Continuing businesses
traded well

THE GROUP REPORTED A LOSS BEFORE TAX FOR THE YEAR ENDED 31 DECEMBER 2001 OF £24.7 MILLION (2000 - PROFIT £5.7 MILLION).

DISCONTINUED BUSINESS

On 22 October 2001 the Group sold its interest in Laing Construction plc for a consideration of £1.
The accounts for the year ended 31 December 2001 include trading losses of £94.5 million in Laing Construction for the period prior to the sale of the business. The net assets of Laing Construction amounted
to £26.8 million and the costs of the sale amounted to £4.7 million. Goodwill previously written off to reserves was £2.1 million, giving rise to a loss on sale of £33.6 million. The total Construction loss of £128.1 million is shown in the results of discontinued businesses.
The trading loss in Laing Construction of £94.5 million is stated after making provision for the Directors’ assessment of likely costs associated with an indemnity provided to the purchaser on retained contract liabilities. At 31 December 2001 the provision in the accounts amounted to £57.0 million.

CONTINUING BUSINESSES

The continuing businesses at 31 December 2001 comprised Laing Homes, Laing Investments and Laing Property.
The results of the continuing businesses are summarised in the table below. The comparatives for 2000 exclude the construction businesses.

CONTINUING BUSINESSES AT 31 DECEMBER 2001

During the second half of 2001 the Group sold its 15% interest in Europistas. The profit on sale amounted to £48.0 million (2000 - £17.3 million) and capital repayments received ahead of the sale amounted to £6.4 million (2000 - £10.5 million). The total profits from Europistas are included within Continuing Businesses under the heading of ‘Profit on disposal of and amounts written off investments and other fixed assets’.
The results of companies acquired are included within continuing businesses. Acquisitions during the year to 31 December 2001 included the Hyder Investments portfolio in January and a 50% interest in the PFI project company for the Queen Elizabeth II Hospital, Greenwich.
The acquired businesses contributed operating profits of £24.1 million to the 2001 result.
The purchase consideration paid for the Hyder Investments portfolio was £92.5 million and the assets acquired included cash balances of £33.1 million, resulting in a net expansion of the Group’s infrastructure portfolio of £59.4 million. As part of this purchase, the Group took on commitments to pay a further £43.7 million of deferred equity to project companies over a four year period to 2005. During the period to 31 December 2001 an amount of £10.1 million of this deferred equity was settled by the Group. Subsequent to the acquisition of Hyder Investments, the Group sold a 22.5% interest in the A55 PFI road project for £3.2 million and a 22.5% interest in the M40 PFI road project for £8.9 million, thereby reducing its interest to 50% in both projects.
The purchase consideration paid for a 50% interest in the Queen Elizabeth II Hospital, Greenwich, amounted to £12.8 million.
The Directors valuation of Hyder investments assets acquired including the deferred equity payments following the acquisition, was £92.5 million.
Group management costs for the year ended 31 December 2001 included exceptional refinancing costs of £6.7 million for the restructuring of the Group’s debt facilities and £2.0 million provision for redundancies and other costs associated with reducing the scale of the head office function.

FINANCING COSTS

The Group’s net interest charge for the year ended 31 December 2001 was £32.3 million (2000 - £6.0 million) and consists of three elements:

TAXATION

The tax charge for 2001 was £12.1 million (2000 – £2.8 million). The tax charge principally reflects tax on profits in the continuing businesses not able to be sheltered by the losses in the Construction Division due to its disposal. The potential capital gains on the profits resulting from the sale of Europistas have largely been sheltered by capital losses on the sale of Laing Construction and by indexation. Under the terms of the sale of Laing Construction the Group is entitled, through the operation of Group relief, to its time-apportioned share of taxable losses for the 15-month accounting period to 31 March 2002. This is unlikely to result in a significant amount of losses available for offset against the taxable profits of the continuing businesses.
The Group has no unutilised Advance Corporation Tax.

FINANCE

Following the acquisition of Hyder Investments Limited in January 2001, the Group held a controlling interest in a number of project subsidiaries. The assets and liabilities of those subsidiaries are consolidated for the purpose of the accounts. Group net debt includes £109.5 million of project specific debt that is secured solely on the assets of the project company and on which there is no further recourse to the Group’s other assets.
Consolidated net debt at 31 December comprised the following:-

The poor trading of Laing Construction and the disappointing proceeds for the sale of that business caused a potential breach of the Group’s loan covenants in 2001. Following extensive negotiations with the Group’s lenders, the loan facilities were restructured on 22 October 2001 to provide committed funding for the Group to August 2004, incorporating a new covenant package and consequently a higher ongoing cost of borrowing.
The sale of Laing Construction also resulted in the deconsolidation of £73.4 million of cash, this being the net cash balance held by that business in support of its trade liabilities at the date of sale. This depletion of the Group’s financial resources necessitated the refinancing by way of a Rights Issue of 76,756,488 new Ordinary Shares at 100 pence per share. The Rights Issue raised £73.9 million net of expenses. Underwriting commissions and other costs associated with the Rights Issue amounted to £2.8 million. These costs have been charged to the Share Premium Account.
In June 2001 the Group reduced its interest in WL Homes LLC from 50% to 22.5%. The net cash proceeds, including a special dividend distribution, were £33.3 million. In addition to the cash consideration the Group received £20.5 million of interest bearing deferred equity. This is expected to be realised through cash payments to the Group over the next two to three years.

DEBT FACILITIES

Group net debt rose from £30.0 million at the beginning of the year to £276.9 million, including non-recourse net debt of £109.5 million, by 31 December 2001. The non-recourse debt arose as a result of the purchase of Hyder Investments Limited and represents project specific debt that has to be consolidated on projects where the Group’s interest is in excess of 50%. The underlying recourse net debt at 31 December 2001 was £167.4 million (2000 - £30.0 million).
The Group has core debt facilities of £257 million, including US$110 million of Loan Notes. Scheduled repayments are £10 million by 30 June 2002, or on completion of the sale of Laing Property Developments if earlier, followed by £25.0 million on each of 31 March 2003 and 30 September 2003. The bank facilities mature on 31 August 2004. The Loan Notes amortise over the period from 2004 to 2012, but become repayable on demand from 31 August 2004 and repayments made prior to the scheduled date would attract a substantial premium for prepayment, as set out in note 22 contained within the Directors’ Report and Financial Statements.

ASSET REALISATION

Details on the sale of Laing Construction and the Rights Issue were communicated in a circular to shareholders in September 2001. The circular explained that the Group was investigating the sale of up to £120 million of assets. Up to March 2002 the realisations against this target amounted to £83.4 million. Of the realisations achieved, £51.4 million relates to the sale of the Group’s 15% interest in Europistas. However, the final proceeds from the sale of £33.1 million were not received until early January 2002 and were, therefore, included in the Group’s consolidated balance sheet as a debtor at 31 December 2001.
As part of the overall asset reduction programme, and as previously announced, the Group intends to sell Laing Property. Some individual property assets have already been sold, with the proceeds mainly received in 2002. Negotiations are well advanced for the sale of the remaining property portfolio and this is likely to result in further debt reduction during 2002.

GOING CONCERN

The Board has reviewed the working capital adequacy for the foreseeable future. A key feature of the cash flow projection for the current year is completion of the asset realisation programme. The Board has a high level of confidence that the programme will be completed in line with expectation and has therefore prepared the financial statements on a going concern basis.

FOREIGN CURRENCY

The Group operates a policy of hedging against significant balance sheet exposures to foreign exchange fluctuations where appropriate.
Currently the investments in the US housing business and Adelaide Airport are hedged using foreign currency loans and forward foreign exchange contracts. During the year the investment in the US housing business was partially disposed of and as a consequence total US denominated assets reduced to £32.4 million and as at 31 December these were £37.0 million. As the Group has US term loans totalling £85.6 million, the exposure was hedged by entering into forward foreign exchange contracts which had a notional value of £56.3 million at 31 December 2001.
The Group seeks to cover significant transactional exposures arising from receipts and payments in foreign currency, where appropriate and cost effective.
Contingent or uncertain exposures are hedged when, in the opinion of the Directors, the risk justifies doing so.
The book value of overseas assets, excluding US housing assets and Adelaide Airport at 31 December 2001, was £12.9 million (2000 - £6.0 million). This includes the Group’s investment in Northern Territories Airports at £4.2 million, Gorodok at £4.1 million, Nelostie at £3.0 million and Horizon Energy at £1.3 million. These are offset by liabilities in Group overseas companies.
When the Group invests in overseas developing markets, the required rate of return includes an appropriate risk premium to cover the risks inherent with the economy and business practices of that country.
Group Treasury acts as a service centre to the Group and its divisions and is not a profit centre.