The first six months of 2005 has seen further substantial progress in the development of the Group as a leading project developer and PPP investor.
Our expanding portfolio of infrastructure projects is reflected in an enhanced portfolio valuation and the continuing development of the secondary market for PFI project equitY is encouraging.
John Laing is now well established in mainland European markets, where an increasing number of Governments are seeking to procure capital projects using variants of the PFI/PPP model.
Following the UK election greater certainty surrounds substantial spending programmes underway in the health, education and transport sectors.
The success of our recent rights issue, concluded in July, creates a sound platform for the Group to increase its involvement in growth sectors which present attractive opportunities for further investment.

RESULTS AND DIVIDENDS

The results have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) and the comparative data has been restated to comply with the transitional arrangements for implementation of IFRS.
Turnover has declined from £259.2 million in the comparative period to £192.3 million. This largely reflects completion of the construction phase on accommodation projects in the second half of 2004. Now that these projects have become fully operational they are contributing to the growth in profit before tax.
The Group recorded a profit before tax from continuing operations for the six months to 30 June 2005 of £13.8 million (2004 – £12.9 million). During the comparable period in 2004, £2.9 million was realised from the sale of a development site; no asset sales occurred during the first six months of 2005.
Equion, our division focussed on PFI/PPP accommodation projects, has seen growth in profit before tax to £8.9 million (2004 – £6.7 million) which is partly attributed to the full scale commencement of operations at the MoD main office building in Whitehall during the second half last year.
Laing Roads achieved a profit before tax of £3.4 million (2004 – £3.8 million). All operational projects have performed in line with our expectations with the small decline in profitability attributable to the interest cost effect of increasing RPI on the Severn River Crossing index linked debenture stock. During the period the E39 road project in Norway became fully operational, two months ahead of schedule.
Laing Rail traded well in the period, achieving profits before tax of £4.8 million before accounting for new franchise bid costs. In 2004, profits of £5.2 million were boosted by passengers diverting from the periodic closure of the West Coast Mainline. The operational performance of Chiltern Railways remained strong with punctuality of 92.5% recorded and a 7% increase in passenger earnings over the previous year, but this was fully offset by a reducing subsidy profile.
The collapse of tunnelling works associated with third party developments at Gerrards Cross on 30 June 2005 subsequently caused severe operational difficulties on the Chiltern line, for which the company is receiving full compensation under the relevant indemnity agreements with the developer and Network Rail. Full scale operations recommenced on 20 August 2005 after concerted joint action with Network Rail and the Directors would like to thank staff for their efforts and passengers for their patience during this period.
Having revised the approach to profit recognition to reflect delays on the LUL Connect project last year, our Utilities business has achieved a profit before tax of £0.4 million (2004 – loss £1.1 million).
The net cost of management services, including bid costs and overheads, reduced to £3.0 million (2004 – £7.1 million). The improvement resulted from significant income related to PFI projects that reached financial close in the first half.
The final judgement on all outstanding issues relating to the Great Eastern Hotel litigation is expected in the second half. During the first half, the Company made interim payments totalling £10.0 million to the claimant from provisions held in the balance sheet. The Directors believe that, subject to a reasonable outcome on the matters still to be determined and the position taken by the Group’s insurers, the remaining provisions in the consolidated accounts at 30 June 2005 in respect of this case and the declining number of other retained liabilities are adequate.
The Company will pay an interim dividend of 1.2 pence per Ordinary Share (2004 – 1.1 pence) on 3 October 2005 to shareholders registered at the close of business on 9 September 2005. This increase in dividend is in line with our policy to grow future dividends, provided that they are fully covered by earnings.

PORTFOLIO VALUATION

The portfolio valuation of our PFI/PPP investments increased to £335 million from £301 million as at 31 December 2004 – an underlying growth of 9.0% (2004 – 5%) after adjusting the opening valuation for new investment 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 10.7% was applied to contracted base case project cash flows (31 December 2004 – 10.6%) in line with the approach detailed in previous Annual Reports.
Over the medium-term the Directors aim to implement a strategy for partial disposal of interests in mature operational projects to optimise value to the Company and generate the resources to fund further growth in the development portfolio.

BUSINESS DEVELOPMENT

Five projects reached financial close during the first half. These included the £300 million Newcastle Hospital, where John Laing and the Commonwealth Bank of Australia have co-invested in line with the strategic alliance formed in mid-2004. The £71.0 million North Swindon Schools Project, providing 7 new schools across the range of primary, secondary and special needs provision, reached financial
close in April. Also entering the construction phase were 2 regeneration projects in Stoke and Newham, both carried out through our Regenter joint venture with UK Pacific Investment Management which has been formed specifically to target PFI projects with a social housing content. In the justice sector Equion also reached financial close on the £57.0 million Cleveland Police Headquarters Project.
These take the total number of signed projects at the half year to 47 of which 27 were fully, and 7 were partially, operational. Since the half year, the Euro 700 million Polish A1 project has reached financial close. Phase 1 of this exciting project – John Laing’s first investment in the EU accession states – involves construction of 90 km of new road running south from Gdansk to Nowe Marzy and a 34 year concession period.
We expect to achieve financial close on a minimum of 4 further projects over the remainder of the second half.
The scale of the John Laing portfolio now allows for more continuous investment activity as existing projects expand in scope and new projects come to fruition. During the first half this activity resulted in John Laing committing to additional tranches of primary care facility development for the Leicester and Manchester, Salford & Trafford LIFT concessions.
We have continued to build our bidding pipeline and we have secured preferred bidder status on a number of major projects during 2005 to date. These include: the £800 million Leicester Pathways Hospitals Project, the £240 million South Lanarkshire Schools Project and the Euro 335 million E18 road project in Finland. A significant programme of bidding is underway both in the UK and in mainland Europe with projects at various stages of bidding in Norway, Germany, and Austria. In the United States, the Group has submitted its first PPP proposal, for the Dulles toll road, responding to the growing number of infrastructure investment opportunities now being promoted by a range of public authorities.
In accommodation projects, our UK bidding programme is focussed on the education, health, justice and local authority regeneration and housing sectors.
Together with MTR Corporation, Laing Rail has been short-listed for the 9 year Thameslink concession in a competition which will shortly reach the formal bid submission stage.

BALANCE SHEET

The net Group cash position in the continuing operations at 30 June 2005, excluding the non-recourse debt of PFI/PPP project companies, was £14.6 million (31 December 2004 – £42.7 million). After the end of the period, the proceeds of the rights issue, £95.4 million net of costs, were received on 19 July 2005, thereby increasing the resources available to the Group for future investment opportunities.
For the first time the balance sheet at 30 June 2005 incorporates the marking to market of financial instruments on an IFRS basis, including the financial assets and interest swaps of PFI/PPP project companies and results in an increase to the net assets of the Group, after deferred tax, of £84.0 million. The balance sheet includes the liability for post retirement obligations which has been updated to incorporate an improvement in asset values and revised mortality projections, resulting in a small increase in the net deficit to £140.6 million (31 December 2004 – £135.5 million). The Pension Protection Fund levy for 2005 is relatively small at £0.1 million. A risk based levy will apply from April 2006. Net assets at 30 June 2005 stood at £161.1million (31 December 2004 – £87.1 million pre-marking to market of financial instruments).
During the first half, the shareholders and the court approved a £50.0 million capital reduction which has increased the reserves available for future distribution.

PROSPECTS

John Laing has the skills and financial resources to grow the portfolio of infrastructure investments in the development phase over the foreseeable future and our assessment is that the UK and overseas markets in which we are bidding will continue to present significant opportunity.
The bid pipeline includes potential equity investments of £87.0 million on projects at the preferred bidder stage and a further £75.0 million if we achieve a 40% success rate on projects currently at the shortlist stage. The prospects for growth in profitability and portfolio value are good.
In the short-term we expect to see continued positive progress in our core businesses and at this stage we remain confident of achieving a very encouraging overall outturn for the current year.

W W Forrester
Chairman
25 August 2005