During the first six months of 2006 the Group’s portfolio of infrastructure assets has continued to perform well and grow in value. We have recorded further bid successes during the period and our bidding activity will continue at its current high level into the future, particularly as overseas opportunities continue to expand.
The UK market for infrastructure projects is currently suffering from programme delays, in part caused by budgetary constraints. However, the Department of Health has now completed the hospital review insofar as it affects the projects on which we are at the preferred bidder stage. Barts and The London Hospital project successfully reached financial close in the first quarter, since when we have devoted considerable effort to developing affordable schemes within the new treasury guidelines on the North Staffordshire and Leicester hospital projects. I am pleased to report that the Department for Health and the Treasury have now announced that these schemes are essential and affordable. In other sectors of the UK market the opportunity flow remains relatively stable.
We are continuing to press forward in the growing international markets, and are opening offices in Canada and Central Europe where we see significant potential. Private sector involvement in infrastructure investment and development is increasing in these markets and it is our strategy to establish a strong presence.
As previously reported, Chiltern Railways financial performance has been adversely affected due to the collapse of tunnelling works at Gerrards Cross last year. Tesco, the developer, has accepted liability and we have now commenced a formal dispute resolution process in order to settle on the quantum of compensation.

RESULTS & DIVIDENDS
The Group has recorded a profit before tax from continuing operations of £12.3 million (2005 – £13.8 million). The result includes profits from disposals of PFI investments of £4.6 million (2005 – £nil) and a loss from normal Rail operations of £0.8 million (2005 – profit £4.8 million). We have not included any credit within these results for the compensation referred to previously.
Equion, our division focussed on infrastructure accommodation projects, recorded a profit before tax of £12.2 million (2005 – £8.9 million), including disposal gains of £4.6 million (2005 – £nil). Excluding the disposal gains, the normal trading profit of £7.6 million was lower than profit for the comparable period in 2005 due to the profits foregone on project investments sold in the second half of 2005 and in the first quarter of the current year.
Laing Roads increased profits in the first half to £4.5 million (2005 – £3.4 million) as more projects became fully operational.
Train operating performance during the first six months was the best ever achieved by Chiltern at 93%. However, Chiltern Railways has recorded a loss of £2.4 million (2005 – profit £4.1 million) which mainly reflects the impact of the tunnel collapse on Chiltern passengers revenues. On the assumption that no further compensation has been received by the year end, we would expect the second half losses to exceed those of the first half due to the declining subsidy profile and cost pressure.
The Utilities division achieved a profit before tax in the first half of £1.1 million (2005 – £0.4 million) as the volume of services provided on the LUL Connect project increased.
Bid costs on projects, net of recoveries taken through the Income Statement following financial close, amounted to a charge of £2.3 million (2005 – credit £1.2 million). We expect this trend in rising bid costs to continue in the short to medium term as the level of bid activity increases.
The Company will pay an interim dividend of 1.3 pence per Ordinary Share (2005 – 1.2 pence) on 2 October 2006 to shareholders registered at the close of business on 8 September 2006. Our dividend policy is to grow dividends provided they are fully covered by earnings over the medium term business cycle.

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PORTFOLIO VALUATION
The Directors have prepared the portfolio valuation in accordance with the methodology set out in previous Annual Reports. This methodology has been applied on a consistent basis for each six month period since June 2000. While not included in the financial statements, this portfolio valuation illustrates the trends in values on the assumption that the Company holds the project investments through to maturity. This valuation is based on a DCF methodology where the discount rate is calculated by applying a relevant risk premium to the Company’s WACC.
However, due to the significant uncertainties over the timing and quantum of the compensation claim on the tunnel collapse, we have excluded Chiltern from the valuation at 30 June 2006 and from the comparatives on which we base growth statistics.
For the current exercise the weighted average discount rate was 9.9% (31 December 2005 – 9.9%) and the valuation was £287 million, representing a growth of 12% over the rebased valuation as at 31 December 2005 after adjusting for new investment and cash distributions.
The portfolio valuation described above is not intended to indicate the resale value of project investments. In order to provide an indication as to how potential purchasers of project investments might attribute value, the Directors have also calculated an alternative portfolio valuation by using a discount rate that applies our normal risk premium to the relevant long-term gilt yield plus 0.5%. The alternative basis of valuation also excludes shareholder tax from the cash flows on which the NPV is based. This methodology resulted in a weighted average discount rate of 7.4% (31 December 2005 – 6.9%) and a valuation of £420 million (31 December 2005 – £424 million). The growth over the rebased opening valuation was 11%, after incorporating a reduction of £22 million due to the increase in long-term gilt rates.

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BUSINESS DEVELOPMENT
Since the beginning of the year our consortia have reached financial close on Barts and The London Hospital project, the South Lanarkshire schools project and further tranches of capital investment on LIFT schemes. We have also been appointed preferred bidder on the Forth Valley hospital scheme in Central Scotland and most recently the East Dunbartonshire schools project.
We have added several projects to the pipeline of opportunities on which our consortia have been shortlisted, including the M25 road project, the Norfolk Street Lighting project and the German A4 road. We are also, in joint venture with MTR Corporation, a shortlisted bidder for the London Rail Concession – the new rail franchise incorporating the Silverlink Metro and the East London Lines.
We now have 50 projects that have reached financial close on which our cash investment to date has been £191.9 million and on which we have committed further investment of £56.3 million. Our assessment of the likely investment on projects at the preferred bidder stage is £70 million and at the shortlist stage, assuming a 40% success rate by value, the likely investment is £61 million.
We are continuing to bid on a broad spectrum of UK PFI sub-sectors. We are also increasing our bid activity overseas, with particular emphasis on Europe and North America. Whilst our interest, both at home and overseas, remains principally focussed on primary development opportunities we are also targeting secondary assets which provide scope to enhance values through financial restructuring or operational improvement.

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BALANCE SHEET
The net Group cash position at 30 June 2006, excluding non-recourse debt, was £108.1 million (31 December 2005 – £108.6 million).
The gross deficit relating to post retirement obligations at 30 June 2006 was £149.0 million (31 December 2005 – £202.8 million). The reduction was principally caused by the use of the updated AA corporate bond yield of 5.25% as the discount rate for liabilities. This has been partially offset by a slight increase in the inflation assumption to 2.85%.
As more fully described in note 13, the Group has previously included a deferred tax asset in respect of the pension deficit. This was based on the assumption that tax deduction would be available for future pension contributions in respect of former employees. Based on new guidance issued by HMRC in April 2006 and updated Counsel’s advice, we no longer have the required degree of certainty that tax deduction will be granted and therefore the accounting test for continued recognition may not be passed. In view of this, we have decided that it is no longer appropriate to recognise the deferred tax asset on the pension deficit, resulting in a balance sheet reversal of £57.0 million. Our strongly held view is that tax deduction ought to be granted. This would be equitable with the fact that increased tax liabilities arose during previous pension contribution holidays and the fact that pensions in payment are taxable. We will be rigorous in our approach towards establishing actual deductions.

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PROSPECTS
The UK infrastructure market continues to present significant opportunities but our growth aspirations will only be met if we also target and have continued success in overseas markets. We are well placed to take advantage of these overseas markets and, as previously stated, we are increasing our bid activity. We will continue to pursue both primary projects and secondary investment opportunities.
We have decided to present a single brand to the global infrastructure markets and we are therefore adopting the John Laing brand in all of our businesses except for Chiltern Railways and Equion FM. This is a strong brand and, when combined with our skills, resources and leading market positioning, we have confidence that the Group will continue to grow and prosper.
As we signalled in our last trading update, in the absence of a settlement with Tesco the Group’s profits for the current year are likely to be reduced by the lasting adverse impact of the tunnel collapse on Chiltern Railways. That apart, we are confident of achieving a satisfactory outturn to the current year in terms of profit and portfolio value enhancement.

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