Additions to our portfolio
have strengthened the business

Laing Investments recorded a profit before interest for the year of £83.2 million, including £48.0 million profit from the sale of Europistas. This spectacular 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. However, it should be noted that the interest charge on project debt also commences and against these operating profits there was a net financing cost of £17.4 million (2000 – £4.5 million).

Throughout 2001 a normal level of bidding activity was maintained on new project developments and substantial pre-contract effort was aimed at the achievement of commercial agreement on the Chiltern Line franchise extension, which subsequently reached financial close early in 2002. The Group’s policy is to write off all PFI bid costs to the profit and loss account until such time as the project reaches financial close when they are reinstated to the balance sheet. The Group did carry bid costs on the balance sheet in respect of the Chiltern Line franchise prior to financial close once it had become preferred bidder and it had signed a Deed of Amendment following which the new subsidy profile commenced.
The investments business has an exciting pipeline of bid opportunities that will enable the Group to push forward 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, project asset management services in the health sector, and will provide an extensive range of support services on police PFI projects. Equion FM is also bidding to potential third party clients.

ASSETS AND PROFITS INCREASED IN A YEAR OF CONSIDERABLE ACHIEVEMENT

2001 was a remarkable year for Laing Investments. By its end, the Directors’ valuation of our portfolio of assets had risen from £148 million to £201 million.

Profits before tax had increased from £22.9 million in 2000 to £65.8 million including £48 million from the sale of Europistas.
Moreover, in a year of successful trading, we expanded our activities and formed new commercial partnerships which will give us a robust platform for further growth in the future.
During the year, a number of key projects moved out of construction into the revenue-generating, service-delivery phase. This enabled us to launch a planned and successful expansion of our facilities management, asset maintenance and specialist service activities.

SUCCESSFUL ACQUISITIONS

During the year we successfully concluded the £92.5 million acquisition of the Hyder investments portfolio from Western Power Distribution.
Hyder Investments’ assets and project interests are an excellent fit with our established holdings in road, rail infrastructure and accommodation investments, and fall well within our geographical markets. The critical mass secured by the acquisition also ensures a firm foundation for the growth of Equion plc, the Laing Investments subsidiary delivering serviced accommodation to the public sector.
In February, we bought Macquarie European Infrastructure Ltd and thus acquired a 50% interest in Meridian, the project company behind the Queen Elizabeth II Hospital in Greenwich. This substantially strengthened our engagement in the highly competitive health sector, where we also achieved a significant success by handing over the new Norfolk & Norwich Hospital some five months ahead of schedule.

POLICE PROJECTS REACH CLOSE

Other key projects reaching financial close during the year included the £40 million Metropolitan Police Firearms & Public Order training facility being built at Gravesend and police stations in Lewisham, Bromley and Sutton.

NEW PARTNERSHIPS FORMED

During the year we successfully cemented a broad range of new commercial partnerships through which we are pursuing new opportunities in our targeted sectors.
The year ended with the formation of bespoke consortia which will bid for the Ministry of Defence’s Connaught & Allenby project – MoDernise – and the LIFT Primary Care programme being promoted by the National Health Service in association with Partnerships UK.
In Australia, we have formed a joint venture which will enable us to capitalise on our European experience and pursue a range of social infrastructure activities.

RAIL RECORD REWARDED

In a troubled year for Britain’s rail network, it is pleasing to report that our major rail investment – Chiltern Railways – not only continued to deliver one of the best safety records in the UK but, at the beginning of 2002, was awarded the Strategic Rail Authority’s first-ever 20-year franchise. This is an exceptional achievement.

INVESTING IN SUSTAINABILITY

As a Laing company, we work well within the policies set out by the Sustainable Development Steering Group. Our involvement in low pollution projects such as Chiltern Railways reflects our concern for our investments’ impact on the environment.
Similarly, our specifications for our recently completed police stations achieved an excellent standard in Building Research Establishment Environmental Assessment Method (BREAM) while, at the Fire Arms & Public Order training facility, our proposals reduced the noise impact to a minimum.
During 2001 we began the process of securing ISO 9001 accreditation, which we hope to achieve in the second quarter of 2002, with environmental certification ISO 14001 following during 2003.

BUSINESS STRENGTHENED

Following the substantial growth in our assets and projects under management at the beginning of the year, we took the opportunity to strengthen several aspects of our business. For example, all new and existing investments are now subject to a rigorous review and approval process overseen by our Investment Committee.
We have also significantly broadened our skills base through training and development, and undertaken a recruitment programme which has attracted very high calibre people across a wide range of disciplines.
With so many social infrastructure projects coming to successful fruition, our industry urgently needs to promote the real benefits of the PFI/PPP initiative.
As one of the most experienced participants in this sector, we have all the skills and financial strength needed to deliver a competitive edge, both in the UK and overseas. It is these qualities, and our staff’s commitment, which will enable us to grow in the future.