Tuesday, January 17, 2006
John Laing plc, the infrastructure developer and operator, is issuing this update ahead of its preliminary announcement for the year ended 31 December 2005 (scheduled for 13 March 2006).
Expansion of John Laing’s core roads, rail and PFI accommodation businesses continued throughout 2005 and the Company completed a number of key strategic moves, including a successful Rights Issue in July 2005 and the launch of Laing Capital Management in December 2005.During the year Laing Roads, Laing Rail and Equion all traded successfully and made good progress in securing new projects and developing new lines of business.
The second half of 2005 saw a continuation of strong Group profit from continuing operations, and we expect to report results in line with market expectations. These will include profits from previously reported disposals that underline the value inherent in our portfolio of operational assets.
Business Performance
The company’s infrastructure portfolio of 48 project investments includes 38 operational projects, of which 27 are fully operational.
Accommodation
The Group’s 22 operational accommodation projects continued to perform excellently in the second half, and all accommodation projects in the construction phase are on the required schedule to meet public service requirements and investment base case.
These include schools, local health facilities, police stations, court facilities and hospitals. The Newcastle Hospitals PFI (capital expenditure £300 million ), the largest of Equion’s projects currently in the construction phase, has made good progress since financial close in May 2005 with initial Facilities Management services in operation and construction on programme and budget across both the Freeman and the Royal Victoria Infirmary sites.
ExcellCare reached financial close on 6 further tranches of local health facilities during 2005, involving £105 million of capital expenditure under the LIFT programme. In aggregate, ExcellCare – a joint venture with Bank of Scotland – now has 9 local health centres in operation and 24 under construction involving £176 million of capital expenditure. In aggregate ExcellCare’s 6 local LIFTCos -– the local joint venture bodies formed in partnership with Primary Care Trusts – have an additional 15 facilities at detailed design stage, with a further 40 programmed for implementation over coming years.
During 2005, Regenter, Equion’s social housing and regeneration joint venture, reached financial close on an initial 2 schemes in Stoke and Newham both of which are progressing well in the implementation stage.
Roads
Average traffic volumes across the Laing Roads portfolio of operational roads were in line with overall projections for 2005.
The Sirhowy Enterprise Way (£43 million total funding) road project in South Wales was successfully opened to traffic on 23 December 2005 within budget, three and a half months ahead of schedule. This brings the number of operational projects in the portfolio to 11.
During H2 2005 construction commenced in respect of the E18 Finland (Euro 300 million capital cost) and phase 1 of the A1 in Poland (Euro 500 million capital cost) and in both cases is proceeding satisfactorily.
Rail
Chiltern Railways had an exceptionally difficult half year operationally, with seven weeks of major disruption caused by the collapse of third party building works at Gerrard’s Cross causing great inconvenience to the traveling public. Laing Rail is confident it will obtain full compensation for both the 2005 and longer term revenue and cost impacts of this event under the relevant legal agreements.
Subsequent to full re-opening, operational performance has recovered strongly, with a moving annual average of 91.7% of Chiltern trains on time at year end and passenger revenues in the latest monthly period up 4.3% against the prior year.
At the half way stage, Project Evergreen – Laing Rail’s innovative £80 million DBFT project delivering new station capacity, signaling and line enhancements for the Chiltern route – is on time and under budget. The new £20 million Wembley Depot, designed to support improved rolling stock utilisation and improve the cost-effectiveness of train maintenance, is complete and in full 24 hour operation.
Progress with preferred bidder projects
The Group reached financial close on 8 new project concessions in 2005. 6 projects are currently at preferred bidder stage involving a total potential equity investment of £76 million.
Regenter has recently been appointed provisional preferred bidder by the London Borough of Lewisham for the refurbishment of 1600 housing units with a capital works value in the order of £70 million.
Work continues to reach financial close on three major projects during the first quarter of 2006: the Surrey County Council accommodation project, the North Staffordshire Hospitals “Fit For the Future” project, and the redevelopment of the Royal London and St Bartholomew’s Hospitals.
Subsequent to the May 2005 General Election, all major hospital projects have been subject to some degree of delay as a variety of change initiatives and policy reviews have impacted on the National Health Service as a whole and previously promoted schemes have been reviewed for affordability in the light of the changing role of acute, intermediate and primary care provision. Nevertheless, the Company remains satisfied that all of the acute hospital projects that it has at preferred bidder stage will proceed to financial close, and has received assurances from all the relevant Trusts that they remain committed to implementing these schemes.
In the future, it is likely that acute hospital schemes in England & Wales will tend to be of lower average size than in the past, and may be fewer in number; however, this is being offset by a growing number of health projects in Scotland, Northern Ireland and in the EU outside the UK, and additional opportunities in the LIFT and intermediate markets within the UK.
Progress with bidding
The Company has a substantial programme of bidding under way, and expects to be able to announce further progress with the programme at the time of the 2005 results.
19 projects are currently at shortlist stage which, assuming a 40% future success rate, involve a total projected potential equity investment of £62 million.
Projects currently in competition at the short-listed stage include:
As previously announced, Laing Roads is seeking prequalification for the £1.5 billion M25 DBFO Project in consortium with Autoroutes du Sud de La France, Carillion, Costain, and Vinci.
Disposals
The Company carried out two transactions in which it disposed of project interests during the second half of 2005. John Laing’s equity in Defence Managment Watchfield Holdings was sold to Serco for £5.6 million in cash.
In the second transaction, the Company disposed of stakes in 4 Police sector PFI projects to Allianz PFI Holdings (Jersey) Ltd, a wholly owned subsidiary of Allianz AG ('Allianz') for an initial cash consideration of £23.1 million and contingent deferred consideration of £3.6 million. £0.9million of this deferred consideration has been received. Laing will be retaining a 50% direct interest in each of the 4 projects.
The transaction with the Allianz Group facilitated the launch of Laing Capital Management, which is capable of having an expanded role in managing operational assets on the part of institutional investors.
Pensions & Other Retained Liabilities
We do not anticipate any significant variation at the year end to the size of the gross pension deficit incorporated in the interim results for 2005.
In relation to the Great Eastern Hotel litigation, we reached agreement with the client in October 2005 in an out of court settlement that dealt with all issues raised in the claim, including costs and interest. Some insurance coverage issues remain to be resolved, which could result in the Company either recovering an amount from its insurers or in the Company having to make some reimbursement to its insurers. The Group’s overall exposure in relation to the Great Eastern Hotel project has been significantly reduced. We are satisfied that the remaining provisions for retained construction liabilities are adequate.
Cash & Resources
At 31 December 2005 the Group had estimated net cash balances of approximately £106 million, excluding the non-recourse debt in our PFI project companies.
Outlook
2005 saw a continuation of trends underpinning the creation of a more vigorous and internationalised PFI/PPP market with significant growth of government demand in the roads sector on both sides of the Atlantic, and strong growth in the number of accommodation projects coming to market in the EU and elsewhere.
At the same time unprecedented institutional interest in the infrastructure sector from a wide variety of sources has seen increased activity by secondary funds targeted to the PFI sector and formation of a number of new infrastructure funds targeting both primary development and secondary market opportunities.
These trends are expected to endure in 2006 in an environment of sustained government demand for infrastructure and public service investment and an ongoing shift towards liability matching within broader pensions and investments markets.
Against this backdrop, the Company is well positioned to take advantage of growth opportunities in our chosen markets with a range of partnerships and new initiatives in place.
For further information, please contact:
John Laing plc
Andy Friend, Chief Executive
Adrian Ewer, Finance Director020 7901 3200
Finsbury Group
Edward Orlebar / Faeth Birch / Robin Walker
020 7251 3801