I am pleased to present my first statement having taken up the position of Executive Chairman from 1 February 2002.
John Laing has undergone significant change since the last annual review. In September, Laing Construction was sold and the Group restructured its financing, including establishing new loan facilities and a £76.7 million rights issue carried out in November. Details of the sale of Laing Construction were set out in a circular to shareholders last September.
The Group has initiated a £120 million asset disposal programme aimed at reducing overall debt levels. Realisations to date are ahead of book value and have amounted to £83.4 million, including the sale of the remaining 15% interest in Europistas, which generated a profit of £48.0 million (2000 – £17.3 million).
The proposed sale of Laing Property, which we announced in November 2001, forms part of this asset realisation programme. I am pleased to report that the level of interest has been encouraging and a preferred bidder has been identified. An amount of £23.5 million has already been raised through selective property sales and we expect the sale of the remainder of the business to be completed in the coming months.

As already reported in the trading update in January, the Group retains a limited number of specific liabilities related to the disposed Construction division. Since the interim statement, further progress has been made through renegotiation of agreements on the National Physical Laboratory contract, and this underlines the Board’s view that adequate provision has been made against all of these liabilities within the 2001 accounts.
I am pleased to report that throughout the period when these events occurred, the continuing businesses of Laing Homes, Laing Investments and Laing Property all traded well and Hyder Investments, acquired early in the year, has been successfully integrated. Clearly my challenge is not one of turning around an ailing business since the underlying profitability of the Group’s continuing operations is sound. My task is to re-establish the confidence of our shareholders and our staff, and to develop a strategy that delivers sustainable profitable growth.

The Group reported a loss before tax for the year ended 31 December 2001 of £24.7 million (2000 – profit £5.7 million). This resulted in a loss per share of 33.9 pence (2000 – earnings 0.4 pence).
The disappointing trading performance of the Group was entirely attributable to operating losses in Laing Construction which amounted to £94.5 million prior to the sale of the business (2000 – losses £88.9 million). In addition, a loss of £33.6 million was incurred on the sale of Laing Construction.
The continuing businesses, excluding the profit on sale of Europistas and other asset disposals, reported an operating profit of £84.5 million (2000 – £71.6 million).
The refocusing of activities after the sale of Laing Construction has necessitated a significant reduction in the central overhead and head office costs. The Group has announced a number of redundancies at an estimated cost of £2.0 million, which has been fully provided within the 2001 accounts.

I have started the process of forming a Board, which will be more aligned to the current structure and strategy of the Group. I expect to appoint four new independent non-executive Directors by mid 2002. As previously announced, Sir Martin Laing has retired from his position as Chairman but he will remain on the Board as a non-executive Director. This will give a total of five non-executives, four of whom are independent, balancing the five executive Directors. On behalf of the Board, I would like to thank Sir Martin Laing and Robert Wood, who have both recently retired from executive duties and who have provided many years of valuable service to the Company.
The Board has commenced a review of remuneration and reward for key members of staff with the aim of achieving closer alignment between their performance and the long-term interests of shareholders.
I have been very impressed with the quality and depth of management skills, and the enthusiasm and commitment of our staff in the continuing businesses. I am confident we have the capacity and capability to deliver results, which add value for our shareholders. On behalf of the Board, I would like to thank all our employees for their dedication and hard work under the difficult circumstances that prevailed throughout 2001.

Laing Homes had another sound year. The profit before interest of the UK business was £53.3 million (2000 – £53.0 million) on turnover of £381.3 million (2000 – £352.3 million). The events of 11 September did not result in any discernible long-term change to homebuyers’ confidence and the market has continued to hold up well. The business remains focused on product innovation and customer service and has further developed the Laing Homes brand which is well respected. This is complimented by the Beechcroft brand, for retirement homes, and by Octagon, the upmarket house builder in which Laing Homes increased its interest from 20% to 30% in July.
In the year to 31 December 2001, the UK business sold 1,375 units (2000 – 1,235) at an average price of £227,000 (2000 – £238,000). The margin on sales in private housing was 15.6% (2000 – 16.4%) and in addition a £4.6 million profit on land sales was realised (2000 – nil).
In the USA further action was taken towards the strategic exit on which Laing Homes has been working. In June 2001 the holding in WL Homes LLC was reduced from 50% to 22.5% following a financial restructuring which enabled the Group to repatriate £33.3 million of its investment. Transaction costs of £3.5 million depressed the first half result in the US business but the share of the strong second half performance generated a trading profit for the year of £6.3 million and an overall profit before interest from US operations of £2.8 million (2000 – £11.3 million).
Laing Investments recorded a profit before interest for the year of £83.2 million (2000 – £27.4 million), including £48.0 million profits from the sale of Europistas (2000 – £17.3 million). The underlying growth reflects the fact that many of the Group’s PFI investments, including those acquired within the Hyder Investments portfolio, have now entered the operational phase when revenues start to flow. The interest charge on project debt, all of which is non-recourse to the Group, also commenced and against these operating profits there was a net financing cost of £17.4 million (2000 – £4.5 million). While the Group continues to expand its investment activity, the underlying profits are expected to rise with cash generated being reinvested.
During 2001 Laing Investments achieved financial close on two PFI projects for the Metropolitan Police and were appointed preferred bidder to build and operate 17 police stations for the Greater Manchester Police Authority. In February 2002, M40 Trains Limited, an 85% owned Laing subsidiary, was awarded a 20-year extension on the Chiltern rail franchise, thereby creating additional value on our investment. This award was a first in the industry and was based upon Chiltern Railway’s excellent operating performance over the initial five-year period.
Laing Investments has an exciting pipeline of bid opportunities that will enable the Group to further develop its strategic focus within this sector. Of increasing importance is the Group’s growing capability in facilities management and the delivery of quality services during the operational stage of PFI and PPP projects. Our wholly owned subsidiary, Equion FM, is already providing services management at Highlands School in Enfield, together with project asset management services in the health sector, and will provide an extensive range of support services on the police PFI projects. Equion FM is also bidding to potential third-party clients.
Laing Property recorded a profit before interest of £9.7 million for the year. This was down on the
£13.2 million profit before interest for the previous year, which included the one off £7.3 million on securitisation of the revenue stream at Ashford International Passenger Station.
Property developments contributed significantly to the 2001 result including the sale of the 164,000 sq ft Crown Hill Retail Park at Plymouth and the letting of a 63,000 sq ft warehouse in Milton Keynes. Included in the result was a profit of £2.8 million on the sale for development of the Group’s headquarters at Mill Hill, which has been leased back short-term pending relocation to smaller premises in central London.

Following the sale of Laing Construction the Group has a more predictable earnings profile from its remaining activities and the prospects for the re-shaped Group are good.
The UK house building market remained strong throughout 2001 and the early indications are that this is continuing in 2002. Reservations in the early part of the current year are ahead of the corresponding period in 2001 and house price inflation is continuing. Several new sites will come to the market in the second half of the year and the timing of completions, and therefore the proportion of profitability, is expected to be greater in the second half than in 2001. The Board expects another good year from Laing Homes.
In the infrastructure investment sector Laing Investments has a substantial pipeline of new opportunities, which will enable it to build on the recent success of winning the 20-year franchise extension on the Chiltern line and the two projects recently awarded by the Metropolitan Police. Further earnings growth is also expected from the expanding facilities management operation.
When the sale of Laing Property is concluded, the Group will consist of a mix of current profitability and cash generation from the established and strongly performing Laing Homes business, together with asset value creation through the newer Laing Investments business. Laing Investments will be a net consumer of cash while we expand the business, with the exception of selective realisations of mature investments with lower potential for continuing capital growth.
As mentioned in my introductory remarks, together with the Board, I am developing a strategy designed to achieve an appropriate balance between earnings and asset backing for the shares. It is clear that efficient use of capital and financial strength will be essential in order to maximise returns from the many opportunities available in both the strong housing market and the growing market for infrastructure investment. In the coming months the Board will consider refinancing options to reduce the Group’s borrowing costs.
We are now in the process of simplifying the management structure and reducing the central overhead to a level more appropriate to the reduced scale of operations.
The current year has started well. There is no reason to expect any significant change in the Group’s main markets and this gives the Board confidence in the outlook for 2002.