.7
------------------------------------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive income for the period - - - 45.1 45.1
Share-based incentives (note 8) - - 1.6 - 1.6
Dividend paid - - - (23.1) (23.1)
------------------------------------------- ------------- ------------- ------------- ------------- -------------
Balance at 30 June 2017 (unaudited) 36.7 218.0 4.3 781.4 1,040.4
------------------------------------------- ------------- ------------- ------------- ------------- -------------
for the six months ended 30 June 2016
Share Share Other Retained
capital premium reserves earnings Total equity
GBP million GBP million GBP million GBP million GBP million
------------------------------------------- ------------- ------------- ------------- ------------- -------------
Balance at 1 January 2016 36.7 218.0 0.7 634.2 889.6
Profit for the period - - - 106.7 106.7
Other comprehensive loss for the period - - - (14.2) (14.2)
------------------------------------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive income for the period - - - 92.5 92.5
Share-based incentives (note 8) - - 1.0 - 1.0
Dividend paid - - - (19.4) (19.4)
------------------------------------------- ------------- ------------- ------------- ------------- -------------
Balance at 30 June 2016 (unaudited) 36.7 218.0 1.7 707.3 963.7
------------------------------------------- ------------- ------------- ------------- ------------- -------------
for the year ended 31 December 2016
Share Share Other Retained
capital premium reserves earnings Total equity
GBP million GBP million GBP million GBP million GBP million
----------------------------------------- ------------- ------------- ------------- ------------- -------------
Balance at 1 January 2016 36.7 218.0 0.7 634.2 889.6
Profit for the year - - - 190.3 190.3
Other comprehensive loss for the year - - - (38.9) (38.9)
----------------------------------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive income for the year - - - 151.4 151.4
Share-based incentives (note 8) - - 2.0 - 2.0
Dividends paid - - - (26.2) (26.2)
----------------------------------------- ------------- ------------- ------------- ------------- -------------
Balance at 31 December 2016 (audited) 36.7 218.0 2.7 759.4 1,016.8
----------------------------------------- ------------- ------------- ------------- ------------- -------------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Pence Pence Pence
Unaudited Unaudited Audited
------------------------------ ----------- ----------- -------------
Dividends on ordinary shares
Per ordinary share:
* interim proposed 1.91 1.85 1.85
----------- ----------- -------------
* interim paid - - 1.85
----------- ----------- -------------
* final proposed - - 6.30
----------- ----------- -------------
* final paid 6.30 5.30 5.30
----------- ----------- -------------
Condensed Group Balance Sheet
as at 30 June 2017
30 June 31 December
2017 2016
GBP million GBP million
Notes Unaudited Audited
-------------------------------------------------- ------ ------------- -------------
Non-current assets
Plant and equipment 0.1 0.3
Investments at fair value through profit or loss 9 1,146.7 1,257.5
Deferred tax assets 0.5 1.0
-------------------------------------------------- ------ ------------- -------------
1,147.3 1,258.8
-------------------------------------------------- ------ ------------- -------------
Current assets
Trade and other receivables 6.9 7.4
Cash and cash equivalents 1.7 1.6
-------------------------------------------------- ------ ------------- -------------
8.6 9.0
-------------------------------------------------- ------ ------------- -------------
Total assets 1,155.9 1,267.8
-------------------------------------------------- ------ ------------- -------------
Current liabilities
Current tax liabilities (1.4) (4.1)
Borrowings (61.7) (161.4)
Trade and other payables (12.7) (14.7)
(75.8) (180.2)
-------------------------------------------------- ------ ------------- -------------
Net current liabilities (67.2) (171.2)
-------------------------------------------------- ------ ------------- -------------
Non-current liabilities
Retirement benefit obligations 11 (38.2) (69.3)
Provisions (1.5) (1.5)
-------------------------------------------------- ------ ------------- -------------
(39.7) (70.8)
-------------------------------------------------- ------ ------------- -------------
Total liabilities (115.5) (251.0)
-------------------------------------------------- ------ ------------- -------------
Net assets 1,040.4 1,016.8
-------------------------------------------------- ------ ------------- -------------
Equity
Share capital 12 36.7 36.7
Share premium 218.0 218.0
Other reserves 4.3 2.7
Retained earnings 781.4 759.4
-------------------------------------------------- ------ ------------- -------------
Equity attributable to the Shareholders of the
Company 1,040.4 1,016.8
-------------------------------------------------- ------ ------------- -------------
Condensed Group Cash Flow Statement
for the six months ended 30 June 2017
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Notes Unaudited Unaudited Audited
---------------------------------------------- ------ ------------- ------------- -------------
Net cash outflow from operating activities 13 (37.6) (34.3) (37.1)
---------------------------------------------- ------ ------------- ------------- -------------
Investing activities
Net cash transferred from/(to) investments
held at fair value through profit or loss 9 165.6 (22.5) (73.4)
Purchase of plant and equipment - - (0.1)
---------------------------------------------- ------ ------------- ------------- -------------
Net cash from/(used in) investing activities 165.6 (22.5) (73.5)
---------------------------------------------- ------ ------------- ------------- -------------
Financing activities
Dividends paid (23.1) (19.4) (26.2)
Finance costs paid (4.5) (4.5) (8.9)
Proceeds from borrowings 0.7 100.0 165.0
Repayment of borrowings (101.0) (19.0) (19.0)
Net cash (used in)/from financing activities (127.9) 57.1 110.9
---------------------------------------------- ------ ------------- ------------- -------------
Net increase in cash and cash equivalents 0.1 0.3 0.3
Cash and cash equivalents at beginning
of the period 1.6 1.1 1.1
Effect of foreign exchange rate changes - 0.3 0.2
---------------------------------------------- ------ ------------- ------------- -------------
Cash and cash equivalents at end of the
period 1.7 1.7 1.6
---------------------------------------------- ------ ------------- ------------- -------------
Notes to the Condensed Group Financial Statements
for the six months ended 30 June 2017
1 General information
The Condensed Group Financial Statements of John Laing Group plc (the Company or the Group) have been prepared as described below. The registered office of the Company is 1 Kingsway, London, WC2B 6AN. The principal activity of the Company is the origination, investment in and management of international infrastructure projects.
The Condensed Group Financial Statements are presented in Sterling and have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.
The financial information for the year ended 31 December 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006. The annual financial statements of John Laing Group plc are prepared in accordance with IFRS as adopted by the European Union. The Condensed Group Financial Statements included in this half-yearly financial report have been prepared in accordance with, and contain the information required by IAS 34 Interim Financial Reporting, as adopted by the European Union, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, and the Financial Pronouncements as issued by the Financial Reporting Standards Council.
The same accounting policies, presentation and methods of computation are followed in the Condensed Group Financial Statements as were applied in John Laing Group plc's latest annual audited financial statements.
2 Accounting policies
Basis of preparation
The Condensed Group Financial Statements have been prepared on the historical cost basis except for the revaluation of the investment portfolio and financial instruments that are measured at fair value at the end of each reporting period. The Company meets the definition of an investment entity set out within IFRS 10. 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.
Going concern
The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of approval of this report. Accordingly, they continue to adopt the going concern basis in preparing the Condensed Group Financial Statements.
Changes in accounting policies
There have been no changes to the accounting policies followed in the Condensed Group Financial Statements since the 2016 Annual Report and Accounts.
3 Operating segments
Information is reported to the Group's Board (the chief operating decision maker under IFRS 8 Operating Segments) for the purposes of resource allocation and assessment of segment performance based on the category of activities undertaken within the Group. The principal categories of activity, and thus the reportable segments under IFRS 8 Operating Segments, are: Primary Investment, Secondary Investment and Asset Management.
The results included within each of the reportable segments comprise:
-- Primary Investment - costs and cost recoveries associated with originating, bidding for and winning greenfield infrastructure and renewable energy projects; investment returns from and growth in the value of the Primary Investment portfolio, net of associated costs.
-- Secondary Investment - investment returns from and growth in the value of the Secondary Investment portfolio, net of associated costs.
-- Asset Management - fee income and associated costs from Investment Management Services in respect of both the Primary and Secondary Investment portfolios and in respect of JLIF's and JLEN's portfolios and the PPP assets in JLPF's portfolio plus fee income and associated costs from Project Management Services.
The Board's primary measure of profitability for each segment is profit before tax. The Board does not monitor on an ongoing basis the results of the Group on a geographical basis. An analysis of the Group's portfolio valuation by foreign currency can be found in the Portfolio Valuation section.
The following is an analysis of the Group's operating income and profit before tax for the six months ended 30 June 2017 and 2016 and for the year ended 31 December 2016:
Six months ended 30 June 2017
Reportable segments
---------------- ------------------------------------- ---------- -------------- -------------- ------------
Primary Secondary Asset Segment Non-segmental
Investment Investment Management Sub-total Inter-segment results Total
GBP GBP GBP GBP GBP GBP million GBP
million million million million million Unaudited million
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
---------------- ----------- ----------- ----------- ---------- -------------- -------------- ------------
Continuing
operations
Net gain on
investments
at FVTPL 74.0 (22.9) - 51.1 - 3.7 54.8
Other income 1.4 - 20.1 21.5 (8.2) 1.7 15.0
----------- ----------- ----------- ---------- -------------- -------------- ------------
Operating
income 75.4 (22.9) 20.1 72.6 (8.2) 5.4 69.8
Administrative
expenses (18.6) (3.6) (11.9) (34.1) 8.2 (1.9) (27.8)
----------- ----------- ----------- ---------- -------------- -------------- ------------
Profit from
operations 56.8 (26.5) 8.2 38.5 - 3.5 42.0
Finance costs (3.5) (1.2) - (4.7) - (0.7) (5.4)
----------- ----------- ----------- ---------- -------------- -------------- ------------
Profit before
tax 53.3 (27.7) 8.2 33.8 - 2.8 36.6
---------------- ----------- ----------- ----------- ---------- -------------- -------------- ------------
Six months ended 30 June 2016
Reportable segments
---------------- ------------------------------------- ---------- -------------- -------------- ----------
Primary Secondary Asset Segment Non-segmental
Investment Investment Management Sub-total Inter-segment results Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
---------------- ----------- ----------- ----------- ---------- -------------- -------------- ----------
Continuing
operations
Net gain on
investments
at FVTPL 60.0 63.2 - 123.2 - (0.1) 123.1
Other income 1.0 - 22.4 23.4 (6.6) 0.8 17.6
----------- ----------- ----------- ---------- -------------- -------------- ----------
Operating
income 61.0 63.2 22.4 146.6 (6.6) 0.7 140.7
Administrative
expenses (15.2) (3.4) (13.4) (32.0) 6.6 (2.6) (28.0)
----------- ----------- ----------- ---------- -------------- -------------- ----------
Profit from
operations 45.8 59.8 9.0 114.6 - (1.9) 112.7
Finance costs (2.3) (0.6) - (2.9) - (1.5) (4.4)
----------- ----------- ----------- ---------- -------------- -------------- ----------
Profit before
tax 43.5 59.2 9.0 111.7 - (3.4) 108.3
---------------- ----------- ----------- ----------- ---------- -------------- -------------- ----------
Year ended 31 December 2016
Reportable segments
----------------- ------------------------------------------- ----------- -------------- -------------- ---------
Segment Non-segmental
Primary Secondary Asset Sub-total Inter-segment results Total
Investment Investment Management GBP GBP GBP GBP
GBP million GBP million GBP million million million million million
Audited Audited Audited Audited Audited Audited Audited
----------------- ------------- ------------- ------------- ----------- -------------- -------------- ---------
Continuing
operations
Net gain on
investments
at FVTPL 144.4 66.9 - 211.3 - 7.5 218.8
Other income 7.5 - 47.4 54.9 (14.7) 1.8 42.0
------------- ------------- ------------- ----------- -------------- -------------- ---------
Operating income 151.9 66.9 47.4 266.2 (14.7) 9.3 260.8
Administrative
expenses (33.3) (7.6) (27.5) (68.4) 14.7 (4.7) (58.4)
------------- ------------- ------------- ----------- -------------- -------------- ---------
Profit from
operations 118.6 59.3 19.9 197.8 - 4.6 202.4
Finance costs (5.5) (2.2) - (7.7) - (2.6) (10.3)
------------- ------------- ------------- ----------- -------------- -------------- ---------
Profit before
tax 113.1 57.1 19.9 190.1 - 2.0 192.1
----------------- ------------- ------------- ------------- ----------- -------------- -------------- ---------
For the six months ended 30 June 2017, the Group had three (six months ended 30 June 2016 - two; year ended 31 December 2016 - two) investments from each of which it received more than 10% of its operating income. The operating income from the three investments was GBP13.3 million, GBP18.7 million and GBP7.8 million, all of which was reported within the Primary Investment sector. The Group treats each investment in a project company as a separate customer for purposes of IFRS 8.
The Group's investment portfolio, comprising investments in project companies and a listed fund included within investments at FVTPL (see note 9), is allocated between primary and secondary investments. The Primary Investment portfolio includes investments in projects which are in the construction phase. The Secondary Investment portfolio includes investments in operational projects.
30 June 31 December
2017 2016
GBP million GBP million
Segment assets Unaudited Audited
-------------------------------- ------------- -------------
Primary Investment 656.5 696.3
Secondary Investment 462.8 479.6
-------------------------------- ------------- -------------
Total investment portfolio 1,119.3 1,175.9
Other assets and liabilities 27.4 81.6
-------------------------------- ------------- -------------
Total investments at FVTPL 1,146.7 1,257.5
Other assets 9.2 10.3
-------------------------------- ------------- -------------
Total assets 1,155.9 1,267.8
-------------------------------- ------------- -------------
Retirement benefit obligations (38.2) (69.3)
Other liabilities (77.3) (181.7)
-------------------------------- ------------- -------------
Total liabilities (115.5) (251.0)
-------------------------------- ------------- -------------
Group net assets 1,040.4 1,016.8
-------------------------------- ------------- -------------
4 Seasonality
Neither operating income nor profit are impacted by seasonality.
5 Other income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
------------------------------------- ------------- ------------- -------------
Fees from asset management services 13.6 16.6 34.5
Recovery of bid costs 1.4 1.0 7.5
Total other income 15.0 17.6 42.0
------------------------------------- ------------- ------------- -------------
6 Tax
The tax credit/(charge) for the period comprises:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
-------------------------------------------- ------------- ------------- -------------
Current tax:
UK corporation tax charge - current period (0.5) (1.5) (1.9)
UK corporation tax credit - prior year 1.9 - 0.5
Foreign tax charge (0.1) (0.1) -
-------------------------------------------- ------------- ------------- -------------
1.3 (1.6) (1.4)
Deferred tax charge - current year (0.5) - (0.2)
Deferred tax charge - prior year - - (0.2)
-------------------------------------------- ------------- ------------- -------------
(0.5) - (0.4)
-------------------------------------------- ------------- ------------- -------------
Tax credit/(charge) 0.8 (1.6) (1.8)
-------------------------------------------- ------------- ------------- -------------
For the six months ended 30 June 2017, a tax rate of 19.25% has been applied (six months ended 30 June 2016 and year ended 31 December 2016 - 20%).
The Group expects that the majority of its deferred tax assets will be realised after 1 April 2020 and therefore the Group has measured its deferred tax assets and liabilities at 30 June 2017 at 17%, the tax rate expected to apply after 1 April 2020 (30 June 2016 and 31 December 2016 - 18%).
7 Earnings per share
The calculation of basic and diluted earnings per share is based on the following data:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
------------------------------------------------ ------------- ------------- -------------
Earnings
Profit from continuing operations for
the purpose of basic and diluted earnings
per share 37.4 106.7 190.3
Profit for the period 37.4 106.7 190.3
------------------------------------------------ ------------- ------------- -------------
Number of shares
Weighted average number of ordinary
shares for the purpose of basic earnings
per share 366,944,983 366,923,076 366,923,076
Dilutive effect of ordinary shares potentially
issued under share-based incentives
(note 8) 4,413,788 2,699,254 3,313,330
------------------------------------------------ ------------- ------------- -------------
Weighted average number of ordinary
shares for the purpose of diluted earnings
per share 371,358,771 369,622,330 370,236,406
------------------------------------------------ ------------- ------------- -------------
Earnings per share (pence/share)
Basic 10.2 29.1 51.9
Diluted 10.1 28.9 51.4
8 Share-based incentives
Long-term incentive plan
The Group operates share-based incentive arrangements for Executive Directors, senior executives and other eligible employees under which awards are granted over the Company's ordinary shares. Awards are conditional on the relevant employee completing three years' service (the vesting period). The awards vest three years from the grant date, subject to the Group achieving a target share-based performance condition (total shareholder return - 50% of the award), and a non-market based performance condition (NAV growth per share - 50% of the award). The Group has no legal or constructive obligation to repurchase or settle the awards in cash.
The movement in the number of shares awarded is as follows:
Number of shares awarded
---------------------------------------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
---------------------------- ----------- ----------- -------------
At beginning of the period 3,774,330 1,763,030 1,763,030
Granted in the period 1,557,430 2,094,460 2,094,460
Lapsed in the period (93,660) - (83,160)
---------------------------- ----------- ----------- -------------
At end of the period 5,238,100 3,857,490 3,774,330
---------------------------- ----------- ----------- -------------
The total expense recognised in the Condensed Group Income Statement for awards granted under share-based incentive arrangements for the six months ended 30 June 2017 was GBP1.6 million (six months ended 30 June 2016 - GBP1.0 million; year ended 31 December 2016 - GBP2.0 million).
Deferred Share Bonus Plan
In accordance with the Deferred Share Bonus Plan, 9,762 shares were awarded on 17 March 2017 to Executive Directors and certain senior executives in relation to that part of their annual bonus for 2016 which exceeded 60% of their base salary. These awards vest in equal tranches on the first, second and third anniversary of grant, normally subject to continued employment. For further details on this plan, please refer to the Directors' Remuneration Report in the 2016 Annual Report and Accounts.
The movement in the number of shares awarded is as follows:
Number of shares awarded
-----------------------------------------
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
Unaudited Unaudited Audited
At beginning of the period 84,439 - -
Granted in the current period 9,762 84,439 84,439
Adjustment to awards granted in the prior period 5,000 - -
Vested in the period (36,080) - -
At end of the period 63,121 84,439 84,439
-------------------------------------------------- ------------ ------------ -------------
In addition to the 36,080 shares that vested as per the table above, a further 978 shares were awarded in lieu of dividends payable since the grant date on the vested shares.
9 Investments at fair value through profit or loss
31 December
30 June 2017 2016
-------------
Portfolio Other
Project Listed valuation assets
companies investments sub-total and liabilities Total Total
GBP million GBP million GBP million GBP million GBP million GBP million
Unaudited Unaudited Unaudited Unaudited Unaudited Audited
---------------------- ------------- ------------- ------------- ----------------- ------------- -------------
Opening balance 1,165.9 10.0 1,175.9 81.6 1,257.5 965.3
Distributions (14.4) (0.3) (14.7) 14.7 - -
Investment in equity
and loans 56.1 - 56.1 (56.1) - -
Realisations (151.3) - (151.3) 151.3 - -
Fair value movement 52.9 0.4 53.3 1.5 54.8 218.8
Net cash transferred
(from)/to
investments
held at FVTPL - - - (165.6) (165.6) 73.4
Closing balance 1,109.2 10.1 1,119.3 27.4 1,146.7 1,257.5
---------------------- ------------- ------------- ------------- ----------------- ------------- -------------
The total fair value movement in the six months ended 30 June 2017 of GBP54.8 million is net of the reduction in the value of the two Manchester Waste investments of GBP25.5 million.
Six months ended 30 June 2017
During the six months ended 30 June 2017, the Group disposed of shares and subordinated debt in three PPP project companies. Total proceeds from all disposals were GBP151.3 million.
Details of investments sold in the period ended 30 June 2017 are as follows:
Holding
Original disposed Retained
Date of holding of holding
completion % % %
Sold to John Laing Infrastructure
Fund Limited (JLIF)
Croydon & Lewisham Lighting Services
(Holdings) Limited 1 June 2017 50.0 50.0 -
Sold to other parties
Gdansk Transport Co. SA 2 March 2017 29.69 29.69 -
MAK Mecsek Autopálya Koncessziós 29 March
Zrt. 2017 30.0 30.0 -
Year ended 31 December 2016
During the year ended 31 December 2016, the Group disposed of shares and subordinated debt in six PPP and renewable energy project companies. Total proceeds from all disposals were GBP146.9 million.
Details of investments sold in the year ended 31 December 2016 were as follows:
Holding
Original disposed Retained
Date of holding of holding
completion % % %
------------------------------------------- -------------- --------- ---------- ---------
Sold to John Laing Environmental Assets
Group Limited (JLEN)
Dreachmhor Wind Farm (Holdings) Limited 29 June 2016 100.0 100.0 -
New Albion Wind (Holdings) Limited 21 July 2016 100.0 100.0 -
Sold to John Laing Infrastructure
Fund Limited (JLIF)
Inspiral Oldham Holdings Company Limited 27 May 2016 95.0 95.0 -
29 December
Rail Investments (Great Western) Limited* 2016 100.0 20.0 80.0
29 February
Services Support (BTP) Holdings Limited 2016 54.2 54.2 -
22 December
UK Highways (A55) Holdings Limited 2016 100.0 100.0 -
Sold to other parties
John Laing Environmental Assets Group 2 November
Limited*** 2016 5.5 2.2 3.3
30 November
UK Highways Limited** 2016 100.0 100.0 -
* Holds the Group's 24% interest in IEP (Phase 1).
** Sold as part of disposal of UK activities of PMS for GBP0.3 million.
*** The Group's shareholding in JLEN at 30 June 2017 was 2.77%.
10 Financial instruments
The Group held the following financial instruments by category at 30 June 2017. There have been no transfers of financial instruments between levels of the fair value hierarchy. There are no non-recurring fair value measurements.
Financial
liabilities
Assets at
Loans and at amortised
receivables FVTPL cost Total
GBP million GBP million GBP million GBP million
--------------------------------------- ------------- ------------- ------------- -------------
Fair value measurement method n/a Level 1 n/a
/ 3
30 June 2017 (unaudited)
Non-current assets
Investments at FVTPL - 1,146.7 - 1,146.7
Current assets
Trade and other receivables 6.7 - - 6.7
Cash and cash equivalents 1.7 - - 1.7
--------------------------------------- ------------- ------------- ------------- -------------
Total financial assets 8.4 1,146.7 - 1,155.1
Current liabilities
Interest-bearing loans and borrowings - - (61.7) (61.7)
Trade and other payables - - (12.1) (12.1)
--------------------------------------- ------------- ------------- ------------- -------------
Total financial liabilities - - (73.8) (73.8)
--------------------------------------- ------------- ------------- ------------- -------------
Net financial instruments 8.4 1,146.7 (73.8) 1,081.3
--------------------------------------- ------------- ------------- ------------- -------------
Financial
liabilities
Assets at
Loans and at amortised
receivables FVTPL cost Total
GBP million GBP million GBP million GBP million
--------------------------------------- ------------- ------------- ------------- -------------
Fair value measurement method n/a Level 1 n/a
/ 3
31 December 2016 (audited)
Non-current assets
Investments at FVTPL - 1,257.5 - 1,257.5
Current assets
Trade and other receivables 7.0 - - 7.0
Cash and cash equivalents 1.6 - - 1.6
--------------------------------------- ------------- ------------- ------------- -------------
Total financial assets 8.6 1,257.5 - 1,266.1
Current liabilities
Interest-bearing loans and borrowings - - (161.4) (161.4)
Trade and other payables - - (13.0) (13.0)
--------------------------------------- ------------- ------------- ------------- -------------
Total financial liabilities - - (174.4) (174.4)
--------------------------------------- ------------- ------------- ------------- -------------
Net financial instruments 8.6 1,257.5 (174.4) 1,091.7
--------------------------------------- ------------- ------------- ------------- -------------
The table above provides an analysis of financial instruments that are measured subsequent to their initial recognition at fair value as follows:
- 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).
The investments at FVTPL are split between: Level 1, JLEN, which is a listed investment fair valued at GBP10.1 million (31 December 2016 - GBP10.0 million) using a quoted market price and Level 3 investments in project companies fair valued at GBP1,109.2 million (31 December 2016 - GBP1,165.9 million). Level 1 and Level 3 investments are fair valued in accordance with the policy and assumptions set out below. The investments at FVTPL include other assets and liabilities as shown in note 9. Such other assets and liabilities are recorded at amortised cost which the Directors believe approximates to their fair value.
The investments at FVTPL, whose fair values include the use of Level 3 inputs, are valued by discounting future cash flows from investments in both equity (dividends and equity redemptions) and subordinated loans (interest and repayments) to the Group at an appropriate discount rate. A base discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect additional project-specific risks. In addition, risk premia are added to reflect the additional risk during the construction phase. These premia reduce over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operating stage. The weighted average discount rate applied was 8.6% (31 December 2016 - 8.9%). The discount rate is considered the most significant unobservable input through which an increase or decrease would have a material impact on the fair value of the investments at FVTPL. An increase of 0.25% in the discount rate would cause a decrease in the fair value of the investments of GBP33.7 million (31 December 2016 - GBP32.1 million) and a decrease of 0.25% in the discount rate would cause an increase in fair value of investments of GBP35.2 million (31 December 2016 - GBP33.6 million).
Investments denominated in foreign currency are fair valued based on the spot exchange rate on the balance sheet date. As at 30 June 2017, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.GBP30 million (31 December 2016 - c.GBP27 million).
At 30 June 2017, based on a sample of five of the larger PPP investments by value, a 0.25% increase in inflation is estimated to increase the value of PPP investments by GBP16 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investments by GBP15 million. Certain of the underlying project companies incorporate some inflation hedging.
Against the portfolio valuation at 30 June 2017, a 5% increase or decrease in power price forecasts is estimated to increase or decrease the total portfolio valuation by 1.0%.
The carrying amounts of other financial assets and financial liabilities recorded in these financial statements are approximately equal to their fair values.
11 Retirement benefit obligations
The Group operates two defined benefit schemes in the UK (the Schemes) - The John Laing Pension Fund (JLPF) and The John Laing Pension Plan (the Plan).
Retirement benefit obligations:
30 June 31 December
2017 2016
GBP million GBP million
Unaudited Audited
---------------------------------- ------------- -------------
Pension schemes (30.1) (61.3)
Post-retirement medical benefits (8.1) (8.0)
---------------------------------- ------------- -------------
Retirement benefit obligations (38.2) (69.3)
---------------------------------- ------------- -------------
Analysis of the movement in the net deficit on the Schemes during the period:
30 June 31 December
2017 2016
GBP million GBP million
Unaudited Audited
---------------------------- ------------- -------------
Opening deficit in Schemes (61.3) (38.9)
Current service cost (0.6) (1.6)
Finance cost (0.6) (1.0)
Contributions 24.5 18.4
Actuarial gain/(loss) 7.9 (38.2)
---------------------------- ------------- -------------
Closing deficit in Schemes (30.1) (61.3)
---------------------------- ------------- -------------
During the six months ended 30 June 2017, the Group made deficit reduction contributions of GBP24.5 million in cash.
The weighted average financial assumptions used in the valuation of the JLPF and the Plan under IAS 19 were:
30 June 31 December
2017 2016
% %
Unaudited Audited
--------------------------------------------------- ----------- ------------
Discount rate 2.70 2.80
Rate of increase in non-GMP pensions in payment 3.10 3.10
Rate of increase in non-GMP pensions in deferment 2.10 2.10
Inflation - RPI 3.20 3.20
Inflation - CPI 2.10 2.10
The major categories and fair value of assets held by the Schemes were as follows:
30 June 31 December
2017 2016
GBP million GBP million
Unaudited Audited
------------------------------------- ------------- -------------
Bonds and other debt instruments 412.1 415.2
Equity instruments 384.3 374.7
Aviva bulk annuity buy-in agreement 231.0 234.1
Property 1.8 1.8
Derivatives - (6.1)
Cash and cash equivalents 62.8 52.4
UK PPP investments 36.5 37.8
------------------------------------- ------------- -------------
Total market value of assets 1,128.5 1,109.9
------------------------------------- ------------- -------------
12 Share capital
30 June 31 December
2017 2016
No. No.
Unaudited Audited
--------------------------------- ------------ ------------
Authorised:
Ordinary shares of GBP0.10 each 366,960,134 366,923,076
--------------------------------- ------------ ------------
GBP million GBP million
----------------------------------------------------------- ------------ ------------
Allotted, called up and fully paid:
366,960,134 ordinary shares (30 June 2016 and 31 December
2016 - 366,923,076) of GBP0.10 each 36.7 36.7
----------------------------------------------------------- ------------ ------------
The Company has one class of ordinary shares which carry no right to fixed income.
During the six months ended 30 June 2017, 37,058 shares were issued under the Group's deferred share bonus plan (see note 8).
13 Net cash outflow from operating activities
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
-------------------------------------------------- ------------- ------------- ---------------------
Profit before tax from continuing operations 36.6 108.3 192.1
Adjustments for:
Finance costs 5.4 4.4 10.3
Unrealised profit arising on changes in fair
value of investments in project companies (note
9) (54.8) (123.1) (218.8)
Depreciation of plant and equipment 0.2 0.3 0.6
Amortisation of intangible assets - 0.1 0.2
Share-based incentives 1.6 1.0 2.0
Contribution to JLPF (24.5) (18.1) (18.4)
Decrease in provisions - (1.6) (2.8)
-------------------------------------------------- ------------- ------------- ---------------------
Operating cash outflow before movements in
working capital (35.5) (28.7) (34.8)
Decrease in trade and other receivables 0.2 0.7 1.2
Decrease in trade and other payables (0.5) (6.3) (3.5)
-------------------------------------------------- ------------- ------------- ---------------------
Cash outflow from operations (35.8) (34.3) (37.1)
Income taxes paid (1.8) - -
-------------------------------------------------- ------------- ------------- ---------------------
Net cash outflow from operating activities (37.6) (34.3) (37.1)
-------------------------------------------------- ------------- ------------- ---------------------
14 Commitments
At 30 June 2017, the Group had future equity and loan commitments of GBP220.5 million (31 December 2016 - GBP186.3 million) to PPP and renewable energy projects backed by letters of credit of GBP200.0 million (31 December 2016 - GBP162.6 million) and collateralised cash of GBP20.5 million (31 December 2016 - GBP23.7 million).
At 30 June 2017, there were also other guarantees and commitments of GBP2.3 million (31 December 2016 - GBP6.5 million).
15 Transactions with related parties
Group
Details of transactions between the Group and its related parties are disclosed below.
Trading transactions
The Group entered into the following trading transactions with project companies:
Six months Six months Year
ended ended ended
or as at or as at or as at
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
----------------------------------- ------------- ------------- -------------
Services income* 1.1 5.2 18.0
Amounts owed by project companies 0.7 1.5 1.6
Amounts owed to project companies (0.6) (0.6) (0.6)
------------- -------------
* Services income is generated from project companies through management services agreements and recoveries of bid costs on financial close.
Investment transactions
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBP million GBP million GBP million
Unaudited Unaudited Audited
Net cash transferred from/(to) investments held at FVTPL 165.6 (22.5) (73.4)
16 Events after balance sheet date
On 7 July 2017, the Group committed GBP47.6m for a 90% shareholding in the Buckthorn Wind Farm project in Texas, US.
On 23 August 2017, the Group entered into legally-binding heads of terms with the Greater Manchester Waste Disposal Authority (GMWDA), Manchester Waste VL Co (VL Co) and its other shareholder, and the operator, Viridor Waste. The impact has been taken into account in the valuation of the Group's two Manchester Waste investments at 30 June 2017. More detail is set out in the Business Review section of this half-yearly report.
Since 30 June 2017, the Group has declared an interim dividend of 1.91p per share, payable on 27 October 2017 to shareholders on the register on 29 September 2017.
Other than transactions in the normal course of business, there were no other significant subsequent events.
ADDITIONAL FINANCIAL INFORMATION
Re-presented income statement for the six months ended 30 June 2016
Condensed Group Income Re-presented income Re-presented income
Statement Adjustments statement statement line items
GBP million GBP million GBP million
Fair value movements - Fair value movements -
investment portfolio 128.2 - 128.2 investment portfolio
Fair value movements - Fair value movements -
other (9.2) 0.1(a) (9.1) other
Investment fees from Investment fees from
projects 4.1 - 4.1 projects
Net gain on investments
at fair value through
profit or loss 123.1 0.1 123.2
IMS revenue 8.0 - 8.0 IMS revenue
PMS revenue 7.8 - 7.8 PMS revenue
Recoveries on financial Recoveries on financial
close 1.0 - 1.0 close
Other income 0.8 (0.8)(a) -
Other income 17.6 (0.8) 16.8
Operating income 140.7 (0.7) 140.0
Third party costs (3.4) (-) (3.4) Third party costs
Staff costs (16.8) - (16.8) Staff costs
General overheads (5.9) - (5.9) General overheads
Other net costs (1.2) - (1.2) Other net costs
Pension and other charges (0.7) 0.7(b) -
Administrative expenses (28.0) 0.7 (27.3)
Profit from operations 112.7 - 112.7
Finance charges (4.4) 1.5(a,b) (2.9) Finance charges
Pension and other
Pension and other charges - (1.5)(b) (1.5) charges
Profit before tax 108.3 - 108.3
Notes:
a) Adjustments comprise: GBP0.7 million interest income from cash collateral balances shown as 'other income' in the Condensed Group Income Statement reclassified to 'finance charges' in re-presented income statement and GBP0.1m rounding adjustment between 'fair value movements - other' and 'other income'.
b) Under IAS 19, the costs of the pension schemes, including the post-retirement medical benefits, comprise a service cost of GBP0.7 million, included in administrative expenses in the Condensed Group Income Statement, and a finance charge of GBP0.8 million, included in finance costs in the Condensed Group Income Statement. These amounts are combined together under management reporting.
Dividend timetable
The interim dividend is proposed to be paid on 27 October 2017 to holders of ordinary shares on the register on 29 September 2017. The ex-dividend date will be 28 September 2017.
DIRECTORS AND ADVISERS
Executive directors
Olivier Brousse EP ENPC
Chief Executive Officer
Patrick O'D Bourke MA ACA
Group Finance Director
Non-executive directors
Phil Nolan BSc PhD MBA
Chairman
Jeremy Beeton CB BSc CEng FICE
Toby Hiscock MA (Oxon) FCA
David Rough BSc Hons
Anne Wade BA MSc
Company secretary
Carolyn Cattermole LLB
Group General Counsel and Company Secretary
Registered office
1 Kingsway
London WC2B 6AN
Auditors
Deloitte LLP
Statutory Auditor
2 New Street Square
London EC4A 3BZ
Solicitors
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Independent valuers
KPMG LLP
15 Canada Square
London E14 5GL
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Principal Group bankers
Barclays Bank PLC
1 Churchill Place
London E14 5HP
HSBC Bank plc
71 Queen Victoria Street
London EC4V 4AY
Australia and New Zealand Banking Group Limited
40 Bank Street
London E14 5EJ
The Bank of Tokyo-Mitsubishi UFJ, Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9AN
Sumitomo Mitsui Banking Corporation
99 Queen Victoria Street
London EC4V 4EH
Crédit Agricole Corporate and Investment Bank
Broadwalk House
5 Appold Street
London EC2A 2DA
Joint Stockbrokers
Barclays Bank PLC
5 The North Colonnade
London E14 4BB
HSBC Bank plc
8 Canada Square
London E14 5HQ
John Laing Group plc
Registered Office:
1 Kingsway
London
WC2B 6AN
United Kingdom
Registered No. 5975300
Tel: +44 (0)20 7901 3200 Fax: +44 (0)20 7901 3520
www.laing.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SEFSILFWSEIA
(END) Dow Jones Newswires
August 24, 2017 02:01 ET (06:01 GMT)
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