TIDMJLG

RNS Number : 7728E

John Laing Group plc

03 March 2020

CONFIDENTIAL - EMBARGOED UNTIL 3 MARCH 2020

John Laing Group plc

RESULTS FOR THE YEARED 31 DECEMBER 2019

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

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

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

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

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

o 10.7% increase since 31 December 2018 at constant currency and before dividends paid(1)

   --   NAV of GBP1,658 million at 31 December 2019 (31 December 2018 - GBP1,586 million) 

-- Portfolio value GBP1,768 million at 31 December 2019, an 8.7% increase (or 12.2% at constant FX) on rebased portfolio value(2) at 31 December 2018

-- Profit before tax (PBT) GBP100 million (2018 - GBP296 million) and earnings per share (EPS) of 20p (2018 - 63p)(3)

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

   --    Dividend: 

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

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

   --    Investment commitments GBP184 million (2018 - GBP302 million)(4) 
   --    Realisations GBP143 million (2018 - GBP296 million) 
   --    Wind & solar investments: 

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

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

   --    Record pipeline: GBP3.2 billion at 31 December 2019 (2018 - GBP2.4 billion) 

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

o Additional opportunities in new sectors such as energy transition

Notes :

   (1)   10.7% increase calculated after adding back net FX loss of GBP55 million in 2019 
   (2)   Rebased portfolio value is described in the Portfolio Valuation section 
   (3)   Basic EPS; see note 6 to the Group financial statements 

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

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

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

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

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

A presentation for investors and analysts will be held at 9:00am (London time) today at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED. A conference call facility will also be available using the dial-in details below.

Conference call dial-in details:

UK: 020 3936 2999

Other locations: +44 (0) 20 3936 2999

Participant access code: 35 45 10

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

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

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

Investor/analyst enquiries:

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

Media enquiries:

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

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

Summary financial information

 
                                                            Year           Year 
                                                           ended          ended 
                                                        or as at       or as at 
                                                     31 December    31 December 
                                                            2019           2018 
 GBP million (unless otherwise stated) 
-------------------------------------------------  -------------  ------------- 
 
 Net asset value (NAV)                                     1,658          1,586 
 NAV per share(1)                                           337p           323p 
 Profit before tax                                           100            296 
 Earnings per share (EPS)(2)                                 20p            63p 
 Dividends per share                                       9.50p          9.50p 
-------------------------------------------------  -------------  ------------- 
 
 Primary Investment portfolio                                907            868 
 Secondary Investment portfolio                              861            692 
-------------------------------------------------  -------------  ------------- 
 Total investment portfolio                                1,768          1,560 
 Future investment commitments backed by letters 
  of credit or cash collateral                               219            296 
-------------------------------------------------  -------------  ------------- 
 Gross investment portfolio                                1,987          1,856 
-------------------------------------------------  -------------  ------------- 
 New investment committed during the period(3)               184            302 
 Cash invested into projects                                 267            342 
 Proceeds from investment realisations                       143            296 
 Cash yield from investments                                  57             34 
 Investment pipeline(3)                                    3,172          2,373 
-------------------------------------------------  -------------  ------------- 
 

Notes:

(1) Calculated as NAV at 31 December 2019 of GBP1,658 million divided by the number of shares in issue at 31 December 2019 of 491.8 million

   (2)   Basic EPS; see note 6 to the Group financial statements 
   (3)   For further details, see the Chief Executive Officer's Review 

Chairman's Statement

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

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

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

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

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

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

-- NAV grew to GBP1,658 million or 337p per share at 31 December 2019, from 323p per share at 31 December 2018, an increase of 7.2% including dividends (10.7% at constant currency);

-- Investment commitments totalled GBP184 million, with a record pipeline of GBP3.2 billion supporting our three-year investment target of GBP1 billion; and.

-- Realisations of investments were GBP143 million, with a great deal of activity in 2019 to prepare assets for sale in 2020 and 2021, supporting our three-year realisations target of GBP1 billion.

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

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

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

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

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

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

Our current dividend policy is unchanged and has two parts:

-- an annual base dividend of GBP20 million (starting from 2015) growing at least in line with inflation; the Board is recommending a final base dividend for 2019 of 3.68p per share; and

-- a special dividend of approximately 5% - 10% of gross proceeds from the sale of investments on an annual basis, subject to specific investment requirements in any one year. Proceeds from sale of investments completed in the year were GBP143 million. We are also close to completing one further disposal and in advanced negotiations on another for aggregate proceeds of approximately GBP63 million. We also have other disposal processes underway for completion later in 2020. The Board is recommending a special dividend of 3.98p, by applying 9.5% to proceeds of GBP206 million, which includes the two disposals expected to complete soon.

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

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

Will Samuel

Chairman

Chief Executive Officer's Review

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

-- Strong year for asset management and project delivery: translating into a high level of value enhancements, starting in the first half of the year and sustained into the second half, which helped to offset the H1 wind and solar write downs, and the impact of falling power prices. This resulted in NAV per share growth, before dividends paid in the year, of 7.2%. Excluding the net adverse foreign exchange impact in the year of GBP55 million, the growth was 10.7%. With almost GBP1 billion of assets under construction, we see significant embedded value in our existing portfolio. However, the high level of value enhancements in 2019 reflects the initial impact of the move in 2018 to a regional model and an increased focus on asset management in the year. We therefore expect a more normalised level of value enhancements in 2020, in the region of 3% to 5% of the opening portfolio value.

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

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

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

Outlook for our markets and sectors

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

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

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

The global energy transition is gaining momentum and, as such, wind and solar generation will continue to play a key role as critical enablers of decarbonisation. John Laing was at the forefront of wind and solar investment through the 2010's, investing approximately GBP850 million in 38 projects across Europe and in Australia and the US. However, wind and solar generation are increasingly mature and commoditised sectors and today they offer limited value creation potential for an investor such as John Laing. We believe we can contribute more and create better value for our stakeholders by playing an active part in many of the other emerging infrastructure opportunities driven by the global energy transition. These include: i) technologies that enable high penetration of renewables; ii) decarbonisation of other sectors e.g. electrification of transport; iii) delivering increased energy efficiency. We are now actively reviewing opportunities across these themes.

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

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

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

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

There will always be pressures on public sector finances. This creates a strong incentive for the continued use of PPPs for greenfield infrastructure. As well as access to private capital, PPPs enable governmental and other public sector bodies to benefit from fixed price arrangements which transfer very significant risks to the private sector, especially design, construction and operational delivery risks.

Objectives and outcomes

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

-- In 2019, our NAV per share, before dividends paid in the year, increased from 323p per share at 31 December 2018 to 337p per share at 31 December 2019, representing growth of 7.2%. Excluding the net adverse impact from foreign exchange movements of GBP55 million, the growth was 10.7%.

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

The two core objectives in delivering our strategy are:

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

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

Growth in volume of primary investments

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

Our investment commitments for 2019 were GBP184m. While this was relatively low compared to previous years, this growing pipeline and a strong capital base underpins our guidance of GBP1 billion over the three-year period 2019 to 2021, although given the nature of PPP procurement and its potential for delays, this could be lumpy and back-ended.

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

 
                                                                                                               Total 
   Investment commitments                                         Region                       Sector    GBP million 
 
 University of Brighton student accommodation     Europe and Middle East        Social infrastructure              7 
 Live Oak wind farm                                        North America    Wind and solar generation             75 
 Ruta del Cacao road                                       Latin America              Roads and other             62 
 Hurontario light rail                                     North America       Rail and rolling stock             13 
 East Rockingham Resource Recovery Facility                 Asia Pacific            Waste and biomass             27 
 
 Total                                                                                                           184 
-----------------------------------------------------------------------------------------------------  ------------- 
 

We entered 2020 with a strong pipeline of GBP3,172 million of investment opportunities expected to complete predominantly over the next three years. Within this pipeline, we have one preferred bidder position, seven shortlisted positions and one exclusive position representing a total potential investment of approximately GBP443 million.

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

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

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

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

.

 
                                 At 31 December 2019                                At 31 December 2018 
                  -------------------------------------------------  ------------------------------------------------- 
 Pipeline - 
 estimated                     Europe                                             Europe 
 equity                           and      North      Latin                          and      North      Latin 
 investment           Asia     Middle    America    America              Asia     Middle    America    America 
 GBP million       Pacific       East                         Total   Pacific       East                         Total 
----------------  --------  ---------  ---------  ---------  ------  --------  ---------  ---------  ---------  ------ 
 Transport             361        336        826        531   2,054       149        315        563        175   1,202 
 Social 
  infrastructure       260         21         53        ---     334       157          7         29        ---     193 
 Environmental         175         42         75        ---     292        28         18        ---        ---      46 
 Utilities              85         38         53         84     260       ---        ---         60        ---      60 
 Telecoms              ---        195         37        ---     232       ---         20         39        ---      59 
 Wind & solar 
  generation           ---        ---        ---        ---     ---       370         56        387        ---     813 
 Total                 881        632      1,044        615   3,172       704        416      1,078        175   2,373 
----------------  --------  ---------  ---------  ---------  ------  --------  ---------  ---------  ---------  ------ 
 

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

 
 
  Pipeline by bidding                                    Europe and 
  stage                     Number of   Asia Pacific    Middle East     North America     Latin America          Total 
  at 31 December 2019        projects    GBP million    GBP million       GBP million       GBP million    GBP million 
-------------------------  ----------  -------------  -------------  ----------------  ----------------  ------------- 
 Preferred bidder                   1            ---             22               ---               ---             22 
 Shortlisted / exclusive            8            181             20               220               ---            421 
 Other                             65            700            590               824               615          2,729 
-------------------------  ----------  -------------  -------------  ----------------  ----------------  ------------- 
 Total                             74            881            632             1,044               615          3,172 
-------------------------  ----------  -------------  -------------  ----------------  ----------------  ------------- 
 

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

 
                               Financial 
                                close expected 
   Project                      by               Region          Description 
 Redfern Communities Plus,     Q1 2021           Asia Pacific    Social Housing Development 
  Australia                                                       in Sydney, Australia 
 North East Link               Q4 2020           Asia Pacific    Freeway in Melbourne, 
                                                                  Australia 
 PPP project                                     Asia Pacific 
 Jefferson Parkway, Colorado   Q2 2021           North America   9.2 mile four-lane limited 
                                                                  access toll highway in 
                                                                  Denver, Colorado 
 Dartmouth Green Energy, New   Q4 2020           North America   Utility system project 
  Hampshire                                                       for Dartmouth College 
 NYS Thruway Service Plazas    Q3 2020           North America   Redevelopment of multiple 
                                                                  rest stops located along 
                                                                  New York Thruway, New 
                                                                  York 
 Sepulveda Transit Corridor    H1 2024           North America   13 mile transit link in 
                                                                  Los Angeles, California 
 Via15, Netherlands(1)         Q3 2020           Europe and      12km greenfield road including 
                                                  Middle East     a major bridge in the 
                                                                  east of the Netherlands 
 
 

(1) Preferred bidder position

Management and enhancement of our investment portfolio

At 31 December 2019, our portfolio comprised investments in 48 infrastructure projects (31 December 2018 - 48 projects plus our shareholding in JLEN). Our year end portfolio value was GBP1,768 million (31 December 2018 - GBP1,560 million). The portfolio value increased by GBP267 million as a result of cash invested in projects, offset by proceeds from realisations of GBP143 million and cash yield received from project companies of GBP57 million. Fair value movements of GBP141 million - equivalent to 8.7% of the cash rebased portfolio value or 12.2% excluding foreign exchange losses - increased the portfolio value to GBP1,768 million at 31 December 2019.

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

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

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

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

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

In 2019, we completed realisations totalling GBP143 million from the sale of two PPP and two renewable energy investments, as well as the sale of our remaining shares in JLEN Environmental Assets Group Limited ("JLEN" - previously John Laing Environmental Assets Group Limited). The disposal of our interest in Optus Stadium was our first sale of an operational asset in Australia and the disposal of the Rocksprings and Sterling wind farms in the US were our first sales in the US. Aggregate prices achieved were in line with valuation.

The cash yield in 2019 was GBP57 million (2018 - GBP34 million), including a large distribution from the Denver Eagle P3 project following the end of construction.

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

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

External asset management

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

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

Organisation and staff

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

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

Principles, People and Performance.

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

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

   --      Ownership 
   --      Empowerment 
   --      Growth mindset 
   --      Shared prosperity 

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

Current trading and guidance

We have a strong investment pipeline which at 31 December 2019 totalled GBP3.2 billion, including one preferred bidder position and eight shortlisted or exclusive positions with a total investment opportunity of approximately GBP443 million. This supports our guidance of approximately GBP1 billion of new investment commitments over the three-year period 2019-2021. The growth in our pipeline during the year is especially pleasing given our decision to cease investment in standalone wind and solar generation. Investment activity over the next two years will therefore be concentrated on PPP opportunities where we see strong demand, albeit these are typically lumpier and their timing more reliant on public procurement processes. We expect investment activity to gain momentum during 2020, with this year's pipeline weighted to the second half.

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

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

Olivier Brousse

Chief Executive Officer

REGIONAL REVIEW

ASIA PACIFIC

At 31 December 2019, our portfolio of investments in the region comprised 15 assets (31 December 2018 - 15) including seven in the Primary portfolio (31 December 2018 - eight) and eight in the Secondary portfolio (31 December 2018 - seven) with a total value of GBP587 million (31 December 2018 - GBP505 million). The increase in portfolio value of GBP82 million is due to cash invested in projects of GBP110 million and a net overall fair value gain of GBP12 million for the year, offset by disposals and cash yields received from projects totalling GBP40 million.

With regards to new investments, during the year, we secured an investment of GBP27 million in the East Rockingham Resource Recovery facility, a waste to energy plant in Perth, Western Australia. The Primary Investment team has also been successful in achieving three shortlisted position at 31 December 2019 on PPP deals in Australia, which are expected to close over the next 18 months.

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

Sydney Light Rail

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

New Generation Rollingstock

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

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

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

New Royal Adelaide Hospital

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

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

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

Continued active asset management in the second half of the year has resulted in total year value enhancements for the APAC region of GBP47 million (2018 - GBP16 million) of which GBP6 million (2018 - GBP5 million) related to PPP assets and GBP41 million (2018 - GBP11 million) to renewable energy assets. .

As was reported in our interim results, we, along with industry peers, experienced transmission issues relating to marginal loss factors ("MLFs") which negatively impacted three of our renewable energy assets. As a reminder, MLFs are defined as the portion of energy that is lost when electricity is transmitted across the transmission and distribution networks due to resistance. During the second half of the year, we have worked closely with external advisors to review their long-term MLF forecasts. These forecasts took into account the indicative MLFs for the July 2020 - June 2021 period that AEMO published in November 2019, which showed an improvement from the previous year on the three assets referred to above. Overall, the change in MLF forecasts led to net losses of GBP52million.

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of GBP17m for 2019.

EUROPE AND MIDDLE EAST

At 31 December 2019, our portfolio of investments in the region comprised 18 assets (31 December 2018 - 19) including three in the Primary portfolio (31 December 2018 - three) and 15 in the Secondary portfolio (31 December 2018 - 16) with a total value of GBP599 million (31 December 2018 - GBP580 million). The increase in portfolio value of GBP19 million in 2019 is due to a positive fair value movement in the period of GBP20 million and cash invested into projects of GBP8 million offset by disposals and cash yields received from projects totalling GBP9 million.

With regards to new investments, we secured an investment of GBP7 million in a student accommodation project with the University of Brighton. The Primary Investment team had also secured one preferred bidder PPP position in the Netherlands at 31 December 2019 and one exclusive pump storage opportunity in Israel, both of which are expected to close in 2020.

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

Continued active asset management in the second half of the year has resulted in total year value enhancements for the Europe and Middle East region of GBP43 million (2018 - GBP40 million) of which GBP18 million (2018 - GBP40 million) related to PPP assets and GBP25 million (2018 - GBPnil) to renewable energy assets.

As reported in our interim results, we experienced operational performance issues on our wind farm assets, mainly driven by low levels of wind, which have translated into lower long-term energy yield forecasts and resulted in write downs of GBP51 million.

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of GBP15m for 2019.

NORTH AMERICA

At 31 December 2019, our portfolio of investments comprised 14 assets (31 December 2018 - 14) including five in the Primary portfolio (31 December 2018 - six) and nine in the Secondary portfolio (31 December 2018 - eight) with a total value of GBP514 million (31 December 2018 - GBP465 million). The increase in portfolio value of GBP49 million during the year is principally due to a positive fair value movement of GBP98 million and cash invested into projects of GBP92 million, offset by disposals and cash yields received from projects totalling GBP141 million.

With regards to new investments, we secured an investment of GBP75 million in Live Oak wind farm and later in the year we secured an investment of GBP13 million in the Hurontario light rail project in Ontario, Canada. The Primary Investment team had also secured four shortlisted PPP positions at 31 December 2019.

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

Denver Eagle P3

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

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

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

I-77 Managed Lanes

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

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

Continued active asset management in the second half of the year has resulted in total year value enhancements of GBP65 million (2018 - GBP24 million) of which GBP37 million (2018 - GBP18 million) related to PPP assets and GBP28 million (2018 - GBP6 million) to renewable energy assets.

We have also seen some volatility in power price forecasts in the region during the year, particularly over the last two quarters, which resulted in a loss of GBP15m for 2019.

LATIN AMERICA

In October 2019, after almost three years of due diligence, we closed our first investment in the region. We committed GBP62 million for a 30% interest in the Ruta del Cacao PPP road project in Colombia. We have one of our key international partners working with us on this project together with other leading investors and contractors. The project is progressing well, with construction almost 50% complete. During delivery, the project is improving the lives of the local communities through the building of new water treatment plants, schools and commercial facilities.

Meanwhile, our pipeline of investment opportunities in the region has increased to GBP615 million as at 31 December 2019. This has been the result of the efforts of our strong team, with seven employees in our Bogota office, complemented by senior executives in Madrid and London.

Portfolio Valuation

The portfolio valuation at 31 December 2019 was GBP1,768 million compared to GBP1,560 million at 31 December 2018. After adjusting for cash invested, cash yield and realisations, this represented a positive movement in fair value of GBP141 million (representing growth of 8.7% or 12.2% at constant FX).

 
                                             Investments         Listed 
                                             in projects     investment          Total 
                                             GBP million    GBP million    GBP million 
-----------------------------------------  -------------  -------------  ------------- 
 Portfolio valuation at 1 January 2019             1,550             10          1,560 
 - Cash invested                                     267              -            267 
 - Cash yield                                       (57)              -           (57) 
 - Proceeds from realisations                      (132)           (11)          (143) 
 Rebased valuation                                 1,628            (1)          1,627 
 - Movement in fair value                            140              1            141 
 Portfolio valuation at 31 December 2019           1,768              -          1,768 
-----------------------------------------  -------------  -------------  ------------- 
 

Cash invested into three new assets during 2019 totalled GBP140 million. In addition, GBP127million was injected into existing projects in the portfolio as they progressed through, or completed, construction.

During 2019, the Group completed the realisation of four investments for a total consideration of GBP132 million and also sold its remaining shares in JLEN for GBP11 million.

Cash yield from the investment portfolio during the year totalled GBP57 million.

The movement in fair value of GBP141 million is analysed in the table below.

 
                                                                                Year ended          Year ended 
                                                                          31 December 2019    31 December 2018 
                                                                               GBP million         GBP million 
----------------------------------------------------------------------  ------------------  ------------------ 
 Unwinding of discounting                                                              110                  98 
 Reduction of construction risk premia                                                  73                  43 
 Value uplift on financial closes                                                       31                  43 
 Value enhancements                                                                    157                  79 
 Net losses from project performance                                                  (23)                (36) 
----------------------------------------------------------------------  ------------------  ------------------ 
 Movement in fair value before external factors and exceptional items                  348                 227 
 Wind yield - Europe                                                                  (51)                   - 
 Transmission (MLF) - Australia                                                       (52)                   - 
 Change in power and gas price forecasts                                              (48)                (12) 
 Impact of foreign exchange movements                                                 (57)                  10 
 Change in macroeconomic assumptions                                                  (11)                 (1) 
 Change in operational benchmark discount rates                                         12                  43 
 Exceptional gain on disposal of IEP Phase 1                                             -                  87 
 Movement in fair value                                                                141                 354 
----------------------------------------------------------------------  ------------------  ------------------ 
 

Unwinding of discounting and reduction of construction risk premia totalled GBP183 million for 2019 (2018 - GBP141 million). We expect further value uplift in the future from these factors currently embedded in the portfolio but at a lower level than 2019 given the profile of the portfolio.

Value uplift of GBP31 million was recognised on the financial close of new investments of GBP184 million in the year. We would expect higher value uplift on financial close next year if the level of new investments is increased.

We have recognised GBP157 million of value enhancements in the year representing a strong result of our ongoing active asset management capability. Having recognised value enhancements of GBP78 million in the first half of the year, work in this area continued and we were able to deliver further value enhancements of GBP79 million in the second half. These enhancements were achieved in all regions and across the entire portfolio from a number of areas, including extension of asset lives, savings on operating costs and refinancing of project finance. However, the high level of value enhancements in 2019 reflects the initial impact of the move in 2018 to a regional model as well as an increased focus on asset management in the year. We therefore expect a more normalised level of value enhancements in 2020, in the region of 3% to 5% of the opening portfolio value.

During the year, there were net losses from project performance of GBP23 million. This primarily reflects the impact of construction delays on certain of our projects, offset by a value uplift from reductions in project-specific risk premia, principally reflecting the good progress made in the year on certain PPP projects.

Losses of GBP51 million on the European wind assets and the GBP52 million of losses suffered on three of our Australian renewable energy asset projects as a result of adverse changes in MLFs are described further in the Regional Review section above.

Reduction in power and gas price forecasts, particularly in the second half of the year, resulted in losses of GBP48 million and strengthening of Sterling since 30 June 2019 has increase the adverse impact of foreign exchange movements to GBP57 million from just GBP2 million adverse in the first half.

The net benefit of GBP12 million from the change in operational benchmark discount rates was on a number of renewable energy investments in Europe in response to our understanding and experience of the secondary market.

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

 
                                               31 December 2019                           31 December 2018 
                                   Number of projects   GBP million       %   Number of projects   GBP million       % 
--------------------------------  -------------------  ------------  ------  -------------------  ------------  ------ 
 Primary Investment portfolio                      16           907    51.3                   17           868    55.7 
 Secondary Investment portfolio                    32           861    48.7                   31           692    44.3 
--------------------------------  -------------------  ------------  ------  -------------------  ------------  ------ 
 Total portfolio                                   48         1,768   100.0                   48         1,560   100.0 
--------------------------------  -------------------  ------------  ------  -------------------  ------------  ------ 
 
 
                                                 Primary 
                                              Investment 
                                             GBP million 
-----------------------------------------  ------------- 
 Portfolio valuation at 1 January 2019               868 
 - Cash invested                                     258 
 - Transfers to Secondary Investment               (377) 
-----------------------------------------  ------------- 
 Rebased valuation                                   749 
 - Movement in fair value                            158 
-----------------------------------------  ------------- 
 Portfolio valuation at 31 December 2019             907 
-----------------------------------------  ------------- 
 
 
                                               Secondary 
                                              Investment 
                                             GBP million 
-----------------------------------------  ------------- 
 Portfolio valuation at 1 January 2019               692 
 - Cash invested                                       9 
 - Cash yield                                       (57) 
 - Proceeds from realisations                      (143) 
 - Transfers from Primary Investment                 377 
-----------------------------------------  ------------- 
 Rebased valuation                                   878 
 - Movement in fair value                           (17) 
-----------------------------------------  ------------- 
 Portfolio valuation at 31 December 2019             861 
-----------------------------------------  ------------- 
 

Methodology

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

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

The Directors have obtained an independent opinion from a third party, which has considerable expertise in valuing the type of investments held by the Group, that the investment portfolio valuation as a whole represented a fair market value in the conditions prevailing at 31 December 2019.

Discount rates

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

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

 
                                    At 31 December 2019           At 31 December 2018 
-----------------------------  ----------------------------  ---------------------------- 
                                     Primary      Secondary        Primary      Secondary 
 Sector                           Investment     Investment     Investment     Investment 
-----------------------------  -------------  -------------  -------------  ------------- 
 PPP investments                7.1% - 12.4%   6.5% - 9.25%   6.9% - 11.7%    7.0% - 9.0% 
 Renewable energy investments    8.6% - 8.6%   6.4% - 12.4%    8.4% - 9.1%   6.8% - 10.0% 
-----------------------------  -------------  -------------  -------------  ------------- 
 

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

 
                             Portfolio valuation   Increase/(decrease) in valuation 
 Discount rate sensitivity       GBP million                  GBP million 
--------------------------  --------------------  --------------------------------- 
          +0.25%                    1,711                        (57) 
             -                      1,768                         - 
          -0.25%                    1,828                         60 
--------------------------  --------------------  --------------------------------- 
 

Energy yields

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

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

The impact on the valuation at 31 December 2019 of a sample of renewable energy assets with total value of GBP293 million from changes in energy yield is shown below:

 
                             Portfolio valuation of sample of assets   Increase/(decrease) in valuation 
 Energy yield sensitivity                  GBP million                            GBP million 
--------------------------  ----------------------------------------  --------------------------------- 
            P75                                255                                   (38) 
            P50                                293                                    - 
            P25                                330                                    37 
--------------------------  ----------------------------------------  --------------------------------- 
 

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

Macroeconomic assumptions

During 2019, updates for actual macroeconomic outcomes and assumptions had a net adverse impact of GBP11 million (2018 - GBP1 million net adverse impact) on the portfolio valuation. Movements of foreign currencies against Sterling over the year to 31 December 2019 resulted in net adverse foreign exchange movements of GBP57 million (2018 - GBP10 million net favourable foreign exchange movements). Additionally, a decrease in forecast power and gas prices resulted in a GBP48 million adverse fair value movement (2018 - adverse fair value movement of GBP12 million).

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

 
 Assumption                                                       31 December 2019      31 December 2018 
----------------------   -----------------------------------  --------------------  -------------------- 
 
  Long-term inflation    UK                   RPI & RPIX                     3.00%                 3.00% 
                        Europe               CPI                     1.25% - 2.50%         1.75% - 2.00% 
                        North America        CPI                     2.00% - 2.25%         2.20% - 2.50% 
                        Asia Pacific         CPI                     1.50% - 2.50%         2.00% - 2.75% 
                        Latin America        CPI                     3.20% - 3.40%                     - 
 
 Impact recognised in                                               GBP(5) million        GBP(3) million 
 the year 
 Sensitivity: change in                                             GBP596 million        GBP524 million 
 value of five PPP 
 investments with a 
 total value of 
 0.25% increase in                                                 c.GBP14 million       c.GBP14 million 
 inflation                                                       c.GBP(13) million     c.GBP(13) million 
 0.25% decrease in 
 inflation 
----------------------   -----------------------------------  --------------------  -------------------- 
 
  Exchange rates                               GBP/EUR                      1.1799                1.1134 
                                              GBP/AUD                       1.8847                1.8096 
                                              GBP/USD                       1.3241                1.2748 
                                              GBP/NZD                       1.9641                1.9000 
                                              GBP/CAD                       1.7174                     - 
                                              GBP/COP                   4,351.4000                     - 
 
 Impact recognised in                                              GBP(57) million         GBP10 million 
  the year 
 
 Sensitivity: 5% movement of each relevant currency against    +/- c.GBP64 million   +/- c.GBP59 million 
  Sterling 
 
  Power and gas prices 
 Impact in the year                                                GBP(48) million       GBP(12) million 
 
 Sensitivity: change in                                             GBP338 million        GBP343 million 
  value of seven 
  renewable energy 
  investments with a 
  total value of 
 5% increase in power                                              c.GBP21 million       c.GBP18 million 
  and gas prices 
 5% decrease in power                                            c.GBP(19) million     c.GBP(18) million 
  and gas prices 
 
  Marginal loss 
   factors 
 Impact in the year                                                GBP(52) million                     - 
 
 Sensitivity: change in                                             GBP233 million                     - 
  value of a sample of 
  renewable energy 
  investments with a 
  total value 
  of 
 5% increase in                                                    c.GBP29 million                     - 
  marginal loss 
  factors 
 5% decrease in                                                  c.GBP(29) million                     - 
  marginal loss 
  factors 
 
 
 

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

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

by geographical region

 
                            31 December 2019      31 December 2018 
                           GBP million       %   GBP million       % 
------------------------  ------------  ------  ------------  ------ 
 Europe and Middle East            599    33.9           580    37.2 
 North America                     514    29.1           465    29.8 
 Asia Pacific                      587    33.2           505    32.4 
 Latin America                      68     3.8             -       - 
 Listed investment                   -       -            10     0.6 
------------------------  ------------  ------  ------------  ------ 
                                 1,768   100.0         1,560   100.0 
------------------------  ------------  ------  ------------  ------ 
 

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

by time remaining on project concession/OPERATIONAL life

 
                           31 December 2019      31 December 2018 
                          GBP million       %   GBP million       % 
-----------------------  ------------  ------  ------------  ------ 
 Greater than 25 years          1,113    63.0         1,113    71.4 
 20 to 25 years                   402    22.7           262    16.8 
 15 to 20 years                    62     3.5           133     8.5 
 10 to 15 years                   122     6.9            42     2.7 
 Less than 10 years                69     3.9             -       - 
 Listed investment                  -       -            10     0.6 
-----------------------  ------------  ------  ------------  ------ 
                                1,768   100.0         1,560   100.0 
-----------------------  ------------  ------  ------------  ------ 
 

by revenue type

 
                       31 December 2019      31 December 2018 
                      GBP million       %   GBP million       % 
-------------------  ------------  ------  ------------  ------ 
 Availability               1,013    57.3           766    49.2 
 Volume                       755    42.7           784    50.2 
 Listed investment              -       -            10     0.6 
-------------------  ------------  ------  ------------  ------ 
                            1,768   100.0         1,560   100.0 
-------------------  ------------  ------  ------------  ------ 
 

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

by sector

 
                                             31 December 2019      31 December 2018 
                                            GBP million       %   GBP million       % 
-----------------------------------------  ------------  ------  ------------  ------ 
 Transport - rail and rolling stock                 605    34.2           487    31.2 
 Transport - roads and other                        344    19.5           214    13.7 
 Environmental - wind & solar generation            577    32.6           656    42.1 
 Environmental - waste & biomass                     35     2.0            41     2.6 
 Social infrastructure                              207    11.7           152     9.8 
 Listed investment                                    -       -            10     0.6 
-----------------------------------------  ------------  ------  ------------  ------ 
                                                  1,768   100.0         1,560   100.0 
-----------------------------------------  ------------  ------  ------------  ------ 
 

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

by currency

 
                                       31 December 2019      31 December 2018 
                                      GBP million       %   GBP million       % 
-----------------------------------  ------------  ------  ------------  ------ 
 Sterling                                     417    23.6           371    23.8 
 Euro                                         182    10.3           219    14.0 
 Australian and New Zealand dollar            587    33.2           505    32.4 
 US and Canadian dollar                       514    29.0           465    29.8 
 Colombian Peso                                68     3.9             -       - 
-----------------------------------  ------------  ------  ------------  ------ 
                                            1,768   100.0         1,560   100.0 
-----------------------------------  ------------  ------  ------------  ------ 
 

by investment size

 
                                31 December 2019      31 December 2018 
                               GBP million       %   GBP million       % 
----------------------------  ------------  ------  ------------  ------ 
 Five largest projects                 692    39.1           598    38.4 
 Next five largest projects            311    17.6           276    17.7 
 Other projects                        765    43.3           676    43.3 
 Listed investment                       -       -            10     0.6 
----------------------------  ------------  ------  ------------  ------ 
                                     1,768   100.0         1,560   100.0 
----------------------------  ------------  ------  ------------  ------ 
 

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

Primary

 
                                 31 December 2019 
------------------------------  ----------------- 
                                      GBP million 
------------------------------  ----------------- 
 IEP Phase 2                            325 - 425 
 Clarence Correctional Centre            75 - 100 
 Sydney Light Rail                       75 - 100 
 Ruta del Cacao                           50 - 75 
 I-66 Managed Lanes                       50 - 75 
------------------------------  ----------------- 
 

Secondary

 
                                31 December 2019 
-----------------------------  ----------------- 
                                     GBP million 
-----------------------------  ----------------- 
 Denver Eagle P3                        75 - 125 
 Cypress Creek solar farms              75 - 100 
 Live Oak Wind Farm                     75 - 100 
 New Royal Adelaide Hospital             50 - 75 
 Finley Solar Farm                       50 - 75 
 

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

Investment portfolio as at 31 DECEMBER 2019

 
                                Primary Investment                                              Secondary investment 
                   --------------------------------------------       ----------------------------------------------------------------------- 
 Social 
 infrastructure 
 Health                                                                Alder Hey          New Royal 
                                                                        Children's        Adelaide 
                                                                        Hospital          Hospital 
                                                                        40% (EME)         17.26% (APAC) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 Justice and        Clarence                                           Auckland South 
 emergency          Correctional                                        Corrections 
 services           Centre                                              Facility 
                    80% (APAC)                                          30% (APAC) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 Other              University 
                    of Brighton 
                    Student 
                    Accommodation 
                    85% (EME ) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 
 Transport 
 Roads and other    A16 Road        I-4 Ultimate   I-66 Managed        A6 Parkway         A15 Netherlands    A130           I-77 Managed 
                                                    Lanes                                                                    Lanes 
                     47.5% (EME)     50% (NA)       10% (NA)            Netherlands        28% (EME)          100% (EME)     10% (NA) 
                                                                        85% (EME) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                    I-75 Road       MBTA           Ruta del 
                     40% (NA)       Automated       Cacao 30% 
                                    Fare            (Latam) 
                                    Collection 
                                    System 
                                    90% (NA) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 Rail and rolling   Hurontario      IEP Phase      Melbourne           Denver Eagle       New Generation 
  stock              Light Rail      2              Metro               P3                 Rollingstock 
                     40% (NA) 
                                      30% (EME)     30% (APAC)          45% (NA)           40% (APAC) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                    Sydney Light 
                     Rail 
                     32.5% (APAC) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 
 Environmental 
 Waste and          East                                               Speyside Biomass   Cramlington 
 biomass            Rockingham                                          43.35% (EME)       Biomass 
                    Waste 40%                                                              44.7% (EME) 
                    (APAC) 
-----------------  --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 Wind and solar     Cherry Tree     Granville      Sunraysia           Brantley Solar     Buckleberry        Buckthorn      Finley Solar 
                     Wind Farm      Wind Farm      Solar Farm           Farm*              Solar Farm*        Wind Farm      Farm 
                     100% (APAC)    49.8% (APAC)   90.1% (APAC)         100% (NA)          100% (NA)          90.05% (NA)    100% (APAC) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                                                                       Fox Creek          Glencarbry         Horath Wind    Hornsdale 
                                                                        Solar Farm*        Wind Farm         Farm            1 Wind Farm 
                                                                        100% (NA)          100% (EME)        81.82% (EME)    30% (APAC) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                                                                       Hornsdale          Hornsdale 3        IS54 Solar     IS67 Solar 
                                                                        2 Wind Farm        Wind Farm          Farm* 100%     Farm* 100% 
                                                                        20% (APAC)         20% (APAC)         (NA)           (NA) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                                                                       Kiata Wind         Klettwitz Wind     Live Oak       Nordergründe 
                                                                        Farm               Farm              Wind            Wind Farm 
                                                                        72.3% (APAC)       100% (EME)        Farm 75%        30% (EME) 
                                                                                                             (NA) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                                                                       Pasilly Wind       Rammeldalsberget   Sommette       St Martin 
                                                                        Farm               Wind Farm         Wind            Wind Farm 
                                                                        100% (EME)         100% (EME)        Farm            100% (EME) 
                                                                                                             100% (EME) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
                                                                       Svartvallsberget 
                                                                        Wind Farm 
                                                                        100% (EME) 
                   --------------  -------------  -------------       -----------------  -----------------  -------------  ------------------ 
 
 

APAC - Asia Pacific

EME - Europe and Middle East

NA - North America

Latam - Latin America

*Cypress Creek projects

Financial Review

Basis of preparation

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

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

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

Re-presented financial RESULTS

As we have done in previous periods, we set out in this Financial Review the Group Income Statement, the Group Balance Sheet and the Group Cash Flow Statement on the management reporting basis. When set out on the management reporting basis, these statements are described as "re-presented".

Re-presented income statement

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

 
 Year ended 31 December                               2019                                       2018(c) 
                         --------------------------------------------------------------  ----------------------- 
                                                                    Re-presented income      Re-presented income 
                          Group Income Statement   Adjustments                statement                statement 
                         -----------------------  ------------  -----------------------  ----------------------- 
                                     GBP million   GBP million              GBP million              GBP million 
 
 Fair value movements - 
  investment portfolio                       141             -                      141                      354 
 Fair value movements - 
  other                                      (1)        (1)(a)                      (2)                        3 
 Investment fees from 
  projects                                     7             -                        7                        8 
-----------------------  -----------------------  ------------  -----------------------  ----------------------- 
 Net gain on 
  investments at fair 
  value through profit 
  or loss                                    147           (1)                      146                      365 
 
 IMS revenue                                  20             -                       20                       20 
 PMS revenue                                   7             -                        7                        6 
 Recovery of bid costs                         5             -                        5                        4 
 Other income                                 32             -                       32                       30 
 
 Operating income                            179           (1)                      178                      395 
 
 Third party costs                          (10)                                   (10)                      (9) 
 Disposal costs                              (4)                                    (4)                      (4) 
 Staff costs                                (37)                                   (37)                     (37) 
 General overheads                          (15)                                   (15)                     (13) 
 Other net costs                               -                                      -                      (1) 
 Post-retirement 
  charges                                    (2)          2(b)                        -                        - 
 Administrative 
  expenses                                  (68)             2                     (66)                     (64) 
 
 Profit from operations                      111             1                      112                      331 
 
 Finance costs                              (11)        2(a,b)                      (9)                     (11) 
 Post-retirement 
  charges                                      -        (3)(b)                      (3)                     (24) 
 
 Profit before tax                           100             -                      100                      296 
-----------------------  -----------------------  ------------  -----------------------  ----------------------- 
 
 

Notes:

a) Adjustment comprises GBP1 million of interest income reclassified from 'fair value movements - other' to 'finance costs'.

b) Under IAS 19 Employee Benefits, the costs of the pension schemes and the post-retirement medical benefits comprise a service cost of GBP2 million, included in administrative expenses in the Group Income Statement, and a finance charge of GBP1 million, included in finance costs in the Group Income Statement. These amounts are combined together as post-retirement charges under management reporting. The cost for 2018 also includes a one-off GMP equalisation charge of GBP21 million.

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

Profit before tax for the year ended 31 December 2019 was GBP100 million (2018 - GBP296 million). The main reason for the lower PBT compared to last year was the reduction in fair value movement in the investment portfolio.

There were positive fair value movements on the portfolio for 2019 was GBP141 million (2018 - GBP354 million). An analysis of the fair value movement is provided in the Portfolio Valuation section. A significant contributor to the fair value movement in 2018 was the gain of GBP87 million on disposal of the interest in IEP Phase 1. In contrast, despite significant value enhancements of GBP157 million, the fair value movement for 2019 suffered from losses of GBP52 million on three of our Australian renewable energy assets, as a result of the impact of marginal loss factors (see the Asia Pacific section above), and from wind yield losses of GBP51 million on our European wind and solar assets (see the Europe section above). We also experienced losses from the impact of foreign exchange movements (GBP57 million loss compared to a GBP10 million gain in 2018) and power and gas price forecasts (GBP48 million loss compared to a GBP12 million loss in 2018).

The Group earned IMS revenue of GBP20 million (2018 - GBP20 million) from investment advisory and asset management services primarily to Jura and JLEN. The proceeds received in the year from the sale of the IAA with JLEN of GBP5 million offset the loss of revenue from the IAA with Jura which terminated in 2019. Going forward, the Group will only earn IMS revenue from the provision of directors to project company boards (2019 - cGBP1 million; 2018 - cGBP2 million).

The Group also earned PMS revenue of GBP7 million (2018 - GBP6 million) from the provision of services to project companies under management services agreements.

The Group achieved recoveries of bidding costs on financial closes of GBP5 million in 2019 (2018 - GBP4 million).

Total staff costs for the year ended 31 December 2019 are broadly the same as last year due to the impact of pay increases in line with inflation (cGBP1 million), increase in average headcount for the period with new recruits at higher average salaries (cGBP2 million) and one-off staff costs incurred in the first half of 2019 in relation to the termination of the fund management business offsetting the reduction in staff costs from the transfer of staff with this business.

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

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

Finance costs of GBP9 million (2018 - GBP11 million) include costs of the corporate banking facilities, net of any interest income, with the decrease from last year primarily due to lower investment activity in the year.

There was a tax credit for the year of GBP0.2 million (2018 - tax expense of GBP0.2 million) primarily as a result of the reversal of a tax provision held at 31 December 2018. The contributions made to one of the Group's defined benefit pension schemes are tax deductible when paid and, as a result, there is minimal tax payable by the UK holding and asset management activities of the Group. Capital gains from the realisation of investments in projects are generally exempt from tax under the UK's Substantial Shareholding Exemption for shares in trading companies or under the overseas equivalent. To the extent this exemption is not available, gains may be sheltered using current year losses or losses brought forward within the Group's holding companies. There are no losses in the Company but there are tax losses in recourse group subsidiary entities that are held at FVTPL (GBP177 million as at 31 December 2018).

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

 
                                                       Year ended 31 December 2019 
                   --------------------------------------------------------------------------------------------------- 
 
                                     Europe and         North          Latin          Fund 
                    Asia Pacific    Middle East       America        America    Management       Central         Total 
                     GBP million    GBP million   GBP million    GBP million   GBP million   GBP million   GBP million 
 Net gain/(loss) 
  on investments 
  at FVTPL                    12             18           100             12                           4           146 
 Other income                  2              3             6              -            20             1            32 
-----------------  -------------  -------------  ------------  -------------  ------------  ------------  ------------ 
 Operating income             14             21           106             12            20             5           178 
 Staff costs                 (7)            (6)           (7)            (1)           (3)          (13)          (37) 
 Other 
  administrative 
  expenses                   (3)            (6)           (7)            (2)           (2)           (9)          (29) 
----------------- 
 Profit/(loss) 
  from operations              4              9            92              9            15          (17)           112 
 Finance costs                 -              -             -              -             -           (9)           (9) 
 Post-retirement 
  charges                      -              -             -              -             -           (3)           (3) 
 Profit/(loss) 
  before tax                   4              9            92              9            15          (29)           100 
-----------------  -------------  -------------  ------------  -------------  ------------  ------------  ------------ 
 
 
                                                       Year ended 31 December 2018 
                   --------------------------------------------------------------------------------------------------- 
 
                                        Europe 
                                    and Middle          North          Latin          Fund 
                    Asia Pacific          East        America        America    Management       Central         Total 
                     GBP million   GBP million    GBP million    GBP million   GBP million   GBP million   GBP million 
 Net gain/(loss) 
  on investments 
  at FVTPL                    86           188             88              -             -             3           365 
 Other income                  2             4              6              -            19           (1)            30 
-----------------  -------------  ------------  -------------  -------------  ------------  ------------  ------------ 
 Operating income             88           192             94              -            19             2           395 
 Staff costs                 (7)           (6)            (5)              -           (7)          (12)          (37) 
 Other 
  administrative 
  expenses                   (3)          (11)            (4)            (1)           (2)           (6)          (27) 
-----------------  -------------  ------------  -------------  -------------  ------------  ------------  ------------ 
 Profit/(loss) 
  from operations             78           175             85            (1)            10          (16)           331 
 Finance costs                 -             -              -              -             -          (11)          (11) 
 Post-retirement 
  charges                      -             -              -              -             -          (24)          (24) 
 Profit/(loss) 
  before tax                  78           175             85            (1)            10          (51)           296 
-----------------  -------------  ------------  -------------  -------------  ------------  ------------  ------------ 
 

Asia Pacific - the lower profit in 2019 compared to 2018 was mainly due to write downs of GBP52 million in the portfolio from adverse changes in MLFs on three of our renewable energy investments. For further details, see the Asia Pacific section in the Regional Review above.

Europe and Middle East - the lower profit in 2019 compared to 2018 was mainly due to performance issues on wind assets, which resulted in write downs in the period of GBP51 million. In 2018, the Europe regional results benefited from a gain of GBP87 million on the disposal of our interest in the IEP Phase 1 project.

North America - good progress was made on the PPP assets in the US, which, together with value enhancements of GBP65 million, contributed to the marginally higher profit in 2019 compared to 2018. Increasing staff costs in North America reflect an increase in the headcount in that region, consistent with the increase in the level of activity.

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

Fund management - fund management activities ceased in the first half of 2019 following the sale of the JLEN IAA at the end of June 2019 and the termination of the Jura services at the end of April 2019. The increase in profit from 2018 was primarily due to the proceeds from the sale of the JLEN agreement of GBP5 million. There will be no further income or costs from fund management activities beyond the end of 2019.

Central - the net gain on investments at FVTPL of GBP4 million in 2019 was primarily due to a gain on the JLEN shares as well as a foreign exchange gain outside of the portfolio (2018 - GBP1 million loss primarily due to foreign exchange losses outside of the portfolio). The overall loss for the Central segment reflects the costs of the Group's central support and overview functions, as well as the Group's finance costs and its post-retirement charges. The loss for 2019 of GBP29 million is lower than the loss for 2018 of GBP51 million primarily due to the one-off GMP equalisation charge of GBP21 million in 2018.

Re-presented balance sheet

The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2019 below. The re-presented balance sheet involves the reclassification of certain amounts within the Group Balance Sheet principally in relation to assets and liabilities of GBP129 million (31 December 2018 - GBP140 million) within the Company's recourse subsidiaries that are included in investments at FVTPL in the Group Balance Sheet as a result of the requirement under IFRS 10 to fair value investments in these subsidiaries.

 
 31 December                                  2019                                2018(e) 
                     -----------------------------------------------------  ------------------ 
                                                                                                 Re-presented 
                        Group Balance                      Re-presented        Re-presented      balance sheet 
                            Sheet          Adjustments     balance sheet       balance sheet     line items 
                     -------------------  ------------  ------------------  ------------------  ------------------ 
                         GBP million       GBP million      GBP million         GBP million 
 Non-current assets 
 Right of use                                                                                    Other long-term 
  assets                               4             -                   4                   -   assets 
 Investments at 
  FVTPL                            1,897      (129)(a)               1,768               1,560   Portfolio value 
                                                                                                 Cash collateral 
                                                118(b)                 118                 132   balances 
 Retirement benefit                                                                              Pension surplus 
  asset                               13             -                  13                   -   (IAS 19) 
                                   1,914          (11)               1,903               1,692 
                     -------------------  ------------  ------------------  ------------------ 
 
 Current assets 
 Trade and other 
  receivables                          6        (6)(c)                   -                   - 
 Cash and cash 
  equivalents                          2         5 (b)                   7                   8   Cash 
                     -------------------  ------------  ------------------  ------------------ 
                                       8           (1)                   7                   8 
                     -------------------  ------------  ------------------  ------------------ 
 Total assets                      1,922          (12)               1,910               1,700 
                     -------------------  ------------  ------------------  ------------------ 
 
 Current 
 liabilities 
                                                                                                 Working capital 
                                                                                                 and other 
                                           (6) (b,c,d)                 (6)                 (4)   balances 
 Borrowings                        (236)        (3)(d)               (239)                (70)   Cash borrowings 
 Trade and other 
  payables                          (15)         15(c)                   -                   - 
                     -------------------  ------------  ------------------  ------------------ 
                                   (251)             6               (245)                (74) 
                     -------------------  ------------  ------------------  ------------------ 
 Net current 
  liabilities                      (243)             5               (238)                (66) 
                     -------------------  ------------  ------------------  ------------------ 
 
 Non-current 
 liabilities 
                                                                                          (33)   Pension deficit 
                                       -             -                   -                       (IAS 19) 
                                                                                                 Other retirement 
 Retirement benefit                                                                              benefit 
  obligations                        (7)             -                 (7)                 (7)   obligations 
 Finance lease 
  liabilities                        (4)          4(c)                   - 
 Provisions                          (2)          2(c)                   -                   - 
                     -------------------  ------------  ------------------  ------------------ 
                                    (13)             6                 (7)                (40) 
                     -------------------  ------------  ------------------  ------------------ 
 Total liabilities                 (264)            12               (252)               (114) 
                     -------------------  ------------  ------------------  ------------------ 
 
 Net assets                        1,658             -               1,658               1,586 
                     -------------------  ------------  ------------------  ------------------ 
 

Notes:

a) Investments at FVTPL of GBP1,897 million comprise: portfolio valuation of GBP1,768 million and other assets and liabilities within recourse investment entity subsidiaries of GBP129 million (see note 13 to the Group financial statements).

b) Other assets and liabilities within recourse investment entity subsidiaries of GBP129 million referred to in note (a) include: (i) cash and cash equivalents of GBP123 million, of which GBP118 million is held to collateralise future investment commitments and GBP5 million is other cash balances and (ii) net positive working capital and other balances of GBP6 million.

c) Trade and other receivables (GBP6 million), trade and other payables (GBP15 million), finance lease liabilities (GBP4 million) and provisions (GBP2 million) are combined in the re-presented balance sheet as working capital and other balances.

d) Borrowings of GBP236 million comprise cash borrowings of GBP232 million from the main facilities and GBP7 million of short-term bank overdraft from uncommitted facilities less unamortised financing costs of GBP3 million, which are re-presented as working capital and other balances.

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

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

 
                                                Europe and                                                 Fund management 
                           Asia Pacific         Middle East        North America       Latin America                                 Central              Total 
 As at                    31 Dec    31 Dec    31 Dec    31 Dec    31 Dec    31 Dec    31 Dec    31 Dec    31 Dec       31 Dec    31 Dec    31 Dec    31 Dec    31 Dec 
                            2019      2018      2019      2018      2019      2018      2019      2018      2019         2018      2019      2018      2019      2018 
----------------------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -----------  --------  --------  --------  -------- 
                             GBP       GBP       GBP       GBP       GBP       GBP       GBP       GBP       GBP          GBP       GBP       GBP       GBP       GBP 
                         million   million   million   million   million   million   million   million   million      million   million   million   million   million 
----------------------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -----------  --------  --------  --------  -------- 
 Portfolio valuation         587       505       599       580       514       465        68         -         -            -         -        10     1,768     1,560 
 Other net current 
  liabilities                                                                                                                       (2)       (4)       (2)       (4) 
 Group net 
  (borrowings)/cash(1)                                                                                                            (114)        70     (114)        70 
 Net post-retirement 
  assets/(obligations)                                                                                                                6      (40)         6      (40) 
----------------------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -----------  --------  --------  --------  -------- 
 Group net assets            587       505       599       580       514       465        68         -         -            -     (110)        36     1,658     1,586 
----------------------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -----------  --------  --------  --------  -------- 
 

Note:

(1) Comprising: short-term cash borrowings of GBP232 million (31 December 2018 - GBP55 million) and short-term bank overdraft of GBP7 million (31 December 2018 - GBP15 million) net of cash balances of GBP125 million (31 December 2018 GBP140 million)

Net assets increased from GBP1,586 million at 31 December 2018 to GBP1,658 million at 31 December 2019.

The Group's portfolio of investments was valued at GBP1,768 million at 31 December 2019 (31 December 2018 - GBP1,560 million). The valuation methodology and details of the portfolio value are provided in the Portfolio Valuation section.

The Group held cash balances of GBP125 million at 31 December 2019 (31 December 2018 - GBP140 million) of which GBP118 million (31 December 2018 - GBP132 million) was held to collateralise future investment commitments (see the Financial Resources section below for more details). Of the total Group cash balances of GBP125 million, GBP123 million was in recourse subsidiaries held at FVTPL, including the cash collateral balances, that are included within investments at FVTPL on the Group Balance Sheet. The remaining GBP2 million of cash was in the Company and recourse subsidiaries that are consolidated and shown as cash and cash equivalents on the Group Balance Sheet (see the re-presented balance sheet for further details).

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

The triennial actuarial valuation of JLPF as at 31 March 2019 is currently in process and is expected to be finalised by 30 June 2020. In December 2016, following a triennial actuarial valuation as at 31 March 2016, a seven-year deficit repayment plan was agreed with the JLPF Trustee. It was agreed to repay the actuarial deficit of GBP171 million at 31 March 2016 as set out below:

 
 By 31 March    GBP million 
-------------  ------------ 
 2017                    25 
 2018                    27 
 2019                    29 
 2020                    25 
 2021                    26 
 2022                    26 
 2023                    25 
-------------  ------------ 
 

The combined accounting surplus in the Group's defined benefit pension and post-retirement medical schemes at 31 December 2019 was GBP6 million (31 December 2018 - deficit of GBP40 million). Under IAS 19, at 31 December 2019, JLPF had a surplus of GBP12 million (31 December 2018 - deficit of GBP35 million) while the Plan had a surplus of GBP1 million (31 December 2018 - surplus of GBP2 million). The liability at 31 December 2019 under the post-retirement medical scheme was GBP7 million (31 December 2018 - GBP8 million).

The pension surplus in JLPF under IAS 19 is based on a discount rate applied to pension liabilities of 2.1% (31 December 2018 - 2.85%%) and long-term RPI of 3% (31 December 2018 - 3.20%). The amount of the surplus is dependent on key assumptions, principally: inflation rate, discount rate and life expectancy of members. The discount rate, as prescribed by IAS 19, is based on yields from high quality corporate bonds. The surplus as at 31 December 2019 has moved from a deficit at 31 December 2018 primarily as a result of the Group's cash contribution to JLPF of GBP29 million in March 2019 and gains in the value of scheme assets.

Re-presented cash flow statement

The Group Cash Flow Statement includes the cash flows of the Company and those recourse subsidiaries that are consolidated (Service Companies). The Group's recourse investment entity subsidiaries, through which the Company holds its investments in non-recourse project companies, are held at fair value in the financial statements and accordingly cash flows relating to investments in the portfolio are not included in the Group Cash Flow Statement. Investment-related cash flows are disclosed in note 13 to the Group financial statements.

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

 
 Year ended 31 December                                                           2019                      2018 
                                                              ------------------------  ------------------------ 
                                                               Re-presented cash flows   Re-presented cash flows 
                                                                           GBP million               GBP million 
 Cash yield                                                                         57                        34 
 Operating cash outflow                                                           (24)                      (10) 
 Net foreign exchange impact                                                         1                       (1) 
 Total operating cash inflow                                                        34                        23 
------------------------------------------------------------  ------------------------  ------------------------ 
 
 Cash investment in projects                                                     (267)                     (342) 
 Proceeds from realisations                                                        143                       296 
 Disposal costs                                                                    (3)                       (5) 
 Net investing cash outflow                                                      (127)                      (51) 
------------------------------------------------------------  ------------------------  ------------------------ 
 
 Finance charges                                                                  (11)                      (13) 
 Rights issue (net of costs)                                                         -                       210 
 Purchase of own shares related to share based incentives                          (4)                         - 
 Cash contributions to JLPF                                                       (29)                      (27) 
 Dividend payments                                                                (47)                      (44) 
 Net cash (outflow)/inflow from financing activities                              (91)                       126 
------------------------------------------------------------  ------------------------  ------------------------ 
 
 Recourse group cash (outflow)/inflow                                            (184)                        98 
------------------------------------------------------------  ------------------------  ------------------------ 
 Recourse group opening cash/(net debt) balances                                    70                      (28) 
------------------------------------------------------------  ------------------------  ------------------------ 
 Recourse group closing (net debt)/cash balances                                 (114)                        70 
------------------------------------------------------------  ------------------------  ------------------------ 
 
 Reconciliation to line items on re-presented balance sheet 
------------------------------------------------------------  ------------------------  ------------------------ 
 Cash collateral balances(1)                                                       118                       132 
------------------------------------------------------------  ------------------------  ------------------------ 
 Cash and cash equivalents(1)                                                        7                         8 
------------------------------------------------------------  ------------------------  ------------------------ 
 Total net cash balances                                                           125                       140 
------------------------------------------------------------  ------------------------  ------------------------ 
 
 Cash borrowings                                                                 (239)                      (70) 
------------------------------------------------------------  ------------------------  ------------------------ 
 (Net debt)/cash                                                                 (114)                        70 
------------------------------------------------------------  ------------------------  ------------------------ 
 
 Reconciliation of cash borrowings to Group Balance Sheet 
------------------------------------------------------------  ------------------------  ------------------------ 
 Cash borrowings as per re-presented balance sheet                               (239)                      (70) 
------------------------------------------------------------  ------------------------  ------------------------ 
 Unamortised financing costs                                                         3                         4 
------------------------------------------------------------  ------------------------  ------------------------ 
 Borrowings as per Group Balance Sheet                                           (236)                      (66) 
------------------------------------------------------------  ------------------------  ------------------------ 
 

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

Cash yield comprised GBP57 million (2018 - GBP34 million) from the investment portfolio, including a large cash distribution from the Denver Eagle P3 project following construction completion in the first half of the year.

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

Total operating cash flow was net of a favourable foreign exchange impact of GBP1 million (2018 - adverse impact of GBP1 million).

During the period, cash of GBP267 million (2018 - GBP342 million) was invested in project companies and our interests in four projects as well as the remaining investment in JLEN were sold for total proceeds of GBP143 million (2018 - GBP296 million from the realisation of three investments). Offsetting proceeds from realisations were disposal costs paid of GBP3 million (2018 - GBP5 million). .

In the year, the Group made a cash contribution to JLPF of GBP29 million (2018 - GBP27 million).

Dividend payments of GBP47 million in the year ended 31 December 2019 (2018 - GBP44 million) comprised the final dividend for 2018 of GBP38 million (2018 - final dividend for 2017 of GBP35 million) and the interim dividend for 2019 of GBP9 million (2018 - interim dividend for 2018 of GBP9 million).

FINANCIAL RESOURCES

At 31 December 2019, the Group had principal committed revolving credit banking facilities of GBP650 million (31 December 2018 - GBP650 million), GBP500 million expiring in July 2023 and GBP150 million expiring in January 2022, which are primarily used to back investment commitments. Net available financial resources at 31 December 2019 were GBP314 million (31 December 2018 - GBP413 million).

Analysis of Group financial resources

 
                                                      31 December    31 December 
                                                             2019           2018 
                                                      GBP million    GBP million 
--------------------------------------------------  -------------  ------------- 
 Total committed facilities                                   650            650 
--------------------------------------------------  -------------  ------------- 
 Letters of credit issued under corporate banking 
  facilities (see below)                                     (95)          (139) 
 Letters of credit issued under surety facilities 
  (see below)                                                   -           (25) 
 Other guarantees and commitments                             (9)           (10) 
 Short-term cash borrowings                                 (232)           (55) 
 Bank overdraft (uncommitted)                                 (7)           (15) 
--------------------------------------------------  -------------  ------------- 
 Utilisation of facilities                                  (343)          (244) 
--------------------------------------------------  -------------  ------------- 
 Headroom                                                     307            406 
--------------------------------------------------  -------------  ------------- 
 Available cash and bank deposits(1)                            7              7 
 Net available financial resources                            314            413 
--------------------------------------------------  -------------  ------------- 
 

(1) Cash and bank deposits exclude cash collateral balances. Of the total cash and bank deposit balances of GBP7 million, GBP2 million was in the Company and recourse subsidiaries that are consolidated and therefore shown as cash and cash equivalents on the Group Balance Sheet, with the remaining GBP5 million in recourse subsidiaries held at FVTPL which are included within investments at FVTPL on the Group Balance Sheet (see the re-presented balance sheet).

Letters of credit and cash collateral represent scheduled future injections of cash by the Group into projects in the Primary Investment portfolio.

 
                                                   31 December    31 December 
                                                          2019           2018 
                                                   GBP million    GBP million 
-----------------------------------------------  -------------  ------------- 
 Letters of credit issued and other guarantees             101            164 
 Cash collateral                                           118            132 
 Future cash investment into projects                      219            296 
-----------------------------------------------  -------------  ------------- 
 

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

FOREIGN CURRENCY EXPOSURE

The Group regularly reviews the sensitivity of its balance sheet to changes in exchange rates relative to Sterling and to the timing and amount of forecast foreign currency denominated cash flows. As set out in the Portfolio Valuation section, the Group's portfolio comprises investments denominated in Sterling, Euro, Colombian Peso and Australian, US, Canadian and New Zealand dollars. As a result of foreign exchange movements in the year ended 31 December 2019, there was a net adverse fair value movement of GBP57 million in the portfolio valuation. Sterling strengthened against all relevant currencies between 31 December 2018 and 31 December 2019.

The Group does not typically hedge against foreign exchange movements in its portfolio value but may hedge for investments denominated in currencies that have been volatile in the past or expected to be so in the future. The Group may apply an appropriate hedge to a specific currency transaction exposure, which could include borrowing in that currency or entering into forward foreign exchange contracts. An analysis of the portfolio value by currency is set out in the Portfolio Valuation section.

Letters of credit in issue at 31 December 2019 of GBP101 million (31 December 2018 - GBP164 million) are analysed by currency as follows:

 
                                   31 December    31 December 
                                          2019           2018 
 Letters of credit by currency     GBP million    GBP million 
-------------------------------  -------------  ------------- 
 Canadian dollar                            12              - 
 US dollar                                  15             15 
 Australian dollar                          68            149 
 Colombian peso                              6              - 
-------------------------------  -------------  ------------- 
                                           101            164 
-------------------------------  -------------  ------------- 
 

Cash collateral at 31 December 2019 of GBP118 million (2018 - GBP132 million) was all denominated in US dollar.

GOING CONCERN

The Group has committed corporate banking facilities until July 2023 and has sufficient resources available to meet its committed capital requirements, investments and operating costs for the foreseeable future. Accordingly, the Group has adopted the going concern basis in the preparation of its financial statements for the year ended 31 December 2019.

Luciana Germinario

Chief Financial Officer

PROSPECTS AND VIABILITY

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

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

Assessing our prospects

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

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

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

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

Assessing our viability

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

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

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

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

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

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

-- Availability of debt finance continues at Group level through the corporate banking facilities. Currently, the Group has committed corporate banking facilities of GBP650 million, of which GBP500 million matures in July 2023, beyond the end of the viability assessment period, and GBP150 million matures in January 2022. Our projections assume the facilities of GBP150 million are extended beyond January 2022 before the total facilities are increased to GBP800 million in March 2022, consistent with the forecast growth of the business. The Directors do not see the increase in facilities as being critical to the Group's viability over the assessment period, especially after taking into account the mitigating factors available to it as described below;

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

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

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

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

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

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

Scenario 1

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

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

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

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

Scenario 2

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

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

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

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

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

PRINCIPAL Risks AND RISK MANAGEMENT

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

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

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

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

   --      Independent Assurance - Internal Audit function and independent portfolio valuation 

The principal internal controls that operated within this system throughout 2019 and up to the date of this Annual Report include:

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

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

-- risk reporting, including identification of existing and emerging risks through a Group-wide risk register, that is embedded in the regular management reporting to the Board; and

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

The Group's Internal Audit function's objectives are, inter alia, to provide:

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

   --      a deterrent to fraud; and 
   --      advice on ongoing initiatives to strengthen internal control processes. 

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

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

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

The Directors confirm that they have monitored throughout the year and carried out (i) a review of the effectiveness of the Group's risk management and internal control systems and (ii) a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. As part of this monitoring, the Group risk register is reviewed at every meeting of the Management Risk Committee and regularly by the Audit & Risk Committee and every six months by the Board.

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

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

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

The Group's two strategic objectives are:

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

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

 
                                     Link 
                                      to strategic                                       Change 
                                      objectives                                          in risk since 31 December 
 Risk                                 above          Mitigation and key controls          2018 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Governmental policy                  1, 2            Thorough due diligence              No change 
 Changes to legislation                               is carried out in order 
 or public policy in the                              to assess a specific country's 
 jurisdictions in which                               risk (for example economic 
 the Group operates or                                and political stability, 
 may wish to operate could                            tax policy, legal framework 
 negatively impact the                                and local practices) before 
 volume of potential opportunities                    any investment is made. 
 available to the Group                               The Group seeks to limit 
 and the returns from existing                        its exposure to any single 
 investments.                                         governmental or public 
 The use of PPP programmes                            sector body and uses portfolio 
 by governmental entities                             limits as guidance to manage 
 may be delayed or may                                this risk. These portfolio 
 decrease thereby limiting                            limits are reviewed when 
 opportunities for private                            approving individual investments 
 sector infrastructure                                and on a regular basis 
 investors in the future,                             by the Investment Committee. 
 or be structured such                                Where possible the Group 
 that returns to private                              seeks specific contractual 
 sector infrastructure                                protection from changes 
 investors are reduced.                               in governmental policy 
 Governmental entities                                and law for the projects 
 may in the future seek                               it invests in. General 
 to terminate or renegotiate                          change of law is considered 
 existing projects by introducing                     to be a normal business 
 new policies or legislation                          risk. During the bidding 
 that result in higher                                process for investment 
 tax obligations on projects                          in a project, the Group 
 or otherwise affect existing                         takes a view on an appropriate 
 or future projects.                                  level of return to cover 
 Changes to legislation                               the risk of non-discriminatory 
 or public policy relating                            changes in law. 
 to renewable energy could                            PPP projects are normally 
 negatively impact the                                structured so as to provide 
 economic returns on the                              significant contractual 
 Group's existing investments                         protection for equity investors 
 in renewable energy projects,                        (see also Counterparty 
 which would adversely                                risk). 
 affect the demand for                                During the bidding process 
 and attractiveness of                                for investment in a project, 
 such projects.                                       the Group assesses the 
 Compliance with the public                           sensitivity of the project's 
 tender regulations which                             forecast returns to changes 
 apply to PPP projects                                in factors such as tax 
 is complex and the outcomes                          rates. 
 may be subject to third                              Through its track record 
 party challenge and reversed.                        of 150 investment commitments, 
 The UK's withdrawal from                             the Group has developed 
 the European Union may                               significant expertise in 
 take place in a manner                               compliance with public 
 which affects: (i) the                               tender regulations. 
 valuation of the Group's                             The Group believes its 
 investments (ii) its ability                         business model is robust 
 to make future investments                           and able to weather potential 
 and/or divestments.                                  short-term disruption as 
                                                      a result of the UK's withdrawal 
                                                      from the European Union 
                                                      from, for example, (i) 
                                                      changes in the value of 
                                                      Sterling, (ii) changes 
                                                      in financial markets and/or 
                                                      other macroeconomic factors 
                                                      (see Personnel risk). 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Macroeconomic factors                2               Factors which have the              No change 
 To the extent such factors                           potential to adversely 
 are not hedged, changes                              impact the underlying cash 
 in inflation, interest                               flows of an investment, 
 rates and foreign exchange                           and hence its valuation, 
 all potentially impact                               may be hedged at a project 
 the return generated from                            level. In addition, unhedged 
 an investment and its                                exposures and associated 
 valuation.                                           sensitivities are considered 
 Changes in factors which                             during the investment appraisal 
 affect power prices, such                            process. In particular, 
 as the future energy                                 prior to investment, renewable 
 demand/supply                                        energy projects are assessed 
 balance and the oil price,                           for their sensitivity to 
 could negatively impact                              a number of variables, 
 the economic returns on                              including future power 
 the Group's investments                              prices. 
 in renewable energy and,                             Systemic risks, such as 
 as a result, the valuation                           potential deflation, or 
 of such investments.                                 appreciation/depreciation 
 Weakness in the political                            of Sterling versus the 
 and economic climate in                              currency in which an investment 
 a particular jurisdiction                            is made, are assessed in 
 could impact the value                               the context of the portfolio 
 of, or the return generated                          as a whole. 
 from, any or all of the                              The Group seeks to reduce 
 Group's investments located                          the extent to which its 
 in that jurisdiction.                                renewable energy investments 
                                                      are exposed to energy prices 
                                                      through governmental support 
                                                      mechanisms and/or offtake 
                                                      arrangements. 
                                                      The Group monitors closely 
                                                      the level of its investments 
                                                      in foreign currencies, 
                                                      including regularly testing 
                                                      the sensitivity of the 
                                                      financial covenants in 
                                                      its corporate banking facilities 
                                                      to a significant change 
                                                      in the value of individual 
                                                      currencies. 
                                                      The Group does not typically 
                                                      hedge investments in 
                                                      non-Sterling 
                                                      denominated currency for 
                                                      translation risk but may 
                                                      use hedging instruments 
                                                      to minimise the degree 
                                                      of fluctuation in foreign 
                                                      exchange rates for investments 
                                                      in more volatile currencies. 
                                                      The Group does typically 
                                                      hedge short term cash flows 
                                                      arising from investment 
                                                      realisations or significant 
                                                      distributions in currencies 
                                                      other than Sterling. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Liquidity in the secondary           2               Projects are appraised              No change 
  market                                               on a number of bases, including 
  Weakness in the secondary                            being held to maturity. 
  markets for investments                              Projects are also carefully 
  in PPP or renewable energy                           structured so that they 
  projects, for example                                are capable of being divested, 
  as the result of a lack                              if appropriate, before 
  of economic growth in                                maturity. 
  relevant markets, actual                             Over recent years, the 
  or potential governmental                            secondary markets for both 
  policy, regulatory changes                           PPP and renewable energy 
  in the banking sector,                               investments have grown 
  liquidity in financial                               substantially as operational 
  markets, changes in interest                         infrastructure has matured 
  and exchange rates and                               as an asset class. The 
  project finance market                               Group has developed strong 
  conditions may affect                                relationships with many 
  the Group's ability to                               secondary investors in 
  realise full value from                              each of its markets. The 
  its divestments.                                     Group completed the first 
  The secondary market for                             disposals of operational 
  investments in renewable                             assets in Australia and 
  energy projects may be                               the US during 2019. 
  affected by, inter alia, 
  changes in energy prices, 
  in governmental policy, 
  in the value of governmental 
  support mechanisms and 
  in project finance market 
  conditions. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Financial resources                  1, 2            The Group has corporate             Small increase due 
 Any shortfall in the financial                       banking facilities totalling         to being one year closer 
 resources that are available                         GBP500 million which mature          to the main GBP500 
 to the Group to satisfy                              in July 2023 as well as              million banking facilities 
 its financial obligations                            additional facilities (GBP150        maturing in July 2023. 
 may make it necessary                                million) committed until             The Directors are confident 
 for the Group to constrain                           January 2022. Available              of the Group's ability 
 its business development,                            headroom is carefully monitored      to refinance its current 
 refinance its outstanding                            and compliance with the              facilities before this 
 obligations, forego investment                       financial covenants and              date. 
 opportunities and/or sell                            other terms of these facilities 
 existing investments.                                is closely observed. The 
 Inability to secure project                          Group also closely monitors 
 finance could hinder the                             short and medium term forecasts 
 ability of the Group to                              of its working capital, 
 make a bid for an investment                         cash collateral and letter 
 opportunity or where the                             of credit requirements 
 Group has a preferred                                and regularly performs 
 bidder position, could                               stress testing of these 
 negatively impact whether                            forecasts. The Group maintains 
 an underlying project                                an active dialogue with 
 reaches financial close.                             its banks. It operates 
 The inability of a project                           a policy of ensuring that 
 company to satisfactorily                            sufficient financial resources 
 refinance existing maturing                          are maintained to satisfy 
 medium-term project finance                          committed and likely future 
 facilities periodically                              investment requirements. 
 during the life of a project                         A Divestment Committee 
 could affect the Group's                             manages a rolling divestment 
 projected future returns                             programme across the Group's 
 from investments in such                             entire portfolio which 
 projects and hence their                             considers funding requirements 
 valuation in the Group's                             and opportunities for divestment 
 Balance Sheet.                                       in secondary markets. This 
 Adverse financial performance                        Committee provides oversight 
 by a project company which                           and recommendations on 
 affects the financial                                all divestment processes. 
 covenants in its project                             The Group believes that 
 finance debt documents                               there is currently sufficient 
 may result in the project                            depth and breadth in project 
 company being unable to                              finance markets to meet 
 make distributions to                                the financing needs of 
 the Group and other investors,                       the projects it invests 
 which would impact the                               in. The Group works closely 
 valuation of the Group's                             with a wide range of project 
 investment in such project                           finance providers, including 
 company, and may ultimately                          banks and other financial 
 enable public-sector                                 institutions. 
 counterparties                                       Prior to financial close, 
 (through cross default                               all proposed investments 
 links to other project                               are scrutinised by the 
 agreements) and/or project                           Investment Committee. This 
 finance debt providers                               scrutiny includes a review 
 to declare default and,                              of sensitivities of investment 
 in the latter case, to                               returns and financial ratios 
 exercise their security.                             to adverse performance 
                                                      as well as an assessment 
                                                      of a project's ability 
                                                      to be refinanced if the 
                                                      tenor of its project finance 
                                                      debt is less than the term 
                                                      of the concession or the 
                                                      project's useful life. 
                                                      Monitoring of compliance 
                                                      with financial covenant 
                                                      ratios and other terms 
                                                      of loan documents continues 
                                                      throughout the term of 
                                                      the project finance loan. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Pensions                             1               The Group's two defined             Decreased as a result 
 The amount of the surplus/deficit                    benefit pension schemes              of the further cash 
 on the Group's main defined                          are overseen by corporate            contribution paid in 
 benefit pension scheme                               trustees, the directors              2019 and the improvement 
 (JLPF) can vary significantly                        of which include independent         in the IAS 19 balance 
 due to gains or losses                               and professionally qualified         from a deficit at 31 
 on scheme investments                                individuals. The Group               December 2018 to a 
 and movements in the assumptions                     works closely with the               surplus at 31 December 
 used to value scheme liabilities                     trustees on the appropriate          2019. 
 (in particular life expectancy,                      funding strategy for the 
 discount rate and inflation                          schemes and takes independent 
 rate). Consequently, the                             actuarial advice as appropriate. 
 Group is exposed to the                              Both schemes are closed 
 risk of increases in cash                            to future accrual and 
 contributions payable,                               accordingly 
 volatility in the surplus/deficit                    have no active members, 
 reported in the Group                                only deferred members and 
 Balance Sheet, and gains/losses                      pensioners. A significant 
 recorded in the Group                                proportion of the liabilities 
 Statement of Comprehensive                           of JLPF is matched by a 
 Income.                                              bulk annuity buy-in agreement 
                                                      with Aviva. As at 31 December 
                                                      2019, hedging in place 
                                                      amounted to approximately 
                                                      95% of JLPF's assets in 
                                                      respect of both interest 
                                                      rates and inflation. 
                                                      The actuarial valuation 
                                                      of JLPF as at 31 March 
                                                      2019 is currently in progress 
                                                      and is expected to be finalised 
                                                      by 30 June 2020. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Future investment activity           1               The Group believes that             No change 
  The Group operates in                               its experience and expertise 
  competitive markets and                             as an active investor and 
  may not be able to compete                          asset manager accumulated 
  effectively or profitably.                          over more than 20 years, 
  The Group's investment                              together with its flexibility 
  pipeline is not a guarantee                         and ability to respond 
  of actual bidding activity                          to market conditions and 
  or future investments.                              its strong relationships 
  The Group's historical                              with international partners, 
  win rate for PPP projects                           will continue to enable 
  may decline and is an                               it to compete effectively 
  uncertain indicator of                              and secure attractive 
  new investments by the                              investments. 
  Group. 
                                                      The Group's investment 
                                                      pipeline is diversified 
                                                      by geography and asset 
                                                      class. 
                                                      The Group's business model 
                                                      is sufficiently flexible 
                                                      that when one asset class 
                                                      or geographical market 
                                                      becomes less attractive, 
                                                      either permanently or 
                                                      temporarily, 
                                                      we are able to look at 
                                                      new asset classes and 
                                                      geographical 
                                                      markets. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Investment performance               2               The discount rates used             No change 
 and valuation                                        to value investments are 
 The valuation of an investment                       derived from publicly available 
 in a project may not reflect                         market data and other market 
 its ultimate realisable                              evidence and are updated 
 value, for instance because                          regularly. 
 of changes in operational                            The Group has a good track 
 benchmark discount rates.                            record of realising investments 
 In circumstances where                               at prices consistent with 
 the revenue derived from                             the fair values at which 
 a project is related to                              they are held. 
 volume (e.g. customer/off-taker                      A substantial portion of 
 usage or wind energy yield),                         the Group's investments 
 actual revenues may vary                             are in projects which are 
 materially from assumptions                          availability-based (where 
 made at the time the investment                      the revenue does not generally 
 commitment is made. In                               depend on the level of 
 addition, to the extent                              use of the project asset). 
 that a project company's                             Where patronage or volume 
 actual costs incurred                                risk is taken, the Directors 
 differ from forecast costs,                          review revenue assumptions 
 for example, because of                              and sensitivities thereto 
 late construction, and                               in detail prior to any 
 cannot be passed on to                               investment commitment. 
 sub-contractors or other                             Where the revenue from 
 third parties, investment                            investments is related 
 returns and valuations                               to patronage or volume 
 may be adversely affected.                           (e.g. with regard to investments 
 Revenues from renewable                              in renewable energy projects), 
 energy projects may be                               risks are mitigated through 
 affected by the volume                               a combination of factors, 
 of power production (e.g.                            including (i) the use of 
 from changes in wind or                              independent forecasts of 
 solar yield), the availability                       future volumes (ii) lower 
 and cost of fuel (in the                             gearing versus that of 
 case of biomass projects),                           availability-based projects 
 operational issues, price                            (iii) stress-testing the 
 differentials and other                              robustness of project returns 
 restrictions on the electricity                      against significant falls 
 network, the reliability                             in forecast volumes. In 
 of electrical connections                            addition, where possible, 
 or other factors such                                fixed-price offtake 
 as noise, off-taker risk                             arrangements, 
 and other environmental                              including power purchase 
 restrictions, as well                                agreements, are entered 
 as by changes in energy                              into to mitigate the impact 
 prices and to governmental                           of changes in future energy 
 support mechanisms.                                  prices. 
 The valuation of the Group's                         During the bidding process 
 investment portfolio could                           for investment in a project, 
 be affected by changes                               the Group assesses the 
 in tax legislation, for                              sensitivity of the project's 
 instance changes which                               forecast returns to changes 
 limit tax-deductible interest                        in tax rates. 
 .                                                    Typically, projects are 
 During the construction                              structured such that (i) 
 phase of an infrastructure                           day-to-day service provision 
 project, there are risks                             is sub-contracted to qualified 
 that either the works                                sub-contractors supported 
 are not completed within                             by appropriate security 
 the agreed time-frame                                packages (ii) cost and 
 or that construction costs                           price inflation risk in 
 overrun. Where such risks                            relation to the provision 
 are not borne by sub-contractors,                    of services lies with 
 or sub-contractors fail                              sub-contractors 
 to meet their contractual                            (iii) performance deductions 
 obligations, this can                                in relation to project 
 result in delays in the                              non-availability lie with 
 receipt of project income                            sub-contractors (iv) future 
 and/or cost overruns,                                major maintenance costs 
 which may adversely affect                           and ongoing project company 
 the valuation of and return                          costs are reviewed annually 
 on the Group's investments.                          and cost mitigation strategies 
 If construction or other                             adopted as appropriate. 
 long stop dates are exceeded,                        The Group has procedures 
 this may enable public                               in place to ensure that 
 sector counter-parties                               project companies in which 
 and/or project finance                               it invests appoint competent 
 debt providers to declare                            sub-contractors with relevant 
 a default and, in the                                experience and financial 
 case of the latter, to                               strength. If project 
 exercise their security.                             construction 
 The Group is reliant on                              is delayed, typical 
 the performance of third                             sub-contracting 
 parties in constructing                              arrangements contain terms 
 an asset to an appropriate                           enabling the project company 
 standard as well as subsequently                     to recover liquidated damages, 
 operating it in a manner                             additional costs and lost 
 consistent with contractual                          revenue, subject to limits. 
 requirements. Consistent                             In addition, the project 
 under-performance by,                                company may terminate its 
 or failure of, such third                            agreement with a sub-contractor 
 parties may result in                                if the latter is in default 
 the ability of public                                and seek an alternative 
 sector counter parties                               sub-contractor. The Group 
 and/or project finance                               seeks to limit its exposure 
 debt providers to declare                            to any single sub-contractor. 
 a default resulting in                               The terms of the sub-contracts 
 the impairment or loss                               into which project companies 
 of the Group's investment.                           enter typically provide 
 A significant portion                                some protection for investment 
 of the Group's portfolio                             returns from the poor 
 valuation is, and may                                performance 
 in the future be, in a                               of third parties. 
 small number of investments,                         The ability to replace 
 and changes to the value                             defaulting third parties 
 of these investments could                           is supported by security 
 materially affect the                                packages to protect against 
 Group's financial position                           price movement on re-tendering. 
 and results of operations.                           If long stop dates are 
 A project company or a                               exceeded, the Group has 
 service provider to a                                significant experience 
 project company may fail                             as an active manager in 
 to manage contracts efficiently                      protecting the value of 
 or effectively.                                      its investments by working 
                                                      with all parties to agree 
                                                      revised timetables and/or 
                                                      other restructuring 
                                                      arrangements. 
                                                      The Group monitors the 
                                                      concentration risk within 
                                                      its portfolio to achieve 
                                                      a diversification by individual 
                                                      asset size, market and 
                                                      asset class. 
                                                      The performance of project 
                                                      companies and service providers 
                                                      to project companies is 
                                                      regularly monitored by 
                                                      the Asset Management team 
                                                      in each geographical region. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Counterparty risk                    2              The Group works with multiple        No change 
  The Group is exposed to                            clients, joint venture 
  counterparty credit risk                           partners, sub-contractors 
  with regards to (i) governmental                   and institutional investors 
  entities, sub-contractors,                         so as to reduce the probability 
  off-takers, lenders and                            of systemic counterparty 
  suppliers at a project                             risk in its investment 
  level and (ii) consortium                          portfolio. In establishing 
  partners, financial institutions                   project contractual arrangements 
  and suppliers at a Group                           prior to making an investment, 
  level.                                             the credit standing and 
  Public sector counter-parties                      relevant experience of 
  to PPP projects may seek                           a sub-contractor are considered. 
  to renegotiate contract                            Post financial close, the 
  terms and/or terminate                             financial standing of key 
  contracts, as a result                             counterparties is monitored 
  of changes in governmental                         to provide an early warning 
  policy or otherwise, in                            of possible financial distress. 
  a way which impacts the                            PPP projects are normally 
  valuation of one or more                           structured so as to provide 
  of the Group's investments.                        significant contractual 
  In overseas jurisdictions,                         protection for equity investors. 
  the Group's investments                            Such protection may include 
  backed by governmental                             "termination for convenience" 
  entities may ultimately                            clauses which enable public 
  be subject to sovereign                            sector counter-parties 
  risk.                                              to terminate projects subject 
  Worsening of general economic                      to payment of appropriate 
  conditions in any of the                           compensation, including 
  markets in which the Group                         to equity investors. 
  operates could create                              PPP projects are normally 
  heightened counterparty                            supported by central and/or 
  risk.                                              local public sector covenants, 
                                                     which significantly reduce 
                                                     the Group's risk. Risk 
                                                     is further reduced by the 
                                                     increasing geographical 
                                                     spread of the Group's 
                                                     investments. 
                                                     Counterparties for cash 
                                                     deposits at a Group level, 
                                                     project debt swaps and 
                                                     deposits within project 
                                                     companies are required 
                                                     to be institutions with 
                                                     a suitable credit rating 
                                                     and are monitored on an 
                                                     ongoing basis. 
                                                     Entry into new geographical 
                                                     areas which have a different 
                                                     legal framework and/or 
                                                     different financial market 
                                                     characteristics is considered 
                                                     by the Board separately 
                                                     from individual investment 
                                                     decisions. 
                                                     Since 2018, the Group uses 
                                                     portfolio counterparty 
                                                     exposure limits as guidance 
                                                     to manage counterparty 
                                                     risk. In 2019, a revised 
                                                     methodology for assessing 
                                                     counterparty exposures 
                                                     and for setting exposure 
                                                     limits (based on credit 
                                                     ratings) was established. 
                                                     Counterparty risk is reviewed 
                                                     at each investment approval 
                                                     and the aggregate exposures 
                                                     across the portfolio are 
                                                     reviewed on a six-monthly 
                                                     basis by the Management 
                                                     Risk Committee and reported 
                                                     to the Audit & Risk Committee. 
                                                     In addition, there is an 
                                                     alert system under which 
                                                     any red flags are immediately 
                                                     escalated to the relevant 
                                                     teams. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 Major incident                       2               At financial close, projects        Increased due to the 
  A major incident at any                             benefit from comprehensive           heightened potential 
  of the Group's main locations                       insurance arrangements,              impact of climate change. 
  or any of the projects                              either directly or through 
  invested in by the Group,                           contractors' insurance 
  such as work force fatalities                       policies. 
  during construction, a                              Business continuity plans 
  terrorist attack, natural                           at project level are tested 
  disaster (including from                            at frequent/regular intervals. 
  the effects of climate                              Business continuity procedures 
  change), war or significant                         are also regularly updated 
  cyber-attack, could lead                            in order to maintain their 
  to a loss of crucial business                       relevance. 
  data, technology, buildings                         The Group is committed 
  and reputation and harm                             to ensuring the health, 
  to the public, all of                               safety and welfare of all 
  which could collectively                            its employees, sub-contractors 
  or individually result                              and all other persons in 
  in a loss of value for                              communities who may be 
  the Group.                                          affected by its direct 
  Such an incident affecting                          activities, or those under 
  any of the projects invested                        its control and believes 
  in by the Group could                               this is a key element of 
  also affect the Group's                             effective business management 
  ability to sell its investment                      and essential to its reputation. 
  in that project. 
  Failure to maintain secure                          The projects in which the 
  IT systems and to combat                            Group invests each have 
  cyber and other security                            their own health and safety 
  risks to information and                            policies and business continuity 
  to physical sites could                             plans. 
  adversely affect the Group.                         The Group's IT requirements 
                                                      are outsourced to an experienced 
                                                      third party. 
                                                      Within the outsourced 
                                                      arrangements, 
                                                      cyber risk is addressed 
                                                      through (i) the Group's 
                                                      organisational structure 
                                                      which includes segregation 
                                                      of responsibilities, delegated 
                                                      lines of accountability, 
                                                      delegated authorities and 
                                                      (ii) specific controls, 
                                                      including controls over 
                                                      payments and access to 
                                                      IT systems. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 
 Personnel                            1, 2            The Group regularly reviews         No change 
  The Group may fail to                                pay and benefits to ensure 
  recruit or retain key                                they remain competitive. 
  senior management and                                The Group's senior managers 
  skilled personnel in,                                participate in long-term 
  or relocate high-quality                             incentive plans. The Group 
  personnel to, the jurisdictions                      plans its human resources 
  in which it operates or                              needs carefully, including 
  seeks to expand.                                     appropriate local recruitment, 
  Uncertainty arising from                             when it bids for overseas 
  the UK's decision to leave                           projects. 
  the EU could impact the                              The Group has offices in 
  Group's ability to recruit                           Amsterdam and Madrid and 
  and retain EU nationals                              could open further offices 
  in the UK.                                           in other EU jurisdictions 
                                                       if necessary. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 ESG                                                  The Group has embedded              New risk this year. 
  The Group may not adequately                         the consideration of ESG 
  address ESG considerations                           factors into its evaluation 
  in making investment decisions.                      of new investments. 
  This could impact the                                During the bidding process 
  reputation of the Group                              for investments, where 
  and the valuation of its                             appropriate, the Group 
  investments.                                         takes technical advice 
  We believe that climate                              to evaluate the exposure 
  change will result in                                of the investment to climate 
  an increased likelihood                              change risk. 
  and intensity of extreme 
  weather events such as 
  extreme hot and cold weather 
  or intense rainfall events, 
  which could impact John 
  Laing by causing physical 
  damage to assets, such 
  as road and rail infrastructure 
  investments in the mid-and 
  long-term. Increasing 
  instances of such damage 
  could lead to increases 
  in insurance premiums 
  for John Laing's projects, 
  impacting the economic 
  performance of investments. 
  In the nearer term, changes 
  in energy prices, driven 
  by future energy demand/supply 
  balancing and oil prices 
  could impact negatively 
  on the economic returns 
  of the Group's investments 
  in renewable energy and 
  as a result the valuation 
  of such investments. 
----------------------------------  --------------  ----------------------------------  ------------------------------ 
 

Statement of Directors' Responsibilities

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

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

   --    properly select and apply accounting policies; 

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

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

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

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

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

Responsibility statement

We confirm that to the best of our knowledge:

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

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

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

This responsibility statement was approved by the Board of Directors on 2 March 2020 and is signed on its behalf by:

 
 Olivier Brousse           Luciana Germinario 
 Chief Executive Officer   Chief Financial Officer 
 2 March 2020              2 March 2020 
 

INDEPENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF JOHN LAING GROUP PLC ON THE AUDITED FINANCIAL RESULTS OF JOHN LAING GROUP PLC

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

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

 
 Risk description                                    How the scope of our audit responded to the risk 
==================================================  ================================================================== 
 Valuation of investments 
 The Group holds a range of investments in                  *    We obtained an understanding of the relevant controls 
 infrastructure                                                  in place to value the Group's investments. 
 assets. The total value of these assets at 31 
 December 
 2019 was GBP1,768 million (31 December 2018 - 
 GBP1,560                                                   *    We benchmarked management's discount rates against 
 million) as disclosed in note 13 to the Group                   market data, including the Group's disposals in the 
 financial                                                       current and previous period. We also benchmarked the 
 statements. These investments are held across a                 discount rates on key assets to each other to ensure 
 range of different sectors comprising transport,                that we understood why projects have different rates. 
 environmental (including wind and solar 
 generation 
 assets) and social infrastructure, and a range 
 of geographies comprising Europe, North America,           *    A sample of value enhancements were agreed to 
 Asia Pacific and Latin America.                                 underlying third party evidence to assess the value 
                                                                 and timing of recognition in the portfolio valuation. 
 The valuation of investments is a significant                   We assessed consistency of certain enhancements 
 judgement                                                       across regions and asset classes. 
 underpinned by a number of key assumptions and 
 estimates. The key estimate is the discount rates 
 adopted. The quantum and timing of value 
 enhancements                                               *    We worked with Deloitte valuation specialists in 
 recognised in the portfolio was the other                       Europe, Asia Pacific and North America who assessed 
 significant                                                     the discount rates on a sample of assets. 
 judgement identified in the current financial 
 year. 
 Given the level of judgement involved, we 
 consider                                                   *    We met with the Group's independent valuer to 
 these areas to be fraud risks. Other key sources                understand the process undertaken by them in arriving 
 of estimation uncertainty include forecast                      at their opinion that the portfolio as a whole 
 project                                                         represents fair market value. This included assessing 
 cash-flows, in particular future power prices,                  how the discount rates adopted by the Group 
 marginal loss factors and energy yields which                   benchmarked against those of the independent valuer. 
 impact                                                          We also assessed the competence and independence of 
 the value of the Group's investments in Renewable               the external valuer. 
 Energy projects. In addition to Asia-Pacific 
 assets, 
 North American and European assets were valued 
 locally by John Laing valuation teams in the               *    We assessed the key changes in cash flows since the 
 current                                                         prior year within a sample of project models which 
 year.                                                           included checking that the latest forward power price 
                                                                 curves had been correctly incorporated. For new 
 A full valuation of the investment portfolio is                 investments we also reviewed the project model audit 
 prepared every six months, at 30 June and 31                    report. We agreed the marginal loss factor and energy 
 December,                                                       yield forecasts to external third party re-ports. 
 with a review at 31 March and 30 September, 
 principally 
 using a discounted cash flow methodology. An 
 independent                                                *    We also visited the North America, Europe and Asia 
 valuation is obtained from a third party in                     Pacific operations of the Group which included a site 
 respect                                                         visit to a sample of assets. We discussed asset 
 of the fair market value of the portfolio as a                  performance with members of the Asset Management team 
 whole at the balance sheet date. The level of                   and considered the impact of operational challenges 
 transactional                                                   on the value of key projects. 
 evidence over the past five years has increased 
 as the Group has divested assets. 
 
 More information on the valuation and valuation            *    We made enquiries of the project auditors of a sample 
 methodology (including the discount rates                       of investments as to whether they were aware of any 
 adopted,                                                        matters which may impact the fair value of those 
 the relevant sensitivity of the valuation of                    investments. 
 investments 
 to a change in those rates and the relevant 
 sensitivity 
 of the valuation to a change in future power               *    We checked that the disclosures in the financial 
 prices,                                                         statements were appropriate particularly in respect 
 marginal loss factors and energy yields) can be                 of the judgements taken and the sensitivities 
 found in note 4 to the Group financial                          disclosed. 
 statements. 
==================================================  ================================================================== 
 Key observations 
                                                            *    We consider the judgements adopted in valuing the 
                                                                 Group's investments as a whole to be appropriate and 
                                                                 within an acceptable range. 
 
 
 
                                                            *    We consider the disclosures in respect of the 
                                                                 valuation of investments to be appropriate and in 
                                                                 accordance with IFRS as adopted by the EU. 
==================================================  ================================================================== 
 
  Valuation of defined benefit pension schemes              *    We obtained an understanding of the relevant controls 
  The Group has two defined benefit pension                      in place when valuing the Group's defined benefit 
  schemes                                                        pension schemes including the setting of actuarial 
  (The John Laing Pension Fund and The John Laing                assumptions. 
  Pension Plan) which had a combined surplus of 
  GBP13 
  million at 31 December 2019 (deficit of GBP33 
  million                                                   *    In conjunction with our internal actuarial 
  at 31 December 2018).                                          specialists, we tested the Group's key assumptions, 
                                                                 including the discount rate, mortality assumptions 
  The valuation of the surplus is subject to a                   and inflation rate against our expected benchmarks 
  number                                                         and those adopted by other companies in the market. 
  of assumptions including the adoption of the 
  appropriate 
  (i) discount rate (ii) inflation rate and (iii) 
  mortality assumptions. We consider this to be a           *    In assessing the impact of IFRIC 14, we examined the 
  fraud risk due to the quantum of the defined                   nature of the Group's funding commitments to the 
  benefit                                                        schemes and reviewed the scheme rules, external legal 
  obligation liability, its sensitivity to the                   advice obtained by Management and the actuarial 
  underlying                                                     schedule of contributions. 
  assumptions and the management judgement 
  involved 
  in deciding on the underlying assumptions. 
                                                            *    We checked that the disclosure requirements of IAS 
  There is also a judgement concerning the Group's               19R Employee Benefits had been fulfilled. 
  ability to recover a surplus under the rules of 
  the John Laing Pension Fund and consequently the 
  consideration of minimum funding requirements 
  under 
  IFRIC 14 The Limit on a Defined Benefit Asset, 
  Minimum Funding Requirement and their 
  Interaction. 
 
  For further information, see note 19 to the 
  Group 
  financial statements and the Group's disclosures 
  around critical accounting judgements and key 
  sources 
  of estimation uncertainty in note 4 to the Group 
  financial statements. 
                                                    ------------------------------------------------------------------ 
 Key observations 
                                                            *    We consider the judgements adopted by the Group in 
                                                                 valuing the pension scheme liabilities (including the 
                                                                 discount, inflation and mortality assumptions) to be 
                                                                 appropriate and consistent with our own internal 
                                                                 benchmarks. 
 
 
 
                                                            *    We concur with Management's judgement that the Group 
                                                                 has the ability to recover any surplus under the 
                                                                 rules of the John Laing Pension Fund and consequently 
                                                                 is not subject to a minimum funding requirement under 
                                                                 IFRIC 14. 
 
 
 
                                                            *    We also consider the disclosures around the valuation 
                                                                 of the defined benefit pension schemes to be 
                                                                 appropriate and in accordance with IFRS as adopted by 
                                                                 the EU. 
                                                    ------------------------------------------------------------------ 
 

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

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

Deloitte LLP

Chartered Accountants and Statutory Auditor

2 March 2020

Group Income Statement

for the year ended 31 December 2019

 
                                                                                        Year ended          Year ended 
                                                                                  31 December 2019    31 December 2018 
---------------------------------------------------------------------- 
                                                                         Notes         GBP million         GBP million 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
  Net gain on investments at fair value through profit or loss              13                 147                 366 
 Other income                                                                8                  32                  31 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Operating income                                                            5                 179                 397 
 Administrative expenses (excluding GMP equalisation charge)                                  (68)                (66) 
 GMP equalisation charge                                                    19                   -                (21) 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Total administrative expenses                                                                (68)                (87) 
 Profit from operations                                                      9                 111                 310 
 Finance costs                                                              11                (11)                (14) 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Profit before tax                                                           5                 100                 296 
 Tax (charge)/credit                                                        12                   -                   - 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
  Profit for the year attributable to the Shareholders of the Company                          100                 296 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
  Earnings per share (pence) 
 Basic                                                                       6                20.4                63.1 
 Diluted                                                                     6                20.2                62.4 
 

Group Statement of Comprehensive Income

for the year ended 31 December 2019

 
                                                 Year ended     Year ended 
                                                31 December    31 December 
                                                       2019           2018 
                                        Note    GBP million    GBP million 
 Profit for the year                                    100            296 
 
 Actuarial gain/(loss) on retirement 
  benefit obligations                    19              19            (3) 
                                              -------------  ------------- 
 Other comprehensive income/(loss) 
  for the year                                           19            (3) 
 Total comprehensive income for 
  the year                                              119            293 
                                              -------------  ------------- 
 

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

Group Statement of Changes in Equity

for the year ended 31 December 2019

 
                                     Share capital   Share premium   Other reserves   Retained earnings   Total equity 
                             Notes     GBP million     GBP million      GBP million         GBP million    GBP million 
 Balance at 1 January 2019                      49             416                6               1,115          1,586 
 Profit for the year                             -               -                -                 100            100 
 Other comprehensive 
  income for the year                            -               -                -                  19             19 
--------------------------  ------  --------------  --------------  ---------------  ------------------  ------------- 
 Total comprehensive 
  income for the year                            -               -                -                 119            119 
--------------------------  ------  --------------  --------------  ---------------  ------------------  ------------- 
 Share-based incentives          7               -               -                4                   -              4 
 Vesting of share-based 
  incentives                 7, 21               -               -              (4)                   4              - 
 Purchase of own shares 
  related to share-based 
  incentives                    21               -               -              (4)                   -            (4) 
 Dividends paid(1)                               -               -                -                (47)           (47) 
--------------------------  ------  --------------  --------------  ---------------  ------------------  ------------- 
 Balance at 31 December 
  2019                                          49             416                2               1,191          1,658 
--------------------------  ------  --------------  --------------  ---------------  ------------------  ------------- 
 
 

for the year ended 31 December 2018

 
                                                                                                                 Total 
                                     Share capital   Share premium   Other reserves   Retained earnings         equity 
                             Notes     GBP million     GBP million      GBP million         GBP million    GBP million 
 Balance at 1 January 
  2018                                          37             218                6                 863          1,124 
 Profit for the year                             -               -                -                 296            296 
 Other comprehensive loss 
  for the year                                   -               -                -                 (3)            (3) 
-------------------------  -------  --------------  --------------  ---------------  ------------------  ------------- 
 Total comprehensive 
  income for the year                            -               -                -                 293            293 
-------------------------  -------  --------------  --------------  ---------------  ------------------  ------------- 
 Share-based incentives          7               -               -                3                   -              3 
 Vesting of share-based 
  incentives                 7, 21               -               -              (3)                   3              - 
 Net proceeds from issue 
  of shares                 21, 22              12             198                -                   -            210 
 Dividends paid(1)                               -               -                -                (44)           (44) 
-------------------------  -------  --------------  --------------  ---------------  ------------------  ------------- 
 Balance at 31 December 
  2018                                          49             416                6               1,115          1,586 
-------------------------  -------  --------------  --------------  ---------------  ------------------  ------------- 
 

(1) Dividends paid:

 
                                   Year ended     Year ended 
                                  31 December    31 December 
                                         2019           2018 
                                        pence          pence 
------------------------------  -------------  ------------- 
 Dividends on ordinary shares 
 Per ordinary share: 
 - final paid                            7.70        7.17(a) 
 - interim proposed and paid             1.84           1.80 
 - final proposed                        7.66           7.70 
------------------------------  -------------  ------------- 
 

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

The total estimated amount to be paid in May 2020 in respect of the proposed final dividend for 2019 is GBP38 million based on the number of shares in issue as at 31 December 2019. The final dividend paid for 2019 will depend on the number of share-based incentives vesting before the final dividend is paid.

Group Balance Sheet

 
                                                                   31 December 2019   31 December 2018 
 as at 31 December 2019                                    Notes        GBP million        GBP million 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Non-current assets 
 Right-of-use assets                                                              4                  - 
 Investments at fair value through profit or loss             13              1,897              1,700 
 Retirement benefit asset                                     19                 13                  - 
--------------------------------------------------------  ------  -----------------  ----------------- 
                                                                              1,914              1,700 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Current assets 
 Trade and other receivables                                  14                  6                  8 
 Cash and cash equivalents                                                        2                  6 
--------------------------------------------------------  ------  -----------------  ----------------- 
                                                                                  8                 14 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Total assets                                                                 1,922              1,714 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Current liabilities 
 Borrowings                                                   16              (236)               (66) 
 Trade and other payables                                     15               (15)               (20) 
--------------------------------------------------------  ------  -----------------  ----------------- 
                                                                              (251)               (86) 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Net current liabilities                                                      (243)               (72) 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Non-current liabilities 
 Retirement benefit obligations                               19                (7)               (40) 
 Finance lease liabilities                                                      (4)                  - 
 Provisions                                                   20                (2)                (2) 
--------------------------------------------------------  ------  -----------------  ----------------- 
                                                                               (13)               (42) 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Total liabilities                                                            (264)              (128) 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Net assets                                                                   1,658              1,586 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Equity 
 Share capital                                                21                 49                 49 
 Share premium                                                22                416                416 
 Other reserves                                                                   2                  6 
 Retained earnings                                                            1,191              1,115 
--------------------------------------------------------  ------  -----------------  ----------------- 
 Equity attributable to the Shareholders of the Company                       1,658              1,586 
--------------------------------------------------------  ------  -----------------  ----------------- 
 

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

 
 Olivier Brousse           Luciana Germinario 
 Chief Executive Officer   Chief Financial Officer 
 2 March 2020              2 March 2020 
 

Group Cash Flow Statement

for the year ended 31 December 2019

 
                                                                                        Year ended          Year ended 
                                                                                  31 December 2019    31 December 2018 
                                                                         Notes         GBP million         GBP million 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Net cash outflow from operating activities                                 23                (61)                (54) 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Investing activities 
 Net cash transferred (to)/from investments at fair value through 
  profit or loss                                                            13                (50)                  12 
 Net cash (outflow)/inflow from investing activities                                          (50)                  12 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Financing activities 
  Proceeds from issue of shares                                                                  -                 210 
 Purchase of own shares related to share-based incentives                                      (4)                   - 
 Dividends paid                                                                               (47)                (44) 
 Finance costs paid                                                                           (11)                (15) 
 Proceeds from borrowings                                                                      339                  15 
 Repayment of borrowings                                                                     (170)               (121) 
 Net cash from financing activities                                                            107                  45 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 Net (decrease)/increase in cash and cash equivalents                                          (4)                   3 
 Cash and cash equivalents at beginning of the year                                              6                   3 
 Cash and cash equivalents at end of the year                                                    2                   6 
----------------------------------------------------------------------  ------  ------------------  ------------------ 
 

Notes to the Group Financial Statements

for the year ended 31 December 2019

   1     General information 

The results of John Laing Group plc (the "Company" or the "Group") are stated according to the basis of preparation described in note 3 below. The Company is a public limited company incorporated in England and Wales and the registered office of the Company is 1 Kingsway, London, WC2B 6AN. The principal activity of the Company is the origination, investment in and management of international infrastructure projects.

   2      Adoption of new and revised standards 

New and amended IFRS that are effective for the current year

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

   --    IFRS 16 Leases 
   --    Amendments to IFRS 9 Prepayment Features with Negative Compensation 
   --    Amendments to IAS 28 Long-term Interests in Associates and Joint Venture s 

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

   --    Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment and Settlement 
   --    IFRIC 23 Uncertainty over Income Tax Treatment s 

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

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

Impact of initial application of IFRS 16 Leases

The Group adopted IFRS 16 Leases using the modified retrospective method of adoption with a date of application of 1 January 2019. This method involves measuring the right-of-use asset at an amount equal to the lease liability at the transition date. As permitted under this method, the Group has not restated comparatives for the 2018 reporting period. The Group elected to use the practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease - at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), and lease contracts for which the underlying asset is of low value ('low value assets') being those assets with a value less than GBP5,000.

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

The effect of adoption of IFRS 16 is as follows:

 
                               1 January 
                                    2019 
                             GBP million 
-------------------------  ------------- 
 Assets 
 Right-of-use assets                   5 
 Total assets                          5 
 
 Liabilities 
 Finance lease liability             (5) 
-------------------------  ------------- 
 Total liabilities                   (5) 
 
 Equity 
 Retained earnings                     - 
-------------------------  ------------- 
 Total equity                          - 
-------------------------  ------------- 
 

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

 
                                         1 January 
                                              2019 
                                       GBP million 
-------------------------------  -----------------  ----- 
 
 Within one year                                      (1) 
  In the second to fifth years 
   inclusive                                          (3) 
 After five years                                     (2) 
                                                      (6) 
-------------------------------  ------------------------ 
 
 
 Discount on lease liability                            1 
 
 Total liabilities recognised 
  under IFRS 16                                       (5) 
-------------------------------  ------------------------ 
 
 
 

The impact on the Group Income Statement for the year ended 31 December 2019 from recognising an interest expense on the lease liability and depreciation of the right-to-use asset in contrast to the operating lease charge, which would have been applied under IAS 17, was a net GBP0.1 million credit.

New and amended IFRS standards in issue but not yet effective

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

   --      IFRS 17 Insurance Contracts 

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

   --      Amendments to IFRS 3 Definition of a business 
   --      Amendments to IAS 1 and IAS 8  Definition of material 
   --      Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards 

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

   3     Significant accounting policies 
   a)      Basis of preparation 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   b)      Going concern 

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

In arriving at their conclusion, the Directors took into account the Group's approach to liquidity and cash flow management and the availability of its GBP500 million corporate banking facilities committed until July 2023, together with additional GBP150 million facilities committed until January 2022. The Directors are of the opinion that, based on the Group's forecasts and projections and taking into account expected bidding activity and operational performance, the Group will be able to operate within its banking facilities and comply with the financial covenants therein for the foreseeable future.

In determining that the Group is a going concern, certain risks and uncertainties, some of which arise or increase as a result of the economic environment in some of the Group's markets, have been considered. The Directors believe that the Group is adequately placed to manage these risks. The most important risks and uncertainties identified and considered by the Directors are set out in the Principal Risks and Risk Management section. In addition, the Group's policies for management of its exposure to financial risks, including foreign exchange, credit, price, liquidity, interest rate and capital risks are set out in note 18.

   c)      Revenue 

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

   (i)    Dividend income 

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

   (ii)    Net gain on investments at FVTPL 

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

   (iii)   Revenue from contracts with customers 

Fees from asset management services

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

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

Recovery of bid costs

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

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

   d)      Dividend payments 

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

   e)      Financial instruments 

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

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

(i) Financial assets

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

Classification of financial assets

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

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

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

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

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

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

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

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

   --      Investments at FVTPL are measured subsequently at FVTPL. 

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

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

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

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

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

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

-- Cash and cash equivalents in the Group Balance Sheet comprise cash at bank and in hand and short-term deposits with original maturities of three months or less. For the purposes of the Group Cash Flow Statement, cash and cash equivalents comprise cash and short-term deposits as defined above but exclude bank overdrafts unless there is a right to offset against corresponding cash balances.

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

   (ii)      Impairment of financial assets 

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

The Group's financial assets classified as trade and other receivables at 31 December 2019 were only GBP4 million, or 0.2% of the Group's net assets, and therefore any credit risk in relation to the impairment of trade and other receivables is considered to be immaterial.

   (iii)     Derecognition of financial assets 

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

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

   (iv)     Financial liabilities and equity 

Classification as debt or equity

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

Equity instruments

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

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

Financial liabilities

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

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

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

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

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

   (v)      Derivative financial instruments 

The Group treats forward foreign exchange contracts and currency swap deals it enters into as derivative financial instruments at FVTPL. All the Group's derivative financial instruments are held by subsidiaries which are recorded at FVTPL and consequently the fair value of derivatives is incorporated into investments held at FVTPL. The Group does not apply hedge accounting to its derivative financial instruments.

   f)       Provisions 

Provisions are recognised when:

   --    the Group has a legal or constructive obligation as a result of past events; 
   --    it is probable that an outflow of resources will be required to settle the obligation; and 
   --    the amount has been reliably estimated. 

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

   g)      Finance costs 

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

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

   h)      Taxation 

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

Current tax

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

Deferred tax

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

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

   i)       Foreign currencies 

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

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

   j)       Retirement benefit costs 

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

Payments to defined contribution pension arrangements are charged as an expense as they fall due. For the defined benefit pension schemes and the post-retirement medical benefit scheme, the cost of providing benefits is determined in accordance with IAS 19 Employee Benefits (revised) using the projected unit credit method, with actuarial valuations being carried out at least every three years. Actuarial gains and losses are recognised in full in the year in which they occur and are presented in the Group Statement of Comprehensive Income. Curtailment gains arising from changes to members' benefits are recognised in full in the Group Income Statement. The GMP equalisation charge for 2018 has been presented separately in the Group Income Statement as it was deemed to be a material amount in the context of total administrative expenses.

The retirement benefit obligations recognised in the Group Balance Sheet represent the present value of:

(i) defined benefit scheme obligations as reduced by the fair value of scheme assets, where any asset resulting from this calculation is limited to past service costs plus the present value of available refunds; and

   (ii)         unfunded post-retirement medical benefits. 

Net interest expense or income is recognised within finance costs.

   k)      Leases 

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (being those assets with a value less than GBP5,000). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

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

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

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

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

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

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

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

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

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

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

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

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

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

   l)       Share capital 

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

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

   m)     Employee benefit trust 

In June 2015, the Group established the John Laing Group Employee Benefit Trust (EBT) as described further in note 7. The Group is deemed to have control of the EBT and it is therefore treated as a subsidiary and consolidated for the purposes of the accounts. Any investment by the EBT in the Company's shares is deducted from equity in the Group Balance Sheet as if such shares were treasury shares as defined by IFRS. Other assets and liabilities of the EBT are recognised as assets and liabilities of the Group.

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

4 Critical accounting judgements and key sources of estimation uncertainty

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

Fair value of investments

Critical accounting judgements in applying the Group's accounting policies

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

Key sources of estimation uncertainty

A key source of estimation uncertainty in valuing the investment portfolio is the discount rate applied to forecast project cash flows. A base case discount rate for an operational project is derived from secondary market information and other available data points. The base case discount rate is then adjusted to reflect project-specific risks. In addition, a risk premium is added during the construction phase to reflect the additional risks throughout construction. This premium reduces over time as the project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches the operational stage. The discount rates applied to investments at 31 December 2019 were in the range of 6.4% to 12.4% (31 December 2018 - 6.8% to 11.7%). Note 18 provides details of the weighted average discount rate applied to the investment portfolio as a whole and sensitivities to the investment portfolio value from changes in discount rates.

The key sources of estimation uncertainty present in the forecast cash flows to be received from investments are the forecasts of marginal loss factors impacting Australian wind and solar generation assets, future energy prices and energy yields impacting all renewable energy projects and forecasts for long-term inflation across the whole portfolio. Note 18 provides details of the sensitivities to the investment portfolio value from changes in forecast energy prices, marginal loss factors, energy yields and forecast long-term inflation. The Group does not consider the other factors that affect cash flows, as described in the critical accounting judgements in applying the Group's accounting policies above, to be key sources of estimation uncertainty. They are based either on reliable data or the Group's experience and individually not considered likely to deviate materially year on year.

Pension and other post-retirement liability accounting

Critical judgements in applying the Group's accounting policies

The accounting surplus in the Group's defined benefit pension schemes at 31 December 2019 was GBP13 million (2018 - deficit of GBP33 million). In determining the Group's defined benefit pension surplus, consideration is also given to whether there is a minimum funding requirement under IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction which is in excess of the IAS 19 Employee Benefits liability. If the minimum funding requirement was higher, an additional liability would need to be recognised. Under the trust deed and rules of JLPF, the Group has an ultimate unconditional right to any surplus, accordingly the excess of the minimum funding requirement over the IAS 19 Employee Benefits liability has not been recognised as an additional liability.

Key sources of estimation uncertainty

The value of the pension deficit is highly dependent on key assumptions including price inflation, discount rate and life expectancy. The assumptions applied at 31 December 2019 and the sensitivity of the pension liabilities to certain changes in these assumptions are illustrated in note 19.

Brexit

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

   5     Operating segments 

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

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

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

 
                                                       Year ended 31 December 2019 
                  ---------------------------------------------------------------------------------------------------- 
 
                                    Europe and          North          Latin          Fund 
                   Asia Pacific    Middle East        America        America    Management       Central         Total 
                    GBP million    GBP million    GBP million    GBP million   GBP million   GBP million   GBP million 
 
 Net gain on 
  investments 
  at FVTPL                   12             18            100             12             -             5           147 
 Other income                 2              3              6              -            20             1            32 
----------------  -------------  -------------  -------------  -------------  ------------  ------------  ------------ 
 Operating 
  income                     14             21            106             12            20             6           179 
 Administrative 
  expenses                 (10)           (12)           (14)            (3)           (5)          (24)          (68) 
---------------- 
 Profit from 
  operations                  4              9             92              9            15          (18)           111 
 Finance cots                 -              -              -              -             -          (11)          (11) 
 Profit before 
  tax                         4              9             92              9            15          (29)           100 
----------------  -------------  -------------  -------------  -------------  ------------  ------------  ------------ 
 
 
                                                 Year ended 31 December 2018 (restated) 
                  ---------------------------------------------------------------------------------------------------- 
 
                                    Europe and          North          Latin          Fund 
                   Asia Pacific    Middle East        America        America    Management       Central         Total 
                    GBP million    GBP million    GBP million    GBP million   GBP million   GBP million   GBP million 
 
 Net gain on 
  investments 
  at FVTPL                   86            188             88              -             -             4           366 
 Other income                 2              4              6              -            19             -            31 
----------------  -------------  -------------  -------------  -------------  ------------  ------------  ------------ 
 Operating 
  income                     88            192             94              -            19             4           397 
 Administrative 
  expenses 
  (excluding GMP 
  equalisation 
  charge)                  (10)           (17)            (9)            (1)           (9)          (20)          (66) 
 GMP 
  equalisation 
  charge                      -              -              -              -             -          (21)          (21) 
---------------- 
 Profit from 
  operations                 78            175             85            (1)            10          (37)           310 
 Finance costs                -              -              -              -             -          (14)          (14) 
 Profit before 
  tax                        78            175             85            (1)            10          (51)           296 
----------------  -------------  -------------  -------------  -------------  ------------  ------------  ------------ 
 

For the year ended 31 December 2019, the Group had three investments (2018 - two investments) from which it received more than 10% of its operating income. The operating income from the three investments was GBP54 million, GBP28 million and GBP26 million, which is reported within the Europe and Middle East and the North America segment. The Group treats each investment in a project company as a separate customer for the purpose of IFRS 8.

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

 
                                    31 December    31 December 
                                           2019           2018 
                                    GBP million    GBP million 
--------------------------------  -------------  ------------- 
 Asia Pacific                               587            505 
 Europe and Middle East                     599            580 
 North America                              514            465 
 Latin America                               68              - 
 Central                                      -             10 
--------------------------------  -------------  ------------- 
 Portfolio valuation                      1,768          1,560 
 Other assets and liabilities               129            140 
--------------------------------  -------------  ------------- 
 Investments at FVTPL                     1,897          1,700 
 Retirement benefit assets                   13              - 
 Other assets                                12             14 
--------------------------------  -------------  ------------- 
 Total assets                             1,922          1,714 
--------------------------------  -------------  ------------- 
 Retirement benefit obligations             (7)           (40) 
 Other liabilities                        (257)           (88) 
--------------------------------  -------------  ------------- 
 Total liabilities                        (264)          (128) 
--------------------------------  -------------  ------------- 
 Group net assets                         1,658          1,586 
--------------------------------  -------------  ------------- 
 

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

   6     Earnings per share 

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

 
                                                      Year ended      Year ended 
                                                     31 December     31 December 
                                                            2019            2018 
                                                     GBP million     GBP million 
------------------------------------------------  --------------  -------------- 
 Earnings 
 Profit for the purpose of basic and diluted 
  EPS                                                        100             296 
 Profit for the year                                         100             296 
                                                  --------------  -------------- 
 
 Number of shares 
 Weighted average number of ordinary shares 
  for the purpose of basic EPS                       491,491,257     469,502,029 
 Dilutive effect of ordinary shares potentially 
  issued under share-based incentives                  4,825,962       5,535,545 
                                                  --------------  -------------- 
 Weighted average number of ordinary shares 
  for the purpose of diluted EPS                     496,317,219     475,037,574 
                                                  --------------  -------------- 
 
 EPS (pence/share) 
 Basic                                                      20.4            63.1 
 Diluted                                                    20.2            62.4 
 
   7     Share-based incentives 

Long-term incentive plan (LTIP)

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

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

 
                                           Number of share awards under 
                                                       LTIP 
                                                    2019            2018 
---------------------------------------  ---------------  -------------- 
 At 1 January                                  5,216,928       5,258,970 
 Granted                                       1,506,698       1,747,340 
 Adjustment for the Rights Issue bonus 
  factor                                               -         436,067 
 Lapsed                                        (572,841)       (842,082) 
 Vested                                      (1,887,795)     (1,383,367) 
---------------------------------------  ---------------  -------------- 
 At 31 December                                4,262,990       5,216,928 
---------------------------------------  ---------------  -------------- 
 

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

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

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

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

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

Deferred Share Bonus Plan

The Group operates a Deferred Share Bonus Plan (DSBP) for Executive Directors and certain senior executives under which the amount of any bonus above 60% of their base salary (or, for Executive Directors, where higher, 60% of maximum bonus potential) is awarded in deferred shares. Awards under the DSBP vest in equal tranches on the first, second and third anniversary of grant, normally subject to continued employment. For further details on this plan, refer to the Directors' Remuneration Report.

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

 
                                                      Number of share awards under DSBP 
                                                                  2019              2018 
--------------------------------------------------  ------------------  ---------------- 
 At 1 January                                                  175,141            63,121 
 Granted                                                       112,554           138,987 
 Adjustment to awards granted in the prior period                    -               (8) 
 Adjustment for the Rights Issue bonus factor                        -             5,647 
 Lapsed                                                       (13,781)                 - 
 Vested                                                      (115,049)          (32,606) 
 
 At 31 December                                                158,865           175,141 
--------------------------------------------------  ------------------  ---------------- 
 

In April 2019, 112,554 share awards were granted (2018 - 138,987). The weighted average fair value of the awards was 394.5p per share (2018 - 286p per share). The significant inputs into the model were the share price of 394.2p (2018 - 286p) at the grant date, expected volatility of 18.27% (2018 - 17.28%), expected dividend yield of 2.41% (2018 - 3.12%), an expected award life of three years and an annual risk-free interest rate of 0.68% (2018 - 0.88%). The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices over three years. The weighted average exercise price of the awards granted during 2019 was GBPnil (2018 - GBPnil).

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

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

Buy-out award

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

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

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

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

The total expense recognised in the Group Income Statement for awards granted under share-based incentive arrangements for the year ended 31 December 2019 was GBP4 million (2018 - GBP3 million).

Employee Benefit Trust (EBT)

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

   8     Other income 
 
                                            Year ended     Year ended 
                                           31 December    31 December 
                                                  2019           2018 
                                           GBP million    GBP million 
---------------------------------------  -------------  ------------- 
 Fees from asset management services                22             27 
 Sale of investment advisory agreement               5              - 
 Recovery of bid costs                               5              4 
 Other income                                       32             31 
---------------------------------------  -------------  ------------- 
 

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

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

   9     Profit from operations 
 
                                                    Year ended      Year ended 
                                                   31 December     31 December 
                                                          2019            2018 
                                                   GBP million     GBP million 
                                                --------------  -------------- 
 Profit from operations has been arrived 
  at after charging: 
 
 Fees payable to the Company's auditor 
  and its associates for: 
 The audit of the Company and Group financial 
  statements                                             (0.2)           (0.1) 
 The audit of the annual accounts of the 
  Company's subsidiaries                                 (0.2)           (0.2) 
                                                --------------  -------------- 
 Total audit fees                                        (0.4)           (0.3) 
                                                --------------  -------------- 
 
 Audit related assurance services                        (0.1)           (0.1) 
 Other assurance services                                    -               - 
 Non-assurance related services                              -           (0.3) 
                                                --------------  -------------- 
 Total non-audit fees                                    (0.1)           (0.4) 
                                                --------------  -------------- 
 
 Operating lease charges: 
 
   *    rental of land and buildings                         -           (1.5) 
 Depreciation of plant and equipment and 
  right-of-use asset                                     (1.0)           (0.1) 
 
 

The fee payable for the audit of the Company and consolidated financial statements was GBP202,117 (2018 - GBP151,576). The fees payable for the audit of the annual accounts of the Company's subsidiaries were GBP194,615 (2018 - GBP186,744).

Fees for audit related assurance services comprised GBP53,200 (2018 - GBP42,200) for a review of the Group interim report and GBPnil (2018 - GBP12,875) for a FCA regulatory review. Fees for other assurance services of GBP6,700 (2018 - GBP15,000) were paid for agreed upon procedures.

In 2018, fees of GBP276,000 for non-assurance related services was paid for reporting accountant services in relation to the Rights Issue of the Company in March 2019, which were deducted from share premium as an expense on the issue of equity shares.

Total non-audit fees for 2019 were GBP59,900 (2018 - GBP346,075).

   10   Employee costs and directors' emoluments 
 
                                               Year ended     Year ended 
                                              31 December    31 December 
                                                     2019           2018 
                                              GBP million    GBP million 
Employee costs comprise: 
 Salaries                                            (26)           (27) 
Social security costs                                 (4)            (3) 
Pension charge 
  - defined benefit schemes (note 19)(1)              (2)           (23) 
  - defined contribution                              (1)            (2) 
Share-based incentives (note 7)                       (4)            (3) 
                                                     (37)           (58) 
 

(1) The cost for 2018 includes a one-off GMP equalisation charge of GBP21 million.

Annual average employee numbers (including Directors):

 
                                          Year ended    Year ended 
                                         31 December   31 December 
                                                2019          2018 
                                                 No.           No. 
Staff                                            153           168 
UK                                                65            99 
Overseas                                          88            69 
 
Activity 
Primary investments, asset management 
 and central activities                          153           168 
 

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

   11   Finance costs 
 
                                       Year ended    Year ended 
                                      31 December   31 December 
                                             2019          2018 
                                      GBP million   GBP million 
Finance costs on corporate banking 
 facilities                                   (9)          (10) 
Amortisation of debt issue costs              (1)           (3) 
Net interest cost of retirement 
 obligations (note 19)                        (1)           (1) 
Finance costs                                (11)          (14) 
 
   12   Tax (charge)/credit 

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

 
                                          Year ended    Year ended 
                                         31 December   31 December 
                                                2019          2018 
                                         GBP million   GBP million 
Current tax: 
UK corporation tax (charge) - current 
 year                                            (1)             - 
UK corporation tax credit - prior 
 year                                              1             - 
Tax (charge)/credit                                -             - 
 

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

 
                                           Year ended     Year ended 
                                          31 December    31 December 
                                                 2019           2018 
                                          GBP million    GBP million 
Profit before tax                                 100            296 
Tax at the UK corporation tax rate               (19)           (56) 
Tax effect of expenses and other 
 similar items that are not deductible            (1)            (5) 
Non-taxable movement on fair value 
 of investments                                    26             70 
Adjustment for management charges 
 to fair value group                              (6)            (7) 
Other movements                                   (1)            (2) 
Prior year - current tax credit                     1              - 
Prior year - deferred tax charge                    -              - 
Total tax (charge)/credit                           -              - 
 
 

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

   13   Investments at fair value through profit or loss 
 
                                                                    31 December 2019 
                                Investments                   Portfolio             Other 
                                 in project        Listed     valuation            assets  Total investments 
                                  companies    investment     sub-total   and liabilities           at FVTPL 
                                GBP million   GBP million   GBP million       GBP million        GBP million 
Opening balance                       1,550            10         1,560               140              1,700 
Distributions                          (57)             -          (57)                57                  - 
Investment in equity 
 and loans                              267             -           267             (267)                  - 
Realisations from investment 
 portfolio                            (132)          (11)         (143)               143                  - 
Fair value movement                     140             1           141                 6                147 
Net cash transferred 
 to investments at FVTPL                  -             -             -                50                 50 
Closing balance                       1,768             -         1,768               129              1,897 
 
 
                                                                    31 December 2018 
                                Investments                   Portfolio             Other 
                                 in project        Listed     valuation            assets  Total investments 
                                  companies    investment     sub-total   and liabilities           at FVTPL 
                                GBP million   GBP million   GBP million       GBP million        GBP million 
Opening balance                       1,184            10         1,194               152              1,346 
Distributions                          (33)           (1)          (34)                34                  - 
Investment in equity 
 and loans                              342             -           342             (342)                  - 
Realisations from investment 
 portfolio                            (296)             -         (296)               296                  - 
 
Fair value movement                     353             1           354                12                366 
Net cash transferred 
 from investments at 
 FVTPL                                    -             -             -              (12)               (12) 
Closing balance                       1,550            10         1,560               140              1,700 
 

Of the fair value movement in the year ended 31 December 2019 of GBP147 million (2018 - GBP366 million), GBP10 million (2018 - GBPnil) was received during the year as a dividend from John Laing Holdco Limited.

Included within other assets and liabilities at 31 December 2019 above is cash collateral of GBP118 million (31 December 2018 - GBP132 million) in respect of future investment commitments to the I-66 Managed Lanes project (31 December 2018 - I-66 Managed Lanes and I-77 Managed Lanes).

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

Year ended 31 December 2019

During the year ended 31 December 2019, the Group disposed of its interests in two PPP and two renewable energy project companies for GBP132 million as well as its holding of shares in JLEN.

Details of the disposals of project companies were as follows:

 
                                                                   Holding 
                                                       Original   disposed  Retained 
                                              Date of   holding         of   holding 
                                           completion         %          %         % 
 
Westadium Project Holdco Pty Limited    11 March 2019      50.0       50.0         - 
John Laing Rocksprings Wind HoldCo 
 Corp                                      2 May 2019      95.3       95.3         - 
John Laing Sterling Wind HoldCo Corp       2 May 2019      92.5       92.5         - 
                                          25 November 
A1 mobil GmbH & Co. KG                           2019      42.5       42.5         - 
 

Year ended 31 December 2018

During the year ended 31 December 2018, the Group disposed of shares and subordinated debt in three PPP project companies for GBP296 million.

Details were as follows:

 
                                                                   Holding 
                                                       Original   disposed  Retained 
                                              Date of   holding         of   holding 
                                           completion         %          %         % 
Acquired by Jura 
Regenter Myatts Field North Holdings 
 Company Limited                          30 May 2018      50.0       50.0         - 
 
Sold to other parties 
Agility Trains West (Holdings) Limited    18 May 2018      15.0       15.0         - 
 
                                          21 December 
INEOS Runcorn (TPS) Holding Limited              2018     37.43      37.43         - 
 
   14   Trade and other receivables 
 
                                    31 December   31 December 
                                           2019          2018 
                                    GBP million   GBP million 
Current assets 
Trade receivables                             2             7 
   Other taxation                             1             - 
Prepayments and contract assets               3             1 
                                              6             8 
 

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

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

 
                      31 December   31 December 
                             2019          2018 
                      GBP million   GBP million 
Sterling                        3             7 
Australian dollar               1             - 
Other currencies                2             1 
                                6             8 
 

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

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

   15   Trade and other payables 
 
                                       31 December   31 December 
                                              2019          2018 
                                       GBP million   GBP million 
Current liabilities 
Trade payables                                 (3)           (2) 
Other taxation and social security             (1)           (1) 
Accruals                                      (11)          (17) 
                                              (15)          (20) 
 
   16   Borrowings 
 
                                          31 December   31 December 
                                                 2019          2018 
                                          GBP million   GBP million 
Current liabilities 
Interest-bearing loans and borrowings 
 net of unamortised financing costs 
 (note 17c and note 18)                         (236)          (66) 
                                                (236)          (66) 
 
   17   Financial instruments 
   a)      Financial instruments by category 
 
                                                                                 Financial 
                                                                               liabilities 
                                                   Receivables        Assets            at 
                                       Cash and   at amortised            at     amortised 
                               cash equivalents           cost         FVTPL          cost         Total 
31 December 2019                    GBP million    GBP million   GBP million   GBP million   GBP million 
Fair value measurement                                               Level 1 
 method                                     n/a            n/a          / 3*           n/a 
Non-current assets 
Investments at FVTPL*                         -              -         1,897             -         1,897 
Current assets 
Trade and other receivables                   -              4             -             -             4 
Cash and cash equivalents                     2              -             -             -             2 
Total financial assets                        2              4         1,897             -         1,903 
Current liabilities 
Interest-bearing 
 loans and borrowings                         -              -             -         (236)         (236) 
Trade and other payables                      -              -             -          (14)          (14) 
Total financial liabilities                   -              -             -         (250)         (250) 
Net financial instruments                     2              4         1,897         (250)         1,653 
 
 
                                                                                 Financial 
                                                                               liabilities 
                                                   Receivables        Assets            at 
                                       Cash and   at amortised            at     amortised 
                               cash equivalents           cost         FVTPL          cost         Total 
31 December 2018                    GBP million    GBP million   GBP million   GBP million   GBP million 
Fair value measurement                                               Level 1 
 method                                     n/a            n/a          / 3*           n/a 
Non-current assets 
Investments at FVTPL*                         -              -         1,700             -         1,700 
Current assets 
Trade and other receivables                   -              7             -             -             7 
Cash and cash equivalents                     6              -             -             -             6 
Total financial assets                        6              7         1,700             -         1,713 
Current liabilities 
Interest-bearing 
 loans and borrowings                         -              -             -          (66)          (66) 
Trade and other payables                      -              -             -          (19)          (19) 
Total financial liabilities                   -              -             -          (85)          (85) 
Net financial instruments                     6              7         1,700          (85)         1,628 
 

* Investments at FVTPL are split between: Level 1, investment in JLEN, which is a listed investment fair valued at GBPnil (31 December 2018 - GBP10 million) using a quoted market price; and Level 3 investments in project companies fair valued at GBP1,768 million (31 December 2018 - GBP1,550 million). Level 1 and Level 3 investments are fair valued in accordance with the policy and assumptions set out in note 3e). The investments at FVTPL include other assets and liabilities in investment entity subsidiaries as shown in note 13. Such other assets and liabilities are recorded at amortised cost which the Directors believe approximates to their fair value. These assets and liabilities are level 3.

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

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

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

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

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

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

An analysis of the movement between opening and closing balances of assets at FVTPL is given in note 13. Level 3 financial assets are those relating to investments in project companies.

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

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

 
                        31 December 2019                         31 December 2018 
                Floating  Non-interest                    Floating  Non-interest 
                    rate       bearing        Total           rate       bearing        Total 
Currency     GBP million   GBP million  GBP million    GBP million   GBP million  GBP million 
Sterling               -             2            2              1             7            8 
Euro                   -             1            1              -             -            - 
Canadian 
 dollar                -             1            1              -             1            1 
US dollar              -             1            1              -             1            1 
Australian 
 dollar                -             1            1              -             3            3 
Total                  -             6            6              1            12           13 
 
   c)   Foreign currency and interest rate profile of financial liabilities 

The Group's financial liabilities at 31 December 2019 were GBP250 million (31 December 2018 - GBP85 million), of which GBP236 million (31 December 2018 - GBP66 million) related to short-term cash borrowings of GBP239 million (31 December 2018 - GBP70 million) net of unamortised finance costs of GBP3 million (31 December 2018 - GBP4 million).

 
                              31 December 2019                                           31 December 2018 
                  Fixed     Floating                                             Floating 
                   rate         rate  Non-interest                     Fixed         rate  Non-interest 
                    GBP  GBP million       bearing        Total         rate  GBP million       bearing        Total 
Currency        million                GBP million  GBP million  GBP million                GBP million  GBP million 
Sterling          (229)          (7)           (8)        (244)         (51)         (15)          (12)         (78) 
Euro                  -            -           (1)          (1)            -            -           (1)          (1) 
US dollar             -            -           (2)          (2)            -            -           (2)          (2) 
Australian 
 dollar               -            -           (3)          (3)            -            -           (3)          (3) 
Other                 -            -             -            -            -            -           (1)          (1) 
Total             (229)          (7)          (14)        (250)         (51)         (15)          (19)         (85) 
 
 
   18   Financial risk management 

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

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

Market risk - foreign currency exchange rate risk

As at 31 December 2019, the Group held investments in 42 overseas projects (31 December 2018 - 31 overseas projects) all of which are fair valued based on the spot exchange rate at 31 December 2019. The Group's foreign currency exchange rate risk policy is to determine the total Group exposure to individual currencies; it may then enter into hedges against certain individual investments. The Group's exposure to exchange rate risk on its investments is disclosed below.

In addition, the Group's policy on managing foreign currency exchange rate risk is to cover significant transactional exposures arising from receipts and payments in foreign currencies, where appropriate and cost effective. There were 10 forward currency contracts open as at 31 December 2019 (31 December 2018 - 12). The fair value of these contracts was a net asset of GBP1 million (31 December 2018 - net asset of GBP1 million) and is included in investments at FVTPL.

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

Foreign currency exposure of investments at FVTPL:

 
                               31 December 2019                                     31 December 2018 
                                              Other                                                Other 
                                             assets                                               assets 
                  Project       Listed          and                   Project        Listed          and 
                companies   investment  liabilities        Total    companies    investment  liabilities         Total 
              GBP million  GBP million  GBP million  GBP million  GBP million   GBP million  GBP million   GBP million 
 Sterling             418            -            -          418          361            10            3           374 
 Euro                 181            -            5          186          219             -            1           220 
 Australian 
  dollar              568            -            7          575          483             -            5           488 
 US dollar            510            -          116          626          465             -          131           596 
 New Zealand 
  dollar               19            -            1           20           22             -            -            22 
 Colombian 
  Peso                 68            -            -           68            -             -            -             - 
 Canadian 
  dollar                4            -            -            4            -             -            -             - 
                    1,768            -          129        1,897        1,550            10          140         1,700 
 

Investments in project companies are fair valued based on the spot exchange rate at the balance sheet date. As at 31 December 2019, a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas projects by c.GBP64 million. The Group's profit before tax would be impacted by the same amounts. There would be no additional impact on equity.

Market risk - interest rate risk

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

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

 
                                            31 December 2019                            31 December 2018 
                                                                               Interest- 
                              Interest-bearing                                   bearing 
                                      floating  Non-interest                    floating  Non-interest 
                                          rate       bearing         Total          rate       bearing         Total 
                                   GBP million   GBP million   GBP million   GBP million   GBP million   GBP million 
Financial assets 
Investments at FVTPL                         -         1,897         1,897             -         1,700         1,700 
Trade and other receivables                  -             4             4             -             7             7 
Cash and cash equivalents                    -             2             2             1             5             6 
Financial assets exposed 
 to interest rate risk                       -         1,903         1,903             1         1,713         1,713 
 

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

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

Movement in market interest rates can also have an impact on discount rates. At 31 December 2019, the weighted average discount rate was 8.6% (31 December 2018 -8.6%). As at 31 December 2019, a 0.25% increase in the discount rate would reduce the fair value by GBP57 million (31 December 2018 - GBP52 million) and a 0.25% reduction in the discount rate would increase the fair value by GBP60 million (31 December 2018 - GBP54 million). The Group's profit before tax would be impacted by the same amounts. There would be no additional impact on equity.

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

 
                                        31 December 2019                                            31 December 2018 
                   Interest-bearing  Interest-bearing                          Interest-bearing  Interest-bearing 
                              fixed          floating  Non-interest                       fixed          floating  Non-interest 
                               rate              rate       bearing     Total              rate              rate       bearing      Total 
                                GBP               GBP           GBP       GBP               GBP       GBP million                      GBP 
                            million           million       million   million           million                     GBP million    million 
Interest-bearing 
 loans 
 and borrowings               (229)               (7)             -     (236)              (51)              (15)             -       (66) 
Trade and other 
 payables                         -                 -          (14)      (14)                 -                 -          (19)       (19) 
Total financial 
 liabilities                  (229)               (7)          (14)     (250)              (51)              (15)          (19)       (85) 
 

Market risk - inflation risk

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

At 31 December 2019, based on a sample of five of the larger PPP investments with a total value of GBP596 million, a 0.25% increase in inflation is estimated to increase the value of PPP investments by c.GBP14 million and a 0.25% decrease in inflation is estimated to decrease the value of PPP investment by c.GBP13 million. Certain of the underlying project companies incorporate some inflation hedging.

Credit risk

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

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

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

Price or revenue risk

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

The Group also holds investments in renewable energy projects whose fair value may vary with forecast energy prices and additionally, for Australia wind and solar generation projects, forecast marginal loss factors (MLF) to the extent they are not economically hedged through short to medium-term fixed price purchase agreements with electricity suppliers, or do not benefit from governmental support mechanisms at fixed prices.

At 31 December 2019, based on a sample of seven of the larger renewable energy investments with a total value of GBP338 million, a 5% increase in power price forecasts is estimated to increase the value of renewable energy investments by GBP21 million and a 5% decrease in power price forecasts is estimated to decrease the value of renewable energy investments by GBP19 million.

At 31 December 2019, based on a sample of renewable energy investments with a total value of GBP233 million, a 5% increase in MLFs is estimated to increase their value by c.GBP29 million and a 5% decrease is estimated to decrease their value by c.GBP29 million.

With regards to energy yield risk, our valuation of renewable energy projects assumes a P50 level of electricity output based on reports by technical consultants. The P50 output is the estimated annual amount of electricity generation (in MWh) that has a 50% probability of being achieved or exceeded - both in any single year and over the long term - and a 50% probability of being underachieved. Hence the P50 is the expected level of generation over the long term. A P75 output means a forecast with a 75% probability of being achieved or exceeded and a P25 output means a forecast with a 25% probability of being achieved or exceeded. At a P75 level of electricity output, the valuation at 31 December 2019 of a sample of renewable energy assets with a total value of GBP293 million would reduce by GBP38 million and a P25 level of electricity output would increase the value by GBP36 million.

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

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

Liquidity risk

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

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

Maturity of financial assets

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

 
                                           31 December   31 December 
                                                  2019          2018 
                                             Less than     Less than 
                                              one year      one year 
                                           GBP million   GBP million 
Trade and other receivables                          4             7 
Cash and cash equivalents                            2             6 
Financial assets (excluding investments 
 at FVTPL)                                           6            13 
 

None of the financial assets is either overdue or impaired.

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

 
                                     31 December   31 December 
                                            2019          2018 
                                     GBP million   GBP million 
In one year or less, or on demand          (250)          (85) 
Total                                      (250)          (85) 
 

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

 
                                       Weighted 
                                        average 
                                      effective 
                                       interest   In one year 
                                           rate       or less         Total 
                                              %   GBP million   GBP million 
31 December 2019 
Fixed interest rate instruments 
 - loans and borrowings                    2.71         (229)         (229) 
Floating interest rate instruments 
 - loans and borrowings                    2.78           (7)           (7) 
Non-interest bearing instruments*           n/a          (14)          (14) 
                                                        (250)         (250) 
 
31 December 2018 
Fixed interest rate instruments 
 - loans and borrowings                    2.73          (51)          (51) 
Floating interest rate instruments 
 - loans and borrowings                    2.78          (15)          (15) 
Non-interest bearing instruments*           n/a          (19)          (19) 
                                                         (85)          (85) 
 

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

Capital risk

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

At 31 December 2019, the Group had committed corporate banking facilities of GBP650 million, GBP500 million expiring in July 2023 and GBP150 million expiring in January 2021 (extended in January 2020 until January 2022).

The Group has requirements for both borrowings and letters of credit, which at 31 December 2019 were met by its GBP650 million committed facilities and related ancillary facilities (31 December 2018 - GBP650 million). Issued at 31 December 2019 were letters of credit of GBP95 million (31 December 2018 - GBP164 million) and parent company guarantee of GBP6 million, related to future capital and loan commitments, and contingent commitments and performance and bid bonds of GBP3 million (31 December 2018 - GBP10 million). The committed facilities and amounts drawn therefrom are summarised below:

 
                                                            31 December 2019 
                                                                                      Letters 
                                                                                    of credit 
                                                                               in issue/other         Total 
                              Total facilities   Loans drawn  Bank overdraft      commitments       undrawn 
                                   GBP million   GBP million     GBP million      GBP million   GBP million 
Committed corporate banking 
 facilities                                650         (232)             (7)            (104)           307 
Total                                      650         (232)             (7)            (104)           307 
 
 
                                                                     31 December 2018 
                                                                                        Letters 
                                                                                      of credit 
                                                                Bank overdraft   in issue/other         Total 
                              Total facilities   Loans drawn       GBP million      commitments       undrawn 
                                   GBP million   GBP million                        GBP million   GBP million 
Committed corporate banking 
 facilities                                650          (55)              (15)            (174)           406 
Total                                      650          (55)              (15)            (174)           406 
 
 
   19   Retirement benefit obligations 
 
                                    31 December   31 December 
                                           2019          2018 
                                    GBP million   GBP million 
Pension schemes                              13          (33) 
Post-retirement medical benefits            (7)           (7) 
Retirement benefit obligations                6          (40) 
Retirement benefit asset                     13             - 
Retirement benefit obligations              (7)          (40) 
 
   a)      Pension schemes 

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

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

JLPF

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

The Group agreed to repay the actuarial deficit of GBP171 million at 31 March 2016 over seven years as follows:

 
By 31 March   GBP million 
2017                   25 
2018                   27 
2019                   29 
2020                   25 
2021                   26 
2022                   26 
2023                   25 
 

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

During the year ended 31 December 2019, John Laing made deficit reduction contributions of GBP29 million (2018 - GBP27 million) in cash.

The liability at 31 December 2019 allows for indexation of deferred pensions and post 5 April 1988 GMP pension increases based on the Consumer Price Index (CPI).

The Plan

No contributions were made to the Plan in the year ended 31 December 2019 (2018 - none). At its last actuarial valuation as at 31 March 2018, the Plan had assets of GBP13 million and liabilities of GBP12 million resulting in an actuarial surplus of GBP1 million. The next triennial actuarial valuation of the Plan is due as at 31 March 2020.

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

 
31 December 2019   Deferred  Pensioners  Total 
JLPF                  3,965       3,790  7,755 
The Plan                 78         266    344 
 
 
31 December 2018   Deferred  Pensioners  Total 
JLPF                  3,928       4,015  7,943 
The Plan                 99         321    420 
 

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

 
                                       31 December  31 December 
                                              2019         2018 
                                                 %            % 
Discount rate                                 2.10         2.85 
Rate of increase in non-GMP pensions 
 in payment                                   2.90         3.10 
Rate of increase in non-GMP pensions 
 in deferment                                 1.90         2.10 
Inflation - RPI                               3.00         3.20 
Inflation - CPI                               1.90         2.10 
 

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

 
                                      (Increase)/decrease 
                                     in pension liabilities 
                                               at 
                                        31 December 2019 
                                       Increase      Decrease 
                                             in            in 
                                     assumption    assumption 
                                    GBP million   GBP million 
0.25% on discount rate                       45          (48) 
0.25% on inflation rate                    (34)            33 
1 year post-retirement longevity           (54)            53 
 

Mortality

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

 
                                            31 December                 31 December 
                                                   2019                        2018 
Base tables 
Plan members                           100% S2NA tables            100% S2NA tables 
JLPF staff members                 103%/107% (M/F) S3NA 
                                                 tables            100% S2NA tables 
JLPF executive members        83%/109% (M/F) S3NA light      100% S2NA light tables 
                                                 tables 
 
Improvements 
All members                       CMI 2018 projections,       CMI 2017 projections, 
                         1.25% pa long-term improvement          1.25% pa long-term 
                              rate, initial improvement            improvement rate 
                                of A=0% and a smoothing   and a smoothing parameter 
                                       parameter of s=7                    of s=7.5 
 
 

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

 
                                       31 December  31 December 
                                              2019         2018 
                                             Years        Years 
Life expectancy - of member reaching 
 age 65 in 2019 
Males                                         21.8         22.1 
Females                                       23.9         24.2 
Life expectancy - of member aged 65 
 in 2039 
Males                                         23.1         23.1 
Females                                       25.3         25.3 
 

Analysis of the major categories of assets held by the Schemes

 
                                   31 December 2019    31 December 2018 
                                  GBP million      %  GBP million      % 
Bond and other debt instruments 
UK corporate bonds                         97                  89 
UK government gilts                       280                 262 
UK government gilts - 
 index linked                             213                 147 
                                          590   48.0          498   45.8 
Equity instruments 
UK listed equities                         95                 106 
European listed equities                   45                  36 
US listed equities                        163                 127 
Other international listed 
 equities                                  97                  83 
Option(1)                                 (4)                   - 
                                          396   32.2          352   32.4 
Aviva bulk annuity buy-in 
 agreement                                229   18.6          218   20.0 
Cash and equivalents                       15    1.2           20    1.8 
Total market value of 
 assets                                 1,230  100.0        1,088  100.0 
Present value of Schemes' 
 liabilities                          (1,217)             (1,121) 
Net pension asset/(liability)              13                (33) 
 

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

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

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

In late 2008, the JLPF Trustee entered into a bulk annuity buy-in agreement with Aviva to mitigate JLPF's exposure to changes in liabilities. At 31 December 2019, the underlying insurance policy was valued at GBP229 million (31 December 2018 - GBP218 million), being substantially equal to the IAS 19 valuation of the related liabilities.

The pension asset of GBP13 million at 31 December 2019 (31 December 2018 - liability GBP33 million) is a surplus under IAS 19 of GBP12 million in the Fund (31 December 2018 - liability GBP35 million) and a surplus GBP1 million in the Plan (31 December 2018 - GBP2 million).

Analysis of amounts charged to operating profit

 
                              Year ended    Year ended 
                             31 December   31 December 
                                    2019          2018 
                             GBP million   GBP million 
Current service cost*                (2)           (2) 
GMP equalisation charge**              -          (21) 
                                     (2)          (23) 
 

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

**Following the High Court ruling on the Lloyds Banking Group Guaranteed Minimum Pension (GMP) equalisation case in October 2018, a GBP21 million non-recurring charge was made in 2018. This represents the additional costs to JLPF arising from the judgement, estimated at 1.90% of JLPF's liabilities.

Analysis of amounts charged to finance costs

 
                                     Year ended    Year ended 
                                    31 December   31 December 
                                           2019          2018 
                                    GBP million   GBP million 
 Interest on Schemes' assets                 30            28 
Interest on Schemes' liabilities           (31)          (29) 
Net charge to finance costs                 (1)           (1) 
 

Analysis of amounts recognised in Group Statement of Comprehensive Income

 
                                                    Year ended     Year ended 
                                                   31 December    31 December 
                                                          2019           2018 
                                                   GBP million    GBP million 
Return on Schemes' assets (excluding 
 amounts included in interest on Schemes' 
 assets above)                                             137           (62) 
Experience loss arising on Schemes' liabilities              6            (4) 
Changes in financial assumptions underlying 
 the present value of Schemes' liabilities               (117)             56 
Changes in demographic assumptions underlying 
 the present value of Schemes' liabilities                 (6)              7 
Actuarial gain/(loss) recognised in Group 
 Statement of Comprehensive Income                          20            (3) 
 

The cumulative gain recognised in the Group Statement of Changes in Equity is GBP24 million gain (31 December 2018 - GBP4 million).

Changes in present value of defined benefit obligations

 
                                                         2019         2018 
                                                  GBP million  GBP million 
Opening defined benefit obligation                    (1,121)      (1,189) 
Current service cost                                      (2)          (2) 
Interest cost                                            (31)         (29) 
GMP equalisation charge                                     -         (21) 
Experience loss arising on Schemes' liabilities             6          (4) 
Changes in financial assumptions underlying 
 the present value of Schemes' liabilities              (117)           56 
Changes in demographic assumptions underlying 
 the present value of Schemes' liabilities                (6)            7 
Benefits paid (including administrative 
 costs paid)                                               54           61 
Closing defined benefit obligation                    (1,217)      (1,121) 
 

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

Changes in the fair value of Schemes' assets

 
                                            31 December  31 December 
                                                   2019         2018 
                                            GBP million  GBP million 
Opening fair value of Schemes' assets             1,088        1,156 
Interest on Schemes' assets                          30           28 
Return on Schemes' assets (excluding 
 amounts included in interest on Schemes' 
 assets above)                                      137         (62) 
Contributions by employer                            29           27 
Benefits paid (including administrative 
 costs paid)                                       (54)         (61) 
Closing fair value of Schemes' assets             1,230        1,088 
 

Analysis of the movement in the deficit during the year

 
                            31 December   31 December 
                                   2019          2018 
                            GBP million   GBP million 
Opening deficit                    (33)          (33) 
Current service cost                (2)           (2) 
GMP equalisation reserve              -          (21) 
Finance cost                        (1)           (1) 
Contributions                        29            27 
Actuarial gain/(loss)                20           (3) 
Pension deficit                      13          (33) 
                                         ------------ 
 

History of the experience gains and losses

 
                                                  Year ended    Year ended 
                                                 31 December   31 December 
                                                        2019          2018 
 Difference between actual and expected 
  returns on assets: 
 Amount (GBP million)                                    137          (62) 
 % of Schemes' assets                                   11.0           5.7 
 Experience loss on Schemes' liabilities: 
 Amount (GBP million)                                      6           (4) 
 % of present value of Schemes' liabilities              0.5           0.4 
Total amount recognised in the Group 
 Statement of Comprehensive Income (excluding 
 deferred tax): 
 Amount (GBP million)                                     20           (3) 
% of present value of Schemes' liabilities               1.6           0.3 
 

b) Post-retirement medical benefits

The Company provides post-retirement medical insurance benefits to 55 former employees. This scheme, which was closed to new members in 1991, is unfunded.

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

 
                                               31 December   31 December 
                                                      2019          2018 
                                               GBP million   GBP million 
                                              ------------  ------------ 
Post-retirement medical benefits liability 
 - opening                                             (7)           (8) 
Contributions                                            1             1 
Changes in financial assumptions underlying 
 the present value of scheme's liabilities*            (1)             - 
Post-retirement medical benefits liability 
 - closing                                             (7)           (7) 
                                              ------------  ------------ 
 

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

The annual rate of increase in the per capita cost of medical benefits was assumed to be 5.0% in 2019 (2018 - 5.2%). It is expected to increase in 2020 and thereafter at RPI plus 2.0% per annum (2018 - at RPI plus 2.0% per annum).

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

 
                                             (Increase)/decrease 
                                            in medical liabilities 
                                                      at 
                                               31 December 2019 
                                               before deferred 
                                                     tax 
                                             Increase        Decrease 
                                        in assumption   in assumption 
                                          GBP million     GBP million 
1.0% change on medical cost trend 
 inflation rate                                   (1)               1 
1 year change in life expectancy                  (1)               1 
 
   20   Provisions 
 
                         At 1 January    Charge to Group  At 31 December 
                                 2019   Income Statement            2019 
Non-current provisions    GBP million        GBP million     GBP million 
Retained liabilities              (2)                  -             (2) 
Total provisions                  (2)                  -             (2) 
 
 
                                               Charge to 
                         At 1 January              Group  At 31 December 
                                 2018   Income Statement            2018 
Non-current provisions    GBP million        GBP million     GBP million 
Retained liabilities              (1)                (1)             (2) 
Total provisions                  (1)                (1)             (2) 
 

Provisions of GBP2 million as at 31 December 2019 (31 December 2018 - GBP2 million) relate to retained liabilities from the legacy construction and home building businesses.

   21   Share capital 
 
                              31 December  31 December 
                                     2019         2018 
                                      No.          No. 
Authorised: 
Ordinary shares of GBP0.10 
 each                         493,000,636  490,775,636 
Total                         493,000,636  490,775,636 
 
 
                                      31 December 2019          31 December 2018 
                                          No.  GBP million          No.  GBP million 
Allotted, called up 
 and fully paid: 
At 1 January                      490,774,825           49  366,960,134           37 
Issued under Rights 
 Issue                                      -            -  122,320,044           12 
  Issued under LTIP                 1,887,795                 1,383,367 
  Issued under LTIP - 
   granted in lieu of dividends 
   payable                            108,968                    77,115 
  Issued under DSBP                   115,049                    32,606 
  Issued under DSBP - 
   granted in lieu of dividends 
   payable                              4,030                     1,559 
  Issued under buy-out 
   awards                              24,314 
  Shares acquired by the 
   EBT                            (1,113,997) 
Issued under share-based 
 incentive arrangements 
 - total                            1,026,159            -    1,494,647            - 
Shares in issue                   491,800,984           49  490,774,825           49 
Retained by EBT                     1,199,652            -          811            - 
At 31 December                    493,000,636           49  490,775,636           49 
 

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

Subsequent to the LTIP awards vesting and being exercised, certain employees elected to sell shares, partly in order to satisfy tax liabilities arising on the awards. Of the 1,288,377 shares elected to be sold, the EBT was able to sell 174,380 shares in the open market and acquired the remaining 1,113,997 shares. The acquisition of shares by the EBT was funded by the Company and as a result of this transaction, a charge of GBP4 million has been made through reserves in the Group Statement of Changes in Equity as if such shares were treasury shares as defined by IFRS. Including this acquisition, the total number of shares held by the EBT at 31 December 2019 was 1,199,652, which are excluded for the purposes of calculating earnings per share and NAV per share.

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

   22   Share premium 
 
                                31 December   31 December 
                                       2019          2018 
                                GBP million   GBP million 
Opening balance                         416           218 
Share premium on Rights Issue             -           204 
Costs of Rights Issue                     -           (6) 
Closing balance                         416           416 
 
   23   Net cash outflow from operating activities 
 
                                                        Year ended      Year ended 
                                                       31 December     31 December 
                                                              2019            2018 
                                                       GBP million     GBP million 
Profit from operations                                         111             310 
 
Adjustments for: 
Unrealised profit arising on changes in 
 fair value of investments (note 13)                         (147)           (366) 
Share-based incentives                                           4               3 
IAS 19 service cost                                              2               2 
GMP equalisation reserve                                         -              21 
Contribution to JLPF                                          (29)            (27) 
Increase in provisions                                           -               1 
Operating cash outflow before movements 
 in working capital                                           (59)            (56) 
(Increase)/decrease in trade and other receivables               2               - 
(Decrease)/increase in trade and other payables                (4)               2 
Net cash outflow from operating activities                    (61)            (54) 
 
   24   Reconciliation of net debt 
 
                                   At 1 
                                January                     Non-cash   At 31 December 
                                   2019  Cash movements    movements             2019 
                            GBP million     GBP million  GBP million      GBP million 
                                                                      --------------- 
Cash and cash equivalents             6             (4)            -                2 
Borrowings                         (66)           (169)          (1)            (236) 
                                                                      --------------- 
Net debt                           (60)           (173)          (1)            (234) 
                                                                      --------------- 
 
 
                                   At 1 
                                January                     Non-cash   At 31 December 
                                   2018  Cash movements    movements             2018 
                            GBP million     GBP million  GBP million      GBP million 
                                                                      --------------- 
Cash and cash equivalents             3               3            -                6 
Borrowings                        (174)             106            2             (66) 
Net debt                          (171)             109            2             (60) 
                                                                      --------------- 
 

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

   25   Guarantees and other commitments 

At 31 December 2019, the Group had future equity and loan commitments in PPP and renewable energy projects of GBP219million (31 December 2018 - GBP296 million) backed by letters of credit and guarantees of GBP101 million (31 December 2018 - GBP164 million) and cash collateral of GBP118 million (31 December 2018 - GBP132 million). There were also contingent commitments, performance and bid bonds of GBP3 million (31 December 2018 - GBP10 million).

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

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

 
 
                          31 December 
                                 2018 
                          GBP million 
Within one year                     1 
In the second to fifth 
 years inclusive                    3 
After five years                    2 
                                    6 
 
   26   Transactions with related parties 

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

Transactions with non-recourse entities

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

 
                                      31 December   31 December 
                                             2019          2018 
                                      GBP million   GBP million 
For the year ended: 
Services income*                               11             9 
 
Balances as at: 
Amounts owed by project companies               1             1 
Amounts owed to project companies             (1)           (1) 
 

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

Transactions with recourse subsidiary entities held at FVTPL

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

 
                                               31 December   31 December 
                                                      2019          2018 
                                               GBP million   GBP million 
For the year ended: 
Management charge payable to the 
 Group by recourse subsidiary entities 
 held at FVTPL                                          31            31 
Net interest receivable by the Group 
 from recourse subsidiary entities 
 held at FVTPL                                           4             4 
Net cash transferred (to)/from investments 
 at FVTPL (note 13)                                   (50)            12 
 
Balances as at: 
Net amounts owed to the Group by 
 recourse subsidiary entities held 
 at FVTPL                                              176           215 
 
 

Transactions with other related parties

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

Remuneration of key management personnel

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

 
                                            Year ended    Year ended 
                                           31 December   31 December 
                                                  2019          2018 
                                           GBP million   GBP million 
Cash/vested basis 
Short-term employee benefits                         4             4 
Post-employment benefits                             -             - 
Awards under long-term incentive plans               4             3 
Social security costs                                1             1 
                                                     9             8 
Award basis 
Short-term employee benefits                         4             4 
Post-employment benefits                             -             - 
Awards under long-term incentive plans               1             1 
Social security costs                                1             1 
                                                     6             6 
 

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

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

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

   27   Events after balance sheet date 

There were no significant events after the balance sheet date.

Shareholder Information

Financial Diary

 
3 March 2020   Full year results presentation 
23 April 2020  Ex-dividend date for final dividend 
24 April 2020  Record date for final dividend 
7 May 2020     Annual General Meeting 
15 May 2020    Payment of final dividend 
August 2020    Announcement of half year results 
October 2020   Interim dividend expected to 
                be paid 
 

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

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

END

FR SSMEDEESSESD

(END) Dow Jones Newswires

March 03, 2020 02:00 ET (07:00 GMT)

Grafico Azioni John Laing (LSE:JLG)
Storico
Da Feb 2024 a Mar 2024 Clicca qui per i Grafici di John Laing
Grafico Azioni John Laing (LSE:JLG)
Storico
Da Mar 2023 a Mar 2024 Clicca qui per i Grafici di John Laing