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)
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