POST RETIREMENT OBLIGATIONS

Pension Plans
The Laing Schemes
John Laing plc operates two primary defined benefit schemes in the UK (the ‘Laing Schemes’) – The John Laing Pension Fund (‘the Fund’) and The John Laing Pension Plan (‘the Plan’).

Full actuarial valuations of the Laing Schemes were carried out as at 31 March 2002 and were updated to 31 December 2003 by a qualified independent actuary, Towers Perrin. The assets of these schemes are held in separate trustee administered funds.

John Laing plc reached agreement with the trustees of the Fund to increase contributions to address the Fund’s deficit over time. From 1 January 2004, John Laing plc made contributions to the Fund at the rate of 18% of pensionable salaries. Active members of the Fund re-commenced employee contributions from 1 January 2004, at a rate of 2% of their pensionable salary, which will escalate to 6% of pensionable salary in 2006. In addition to the 18% regular contributions, John Laing plc has agreed to make an annual cash payment of £4.0 million a year for the years 2004 – 2007. The first £4.0 million payment was made in January 2004. No contributions were made to the Plan in 2003 or for the first six months of 2004.

Both schemes are now closed to new members and there are no active members remaining in the Plan. Therefore, under the Projected Unit method of valuation, the current service cost for the Fund will increase as a percentage of pensionable payroll as the members approach retirement. Staff employed since 1 January 2002, who are entitled to retirement benefits, can choose to be members of a defined contribution Stakeholder scheme sponsored by the Group in conjunction with Legal and General Assurance Society Limited.

The Chiltern Schemes
The Chiltern Railway Company Limited Section and the Chiltern Railway Company Limited (Maintenance) Section (the ‘Chiltern Schemes’) form part of the Railways Pension Scheme (the ‘Scheme’) but their assets and liabilities are identified separately from the remainder of the Scheme. The Scheme is a defined benefit shared cost scheme.

The last full actuarial valuation of the Chiltern Schemes was carried out as at 31 December 2001 and these were updated to 31 December 2003 by a qualified independent actuary, Watson Wyatt.

The assets of the Chiltern Schemes are held in separate trustee administered funds. Contributions to the Chiltern Schemes are assessed in accordance with the advice of a qualified actuary using the Attained Age funding method.

The Chiltern Schemes remain open to new members.

Post retirement medical insurance
The Group provides post retirement medical insurance to a group of 70 past and present employees. This scheme was closed to new members in 1991 and only 3 of the members remain in the employment of the Group. This scheme is unfunded.

Post retirement scheme assets and liabilities
The market value of the assets in the pension and post retirement medical schemes and the present value of the liabilities in the schemes were:

TAXATION ON PROFIT ON ORDINARY ACTIVITIES

The Group’s tax charge for the six months to 30 June 2004 was £6.9 million (six months to 30 June 2003 – £7.1 million, year to 31 December 2003 – £13.3 million). This consists entirely of current year charges for continuing businesses (for the six months to 30 June 2003 there were charges of £3.7 million associated with discontinued businesses of which prior year charges amounted to £2.9 million).

The tax charge of £6.9 million for the six months to 30 June 2004 is mainly associated with the tax charges in PFI/PPP project companies. The tax legislation applicable to project companies falls into two distinct categories. Project companies to which the “composite trade basis” applies tend to have an effective tax rate that approximates to 30% on reported profits before tax. On the other hand, those projects that attract capital allowances tend to have a much higher effective rate of tax because only a proportion of the construction costs qualify for capital allowances. This results in an estimated average effective tax rate of 44% across all PFI/PPP project companies.

The Group expects to generate sufficient taxable profits in 2004 to offset all bid costs and overheads. In previous years, the Group had insufficient taxable profits to obtain full deduction for its bid costs and overheads. No deferred tax asset has been recognised in respect of tax losses carried forward for future use.

The Group has recognised a deferred tax asset of £37.0 million (30 June 2003 – £40.2 million, 31 December 2003 – £35.8 million) on the pension and post retirement liabilities to reflect the tax deduction that the Directors believe will be available on future pension contributions and medical insurance premiums.

Taxation analysis

EARNINGS PER SHARE

Earnings (30 June 2003 – losses) per share have been calculated by reference to 178.3 million basic and 179.6 million diluted shares, these being the average number in issue during the six months to 30 June 2004 (six months to 30 June 2003 – 176.7 million basic, 176.7 million diluted, year to 31 December 2003 – 176.7 million basic, 179.5 million diluted). Convertible Cumulative Preference Shares totalling 13.3 million shares have been excluded from the calculation as they are anti-dilutive.

SHORT-TERM INVESTMENT

On 25 June 2004, John Laing plc acquired a further 50% interest in the M40 DBFO road for £19.7 million. The Directors’ intention is to sell this acquired interest in the second half of 2004. Accordingly, the acquired investment is being held as a current asset. The existing 50% interest in the M40 DBFO road continues to be gross equity accounted.

NET DEBT

Included in the cash, bank and other loans are non-recourse balances related to PFI/PPP project companies in which the Group has a controlling interest.

PROVISIONS

Investment in joint venture
Following the refinancing of the Norfolk and Norwich PFI project company in 2003, the Group has received cash distributions that exceed the Group’s initial investment and share of reserves in the joint venture. The resulting net liability of £8.5 million is included in provisions (2003 – net £8.8 million). This net liability will reduce as the project company generates retained profits over the life of the project agreement.

Other provisions

GUARANTEES, CONTINGENT LIABILITIES AND OTHER COMMITMENTS

Certain of the Group’s principal subsidiary undertakings and John Laing plc (the ‘Company’) are guarantors under the Group’s banking facilities.

The Group’s bankers have issued letters of credit on behalf of the Company or its subsidiaries of which £65.2 million were outstanding at 30 June 2004 (2003 – £73.1 million). The Group has given guarantees of a normal trading nature including performance bonds, some of which may be payable on demand.

In addition to the provisions disclosed in note 13, as is usual, there are claims arising in the normal course of trading and in respect of disposed businesses, which are in the process of settlement and, in some cases, involve or may involve litigation. Full provision has been made in these accounts for all amounts which the Directors consider will become payable on account of such claims.

At 30 June 2004 there were capital commitments of £60.0 million (2003 – £58.0 million) for the uncalled capital of unlisted investments.