The first six months of 2004 has seen further substantial progress in the development of our portfolio of infrastructure projects, with robust profits growth and an enhanced valuation, which is underpinned by the developing secondary market for PFI project equity.
John Laing is now well established as a leading project developer and investor in the PFI/PPP sector in the UK and increasingly in mainland Europe.
Governments across Europe are looking to procure capital projects using variants of the PFI/PPP model, and in the UK there are new and substantial initiatives in the health, education and transport sectors.
We have been tracking these developments closely, and have forged a series of strong alliances that will enable us to take maximum advantage of the skills and capacities of our restructured Group.

RESULTS AND DIVIDENDS

The Group profit before tax for the six months to 30 June 2004 was £13.1 million (2003 – £5.4 million restated from £5.1 million, including £2.1 million in relation to discontinued operations). Profit after taxation for the first six months was £6.2 million (2003 – restated loss of £1.7 million).
Our portfolio of investments in the accommodation, roads and rail sectors contributed £15.7 million to the result (2003 – £12.8 million).

We have realised a profit of £2.9 million from the sale of a development site at Aylesbury which was identified as a consequence of Chiltern Railways’ activity.
A £1.1 million loss for the utilities and airports sector (2003 – profit of £0.8 million) reflects, firstly, profit foregone as a result of the disposal of the Group’s Australian airport interests, and, secondly, a decision to take a revised approach to profit recognition on the London Underground Connect project due to the substantial delays to enabling works which are the responsibility of the client. Whilst we do not expect the delays to cause any deterioration in profitability over the whole life of this project, the re-phasing of profits has caused us to make a negative adjustment of £1.2 million in the period.
Bid costs and central overheads amounted to £6.9 million (2003 – £5.6 million) reflecting a higher level of bidding activity. We have reported an interest credit on the recourse funds of the Group, excluding interest on project company debt, of £2.0 million (2003 interest charge £3.1 million).
The Company will pay an interim dividend of 1.1 pence per Ordinary Share (2003 – 1.0 pence) on 1 October 2004 to shareholders registered at close of business on 10 September 2004. This increase in dividend is in line with our policy to grow dividends in line with earnings.

PORTFOLIO VALUATION

The portfolio valuation of our PFI/PPP investments increased to £277.7 million from £250.3 million as at 31 December 2003 – an underlying growth of 5% after adjusting the opening valuation for acquisitions, sales and cash distributions.
Valuation of the portfolio has been carried out on a consistent basis for each six month period since June 2000 and, while not included in the financial statements, the portfolio valuation does illustrate movements in value through application of a consistent methodology on the assumption that project investments are held to maturity. For the current exercise a weighted average discount rate of 10.9% was applied to contracted base case project cash flows (2003 – 10.8%) in line with the approach detailed in previous Annual Reports.

BUSINESS DEVELOPMENT

We entered 2004 with an exceptionally large number of projects at the preferred or sole bidder stage. Five of these have reached financial close in the first six months. These were Newham Hospital and the Sandwell and Greater Nottingham LIFT projects, the Manchester street lighting project and Sirhowy Way road in Wales. Since the half year a further 3 projects have reached financial close: these are the MAST (Manchester, Salford, Trafford) and Leicester LIFT schemes and the Avon & Somerset Courts project. This takes the total number of signed projects up to 40 of which 22 are fully, and 7 are partially, operational. We expect to achieve financial close on a minimum of 4 further projects over the remainder of the second half.
We have secured preferred bidder status on the Swindon Schools project which takes our share of the capital value of projects at the preferred or sole bidder stage to £1.9 billion with a future equity commitment of £50 million. Since our last trading statement on 28 June 2004, we have reached the short list stage on a further 4 projects having a combined capital value of £565 million. These are Bromsgrove Schools (Laing share 100%), South Lanarkshire Schools (Laing share 33%), the E18 Finnish road (Laing share 41%) and the Argyll & Arran primary healthcare project (Laing share 50%).
Over the last 18 months we have concentrated on building strong working relationships with equity partners in the sectors where we see maximum growth potential in the short to medium term. The alliance with HBoS PLC is well established in relation to LIFT primary health schemes and we are working with Pinnacle Plc in the growth area of PFI housing and regeneration.
In the European market, we have formalised alliances in preparing to bid for new PFI/PPP roads in a range of national markets. In the UK we continue to work with GNER in preparing to pursue the Greater Western Rail franchise, a bid that is due to commence in the fourth quarter of the current year. Most recently we announced our Commonwealth Bank of Australia joint venture, which is targeting project equity investments of £300 million in the UK health and European transport sectors. This is a significant development for John Laing which enables us to be a lead participant in the growing number of large projects coming to market. The joint venture is currently evaluating a range of significant bidding opportunities.

RETAINED LIABILITIES

We have recently achieved satisfactory final account settlement on a number of retained liabilities following the sale of Laing Construction. The longstanding claim against the Group in relation to the Great Eastern Hotel construction management contract is currently in court and may not be resolved for a number of months. The Directors consider that the current provisions are sufficient to cover the likely outcome on all of the remaining legacy issues.

BALANCE SHEET

The net Group cash position at 30 June 2004, excluding the non-recourse debt of PFI/PPP project companies was £57.0 million (31 December 2003 – £86.8 million).
This is stated after the payment of £19.7 million for a 50% shareholding in the M40 DBFO road project on 25 June 2004. The Group now owns 100% of the equity interest in this project, although 50% is held for resale and presented as a current asset.
Consolidated shareholders’ funds at 30 June 2004 stood at £120.1 million (31 December 2003 – £114.0 million) after deducting the FRS 17 net pension fund deficit of £91.5 million (31 December 2003 – £93.7 million).

BOARD COMPOSITION

I am pleased to announce that with effect from 1 September 2004 Tim Matthews and Michael Medlicott will be joining the Board as independent Non-executive Directors. At the same time, Derek Potts and Richard Weston, the Managing Directors of Laing Roads and Equion respectively, will join the Board as Executive Directors. Between them, these appointees bring a wealth of relevant experience to the Board and they reinforce our ability to set the strategic direction for further expansion within a framework of strong corporate governance.

PROSPECTS

John Laing plc has completed its transformation and is now presented as a highly focussed developer of PFI/PPP infrastructure projects. The market opportunities are growing and we have the skill base to take full advantage over the medium and long-term.
In the shorter term we expect to see continued positive progress in our core businesses. At this stage we remain confident of achieving a very encouraging overall outturn for the current year.

W W Forrester
Chairman
31 August 2004