An internal valuation of the John Laing portfolio has been carried out on a consistent basis for each 6 month period since June 2000. The exercise does not seek to establish the market value of the assets in the portfolio – but does illustrate movements in value between periods, and the impact of intervening transactions, through the application of a consistent methodology.

METHODOLOGY

The valuation process is based on one of 4 methods to establish a value for each of the projects in the portfolio:

DCF was utilised in 30 of the 33 projects for the 31 December 2003 valuation. In this exercise the detailed financial models, approved and updated at Project Company level in line with operational experience and lenders’ requirements, are scrutinised to determine forecast future cash flows to John Laing. A post-tax DCF analysis was then applied, with any flows resulting from interest bearing loan notes taxed at a notional 30%.
No value is ascribed to any proposed extensions of project scope since, whilst their scale may be known and they may be projected to yield substantial additional future cash flows, they are not contractually certain. Similarly, no value is derived from planned refinancing, which although projected as creating additional value through accelerating cash release from projects, have yet to reach financial close. No value is ascribed to preferred bidder positions.
The discount rate utilised is arrived at by adding risk premia of 2%, 4% and 6% to a base 7.5% depending on the distribution of project cash flows between the construction phase, ramp up (two years from the start of operations) and subsequent operations. Additional risk premia will be added if the future performance of the project is subject to particular uncertainties, in relation to a payment mechanism incorporating significant volume risk or other unusual risks.
For those investments valued by DCF the weighted average annual discount rate in the 2003 valuation is 10.8% (2002 – 10.5%). The marginal increase in the average discount rate reflects in the main the inclusion of early stage projects that were either acquired or reached financial close during the year. Projected Chiltern base case shareholder cashflows are discounted at 15% (2002 – 15%).
In two cases, Horizon Energy and the Second Severn River Crossing (‘SRC’) debenture stock, market valuation as at 31 December 2003 has been used for the current exercise. The remaining SRC equity interest has been valued on a DCF basis. In a further two cases, both fully written down, a book valuation has been used. As before, these are the Brisbane Air Rail Link project, acquired as part of the Hyder Investments transaction in 2001, and the Midland Metro, where patronage has not met expectations. The total on page 22 ascribes no value to the equity interests in these projects.
Included in the valuation as at 31 December 2003 is the cash receivable of £6.3 million on Northern Territories Airports (‘NTA’) and £3.6 million receivable on Modus, both interests were contractually sold prior to the year end and in the case of NTA, the cash was received in January 2004.
As in 2002, the calculations underpinning the 2003 valuation have been validated by Ernst & Young LLP in line with a brief requiring them to ensure that the financial analysis used to generate the valuation is both accurate and in accordance with the adopted methodology. Ernst & Young LLP have not reviewed each of the financial forecasts approved at Project Company level by the relevant Project Company entities.

Net assets employed after deducting project specific finance for the projects valued in each of the sub-sectors at 31 December 2003 were: