The second half of 2004 saw a continuation of the improved Group profit performance evident in the first half, and we expect to report trading results in line with market expectations.

Business Performance

The Company’s infrastructure portfolio has grown and now numbers 42 project investments including 31 operational projects, of which 24 are fully and 7 are partially operational.

The Group’s accommodation projects continued to perform well in the second half. During the course of 2004 some 17 public sector facilities achieved practical completion and were handed over on time. Equion has a further 27 facilities under construction including schools, hospitals, local health facilities, police and court facilities.

Chiltern Railways had an encouraging second half, finishing the year with passenger revenue up 13% and over 91% of trains having run on time.   Implementation of franchise commitments remains on schedule, including the construction of new depot facilities at Wembley which are expected to open in June 2005. 

In December, Laing Rail achieved financial close on the Evergreen 2 project, which will provide new platforms at Marylebone as well as track improvements and new signalling on the Chiltern route at a capital cost of £80 million. This is the first application of an innovative project financing structure developed by Laing Rail for delivery of enhancements that, post completion, will be transferred to Network Rail.

The operational and financial performance of the Laing Roads portfolio has met expectations and construction on 5 projects has progressed to plan. The trading result for the year will be underpinned by the strong financial performances of the Severn River Crossing and M40 road projects. Traffic volumes on the A130 have been marginally ahead of the revised projections following the successful refinancing of the project earlier in the year.

Within the utilities sector, the re-phasing of profit recognition on the London Underground Connect project, due to late delivery of enabling works,  resulted in a first half loss of £1.1 million. While we do not anticipate that this will repeat in the second half, there is a dispute between the project company and the client regarding responsibility for the delays.
The Company announced that it had signed a Co-investment Partnership Agreement with the Commonwealth Bank of Australia (CBA) on 28 June 2004. Since then, CBA have taken a 50% equity interest in our Newham hospital project. We are currently working together on a further 4 projects at preferred bidder stage and 4 projects in earlier stages of the bid process. These opportunities are in the designated road and hospital sub-sectors of the PFI/PPP market on which the Co-investment Partnership is focused.

New Investments

Since the announcement in September of our interim results for 2004, we have achieved financial close on a further 3 projects, taking the total number of projects reaching financial close during 2004 up to 11, on which Laing’s equity commitment was £13.6 million. These included 8 projects closed by Equion in the accommodation sector, 2 projects closed by Laing Roads and the Evergreen 2 project, previously referred to, which was closed by Laing Rail. The forward equity commitment on signed projects at 31 December 2004 stood at £33.4 million.

Disposals

As previously announced, following the purchase of a 50% interest in the M40 road project in the first half,  the Company subsequently disposed of that interest to the Secondary Market Infrastructure Fund in September 2004 for a consideration of £26.3 million and a profit of £6.4 million. A 50% interest in the Newham hospital project was sold, at a small premium of £0.1 million, to the CBA in November 2004, thereby halving the Company’s future equity commitment.   No other disposals were carried out during the second half.  

Discontinued Activities

The Company ceased to be involved in direct construction activity in 2001, and substantial progress was made during 2004 in resolving a number of retained liabilities emanating from prior John Laing Construction Ltd activity.  In particular, a final settlement of all remaining matters concerning the Cardiff Millennium Stadium project was reached in October 2004. Judgement in the matter of a dispute on the Great Eastern Hotel construction contract is expected in the first quarter of 2005. The Directors consider that the current provisions are sufficient to cover the likely outcome on all of the remaining construction liabilities.

The FRS 17 pension deficit, that relates primarily to members who were formerly employed in the disposed construction business, is likely to increase significantly as at 31 December 2004. This is principally caused by a narrowing of the gap between AA rated corporate bond yields and our assumption of future inflation as at 31 December 2004. We intend to fund the actuarial deficit over a period of 15 to 20 years, which is likely to require an increase in the funding contribution that is currently £4 million per annum.

Financing

The Group successfully refinanced its main borrowing and letter of credit facilities in December 2004 on more favourable terms. It now has access to £140 million of committed facilities, £115 million of which extend to March 2010.

At 31 December 2004 the Company had estimated net cash balances of approximately £58 million, excluding the non-recourse debt in our PFI project companies.

Outlook

During 2004, we achieved preferred bidder status on 4 projects, taking the current total to 10 projects. These include the A1 road project in Poland which has a capital value of Euro 700 million and in which Laing Roads will have a 30% equity interest.

The capital value of all the preferred and sole bidder projects now stands at £1.8 billion and we estimate that Laing will provide £60 million of the equity required.
The Company is currently short-listed on a further 18 projects with an estimated combined capital value of £2.6 billion. We are awaiting public sector pronouncements on a number of significant bids which have reached the final stages of competition. We hope to be in a position to make positive statements regarding these in the near future.

The outlook for PFI/PPP activity in our chosen accommodation, rail and roads sectors remains strong, and the developing secondary market for PFI/PPP assets has seen greater liquidity and deal flow in recent months. The bidding process for new regionally based rail franchises is about to begin and, as previously announced, we intend to be involved along with our selected partners. Our chosen markets are increasingly providing scope for further growth and we are well placed to take advantage of the emerging opportunities.

For further information please contact:

John Laing plc
020 7901 3200
Andy Friend, Chief Executive 
Adrian Ewer, Finance Director 

Finsbury Group 
020 7251 3801
Ed Orlebar / Robin Walker