Last year, I reported that John Laing was making progress after a very difficult period.
I am now extremely pleased to report a return to profitability for the Group and excellent progress in our fast growing infrastructure development, investment and operations businesses.
2003 has been a year of successful implementation following the fundamental review of strategy in 2002. Our programme of disposing of non-core operations is largely complete, and our sector focus on public service accommodation, roads and rail has proved to be a platform for significant growth in activity.
Your Board remains committed to a strategy of delivering sustainable project earnings and cash returns, together with continuing growth in value of the infrastructure assets developed and managed by the Company.

RESULTS

The Group profit before tax for the year ended 31 December 2003 was £21.2 million, compared to a prior year loss of £14.1 million. The figure for the 2002 loss has been restated from a previously reported loss of £18.6 million to reflect a consistent basis of accounting for the expanded PFI portfolio and the adoption of FRS 17 for pension accounting.
The profit before tax attributable to the continuing businesses was £16.7 million compared to a prior year profit before tax for the same businesses of £1.2 million as restated (refer to note 1). This progress reflects the growth in the profitability of the investments portfolio.

DIVIDENDS

As previously stated, the Board intends to align dividends more closely with earnings. Clearly we need to recognise the change in our earnings profile and that shareholders’ returns will derive from capital as well as earnings growth.
For the year ended 31 December 2003 the Board is recommending a final dividend of 2.0 pence per Ordinary Share (2002 – 4.8 pence), bringing the total for the year to 3.0 pence per Ordinary Share (2002 – 6.8 pence). Subject to shareholder approval, the final dividend will be paid on 1 June 2004 to shareholders registered at the close of business on 2 April 2004.

DIRECTORS AND EMPLOYEES

During 2002, in line with the re-positioning of the John Laing Group, the Board was strengthened through the appointment of three independent non-executive Directors, Tim Boatman, Paul Meredith and The Baroness Noakes. Subsequently two of the four executive Directors left the Board following the sale of the Property and main UK House Building businesses.
All three independent non-executive Directors appointed in 2002 have made a significant contribution to the business during a period of restructuring, and in particular I would like to thank The Baroness Noakes, who resigned from the Board subsequent to the year end to concentrate on other business interests.
Since the reconstitution of the Board in 2002, there has been a major change in structure and focus of Group activity but there have also been substantial developments in relation to best practice and corporate governance in business, culminating in the new Combined Code issued in July 2003.
The requirements of the new Combined Code are stringent in relation to many matters, including the balance to be maintained between executive and independent non-executive Board representation, and the Group will be moving to ensure complete compliance in this regard. As a consequence, it is the Board’s intention to make further appointments during 2004 to bring Board composition into line with both the new Combined Code and the nature of the restructured business.
After many years’ service to the John Laing Group, Sir Martin Laing, former executive Chairman and a current non-executive member of the Board, will step down from the Board with effect from 30 April 2004. The Board has invited Sir Martin to accept the honorary position of President. On behalf of generations of Group staff and Board colleagues, I would like to thank Sir Martin for his wholehearted contribution to the Company over nearly four decades and, in particular, I wish to express my gratitude for the invaluable support he has given to me as his successor over the last two years.
Recent years have thrown up the challenge of major change as the John Laing Group has striven to overcome past difficulties and create a renewed and profitable business. I would like to pay tribute to the enthusiasm and commitment of the many staff who are contributing to improved performance and to the establishment of a soundly based profitable company – a leader in its field with an exciting future.

DISPOSALS

During the year the Group received the final £214.8 million of proceeds from the sale of Laing Homes Limited and divested its interest in three of the four residual housing businesses for a combined profit after costs of £1.2 million and a net cash receipt of £53.9 million.
Subsequent to these transactions the Group’s only retained housing interest is its 30% stake in Octagon Developments Limited (net book value of £15.8 million at 31 December 2003), which it intends to divest in due course.
The Group sold its Australian Airport interests during 2003 for a combined profit on disposal of £4.9 million and a cash consideration of £19.4 million, of which £13.2 million was received in 2003 and the remainder at the end of January 2004. The move reflected both John Laing’s strategic focus on the accommodation, roads and rail sectors and also a decision to concentrate bid resources on emerging European opportunities.

ACQUISITIONS

The purchase from Amey plc of a portfolio of project interests plus a pipeline of bidding opportunities was completed in March 2003 for £29.1 million in cash and the assumption of £13.8 million in future equity commitments. During 2003 these investments were successfully integrated into the John Laing operating structure and underlying project performance was in line with our expectations. The acquisition was particularly useful in strengthening our position in the UK schools market.
One further acquisition was carried out in 2003 with the £1.8 million purchase of 100% of the equity in the operational Cleveland Firearms Facility. Taken together with the Gravesend Firearms & Public Order Training Facility, the acquisition gives John Laing complete coverage of this PFI sector in the English and Welsh markets, reinforcing a market leading position in the police sector as a whole.

PORTFOLIO REVIEW

After taking these movements into account, the John Laing portfolio at 31 December 2003 included 33 project interests of which 22 are fully operational. A further 3 projects reached financial close during January 2004.
Operational projects are performing well, with the risk transfer inherent in our approach to sourcing construction and service activities proving robust. The value of the portfolio remains heavily weighted towards less risky projects with availability based payment mechanisms. Our most significant exposure to volume risk relates to Chiltern Railways where both passenger revenues and profits grew ahead of expectations during 2003.
A valuation exercise has been conducted in line with the methodology that we have consistently applied since 2000, and the application of that methodology has been independently verified. The results indicate a portfolio valuation of £250.3 million – a 23% growth over the December 2002 valuation after movements in the portfolio are taken into account.

RETAINED LIABILITIES

The Group retained a number of liabilities following the sale of Laing Construction in 2001, relating both to residual construction activity and potential contract disputes. Provision was made in the 2001 accounts for the estimated costs to complete these contracts, which have been successfully managed in the interim. No substantive construction work now remains to be completed and a number of potential disputes have been resolved. Accordingly, the Board has concluded that it is prudent to release £2.6 million to the profit and loss account. The Board is confident that the remaining provision is sufficient to satisfy the Group’s commitment in respect of all retained liabilities.

PENSIONS

The FRS 17 post retirement deficit has reduced during the year from £146.8 million to £129.5 million, which further reduces to a net £93.7 million after accounting for the associated deferred tax asset (2002 – £103.8 million). Employer contributions re-commenced from 1 January 2003 and employee contributions have been re-introduced as of January 2004. It remains Group strategy to address the deficit over time, and to this end a schedule of contributions has been agreed with the John Laing Pension Fund Trustees providing for the contribution of an additional £4 million per annum over and above the normal level for the period from 2004 to 2007, at which point we will review the future funding requirements.

PROSPECTS

Prospects for the infrastructure development, investment and operations business remain excellent. Bidding activity, expanded in 2002, has lead to a significant growth in both preferred bidder positions and the identified pipeline of future opportunities in each of our key sectors.
In July 2003 the UK Government confirmed its intention to continue to utilise PFI in key social infrastructure sectors targeted by the Group, and the latter half of 2003 saw a marked evolution of the UK’s secondary market for operational infrastructure assets, which, as it matures further, will allow the Group to release significant value from signed projects.
More broadly, a number of opportunities are now emerging in the European and wider OECD markets where John Laing’s specialist development capabilities position it well for pursuing new activity in association with strong local partners.
John Laing is now established as a market leader. The Group is active in sectors where new opportunities are developing apace and where the Board is confident that its established track record and focus on quality will continue to grow and create value for shareholders.

W W Forrester
Chairman
22 March 2004