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Further copies of this Annual Report & Accounts
are available by visiting the Company’s
website or at the address below
www.laing.com
John Laing Group plc
Registered Office:
1 Kingsway
London
WC2B 6AN
United Kingdom
Registered No. 05975300
Tel: +44 (0)20 7901 3200
JOHN LAING GROUP PLC
Annual Report
& Accounts
2016
CONTENTS
OVERVIEW
02 KPIs and Highlights
03 Our Business Model
04 Our International Reach
06 Chairman’s Statement
STRATEGIC REPORT
08 Chief Executive
Officer’s Review
12 Primary Investment
18 Secondary Investment
20 Asset Management
22 Portfolio Valuation
27 Financial Review
34 Viability Statement
35 Principal Risks
and Risk Management
41 Corporate Responsibility
GOVERNANCE
44 Directors and
Company Secretary
46 Directors’ Report
48 Corporate Governance
Report
52 Audit & Risk Committee
Report
56 Directors’ Remuneration
Report
FINANCIAL
STATEMENTS
69 Statement of Directors’
Responsibilities
70 Independent Auditor’s
Report to the Members
of John Laing Group plc
76 Group Income Statement
77 Group Statement of
Comprehensive Income
78 Group Statement of
Changes in Equity
79 Group Balance Sheet
80 Group Cash Flow Statement
81 Notes to the Group
Financial Statements
111 Company Balance Sheet
112 Company Statement of
Changes in Equity
113 Company Cash Flow
Statement
114 Notes to the Company
Financial Statements
125 Additional Financial
Information (unaudited)
130 Notice of Annual
General Meeting
139 Shareholder Information
OUR MARKETS
Infrastructure can be defined as the physical assets and systems that support a country or
community. Infrastructure assets typically support services such as transportation, utilities
and communications and also cater to social needs such as housing, health and education.
Renewable energy projects
typically involve electricity
generation assets which
produce green energy and
benefit from long-term
governmental support
mechanisms alongside
income for the amount
of power produced.
Opportunities in other
infrastructure markets
in sectors closely linked to
PPP and renewable energy.
These include areas such as
high speed broadband, water
resource management and
large scale battery storage
of electricity.
PPP projects
typically a consortium enters
into a long-term concession
contract with a public sector
body to design, build, finance
and operate/maintain an
infrastructure asset in
accordance with agreed
service standards.
The infrastructure asset
usually reverts back to the
public sector body at the
end of the concession.
John Laing Annual Report and Accounts 2016 /
01
(John Laing or the Company or the Group)
John Laing Group plc
is an international originator, active investor and
manager of greenfield infrastructure projects.
The Group aims to create value for shareholders
through originating, investing in and managing
infrastructure assets internationally.
We are focused on major transport, energy, social and environmental infrastructure projects in regions of
the world where we have expertise and where there is a legal and commercial environment supportive of
long-term investment. We hold a portfolio of investments in projects awarded under government backed
Public-Private Partnership (PPP) programmes and renewable energy projects and have developed
capabilities in other closely linked sectors which have similar operational and financial characteristics.
We typically invest in infrastructure projects at the greenfield, pre-construction stage. We apply our
management, engineering and technical expertise and invest equity and subordinated debt into special
purpose companies which have rights to the underlying infrastructure asset. These special purpose
companies are typically also financed with ring-fenced medium to long-term senior debt.
We are a leading name in our core international
•
markets and chosen sectors.
Since making our first infrastructure investment in 1969, we have committed
to invest in 126 projects.
•
•
As at 31 December 2016, we held a portfolio of 42 investments in infrastructure
projects in 11 countries with a book value of £1,166 million.
plus a shareholding in JLEN (a listed environmental asset investment fund)
valued at £10 million, making an overall investment portfolio of £1,176 million.
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/ John Laing Annual Report and Accounts 2016
02
KEY PERFORMANCE INDICATORS (KPIs) AND HIGHLIGHTS
WE AIM TO DELIVER PREDICTABLE RETURNS AND TO
ACTIVELY MANAGE AND REDUCE RISK ACROSS OUR
PRIMARY AND SECONDARY INVESTMENT PORTFOLIOS.
KPIs
£ million (unless otherwise stated) 2016 2015
1
3
Net asset value (NAV)
NAV per share
Profit before tax
Earnings per share (EPS)
Total dividend per share
4
Portfolio valuation
Cash yield from investments
New investment committed
External Assets under Management (AuM)
5
1,016.8
277p
192.1
51.9p
8.15p
1,175.9
34.8
181.9
1,472.3
889.6
242p
106.6
27.6p
6.9p
841.4
38.9
180.5
1,135.6
HIGHLIGHTS
•
14.3% increase in Net Asset Value (NAV), from £889.6 million at 31 December 2015
to £1,016.8 million
• NAV per share at 31 December 2016 of 277p (31 December 2015 – 242p)
• New investment commitments of £181.9 million (2015 – £180.5 million)
2
•
•
•
•
•
•
•
1
2
3
4
5
Realisations of £146.6
million from the sale of investments
3
Profit before tax of £192.1 million compared to £106.6 million (pro forma) in 2015
4
Earnings per share of 51.9p (2015 – 27.6p pro forma)
5
30% increase in external Assets under Management (AuM) to £1,472 million
Cash yield from investment portfolio of £34.8 million (2015 – £38.9 million)
Continuing international growth including the Group’s first offshore wind farm investment
and first renewable energy investment in the US
Final dividend of 6.3p per share (including a special dividend of 2.6p per share), giving a total
2016 dividend of 8.15p (2015 – total dividend of 6.9p)
Pro forma financial information.
Realisations include £19.5 million in respect of British Transport Police and Oldham Housing transactions which counted
towards guidance for 2015.
Profit before tax from continuing operations of £192.1 million (2015 – £100.9 million) and from discontinued operations of
£nil (2015 – £5.7million).
Basic EPS from continuing operations.
External AuM based on published portfolio values of JLIF and JLEN at 30 September 2016.
OUR BUSINESS MODEL
OUR BUSINESS IS ORGANISED ACROSS
THREE KEY AREAS OF ACTIVITY:
> Primary Investment: we source,
originate, bid for and win
greenfield infrastructure
projects, typically as part
of a consortium in the case
of PPP projects. Our Primary
Investment portfolio comprises
interests in infrastructure
projects which are in the
construction phase.
> Secondary Investment: we
own a substantial portfolio
of investments in operational
infrastructure projects,
almost all of which were
previously part of our Primary
Investment portfolio.
John Laing Annual Report and Accounts 2016 /
03
> Asset Management: we actively
manage our own Primary and
Secondary Investment portfolios
and provide investment advice
and asset management services
to two external funds, John Laing
Infrastructure Fund (JLIF) and
John Laing Environmental
Assets Group (JLEN), through
John Laing Capital Management
Limited (JLCM), which is
regulated by the Financial
Conduct Authority (FCA), as well
as in respect of a small number
of PPP assets held by John Laing
Pension Fund (JLPF).
We create value by originating
and investing in new greenfield
infrastructure investments
Post-construction, these investments are
designed to produce long-term predictable
cash flows that meet our rate of return targets.
Once operational, investments move from our
Primary Investment portfolio to our Secondary
Investment portfolio.
Operational investments can be sold to secondary
market investors who target a lower rate of return
consistent with the reduction in risk for assets
that have completed construction.
These realisations release capital to recycle
into primary investment opportunities.
Alternatively, investments can be retained in
the portfolio after construction to generate
a cash yield and also offer potential for further
value enhancement from changes that improve
project cashflow.
Our asset management activities focus on
management and reduction of project risks,
especially during the construction phase,
and enhancement of project cash flows.
MANAGEMENT
FEES
>
ASSET
MANAGEMENT
>
John Laing
PRIMARY
INVESTMENT
>
REINVESTMENT
IN GREENFIELD
PROJECTS
>
>
OPERATIONAL
ASSETS
>
>
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M
S
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N
T
>
SECONDARY
INVESTMENT
>
SALE OF OPERATIONAL
ASSETS AND YIELD
FROM PROJECTS
OUR BUSINESS MODEL
The John Laing business model is based on strong
investment and asset management capabilities
and is supported by the current strong demand in secondary
markets for operational infrastructure assets.
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/ John Laing Annual Report and Accounts 2016
04
OUR INTERNATIONAL REACH
JOHN LAING HAS A WELL-ESTABLISHED PRESENCE IN EACH OF ITS
CHOSEN OVERSEAS MARKETS: ASIA PACIFIC, NORTH AMERICA AND
EUROPE, INCLUDING THE UK.
When selecting target regions, we look for an identifiable pipeline of projects coming to market,
a trusted legal system, returns that meet our risk-adjusted hurdle rates, strong political will to
utilise private investment and the existence of a market for operational investments or a strong
expectation that one will develop. It is also a precondition that we are able to develop partnerships
with strong contractors and ones that have an established local presence.
Alder Hey
Children’s
Hospital
40%
DARA Red
Dragon
100%
Aylesbury Vale
Parkway
50%
Severn River
Crossing
35%
A130
100%
City Greenwich
Lewisham (DLR)
5%
Coleshill
Parkway
100%
Croydon &
Lewisham SL
50%
Manchester
Waste VL Co
50%
Cramlington
Biomass
44.7%
Manchester
Waste TPS Co
37.43%
IEP (Phase 1)
IEP (Phase 2)
24%
30%
Lambeth
Housing
50%
Llynfi Wind
Farm
100%
Speyside
Biomass
43.35%
•
•
•
Social Infrastructure
Transport
Environmental, including
Renewable Energy and Waste
UNITED
KINGDOM
EUROPE
NORTH AMERICA
•
•
•
Social Infrastructure
Transport
Renewable Energy and Water
Sterling
Wind Farm
92.5%
Denver
Eagle P3
45%
I-77 Managed
Lanes
I-4 Ultimate
10%
50%
* Conditional sale agreed as of 31 December 2016.
Primary
Secondary
“The business has a strong
pipeline of future investment
opportunities
multiple sectors and geographies…”
spread across
Horath
Wind Farm
81.82%
A1 Gdansk
Poland
29.69%*
Pasilly
Wind Farm
100%
A1 Germany
M6 Hungary
42.5%
30%*
Rammeldalsberget
Wind Farm
100%
Klettwitz
Wind Farm
100%
Svartvallsberget
Wind Farm
100%
A15
Netherlands
28%
Nordergründe
Wind Farm
30%
A6 Parkway
Netherlands
85%
Sommette
Wind Farm
100%
St. Martin
Wind Farm
100%
Glencarbry
Wind Farm
100%
•
•
•
Social Infrastructure
Transport
Renewable Energy
John Laing Annual Report and Accounts 2016 /
05
OUR SECTORS
Our activities are focused on the
following infrastructure sectors:
Transport
Rail (including rolling stock),
roads, street lighting and
highways maintenance
Environmental
Renewable energy (including wind
power, solar power, energy storage
and biomass), water treatment and
waste management
Social
Healthcare, education,
justice, stadiums, public sector
accommodation and social housing
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“…we maintain a disciplined
approach to new investments
using detailed financial analysis and
investment appraisal processes to
assess specific risk profiles.”
Hornsdale
Wind Farm
30%
New Perth
Stadium
50%
Auckland South
Corrections
Facility
30%
New Royal
Adelaide Hospital
17.26%
Sydney
Light Rail
32.5%
Kiata
Wind Farm
72.3%
Hornsdale 2
Wind Farm
20%
New Generation
Rollingstock
40%
ASIA PACIFIC
•
•
•
Social Infrastructure
Transport
Renewable Energy
/ John Laing Annual Report and Accounts 2016
06
CHAIRMAN’S STATEMENT
LAST YEAR, WE STATED THAT “LOOKING FORWARD, WE HAVE CONFIDENCE
IN THE ROBUSTNESS OF OUR BUSINESS MODEL AND THE DELIVERABILITY
OF OUR STRATEGY”. OUR RESULTS FOR 2016 CONFIRM THAT CONFIDENCE,
IN WHAT HAS BEEN A YEAR OF POLITICAL AND ECONOMIC TURBULENCE.
No changes to the Board took place during the year. At a senior
management level, Derek Potts, Group Managing Director of
Primary Investment, has decided to retire, and will leave us at
the end of March 2017. Derek originally joined John Laing in
2001. He has had responsibility for all the Group’s bidding and
primary investment activities and has been instrumental in
leading the Group’s expansion into international markets and
new sectors. During his time with the Group, he has made an
exceptional contribution and we are very sorry to see him go.
During the year under review, the Board complied with all
applicable provisions of the UK Corporate Governance Code
(the Code). We have a balanced group of directors who worked
well as a board during the year. With the impending retirement
of Derek Potts, we reviewed our succession plans and I was
encouraged to see much promise among our senior management
team. As well as regular Board meetings, we held reviews in
June and in October 2016 to address the future strategy and
direction of the business. These reconfirmed our commitment
to creating further shareholder value through the continued
application of our current business model.
As Chairman, I interact regularly with many members of staff
both from overseas and the UK and, on behalf of the Board,
I would like to thank all of them for their contribution to these
results. I would also like to extend the Board’s thanks to all
the Group’s stakeholders for their continued support.
Our dividend policy has two parts:
•
a base dividend of £20 million (starting from 2015) growing
at least in line with inflation; the Board is recommending
a final base dividend for 2016 of 3.7p per share; and
a special dividend of approximately 5% – 10% of gross
proceeds from the sale of investments on an annual basis,
subject to specific investment requirements in any one year.
The Board is recommending a special dividend for 2016 of
2.6p per share. This has been arrived at by applying 7.5%
to realisations for dividend purposes of £127 million
achieved in 2016, which exclude the combined proceeds
of £19.5 million from the disposals of our shareholdings
in British Transport Police and Oldham Housing.
When facing an uncertain environment, we believe in keeping
our strategy simple, focused and flexible. In 2016, we simplified
our business through the disposal of our non-core Project
Management Services (PMS) activities in the UK. This allows
management to concentrate on the core tasks of origination
of greenfield projects, active management of construction and
operational risk and timely realisations in order to monetise
value. Our focus remains on PPP infrastructure and renewable
energy in Asia Pacific, Europe and North America. Our pipeline
is strong and diversified by sector and geography, which gives
us flexibility in origination, and the funds we manage and the
active secondary market give us flexibility in distribution.
Our performance in 2016 was strong:
•
Net Asset Value (NAV) grew by 14.3% to £1,016.8 million
or 277p per share at 31 December 2016, from £889.6 million
or 242p per share at 31 December 2015;
•
•
•
•
Investment commitments reached £182 million, in line
with our guidance;
Realisations of investments for dividend purposes were
£127 million, ahead of our guidance for 2016 of
approximately £100 million;
Our total external Assets under Management grew to
£1,472 million, an increase of 30%; and
We are proposing a final dividend for 2016 of 6.3p per share
made up of a base dividend of 3.7p per share and a special
dividend of 2.6p per share.
Our three core markets all saw continued strong demand
for new privately-financed infrastructure projects. Using our
experienced teams, sector specialists and working with local
partners, we have committed capital to both PPP and renewable
energy in all three regions, and increasingly also see prospects
in related infrastructure sectors, for instance in the water or
broadband sectors.
•
During the year, the markets in which we are active continued
to be affected by significant movements in macro-economic
factors. In particular, the Brexit vote in June 2016 precipitated
a prolonged weakening of Sterling versus the major currencies
we invest in. While this has been positive for the value of our
overseas investment portfolio in Sterling terms, our preference
would be for a more stable foreign exchange environment.
At a governmental level, there are signs that a number of
countries are moving towards fiscal rather than monetary policy
in order to stimulate economic growth. We would agree that
increased infrastructure expenditure is a good way to provide
such fiscal stimulus and in some of the jurisdictions we operate
in, notably Australia and Canada, we see it already happening.
Other countries – including the UK and the US – look as if they
could follow suit.
John Laing Annual Report and Accounts 2016 /
07
“When facing an uncertain
we believe in
environment,
keeping our strategy simple,
focused and flexible.”
The total final dividend therefore amounts to 6.3p per share,
which, together with the interim dividend of 1.85p paid in
October 2016, makes a total dividend for 2016 of 8.15p per
share, an increase of 7% over 2015, after taking into account
the timing of the IPO in February 2015. The final dividend will
be put to shareholders for their approval at the Company’s
Annual General Meeting (AGM) which will be held on 11 May
2017. At the Company’s AGM on 12 May 2016, all resolutions
were approved by shareholders.
There are positive signs in each of our core infrastructure
markets of a strong level of deal flow over the coming years.
With our flexible business model and our strong geographical
presence, we believe we are well positioned to take advantage
of the opportunities this will create.
Phil Nolan
CHAIRMAN
> NAV
million
£1,016.8
> Profit before tax
million
£192.1
> Portfolio valuation
million
> New investment committed
£1,175.9
million
£181.9
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08
CHIEF EXECUTIVE OFFICER’S REVIEW
2016 WAS OUR FIRST FULL YEAR SINCE OUR IPO IN FEBRUARY 2015
AND I AM DELIGHTED TO REPORT THAT WE CONTINUED TO DELIVER
STRONG RESULTS.
The highlights included:
•
14.3% increase in NAV, from £889.6 million at
31 December 2015 to £1,016.8 million;
•
•
•
•
•
•
•
NAV per share at 31 December 2016 of 277p
(31 December 2015 – 242p);
New investment commitments of £181.9 million
in six different countries;
Realisations of £146.6 million from the sale
of assets;
Profit before tax of £192.1 million compared
to £106.6 million in 2015;
30% increase in external Assets under
Management (AuM) to £1,472 million;
Cash yield from investment portfolio of
£34.8 million (2015 – £38.9 million); and
Sale of UK activities of Project Management
Services (PMS).
Outlook for our markets
As I have said before, we operate in an international market
for new infrastructure primarily driven by population growth,
urbanisation and climate change. Population growth and
urbanisation create the need for new infrastructure, particularly
in transport and in social infrastructure such as healthcare.
Equally, climate change is the catalyst behind new infrastructure
in the renewable energy, waste management and water sectors.
In addition, there are strong drivers for public sector
authorities to involve the private sector in the procurement
of new infrastructure, including risk transfer, funding and
access to the best international contractors and investors.
As a recognised international greenfield infrastructure expert,
we target all the above sectors and therefore benefit from
the overall growth in public-private infrastructure.
In Primary Investment, we continue to see a robust and diverse
pipeline of future opportunities in each of the three regions
where we currently operate: Asia Pacific (Australia and New
Zealand); North America (Canada and the US); and Europe.
We entered 2017 with an increased level of activity and strong
positions in eight short-listed PPP consortia and with a number
of exclusive renewable energy opportunities.
•
Asia Pacific: we remain very active in the PPP markets in
both Australia and New Zealand. In Australia, the renewable
energy sector continues to grow and gain momentum
following resolution of the Federal Renewable Energy
Target in 2015 and our team is taking advantage of this.
•
•
Europe: even if the overall PPP market remains subdued, we
focus our attention on those countries which are bringing
projects to market, such as the Netherlands, the Republic
of Ireland, Germany, Norway, the Czech Republic and
potentially the UK where we believe the current government
will announce new PPP projects. Many of the opportunities
are in the transport sector, which fits well with our
credentials. In renewable energy, the level of activity remains
high, with attractive risk-return profiles. We concentrate on
selected countries with governmental support mechanisms
in order to reduce energy price exposure.
North America: four of our eight shortlisted PPP positions
are for potential investments in North America. In Canada,
we see a strong commitment to PPP from federal and
local authorities, especially in Ontario and British
Columbia, mainly in the transport sector. In the US,
we concentrate on those states where we see a growing
pipeline of PPP opportunities particularly in the
transport sector and potentially the water sector.
During the year, we made our first investment in
renewable energy, a wind farm project in New Mexico.
John Laing Annual Report and Accounts 2016 /
09
we
“During the year,
demonstrated again why
we believe it is essential for
us to be an active investor.”
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Overall, our reputation in North America is growing, leading
to more opportunities to join consortia for new projects.
This bodes well for the future, especially when considering
the obvious needs in the US for new infrastructure.
Beyond the PPP and renewable energy markets, we continue
to research other asset classes that look as if they could fit
our business model in order to feed future growth. The due
diligence we carry out before investing in new markets follows
a rigorous process that eventually rules out many opportunities.
Currently, we are reviewing: broadband, driven in Europe by the
EU directive to see 100% high speed coverage by 2025; water
resource management, driven by climate change; and energy
storage, driven by the changing way in which electricity is
generated across transmission and distribution networks.
We expect these sectors to offer a number of investment
opportunities in the future.
Active management
During the year, we demonstrated again why we believe it is
essential for us to be an active investor. For us, it means not
only participating actively in consortia at the bidding stage,
but also being actively involved in project companies during
the construction phase in order to protect our investment
and help when delays occur or problems arise:
•
In South Australia, our team has been particularly active
in helping the New Royal Adelaide Hospital project company
to resolve the sometimes competing priorities of the
Government of South Australia, the bank lending consortium
and the construction contractor. This situation has arisen
principally because technical completion of the hospital
has been delayed, having been scheduled for April 2016.
Following mediation discussions in late 2016 and early
2017, the parties are now working towards technical
completion later this month (March 2017) followed by
commercial acceptance three months later; it is intended
that remaining disputes will be dealt with through a process
of arbitration. The Government of South Australia is making
the necessary preparations for the hospital to be ready to
open for patients before the peak of the winter flu season.
•
At Manchester Waste VL Co, the project’s operational
performance is good; it has been achieving diversion of
waste from landfill ahead of contractual requirements. The
Greater Manchester Waste Disposal Authority (GMWDA) has
indicated it wants to achieve cost savings and efficiencies.
While the project company had proposed that such savings
could be achieved within the existing contractual structure,
this has not been accepted by the GMWDA. Separately, the
GMWDA has challenged aspects of the operational service
levels provided by the project company and the operator;
this is strongly refuted by the project company and the
matter is being addressed through an independent third
party under the procedures in the project agreement with a
decision due at the end of March 2017. The project company
believes there will be a resolution with the GMWDA. If, as
part of this, the GMWDA were to seek to take the project
into public ownership, this would only be acceptable to the
project company if it resulted in appropriate compensation
for all stakeholders. The project company is working with
its shareholders, John Laing and Viridor, to protect the
value of the equity in the project and also to minimise any
impact on Manchester Waste TPS Co which is contractually
linked to Manchester Waste VL Co.
For both investments, we have taken account of current
developments in our portfolio valuation at 31 December 2016.
Taken together, the investments in New Royal Adelaide Hospital
and Manchester Waste VL Co which are not linked, make up
approximately 8% of our investment portfolio of £1,176 million.
Wherever we operate, we believe our investing, contracting
and banking partners appreciate and value the investment
experience and active management we provide. We continue
to make good use of this expertise to monitor and guide
our investments through construction while protecting the
investment base cases and where appropriate seeking to find
additional value.
Business model
Primary Investment:
Our business model has three key areas of activity:
•
we source, originate, bid for and win
greenfield infrastructure projects, typically as part of a
consortium in the case of PPP projects. Our Primary
Secondary Investment:
Investment portfolio comprises interests in infrastructure
projects which are in the construction phase.
•
•
we own a substantial portfolio
of investments in operational infrastructure projects,
Asset Management:
almost all of which were previously part of our Primary
Investment portfolio.
we actively manage our own Primary
and Secondary Investment portfolios and provide investment
advice and asset management services to two external
funds, John Laing Infrastructure Fund (JLIF) and John Laing
Environmental Assets Group (JLEN), through John Laing
Capital Management Limited (JLCM), which is regulated by
the Financial Conduct Authority (FCA), as well as in respect
of a small number of PPP assets held by John Laing
Pension Fund (JLPF).
/ John Laing Annual Report and Accounts 2016
10
CHIEF EXECUTIVE OFFICER’S REVIEW (CONTINUED)
Our business model is based on our specialist infrastructure
investment and asset management capabilities and the
increasing recognition of operational infrastructure assets
as an attractive investment class.
We aim to invest in new greenfield infrastructure projects
which, post-construction, produce long-term predictable cash
flows that meet our rate of return targets. The projects we
invest in are held within special purpose vehicles (SPVs) which
we (often in conjunction with other investors) fund with equity,
and which are structured so that providers of third party debt
finance have no contractual recourse to equity investors beyond
their equity commitment.
When investments become part of our Primary Investment
portfolio, their value should grow progressively with a relatively
high degree of predictability as the underlying assets move
through the construction phase and their risk correspondingly
reduces. Once the projects reach the operational stage,
investments move from our Primary to our Secondary Investment
portfolio where they can be held to maturity or sold to secondary
market investors, who are targeting a lower rate of return
consistent with the reduction in risk.
Our asset management activities focus on management and
reduction of project risks, especially during the construction
phase, and enhancement of project cash flows. The latter
involves identifying and implementing value enhancement
initiatives that can increase future cash flows to investors
compared to those originally forecast at the start of the
project. We look at a wide range of such value enhancements.
Opportunities may arise at any time during a project’s life
and may vary significantly from one investment to another.
Objectives and outcomes
Our overall strategy is to create value for shareholders
by originating, investing in and managing infrastructure
assets internationally. In that respect, we see NAV growth and
dividends as key measures of our success. In 2016, our NAV
grew by 14.3% from £889.6 million at 31 December 2015
to £1,016.8 million at 31 December 2016. We are proposing
dividends of 8.15p per share in total for 2016 compared to
dividends of 6.9p per share for 2015. This represents growth
of 7% over 2015, once the 2015 base dividend is adjusted
to reflect the timing of our IPO in February 2015.
To deliver our strategy, we have set ourselves the core
objectives below, while maintaining the discipline and
analysis required to mitigate against the delivery, revenue
and operational risks associated with infrastructure projects:
•
growth in primary investment volumes (new investment
capital committed to greenfield infrastructure projects)
over the medium term;
•
•
growth in the value of external Assets under Management
(AuM) and related fee income; and
management and enhancement of our investment
portfolio, with a clear focus on active management during
construction, accompanied by realisations of investments
which, combined with our corporate banking facilities and
operational cash flows, enable us to finance new
investment commitments.
Growth in primary investment volumes over the medium term
We operate in a broad market for new infrastructure with
a strong pipeline of future opportunities.
Throughout the year, we maintained a disciplined approach to
making new investments. Using detailed financial analysis and
investment appraisal processes, we assess the specific risk
profiles for each prospective investment with the aim of
optimising risk-adjusted returns and securing only those new
investments which are likely to meet the investment appetites
of secondary market investors when the underlying assets
become operational.
Our resources are concentrated on countries or geographical
regions carefully selected against five key criteria:
•
a stable political and legal framework;
•
•
•
•
a commitment to the development of privately-financed
infrastructure;
the ability to form relationships with strong supply chain
partners;
the likelihood of target financial returns, on a risk-adjusted
basis, being realised; and
the existence of a market for operational investments
or a strong expectation that such a market will develop.
Our total commitment to new investments in 2016 was
£181.9 million, made up of £134.8 million in renewable energy
and £47.1 million in PPP assets, at a similar level to investment
commitments of £180.5 million in 2015. Our international
growth continued with investment commitments in six
different countries, including the following projects:
•
A6 Parkway (Netherlands) – £9.0 million
•
•
•
•
Kiata wind farm (Australia) – £20.4 million
Nordergründe offshore wind farm (Germany) – £36.7 million
Sommette wind farm (France) – £11.7 million
Sterling wind farm (US) – £15.7 million.
Growth in the value of external AuM and related fee income
Our strategy to grow the value of our external AuM is linked
to our activities as an investment adviser to JLIF and JLEN.
The Group not only advises and provides management services
to the portfolios of JLIF and JLEN, but also sources new
investments on their behalf. During the year, both JLIF and
JLEN successfully undertook secondary equity issues and
made acquisitions both from John Laing and from third parties.
Both funds have the benefit of a right of first offer over certain
investments should they be offered for sale by the Group.
We made good progress during the year, with the value
of external AuM growing from £1,136 million to £1,472 million,
an increase of 30%. Fee income from external AuM was
£15.8 million for 2016, up from £12.0 million in 2015.
Investment portfolio and realisations
At 31 December 2016, our portfolio comprised investments in
42 infrastructure projects and our shareholding in JLEN
(31 December 2015 – 39 projects). Our year end portfolio value,
including the shareholding in JLEN, was £1,175.9 million
(31 December 2015 – £841.4 million). The increase was primarily
due to cash injections into projects, favourable foreign exchange
movements and growth in the retained portfolio, offset by
investment realisations.
The portfolio valuation represents our assessment of the fair
value of investments in projects on the basis that each asset
is held to maturity, other than shares in JLEN which are held
at market value. The 2016 year end valuation reflected underlying
growth of 22.3% after adjusting for acquisitions, realisations,
cash invested and cash yield. This growth is analysed further
in the Portfolio Valuation section.
The cash yield in 2016 was £34.8 million (2015 – £38.9 million),
a yield of 7.6% (2015 – 9.8%) on the average Secondary
Investment portfolio, in line with our guidance of a 6.5%
to 8.5% yield. Cash yield represents cash receipts in the form
of dividends, interest and shareholder loan repayments from
project companies and listed investments.
During the year, we agreed a number of realisations:
•
sale of our investments in the British Transport Police
and Oldham Housing PPP projects to JLIF for £19.5 million
which, as previously explained, counted towards our 2015
year end guidance and special dividend;
•
•
•
proceeds from a further four completed transactions
of £127.1 million, which form the basis for our special
dividend calculation for 2016;
€
agreed sale of our 29.69% shareholding in the A1 motorway,
Poland. Proceeds of
distributions received in late 2016) were received on
2 March 2017; and
137.3 million (adjusted for
€
agreed sale of our 30% shareholding in the M6 road project
in Hungary for
26.6 million which is expected to complete
in the second quarter of 2017.
We were particularly pleased to achieve prices in line with
portfolio valuation for our investments in the A1 motorway in
Poland and the M6 road project in Hungary, both in jurisdictions
where there is a less developed secondary market.
Profit before tax
Our total profit before tax was £192.1 million in 2016, compared
to £106.6 million in 2015. Profit before tax is primarily driven
by the fair value movement in our investment portfolio, which
in 2016 benefited significantly from favourable foreign
exchange movements.
Funding
In February 2015, we entered into a five-year £350.0 million
committed corporate banking facility and associated ancillary
facilities, all of which expire in March 2020. These revolving
facilities enable us to issue letters of credit and/or put up cash
collateral to back investment commitments. We finance new
investments through a combination of cash flow from existing
assets, the above corporate banking facilities and realisations
of investments in operational projects.
In June 2016, the above facilities were increased to £400.0 million.
In addition, in November 2016, we entered into additional
£50.0 million liquidity facilities, which together with surety
financing entered into earlier in the year, had the effect of
increasing our committed facilities to £450.0 million until
March 2018.
John Laing Annual Report and Accounts 2016 /
11
Organisation and staff
In June 2016, we announced the sale of the business and assets
of our PMS activities in the UK to HCP Management Services
Limited (HCP). The reason for the sale was to concentrate our
resources and attention on our greenfield activities where we
create most value. As part of the sale, 81 staff roles and 52
Management Services Agreements (MSAs) transferred to HCP.
The sale completed on 30 November 2016 for total proceeds of
£4.0 million, £1.9 million of which was received on completion
and £2.1 million of which was received in January 2017 once
all consents were obtained. Principally as a result of the sale,
our staff numbers fell from 252 at 31 December 2015 to 160
at the end of 2016.
We now have 36% of staff located outside the UK (2015 – 22%).
This growing internationalisation is consistent with where our
future opportunities lie.
Reflecting Derek Potts’ retirement in early 2017, we have
re-organised our Primary Investment management teams so
that the heads in each of our three geographical regions now
report directly to me. We will miss Derek’s enthusiasm and
experience but I am very pleased that he has agreed to continue
to assist our Investment Committee on a consultancy basis.
I visited our offices around the world several times during 2016.
We have strong individuals and great teams in each region
and I want to extend my heartfelt thanks to all staff for their
contribution during the year. As I have said before, the success
of our business depends on them.
Current trading and guidance
Our total investment pipeline at 31 December 2016 was
£1,859 million and includes £1,408 million of PPP opportunities
looking out three years or so as well as nearer term renewable
energy opportunities of £451 million. The current pipeline
does not include potential opportunities that may come from
additional public-private infrastructure in the UK post Brexit
or in the US under the new administration. We will aim to
maintain a majority of availability-based cash flows in our
portfolio. At 31 December 2016, the balance was 73%
availability-based versus 27% volume-based.
As our investment pipeline continues to grow, our aim is to
increase our investment commitments for 2017 by approximately
10% compared to 2016. We expect realisations to be at a broadly
similar level to our investment commitments, consistent with
our self-funding model.
We have a proven business model and we believe we are
in a good position to take advantage of opportunities for
investment in greenfield infrastructure in a growing market.
In the two years since we have been listed, we have delivered
steady growth despite changing governmental policies and
macro-economic environments. Against this background,
we have confidence in the future.
Olivier Brousse
CHIEF EXECUTIVE OFFICER
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/ John Laing Annual Report and Accounts 2016
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PRIMARY INVESTMENT
OUR PRIMARY INVESTMENT ACTIVITIES ARE FOCUSED
ON GREENFIELD INFRASTRUCTURE PROJECTS.
These are principally those awarded under PPP programmes
as well as renewable energy assets and may also include
similar long-term projects which have a strong private-sector
(rather than governmental) counterparty. Asset management
services in respect of the Primary Investment portfolio during
the construction period are provided by John Laing’s Asset
Management division. When underlying projects reach the end
of construction, the investments transfer into our Secondary
Investment portfolio.
Europe –
•
•
•
North America – we continued to increase our activities
in the market. During the year, we secured a stake in
the Sterling wind farm project in New Mexico, our first
investment in renewable energy in this region, and we
made a small additional investment in the I-77 Managed
Lanes project in North Carolina.
The Primary Investment portfolio comprises the Group’s
shareholdings in 11 PPP projects, and in ten renewable energy
projects, which are in the construction phase. The Group’s
Primary Investment portfolio was valued at £696.3 million at
31 December 2016 (31 December 2015 – £405.9 million).
NEW INVESTMENT COMMITMENTS
During 2016, the Primary Investment team successfully secured
ten new investments, and made additional commitments to
one existing investment, resulting in total commitments of
£181.9 million:
•
Asia Pacific – the Hornsdale 2 wind farm project in
South Australia reached financial close in June 2016
and we closed the Kiata wind farm project in Victoria
in November 2016, further strengthening the Group’s
presence in the renewable energy market in the region.
We made a £9.0 million commitment to the
A6 Parkway PPP project in the Netherlands;
•
•
•
We acquired an additional 6% stake in the IEP (Phase 1)
project in the UK from a co-investor;
We committed to four on-shore wind farm investments,
one in each of the UK and Germany, and two in France;
and
We also secured and closed the Group’s first
investment in the offshore wind sector, acquiring
a 30% stake in the Nordergründe wind farm project
in Germany.
Our investment commitments for 2016 are summarised in
the table below:
Investment commitments
Intercity Express Programme (IEP) (Phase 1)
Llynfi wind farm
A6 Parkway
Nordergründe offshore wind farm
Sommette wind farm
Horath wind farm
Saint–Martin–L’Ars wind farm
I–77 Managed Lanes
Sterling wind farm
Hornsdale wind farm (Phase 2)
Kiata wind farm
Totals
*
RE = renewable energy
Region
PPP
£ million
RE*
£ million
Total
£ million
UK
UK
Europe
Europe
Europe
Europe
Europe
North America
North America
Asia Pacific
Asia Pacific
37.0
–
9.0
–
–
–
–
1.1
–
–
–
–
24.9
–
36.7
11.7
14.3
5.1
–
15.7
6.0
20.4
37.0
24.9
9.0
36.7
11.7
14.3
5.1
1.1
15.7
6.0
20.4
47.1
134.8
181.9
Since 31 December 2016, we have committed £10.0 million for a 20% shareholding in the Hornsdale wind farm
(Phase 3) in Australia.
ACTIVITIES
The Primary Investment team is responsible for all the Group’s
bid development activities. The team takes responsibility for
developing and managing a pipeline of opportunities, including
market research, project selection, bid co-ordination and
negotiations with public sector authorities, vendors and
lenders. In each of our target markets of Asia Pacific, North
America and Europe, we work with strong delivery partners.
For instance, in the Asia Pacific and North American regions,
the Group is currently working with leading international and
domestic contractors and service providers, including Acciona,
ACS Group, Aecom, Alstom, Bombardier, Bouygues, Brookfield
Multiplex, Cintra, Cubic, Downer, Fluor, Fulton Hogan, John
Holland, Laing O’Rourke, Leighton/CIMIC, Lend Lease, Serco,
SNC, Spotless and Vinci.
We target a wide range of infrastructure sectors:
•
Transport – rail (including rolling stock), roads, street
lighting and highways maintenance;
•
•
Environmental – renewable energy (including wind power,
solar power, energy storage and biomass), water treatment
and waste management;
Social infrastructure – healthcare, education, justice,
stadiums, public sector accommodation and social housing.
We are also assessing opportunities in new infrastructure
sectors such as the emerging energy storage programmes
to support electricity grid performance, and broadband
infrastructure upgrades, where we believe our business model
could be successfully applied.
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Project:
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Intercity Express Programme
Location:
United Kingdom
Partners:
Hitachi Rail Europe
Description:
•
•
•
The IEP is an innovative scheme covering the finance, design,
manufacture, delivery into daily service and maintenance of
a fleet of 122 state-of-the-art Hitachi Super Express trains
over a guaranteed minimum usage period of 26 years for
the Great Western Main Line (Phase 1) and the East Coast
Main Line (Phase 2) in the UK.
Construction of the Phase 1 (Great Western) depots completed
in early 2016 and development of the Phase 2 (East Coast)
depots is progressing well. During 2016, trains commenced
testing on the UK rail network for Phase 1 and remain
scheduled to become operational during 2017.
The project is one of the
largest PPP’s globally,
raising a total of £4.7 billion
of funding. John Laing has a
24% interest in Phase 1 and
a 30% interest in Phase 2.
United Kingdom
Location:
/
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Project:
>
I-4 Ultimate, Florida
Location:
Orlando, Florida, USA
Partners:
Skanska Infrastructure Development
Description:
•
•
•
This availability-based road project has total capital
expenditure of US$2.3 billion and involves reconstructing
15 major interchanges, building more than 140 bridges,
adding four variable toll Express Lanes, and completely
rebuilding the general use lanes of 21 miles of the
existing I-4 interstate in central Florida. Construction
commenced in 2015 and is anticipated to finish in 2021.
This availability-based
road project involves
reconstructing 15 major
interchanges, building
more than 140 bridges
and adding four variable
toll Express Lanes.
Location:
US
John Laing Annual Report and Accounts 2016 /
15
PRIMARY INVESTMENT (CONTINUED)
PROJECT FINANCE
PIPELINE
Pricing of project finance facilities remained broadly stable
during 2016, although the trend of falling prices and improving
terms experienced in recent years appears to have levelled off.
We were able to secure financing for projects where required.
Institutional sources of long-term project finance were available
in Europe, although commercial bank debt was typically more
competitively priced. In Australia and New Zealand, medium-term
bank debt and refinancing requirements are well established,
with a large number of international banks being active in these
markets. In Canada and the US, projects tend to be financed
in the debt capital markets rather than with bank financing.
Overall, financial markets in the regions in which the Group
is active supported our growing levels of investment and we
expect this to continue in 2017.
At 31 December 2016, our overall investment pipeline of
£1,859 million was higher than the pipeline of £1,494 million
at 31 December 2015. The pipeline comprises opportunities
to invest equity in PPP projects with the potential to reach
financial close over the next three years, while the renewable
energy pipeline relates to the next two years. The growth
compared to 2015 reflects an increase in renewable energy
pipelines in Asia Pacific and North America, as well as some
impact from the devaluation of Sterling.
Our overall pipeline is constantly evolving as new opportunities
are added and other opportunities drop out. We budget a win
rate of 30% for PPP bids.
Our total pipeline broken down by bidding stage is as follows:
Pipeline at 31 December 2016 by bidding stage
Number of
projects
PPP
£ million
RE*
£ million
Total
£ million
Shortlisted/exclusive
Other active bids
Other pipeline
Totals
*
RE = renewable energy
18
4
49
71
234
185
989
1,408
173
–
278
451
407
185
1,267
1,859
The shortlisted PPP projects at 31 December 2016 comprised a prison project in Australia, a broadband upgrade
project in Ireland, and six availability-based transportation and schools projects, spread across the US, Canada
and Australia.
In terms of geography, our pipeline is well spread across our target markets:
Pipeline at 31 December 2016 by target market
Asia Pacific
North America
Europe (including the UK)
Totals
*
RE = renewable energy
PPP
£ million
RE*
£ million
Total
£ million
491
449
468
1,408
142
97
212
451
633
546
680
1,859
Some 34% of our pipeline relates to the Asia Pacific region
which continues to offer substantial opportunities. In this region,
the Group’s current bidding activities are focused on Australia
and New Zealand, where the Group has built up a strong base.
Our growing presence in the renewable energy sector in
Australia offers significant potential in the coming years.
In North America (the US and Canada), which makes up 29% of
the pipeline, our focus is on what is becoming a very substantial
PPP market, whilst continuing to progress our presence in the
renewable energy market, following our first US wind farm
investment in 2016. We continue to explore PPP opportunities
primarily in the transportation sector and also the growing
water and social infrastructure sectors. The Canadian market
continues to demonstrate strong PPP deal flow, which we are
actively pursuing. At the end of 2016, we were shortlisted on
four large PPP projects.
The balance of our pipeline is in Europe, where PPP activity
remains at a satisfactory level in countries such as the
Netherlands. However, in 2017 we expect to increase our activities
in markets such as Germany, Norway and the Czech Republic.
There is also a significant PPP programme in Turkey, but we have
deferred further work on this market following the challenges in
that country in 2016. The UK government has given indications
of a new pipeline of privately financed projects, and we are
waiting for the programme to become more clearly defined.
Selected countries in Europe, Asia Pacific and North America
will provide our main focus for renewable energy opportunities
in 2017. Our pipeline includes many potential wind and solar
projects as well as investment opportunities in biomass plant.
Our overall renewable energy pipeline was £451 million at
31 December 2016, higher than at 31 December 2015. In the
main, we target investments where a substantial proportion
of revenue is supported by governmental support mechanisms
which leads to reduced exposure to energy price fluctuations.
During the year, we closed our first offshore wind farm
investment, and this sector offers strong potential in the
coming years, though our pipeline does not currently include
any offshore wind opportunities.
In addition to the above, the Group continues to monitor new
geographic markets which offer potential in the medium to long
term. These include countries in South America, such as Chile
and Colombia, and other Asia Pacific markets such as Singapore.
I will be retiring at the end of March 2017 but I am confident in
the ability and experience of our teams within Primary Investment
and the strength of our pipeline. Following my retirement, the
heads of Primary Investment in each of our three geographical
regions will report directly to the Chief Executive Officer.
Derek Potts
GROUP MANAGING DIRECTOR, PRIMARY INVESTMENT
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Project:
>
New Perth Stadium
Location:
Perth, Australia
Partners:
Brookfield Multiplex
Brookfield Global Integrated Services
Description:
•
•
•
The New Perth Stadium will be a major sporting and
entertainment venue with an initial 60,000 seat capacity,
capable of staging national and international events. The
stadium will predominantly be used for Australian-rules
football but will be able to readily accommodate other
sports, as well as entertainment events, through the use
of drop-in seats. Construction works are on track for
completion in advance of the 2018 Australian Football
League season.
The stadium will predominantly
be used for Australian-rules
football but will be able to
readily accommodate other
sports, as well as entertainment
events, through the use of
drop-in seats.
Australia
Location:
Project:
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Nordergründe offshore wind farm
Location:
North Sea north of Wilhelmshaven, Germany
Partners:
wpd AG and Gothaer Leben Renewables GmbH
Description:
Nordergründe, in which John Laing has a 30% stake,
is John Laing’s second German wind investment and its
first investment in offshore wind. Electricity generation
will come from 18 Senvion 6.2 M126 turbines with total
capacity of 110.7MW.
The project will benefit from the German feed in tariff
mechanism and operations are due to start in late 2017.
John Laing Annual Report and Accounts 2016 /
17
Electricity generation will
come from 18 turbines with
total capacity of 110.7MW.
Germany
Location:
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SECONDARY INVESTMENT
AT 31 DECEMBER 2016, THE SECONDARY INVESTMENT PORTFOLIO COMPRISED
15 PPP PROJECTS AND SIX RENEWABLE ENERGY PROJECTS WITH A BOOK
VALUE OF £479.6 MILLION (31 DECEMBER 2015 – £419.4 MILLION).
The Secondary Investment portfolio also included a 3.3%
shareholding in JLEN valued at £10.0 million at 31 December
2016 (31 December 2015 – 7.0% shareholding valued at
£16.1 million).
Sale of our 30% shareholding in the M6 road, Hungary for
€
•
Asset management services in respect of the Secondary
Investment portfolio are provided by John Laing’s Asset
Management division.
INVESTMENT REALISATIONS
During the year, we achieved proceeds of £146.6 million from
the realisation of investments:
•
Our investments in two PPP projects, British Transport
Police and Oldham Housing, were sold to JLIF for
£19.5 million;
•
•
•
Our investments in Dungavel Wind Farm (100%) and New
Albion Wind Farm (100%) were sold to JLEN for a total of
£50.0 million;
Our investment in the A55 project and 20% of our interest
in IEP (Phase 1) were sold to JLIF in the second half of
the year; and
We sold a 2.2% shareholding in JLEN for £6.4 million.
Taking realisations for the year as a whole, prices were in line
with the most recent portfolio valuation.
Total
Realisations completed Shareholding Purchaser £ million
British Transport Police* 54.17%
Oldham Housing* 95%
JLIF 19.5*
Dungavel Wind Farm 100% 38.2
11.8
New Albion Wind Farm 100%
JLEN
Shareholding in JLEN 2.2% Market placing 6.4
A55 100% 28.3
42.4
IEP (Phase 1) 6%
JLIF
Total 146.6
* counted towards guidance for 2015
Excluding the sales of our investments in British Transport
Police and Oldham Housing, we achieved disposals for
dividend purposes of £127.1 million, ahead of our guidance
of approximately £100 million.
We also agreed two further disposals:
•
€
137.3 million (adjusted for
Sale of our 29.69% shareholding in Gdansk Transport
Company S.A (GTC), the owner and operator of part of the
A1 motorway in Poland, for
distributions received in November and December 2016),
subject to certain reductions and adjustments. A sale and
purchase agreement was originally entered into with
FS Amber Holdings BV, an entity managed by First State
Investments, in late 2016. However, as the result of the
exercise of pre-emption rights by NDI Autostrada SP.2.0.0
(NDIA), a co-shareholder in GTC, a new sale and purchase
agreement was entered into with NDIA in January 2017.
Completion of the disposal was subject to certain consents
and conditions and occurred on 2 March 2017.
26.6 million. This sale was originally agreed in December
2016. However, following the exercise of pre-emption rights
by co-shareholders in the project company, Strabag AG and
Intertoll-Europe ZRT (Intertoll), new sale and purchase
agreements were entered into on 1 February 2017.
Completion of the disposal is subject to obtaining certain
consents and satisfying certain conditions and is expected
to take place in the second quarter of 2017.
TRANSFERS FROM THE PRIMARY INVESTMENT PORTFOLIO
During the year, six investments became part of the Secondary
Investment portfolio as the underlying projects moved into the
operational stage:
Croydon & Lewisham Street Lighting, UK (50% interest)
The final milestone for the construction and installation of more
than 23,000 street lights was completed in late November 2016,
resulting in the project moving to a fully operational status.
Rammeldalsberget Wind Farm, Sweden (100% interest)
Located near Kramfors in central Sweden, the project
comprises six wind turbines of 2.5MW each. Operations
commenced in June 2016 and revenue is supported by a fixed
price power purchasing agreement for 50% of production until
the end of 2019.
New Albion Wind Farm, UK (100% interest, disposed in July 2016)
Located in Northamptonshire, UK, the project comprises seven
Senvion turbines, each with 2.05MW capacity. Following
commencement of operations in January 2016, this project was
sold to JLEN in July 2016 for £11.8 million.
Pasilly Wind Farm, France (100% interest)
Located in the Yonne region of Burgundy, this was our first
renewable energy project in France. The wind farm comprises
ten Gamesa G97 turbines of 2MW each. Full operation
commenced in December 2016, with revenue supported by
a feed-in-tariff for the first 15 years.
Hornsdale Wind Farm Phase One, Australia (30% interest)
The project comprises a 32 turbine wind farm in South Australia
with an installed capacity of 102.4MW and represents our first
renewable energy project in the Asia Pacific region. The project
benefits from a 20 year offtake from a government counterparty
(Australian Capital Territory).
A15, Netherlands (28% interest)
This availability-based road project comprises the expansion
of two intersections and the provision of maintenance along
a 37km motorway section in the Rotterdam region of the
Netherlands for a period of 20 years after completion of
construction. The scope of the project included widening the
motorway and rebuilding many of the structures and junctions
connecting the motorway with the road network.
Chris Waples
GROUP MANAGING DIRECTOR, ASSET MANAGEMENT
John Laing Annual Report and Accounts 2016 /
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Project:
>
Speyside Biomass
Location:
Speyside, Scotland
Partners:
Estover Energy Ltd
UK Green Investment Bank
Description:
•
•
•
This 15MW combined heat and power plant supplies
the adjacent Macallan whisky distillery with renewable
heat and exports power to the grid. Its fuel is virgin wood
sourced from the local region supplied by a consortium
of local growers and forest industry suppliers.
This 15MW combined heat
and power plant supplies
the adjacent whisky
distillery with renewable
heat and exports power
to the grid.
Scotland
Location:
/ John Laing Annual Report and Accounts 2016
20
ASSET MANAGEMENT
THE ASSET MANAGEMENT DIVISION’S ACTIVITIES COMPRISE INVESTMENT
MANAGEMENT SERVICES AND PROJECT MANAGEMENT SERVICES.
INVESTMENT MANAGEMENT SERVICES
Investment Management Services (IMS) are provided to both
JLIF and JLEN and also to our own investment portfolio.
External IMS JLCM provides advisory services to JLIF and JLEN
under investment advisory agreements. As at 30 September 2016,
JLIF and JLEN had published portfolio values of £1,113.8 million
and £320.7 million respectively. JLCM has an independent
chairman and two separate dedicated fund management teams
whose senior staff are authorised and regulated by the FCA. The
teams focus their advice primarily on sourcing new investments
for and arranging capital raisings by the two funds. They operate
behind information barriers in view of the market sensitive nature
of their activities and to ensure the separation of “buy-side” and
“sell-side” teams when John Laing is selling investments to
either fund. Both funds have a right of first offer over certain
investments should they be offered for sale by the Group, and
both are stand-alone entities separate from the Group. Each
fund maintains an independent board of directors and is
independently owned.
At 31 December 2016, the Group also managed two PPP
investments valued at £37.8 million held by JLPF.
Fee income from external IMS grew from £12.0 million in 2015
to £15.8 million in 2016.
Internal IMS John Laing actively manages its own Primary and
Secondary Investment portfolios. Our objective is to deliver the
base case returns on our investments as a minimum and
additionally to enhance those returns through active asset
management. There are two main strategies, value protection
and value enhancement:
Value protection – examples
•
To target PPP projects which have revenue streams based
on availability of the underlying infrastructure asset rather
than revenues based on patronage or volume.
•
•
•
•
To ensure construction risks associated with design,
workmanship, cost overruns and delays lie with our
construction supply chain partners who are best able to
manage them.
To ensure project operational performance and cost risks
lie principally with our service supply chain partners.
To eliminate the risk of increased interest costs on third
party project debt finance over the life of an infrastructure
project by swapping variable interest rates to fixed
interest rates.
To reduce the impact of short-term volatility on revenues
in our renewable energy projects by entering into short
or medium term power purchase agreements with
electricity suppliers.
Value enhancement – examples
•
To promote a culture of continuous improvement with
public sector counter-parties: responding to their need
for changes over the life of PPP infrastructure projects,
reducing the public sector burden and, where possible,
to generate incremental revenues therefrom.
•
•
•
•
To optimise SPV management costs and project insurance
premiums through bulk purchasing or efficiency gains,
thereby increasing investor returns.
To optimise major maintenance and asset renewal costs
over the life of an infrastructure project and thereby
increase investor returns.
To maximise working capital efficiency within project
companies.
To ensure projects are efficiently financed over their
concessions or useful lives.
The total IMS income for the year ended 31 December 2016
of £17.8 million (2015 – £13.4 million) includes £2.0 million
(2015 – £1.4 million) of fee income for the provision of
directors on project company boards.
PROJECT MANAGEMENT SERVICES
The Group also provides Project Management Services (PMS),
largely of a financial or administrative nature, to project
companies in which John Laing, JLIF or JLEN are investors.
These services are provided under Management Services
Agreements (MSAs).
On 30 November 2016, the Group completed the divestment
of its PMS activities in the UK to HCP Management Services
Limited (HCP). As part of the sale, 81 staff roles and 52 MSAs
transferred to HCP. The activities sold contributed £7.9 million
of the total PMS revenues of £14.9 million.
The remaining PMS activities are principally focused on MSAs
relating to projects outside the UK. At 31 December 2016,
the Group held 19 MSAs (31 December 2015 – 75 MSAs).
PROJECTS UNDER CONSTRUCTION
John Laing’s investments in projects are managed by the
Asset Management division. An update on significant projects
under construction is set out below.
Intercity Express Programme (IEP)
John Laing is in partnership with Hitachi to manage the
contracts that cover the design, manufacture, finance and
delivery into daily service and maintenance of a fleet of
122 Super Express trains for the UK’s Great Western Main
Line (Phase 1 – 24% interest) and the East Coast Main Line
(Phase 2 – 30% interest). With a total capital expenditure
across the two phases of £3.4 billion, it is one of the largest
PPP projects to be awarded. Construction of the Phase 1
(Great Western) depots completed in early 2016 and
development of the Phase 2 (East Coast) depots is progressing
well. During 2016, trains commenced testing on the UK rail
network for Phase 1 and remain scheduled to become
operational during 2017.
John Laing Annual Report and Accounts 2016 /
21
Nordergründe offshore wind farm, Germany (30% interest)
The final turbine (of 18) for this offshore wind farm was installed
in December 2016. In September 2016, the sub-contractor
responsible for provision of the offshore electrical sub-station
went into administration and this caused some delays to the
project. The project company, with the support of its lenders,
has entered into an agreement with the administrator and
work on the sub-station has resumed. Operations are due to
start in late 2017.
Sydney Light Rail, New South Wales, Australia (32.5% interest)
This light rail project will form an integral part of Sydney’s
public transport infrastructure network and pedestrianise
one of its busiest streets, providing a commuter route into the
Central Business District and access to the south east of the
city. Services are scheduled to begin in the first half of 2019.
Speyside Biomass, UK (43.35% equity interest)
This 15MW combined heat and power plant supplies the
adjacent Macallan whisky distillery with heat and exports
power to the grid. Its fuel is virgin wood sourced from the
local region. In January 2017, the plant achieved functional
take-over.
Chris Waples
GROUP MANAGING DIRECTOR, ASSET MANAGEMENT
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In November 2016, it was announced that electrification of
certain parts of the Great Western Route being undertaken
by Network Rail on behalf of the Department for Transport
would be further delayed. The Department for Transport has
asked the Phase 1 project company to convert all trains for
use as bi-mode which can be powered by diesel or electricity.
We are not expecting any negative impact on our investments
from these delays.
New Royal Adelaide Hospital (NRAH), South Australia
(17.3% interest)
This project is currently one of the largest building
construction projects in Australia. Containing 700 single
bedrooms and 100 same-day beds, NRAH will have the
capacity to admit over 80,000 patients per year. Delays
relating to this project are addressed in the Chief Executive
Officer’s Review on page 8. Technical completion is now
expected to occur in March 2017 followed by commercial
acceptance three months later.
Denver Eagle P3, Colorado, US (45% interest)
This project is to design, build, finance, maintain and operate
two commuter rail lines and a section of a third in the
Denver Metropolitan area. The fleet of rolling stock has been
completed. The first line (A Line, East Corridor) became
operational in the second quarter of 2016, and the second
line (B Line, North West Corridor electrified segment) in the
third quarter. The third line (G Line) is scheduled to become
operational in the first quarter of 2017.
I-4 Ultimate, Florida, US (50% interest)
This availability-based road project has total capital
expenditure of US$2.3 billion and involves reconstructing
15 major interchanges, building more than 140 bridges,
adding four variable toll Express Lanes, and completely
rebuilding the general use lanes of 21 miles of the existing
I-4 interstate in central Florida. Construction commenced
in 2015 and is anticipated to finish in 2021.
New Perth Stadium, Western Australia (50% interest)
The New Perth Stadium will be a major sporting and
entertainment venue, capable of staging national and
international events. The stadium will predominantly be used
for Australian-rules football but will be able to readily
accommodate other sports, as well as entertainment events
through the use of drop-in seats. Construction works are on
track for completion in advance of the 2018 Australian
Football League season.
New Generation Rollingstock, Queensland, Australia
(40% interest)
The project involves the provision and maintenance of 75 new
six-car trains for Queensland Rail. The first train is now being
tested with progress slower than expected in part due to
reduced availability of train drivers.
/ John Laing Annual Report and Accounts 2016
22
PORTFOLIO VALUATION
PRIMARY INVESTMENT
SECONDARY INVESTMENT
Alder Hey
Children’s
Hospital
40%
Auckland South
Corrections Facility
30%
DARA Red
Dragon
100%
A1 Germany
42.5%
A130
100%
Coleshill
Parkway
100%
Croydon &
Lewisham SL
50%
A1 Gdansk
Poland
29.69%
Severn River
Crossing
M6 Hungary
35%
30%
A15 Netherlands
28%
Aylesbury Vale
Parkway
City Greenwich
Lewisham (DLR)
50%
5%
I-4 Ultimate
I-77 Managed
Lanes
50%
10%
A6 Parkway
Netherlands
85%
IEP (Phase 1)
IEP (Phase 2)
24%
30%
Denver
Eagle P3
45%
New Generation
Rollingstock
40%
Sydney
Light Rail
32.5%
Manchester
Waste VL Co
Manchester
Waste TPS Co
50%
37.43%
Speyside
Biomass
43.35%
Glencarbry
Wind Farm
100%
Sommette
Wind Farm
100%
Cramlington
Biomass
44.7%
Hornsdale 2
Wind Farm
20%
Sterling
Wind Farm
92.5%
Llynfi
Wind Farm
100%
Kiata
Wind Farm
72.3%
Nordergründe
Offshore Wind
Farm
30%
St. Martin
Wind Farm
100%
Svartvallsberget
Wind Farm
Rammeldalsberget
Wind Farm
Klettwitz
Wind Farm
Hornsdale
Wind Farm
100%
100%
100%
30%
Pasilly
Wind Farm
100%
Horath
Wind Farm
81.82%
E
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Health
T
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N
Justice and
Emergency
Services
I
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A
Defence
C
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Regeneration
Other
Accommodation
New Royal
Adelaide Hospital
17.26%
Lambeth
Housing
50%
New Perth
Stadium
50%
T
Roads
R
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N
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T
Rail
Street Lighting
L
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Waste
N
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N
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Renewable
Energy – Biomass
Renewable
Energy – Wind
New investment commitment pre 2016
New investment commitment in 2016
John Laing Annual Report and Accounts 2016 /
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The portfolio valuation at 31 December 2016 was £1,175.9 million compared to £841.4 million at
31 December 2015. After adjusting for realisations, cash yield and cash invested, this represented
a positive movement in fair value of £214.4 million (22.3%):
Portfolio valuation at 1 January 2016
– Cash invested
– Cash yield
– Proceeds from realisations
Rebased valuation
– Movement in fair value
Investments
in projects
£ million
Listed
investment
£ million
Total
£ million
825.3
301.5
(33.9)
(140.2)
952.7
213.2
16.1
–
(0.9)
(6.4)
8.8
1.2
841.4
301.5
(34.8)
(146.6)
961.5
214.4
Portfolio valuation at 31 December 2016
1,165.9
10.0
1,175.9
Cash investment in respect of eight new projects (one PPP and seven renewable energy) entered
into during 2016 totalled £109.3 million. We committed to an additional stake in one existing
PPP project during the year for £37.0 million. In addition, equity and loan note subscriptions of
£155.2 million were injected into existing projects in the portfolio as they progressed through,
or completed, construction.
During 2016, the Group completed the realisation of five investments for a total consideration of
£146.6 million. Cash yield received from projects during the year totalled £34.8 million.
The movement in fair value of £214.4 million is analysed in the table below. The fair value movement
includes a net benefit of £27.5 million from the amendment of benchmark discount rates for certain
investments in response to our understanding and experience of the secondary market.
Unwinding of discount
Reduction of construction risk premia
Impact of foreign exchange movements
Change in macroeconomic assumptions
Change in power and gas price forecasts
Change in operational benchmark discount rates
Uplift on financial closes
Value enhancements and other changes
Year
ended 31
December
2016
Total
£ million
Year
ended 31
December
2015
Total
£ million
77.1
52.7
74.7
(13.8)
(17.6)
27.5
31.0
(17.2)
61.0
22.8
(9.2)
(9.4)
(10.7)
19.5
27.1
31.0
Movement in fair value
214.4
132.1
The net movement in fair value comprised unwinding of discounting (£77.1 million), the reduction
of construction risk premia (£52.7 million), the reduction in operational benchmark discount
rates (£27.5 million), favourable foreign exchange movements (£74.7 million) and uplift on
financial closes (£31.0 million), offset by adverse movements from lower power and gas price
forecasts (£17.6 million), adverse movements in macroeconomic forecasts (£13.8 million) and a
net adverse movement from value enhancements and other changes (£17.2 million). Foreign
exchange movements are addressed further in the Financial Review section.
The adverse fair value movement of £17.2 million relating to value enhancements and other
changes arose partly due to the matters described in the Chief Executive Officer’s Review in relation
to the Group’s investments in New Royal Adelaide Hospital and Manchester Waste VL Co. There
were also value reductions on some other investments, offset by value enhancements.
The split between primary and secondary investments is shown in the table below:
Primary Investment
Secondary Investment
Portfolio valuation
31 December 2016
31 December 2015
£ million
%
£ million
%
696.3
479.6
59.2
40.8
1,175.9
100.0
405.9
435.5
841.4
48.2
51.8
100.0
The increase in the Primary Investment portfolio is due to a movement in fair value of £136.5 million,
including value enhancements and financial closes achieved during the period, and cash invested
of £287.1 million, offset by transfers to the Secondary Investment portfolio of £89.6 million, cash
from investment realisation of £42.4 million and cash yield of £1.2 million.
/ John Laing Annual Report and Accounts 2016
24
PORTFOLIO VALUATION (CONTINUED)
Portfolio valuation at 1 January 2016
– Cash invested
– Cash yield
– Proceeds from realisations
– Transfers to Secondary Investment
Rebased valuation
– Movement in fair value
Portfolio valuation at 31 December 2016
Primary
Investment
£ million
405.9
287.1
(1.2)
(42.4)
(89.6)
559.8
136.5
696.3
The increase in the Secondary Investment portfolio is due to
transfers from the Primary Investment portfolio of £89.6 million,
cash investment of £14.4 million and a movement in fair value of
£77.9 million, offset by investment realisations during the year of
£104.2 million and cash yield of £33.6 million.
Portfolio valuation at 1 January 2016
– Cash invested
– Cash yield
– Proceeds from realisations
– Transfers from Primary Investment
Rebased valuation
– Movement in fair value
Portfolio valuation at 31 December 2016
Secondary
Investment
£ million
435.5
14.4
(33.6)
(104.2)
89.6
401.7
77.9
479.6
METHODOLOGY
A full valuation of the investment portfolio is prepared every
six months, at 30 June and 31 December, with a review at
31 March and 30 September, principally using a discounted
cash flow methodology. The valuation is carried out on a fair
value basis assuming that forecast cash flows from investments
are received until maturity of the underlying assets.
Under the Group’s valuation methodology, a base case discount
rate for an operational project is derived from secondary market
information and other available data points. The base case
discount rate is then adjusted to reflect additional project-specific
risks. In addition, risk premia are added to reflect the additional
risk during the construction phase. The construction risk
premia reduce over time as the project progresses through its
construction programme, reflecting the significant reduction
in risk once the project reaches the operational stage.
The discounted cash flow valuation is based on future cash
distributions from projects forecast as at 31 December 2016,
derived from detailed financial models for each underlying
project. These incorporate the Group’s expectations of likely
future cash flows, including value enhancements.
For the 31 December 2016 valuation, the overall weighted
average discount rate was 8.9% compared to the weighted
average discount rate at 31 December 2015 of 9.5%. The
decrease was primarily due to changes in operational discount
rates for certain investments as referred to earlier. The weighted
average discount rate at 31 December 2016 was made up of
9.1% (31 December 2015 – 9.7%) for the Primary Investment
portfolio and 8.4% (31 December 2015 – 8.9%) for the Secondary
Investment portfolio.
The overall weighted average discount rate of 8.9% reflects
the fact that project cash flows for investments in the Primary
Investment portfolio tend to have a longer duration than for
investments in the Secondary Investment portfolio.
Compared to other market benchmarks, the weighted average
discount rate of 8.4% for the Secondary Investment portfolio
reflects (i) the impact of renewable energy projects which tend
to have higher discount rates than PPP projects and (ii) a few
PPP projects with above average discount rates because of
location or an element of volume/technology risk.
The discount rate ranges used in the portfolio valuation at
31 December 2016 were as set out below:
Sector
Primary
Investment
%
Secondary
Investment
%
PPP projects
Renewable energy projects
7.3 – 11.3
7.6 – 11.6
7.0 – 10.0
7.0 – 9.3
The shareholding in JLEN was valued at its closing market price
on 31 December 2016 of 106p per share (31 December 2015 –
103p per share).
The Directors have obtained an independent opinion from a
third party, which has considerable expertise in valuing the type
of investments held by the Group, that the investment portfolio
valuation represented a fair market value in the market
conditions prevailing at 31 December 2016.
MACRO-ECONOMIC ASSUMPTIONS
During 2016, lower than previously forecast inflation and deposit
rates receivable on cash balances within projects had a negative
impact on the majority of forecast project cash flows within the
portfolio. Deposit rates are anticipated to remain at low levels in
the short-term. As mentioned above, strengthening of foreign
currencies against Sterling over the year to 31 December 2016
resulted in favourable foreign exchange movements of £74.7 million
(excluding the effect of foreign exchange hedges as described in
the Financial Review section).
The table below summarises the main macro-economic
assumptions used in the portfolio valuation:
Assumption
31 December 31 December
2016 2015
Long term inflation UK RPI & RPIX 2.75% 2.75%
Europe CPI 1.60%-2.00% 2.00%
US CPI 2.25%-2.50% 2.25%-2.50%
Asia Pacific CPI 2.00%-2.75% 2.00%-2.75%
Foreign exchange rates GBP/EUR 1.1708 1.3592
GBP/AUD 1.7094 2.0340
GBP/USD 1.2329 1.4833
GBP/NZD 1.7754 2.1692
John Laing Annual Report and Accounts 2016 /
25
SPLIT BETWEEN PPP AND RENEWABLE ENERGY
£ million
10.0 (0.9%)
124.0 (10.5%)
345.6 (29.4%)
148.0 (12.6%)
548.3 (46.6%)
16.1 (1.9%)
91.3 (10.9%)
328.0 (39.0%)
76.1 (9.0%)
329.9 (39.2%)
Listed investment
Secondary renewable energy
Secondary PPP
Primary renewable energy
Primary PPP
Dec 16
Dec 15
Primary PPP investments made up the largest part of the
portfolio, representing 46.6% of the portfolio valuation at
31 December 2016, with Secondary PPP investments
representing a further 29.4%.
BY REVENUE TYPE
£ million
10.0 (0.9%)
287.5 (24.4%)
23.4 (2.0%)
855.0 (72.7%)
16.1 (1.9%)
176.0 (20.9%)
45.6 (5.4%)
603.7 (71.8%)
Listed investments
Volume
Shadow toll
Availability
Dec 16
Dec 15
Availability-based investments continued to make up the majority
of the portfolio, representing 72.7% of the portfolio valuation at
31 December 2016. Renewable energy investments comprised
the majority of the volume-based investments. The investment
in JLEN, which holds investments in PPP and renewable energy
projects, is shown separately.
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Investments in overseas projects are fair valued based on the spot
exchange rate on the balance sheet date. As at 31 December 2016,
a 5% movement of each relevant currency against Sterling would
decrease or increase the value of investments in overseas projects
by c.£27 million.
At 31 December 2016, based on a sample of seven of the larger
PPP investments by value, a 0.25% increase in inflation is
estimated to increase the value of PPP investments by £14 million
and a 0.25% decrease in inflation is estimated to decrease the
value of PPP investments by £13 million. Certain of the
underlying project companies incorporate some inflation hedging.
DISCOUNT RATE SENSITIVITY
The weighted average discount rate applied at 31 December 2016
was 8.9% (31 December 2015 – 9.5%). The table below shows the
sensitivity of each 0.25% change in this rate of up to plus or
minus 0.75%.
Discount
rate sensitivity
+0.75%
+0.50%
+0.25%
–
-0.25%
-0.50%
-0.75%
Portfolio
valuation
£ million
1,083.6
1,113.0
1,143.8
1,175.9
1,209.5
1,244.7
1,281.6
Increase/
decrease
in valuation
£ million
(92.3)
(62.9)
(32.1)
–
33.6
68.8
105.7
Further analysis of the portfolio valuation is shown in the
following tables:
BY TIME REMAINING ON PROJECT CONCESSION/
OPERATIONAL LIFE
£ million
10.0 (0.9%)
21.7 (1.8%)
21.0 (1.8%)
183.1 (15.6%)
309.8 (26.3%)
630.3 (53.6%)
16.1 (1.9%)
21.8 (2.6%)
47.6 (5.7%)
108.3 (12.9%)
245.0 (29.1%)
402.6 (47.8%)
Listed investment
Less than 10 years
10 to 15 years
15 to 20 years
20 to 25 years
Greater than 25 years
Dec 16
Dec 15
PPP projects are based on long-term concessions and
renewable energy assets have long-term useful economic lives.
As demonstrated in the table above, 53.6% of the portfolio by
value had a greater than 25-year unexpired concession term or
useful economic life remaining at 31 December 2016, compared
to 47.8% at 31 December 2015. The investment in JLEN, which
represented 0.9% (31 December 2015 – 1.9%) of the portfolio
valuation, is shown separately.
/ John Laing Annual Report and Accounts 2016
26
PORTFOLIO VALUATION (CONTINUED)
BY SECTOR
£ million
10.0 (0.9%)
115.2 (9.8%)
252.9 (21.5%)
280.4 (23.8%)
395.3 (33.6%)
16.1 (1.9%)
109.3 (13.0%)
154.5 (18.3%)
158.7 (18.9%)
277.4 (33.0%)
122.1 (10.4%)
125.4 (14.9%)
Dec 16
Dec 15
BY GEOGRAPHICAL REGION
£ million
10.0 (0.9%)
203.3 (17.3%)
121.0 (10.3%)
341.2 (29.0%)
500.4 (42.5%)
Listed investments
Environmental –
waste and biomass
Environmental – wind
Transport – rail rolling stock
Transport – other
Social infrastructure
16.1 (1.9%)
106.9 (12.7%)
83.7 (10.0%)
213.0 (25.3%)
421.7 (50.1%)
Listed investments
Asia Pacific
North America
Continental Europe
UK
Dec 16
Dec 15
Investments in the transport sector (excluding rail rolling stock)
continued to make up the largest proportion of the portfolio
valuation, representing 33.6% of the portfolio at 31 December
2016, with rail rolling stock investments accounting for a further
23.8%. Wind investments made up 21.5% of the portfolio by
value, social infrastructure investments – 10.4% and waste and
biomass investments – 9.8%. The portfolio underlying the JLEN
shareholding consists of a mix of renewable energy and
environmental projects.
Investments in the UK continued to make up the largest single
region in the portfolio valuation, representing 42.5% of the
portfolio at 31 December 2016. Continental Europe remained the
next largest category with 29.0%. Investments in projects located
in the Asia Pacific region made up 17.3% and investments in
North America 10.3%. A substantial majority of the JLEN
portfolio consists of investments in UK based projects.
BY INVESTMENT SIZE
BY CURRENCY
£ million
21.9 (1.9%)
121.0 (10.3%)
181.4 (15.4%)
341.2 (29.0%)
510.4 (43.4%)
18.7 (2.2%)
83.7 (10.0%)
88.2 (10.5%)
213.0 (25.3%)
437.8 (52.0%)
£ million
10.0 (0.9%)
409.3 (34.8%)
236.4 (20.1%)
520.2 (44.2%)
New Zealand dollar
US dollar
Australian dollar
Euro
Sterling
Dec 16
Dec 15
16.1 (1.9%)
264.3 (31.4%)
202.7 (24.1%)
358.3 (42.6%)
Listed investments
Other projects
Next five largest projects
Five largest projects
Dec 16
Dec 15
The percentage of investments denominated in foreign currencies
increased from 48.0% to 56.6%. This was partly caused by the
weakness of Sterling during 2016 but is also consistent with our
pipeline and the overseas jurisdictions we target.
The top five investments in the portfolio made up 44.2% of the
portfolio at 31 December 2016. The next five largest investments
made up a further 20.1%, with the remaining investments in the
portfolio comprising 34.8%. The shareholding in JLEN made up
0.9% of the portfolio.
John Laing Annual Report and Accounts 2016 /
27
FINANCIAL REVIEW
BASIS OF PREPARATION
RE-PRESENTED FINANCIAL RESULTS
Statutory financial information for the year ended 31 December
2016 is presented in the Group Income Statement, the Group
Statement of Comprehensive Income and the Group Statement
of Changes in Equity alongside comparative statutory and pro
forma financial information for the year ended 31 December
2015. Both the Group Balance Sheet at 31 December 2016 and
at 31 December 2015 are presented on a statutory basis.
The comparative pro forma financial information was prepared
on the basis that the restructuring associated with the
Company’s admission to listing in February 2015, as described
in more detail in the Financial Review section of the
2015 Annual Report, had been in place throughout the year
ended 31 December 2015. In the opinion of the Directors,
presenting pro forma information for 2015 was necessary in
order to give a true and fair view of the state of the Company’s
affairs for that year.
The statutory and pro forma financial information has been
prepared on the historical cost basis except for the revaluation
of the investment portfolio and financial instruments that are
measured at fair value at the end of each reporting period.
The Company meets the definition of an Investment Entity set
out in IFRS 10. Investment Entities are required to account for
all investments in controlled entities, as well as investments
in associates and joint ventures, at fair value through profit or
loss (FVTPL), except for those directly-owned subsidiaries that
provide investment-related services or engage in permitted
investment-related activities with investees (Service
Companies). Service Companies are consolidated rather than
recorded at FVTPL.
Project companies in which the Group invests are described as
“non-recourse”, which means that providers of debt to such
project companies do not have recourse to John Laing beyond
its equity commitments in the underlying projects. Subsidiaries
through which the Company holds its investments in project
companies, which are held at FVTPL, and subsidiaries that are
Service Companies, which are consolidated, are described
as “recourse”.
As described above, the Company meets the criteria for being
an Investment Entity under IFRS 10 and accordingly the
Company is required to fair value its investments in all
subsidiaries except for those directly-owned subsidiaries that
provide investment-related services, and do not themselves
qualify as Investment Entities; it consolidates such subsidiaries
on a line by line basis.
Included within the subsidiaries that the Company fair values in
its financial statements are recourse subsidiaries through which
the Company holds its investments in non-recourse project
companies. These recourse subsidiaries have, in addition to
investments in non-recourse project companies, other assets
and liabilities, including recourse cash balances, which are
included within the Company’s investments at FVTPL. For
management reporting purposes, these other assets and
liabilities are reported separately from the investments in
non-recourse project companies as are certain income and
costs that do not arise directly from these investments in project
companies. Under management reporting, it is the investments
in non-recourse project companies that are considered as
investments of the Group.
The Directors of the Company use the management reporting
basis, including when reviewing the level of financial resources
and deciding where these resources should be utilised, when
making business decisions. Therefore, the Directors believe it
is helpful to readers of the Company’s financial statements to
set out in this Financial Review the Group Income Statement,
the Group Balance Sheet and the Group Cash Flow Statement
on the management reporting basis. When set out on the
management reporting basis, these statements are described
as “re-presented”.
RE-PRESENTED INCOME STATEMENT
Preparing the re-presented income statement involves a
reclassification of certain amounts within the Group Income
Statement principally in relation to the net gain on investments
at FVTPL. The net gain on investments at FVTPL in the Group
Income Statement includes fair value movements from the
portfolio of investments in non-recourse project companies but
also comprises income and costs that do not arise directly from
investments in this portfolio, including investment fees earned
from project companies.
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FINANCIAL REVIEW (CONTINUED)
2016
2015
d
Re-presented Re-presented
income income
Adjustments
£ million
statement statement Re-presented income
£ million £ million statement line items
IFRS
Group
Income
Statement
£ million
Fair value movements – Fair value movements –
investment portfolio 214.4 – 214.4 132.1 investment portfolio
Fair value movements – other (2.6) (0.6)
(3.2) (7.5) Fair value movements – other
Investment fees from projects 7.0 – 7.0 7.7 Investment fees from projects
a
Net gain on investments at fair value
through profit or loss 218.8 (0.6) 218.2 132.3
IMS revenue 17.8 – 17.8 13.4 IMS revenue
PMS revenue 14.9 – 14.9 17.0 PMS revenue
Recoveries on financial close 7.5 – 7.5 3.4 Recoveries on financial close
Other income 1.8 (1.8)
– –
b
Other income 42.0 (1.8) 40.2 33.8
Total income 260.8 (2.4) 258.4 166.1
Third party costs (7.7) – (7.7) (6.6) Third party costs
Staff costs (34.1) – (34.1) (32.5) Staff costs
General overheads (13.2) – (13.2) (11.7) General overheads
Other net costs (1.8) 1.1
Pension and other charges (1.6) 1.6
(0.7) (3.6) Other net costs
– –
c
a,b
Administrative expenses (58.4) 2.7 (55.7) (54.4)
EBIT 202.4 0.3 202.7 111.7
a,c
Finance costs (10.3) 2.6
Pension and other charges – (2.9)
c
(7.7) (6.6) Finance costs
(2.9) (4.2) Pension and other charges
Profit before tax 192.1 – 192.1 100.9
Notes:
a
b
c
d
Adjustments primarily comprise a £1.5 million provision offset by a £0.8 million release of other provisions reclassified from ‘fair value movements – other’ to
‘other net costs’; as well as £1.3 million interest income reclassified from ‘fair value movements – other’ to ‘finance costs’.
Adjustments primarily comprise £1.6 million part proceeds received from the sale of the PMS UK business reclassified from ‘other income’ to ‘other net
costs’ and £0.2 million of other income from projects reclassified from ‘other income’ to ‘other net costs’.
Under IAS 19, the costs of the pension schemes comprise a service cost of £1.6 million (2015 – £1.5 million), included in administrative expenses in the Group
Income Statement, and a finance charge of £1.3 million (2015 – £2.7 million), included in finance costs in the Group Income Statement. These amounts are
combined together under management reporting.
For a reconciliation between the IFRS Group Income Statement and re-presented income statement for the year ended 31 December 2015, please see the
Additional Financial Information on page 125.
The results for the year are also shown by operating segment in the table below.
Year ended 31 December
Primary
Investment
2016
£ million
2015
£ million
Secondary
Investment
2016
£ million
2015
£ million
Asset
Management
2016
£ million
2015
£ million
Total
2016
£ million
2015
£ million
Profit before tax for
reportable segments 113.1 50.7 57.1 43.0 19.9 15.5 190.1 109.2
Post retirement charges
Other net gain/(loss)
Profit before tax
(2.9)
4.9
(4.2)
(4.1)
192.1
100.9
Profit before tax from continuing operations for the year ended
31 December 2016 was £192.1 million (2015 – £100.9 million).
The main reason for the higher profit before tax was a higher fair
value movement compared to 2015, which in turn was principally
as a result of favourable foreign exchange rate movements.
•
The main profit contributor in 2016 was the Primary
Investment division. Its contribution was higher than last
year primarily because of a higher fair value movement,
which in turn was principally as a result of favourable foreign
exchange rate movements and a higher value uplift from the
reduction of construction risk premia offset by an adverse
•
•
fair value movement relating to value enhancements and
other changes referred to in the Portfolio Valuation section.
The higher contribution in 2016 from the Secondary
Investment division was also primarily as a result of foreign
exchange gains on the portfolio as well as higher value
enhancements offset by adverse other changes referred to
in the Portfolio Valuation section.
The higher contribution in 2016 from the Asset Management
division was principally due to higher fee income from IMS
as a result of increased external Assets under Management.
John Laing Annual Report and Accounts 2016 /
29
The movement in fair value on the portfolio for the year ended
31 December 2016, after adjusting for the impact of investments,
cash yield and realisations, was a £214.4 million gain (2015 –
£132.1 million gain). The higher value uplift is primarily due to
favourable foreign exchange movements in 2016 compared to the
previous year. For further details of the movement in fair value on
the portfolio, see the Portfolio Valuation section on page 22.
There were other fair value movements for the year ended
31 December 2016 of a £3.2 million loss which comprised net
foreign exchange losses of £11.2 million, (principally comprising
£11.9 million losses on foreign exchange hedges held by the
Group during the year and at 31 December 2016 – see the foreign
currency exposure section in this review for further details) offset
by fair value gains of £0.9 million in respect of non-portfolio
investments in small joint ventures, £6.6 million of tax income and
a partial release of £0.5 million of a provision created in the year
ended 31 December 2015. For the year ended 31 December 2015,
other fair value movements primarily comprised a loss of
£8.2 million from providing against a loan to a project company
in the UK healthcare sector.
Staff costs by division are shown below:
The Group earned IMS revenue of £17.8 million
(2015 – £13.4 million) for investment advisory and asset
management services primarily to the external funds JLIF
and JLEN, with the increase from last year due to the higher
level of external Assets under Management.
The Group also earned PMS revenue of £14.9 million
(2015 – £17.0 million). As mentioned in the Chief Executive
Officer’s Review, on 30 November 2016, the Group completed the
sale of the business and assets of its PMS activities in the UK to
HCP. As part of the sale, 81 staff roles and 52 MSAs transferred
to HCP. The activities sold contributed approximately £7.9 million
of the £14.9 million PMS revenues for the year ended
31 December 2016 referred to above and had attributable costs
of c.£6.0 million.
The Group achieved recoveries of bidding costs on financial
closes of £7.5 million in the year ended 31 December 2016
(2015 – £3.4 million), in line with third party bid costs incurred
in the year.
Primary
Investment
2016
£ million
2015
£ million
Secondary
Investment
2016
£ million
2015
£ million
Asset
Management
2016
£ million
2015
£ million
Central
Total
2016
£ million
2015
£ million
2016
£ million
2015
£ million
Staff costs
9.6
9.0
–
–
17.1
17.0
7.4
6.5
34.1
32.5
Included within Asset Management staff costs are costs relating to:
Investment
Management Services
2015
£ million
2016
£ million
Project
Management Services
2015
£ million
2016
£ million
Total
Asset Management
2016
£ million
2015
£ million
Staff costs
9.0
8.1
8.1
8.9
17.1
17.0
The overall increase in staff costs is principally due to the
higher costs under IFRS 2 of share-based incentive schemes
with costs in the year ended 31 December 2016 of £2.0 million
compared to £0.7 million in the prior year. See note 5 of
the Group financial statements for further details on the
share-based incentive schemes.
Other net costs of £3.6 million in 2015 primarily comprised
staff incentive costs in relation to the Company’s listing in
February 2015.
Finance costs of £7.7 million (2015 – £6.6 million) include
costs arising on the corporate banking facilities net of any
interest income, with the increase from last year primarily due
to higher average usage of the corporate banking facilities.
The Group’s overall tax credit on profit on continuing activities
for 2016 was £4.8 million (2015 – charge of £0.1 million). This
comprised a tax charge of £1.8 million (2015 – £2.1 million) in
recourse group subsidiary entities that are consolidated (shown
in the ‘Tax’ line of the Group Income Statement), primarily in
relation to group relief payable to entities held at FVTPL, and a
tax credit of £6.6 million (2015 – £2.0 million) in recourse group
subsidiary entities that are held at FVTPL (included within ‘net
gain on investments at fair value through profit or loss’ on the
Group Income Statement), including group relief receivable from
recourse group subsidiary entities that are consolidated together
with group and consortium relief received from project companies.
The contributions made to JLPF are tax deductible when paid
and, as a result, there is minimal tax payable by the UK holding
and asset management activities of the Group. Capital gains
from the realisation of investments in projects are generally
exempt from tax under the UK’s Substantial Shareholding
Exemption for shares in trading companies or under the overseas
equivalent. To the extent this exemption is not available, gains
may be sheltered using current year losses or losses brought
forward within the Group’s holding companies. There are no
losses in the Company but there are tax losses in recourse
group subsidiary entities that are held at FVTPL.
In November 2016 and January 2017, HM Treasury issued
draft provisions for the Finance Bill 2017, which included new
proposed legislation to restrict tax deductible interest to 30%
of a company’s earnings before interest, tax, depreciation and
amortisation (EBITDA) with effect from 1 April 2017. This
followed the publication by HM Treasury of a consultation in
May 2016 on Base Erosion and Profit Shifting (BEPS) to which
the Company responded as part of industry representative
forums. The Company holds a provision as at 31 December
2016 for the estimated impact of the new proposed legislation
on the basis that the proposed new legislation had been
enacted at that date; this provision is not material in the
context of the Company’s net asset value at this date.
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FINANCIAL REVIEW (CONTINUED)
RE-PRESENTED BALANCE SHEET
The re-presented balance sheet is reconciled to the Group Balance Sheet at 31 December 2016 below. The re-presented balance
sheet involves the reclassification of certain amounts within the Group Balance Sheet principally in relation to assets and liabilities
of £76.6 million (31 December 2015 – £123.4 million) within certain of the Company’s recourse subsidiaries that are included
in investments at FVTPL in the Group Balance sheet as a result of the requirement under IFRS 10 to fair value investments in
these subsidiaries.
31 December
2016
2015
g
IFRS
Group
Balance
Sheet
£ million
Re-presented Re-presented
balance balance
Adjustments
£ million
sheet sheet Re-presented balance sheet
£ million £ million line items
Non-current assets
a
Plant and equipment 0.3 (0.3)
b
Investments at FVTPL 1,257.5 (81.6)
– 23.7
– 0.3
c,e
Deferred tax assets 1.0 (1.0)
– 3.7
– –
1,175.9 841.4 Portfolio book value
a
23.7 123.9 Cash collateral balances
c
0.3 0.5 Non-portfolio investments
– –
3.7 5.6 Other long term assets
1,258.8 (55.2) 1,203.6 971.4
Current assets
Trade and other receivables 7.4 (7.4)
Cash and cash equivalents 1.6 51.5
a
– –
53.1 5.5 Cash and cash equivalents
c
d
9.0 44.1 53.1 5.5
Total assets 1,267.8 (11.1) 1,256.7 976.9
Current liabilities
d
– (5.6)
Current tax liabilities (4.1) 4.1
d
Borrowings (161.4) (3.6)
Trade and other payables (14.7) 14.7
b,d,e
e
– –
(165.0) (19.0) Cash borrowings
– –
(5.6) (22.1) Working capital and other balances
(180.2) 9.6 (170.6) (41.1)
Net current liabilities (171.2) 53.7 (117.5) (35.6)
Non-current liabilities
(61.3) (38.9) Pension deficit (IAS 19)
Retirement benefit obligations (69.3) 8.0
Other retirement benefit
– (8.0)
Provisions (1.5) 1.5
(8.0) (7.3) obligations
– –
d
f
f
(70.8) 1.5
(69.3) (46.2)
Total liabilities (251.0) 11.1 (239.9) (87.3)
Net assets 1,016.8 – 1,016.8 889.6
Notes:
a
b
c
d
e
f
g
Investments at fair value through profit or loss (FVTPL) comprise: portfolio valuation of £1,175.9 million (31 December 2015 – £841.4 million), other
investments not included in the portfolio valuation of £0.3 million (31 December 2015 – £0.5 million) and other assets and liabilities within recourse
investment entity subsidiaries of £81.3 million (31 December 2015 – £123.4 million) (see note 11 to the Group financial statements). Re-presented cash and
cash equivalents increased from £1.6 million (31 December 2015 – £1.1 million) on the Group Balance Sheet because of the inclusion of available cash
balances in recourse group investment subsidiaries of £51.5 million (31 December 2015 – £4.4 million) excluding cash collateral balances of £23.7 million
(31 December 2015 – £123.9 million); see the Financial Resources section on page 32.
Other assets and liabilities within recourse investment entity subsidiaries of £81.3 million (31 December 2015 – £123.4 million) referred to in note (a)
include (i) cash and cash equivalents of £75.2 million (31 December 2015 – £128.3 million), of which £23.7 million (31 December 2015 – £123.9 million) is
held to collateralise future investment commitments, and (ii) positive working capital and other balances of £6.1 million (31 December 2015 – £4.9 million).
Plant and equipment and deferred tax assets are combined as other long term assets.
Trade and other receivables, current tax liabilities, trade and other payables and provisions are combined as working capital and other balances.
Borrowings comprise cash borrowings of £165.0 million (31 December 2015 – £19.0 million) net of unamortised financing costs of £3.6 million (31 December
2015 – £4.1 million), with the non-current portion of £2.4 million (31 December 2015 – £3.0 million) re-presented as other long term assets and the current
portion of £1.2 million (31 December 2015 – £1.1 million) re-presented as working capital and other balances.
Total retirement benefit obligations are shown in their separate components as in note 18 to the Group financial statements.
For a reconciliation between the IFRS Group Balance Sheet and re-presented balance sheet as at 31 December 2015, please see the Additional Financial
Information on page 126.
John Laing Annual Report and Accounts 2016 /
31
Net assets are also shown by operating segment in the table below.
As at 31 December
Primary
Investment
2016
£ million
2015
£ million
Secondary
Investment
2016
£ million
2015
£ million
Asset
Management
2016
£ million
2015
£ million
Total
2016
£ million
2015
£ million
Portfolio valuation
696.3
405.9
479.6
435.5
–
–
1,175.9
841.4
Other net current liabilities
1
Group net (borrowings)/cash
Post-retirement obligations
Group net assets
Notes:
(1.6)
(16.0)
(88.2)
110.4
(69.3)
(46.2)
1,016.8
889.6
1
Short-term cash borrowings of £165.0 million (31 December 2015 – £19.0 million) net of cash balances of £76.8 million (31 December 2015 – £129.4 million),
of which £23.7 million was held to collateralise future investment commitments (31 December 2015 – £123.9 million).
Net asset value increased from £889.6 million at 31 December
2015 to £1,016.8 million at 31 December 2016.
The Group’s portfolio of investments in project companies
and listed investments was valued at £1,175.9 million at
31 December 2016 (31 December 2015 – £841.4 million).
The valuation methodology and details of the portfolio value
are provided in the Portfolio Valuation section.
The Group held cash balances of £76.8 million at 31 December
2016 (31 December 2015 – £129.4 million) of which £23.7 million
(31 December 2015 – £123.9 million) was held to collateralise
future investment commitments (see the Financial Resources
section below for more details).
Working capital and other balances (a negative amount) were
lower primarily because of lower provisions at 31 December 2016,
higher accruals at 31 December 2015 relating to IPO incentive
payments and a net positive fair value at 31 December 2016 on
foreign exchange hedges.
The combined accounting deficit in the Group’s defined benefit
pension and post-retirement medical schemes at 31 December
2016 was £69.3 million (31 December 2015 – £46.2 million).
The Group operates two defined benefit schemes in the UK –
the John Laing Pension Fund (JLPF) and the John Laing
Pension Plan (the Plan). Both schemes are closed to new
members and future accrual. Under IAS 19, at 31 December
2016, the JLPF had a deficit of £64.2 million (31 December 2015
– £38.9 million) whilst the Plan had a surplus of £2.9 million
(31 December 2015 – £2.7 million; this surplus was not
recognised at 31 December 2015). The liability at 31 December
2016 under the post-retirement medical scheme was
£8.0 million (31 December 2015 – £7.3 million).
The pension deficit in JLPF is based on a discount rate applied
to pension liabilities of 2.80% (31 December 2015 – 3.75%)
and long term RPI of 3.2% (31 December 2015 – 3.0%).
The amount of the deficit is dependent on key assumptions,
principally: inflation; the discount rate used; and the anticipated
longevity of members. The discount rate, as prescribed by
IAS 19, is based on yields from high quality corporate bonds.
The deficit (under IAS 19) has increased from last year
primarily due to an increase in JLPF’s liabilities, as a result
of the lower discount rate and higher long term RPI, partly
offset by cash contributions to JLPF of £18.1 million.
Following a triennial actuarial review of the JLPF as at
31 March 2016, a seven-year deficit repayment plan has been
agreed with the JLPF Trustee. The actuarial deficit of £171 million
at 31 March 2016 is to be repaid as follows:
By 31 March
2017
2018
2019
2020
2021
2022
2023
£ million
24.5
26.5
29.1
24.9
25.7
26.4
24.6
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32
FINANCIAL REVIEW (CONTINUED)
RE-PRESENTED CASH FLOW STATEMENT
The Group Cash Flow Statement includes the cash flows
of the Company and certain recourse subsidiaries that are
consolidated (Service Companies). The Group’s recourse
investment entity subsidiaries, through which the Company
holds its investments in non-recourse project companies,
are held at fair value in the financial statements and
accordingly cash flows relating to investments in the portfolio
are not included in the Group Cash Flow Statement.
Investment-related cash flows are disclosed in note 11 to
the financial statements.
The re-presented cash flow statement shows all recourse cash
flows that arise in both the consolidated group (the Company
and its consolidated subsidiaries) and in the recourse
investment entity subsidiaries.
Year ended 31 December
2016
2015
Re-presented Re-presented
cash flows
£ million
cash flows
£ million
Cash yield
Operating cash flow
Net foreign currency exchange impact
Total operating cash flow
Cash contributions to JLPF (including PPF levy)
Cash investment in projects
Proceeds from realisations
Net investing cash flows
Finance charges
Capital raise (net of costs)
Dividend payments
Net cash (outflow)/inflow from
financing activities
36.8
(10.9)
(18.2)
7.7
(18.4)
(301.5)
146.6
(154.9)
(6.8)
–
(26.2)
44.3
(15.9)
2.8
31.2
(47.5)
(142.9)
85.9
(57.0)
(13.4)
123.0
(5.9)
(33.0)
103.7
Recourse group cash (outflow)/inflow
Recourse group opening net cash balances
(198.6)
110.4
30.4
80.0
Recourse group closing net
(debt)/cash balances
Reconciliation to line items on re-represented
Group Balance Sheet
Cash collateral balances
Other cash balances
Total cash and cash equivalents
Cash borrowings
Net (debt)/cash
(88.2)
110.4
23.7
53.1
76.8
(165.0)
(88.2)
123.9
5.5
129.4
(19.0)
110.4
Cash yield comprises £34.8 million (2015 – £38.9 million) from
the investment portfolio and £2.0 million (2015 – £5.4 million)
from non-portfolio investments.
Operating cash flow in the year ended 31 December 2016 was
less adverse than in 2015 primarily due to higher recoveries of
costs on financial closes and as a result of amounts paid in the
prior year in relation to the Company’s IPO in 2015.
Total operating cash flows are net of an adverse foreign
exchange impact of £18.2 million (2015 – favourable impact of
£2.8 million), principally arising on foreign exchange hedges
as a result of the weakening of Sterling against relevant
currencies during the year.
In the year, in addition to the payment of the PPF levy, the
Group made a cash contribution to JLPF of £18.1 million
(2015 – regular cash contributions of £27.0 million, special
cash contributions of £20.0 million).
During the year, cash of £301.5 million (31 December 2015 –
£142.9 million) was invested in project companies. In the same
period, investments in six projects were realised (including
four investments to JLIF and two investments to JLEN) for
total proceeds of £140.2 million (2015 – £85.9 million from
the realisation of seven investments for total proceeds of
£86.3 million net of a £0.4 million price adjustment for a
project disposed of in 2014). Additionally, a 2.2% shareholding
in JLEN was sold for £6.4 million (2015 – £nil).
Finance charges were higher in 2015 due to the payment of
upfront costs in relation to the committed corporate banking
facilities entered into at the time of IPO.
The capital raise, net of costs, from the Company’s IPO in 2015
was £123.0 million.
Dividend payments of £26.2 million in the year ended
31 December 2016 comprise the final dividend for 2015 of
£19.4 million and the interim dividend for 2016 of £6.8 million
(2015 – interim dividend for 2015 of £5.9 million).
FINANCIAL RESOURCES
At 31 December 2016, the Group had principal committed
corporate banking facilities of £400.0 million, expiring in March
2020 (31 December 2015 – £350.0 million), which are primarily
used to back investment commitments. These facilities were
increased by £50.0 million in June 2016. The Group also had
surety facilities of £50.0 million backed by committed liquidity
facilities both expiring in March 2018. Net available financial
resources at 31 December 2016 were £168.1 million
(31 December 2015 – £180.1 million).
Analysis of Group financial resources
31 December
2016
£ million
31 December
2015
£ million
Total committed facilities
450.0
350.0
Letters of credit issued under corporate
banking facilities (see below) (112.6) (154.2)
Letters of credit issued under surety
facilities (see below) (50.0) –
Other guarantees and commitments (6.5) (1.1)
(19.0)
Short term cash borrowings
(165.0)
Utilisation of facilities
Headroom
1
Cash and bank deposits
Less unavailable cash
(334.1)
(174.3)
115.9
175.7
53.1
(0.9)
5.5
(1.1)
Net available financial resources
168.1
180.1
Notes:
1
Cash and bank deposits excluding cash collateral balances
Letters of credit issued under the committed corporate banking
facilities of £112.6 million (31 December 2015 – £154.2 million)
and under additional surety facilities of £50.0 million
(31 December 2015 – £nil) together with cash collateral
represent future cash investment by the Group into underlying
projects in the Primary Investment portfolio.
31 December
2016
£ million
31 December
2015
£ million
Letters of credit issued
Cash collateral
Future cash investment into projects
162.6
23.7
186.3
154.2
123.9
278.1
John Laing Annual Report and Accounts 2016 /
33
The table below shows the letters of credit issued analysed by investment and the date or dates when cash is expected to be invested
into the underlying project at which point the letter of credit would expire:
Project
New Generation Rollingstock, Australia
Cramlington Biomass, UK
IEP (Phase 2), UK
Sterling Wind Farm, US
Kiata Wind Farm, Australia
New Royal Adelaide Hospital, Australia
Total
Letter of credit issued
£ million
Expected date of
cash investment
24.3
27.0
72.7
18.1
16.0
4.5
162.6
January 2017 to October 2017
October 2017
March 2018
May 2017 to September 2017
January 2017 to October 2017
June 2017
The table below shows the cash collateral balances at 31 December 2016 analysed by investment and the date when the cash
collateral is expected to be invested into the underlying project:
Project
New Perth Stadium, Australia
I-77 Managed Lanes, US
IEP (Phase 1), UK
Total
Cash collateral is included within ‘investments at fair value
through profit or loss’ in the Group Balance Sheet.
There are significant non-recourse borrowings within the
project companies in which the Group invests. The interest
rate exposure on the debt of such project companies is, in
most circumstances, fixed on financial close, through a long-
dated bond or fixed rate debt, or through the fixing of floating
rate bank debt via interest rate swaps. Given this, the impact
on the Group’s returns from investments in project companies
of changes in interest rates on project borrowings is minimal.
There is an impact from changes in interest rates on the
investment income from monies held on deposit both at Group
level and within project companies but such an effect is not
material in the context of the Group Balance Sheet.
FOREIGN CURRENCY EXPOSURE
The Group regularly reviews the sensitivity of its balance sheet
to changes in exchange rates relative to Sterling and to the
timing and amount of forecast foreign currency denominated
cash flows. As set out in the Portfolio Valuation section, the
Group’s portfolio comprises investments denominated in
Sterling, Euro, and Australian, US and New Zealand Dollars.
As a result of foreign exchange movements in the year ended
31 December 2016, there was a favourable fair value
movement of £74.7 million in the portfolio valuation between
31 December 2015 and 31 December 2016. This positive
impact was partly offset by net losses, both realised and
unrealised of £11.9 million from foreign exchange hedges held
by the Group during 2016 on part of its Euro-denominated
investments (£152.5 million) and on part of its New Zealand
Dollar-denominated investment (£10.9 million). The net losses
on other hedges held by the Group against cash collateral
balances currencies were offset by foreign exchange
translation gains on those and other balances.
The Group may apply an appropriate hedge to a specific
currency transaction exposure, which could include borrowing
in that currency or entering into forward foreign exchange
contracts. An analysis of the portfolio value by currency is set
out in the Portfolio Valuation section.
Cash collateral amount
£ million
Expected date of
cash investment
3.3
20.1
0.3
23.7
January 2017 to December 2017
October 2017 to November 2018
July 2017
Letters of credit in issue at 31 December 2016 of £162.6 million
(31 December 2015 – £154.2 million) are analysed by currency
as follows:
Letters of credit by currency
Sterling
US dollar
Australian dollar
31 December
2016
£ million
31 December
2015
£ million
99.7
18.1
44.8
162.6
122.1
11.7
20.4
154.2
Cash collateral at 31 December 2016 of £23.7 million
(31 December 2015 – £123.9 million) is analysed by currency
as follows:
Cash collateral by currency
Sterling
US dollar
Australian dollar
31 December
2016
£ million
31 December
2015
£ million
0.3
20.1
3.3
23.7
58.7
16.7
48.5
123.9
GOING CONCERN
The Group has committed corporate banking facilities until
March 2020 and has sufficient resources available to meet its
committed capital requirements, investments and operating
costs for the foreseeable future. Accordingly, the Group has
adopted the going concern basis in the preparation of its
financial statements for the year ended 31 December 2016.
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
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The Directors’ assessment has been undertaken using a
detailed financial model, which the Group uses consistently
for forecasting purposes and to monitor compliance with the
covenants in its corporate banking facilities. Key output from
this model is reviewed at monthly treasury meetings and by
the Group’s Executive Committee, Audit & Risk Committee
and Board. Where appropriate, the model has been subjected
to robust sensitivity analysis to stress test the resilience of the
Group’s forecasts to severe but plausible scenarios. These
included (i) a scenario under which the Group is unable to
make further investment realisations over an extended time
period and accordingly materially reduces new investment
activity as well as its costs and (ii) a scenario where the Group
experiences a combination of a significant write down in one
or more of its largest investments, a six month delay in
forecast disposal proceeds and material strengthening of
Sterling versus the currencies the Group invests in.
The Company has a strong risk management culture,
supported by a Management Risk Committee and an Internal
Audit function, which helps to ensure that key risks to the
business are identified, assessed and monitored appropriately.
Based on the above assessment, the Directors have formed a
reasonable expectation that the Group will be able to continue
its operations and meet its liabilities as they fall due over the
next three years from 31 December 2016.
/ John Laing Annual Report and Accounts 2016
34
VIABILITY STATEMENT
In accordance with the revised UK Corporate Governance
Code, the Directors have assessed the viability of the Group
over the three year period to 31 December 2019, taking into
account the Group’s current position and the principal risks
set out on pages 35 to 40. The assessment carried out supports
the Directors’ statements both on viability, as set out below,
and also in respect of going concern, as set out in the
accounting policies section.
The Directors selected a period of three years for their
assessment because this is the longest timescale over which
the Group usually has visibility over the future investment
opportunities which make up its pipeline. It is also the key
period of focus in the Group’s budget and planning process
which is updated each year and looks forward up to four years.
The particular factors and/or assumptions the Directors
considered in making their assessment were as follows:
•
The Group makes primarily long-term investments which
are not publicly traded. The minimum holding period for
an investment is likely to extend beyond the construction
time for the underlying asset (which for a PPP asset may
be as long as 5-6 years), and some assets may be held
to maturity;
• New investments in greenfield projects are funded through
a combination of cash flow from existing assets, the Group’s
corporate banking facilities and realisations of investments
in operational projects. Realisations are dependent on
continuing demand in a currently active secondary market;
• Availability of debt finance continues at Group level through
the corporate banking facilities and at project level through
non-recourse project finance facilities specific to each
project; it is assumed that the £400.0 million corporate
banking facilities which mature in March 2020 will be
renewed or refinanced before that date;
•
•
The Group is exposed to potential increases in pension cash
contributions as well as volatility in the JLPF pension deficit
reported as part of NAV, principally because of movements
in the main risks (discount rate, inflation rate and life
expectancy) which impact the value of pension liabilities.
The next triennial actuarial valuation of JLPF is due as at
31 March 2019; and
The value of the Group’s investment portfolio is dependent
on a number of key assumptions including: discount rates
derived from the secondary market; macro-economic
factors such as exchange rates, taxation rates, inflation
and deposit rates; the construction stage and operational
performance of underlying assets; forecast project cash
flows; volumes (where project revenue is linked to project
usage); and forward energy prices and energy yields.
John Laing Annual Report and Accounts 2016 /
35
PRINCIPAL RISKS AND RISK MANAGEMENT
The effective management of risks within the Group is essential
to the successful delivery of the Group’s objectives. The Board
is responsible for ensuring that risks are identified and
appropriately managed across the Group and has delegated
to the Audit & Risk Committee responsibility for reviewing the
effectiveness of the Group’s internal controls, including the
systems established to identify, assess, manage and monitor
risks. The Group’s risk appetite when making decisions on
investment commitments or potential realisations is assessed
by reference to the expected impact on NAV.
During the year, the previous Audit Committee was renamed
the Audit & Risk Committee and its remit was expanded. Under
its new remit, the Committee has a greater involvement in
overseeing the effective management of risks within the Group.
The principal internal controls that operated throughout 2016
and up to the date of this Annual Report include:
•
•
•
•
an organisational structure which provides adequate
segregation of responsibilities, clearly defined lines of
accountability, delegated authority to trained and experienced
staff and extensive reporting;
clear business objectives aligned with the Group’s risk appetite;
risk reporting, including identification of risks through
Group-wide risk registers, that is embedded in the regular
management reporting of business units and is
communicated to the Board; and
an independent internal audit function, which reports to the
Audit & Risk Committee. The external auditor also reports to
the Audit & Risk Committee on the effectiveness of financial
controls relevant to the audit.
The Group’s Internal Audit function has several objectives,
in particular:
•
•
•
to provide independent assurance to the Board, through the
Audit & Risk Committee, that internal control processes,
including those related to risk management, are relevant, fit
for purpose, effective and operating throughout the business;
to provide a deterrent to fraud and to provide another layer
of assurance that the Group is meeting its FCA regulatory
requirements; and
to provide advice on efficiency improvements to internal
control processes.
Internal Audit is independent of the business and reports
functionally to the Group Finance Director and directly to the
Chairman of the Audit & Risk Committee. The Group Head of
Internal Audit meets regularly with senior management and
the Audit & Risk Committee to discuss key findings and
management actions undertaken.
The Group Head of Internal Audit can call a meeting with the
Chairman of the Audit & Risk Committee at any time and
meets privately with the Audit & Risk Committee, without
senior management present, as and when required, but at
least annually.
A Management Risk Committee, comprising senior members
of management and chaired by the Group Finance Director,
assists the Board, Audit & Risk Committee, and Executive
Committee in formulating and enforcing the Group’s risk
management policy. The Head of Internal Audit attends each
meeting of the Management Risk Committee. It reports
formally to the Audit & Risk Committee.
The Directors confirm that they have monitored throughout
the year and carried out (i) a review of the effectiveness of the
Group’s risk management and internal control systems and
(ii) a robust assessment of the principal risks facing the
Group, including those that would threaten its business model,
future performance, solvency and liquidity. No material
weaknesses were identified from the review of the Group’s
risk management and internal control systems. The Group
risk register is reviewed at every meeting of the Audit & Risk
Committee and Management Risk Committee and every six
months by the Board.
The above controls and procedures are underpinned by a
culture of openness of communication between operational
and executive management. All investment decisions are
scrutinised in detail by the Investment Committee and,
if outside the Investment Committee’s terms of reference,
also by the Board.
The Directors’ assessment of the principal risks applying to
the Group is set out below, including the way in which risks
are linked to the three strategic objectives set out in the Chief
Executive Officer’s Review. Additional risks and uncertainties
not presently known to the Directors, or which they currently
consider not to be material, may also have an adverse effect
on the Group:
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/ John Laing Annual Report and Accounts 2016
36
PRINCIPAL RISKS AND RISK MANAGEMENT (CONTINUED)
Link to
strategic
objectives
(note)
Mitigation
Change in
risk since
31 December
2015
1, 2, 3
The Board limits its exposure to any single jurisdiction.
>
Thorough due diligence is carried out in order to assess a
specific country's risk (for example economic and political
stability, tax policy and local practices) before any
investment is made.
No change
Where possible the Group seeks specific contractual
protection from changes in government policy and law
for the projects it invests in. General change of law is
considered to be a normal business risk. During the
bidding process for a project, the Group takes a view
on an appropriate level of return to cover the risk of
non-discriminatory changes in law.
During the bidding process for a project, the Group
assesses the sensitivity of the project’s forecast returns to
changes in factors such as tax rates and/or, for renewable
energy projects, governmental support mechanisms.
The Group targets jurisdictions which have a track record
of support for renewable energy investments and which
continue to demonstrate such support.
Through its track record of more than 120 investment
commitments, the Group has developed significant
expertise in compliance with public tender regulations.
Factors which have the potential to impact adversely the
underlying cash flows of an investment, and hence its
valuation, are hedged wherever possible at a project level
and sensitivities are considered during the investment
appraisal process.
Systemic risks, such as potential deflation, or
appreciation/depreciation of Sterling versus the currency
in which an investment is made, are assessed in the
context of the portfolio as a whole.
The Group seeks to reduce the extent to which its
renewable energy investments are exposed to energy
prices through governmental support mechanisms and/or
off-take arrangements.
The Group monitors closely the level of investments it has
exposed to foreign currencies, including regularly testing
the sensitivity of the financial covenants in its corporate
banking facilities to a significant change in the value of
individual currencies.
Where possible, specific clauses relating to potential
currency change within a particular jurisdiction are
incorporated in project documentation.
Increased
>
No change
Projects are appraised on a number of bases, including
being held to maturity. Projects are also carefully
structured so that they are capable of being divested,
if appropriate, before maturity.
Over recent years, the secondary markets for both PPP and
renewable energy investments have grown. In particular,
several new environmental funds have been launched.
While JLIF and JLEN are natural buyers of the Group’s PPP
and renewable energy investments respectively, the size
and breadth of secondary markets provide the Group with
confidence that it can sell investments to other purchasers.
1, 2, 3
1, 2, 3
Risk
Governmental policy
Changes to legislation or public policy in the jurisdictions
in which the Group operates or may wish to operate
could negatively impact the volume of potential
opportunities available to the Group and the returns
from existing opportunities.
The use of PPP programmes by governmental entities may
be delayed or may decrease thereby limiting opportunities
for private sector infrastructure investors in the future,
or be structured such that returns to private sector
infrastructure investors are reduced.
Governmental entities may in the future seek to terminate
or renegotiate existing projects for example to introduce
new policies or legislation that result in higher tax
obligations on existing PPP or renewable energy projects
or otherwise affect existing or future projects.
Changes to legislation or public policy relating to
renewable energy could negatively impact the economic
returns on the Group’s investments in renewable energy
projects, which would adversely affect the demand for and
attractiveness of such projects.
Compliance with the public tender regulations which apply
to PPP projects is complex and the outcomes may be
subject to third party challenge and reversed.
Macroeconomic factors
To the extent such factors cannot be hedged, inflation,
interest rates and foreign exchange all potentially
impact the return generated from an investment and
its valuation.
Weakness in factors which affect energy prices, such
as the oil price, could negatively impact the economic
returns on the Group’s investments in renewable energy.
Weakness in the political and economic climate in a
particular jurisdiction could impact the value of, or the
return generated from, any or all of the Group’s
investments located in that jurisdiction.
Liquidity in the secondary market
Weakness in the secondary markets for investments in
PPP or renewable energy, for example as the result of a
lack of economic growth in relevant markets, regulatory
changes in the banking sector, liquidity in financial
markets, changes in interest and exchange rates and
project finance market conditions, and the recent
difficulties in parts of the Eurozone, may affect the
Group’s ability to realise full value from its divestments.
The secondary market for investments in renewable
energy projects may be affected by, inter alia, changes
in energy prices, in governmental policy, in the value
of governmental support mechanisms and in project
finance market conditions.
The ability of JLIF and JLEN to raise finance for further
investments may have an impact on both the Group’s
ability to sell investments in PPP and renewable energy
projects and on the Group’s asset management
business more generally.
John Laing Annual Report and Accounts 2016 /
37
Link to
strategic
objectives
(note)
1, 3
Risk
Financial resources
Any shortfall in the financial resources that are available
to the Group to satisfy its financial obligations may make
it necessary for the Group to constrain its business
development, refinance its outstanding obligations, forego
investment opportunities and/or sell existing investments.
Inability to secure project finance could hinder the ability
of the Group to make a bid for an investment opportunity,
or where the Group has a preferred bidder position, could
negatively impact whether an underlying project reaches
financial close.
The inability of a project company to satisfactorily refinance
existing maturing medium-term project finance facilities
periodically during the life of a project could affect the
Group’s projected future returns from investments in
such projects and hence their valuation in the Group’s
balance sheet.
Adverse financial performance by a project company
which affects the financial covenants in its project finance
loan documents may result in the project company being
unable to make distributions to the Group and other
investors, which would impact the valuation of the Group’s
investment in such project company, and may enable
project finance debt providers to declare default on the
financing terms and exercise their security.
Change in
risk since
31 December
2015
>
No change
Mitigation
In February 2015, the Group entered into corporate banking
facilities totalling £350.0 million which mature in March
2020. In June 2016, these facilities were increased to
£400.0 million and in December 2016 additional surety
facilities (£50.0 million) became committed until March
2018. Available headroom is carefully monitored and
compliance with the financial covenants and other terms of
these facilities is closely observed. The Group also monitors
its working capital, cash collateral and letter of credit
requirements and maintains an active dialogue with its
banks. It operates a policy of ensuring that sufficient
financial resources are maintained to satisfy committed
and likely future investment requirements.
The Group believes that there is currently sufficient depth
and breadth in project finance markets to meet the
financing needs of the projects it invests in. The Group
works closely with a wide range of project finance
providers, including banks and other financial institutions.
Projects in which the Group has invested in PPP markets
such as Australia and New Zealand, where the tenor of
project finance facilities at financial close tends to be
medium term, will need to be refinanced in due course.
Prior to financial close, all proposed investments are
scrutinised by the Investment Committee. This scrutiny
includes a review of sensitivities to adverse performance
of investment returns and financial ratio tests as well as
an assessment of a project’s ability to be refinanced if the
tenor of its debt is less than the term of the concession
or the project’s useful life. The Group maintains an active
dialogue with the banks and other financial institutions
which provide project finance to the projects in which it
invests. Monitoring of compliance with financial covenant
ratios and other terms of loan documents continues
throughout the term of the project finance loan.
1, 3
Pensions
The amount of the deficit in the Group’s main defined
benefit pension scheme (JLPF) can vary significantly
due to gains or losses on scheme investments and
movements in the assumptions used to value scheme
liabilities (in particular life expectancy, discount rate and
inflation rate). Consequently the Group is exposed to the
risk of increases in cash contributions payable, volatility
in the deficit reported in the Group Balance Sheet, and
gains/losses recorded in the Group Statement of
Comprehensive Income.
Competition
The Group operates in competitive markets and may not
be able to compete effectively or profitably.
1
>
No change
The Group’s two defined benefit pension schemes are
overseen by corporate trustees, the directors of which
include independent and professionally qualified
individuals. The Group works closely with the trustees
on the appropriate funding strategy for the schemes and
takes independent actuarial advice as appropriate. Both
schemes are closed to future accrual and accordingly
have no active members, only deferred members and
pensioners. A significant proportion of the liabilities of
JLPF is matched by a bulk annuity buy-in agreement
with Aviva. Other hedging is also in place.
The actuarial valuation of JLPF as at 31 March 2016 was
finalised in December 2016. The next actuarial valuation
is due as at 31 March 2019.
The Group believes that its experience and expertise as
an active investor and asset manager accumulated over
more than 20 years, together with its flexibility and ability
to respond to market conditions will continue to enable it
to compete effectively and secure attractive investments.
>
No change
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/ John Laing Annual Report and Accounts 2016
38
PRINCIPAL RISKS AND RISK MANAGEMENT (CONTINUED)
Risk
Link to
strategic
objectives
(note)
Mitigation
Change in
risk since
31 December
2015
Valuation
The valuation of an investment in a project may not reflect
its ultimate realisable value.
3
In circumstances where the revenue derived from a
project is related to patronage (i.e. customer usage),
actual revenues may vary materially from assumptions
made at the time the investment commitment is made.
In addition, to the extent that a project company’s actual
costs incurred differ from forecast costs, for example,
because of late construction, and cannot be passed on
to sub-contractors or other third parties, investment
returns and valuations may be adversely affected.
Revenues from renewable energy projects may be
affected by the volume of power production (e.g. from
changes in wind or solar yield), the availability of fuel
(in the case of biomass projects), restrictions on the
electricity network, the reliability of electrical
connections or other factors such as noise and other
environmental restrictions, as well as by changes in
energy prices and to governmental support mechanisms.
The valuation of the Group’s investment portfolio is
affected by movements in foreign exchange rates, which
are reflected through the Group’s financial statements.
In addition, there are foreign exchange risks associated
with conversion of foreign currency cash flows relating
to an investment into and out of Sterling.
The valuation of the Group’s investment portfolio could
be affected by changes in tax legislation, for instance
changes to limit tax-deductible interest
(see Taxation section).
During the construction phase of an infrastructure
project, there are risks that either the works are not
completed within the agreed time-frame or that
construction costs overrun. Where such risks are not
borne by sub-contractors, or sub-contractors fail to
meet their contractual obligations, this can result in
delays or cost overruns, which may adversely affect the
valuation of and return on the Group’s investments.
If construction or other long stop dates are exceeded,
this may enable public sector counter-parties and/or
project finance debt providers to declare a default and,
in the case of the latter, to exercise their security.
The Group is reliant on the performance of third parties
in constructing an asset to an appropriate standard as
well as operating it in a manner consistent with
contractual requirements. Poor performance by, or
failure of, such third parties may result in the
impairment or loss of an investment.
The discount rates used to value investments are derived
from publicly available market data and other market
evidence and are updated regularly.
Increased
The Group has a good track record of realising investments
at prices consistent with the fair values at which they
are held.
The Group’s investments are in projects which are
principally availability-based (where the revenue does not
generally depend on the level of use of the project asset).
Where patronage or volume risk is taken, the Directors
review revenue assumptions and their sensitivities in detail
prior to any investment commitment. The Group’s intention
is to maintain a majority of availability – based investments
by value in its portfolio.
Where the revenue from investments is related to
patronage or volume (e.g. with regard to investments in
renewable energy projects), risks are mitigated through a
combination of factors, including (i) the use of independent
forecasts of future volumes (ii) lower gearing versus that
of availability-based projects (iii) stress-testing the
robustness of project returns against significant falls in
forecast volumes.
The Group typically hedges cash flows arising from
investment realisations or significant distributions in
currencies other than Sterling.
The intention is that projects are structured such that
(i) day-to-day service provision is sub-contracted to
qualified sub-contractors supported by appropriate security
packages (ii) cost and price inflation risk in relation to
the provision of services lies with sub-contractors
(iii) performance deductions in relation to non-availability
lie with sub-contractors (iv) future major maintenance
costs and ongoing project company costs are reviewed
annually and cost mitigation strategies adopted
as appropriate.
The Group has procedures in place to ensure that project
companies in which it invests appoint competent
sub-contractors with relevant experience and financial
strength. If project construction is delayed, sub-contracting
arrangements contain terms enabling the project company
to recover liquidated damages, additional costs and lost
revenue, subject to limits. In addition, the project company
may terminate its agreement with a sub-contractor if the
latter is in default and seek an alternative sub-contractor.
The terms of the sub-contracts into which project
companies enter provide some protections for investment
returns from the poor performance of third parties.
The ability to replace defaulting third parties is supported
by security packages to protect against price movement on
re-tendering.
If long stop dates are exceeded, the Group has significant
experience as an active manager in protecting its
investments by working with all parties to a project to agree
revised timetables and/or other restructuring arrangements.
John Laing Annual Report and Accounts 2016 /
39
Change in
risk since
31 December
2015
Increased
Risk
Link to
strategic
objectives
(note)
Mitigation
Counterparty risk
The Group is exposed to counterparty credit risk with
regards to (i) governmental entities, sub-contractors,
lenders and suppliers at a project level and (ii) consortium
partners, financial institutions and suppliers at a
Group level.
3
Public sector counter-parties to PPP projects may seek to
renegotiate contract terms and/or terminate contracts in a
way which impacts the valuation of one or more of the
Group’s investments.
In overseas jurisdictions, the Group’s investments backed
by governmental entities may ultimately be subject to
sovereign risk.
The Group works with multiple clients, joint venture
partners, sub-contractors and institutional investors so as
to reduce the probability of systemic counterparty risk in
its investment portfolio. In establishing project contractual
arrangements prior to making an investment, the credit
standing and relevant experience of a sub-contractor are
considered. Post contract award, the financial standing of
key counterparties is monitored to provide an early warning
of possible financial distress.
PPP projects are normally structured so as to provide
significant contractual protection for equity investors.
Such protection may include “termination for convenience”
clauses which enable public sector counter-parties to
terminate projects subject to payment of compensation,
including equity investors.
PPP projects are normally supported by central and local
government covenants, which significantly reduce the
Group’s risk. Risk is further reduced by the increasing
geographical spread of the Group’s investments.
Counterparties for deposits at a Group level, project debt
swaps and deposits within project companies are required
to be banks with a suitable credit rating and are monitored
on an ongoing basis.
Entry into new geographical areas which have a different
legal framework and/or different financial market
characteristics is considered by the Board separately from
individual investment decisions.
Typically, a substantial proportion of the revenue generated
by renewable energy projects is backed by governmental
support mechanisms.
Major incident
A major incident at any of the Group’s main locations or
any of the projects invested in by the Group, such as a
terrorist attack, war or significant cyber-attack, could
lead to a loss of crucial business data, technology,
buildings and reputation and harm to the public, all of
which could collectively or individually result in a loss
of value for the Group.
2, 3
At financial close, projects benefit from comprehensive
insurance arrangements, either directly or through
contractors’ insurance policies.
>
No change
Detailed business continuity plans have been designed and
are tested at frequent/regular intervals. Business continuity
procedures are also regularly updated in order to maintain
their relevance.
John Laing operates to independent, third party-certified
management systems in respect of health and safety
(OHSAS 18001:2007). In addition, it routinely monitors
health, safety and environmental issues in the projects it
invests in or manages.
Cyber risk is addressed through (i) the Group’s
organisational structure which includes segregation of
responsibilities, delegated lines of accountability, delegated
authorities and outsourced IT arrangements, as well as
(ii) specific controls, including controls over payments and
access to IT systems.
Investment adviser agreements with JLIF and JLEN
A loss of JLCM’s investment adviser agreements with
JLIF and/or JLEN respectively would be detrimental to
the Group’s Asset Management business.
2
Future returns from investments
The Group’s historical returns and cash yields from
investments may not be indicative of future returns.
1, 2, 3
The Group’s expected hold-to-maturity internal rates
of return from investments are based on a variety of
assumptions which may not be correct at the time they
are made and may not be achieved in the future.
Through JLCM, and supported by other parts of the Asset
Management division, the Group focuses on delivering a
high quality service to both funds.
>
No change
In bidding for new projects, the Group sets a target internal
rate of return taking account of historical experience,
current market conditions and expected returns once the
project becomes operational. The Group continually looks
for value enhancement opportunities which would improve
the target rate of return.
At the investment appraisal stage, projects are tested for
their sensitivity to changes in key assumptions.
>
No change
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40
PRINCIPAL RISKS AND RISK MANAGEMENT (CONTINUED)
Risk
Taxation
The Group may be exposed to changes in taxation in the
jurisdictions in which it operates, or it may cease to
satisfy the conditions for relevant reliefs. Tax authorities
may disagree with the positions that the Group has taken
or intends to take.
Project companies may be exposed to changes in
taxation in the jurisdictions in which they operate.
In October 2015, the OECD published its
recommendations for tackling BEPS by international
companies. It identified the use of tax deductible
interest as one of the key areas where there is
opportunity for BEPS by international companies. It is
up to the governments of OECD countries to decide
how to implement the OECD’s recommendations into
their domestic law. To the extent that one or more of
the jurisdictions in which the Group operates changes
its rules to limit tax deductible interest, this could
significantly impact (i) the tax payable by subsidiaries
of the Group (ii) the valuation of existing investments
(iii) the way in which future project-financed
infrastructure investments are structured, in each
case in such jurisdictions.
Link to
strategic
objectives
(note)
Mitigation
Change in
risk since
31 December
2015
1, 3
Tax positions taken by the Group are based on industry
practice and/or external tax advice.
Increased
At the investment appraisal stage, projects are tested for
their sensitivity to changes in tax rates. Project valuations
are regularly updated for changes in tax rates.
In March 2016, in response to the OECD recommendations,
the UK Government announced proposals for the
introduction of a Fixed Ratio Rule to cap the amount of tax
deductible net interest to 30% of a company’s UK EBITDA.
This was followed by a detailed consultation paper in May
2016 and detailed legislation in November 2016 and
January 2017 (for further information, see the Financial
Review section).
The Group’s understanding is that not all governments will
implement the OECD recommendations in the same way.
Some believe their existing rules are adequate to limit the
scope for BEPS. Others may take advantage of
grandfathering provisions or the potential for exemptions
for projects with a public benefit.
The Group’s effective tax rate tends to be lower than the
standard rate of UK corporation tax principally because the
contributions the Group makes to JLPF are deductible for
tax purposes.
Personnel
The Group may fail to recruit or retain key senior
management and skilled personnel in, or relocate high-
quality personnel to, the jurisdictions in which it operates
or seeks to expand.
As a result of the outcome of the UK referendum on
membership of the EU, there is some uncertainty as to the
position of certain EU nationals living and working in the
UK. This uncertainty could impact the Group’s ability to
recruit and retain EU nationals in the UK.
1, 2, 3
The Group regularly reviews pay and benefits to ensure
they remain competitive. The Group’s senior managers
participate in long term incentive plans. The Group plans
its human resources needs carefully, including appropriate
local recruitment, when it bids for overseas projects.
The Group has the ability to recruit EU nationals in its
Amsterdam office or could open further offices in other
EU jurisdictions if necessary.
>
No change
Notes:
The Group’s three strategic objectives, as set out in the Chief Executive Officer’s Review, are:
1
2
Growth in primary investment volumes (new capital committed to greenfield infrastructure projects) over the medium term.
Growth in the value of external AuM and related fee income.
3 Management and enhancement of the Group’s investment portfolio, with a clear focus on active management during construction, accompanied by realisations
of investments which, combined with the Group’s corporate banking facilities and operational cash flows, enable it to finance new investment commitments.
John Laing Annual Report and Accounts 2016 /
41
CORPORATE RESPONSIBILITY
“THE JOHN LAING GROUP REMAINS COMMITTED FOR THE LONG TERM TO
ITS CORPORATE RESPONSIBILITY AGENDA.
based on supporting the efforts of our employees with the worthy causes they select to make
a significant positive impact. At the company level we believe it is most effective to support and
encourage our employees to contribute positively in their own capacities to good causes where
they live and work. Our policies and procedures in general reflect our values as a responsible
employer which operates with integrity, and in a manner that is both ethical and transparent.”
Olivier Brousse
CHIEF EXECUTIVE OFFICER
Our community investment strategy is
COMMUNITY INVESTMENT
HEALTH AND SAFETY
Our community investment strategy is based on delivery
through our employees and a number of partners.
Since 2006 we have been an active Patron of the Prince's Trust,
which has allowed us to support disadvantaged and vulnerable
young people across the UK, to help them move into work,
education or training. In September 2016, a team of 25 John
Laing staff and members of their families undertook a mountain
challenge in the UK’s Lake District which contributed to raising
£9,424 for the Prince’s Trust.
The Group encourages its staff across each of the different
markets where it operates to involve themselves in activities
that benefit local communities, both related and unrelated to
projects John Laing is working on.
During the year, John Laing employees helped in the fundraising,
design and management of the renovation of a run-down
community playground in East London and supported a high
school programme in Perth, Australia providing leadership
opportunities for indigenous Australian youths, using different
activities to build leadership, self-esteem and overall well-being.
THE JOHN LAING CHARITABLE TRUST (JLCT)
JLCT supports the valuable work of welfare visitors who look
after the needs of former employees and their surviving
partners. Its trustees also provide considerable funds each
year to those in need of financial help and assistance.
All John Laing employees or members of their immediate
family directly involved in a charity are able to apply to JLCT
for a grant of £1,000 to support a good cause; additionally,
JLCT is able to match charitable donations raised by
employees, up to a value of £1,500 per employee. In total
61 employees received funds for charities under these
schemes during the year. Through JLCT, the Company
rewarded the loyalty of long serving staff and recognised
their contribution to the business through the annual Star
Awards (see Workplace section). In 2016, employees who
received such awards were given the opportunity to donate
up to £1,000 towards a charity of their choice.
During 2016, JLCT made combined donations of over £88,000
to charities and other activities supported by John Laing
staff. These included the Brunswick Surf Lifesaving Club in
New South Wales, Australia, Parkinsons UK and the Michael
J Fox Foundation for Parkinsons Research in the US.
John Laing operates a management system that is compliant
with the requirements of the internationally-recognised
occupational health and safety management system BS OHSAS
18001:2007 and conducts its undertakings in accordance with
the Health and Safety at Work Act 1974 and all other applicable
legislation. As an international organisation, we adhere to all
relevant UK legislated standards and work to country specific
standards, where these are higher.
These arrangements demonstrate our ongoing commitment to
maintaining the highest standards of health and safety for our
staff and those who may be directly or indirectly affected by our
activities. We strive to deliver continual improvement in all
areas of our health and safety performance and regularly
engage with our employees.
ENVIRONMENT
We seek to reduce the impact on the environment from
infrastructure projects in which we invest through engagement
with both projects’ public sector clients and contractors alike.
Wherever possible, we develop joint strategies to reduce both
greenhouse gas emissions and the volume of ‘waste to landfill’
produced by such projects.
John Laing captures energy data covering head office and
business travel activities in order to determine and, where
feasible, reduce our direct consumption and associated carbon
footprint. The majority of our office accommodation is fitted
with energy efficient technology to ensure our operations do
not cause unnecessary detriment to the environment.
In order to comply with the Energy Savings Opportunity Scheme
Regulations 2014 (ESOS Regulations), John Laing issued a
qualifying and independently audited submission to the
Environment Agency during November 2015. Organisations that
qualify for the ESOS scheme must carry out ESOS assessments
every four years.
Greenhouse Gas Emissions report
Since John Laing Group plc became a listed company in February
2015, we have had a regulatory obligation to report greenhouse
gas (GHG) emissions pursuant to Section 7 of The Companies Act
2006 (Strategic Report and Directors’ Report) Regulations 2013.
Methodology
We quantify and report our GHG emissions according to the
Greenhouse Gas Protocol and have utilised the UK Government
2016 Conversion Factors for Company Reporting and
European Residual Mixes 2014 (RE-DISS II) in order to calculate
2
CO
equivalent emissions from corresponding activity data.
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42
CORPORATE RESPONSIBILITY (CONTINUED)
2
Supplier specific emission factors were supplied in CO
2
tonnes (tCO
and Opus Energy Limited.
) by N.V. Nuon Energy, Momentum, EDF Energy
The information disclosed has been prepared in accordance
with the recent amendments to the Greenhouse Gas Protocol’s
Scope 2 Guidance and therefore includes both location-based
and market-based Scope 2 emission figures. When quantifying
emissions using the market-based approach John Laing uses
a supplier specific emission factor where possible. If this is
unavailable, a residual mix emissions factor is then used, and
as a last option the location-based grid emissions factor is used.
Greenhouse Gas Emissions
2
In 2016, John Laing emitted a total of 82 tonnes of CO
2
(“tCO
e”) Scope 1 direct emissions from fuel combustion and
2
operation of our facilities. This tCO
e figure includes the estimated
2
CO
2
oxide, in addition to CO
.
equivalent emissions of GHG such as methane or nitrous
equivalent
TOTAL EMISSIONS 2016 AND 2015
2
(tCO
e)
708.3
426.9
426.9
139.9
139.9
152.9
152.9
81.7
81.7
52.2
52.2
Scope 1
2
e)
emissions (tCO
Scope 2
Location-based
2
emissions (tCO
e)*
Scope 3
emissions (tCO
2
e)
2016
2015
(tCO
Through electricity purchased for our own use (Scope 2 indirect),
2
we emitted a total of 140 tCO
e when taking the location-based
2
approach and 97 tCO
e when taking the market-based approach.
We have also chosen to voluntarily report Scope 3 emissions
arising from our business travel and water consumption where
information is available.
2
The table below shows our tCO
e emissions by scope for the past
two years. Emissions from the consumption of electricity outside
2
2
the UK are reported in tCO
e. Scope 2 emissions
rather than tCO
were calculated using the market-based approach with supplier
specific emission factors and residual mix emission factors.
SCOPE 2 EMISSIONS BY METHODOLOGY
2
2
and tCO
139.9
e)
97.0
97.0
Greenhouse gas emissions in tonnes
2
e)
of carbon dioxide equivalent (tCO
Combustion of fuel and operation of
facilities (Scope 1)
Electricity, heat, steam and cooling
purchased for our own use
(Scope 2: location-based)
Electricity, heat, steam and cooling
purchased for our own use
(Scope 2: market-based)
Other indirect emissions (Scope 3)
2016
2015
Scope 2 - Location-based
2
emissions (tCO
e)*
Scope 2 - Market-based
emissions (tCO
2
)*
81.7 tCO2e
52.2 tCO2e
* Emission factors for electricity consumption outside the UK are reported in tCO
2
not tCO
e, due to the lack of available emission factors.
2
,
139.9 tCO2e
152.9 tCO2e
97.0 tCO2
708.3 tCO2e
105.9 tCO2
426.9 tCO2e
The table below shows our emissions for the years ended 31 December 2016 and 2015 using the two different Scope 2 methodologies.
These calculations are based on a figure of approximately 240 full-time equivalent (FTE) employees during 2016.
2016 2015 2016 2015
Location-based Market-based
approach approach
Scope 1 & 2 emissions 221.6 tCO2e 205.1 tCO2e 178.7 tCO2e 158.1 tCO2
Scope 1 & 2 emissions per full-time equivalent (FTE) employee 0.92 tCO2e 0.82 tCO2e 0.75 tCO2e 0.63 tCO2
Scope 1, 2 & 3 emissions 929.9 tCO2e 632.0 tCO2e 886.9 tCO2e 585.0 tCO2
Emissions increased between 2015 and 2016 mainly due to an
increase in business travel and actual data replacing estimated
data, offset by a reduction in electricity usage.
Reporting Boundaries and Limitations
GHG reporting purposes. The GHG sources that fall within our
organisational reporting boundary for 2016 are:
• Scope 1: Natural gas combustion within boilers and fuel
combustion within leased vehicles
Our organisational reporting boundary is based on operational
control and we have adopted a materiality threshold of 10% for
• Scope 2: Purchased electricity consumption for our own
use within buildings and leased electric vehicles
• Scope 3: Business travel and the supply and treatment of water.
John Laing Annual Report and Accounts 2016 /
43
Assumptions and Estimations
Work-Life Balance Policies
In some cases, missing data has been estimated using either
extrapolation of available data from the reporting period or data
from 2015 as a proxy. No data was available for the New York,
Auckland or Toronto offices, because energy consumption is not
separately measured for each of these offices, and therefore an
average annual consumption figure per square metre of floor
area was used to estimate electricity consumption at these sites.
WORKPLACE
Our People
John Laing aims to attract and retain, develop and reward high
quality employees. We support our people through learning and
development so they can maximise their career potential and
their value as an employee, and we encourage them to achieve
an appropriate work-life balance. We recognise that investing in
our people is critical to the success of our business.
We are committed to a positive working environment which is
free from any discrimination or unfair treatment and which provides
all employees with equal opportunities to develop within the Group.
Employment
At 31 December 2016, the Group employed 160 people in the UK
and overseas (2015 – 252). The decrease from 2015 was largely due
to the sale of our PMS activities in the UK on 30 November 2016.
Partly as a result, the percentage of staff located outside the UK
has increased to 36% at 31 December 2016 from 22% at the end
of last year.
Employee Engagement
Employees are regularly informed of progress and updates in
the business through conference calls conducted by senior
management as well as through other briefings on topical and
relevant business issues. The Group’s 15-20 most senior
managers met on three occasions in 2016 over one to two days
to address specific business issues and future strategy.
Recognition and Reward
We review our pay and benefits structure on an annual basis
to ensure that we remain competitive within the market, are
attractive to potential new employees, and provide the right
link between performance and reward. As well as a competitive
pay and benefits structure, we recognise and reward employee
performance through bonuses and long-term incentive plans.
We conduct annual staff awards (the Star Awards) which
provide for recognition of the achievements and contributions
employees make to both the business and the community.
We recognise the importance of a working environment which
enables employees to achieve a balance between their work and
personal life to the mutual benefit of the individual, the business
and society. Our aim is to create an environment that supports
staff and their general wellbeing, maintains effective working
practices and enables a productive and positive balance
between work and life outside work. The Group has a number of
work-life balance policies and practices in place which support
flexible working, working parents and periods of absence from
the work place. The Group seeks to exceed statutory minimum
requirements where it can. For example, we offer enhanced
maternity, paternity and adoption pay arrangements.
The Group also provides an employee assistance programme
which is available to all employees, their partners and their
immediate family. This is an independent service which offers
support and counselling on a wide range of work, personal
and family issues.
Modern Slavery Act
The UK Modern Slavery Act addresses the role of businesses
in preventing modern slavery within their organisations and
down into their supply chain. Our first statement is being
prepared and will be published in due course on our Group
website. The statement will set out the steps the Group has
taken to ensure slavery and human trafficking is not taking
place in any part of our business or supply chains.
Learning and Development
We aim to enhance the skills, development and learning of all our
employees through external courses and seminars, sponsorship
for undertaking professional qualifications, secondments,
development assessments and coaching and mentoring.
Retention of our employees through effective development is
key to the success of the business. Throughout 2016, we also
focused on the development requirements of individuals and
teams, supported where necessary with external facilitation,
to ensure teams were operating effectively.
We continue to focus on the development of our people
through a bi-annual Performance Development Review.
This encourages a two-way discussion on performance and
objectives between individuals and their managers. It also
allows individuals to discuss their career aspirations and
identify with their manager development opportunities.
Staff numbers at 31 December 2016, broken down by certain remuneration and gender criteria, were:
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Total Male Female
Number
Number
Number
%
%
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Total Group
160
252
107
153
67
67
Senior managers earning above
£70,000 per annum
Executive Directors
96
2
103
2
84
2
91
2
88
100
88
100
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99
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–
33
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/ John Laing Annual Report and Accounts 2016
44
DIRECTORS AND COMPANY SECRETARY
* EXECUTIVE DIRECTORS
** NON-EXECUTIVE DIRECTORS
John Laing Annual Report and Accounts 2016 /
45
**Dr Phil Nolan BSc PHD MBA
Chairman
Phil has been Chairman since joining John Laing in
January 2010. He has a wealth of experience on the boards
of many companies, private and public and in both an
executive and non-executive capacity. He is non-executive
Chairman of Affinity Water Limited, Chairman of Ulster
Bank Ireland Limited and a non-executive director of
EnQuest PLC. He was Chairman of Infinis, a then privately
held, leading renewable energy generator between 2007
and 2010, Chairman of Sepura plc, a listed, global supplier
of TETRA radios between 2007 and 2010 and CEO of Eircom,
Ireland’s national telecommunications supplier from 2002
to 2006. Prior to that, he served as an Executive Director of
BG Group plc and CEO of Transco plc from 1998 and in 2000,
led the demerger of Transco as CEO of the Lattice Group.
Age 63
*Patrick O’D Bourke MA, ACA
Group Finance Director
Patrick joined John Laing in 2011 as Group Finance
Director. He graduated from Cambridge University and
qualified as a chartered accountant with Peat Marwick
(now KPMG) before spending nine years in investment
banking with first Hill Samuel and then with Barclays de
Zoete Wedd. In 1995, he joined Powergen plc where he was
responsible for mergers and acquisitions before becoming
Group Treasurer. From 2000 to 2006, he was Group Finance
Director of Viridian Group PLC, the Northern Ireland based
energy group, becoming Group Chief Executive in 2007 after
Viridian was taken private. He joined the Board of Affinity
Water Limited in 2013 as a non-executive director. Age 59
**Dr Jeremy Beeton CB, BSc, CEng, FICE
Independent Non-Executive Director
Jeremy joined John Laing in December 2014 as a
non-executive director. He is a Fellow of the Institution
of Civil Engineers with 40 years of international experience
in project and programme management over very large
multi-site, multiple project operations portfolios for and
within government, public companies and private companies.
He is also currently an independent non-executive director
of SSE plc, an independent non-executive director of WYG plc,
an Advisory Board member of PricewaterhouseCoopers LLP
and Chairman of Merseylink Ltd. He has also been appointed
as an independent non-executive director of OPG Power
Ventures Plc. Additionally, Jeremy sits on the governing
Court of Strathclyde University. He was Director General of
the London 2012 Olympic and Paralympic Games from 2007
until the Olympic Baton was passed on to Rio de Janeiro in
2012. For eight years prior to this, he was a Principal Vice
President with Bechtel, responsible for their worldwide civil
operations and has lived and worked extensively in the
Middle East and Asia Pacific. He was awarded CB in the 2013
New Year Honours and holds an honorary Doctorate of
Engineering from Napier University. Age 63
**David Rough BSc Hons
Senior Independent Director
David joined John Laing in December 2014 as a non-executive
director. He has spent his life working in the financial services
sector predominantly in the investment management
business. He joined Legal and General in 1988 and was
made head of securities in 1989. In 1991, David was
appointed to the group board as Group Director (Investments)
responsible for the group’s investment operations. He
retired from the business in 2002. During that time he also
served as chairman of the Association of British Insurers’
Investment Committee. David has been a non-executive
and senior independent director on a number of boards,
including Land Securities, London Metal Exchange, Friends
Provident and Xstrata. Since 2003, David is a non-executive
director of Brown Shipley, a wealth management business
and he was appointed as a non-executive director of
Hansteen Holdings plc in October 2015. Age 66
*Olivier Brousse EP, ENPC
Chief Executive Officer
Olivier joined John Laing in March 2014 as Chief Executive
Officer. Following graduation from École Polytechnique
and École Nationale des Ponts et Chaussées in France,
he became Commercial Director of Unic Systems and
then Chief of Staff to the Chairman and CEO of Compagnie
Générale des Eaux in 1994, both in France. In 1998, he
moved to London as CEO of Connex Trains and then moved
to Washington DC in 2003 as CEO of Veolia Transportation
Inc. He came back to France in 2007 as Deputy CEO of
Veolia Transport Group, responsible for French and US
businesses. From 2008 to 2014, he served as CEO and then
Executive Chairman of Saur SA in France. In 2016, he was
awarded the Légion d'Honneur by the French President
François Hollande. Age 52
**Anne Wade BA, MSc
Independent Non-Executive Director
Anne joined John Laing in December 2014 as a non-executive
director. An asset manager by background, Anne has
extensive experience in capital markets. From 1995 to 2012,
she was Senior Vice President and Director of Capital
International. Throughout her 17 year career with Capital,
she was responsible for infrastructure-related investments.
Anne is a Director and member of the Audit Committee of
Summit Materials Inc in the US, of the Heron Foundation
in New York, and of Big Society Capital in London. She is
also a Partner with Leader’s Quest. Anne was previously a
non-executive director and member of the Governance and
Strategy Committee of Holcim, based in Switzerland. Anne
has a BA from Harvard and an MSc from the London School
of Economics. Age 44
**Toby Hiscock MA (Oxon), FCA
Independent Non-Executive Director
Toby joined John Laing in June 2009 as a non-executive
director. He is a qualified chartered accountant with
35 years’ experience as a finance professional. He was the
Chief Financial Officer and an Executive Director of
Henderson Group plc from 2003 until his retirement in 2009,
and was responsible for all aspects of financial stewardship
of the Henderson Group. Before Henderson, he was a
senior manager at Midland Bank Group in London and
from 1981 to 1988 worked for Binder Hamlyn, Chartered
Accountants after graduating from Oxford University. Toby
is also a non-executive director of and consultant to a
number of other public and private institutions. Age 57
COMPANY SECRETARY
Carolyn Cattermole LLB
Group General Counsel and Company Secretary
Carolyn joined John Laing in September 2012 as Group
General Counsel and Company Secretary. Her previous
roles were General Counsel and Company Secretary of
DS Smith Plc, the international supplier of recycled
packaging, for ten years, and Company Secretary of
Courtaulds Textiles plc for three years. Prior to that,
she was a senior legal adviser with Courtaulds plc,
having qualified as a solicitor with Norton Rose. Age 56
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DIRECTORS’ REPORT
The Directors submit their Annual Report and the audited Group and Company financial statements of John Laing Group plc for
the year ended 31 December 2016. The Group financial statements are set out on pages 76 to 110 and the Company financial
statements on pages 111 to 124. Disclosures made elsewhere in this Annual Report are cross-referenced (and thereby deemed
disclosed) in this Directors’ Report as appropriate.
GROUP ACTIVITIES
John Laing is an originator, active investor and manager of international infrastructure projects. John Laing Group plc is a
company incorporated in England and Wales with company number 05975300.
A list of the Company’s investments at 31 December 2016 can be found in note 13 to the Company financial statements on page
119 of this Annual Report.
On 30 November 2016, John Laing sold its UK PMS activities to HCP Management Services Limited. The Directors are not aware,
at the date of this report, of any major changes in the Group's activities in the coming year.
The Group’s GHG emissions for 2016 are presented in the Corporate Responsibility section.
RESULTS AND DIVIDENDS FROM CONTINUING OPERATIONS
The John Laing Group statutory profit before taxation from continuing operations for the year ended 31 December 2016 was
£192.1 million (2015 – £97.5 million; pro forma profit before tax of £100.9 million).
The Company-only statutory profit for the year was £138.4 million (see page 112) (2015 – £170.7 million).
An interim dividend of 1.85 pence per ordinary share was paid on 28 October 2016 and the Directors are recommending a final
dividend of 6.30 pence per ordinary share which, together with the interim dividend, makes a total dividend for the year of
8.15 pence. Subject to the approval of shareholders at the AGM to be held on 11 May 2017, the final dividend will be paid on
19 May 2017 to shareholders on the register at the close of business on 21 April 2017.
FINANCIAL INSTRUMENTS
The Group’s financial risk management objectives and policies and its exposure to the following risks – market, credit, price,
liquidity and capital – are detailed in note 16 to the Group financial statements.
POST BALANCE SHEET EVENTS
Post balance sheet events are detailed in note 25 to the Group financial statements.
KEY EVENTS AND FUTURE DEVELOPMENTS
The key events during the year and the development of the business of the John Laing group of companies are set out in the
Strategic Report on pages 8 to 43. The Strategic Report includes the Financial Review on pages 27 to 33, the viability statement
on page 34 and the principal risks facing the Group on pages 35 to 40.
GOVERNANCE ARRANGEMENTS
Information regarding the Company’s governance arrangements is set out in the Corporate Governance Report on pages 48
to 51. These pages are incorporated by reference into the Directors’ Report.
SHARE CAPITAL
Details of the Company’s issued share capital and the rights and restrictions attached to the shares, together with details of
movements in the issued share capital during the year, are shown in note 20 to the Group financial statements on page 107 of
this Annual Report. The Company has not utilised its authority to make market purchases of shares granted to it at the 2016
AGM but, in line with market practice, will be seeking to renew such authority at this year’s AGM.
MAJOR INTERESTS IN ORDINARY SHARES
Notifications of the following major voting interests in the Company’s ordinary share capital (notifiable in accordance with Rule 5
of the FCA’s Disclosure and Transparency Rules or section 793 of the Companies Act 2006) had been received by the Company as
at 31 December 2016 and 1 March 2017:
As at
31 December 2016
% of issued
share capital
As at
1 March 2017
% of issued
share capital
Blackrock Investment Management
Schroder Investment Management
Standard Life (Holdings) Limited
Henderson Global Investors
Morgan Stanley Investment Management
Universities Superannuation Scheme
36,651,411
32,900,941
24,605,308
15,946,819
18,135,078
16,060,000
9.99
8.97
6.71
4.35
4.94
4.38
36,657,411
32,246,434
23,850,000
15,946,759
15,311,394
15,150,000
9.99
8.79
6.50
4.35
4.17
4.13
The processes by which the Company seeks to understand the views of its major shareholders are described on page 51.
John Laing Annual Report and Accounts 2016 /
47
STATEMENT OF DISCLOSURE OF INFORMATION TO AUDITORS
Each of the persons who is a Director at the date of approval of this report confirms that:
•
•
as far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware
of any relevant audit information and to establish that the Company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with section 418 of the Companies Act 2006.
BOARD OF DIRECTORS
The following Directors served on the Board during the year.
P M G Nolan
O Brousse
P O’D Bourke
N T Hiscock
J J Beeton
D Rough
A K Wade
Biographical details of the current Directors can be found on page 45 of this Annual Report.
In accordance with best practice, all Directors will retire at each AGM and offer themselves for re-election.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
The Company has purchased and maintains appropriate insurance cover in respect of Directors’ and Officers’ liabilities.
The Company has also entered into qualifying third party indemnity arrangements for the benefit of its Directors, in a form
and scope which comply with the requirements of the Companies Act 2006.
MATERIAL CONTRACTS
The Group’s £400.0 million committed corporate banking facilities dated 19 January 2015, as amended and restated on
21 June 2016, terminate on 9 March 2020 and include a change of control clause. In the event of a change of control occurring,
it would be expected that new financing arrangements to fund the outstanding utilisations would need to be made by the
incoming owners. Separately, the Group entered into liquidity facilities in November 2016 to back surety facilities of £50.0 million
which extend until March 2018. These facilities contain change of control provisions similar to the main facilities.
EMPLOYEES
The Group seeks to ensure employee commitment to its objectives in a number of ways. Strategic changes are communicated
directly to all staff and resultant queries are handled by the relevant business head or Executive Committee member as
appropriate. Regular team briefings at local level provide employees with information about the performance of, and initiatives
in, their part of the business. A wide range of information is also communicated across the Group's intranet.
The framework within which decisions about people are made is set out in the Group's personnel policies which are available to
all staff. It is part of those policies to employ and train disabled people whenever their skills and qualifications allow and when
suitable vacancies arise. If existing employees become disabled, every effort is made to find them appropriate work and training
is provided if necessary.
Further details relating to the employees of the Group (including details of certain of the Group’s employment policies) can be
found on page 43 of the Corporate Responsibility section of this Annual Report.
The Directors’ Report, the Strategic Report, the Corporate Governance Report and the Directors’ Remuneration Report were
approved by the Board on 6 March 2017.
MANAGEMENT REPORT
Together, the Strategic Report and the Directors’ Report comprise the ‘management report’ for the purposes of the FCA’s
Disclosure & Transparency Rules (DTR 4.1.5R).
On behalf of the Board
Carolyn Cattermole
GROUP GENERAL COUNSEL AND COMPANY SECRETARY
6 March 2017
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CORPORATE GOVERNANCE REPORT
The Board has resolved that the disclosures to be made in the Annual Report regarding the operation of the Board and its
sub-committees should comply with the requirements of the UK Corporate Governance Code (the Code) and best practice
generally. The Company complied with the requirements of the Code throughout 2016. The Code is published by the Financial
Reporting Council and the full text is available on its website at www.frc.org.uk. The following section describes how the Board
applies the main principles of the Code.
DIRECTORS
The Directors were appointed to the Board in the early part of 2015 in anticipation of the admission of the Company’s ordinary
shares to the premium listing segment of the FCA and to trading on the London Stock Exchange’s main market of listed
securities. The Board believes it has an appropriate balance of skills and experience.
The Board met on a regular basis throughout the year and as needed to deal with special business. The Board has appointed an
Audit & Risk Committee, a Nomination Committee and a Remuneration Committee which consider issues relevant to their
specific terms of reference. The offices of the Chairman and the Chief Executive Officer are held separately.
Board meetings follow a formal agenda of matters reserved for decision and approval by the Board and also address any special
business. Matters reserved for the Board include the review of strategy and organisational change, the review and monitoring of
internal controls and risk management processes, the approval of significant investments and disposals, the approval of budgets
and the regular review of current trading and the financial position of the Group. A schedule of matters reserved for the Board is
published on the Company’s website at www.laing.com. The Board receives regular reports on current trading and the financial
position and forecasts of the Group prior to its meetings. In addition, the Board receives relevant information on business,
corporate and strategic issues. Formal procedures exist to ensure that the Board is made aware of any significant health and
safety issues and non-compliance with statutory regulations. Olivier Brousse is the Board member responsible for health and
safety issues. Further details of the Company’s approach to health and safety are set out in the Corporate Responsibility section
of the Strategic Report on page 41 of this Annual Report.
The Company maintains a register of Directors’ conflicts. At the end of each year, all Directors make a declaration concerning
any conflicts they or their connected persons may have. In addition, at the start of each Board meeting, as a routine item,
Directors are asked to declare any interests that might conflict with the agenda items under discussion. Directors may also notify
the Company, via the Company Secretary, at any time, of any potential or future conflicts that may arise. Any such notifications
are reviewed at the next Board meeting and, if considered appropriate, authorised. Directors do not participate in the discussion
or vote regarding their own conflicts. If authorised, any conflicts are entered in the register of Directors’ conflicts.
All Directors may take independent professional advice at the Group’s expense in the furtherance of their duties and have full
access to the Group General Counsel and Company Secretary.
Upon appointment, non-executive directors undertake an induction process to familiarise themselves with the Group’s activities,
policies and key issues. During their appointment they are expected to dedicate adequate time to carry out their role effectively
and to challenge management in a constructive way.
The Chairman meets regularly with the other non-executive directors to discuss the performance of the Board and the Board
sub-committees. The performance of Executive Directors is measured against predetermined objectives that are agreed with
each Executive Director at the start of the financial year.
The Chairman has no executive responsibilities but leads and sets the agenda for the Board. The Chairman also acts as an
interface between the Executive Directors and non-executive directors.
EFFECTIVENESS
In 2016, the Chairman and the Group General Counsel and Company Secretary appointed Colin Mayer, an independent external
facilitator, to conduct a Board evaluation review. The process consisted of structured interviews with each Director, selected
senior management, the external and internal auditors, the Company’s corporate brokers, two shareholders and two equity
analysts, as well as attendance at several Board and Committee meetings.
The conclusions of the review were that John Laing is a well governed and well regarded company that conforms to the
requirements of the Code. The Company has a high calibre Board. Proceedings are well run, with a strong collegiate approach,
which encourages open and frank discussions.
A number of agreed action points from the 2016 Board evaluation review are set out below:
•
•
•
•
Following good progress since the Company’s listing in February 2015, the Board now needs to focus on the future
development of the business. This should include devoting sufficient time and attention to strategy and its implementation;
As the business becomes more international, so the Board’s governance may need to become more international;
The Board should give careful consideration to its risk appetite when adopting its expansion plans;
There needs to be more opportunity for engagement of the non-executive Directors with management below the senior
management level; and
•
There should be more structured Board succession planning.
In addition, the Senior Independent Director led a review of the Chairman, in conjunction with the other Board members. The review
recognised that the Chairman brings a deep knowledge of the business, together with extensive experience and expertise.
Certain areas of focus were identified to optimise the operation of the Board in the future, and these areas will be considered at
the following year’s review.
John Laing Annual Report and Accounts 2016 /
49
BOARD AND COMMITTEE ATTENDANCE
Total number of meetings in 2016
Total number of meetings attended in 2016
Executive Directors
Olivier Brousse
Patrick O’D Bourke
Non-Executive Directors
Phil Nolan
Jeremy Beeton
Toby Hiscock
David Rough
Anne Wade
Board
9
Nomination
Committee
Audit & Risk
Committee
Remuneration
Committee
1
5
4
Independent
Board
Nomination
Committee
Audit & Risk
Committee
Remuneration
Committee
No
No
On appointment
Yes
Yes
Yes
Yes
9
9
9
9
9
9
9
1
n/a
1
1
1
1
1
n/a
n/a
n/a
5
5
5
n/a
n/a
n/a
n/a
4
4
4
4
BOARD SUB-COMMITTEES
Sub-committees of the Board have been constituted to consider and make recommendations to the Board regarding matters
relating to external and internal audit, internal control and risk management processes, the selection of appropriate accounting
policies, the presentation of the half year and full year accounts, investment performance, acquisitions and disposals and the
appointment of Directors and Directors’ remuneration. Membership is determined by the Board and the duties of the Board
sub-committees are set out in the following sections of this report.
All the sub-committees of the Board operate within clearly defined terms of reference which are reviewed and updated to reflect
best practice and the Code as far as is commercially practicable. The terms of reference of the sub-committees are available on
request from the Group General Counsel and Company Secretary and are published on the Company’s website at
www.laing.com.
AUDIT & RISK COMMITTEE
The Audit & Risk Committee, formerly the Audit Committee, is chaired by Toby Hiscock, a non-executive director, who has up to
date relevant financial experience. The other members are David Rough and Jeremy Beeton.
During the year, the Committee met five times. Its terms of reference were widened following the meeting in February 2016.
It now considers in more detail risk management processes in addition to reviewing internal control procedures, including
internal audit plans, and the interim and full year results, including external audit plans. Regular reviews of significant risks are
undertaken at meetings of the Committee and its observations are reported to the Board. The Group’s system of internal control
is designed to manage and mitigate rather than eliminate altogether the risk of failure to meet business objectives and can only
provide reasonable, but not absolute, assurance against material financial misstatement or loss.
The Internal Audit function provides independent assurance to the Board, through the Audit & Risk Committee, that internal
control processes, including those related to risk management, are relevant, effective and have operated across the business
throughout the year.
The Group Finance Director is normally invited to attend meetings, along with other members of management as appropriate.
The external auditor and Head of Internal Audit are also invited to attend meetings and meet with the Audit & Risk Committee
privately, without management present, at least once a year.
The Committee considers and approves the external audit approach with the external auditor. The Committee reviews the
independence of the external auditor and the procedures in place to ensure that its independence is not compromised.
The Committee’s specific approval is required for non-audit services performed by the external auditor where the fee is
expected to exceed £20,000 in accordance with the Company’s charter of statutory auditor independence (a copy of which
can be found on the Company’s website at www.laing.com).
Audit & Risk Committee meetings are minuted and copies of the minutes are provided to the Directors and the external auditor.
The Committee reports to the Board, through the Chairman of the Committee.
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CORPORATE GOVERNANCE REPORT
(CONTINUED)
NOMINATION COMMITTEE
The Committee met once during the year. Phil Nolan is the Chairman of the Committee. The other members of the Committee
are the four non-executive directors (Anne Wade, David Rough, Jeremy Beeton and Toby Hiscock) and the Chief Executive Officer.
The purpose of the Nomination Committee is to consider and make recommendations to the Board concerning all new Board
appointments and the retirement of Directors and to make recommendations to the Board relating to the policy for the ongoing
education and development of Directors. The Committee uses external search consultants or open advertising for recruitment
purposes as deemed most appropriate. When nominating candidates for non-executive directorships, the Committee takes
account of the need for diversity and independence.
The Committee keeps under review and evaluates the composition of the Board and its Committees to maintain the most
appropriate balance of skills, knowledge, experience and independence and to ensure their continued effectiveness.
REMUNERATION COMMITTEE
The Remuneration Committee has four scheduled meetings each year and meets additionally as circumstances require.
The Committee met four times during the year. Anne Wade is the Chairman of the Committee. The other members are
Jeremy Beeton, Toby Hiscock and David Rough.
The Remuneration Committee sets and monitors the overall remuneration policy for the Executive Directors and other senior
executives. The Company has adopted the FCA’s Remuneration Code which is applied to those staff involved in regulated
activities. The Committee reviews, but does not limit itself to, the following key areas and makes recommendations to the
Board accordingly:
•
•
•
•
•
total remuneration (including base pay, bonus and incentive arrangements);
method of remuneration;
service contracts;
terms and conditions and any material changes to the standard terms of employment; and
approval of financial arrangements proposed by the Chief Executive Officer relating to the termination of Executive Directors’
service contracts.
The activities, recommendations and approvals of the Committee are reported to the next routinely scheduled Board meeting.
MANAGEMENT COMMITTEES
EXECUTIVE COMMITTEE
The Executive Committee comprises the Executive Directors, the Group Managing Director of Primary Investment, the Group
Managing Director of Asset Management and the Group General Counsel and Company Secretary. The Executive Committee
deals with the day-to-day business of the Group and also considers Group-wide initiatives and priorities. It reviews the
implementation of strategy, discusses the development of new investments and progress on existing investments. It also reviews
the disposal of investments and proposals before they are presented to the Board and monitors progress against the budget.
INVESTMENT COMMITTEE
The purpose of the Investment Committee is to make recommendations to the Board, or to approve proposals within its
delegated authority, in relation to the Group’s investments in infrastructure projects. The Committee also reviews the Group’s
portfolio valuation and monitors the balance of risk across the portfolio. The activities, recommendations and approvals of the
Committee are reported to the Board. The Committee’s delegated authorities are reviewed annually by the Board.
Members of the Committee are appointed by the Board and comprise the Executive Directors, the Group Managing Director of
Primary Investment, the Group Managing Director of Asset Management, the Group General Counsel and Company Secretary
and up to five other persons as the Board shall nominate from time to time. The Committee is currently chaired by the Group
Managing Director of Asset Management and usually meets at least fortnightly.
The role of the Investment Committee has recently been reviewed with the help of external consultants. A number of changes
are in the process of being implemented including the recruitment of a dedicated resource in order to improve the quality of
risk analysis.
MANAGEMENT RISK COMMITTEE
The Management Risk Committee’s role is to assist the Audit & Risk Committee and Board in monitoring financial, legal and
regulatory risks, by reviewing the internal control and risk management systems of the Group. The Committee normally meets
six times a year.
Members of the Committee are appointed by the senior management and comprise at least three members of the senior
management team, including the Group Finance Director. The Committee is chaired by the Group Finance Director and its other
members are currently the Group General Counsel and Company Secretary, the Group Managing Director of Asset Management
and three other senior managers.
John Laing Annual Report and Accounts 2016 /
51
ENGAGEMENT WITH SHAREHOLDERS
The Board is committed to providing shareholders with timely announcements of significant events or transactions affecting
the Company, including its financial performance and any changes to strategy as well as material investment commitments
and realisations. As part of this, the Company’s brokers provide regular market feedback to the Board and senior management.
In addition, the Chairman and Senior Independent Director are available to shareholders to discuss governance, strategy or any
concern they may have. In the second quarter of 2016, the Chairman wrote to the 20 largest investors and met with those who
responded to his offer of a meeting.
The Chief Executive Officer and the Group Finance Director are responsible for the Company’s interaction with existing
shareholders, potential new shareholders and analysts. To ensure its financial and operational performance and strategic
objectives are properly communicated, the Company operates a dedicated investor relations programme. This includes formal
events along with other meetings outside the financial reporting calendar. In October 2016, the Chief Executive Officer, together
with other members of the senior management team, hosted the Company’s first investor day since its IPO; this focused on risk
management, value creation and origination of new investments.
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AUDIT & RISK COMMITTEE REPORT
INTRODUCTION FROM CHAIRMAN
2016 was a busy and challenging period for the Audit & Risk Committee (the Committee). The remit of the Committee was
broadened during the year to assist the Board with its governance of risks across the Group. We are now responsible to the Board
for oversight of risk management as well as for audit. In addition, and as flagged in last year’s Annual Report, we tendered the
external audit. Details of these and other relevant matters are given below. I hope you find the report both informative and helpful.
ROLE OF THE COMMITTEE
Further to an internal Board effectiveness review in late 2015, the Directors decided to bolster their oversight of risk
management by reconstituting the Audit Committee as the Audit & Risk Committee.
The Committee’s main responsibilities are to:
1. Scrutinise the Group and Company financial statements, preliminary announcements, trading updates and other public
statements of financial performance and position;
2. Review the content of the annual and interim report and accounts and advise the Board on whether, as a whole, it is fair,
balanced and understandable, and provides the information necessary for shareholders to assess the Group and the
Company’s financial affairs, business model and strategy;
3. Monitor the efficacy of the Group’s internal financial and operational controls, including compliance with FCA requirements,
insurance cover, data protection and cyber security, business continuity and disaster recovery plans;
4. Monitor the effectiveness of the Internal Audit function;
5. Consider and recommend to the Board the appointment, reappointment, resignation or removal of the Group’s external
auditor, subject to approval by the Company’s shareholders at the AGM;
6. Negotiate and agree on behalf of the Board the external auditor’s remuneration, including fees for any non-audit
services performed;
7. Assess the external auditor’s independence and objectivity, the overall effectiveness of the external audit process and the
quality of its work;
8. Advise the Board on the Group’s overall risk appetite and tolerance and monitor the confluence of risks affecting the Group’s
markets and projects;
9. Review the results of regular stress testing of the major financial exposures of the Group;
10. Advise the Board on any proposed strategic transactions, including acquisitions and disposals of recourse business entities;
and
11. Advise the Remuneration Committee on any risk weightings applied to performance objectives in executive remuneration.
COMPOSITION OF THE COMMITTEE
There were no changes to the membership of the Committee during the year. It continues to be entirely made up of independent
non-executive directors as follows:
Toby Hiscock (Chairman)
Jeremy Beeton
David Rough.
The Committee Chairman is deemed to have up to date relevant financial experience and competence in accounting.
The Committee as a whole has extensive experience of investing in international infrastructure, which is at the heart of the
Group’s business. Further details of the qualifications and experience of Committee members are given on pages 44 to 45
of this Annual Report.
COMMITTEE MEETINGS
The Committee met four times during the year on regular business and once on the external audit tender (see page 54). Going
forward, the Committee will meet at least five times a year in order to discharge its enhanced responsibilities. The Group
Finance Director and other management representatives attend regular meetings, together with the Head of Internal Audit and
the external auditor. In addition, both internal and external auditors met privately with the Committee during the year without
management present.
The Committee Chairman attends each AGM of the Company and is prepared to answer any questions from shareholders on
matters falling within the Committee’s responsibilities.
John Laing Annual Report and Accounts 2016 /
53
SIGNIFICANT MATTERS CONSIDERED BY THE COMMITTEE IN RESPECT OF THE 2016 GROUP AND COMPANY
FINANCIAL STATEMENTS
1. Fair value of investments. The portfolio valuation is at the core of the Group’s financial reporting and the Committee has a
particular responsibility to ensure it is comprehensively reported in a fair, balanced and understandable manner.
A full valuation of the Group’s investment portfolio is prepared every six months, at 30 June and 31 December each year, with
a review at 31 March and 30 September each year, principally using a discounted cash flow methodology. The valuation
assumes that investments and their related cash flows are held until maturity. Changes in the fair value of investments are
recognised in the Group Income Statement in net gains on investments at fair value through profit or loss.
In preparing the valuation, the key assumptions made by management include the:
i)
forecast cash flows accruing to each investment;
ii) macro-economic factors affecting forecast cash flows, such as long term inflation, interest, foreign exchange and
taxation rates; and
iii) discount factors applied to each investment to reflect market and operational risks.
The fair value of investments is sensitive to changes in these assumptions and, in order to aid shareholders, a number of the
sensitivities are illustrated in the Portfolio Valuation section on pages 22 to 26 of this Annual Report.
During the year the Committee reviewed and challenged the valuations and disclosures prepared by management as well as
the work performed by the Group’s independent valuer, a professionally qualified third party, and the procedures carried out
by the external auditor. In particular, on the valuation of the Group’s investments in New Royal Adelaide Hospital and
Manchester Waste VL Co, we scrutinised the latest available information on construction completion plans and operational
progress together with the status of dispute resolution with the counterparties concerned. We are satisfied that the Group’s
portfolio investments as a whole have been reflected in the 2016 accounts at their prevailing fair value.
2. Retirement benefit obligations. An actuarial valuation as at 31 March 2016 of the Group’s main defined benefit pension
scheme was completed during the year. The combined deficit in the Group’s two defined benefit and post-retirement medical
schemes is reflected in the Group Balance Sheet in accordance with IAS 19. The deficit is sensitive to movements in future
price inflation, discount rates and life expectancy and can, therefore, be volatile. Again to assist shareholders, a table
showing the sensitivity of liabilities to movements in assumptions is included in note 18 of the Group financial statements on
page 102 of this Annual Report.
The IAS 19 deficit calculation is prepared by the Company with input from the Group’s actuarial adviser. Following detailed
review and challenge of the underlying assumptions, in addition to assessing the procedures performed by the external
auditor, the Committee is satisfied that the deficit shown as at 31 December 2016 is properly disclosed and fairly reflects the
Group’s net retirement benefit obligations outstanding at that date as prescribed by IAS 19. Furthermore, the Committee is
satisfied that, based on legal advice, there is no minimum funding requirement and consequently no additional pension
liability arising under IFRIC 14.
3. Principal risks and uncertainties. As part of its broader remit the Committee received various presentations and reports from
senior management during the year on, for example, bidding activities, portfolio management, major financial exposures and
provisions, and taxation risks. We looked at markets, business growth and organisational risks, the aggregated exposures to
contractors that we partner with, taxation exposures including the Group’s preparedness for the new BEPS regime, Brexit
and other key risks set out in the Group’s risk register, such as IT security and cyber risks even though the Group does not
manage large volumes of customer and employee data.
Our examination cannot give absolute assurance that the Group’s internal control system is operating effectively,
nevertheless in summary we are satisfied that the control and compliance culture of the Group is strong and the risk base is
well diversified, which helps to provide reasonable assurance that the financial statements are free from material error
and/or misstatement.
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AUDIT & RISK COMMITTEE REPORT
(CONTINUED)
INTERNAL AUDIT
The Head of Internal Audit reports directly to the Committee and has access to the Group and Committee Chairmen.
During the year the Committee reviewed and challenged the efficacy of the Internal Audit function by scrutinising its:
1. Terms of reference, together with its budget and resourcing;
2. Programme of work and, where the expertise does not exist internally, its outsource providers; and
3. Reports and the adequacy of responses and quality of feedback from management to the findings in them.
Internal Audit achieved its coverage plan for the year under review and a large majority of the audits completed were rated as
satisfactory or good. The Committee examined in detail a small minority of audits assessed as weak together with the remedial
actions undertaken by management. The Committee also looked at emerging trends and theme audits. In summary, it is
satisfied with the performance of the Internal Audit function.
EXTERNAL AUDIT
Following detailed consideration of the areas below, the Committee was satisfied with the external auditor’s independence and
quality of its audit in respect of 2016.
The key considerations were:
1. Deloitte’s planned approach to both the interim and annual accounts, which is risk-based and thorough, and also
incorporates an assessment of key financial controls relevant to the audit;
2. Deloitte’s execution of the above approach, including its assessment of key accounting and audit judgements – principally the
fair value of the Group’s investment portfolio and retirement benefit obligations;
3. Deloitte’s arrangements to identify, manage and report any of its own conflicts of interest – there were none;
4. Deloitte’s safeguards over its audit independence and objectivity, including the periodic rotation of its lead engagement and
other partners;
5. The extent and quality of non-audit services provided by Deloitte during the year; and
6. The arrangements for day to day management of the audit relationship by the Group Finance Director and his team.
In addition, the Committee reviewed and approved on behalf of the Board the external auditor’s remuneration and terms
of engagement.
Fees for audit services to the Company and recourse group during the year amounted to £185,806 (2015 – £216,742). Fees for
audit services to non-recourse subsidiaries during the year amounted to £62,129 (2015 – £84,904). Following the recent audit
tender (see below), audit fees are expected to remain close to the 2016 levels, subject to future price inflation.
The only non-audit work performed by Deloitte in 2016 was in relation to the review of the Group and Company’s interim financial
statements and the annual review of the Group’s FCA regulated subsidiary. Fees for non-audit work amounted to £44,800 (2015 –
£44,700). This is expected to remain the case for the foreseeable future and contrasts with the exceptional level of non-audit fees
paid to Deloitte in 2015 in relation to the Company’s successful IPO.
The Company publishes on its website a charter of statutory auditor independence, which sets out the means to ensure the
external auditor remains independent throughout its term. In particular the external auditor is required to rotate its engagement
partner every five years and the audit is subject to an open market tender at least every ten years (see below). In addition, no
work by the external auditor is permitted in the following areas: outsourcing or partnering of business; tax structuring advice;
and the valuation of acquisition targets and related due diligence other than transaction support (namely a review of a target’s
financial statements and internal control systems). All potential non-audit work by the external auditor is considered case by
case by the Committee and is usually awarded on a competitive basis.
The Company is required to tender its audit every ten years in accordance with UK Competition and Market Authority regulations,
effective from when the external auditor was first appointed. As Deloitte was first appointed in 2007, 2016 was the last year in
which it could audit the Group and Company’s accounts before a tender was due.
The Committee on behalf of the Board undertook a tender of the audit during the year. Four firms, including Deloitte, were
invited to participate. A shortlist of two firms, including Deloitte, resulted and, after careful consideration, the Committee
decided to recommend to the Board the reappointment of Deloitte. This reappointment is predicated on a fresh perspective from
Deloitte, including: a new lead engagement partner (Claire Faulkner); new tax and pensions partners; more controls (rather
than pure transaction) testing; and further deployment of computer-assisted audit techniques. The Group has complied with the
provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order 2014.
The recommendation to reappoint Deloitte was supported unanimously by the Board and will be subject to shareholder approval
at the Company’s forthcoming AGM.
John Laing Annual Report and Accounts 2016 /
55
OTHER MATTERS
Other matters considered by the Committee during 2016 included, but were not limited to:
1. The lookout period and forecast assumptions, such as funding capacity, underlying the viability statement and the adoption
of the going concern basis in the financial statements;
2. The Group’s compliance with financial regulation, including anti bribery, anti-money laundering and whistle blowing
arrangements; and
3. The Group’s policies and procedures for preventing and detecting fraud.
After detailed consideration and enquiry, including testing of evidence provided by management, each of these matters was
deemed satisfactory by the Committee.
Toby Hiscock
AUDIT & RISK COMMITTEE CHAIRMAN
6 March 2017
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56
DIRECTORS’ REMUNERATION REPORT
Dear Shareholder,
On behalf of the Board, I am pleased to present the Directors' Remuneration Report for the year ended 31 December 2016.
This report is split into two sections:
•
•
Annual Report on Remuneration – this sets out in detail how the remuneration policy has been applied in 2016, the
remuneration received by Directors for the year and how the policy will be applied in 2017. The Annual Report on
Remuneration will be subject to an advisory shareholder vote at the AGM in May 2017.
Directors' Remuneration Policy – this sets out the remuneration policy for the Executive Directors, Chairman and non-executive
directors. The Directors' Remuneration Policy is subject to approval by shareholders every three years. The Policy was approved
by shareholders at our 2016 AGM and therefore will not be subject to a shareholder vote this year.
REMUNERATION AT A GLANCE
How the remuneration policy supports our business strategy
Strategy
Our remuneration policy is designed to support the Group's strategy as summarised below:
To create value for shareholders through
originating, investing in and managing
infrastructure assets internationally
Remuneration Policy
Focus on performance-related
pay, with the emphasis on
long-term performance
Use of share-based incentives
and share ownership guidelines
for executives
Performance targets which
support sustainable long-term
value creation
SUMMARY OF THE CURRENT REMUNERATION ARRANGEMENTS FOR EXECUTIVE DIRECTORS
Element
Description
Opportunity
d
e
Base pay
x
i
F
Benefits
Salaries are set taking into account the experience of the
Director, his/her role and responsibilities.
Current salaries are £434,300 for the Chief Executive
Officer and £336,300 for the Group Finance Director.
Private medical insurance, life insurance, permanent health
insurance and, for Patrick O’D Bourke, a car allowance.
Market competitive.
Pension
Cash allowance in lieu of pension.
15% of salary.
Bonus
e
l
b
a
i
r
a
V
LTIP
Annual bonus is determined by reference to corporate and
individual performance*. Any bonus above target (60% of
salary) is deferred into shares vesting in equal tranches over
one, two and three years subject to continued employment.
Shares vest after three years subject to continued
employment and the achievement of NAV per share and Total
Shareholder Return (TSR) targets (with 50% of the award on
each measure). Executive Directors are required to retain the
net of tax number of any shares vesting under the LTIP for a
further two years post-vesting.
Up to 100% of salary (60% of salary at target).
Current award levels are 175% of salary per annum for
the Chief Executive Officer and 150% of salary per
annum for the Group Finance Director (within a policy
maximum of 200% of salary per annum).
* The performance measures for the 2016 Bonus are set out in the Annual Report on Remuneration on page 59.
REMUNERATION RECEIVED BY THE EXECUTIVE DIRECTORS FOR 2016
£’000
Benefits Pension
Salary
1
2
Bonus
Long-Term
Incentives
Olivier Brousse
Patrick O'D Bourke
430
333
2
12
56
43
271
210
nil
nil
1
2
Cash allowance in lieu of pension is paid net of employer’s national insurance.
Bonuses were based on an assessment of corporate and individual performance objectives (see page 57 for further details).
Total
759
598
John Laing Annual Report and Accounts 2016 /
57
In addition to the overall Company targets, the Executive Directors were given specific individual objectives.
The Chief Executive Officer, in addition to oversight of all Group objectives, he was individually tasked specifically with:
• Working with investors for them to better understand the John Laing investment premise to result in a reduction in the share
price discount to Net Asset Value – positive results have been seen and we are pleased with the evolution in the investor
understanding and appreciation of the Company since its IPO.
• Restructuring of the Company’s European operations – this was initiated in the second half of 2016 with early benefits already seen.
• A comprehensive review of the business and the operating structures within each business and making changes to the
management structure – a detailed review has been completed and the first round of changes to the operating structure are
being implemented.
The Board is pleased with progress that has been made by the Chief Executive Officer during the year and accordingly awarded
him 60% of the maximum potential for performance against his individual objectives.
For the Group Finance Director, there were specific objectives around:
• Increasing the analyst research and coverage of John Laing in 2016 – there has been a one-third increase in coverage
year-on-year which is good progress with more opportunity to come.
• Developing and agreeing with the Board a funding strategy to secure growth and dividend cover – this was done successfully
for 2016 and 2017 and work is taking place to ensure this is taken forward over the next few years.
• Managing the triennial pension review and developing and agreeing with the Board a funding strategy for the deficit, including
an updated deficit recovery plan – this has been successfully completed.
The Board believes the Group Finance Director showed strong performance against all three of these objectives and awarded
him 60% of the maximum for this part of the bonus.
REMUNERATION FOR 2017
In terms of application of the policy for 2017:
•
•
Salaries have been increased by 1.0% in line with the increase for other UK employees
The structure and operation of the bonus scheme remain unchanged. The bonus maximum remains 100% of salary. Bonuses
will continue to be based on corporate and individual performance. The measures used to assess corporate performance for
2017 will be:
– NAV
– Distributions (excluding from non-portfolio assets)
– Disposals
– New investments
– Value enhancements
– Profit before tax.
The detailed targets and how we have performed against them will be set out retrospectively in next year's Annual Report on
Remuneration.
•
Annual LTIP awards will be granted at 175% of salary for the Chief Executive Officer and 150% of salary for the Group Finance
Director as in 2016. The awards will continue to be based 50% on relative TSR and 50% on growth in NAV per share. Details
of the relative TSR targets to be applied to the 2017 awards, which are consistent with those applying to the 2016 awards, are
shown on page 60. The NAV targets for the 2017 awards will require 10% to 16% p.a. growth for 25% to 100% vesting of this
part of the award. The target growth range is lower than that applying to the 2016 awards (12% to 18% p.a.) but nevertheless
reflects a challenging level of growth. The Committee considers that the targets for the 2017 awards are equally challenging
to those applying to previous LTIP awards.
•
Annual fees for the Chairman and the non-executive directors are the same as those applying for 2016.
SUMMARY
The aim of this report is to communicate details of Executive Director compensation and how this is clearly linked to performance.
We are committed to maintaining an open and transparent dialogue with shareholders and I welcome any comments you may have.
I very much hope that you will support the resolution to approve the Annual Report on Remuneration at the forthcoming AGM.
We firmly believe that our remuneration policy is right for the Company and that it will continue to motivate and incentivise our
senior team to deliver the Company’s strategy.
Anne Wade
CHAIRMAN, REMUNERATION COMMITTEE
6 March 2017
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/ John Laing Annual Report and Accounts 2016
58
DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
ANNUAL REPORT ON REMUNERATION
This part of the report has been prepared in accordance with Part 3 of the revised Schedule 8 set out in The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, and 9.8.6R of the Listing Rules.
The Annual Report on Remuneration will be put to an advisory shareholder vote at the forthcoming AGM.
Remuneration Committee members
Anne Wade (Chairman)
Jeremy Beeton
Toby Hiscock
David Rough
All members of the Committee are independent non-executive directors. Further details on the members of the Committee can
be found on pages 44 and 45 of this Annual Report.
Responsibilities
The Committee recommends the Group’s policy on executive remuneration, determines the levels of remuneration for the Executive
Directors, the Chairman and other senior executives and prepares an Annual Report on Remuneration for approval by shareholders
at the AGM. The Committee's terms of reference can be viewed on our website at www.laing.com/investor-relations/corporate-
governance. Details of the number of meetings held during the year are shown in the Corporate Governance Report on page 49.
Advisors
The Committee receives information and takes advice from inside and outside the Group. Internal support is provided by the
Group HR Director and the Group General Counsel and Company Secretary. The Chairman and Chief Executive Officer are invited
to attend meetings where appropriate. No individual is present when matters relating to his/her own remuneration are discussed.
New Bridge Street (NBS) was appointed in early 2015 to act as the independent adviser to the Committee. NBS is a trading
name of Aon Hewitt Limited, which is a subsidiary of Aon plc. Fees are normally charged on a time spent basis, with estimates
provided in advance for particular projects. The total fees paid to NBS in respect of its services to the Committee during the year
were £38,986 plus VAT (2015 – £34,532 plus VAT). NBS also provided advice to the Company during the year in relation to the
implementation of the Company’s share plans. NBS is a signatory to the Remuneration Consultants' Code of Conduct and
reports directly to the Chairman of the Committee. The Committee is satisfied that the advice that it receives from NBS is
objective and independent.
Directors' single total figure of remuneration for 2016 (audited)
The table below provides a breakdown of the various elements of Director pay for the year ended 31 December 2016 and for the
prior year. This comprises the total remuneration earned in respect of the period from 1 January 2016 to 31 December 2016, and
the prior period from 1 January 2015 to 31 December 2015.
4
3
£’000 2016 2015 2016
2015 2016
2015 2016
2015 2016
2015 2016
2015 2016
2015
Salary/Fees
Benefits¹
Pension²
Bonus
LTIP
Other
Total
5
Olivier Brousse 430 429 2
Patrick O'D Bourke 333 333 12
Dr Phil Nolan 180 173 –
David Rough 55 55 –
Jeremy Beeton 45 45 –
Toby Hiscock 60 60 –
Anne Wade 55 55 –
2 56
12 43
– –
– –
– –
– –
– –
54 271
43 210
– –
– –
– –
– –
– –
300 nil
233 nil
– –
– –
– –
– –
– –
nil n/a
nil n/a
– –
– –
– –
– –
– –
750
800
5
759
598
– 180
– 55
– 45
– 60
– 55
1,535
1,421
173
55
45
60
55
1
2
3
4
5
This relates to private health insurance. The figure for Patrick O'D Bourke also includes a car allowance of £10,200.
Paid as a cash supplement in lieu of pension.
In accordance with the Deferred Share Bonus Plan (DSBP), any amount over 60% of salary awarded in bonus is deferred in shares. Awards under the
DSBP vest in equal tranches on the first, second and third anniversary of grant, subject to continued employment.
The first award under the LTIP will vest in April 2018 subject to performance over the three years to 31 December 2017.
This relates to the vesting of pre-IPO incentive plans.
John Laing Annual Report and Accounts 2016 /
59
Annual Bonus
ANNUAL REPORT ON REMUNERATION
(CONTINUED)
Details of variable pay earned in the year (audited)
The bonus payable for 2016 (excluding JLCM employees) was assessed by the Committee taking into account performance
against the following scorecard of metrics:
£ million
Threshold
Narrative
Stretch
Target
Actual
NAV
Value enhancements
Distributions (excluding
from non-portfolio assets)
Disposals
New investments
Profit before tax
972
40
27
110
192
154
1,023
42
29
116
202
163
1,125
46
32
127
222
179
1,017
44
35
127
182
192
Between threshold and target
Between target and stretch
Above stretch
Stretch
Below threshold
Above stretch
In addition to the overall Company targets, the Executive Directors were given specific individual objectives. For the Group
Finance Director these included increasing the analyst research and coverage of John Laing in 2016, developing and agreeing
with the Board a funding strategy to secure growth and dividend cover and managing the triennial pension review and developing
and agreeing with the Board a funding strategy for the deficit, including an updated deficit recovery plan. For the Chief Executive
Officer, in addition to oversight of all Group objectives, working with investors for them to better understand the John Laing
investment premise to result in a reduction in the share price discount to Net Asset Value, restructuring of the Company’s
European operations and a comprehensive review of the business and the operating structures within each business and making
changes to the management structure.
For the Executive Directors, the allocation between corporate and individual objectives was as follows:
Olivier
Brousse
Patrick
O’D Bourke
Corporate
(maximum 60% of salary)
39%
39%
Individual
(maximum 40% of salary)
24%
24%
Total (% of maximum)
Total (£000)
63%
£271
63%
£210
Based on the achievement of the above scorecard of metrics, the
Committee determined that the overall bonus payable for corporate
performance was 65% of the maximum (i.e. equivalent to 39% of
salary for the Executive Directors).
Taking into account achievement against their specific individual
objectives and the overall performance of the Group in the year,
the Committee awarded individual bonuses of 24% of salary to both
Executive Directors (out of a maximum of 40% for this element of
the bonus).
Bonuses up to 60% of salary are paid in cash with any bonus above this level awarded in the form of deferred shares, vesting in
equal tranches over one, two and three years, normally subject to continued employment. Any deferred shares due will be
normally awarded as soon as practicable following the announcement of annual results in March.
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Details of share awards granted in the year (audited)
The following LTIP awards were granted to the Executive Directors during the financial year:
1
Type of
award
Award
size
Face
value
Number
of shares
Grant
date
Performance
period
Performance
targets
Olivier Brousse
LTIP (nil
cost option)
175%
salary
Patrick
O’D Bourke
LTIP (nil
cost option)
150%
salary
£752,500
330,330
£499,500
219,270
15 April 2016
1 January 2016 to
31 December 2018
50% based on relative TSR and
50% based on NAV per share
1
Calculated using the middle market share price on the day preceding the date of grant which was 227.8 pence.
/ John Laing Annual Report and Accounts 2016
60
DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
ANNUAL REPORT ON REMUNERATION
The performance conditions attached to the awards are:
(CONTINUED)
•
•
50% is based on TSR performance against a comparator group comprising the members of the FTSE 250 index. 25% of the
shares in this tranche will vest for median performance with full vesting for upper quartile performance or above (straight line
vesting between these points).
50% is based on the annual compound growth in the Company's NAV per share. NAV will be based on the figures reported in the
Company's annual financial statements but adjusted to include the value of any dividends paid to or approved by shareholders
during the three year performance period. The NAV figures may also be adjusted at the discretion of the Committee to reflect
any regulatory or accounting changes or any changes to the Company's share capital. 25% of the shares in this tranche will vest
for 12% per annum growth, with full vesting for 18% per annum growth or above (straight line vesting between these points).
The awards are structured as nil cost options and will normally vest on the later of the third anniversary of grant and the
determination of the performance conditions, and will then normally remain exercisable until the day before the tenth
anniversary of the date of grant provided the individual remains an employee or officer of the Group. The Executive Directors may
not sell shares vesting under the LTIP (other than for tax) within two years of vesting.
The following were granted to the Executive Directors under the DSBP during the financial year. These related to the deferred
element of the 2015 bonus.
1
Type of Award Face Number Grant
award size value of shares
date
Olivier Brousse
DSBP Bonus £42,100 18,845
(nil cost option) earned
———————————————————————————————————————— over ———————————————————————————— 15 March 2016
Patrick O’D Bourke
DSBP 60% £33,300 14,905
(nil cost option) of salary
1
Calculated using the closing middle market share price on the day preceding the date of grant which was 223 pence.
The awards will vest in three equal tranches on each of the first three anniversaries of the date of grant and will then remain
exercisable until the day before the tenth anniversary of the date of grant provided the individual remains an employee or officer
of the Group.
Chairman and non-executive director fees
The current fees for the Chairman and the non-executive directors are set out below:
Chairman
Non-executive directors:
Base fee
Additional fees for:
– Chairing the Audit & Risk Committee
– Chairing the Remuneration Committee
– Senior Independent Director
Fee
£180,000
£45,000
£15,000
£10,000
£10,000
In addition, the Chairman and the non-executive directors are entitled to reimbursement of reasonable expenses.
Directors’ shareholdings (audited)
The following table sets out a summary of the Directors’ interests in shares (including any interests held by connected persons).
No. of shares No. of shares Other interests in Total interest in
owned on owned on shares as at shares as at
31 December 2015 31 December 2016 31 December 2016 31 December 2016
Outstanding Outstanding
LTIP awards Deferred Share
Bonus Plan awards
Olivier Brousse 96,282 155,604 673,150 18,845 847,599
Patrick O'D Bourke 76,282 136,282 446,830 14,905 598,017
Dr Phil Nolan 110,256 110,256 N/A N/A 110,256
David Rough 35,256 35,256 N/A N/A 35,256
Jeremy Beeton 10,256 16,256 N/A N/A 16,256
Toby Hiscock 10,256 20,500 N/A N/A 20,500
Anne Wade 10,256 20,256 N/A N/A 20,256
Between 31 December 2016 and the date of this report there have been no changes in the Directors’ shareholdings.
The guideline shareholding for Executive Directors is 100% of salary. At 31 December 2016, Olivier Brousse and Patrick O'D Bourke
held shares worth 98% and 111% of salary respectively.
John Laing Annual Report and Accounts 2016 /
61
ANNUAL REPORT ON REMUNERATION
(CONTINUED)
Payments to past Directors (audited)
There were no payments to past Directors during the year.
Payments for loss of office (audited)
No payments have been made for loss of office in the year.
Relative importance of the spend on pay
The table below shows the Group's spend on pay compared with distributions to shareholders.
£ million 2016 2015
Remuneration paid to or receivable by all employees 34.6 36.5
Distributions to shareholders by way of dividends 26.2 5.9
Distributions to shareholders by way of share buy-backs Nil Nil
Percentage change in the remuneration of the Director undertaking the role of Chief Executive Officer compared to
the average for other employees
The table below shows the percentage change in salary, benefits and bonus earned between 31 December 2015 and
31 December 2016 for the Chief Executive Officer compared to the average for other UK-based employees. This comparator
group was used because the Committee believe it gives the best understanding of underlying increases, while avoiding
distortions from currency fluctuation and different economic conditions in other countries.
Salary
Benefits
Bonus
CEO
Average for other UK employees
Nil
4.2%
3.4%
0.5%
–9.7%
–9.0%
Performance graph and total remuneration history for Chief Executive Officer
The graph below shows the Company’s performance, measured by TSR, compared with the performance of the FTSE 250 Index
for the period from the Company’s IPO in February 2015 to 31 December 2016. This comparator has been chosen as it is a
broad equity index of which the Company is a constituent and it is also the one used in assessing relative TSR performance
under the LTIP.
Total shareholder return
Source: Datastream (Thomson Reuters)
160
140
120
100
80
60
40
20
0
)
d
e
s
a
b
e
r
(
)
£
(
e
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144.48
112.82
Feb-15
Dec-15
Dec-16
John Laing Group plc
FTSE 250 Index
The graph shows the value (as at 31 December 2016) of £100 invested in John Laing Group plc on the date of Admission
(17 February 2015) compared to £100 invested in the FTSE 250.
The total remuneration figures for the Chief Executive Officer for 2016 and 2015 are shown in the table below. The annual bonus
and long-term incentive award vesting level as a percentage of the maximum opportunity are also disclosed.
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/ John Laing Annual Report and Accounts 2016
62
DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
2016 2015
ANNUAL REPORT ON REMUNERATION
(CONTINUED)
Total remuneration (£'000) 759 1,535
Annual bonus (% of maximum) 63% 70%
LTIP (% of maximum) Nil Nil
Voting outcome at the 2016 AGM
The following votes were received at the 2016 AGM:
Resolution to approve the Annual Report on Remuneration
Resolution to approve the Directors’ Remuneration Policy
Votes For
Votes Against
Votes Withheld
257,631,859
(99.29%)
258,873,852
(95.86%)
1,838,380
(0.71%)
11,182,710
(4.14%)
10,455,021
5,337
Application of the Remuneration Policy for 2017
A summary of how the remuneration policy will be applied during the forthcoming year is set out below:
Salaries for Executive Directors
Olivier Brousse – £434,300
Patrick O'D Bourke – £336,300
Benefits and Pension
No change
2017 Bonus
2017 LTIP
The only change to the structure of the bonus for 2017 is that the allocation between corporate and
individual objectives will be 80% corporate and 20% individual (previously 60% and 40% respectively).
Bonuses will be awarded based on a mix of corporate and individual performance. Corporate
performance will be assessed taking into account NAV, distributions (excluding from non-portfolio
assets), disposals, new investments, value enhancements and profit before tax. The performance
targets for 2017 are deemed to be commercially sensitive and will be disclosed in next year's Annual
Report on Remuneration.
LTIP awards granted to the Chief Executive Officer and Group Finance Director in 2017 will be over
shares worth 175% and 150% of salary respectively (the same as 2016). Performance will be measured
over three years subject to the following conditions (with an equal weighting on each measure):
Performance condition
Threshold (25% vesting)
Maximum (100% vesting)
Growth in NAV per share
10% p.a.
TSR relative to the constituents
of the FTSE 250 Index
There will be straight-line vesting between these points.
Median performance
16% p.a.
Upper quartile
performance
Chairman and non-executive
director fees
The Chairman and non-executive director fees have not been increased for 2017. A summary of the
current fee policy is set out on page 68.
By order of the Board
Anne Wade
CHAIRMAN OF THE REMUNERATION COMMITTEE
6 March 2017
John Laing Annual Report and Accounts 2016 /
63
DIRECTORS' REMUNERATION POLICY
This report sets out the Remuneration Policy for the Directors. The report was subject to a binding vote by shareholders at our
AGM on 12 May 2016 and is intended to remain in place for three years. Shown below is the Policy in full, as approved by
shareholders, updated where appropriate to reference how the Policy will be applied in 2017.
Remuneration Policy Table
The table below sets out the remuneration policy for the Executive Directors.
Purpose and
link to strategy
Operation
Link to performance
Maximum opportunity
Element
Base
salary
Reviewed annually by the Committee (with
effect from 1 January) or, if appropriate,
following a change in an individual’s
position or responsibilities.
Benchmarked periodically against relevant
market comparators, including companies
of a similar size and complexity and other
broadly comparable companies.
To provide a
core reward
for the role at
a sufficient
level to
recruit and
retain
individuals of
the necessary
calibre to
execute the
Company’s
business
strategy.
Benefits
To operate a
competitive
benefits
structure for
Executive
Directors that
aids in their
recruitment
and retention.
Provision of benefits such as private
medical insurance, life insurance,
permanent health insurance, company
sick pay and a car allowance.
Executive Directors are also eligible
to participate in any all-employee
share plans operated by the Company,
in line with HMRC guidelines currently
prevailing, on the same basis as other
eligible employees.
Additional benefits may be provided from
time to time if the Committee decides
payment of such benefits is appropriate,
for example, if this is in line with emerging
market practice or to facilitate the
relocation of an Executive Director.
Each Executive Director is entitled to
reimbursement of reasonable expenses
incurred by him in the performance of his
duties (including any tax payable thereon).
The Company may provide a cash
allowance in lieu of a contribution to a
pension scheme, contribute an amount
to a money purchase pension scheme
or provide for a combination of the two
depending on the circumstances of
the individual.
Pension
To offer
market
competitive
levels of
pension and
to recognise
long-term
commitment
to the Group.
Base salary levels are set
at a level to reflect the
experience, skills and
responsibilities of the
individual as well as the
scope and scale of their
role.
Increases to base salary
will reflect individual
performance and
contribution as well as
the pay and conditions
for other employees of
the Group.
Not applicable
While there is no maximum
salary, increases will normally
be in line with the typical level
of increase awarded to other
employees of the Group.
However, increases above this
level may be offered in certain
circumstances such as where
an Executive Director has been
promoted, has had a change
in responsibilities, to reflect
increased experience in the role,
or where there has been a
significant change in the size
and/or scope of the business.
For details of salary levels from
1 January 2017 see the Annual
Report on Remuneration on
page 62.
The cost of the benefit provision
varies from year-to-year and
there is no prescribed maximum
limit. The Committee monitors
annually the overall cost of the
benefits provided to ensure that
it remains appropriate.
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Not applicable
15% of salary
/ John Laing Annual Report and Accounts 2016
64
DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
DIRECTORS' REMUNERATION POLICY
(CONTINUED)
Element
Annual
bonus
Purpose and
link to strategy
To recognise
and reward
the delivery
of short-term
strategic and
financial
objectives
which
contribute
towards
long-term
sustainable
growth.
Long
Term
Incentive
Plan
(LTIP)
To incentivise
and reward
the creation
of long-term
shareholder
value.
Operation
Link to performance
Maximum opportunity
The size of the bonus is assessed by the
Committee taking into account performance
against a scorecard of corporate metrics. The
choice of metrics is reviewed by the Committee
at the start of each financial year, with a target
range set for each measure. Details of the
metrics used to determine the 2016 bonus are
set out in the Annual Report on Remuneration
on page 57 and the metrics to be used for the
2017 bonus are set out in the Annual Report on
Remuneration on page 62.
There is no pre-determined weighting between
metrics. The Committee uses the scorecard as a
guide to help it consider the overall performance
of the business and the appropriate size of the
overall bonus. The Committee will, in its
absolute discretion, take into account all
relevant circumstances when determining the
size of the overall Group bonus, recognising
that, given the long-term nature of the business,
timescales on particular projects may be outside
management's control. The Committee also has
the discretion to reduce the size of the overall
Group bonus if it feels that the level of bonus is
not supported by the underlying financial and
operational performance of the business.
Once performance against the corporate metrics
has been determined, the calculation of an
individual’s allocation will be subject to an
assessment by the Committee of both Group
performance and individual performance.
The amount allocated based on individual
performance cannot exceed 40% of salary.
For 2017, this will change to 20% of salary.
The Committee may reduce a participant's
bonus (including to zero) to reflect adverse
events, e.g. health and safety breaches or
poor individual performance.
Awards are subject to the achievement of
performance targets linked to the long-term
success of the Company.
These are currently based 50% on growth in NAV
per share and 50% on TSR. However, different
performance metrics/weightings may be set for
future awards to ensure that the LTIP remains
aligned to the Company’s strategy.
A sliding scale of targets is applied for each
performance metric, with no more than 25% of
that part of the award vesting for achievement
of the threshold target.
100% of salary
(60% of salary for
target performance).
No more than 25%
of salary will be
payable for threshold
performance.
Up to 200% of salary.
It is intended that
awards for 2017 will be
limited to 175% and
150% of salary for the
Chief Executive Officer
and Group Finance
Director respectively.
The Executive Directors
participate in the same overall
bonus structure as other Group
employees (except for those
employees within John Laing
Capital Management (JLCM)).
The size of the overall Group
bonus is determined based on
performance against a range
of metrics linked to the Group’s
strategy. The overall bonus is
then allocated partly based
on Company performance
with the remainder based on
individual performance.
To the extent any bonus exceeds
the target amount (60% of
salary), the full amount of any
excess will be deferred in shares
under the Deferred Share Bonus
Plan (DSBP). Awards under the
DSBP vest in equal tranches
on the first, second and third
anniversary of grant, normally
subject to continued
employment. Dividends that
accrue on the DSBP shares
during the vesting period may
be paid in cash and/or shares
at the time of vesting.
Clawback and, in the case
of deferred share awards,
malus provisions will apply.
At the discretion of the Committee,
Executive Directors will receive
annual awards of shares in the
form of nil (or nominal) cost
options or conditional awards
which will usually vest on the third
anniversary of grant (or, if later,
when the Committee determines
that the performance conditions
have been satisfied).
The awards are subject to the
achievement of performance
and service conditions.
Executive Directors are required
to retain the net of tax number of
any shares vesting under an LTIP
award for a further two years
post-vesting.
Dividends that accrue on the
shares during the vesting period
may be paid in cash and/or
shares at the time of vesting.
Clawback and malus provisions
apply.
John Laing Annual Report and Accounts 2016 /
65
DIRECTORS' REMUNERATION POLICY
(CONTINUED)
Shareholding guidelines
The Executive Directors are required to build and maintain a shareholding in the Company equivalent to 100% of their salary and
are expected to retain all shares vesting under the DSBP and LTIP (net of tax) until such time as the guideline shareholding has
been achieved.
Annual bonus performance metrics
The size of the overall Group bonus is assessed by the Committee taking into account performance against a scorecard of
metrics which reflect the growth of the business. The choice of metrics may change for future award cycles, but was based on
the following for 2016:
Metric
Link to strategy
NAV
Distributions
Disposals
This measures growth in the value of the Group's net assets.
This reflects the Group's ability to realise cash distributions from its investments.
Disposals of existing investments provide additional funding for new investments. Special dividends payable to
shareholders are based on disposal proceeds.
New investments
New investments are designed to contribute to future NAV growth.
Value enhancements
Value enhancements increase the investment portfolio valuation and therefore contribute to future NAV growth.
Profit before tax
This is linked to growth in NAV in any given year and in addition provides an appropriate focus on cost control.
LTIP metrics
Awards under the LTIP vest subject to delivering against metrics which are aligned to long-term shareholder value creation.
The choice of metric may change for future award cycles, but is currently based on the following:
Metric
Link to strategy
TSR
This measures the total return to shareholders provided through share price appreciation and dividends.
TSR is measured relative to performance against a comparative group comprising the members of the
FTSE 250 index. TSR provides a clear alignment between the value created for shareholders and the reward
earned by executives.
NAV per share
This measures the overall value of the Group's net assets (adjusted for dividends paid or approved) divided
by the number of shares in issue and provides an assessment of the growth of the business over time.
Incentive plan operation
The Committee operates the Company’s incentive plans according to their respective rules and consistent with normal market
practice, the Listing Rules and HMRC rules where relevant, including flexibility in a number of regards. This includes dealing
with leavers and making adjustments to awards following acquisitions, disposals, changes in share capital and other merger
and acquisition activity.
The Committee also retains the ability to adjust the targets and/or set different metrics for the annual bonus plan and
outstanding LTIP awards if events occur which cause it to determine that the conditions are no longer appropriate and the
amendment is required so that the conditions achieve their original purpose and are not materially less difficult to satisfy.
Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration and may, as
appropriate, be the subject of consultation with the Company’s major shareholders.
Clawback and malus
The Company has the right to reduce the number of shares over which an award was granted under the DSBP or LTIP where it is
discovered that the award was granted over too many shares as a result of a material misstatement in the Company’s accounts,
when there has been an error or reliance on misleading information when assessing the size of the award that was granted,
and/or it is discovered that the participant could reasonably have been dismissed as a result of his/her misconduct.
The Company may also clawback cash bonus awards or previously vested DSBP and LTIP awards in accordance with the
principles set out above to ensure that the full value of any overpayment is recouped. In these circumstances the Committee
may apply clawback within three years of the payment of the cash bonus, date of grant of a DSBP award or the vesting of an
LTIP award.
Shareholder views
The Remuneration Committee values the views of the Company’s shareholders and guidance from shareholder representative
bodies. Shareholder feedback received in relation to the AGM, as well as any additional feedback received during the year, will
be considered as part of the Company’s annual remuneration review. The Committee will consult with major shareholders in
advance of making any significant changes to remuneration arrangements.
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/ John Laing Annual Report and Accounts 2016
66
DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
DIRECTORS' REMUNERATION POLICY
(CONTINUED)
Link to the remuneration policy for all employees
The remuneration policy for the Executive Directors is similar to the policy for employees across the Group, although the
Committee does not formally consult with employees in respect of the design of the Directors’ remuneration policy.
A consistent approach to remuneration is applied across the Group – with the same overarching principle that reward should be
sufficient to attract and retain high calibre talent and that reward should support the delivery of the business strategy.
The same approach to salary reviews is applied to all employees and the Executive Directors participate in the same overall
bonus structure as other Group employees (except those employees within JLCM). However only the most senior employees
are subject to deferral arrangements and some other employees may have a higher weighting on individual performance.
The Executive Directors also participate in the same LTIP as other senior executives.
However, there are some differences in the structure of the remuneration policy for the Executive Directors compared to other
senior employees, which the Committee believes are necessary to reflect the different levels of responsibility. The two main
differences are the increased emphasis on performance-related pay for Executive Directors (through a higher variable pay
opportunity) and a greater focus on long-term alignment (through bonus deferral, additional holding periods for LTIP awards
and minimum shareholding guidelines).
Remuneration reward scenarios
The total remuneration for each of the Executive Directors that could result from the remuneration policy in 2017 is shown below:
Minimum
Target
Maximum
Minimum
e
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Target
Maximum
Notes:
100%
£499
44%
30%
100%
£397
23%
33%
£1,138
26%
44%
£1,689
47%
32%
24%
29%
£850
27%
41%
£1,235
0
250
500
750
1,000
1,250
1,500
1,750
£’000
Fixed Pay
Annual Bonus
Long-term Incentive Plan (LTIP)
1
2
3
Fixed pay consists of salary, benefits and pension. Salary is the amount to be paid in 2017 and benefits are based on the value shown in the single total
figure of remuneration for 2016 on page 56. Pension is shown as 15% of salary.
The maximum bonus opportunity is 100% of salary with 60% of salary earned at target performance. Any bonus earned for above target performance is
deferred in shares, which vest subject to continued employment over one, two and three years.
The maximum LTIP award for 2017 is 175% of salary for the Chief Executive Officer and 150% of salary for the Group Finance Director. An award of
50% of the maximum is assumed for target performance. LTIP awards are subject to a three year performance period and the net of tax number of any
shares received must be held for a further two years post vesting.
4
No assumptions are made as to future share price movements which will impact on the actual values to be received under the DSBP and LTIP.
John Laing Annual Report and Accounts 2016 /
67
DIRECTORS' REMUNERATION POLICY
(CONTINUED)
Executive Director Recruitment and Promotions
Remuneration arrangements for a new appointment will be set in accordance with the policy for the existing Executive Directors,
except as noted below:
•
•
•
•
If it is considered appropriate to set the salary for a new Executive Director at a level which is below market, his or her salary
may be increased in future periods to achieve the desired market positioning by way of a series of phased above inflation
increases, subject to his or her continued development in the role.
Any bonus payment for the year of joining will normally be pro-rated to reflect the proportion of the period worked and the
Committee may set different performance measures and targets, depending on the timing and nature of the appointment.
In the case of an Executive Director being recruited overseas, being recruited by the Company to relocate overseas or an
existing Executive Director being asked to relocate overseas, expatriate benefits may be provided on an ongoing basis.
The Committee may also approve the payment of one-off relocation-related expenses and legal fees.
The Committee may offer cash and/or share-based elements to compensate an individual for remuneration forfeited on
leaving a former employer, if it considers these to be in the best interests of the Company (and therefore its shareholders).
Such payments would take account of remuneration relinquished and would mirror (as far as possible) the delivery
mechanism, time horizons and performance requirement attached to that remuneration. Where possible any such payments
would be facilitated through the Company’s existing share plans, but, if not, the awards may be granted outside these plans as
permitted under the Listing Rules which allow for the grant of awards to facilitate the recruitment of an Executive Director.
•
In the case of an internal appointment, any variable pay element awarded in respect of the prior role will be allowed to pay out
according to its original terms or adjusted as considered appropriate to reflect the new role.
Executive Directors' service agreements and payments for loss of office
The Executive Directors entered into new service agreements with the Company on 16 January 2015. There is no fixed term and
the contracts continue until terminated by either party giving 12 months’ notice.
The Company is also entitled to terminate the Executive Directors’ employment by payment of a cash sum in lieu of notice equal
to salary and the cost to the Company of providing contractual benefits (including pension but excluding bonus) during what
would otherwise have been the notice period. A payment in lieu of notice can, at the Company’s discretion, be paid as a lump
sum or in equal monthly instalments over the notice period. There is a mechanism in the agreement to reduce the instalments
where the Executive Director commences alternative employment during the notice period. Outplacement services and
reimbursement of legal costs may also be provided.
The Company may also terminate the Executive Directors' employment with immediate effect and with no liability to make any
further payments in certain prescribed circumstances (e.g. in the case of a serious or repeated breach of the Executive
Directors' obligations).
The Committee may pay any statutory entitlements or settle or compromise claims in connection with a termination of
employment, where considered in the best interest of the Company.
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The table below sets out the general position in respect of incentive arrangements for departing Executive Directors. In
accordance with the terms of the relevant incentive plan rules, and based on the circumstances of any departure, the Committee
has discretion to determine how an Executive Director should be categorised for each element and determine the relevant
vesting levels:
Bad Leaver¹
Good Leaver²
Annual Bonus
No entitlement.
Bonus may be payable subject to performance. Awards normally pro-rated based on
the period worked during the financial year.
DSBP
LTIP
Unvested awards will lapse.
Unvested awards will vest on the date of cessation with no pro-rata reduction.
Unvested awards will lapse.
Awards will vest on the normal vesting date, subject to performance and a time pro-rata
reduction (based on the number of complete months served from the date of grant to
cessation of employment).
The Committee may, in its absolute discretion, determine that awards can vest, subject
to performance, earlier than the normal vesting date and, if a participant dies, the
award will ordinarily vest, subject to performance, on the date of death unless the
Committee decides it should vest on the normal vesting date.
In any of the circumstances described above, the Committee may determine that the
pro-rata reduction should not apply at all or should apply to a lesser extent if it
considers that exceptional circumstances justify such treatment.
1
2
e.g. termination for cause etc.
e.g. death, injury, disability, redundancy, retirement with the agreement of the participant’s employer, the sale of the participant’s employer or the
business in which he or she is employed out of the Group or any other reason at the Remuneration Committee’s discretion.
/ John Laing Annual Report and Accounts 2016
68
DIRECTORS’ REMUNERATION REPORT
(CONTINUED)
DIRECTORS' REMUNERATION POLICY
(CONTINUED)
Other
In the event of a change of control or voluntary winding-up, unvested LTIP awards will vest at the time of the relevant event
subject to performance and a time-based pro-rata reduction (although the Committee may determine that the pro-rata
reduction should not apply at all or should apply to a lesser extent if it considers that exceptional circumstances justify such a
treatment). Unvested DSBP awards will vest early and in full. The Committee may require LTIP and DSBP awards to be exchanged
for equivalent awards over shares in a new holding company if the change of control is part of an internal reorganisation.
In the event that a demerger, special dividend or other similar event is proposed which, in the opinion of the Committee, would
affect the price of a share to a material extent, the Committee may decide that unvested LTIP and DSBP wards will vest on the
same basis as described above.
External Board appointments
The Committee recognises that Executive Directors may be invited to become non-executive directors in other companies and
that these appointments can enhance their knowledge and experience to the benefit of the Company. It is the Company’s policy
that Board approval is required before any external appointment may be accepted by an Executive Director. The Executive
Director is permitted to retain any fees paid for such services.
Olivier Brousse is a non-executive director of 1001 Fontaines and of Brive Rugby Club. He does not receive any fees for these
appointments. Patrick O'D Bourke is a non-executive director of Affinity Water Limited and received fees of £47,000 in 2016
(£47,000 in 2015).
Remuneration for the Chairman and non-executive directors
Operation
Fee policy
The Chairman is paid an all-inclusive fee for all Board responsibilities.
The other non-executive directors receive a basic Board fee, with supplementary fees payable for additional Board
responsibilities (e.g. for Chairmanship of the Audit & Risk or Remuneration Committee or the role of Senior
Independent Director).
The non-executive directors do not participate in any of the Company’s incentive arrangements.
The maximum aggregate fee is set at £750,000 in the Company's Articles of Association. Current fee levels are set out
in the Annual Report on Remuneration on page 57. Fee levels are reviewed on a periodic basis, and may be increased
taking into account factors such as the time commitment of the role and market levels in companies of comparable
size and complexity and other broadly comparable companies.
The Chairman and the non-executive directors are entitled to reimbursement of reasonable expenses (and any tax
payable thereon).
The letter of appointment for the Chairman states that his appointment is expected to last for at least three years but
will be subject to annual re-election at the AGM. The appointment is terminable by either party giving to the other six
months’ written notice or at any time in accordance with the Articles of Association of the Company (without prejudice
to the Chairman’s right to receive six months’ payment in lieu of notice unless the removal is as a result of a serious
default on his part).
The appointments of the other non-executive directors are for initial terms of three years. The non-executive directors
are subject to annual re-election by the Company’s shareholders. Their appointments may be terminated at any time
upon written notice or in accordance with the Articles of Association of the Company or upon their resignation. The
non-executive directors are not entitled to receive any compensation on termination of their appointment.
Director
Date of letter of appointment*
Unexpired term at 31 December 2016
Expenses
Letters of
appointment
and policy on
termination
Dr Phil Nolan
16 January 2015
Jeremy Beeton
18 December 2014
Toby Hiscock
David Rough
16 January 2015
17 December 2014
13 months
13 months
13 months
13 months
Anne Wade
*The agreements were conditional on and did not become effective until the Company's admission to the Official List
on 17 February 2015.
17 December 2014
13 months
Recruitment
policy
For the appointment of a new Chairman or non-executive director, the fee arrangement would be set in accordance
with the approved Remuneration Policy in force at that time.
John Laing Annual Report and Accounts 2016 /
69
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are
required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as
adopted by the European Union (EU) and Article 4 of the IAS Regulation and have also chosen to prepare the parent company
financial statements under IFRS as adopted by the EU. Under company law the Directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company
for that period. In preparing these financial statements, International Accounting Standard 1 requires that the Directors:
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity's financial position and financial
performance; and
•
make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as
a whole;
the Strategic Report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that it faces; and
•
the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 6 March 2017 and is signed on its behalf by:
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Olivier Brousse
CHIEF EXECUTIVE OFFICER
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
6 March 2017
6 March 2017
/ John Laing Annual Report and Accounts 2016
70
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC
OPINION ON FINANCIAL STATEMENTS OF JOHN LAING GROUP PLC
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at
31 December 2016 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
The financial statements that we have audited comprise:
•
•
•
•
•
•
the Group Income Statement;
the Group Statement of Comprehensive Income;
the Group and Parent Company Balance Sheets;
the Group and Parent Company Statements of Changes in Equity;
the Group and Parent Company Cash Flow Statements; and
the related notes 1 to 25 of the Group financial statements and the related notes 1 to 13 of the Parent Company financial statements.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
SUMMARY OF OUR AUDIT APPROACH
Key risks
The key risks that we identified in the current year were:
• Valuation of investments
• Valuation of defined benefit pension schemes.
The above risks are consistent with the prior year. As part of the valuation of investments, we have paid particular
attention to the valuation of investments in the New Royal Adelaide Hospital and Manchester Waste projects
(being the Group’s investment in Manchester VL Co and Manchester TPS Co).
The materiality that we used in the current year was £19 million which is below 2% (2015 – 2%) of shareholders’
equity. We selected shareholders’ equity as net asset value is a key performance indicator for the Group.
Our audit scope primarily focused on the fair value of those PPP and Renewable Energy investments which are
significant to the Group. Specific audit procedures were performed on a sample of investments which comprised
78% (2015 – 85%) of the total valuation of investments. Other investments were subject to review procedures.
There have been no significant changes in our audit approach in the current year.
Materiality
Scoping
Significant changes
in our approach
John Laing Annual Report and Accounts 2016 /
71
GOING CONCERN AND THE DIRECTORS’ ASSESSMENT OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE
SOLVENCY OR LIQUIDITY OF THE GROUP
As required by the Listing Rules we have reviewed the directors’
statement regarding the appropriateness of the going concern basis of
accounting contained within note 2d to the Group financial statements
and the directors’ statement on the longer-term viability of the Group
contained within the strategic report on page 34.
We are required to state whether we have anything material to add or
draw attention to in relation to:
• the directors' confirmation on page 35 that they have carried out a
robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance,
solvency or liquidity;
• the disclosures on pages 35 to 40 that describe those risks and explain
how they are being managed or mitigated;
• the directors’ statement in note 2d to the Group financial statements
about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them and their identification
of any material uncertainties to the Group’s ability to continue to do so
over a period of at least twelve months from the date of approval of the
financial statements; and
• the directors’ explanation on page 34 as to how they have assessed the
prospects of the Group, over what period they have done so and why
they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
INDEPENDENCE
We are required to comply with the Financial Reporting Council’s Ethical
Standards for Auditors and confirm that we are independent of the Group
and we have fulfilled our other ethical responsibilities in accordance with
those standards.
We confirm that we have nothing material to add or
draw attention to in respect of these matters.
We agreed with the directors’ adoption of the going
concern basis of accounting and we did not identify
any such material uncertainties. However, because
not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s
ability to continue as a going concern.
We confirm that we are independent of the Group
and we have fulfilled our other ethical
responsibilities in accordance with those
standards. We also confirm we have not provided
any of the prohibited non-audit services referred to
in those standards.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC
(CONTINUED)
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts of the engagement team.
There have been no changes to the risks identified in the current year. However, we have paid particular attention to the
valuation of investments in the New Royal Adelaide Hospital and Manchester Waste projects (being the Group’s investment
in Manchester VL Co and Manchester Waste TPS Co).
VALUATION OF INVESTMENTS
Risk description
The Group holds a range of investments which primarily include PPP and renewable energy assets.
The total value of these assets at 31 December 2016 was £1,176 million (31 December 2015 – £841 million)
as disclosed in note 11 to the Group financial statements. These underlying assets are held across a range
of different sectors comprising Transport, Environmental (including Renewable Energy) and Social
Infrastructure, and a range of geographies including the UK, Europe, North America and Asia Pacific.
The valuation of investments is a significant judgement underpinned by a number of key assumptions and
estimates. These judgements include discount rates, forecast project cash-flows and macro-economic
assumptions such as future inflation and deposit rates. Many of these assumptions differ depending on both
the sector and geography of the project. A full internal valuation is prepared at June and December each
year and this valuation is incorporated into the financial statements. An independent opinion is obtained
from an external valuer that the portfolio as a whole represents fair value.
As disclosed on page 9 and of the strategic report and in note 2 to the Group financial statements, the New
Royal Adelaide Hospital project is experiencing construction delays and the Manchester Waste VL Co project
is experiencing increased counterparty risk. Consequently, there is increased judgement to be made around
the valuation of the investment in each project including the completion date of New Royal Adelaide Hospital
and the outcome of discussions with the Greater Manchester Waste Disposal Authority (GMWDA) on the
future of the Manchester Waste VL Co project.
More information on the valuation and valuation methodology (including the judgements associated with the
valuation of the investments in New Royal Adelaide Hospital and Manchester Waste) can be found on page
53 of the Audit & Risk Committee report and note 2 to the Group financial statements.
How the scope
of our audit
responded
to the risk
• We assessed the design and implementation of the controls in place when valuing the Group’s investments.
• We obtained evidence, including external market data, to substantiate key assumptions, including project
discount rate(s) and macro-economic assumptions such as forecast inflation and deposit rates.
• We benchmarked management’s discount rates against market transaction data, including the Group’s
disposals in the current and previous period. We performed this work in conjunction with our own
valuation specialists.
• On the valuation of the New Royal Adelaide Hospital and Manchester Waste investments we reviewed,
where relevant, the legal advice obtained and held discussions with the Group’s external legal counsel,
reviewed contractual documentation and held discussions with the directors of each project company to
understand and challenge the key judgements in valuing each project.
• We met with the Group’s external valuer to understand and challenge the process undertaken by them in
arriving at their opinion that the portfolio as a whole represents fair value. We also assessed the
competency and independence of the external valuer.
• We checked that the disclosures in the financial statements were appropriate particularly in respect of
the judgements taken.
Key observations No material matters were identified arising from our audit work. We consider the judgements adopted in
valuing the Group’s investments to be appropriate. We also consider the disclosures around the valuation of
investments to be appropriate.
John Laing Annual Report and Accounts 2016 /
73
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
(CONTINUED)
VALUATION OF DEFINED BENEFIT PENSION SCHEMES
Risk description
The Group has two defined benefit pension schemes (The John Laing Pension Fund and The John Laing
Pension Plan) which had a combined deficit of £61 million at 31 December 2016 (£39 million at
31 December 2015).
The valuation of the deficit is subject to a number of judgements including the adoption of the appropriate
(i) discount rates (ii) inflation rates and (iii) mortality rate assumptions.
There is also a judgement concerning the Group’s ability to recover a surplus under the scheme rules and
consequently the consideration of minimum funding requirements under IFRIC 14 ‘The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction’.
See note 18 to the Group financial statements for further information and page 53 of the Audit & Risk
Committee report.
How the scope
of our audit
responded
to the risk
• We assessed the design and implementation of the controls in place when valuing the Group’s defined
benefit pension schemes including the setting of actuarial assumptions.
• In conjunction with our internal actuarial specialists, we compared the Group’s key assumptions,
including the discount rate, mortality rate assumptions and the inflation rates against our own
benchmarks and those adopted by other companies in the market.
• We audited the scheme assets via agreement to external confirmations from the custodian and also
agreed a sample of scheme assets back to independent market data. We also obtained and reviewed the
AAF 01/06/ISAE 3402 assurance report on internal controls for each custodian to assess if there were any
matters which impact our work.
• In assessing the impact of IFRIC 14, we examined the nature of the Group’s funding commitments to the
schemes and reviewed the scheme rules, the external legal advice obtained by management and the
actuarial schedule of contributions.
• We checked that the disclosure requirements of IAS 19R Employee Benefits had been fulfilled.
Key observations No material matters were identified arising from our audit work. We consider the judgements adopted by
the Group in valuing the pension scheme liabilities to be appropriate and concur that the Group has the
ability to recover any surplus under the rules of the John Laing Pension Fund and consequently is not
subject to a minimum funding requirement under IFRIC 14. We also consider the disclosures around the
valuation of the defined benefit pension schemes to be appropriate.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
OUR APPLICATION OF MATERIALITY
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
£19 million (2015 – £16 million)
Basis for determining materiality
Below 2% of shareholders’ equity
Rationale for the benchmark applied
Shareholders’ equity was selected as net asset value is a key performance indicator for the
Group. This is consistent with the prior year.
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of £500,000
(2015 – £320,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit & Risk Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JOHN LAING GROUP PLC
(CONTINUED)
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit scope primarily focused on the fair value of those PPP and Renewable Energy investments which are significant to the
Group. Audit work was performed on a sample of investments which comprised 78% (2015 – 85%) of the total valuation of
investments. Other investments were subject to review procedures.
We made enquiries of the auditors of a sample of investments as to whether they were aware of any matters which may impact
the fair value of those investments.
Our audit work on those subsidiaries which provide asset management services and which are consolidated in the Group
financial statements was executed at a materiality lower than Group materiality.
At the Group level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining subsidiaries
not subject to audit or audit of specified account balances.
The Group audit team has initiated a programme of planned visits that has been designed so that it visits a sample of the Group’s
investments each year with a specific focus on visiting the Group’s largest investments by value. This year the Group audit team
visited one of the Group’s investments. The Group audit team visited four of the Group’s investments in the prior year.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006;
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have
not identified any material misstatements in the Strategic Report and the Directors’ Report.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
We have nothing to
report in respect of
these matters.
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our
audit have not been received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records and returns
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made or the part of the Directors’ Remuneration Report
to be audited is not in agreement with the accounting records and returns.
We have nothing to
report arising from
these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate Governance Statement
relating to the Company’s compliance with certain provisions of the UK Corporate Governance Code.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our
opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group
acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our
knowledge acquired during the audit and the directors’ statement that they consider the annual report is fair,
balanced and understandable and whether the annual report appropriately discloses those matters that we
communicated to the Audit & Risk Committee which we consider should have been disclosed.
We have nothing to
report arising from
these matters.
We confirm that
we have not
identified any such
inconsistencies
or misleading
statements.
John Laing Annual Report and Accounts 2016 /
75
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).
We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to
ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our
dedicated professional standards review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and
have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial
information in the annual report to identify material inconsistencies with the audited financial statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the
implications for our report.
Claire Faulkner FCA (Senior statutory auditor)
FOR AND ON BEHALF OF DELOITTE LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITOR
LONDON, UNITED KINGDOM
6 March 2017
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GROUP INCOME STATEMENT
for the year ended 31 December 2016
Continuing operations
Net gain on investments at fair value through profit or loss
Other income
Operating income
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Finance costs
Profit before tax
Tax charge
Profit from continuing operations
Discontinued operations
Profit from discontinued operations (after tax)
Profit for the year attributable to the Shareholders of the Company
Earnings per share (pence)
From continuing operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted
Year ended
31 December 2016
Statutory
£ million
Notes
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
11
6
3
7
9
3
10
4
4
4
4
218.8
42.0
260.8
–
260.8
(58.4)
202.4
(10.3)
192.1
(1.8)
190.3
–
190.3
51.9
51.4
51.9
51.4
133.1
34.5
167.6
(0.1)
167.5
(55.3)
112.2
(11.3)
100.9
(2.1)
98.8
5.7
104.5
27.6
27.5
29.2
29.1
129.7
31.5
161.2
(0.1)
161.1
(52.3)
108.8
(11.3)
97.5
(2.1)
95.4
5.7
101.1
28.3
28.2
30.0
29.9
John Laing Annual Report and Accounts 2016 /
77
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2016
Profit for the year
Exchange differences on translation of overseas operations
Actuarial (loss)/gain on retirement benefit obligations
Other comprehensive (loss)/income for the year
Total comprehensive income for the year
Year ended
31 December 2016
Statutory
£ million
Notes
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
18
190.3
0.3
(39.2)
(38.9)
151.4
104.5
–
15.8
15.8
120.3
101.1
–
39.0
39.0
140.1
The only movement which could subsequently be recycled to the Group Income Statement is the exchange difference on
translation of overseas operations.
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GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
STATUTORY
Notes
Share capital
£ million
Share premium
£ million
Other reserves Retained earnings
£ million
£ million
Total equity
£ million
Balance at 1 January 2016
Profit for the year
Other comprehensive loss for the year
Total comprehensive income for the year
Share-based incentives
Dividends paid
5
36.7
–
–
–
–
–
218.0
–
–
–
–
–
Balance at 31 December 2016
36.7
218.0
0.7
–
–
–
2.0
–
2.7
634.2
190.3
(38.9)
151.4
–
(26.2)
759.4
889.6
190.3
(38.9)
151.4
2.0
(26.2)
1,016.8
for the year ended 31 December 2015
PRO FORMA
Balance at 1 January 2015
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Shares issued in the year
Costs associated with the issue of shares
Share-based incentives
Dividends paid
Balance at 31 December 2015
STATUTORY
Balance at 1 January 2015
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Shares issued in the year
Costs associated with the issue of shares
Reduction of share premium account
Share-based incentives
Dividends paid
Balance at 31 December 2015
20, 21
21
5
20, 21
21
21
5
Share capital
£ million
Share premium
£ million
Other reserves Retained earnings
£ million
£ million
Total equity
£ million
30.0
–
–
–
6.7
–
–
–
36.7
100.0
–
–
–
123.8
(5.8)
–
–
218.0
–
–
–
–
–
–
0.7
–
0.7
519.8
104.5
15.8
120.3
–
–
–
(5.9)
634.2
649.8
104.5
15.8
120.3
130.5
(5.8)
0.7
(5.9)
889.6
Share capital
£ million
Share premium
£ million
Other reserves Retained earnings
£ million
£ million
Total equity
£ million
–
–
–
–
36.7
–
–
–
–
36.7
–
–
–
–
723.8
(5.8)
(500.0)
–
–
218.0
–
–
–
–
–
–
–
0.7
–
0.7
–
101.1
39.0
140.1
–
–
500.0
–
(5.9)
634.2
–
101.1
39.0
140.1
760.5
(5.8)
–
0.7
(5.9)
889.6
Dividends on ordinary shares
Per ordinary share:
– interim paid
– final proposed
Year ended
31 December
2016
Pence
Year ended
31 December
2015
Pence
1.85
6.30
1.60
5.30
GROUP BALANCE SHEET
as at 31 December 2016
Non-current assets
Intangible assets
Plant and equipment
Investments at fair value through profit or loss
Deferred tax assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Current tax liabilities
Borrowings
Trade and other payables
Liabilities directly associated with assets classified as held for sale
Net current liabilities
Non-current liabilities
Retirement benefit obligations
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to the Shareholders of the Company
John Laing Annual Report and Accounts 2016 /
79
31 December
2016
Statutory
£ million
31 December
2015
Statutory
£ million
Notes
11
17
12
14
13
18
19
20
21
–
0.3
1,257.5
1.0
1,258.8
7.4
1.6
9.0
0.2
1.0
965.3
1.4
967.9
8.3
1.1
9.4
1,267.8
977.3
(4.1)
(161.4)
(14.7)
(180.2)
–
(171.2)
(69.3)
(1.5)
(70.8)
(251.0)
1,016.8
36.7
218.0
2.7
759.4
1,016.8
(2.7)
(14.9)
(19.6)
(37.2)
(4.2)
(32.0)
(46.2)
(0.1)
(46.3)
(87.7)
889.6
36.7
218.0
0.7
634.2
889.6
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The financial statements of John Laing Group plc, registered number 05975300, were approved by the Board of Directors and
authorised for issue on 6 March 2017. They were signed on its behalf by:
Olivier Brousse
CHIEF EXECUTIVE OFFICER
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
6 March 2017
6 March 2017
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80
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2016
Year ended
31 December 2016
Statutory
£ million
Notes
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
Net cash outflow from operating activities
Investing activities
Net cash transferred to investments held at fair value through profit or loss
22
11
Cash acquired on acquisition of subsidiaries
Purchase of plant and equipment
Net cash used in investing activities
Financing activities
Dividends paid
Finance costs paid
Proceeds from borrowings
Repayment of borrowings
Net proceeds on issue of share capital
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
(37.1)
(70.5)
(70.5)
(73.4)
(54.0)
–
(0.1)
(73.5)
(26.2)
(8.9)
165.0
(19.0)
–
110.9
0.3
1.1
0.2
1.6
–
(0.6)
(54.6)
(5.9)
(13.7)
50.0
(31.0)
124.7
124.1
(1.0)
2.2
(0.1)
1.1
(54.0)
2.2
(0.6)
(52.4)
(5.9)
(13.7)
50.0
(31.0)
124.7
124.1
1.2
–
(0.1)
1.1
John Laing Annual Report and Accounts 2016 /
81
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
1 GENERAL INFORMATION
The statutory and pro forma results of John Laing Group plc (the “Company” or the “Group”) are stated according to the
basis of preparation described below. The registered office of the Company is 1 Kingsway, London, WC2B 6AN. The principal
activity of the Company is the origination, investment in and management of international infrastructure projects.
Statutory and pro forma financial information is presented in pounds sterling and prepared in accordance with IFRS as
adopted by the EU.
2 ACCOUNTING POLICIES
a) Basis of preparation
Statutory financial information for the year ended 31 December 2016 is presented in the Group Income Statement, the
Group Statement of Comprehensive Income and the Group Statement of Changes in Equity alongside comparative pro
forma and statutory financial information for the year ended 31 December 2015. The comparative pro forma financial
information was prepared on the basis that the restructuring associated with the Company’s admission to listing in
February 2015, as described in more detail in the Financial Review section of the 2015 Annual Report, had been in place
throughout the year ended 31 December 2015. Both the Group Balance Sheet at 31 December 2016 and at 31 December
2015 are presented on a statutory basis. There is no difference in the statutory and pro forma Group Balance Sheet for
31 December 2015. In the opinion of the Directors, presenting pro forma information for 2015 was necessary in order
to give a true and fair view of the state of the Company’s affairs for that year. This is the last year for which pro forma
financial information will be presented.
The financial statements have been prepared on an investment entity basis (see note 2c) and in accordance with the
historical cost convention except for the revaluation of the investment portfolio and financial instruments that are
measured at fair value at the end of each reporting period, as explained in the accounting policies.
b) Adoption of new and revised standards
The Group has adopted the following amendments to IFRS in the current year, none of which has had a material impact
on the financial statements:
• Amendments resulting from the September 2014 Annual Improvements to IFRS
• Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and
IAS 28 Investments in Associates and Joint Ventures – amendments regarding the consolidation exception
• Amendments to IFRS 11 Joint Arrangements – amendments regarding the accounting for acquisitions of an interest
in joint operation
• Amendments to IAS 1 Presentation of Financial Statements – Disclosure initiative
• Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets – amendments regarding the
clarification of acceptable methods of depreciation
At the date of authorisation of these financial statements, there are a number of standards and interpretations which
are in issue but not yet effective and in some cases have not yet been adopted by the EU. These include:
Issued and endorsed by the EU
• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contracts with Customers
Issued and not endorsed by the EU
• IFRS 16 Leases
• Amendments to IAS 7 Statement of Cash flows – amendments as a result of the Disclosure initiatives
• Amendments to IAS 12 Income Taxes – amendments regarding the recognition of deferred tax assets for unrealised losses
• Amendments resulting from the Annual Improvements to IFRS 2014-2016 cycle
• Amendments to IFRS 2 Share Based Payments – amendments to clarify the classification and measurement of
share-based payment transactions.
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82
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
2 ACCOUNTING POLICIES
(CONTINUED)
b) Adoption of new and revised standards (continued)
While the Group is still undertaking an assessment of the impact of the new standards, it is not anticipated that they will have
a material impact on the Group with the exception that the adoption of IFRS 15 may lead to further disclosure within the
financial statements. IFRS 16 is not expected to have a significant impact as the Group does not have any material leases.
IFRS 9 Financial Instruments, when it becomes effective, will have an impact on the classification and disclosure of
financial instruments.
The principal accounting policies applied in the preparation of these Group financial statements are set out below. These
policies have been applied consistently to each of the years presented, unless otherwise stated.
c) Application of investment entity guidance
The Company meets the definition of an investment entity set out in IFRS 10. Investment entities are required to account
for all investments in controlled entities, as well as investments in associates and joint ventures, at fair value through
profit or loss (FVTPL), except for those directly-owned subsidiaries that provide investment related services or engage in
permitted investment related activities with investees (Service Companies). Service Companies are consolidated rather
than recorded at FVTPL.
For details of the subsidiaries that are consolidated, see note 13 to the Company financial statements.
d) Going concern
The Directors have reviewed the Group’s financial projections and cash flow forecasts and believe, based on those
projections and forecasts, that it is appropriate to prepare the financial statements of the Group on the going
concern basis.
In arriving at their conclusion, the Directors took into account the Group’s approach to liquidity and cash flow
management and the availability of its £400.0 million corporate banking facilities committed until March 2020 and of its
£50.0 million surety facilities committed until March 2018. The Directors are of the opinion that, based on the Group’s
forecasts and projections and taking into account expected bidding activity and operational performance, the Group will
be able to operate within its bank facilities and comply with the financial covenants therein for the foreseeable future.
In determining that the Group is a going concern, certain risks and uncertainties, some of which arise or increase as a
result of the economic environment in some of the Group’s markets, have been considered. The Directors believe that the
Group is adequately placed to manage these risks. The most important risks and uncertainties identified and considered
by the Directors are set out in the Principal Risks and Risk Management section. In addition, the Group's policies for
management of its exposure to financial risks, including liquidity, foreign exchange, credit, price and interest rate risks
are set out in note 16.
e) Dividend income
Dividend income from investments at FVTPL is recognised when the shareholders’ rights to receive payment have been
established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can
be measured reliably). Dividend income is recognised gross of withholding tax, if any, and only when approved and paid
by the project company.
f) Dividend payments
Dividends on the Company’s ordinary shares are recognised when they have been appropriately authorised and are no
longer at the Company’s discretion. Accordingly, interim dividends are recognised when they are paid and final dividends
are recognised when they are declared following approval by shareholders at the Company’s AGM. Dividends are
recognised as an appropriation of shareholders’ funds.
g) Net gain on investments at FVTPL
Net gain on investments at FVTPL excludes dividend income referred to above. Please refer to accounting policy i)(i) for
further detail.
John Laing Annual Report and Accounts 2016 /
83
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
2 ACCOUNTING POLICIES
(CONTINUED)
h) Other income
(i) Fees from asset management services
The Group earns income from the following sources:
Fees from asset management services to projects in which the Group invests and to external parties are recognised
as the services are provided in accordance with IAS 18 Revenue.
(ii) Recovery of bid costs on financial close
When it is probable that the expected outcome over the life of a management services contract will result in a net
outflow of economic benefits or overall loss, a provision is recognised immediately. The provision is determined based
on the net present value of the expected future cash inflows and outflows.
Bid costs in respect of primary investments are charged to the Group Income Statement until such time as the Group
is virtually certain that it will recover the costs. Virtual certainty is generally achieved when an agreement is in place
demonstrating that costs are fully recoverable even in the event of cancellation of a project. From the point of virtual
certainty, bid costs are held in the Group Balance Sheet as a debtor prior to achieving financial close. On financial
close, the Group recovers bid costs by charging a fee to the relevant project company in the investment portfolio.
Other income excludes the value of intra-group transactions and VAT and includes revenue derived from the provision
of services by Service Companies to project companies which are held at FVTPL.
i) Financial instruments
Financial assets and financial liabilities are recognised on the Group Balance Sheet when the Group becomes a party to
the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash
flows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance
with IAS 39 Financial Instruments: Recognition and Measurement and IFRS 13 Fair Value Measurement.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at
FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
(i) Financial assets
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL
are recognised immediately in profit or loss.
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset
is under a contract whose terms require delivery of the financial asset within the timeframe established by the
market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets
classified as at FVTPL, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets at FVTPL; ‘held-to-maturity’
investments; ‘available-for-sale’ financial assets; or ‘loans and receivables’. The classification depends on the nature
and purpose of the financial assets and is determined at the time of initial recognition.
The financial assets that the Group holds are classified as financial assets at FVTPL and loans and receivables:
• Financial assets at FVTPL comprise the Group’s investment in John Laing Holdco Limited (through which the
Group holds its investments) which is valued based on the fair value of investments in project companies, the
Group’s investment in JLEN and other assets and liabilities of investment entity subsidiaries. Investments in
project companies and in JLEN are designated upon initial recognition as financial assets at FVTPL. Subsequent
to initial recognition, investments in project companies are measured on a combined basis at fair value principally
using discounted cash flow methodology. The investment in JLEN is valued at the quoted market price at the end
of the period.
The Directors consider that the carrying value of other assets and liabilities held in investment entity subsidiaries
approximates to their fair value, with the exception of derivatives which are measured in accordance with accounting
policy i(v).
Changes in the fair value of the Group’s investment in John Laing Holdco Limited are recognised within operating
income in the Group Income Statement.
• Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
on an active market. Loans and receivables are measured at amortised cost using the effective interest method,
less any impairment. Interest income is recognised by applying the effective interest rate, except for short term
receivables when the recognition of interest would be immaterial. Loans and receivables are included in current
assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current
assets. The Group's loans and receivables comprise 'trade and other receivables' and 'cash and cash equivalents'
in the Group Balance Sheet.
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/ John Laing Annual Report and Accounts 2016
84
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
2 ACCOUNTING POLICIES
(ii) Impairment of financial assets
i) Financial instruments (continued)
(CONTINUED)
Financial assets, other than those at FVTPL, are assessed for indications of impairment at each balance sheet date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events which have
occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have
been affected. For financial assets carried at amortised cost, the amount of the impairment is the difference between
the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s
original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss.
(iii) Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or
when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another
entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues
to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for
amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing
for the proceeds received.
(iv) Financial liabilities
Interest-bearing bank loans and borrowings are initially recorded at fair value, being the proceeds received net of
direct issue costs, and subsequently at amortised cost using the effective interest rate method. Finance charges,
including premiums payable on settlement or redemption, and direct issue costs are accounted for on an accruals
basis in the Group Income Statement and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
Other non-derivative financial instruments are measured at amortised cost using the effective interest method less
any impairment losses.
(v) Derivative financial instruments
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled
or they expire.
The Group treats forward foreign exchange contracts and currency swap deals it enters into as derivative financial
instruments at FVTPL. Changes in the fair value of these instruments are taken through the Group Income Statement.
j) Provisions
Provisions are recognised when:
• the Group has a legal or constructive obligation as a result of past events;
• it is probable that an outflow of resources will be required to settle the obligation; and
• the amount has been reliably estimated.
Where there are a number of similar obligations, the likelihood that an outflow will be required on settlement is
determined by considering the class of obligations as a whole.
k) Finance costs
Finance costs relating to the corporate banking facilities, other than set-up costs, are recognised in the year in which
they are incurred. Set-up costs are recognised over the remaining facility term.
Finance costs also include the net interest cost on retirement benefit obligations and the unwinding of discounting
of provisions.
John Laing Annual Report and Accounts 2016 /
85
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
2 ACCOUNTING POLICIES
(CONTINUED)
l) Taxation
Current tax
The tax charge or credit represents the sum of tax currently payable and deferred tax.
Current tax payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Group
Income Statement because it excludes both items of income or expense that are taxable or deductible in other years and
Deferred tax
items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been
enacted, or substantively enacted, by the balance sheet date.
Deferred tax liabilities are recognised in full for taxable temporary differences. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will arise to allow all or part of the assets to be recovered. Deferred
tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited to the Group Income Statement except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets and
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
m) Foreign currencies
The individual financial statements of each Group subsidiary that is consolidated (i.e. a Service Company) are presented
in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of
the financial statements, the results and financial position of each Group subsidiary are expressed in pounds sterling,
the functional currency of the Company and the presentation currency of the financial statements.
Monetary assets and liabilities expressed in foreign currency (including investments measured at fair value) are reported
at the rate of exchange prevailing at the balance sheet date or, if appropriate, at the forward contract rate. Any difference
arising on the retranslation of these amounts is taken to the Group Income Statement with foreign exchange movements
on investments measured at fair value recognised in operating income as part of net gain on investments at FVTPL.
Income and expense items are translated at the average exchange rates for the period.
n) Non-current assets held for sale and discontinued operations
Where a disposal group represents a separate major line of business or geographical area of operations, or is part of a
single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, it is treated
as a discontinued operation. The post-tax profit or loss of this discontinued operation together with the gain or loss
recognised on its disposal is shown as a single amount on the face of the Group Income Statement, with all historical
financial periods being presented on this basis.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less
costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount is
recoverable through a sale rather than through continuing use. This condition is regarded as having been met only when
the sale is highly probable, the asset (or disposal group) is available for immediate sale in its present condition and the
sale is completed within one year of the date of its classification.
o) Retirement benefit costs
The Group operates both defined benefit and defined contribution pension arrangements. Its two defined benefit pension
schemes are the John Laing Pension Fund (JLPF) and the John Laing Pension Plan, which are both closed to future
accrual. The Group also provides post-retirement medical benefits to certain former employees.
Payments to defined contribution pension arrangements are charged as an expense as they fall due. For the defined
benefit pension schemes and the post-retirement medical benefit scheme, the cost of providing benefits is determined
in accordance with IAS 19: Employee Benefits (revised) using the projected unit credit method, with actuarial valuations
being carried out at least every three years. Actuarial gains and losses are recognised in full in the year in which they
occur and are presented in the Group Statement of Comprehensive Income. Curtailment gains arising from changes
to members’ benefits are recognised in full in the Group Income Statement.
The retirement benefit obligations recognised in the Group Balance Sheet represent the present value of: (i) defined
benefit scheme obligations as adjusted for unrecognised past service costs and reduced by the fair value of scheme
assets, where any asset resulting from this calculation is limited to past service costs plus the present value of available
refunds and reductions in future contributions to the schemes; and (ii) unfunded post-retirement medical benefits.
Net interest expense or income is recognised within finance costs.
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/ John Laing Annual Report and Accounts 2016
86
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
2 ACCOUNTING POLICIES
(CONTINUED)
p) Cash and cash equivalents
Cash and cash equivalents in the Group Balance Sheet comprise cash at bank and in hand and short term deposits with
original maturities of three months or less. For the purposes of the Group Cash Flow Statement, cash and cash
equivalents comprise cash and short term deposits as defined above, net of bank overdrafts.
Deposits held with original maturities of greater than three months are shown as other financial assets.
q) Leasing
All leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight
line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
r) Share capital
Ordinary shares are classified as equity instruments on the basis that they evidence a residual interest in the assets of
the Group after deducting all its liabilities.
Incremental costs directly attributable to the issue of new ordinary shares are recognised in equity as a deduction, net of
tax, from the proceeds in the period in which the shares are issued.
s) Employee benefit trust
In June 2015, the Group established the John Laing Group Employee Benefit Trust (EBT) as described further in note 5.
The Group is deemed to have control of the EBT and it is therefore treated as a subsidiary and consolidated for the
purposes of the accounts. Any investment by the EBT in the parent company’s shares is deducted from equity in the
Group Balance Sheet as if such shares were treasury shares. No investment was made in the year. Other assets and
liabilities of the EBT are recognised as assets and liabilities of the Group.
Any shares held by the EBT are excluded for the purposes of calculating earnings per share.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and
assumptions about the carrying value of assets and liabilities. The key areas of the financial statements where the Group is
Fair value of investments
required to make critical judgements and material accounting estimates are in respect of the fair value of investments and
accounting for the Group’s defined benefit pension liabilities.
Critical judgements in applying the Group’s accounting policies
The Company measures its investment in John Laing Holdco Limited at fair value. Fair value is determined based on the fair
value of investments in project companies and the Group’s investment in JLEN (together the Group’s investment portfolio)
and other assets and liabilities of investment entity subsidiaries. A valuation of the Group’s investment portfolio is prepared
on a consistent, principally discounted cash flow basis at 30 June and 31 December. The valuation (excluding the investment
in JLEN) assumes that forecast cash flows are received until maturity of the underlying assets. The cash flows on which the
discounted cash flow valuation is based are those forecast to be distributable to the Group at each balance sheet date,
derived from detailed project financial models. These incorporate a number of assumptions with respect to individual assets,
including: dates for construction completion; value enhancements; the terms of project debt refinancing (where applicable);
Key sources of estimation uncertainty
the outcome of any disputes; the level of volume-based revenue; and, for renewable energy projects, future energy prices.
Value enhancements are only incorporated when the Group has sufficient evidence that they can be realised.
A key source of estimation uncertainty in valuing the investment portfolio is the discount rate applied to forecast project cash
flows. A base case discount rate for an operational project is derived from secondary market information and other available
data points. The base case discount rate is then adjusted to reflect project-specific risks. In addition, risk premia are added
during the construction phase to reflect the additional risks throughout construction. These premia reduce over time as the
project progresses through its construction programme, reflecting the significant reduction in risk once the project reaches
the operating stage. The discount rates applied to investments at 31 December 2016 were in the range of 7.0% to 11.6%
(31 December 2015 – 7.3% to 12.3%). Further detail on key assumptions underpinning the valuation of the investments
(including sensitivities) can be found in note 16.
As part of the valuation of the investment portfolio at 31 December 2016, the Group has valued its investments in New Royal
Adelaide Hospital and in Manchester Waste VL Co. This has involved making assumptions as to the outcome of the current
situations relating to each investment, as described in the Chief Executive Officer’s Review on page 8. Both situations are
dependent on future events and therefore carry an element of uncertainty. In the case of the investment in New Royal
Adelaide Hospital, the main judgement underlying the Group’s valuation is an assumption that the hospital reaches
commercial acceptance in mid 2017. In the case of Manchester Waste VL Co, the Group’s valuation is based on the assumption
that a resolution is reached with GMWDA which is commercially acceptable to Manchester Waste VL Co and which has a
minimal impact on Manchester Waste TPS Co.
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
John Laing Annual Report and Accounts 2016 /
87
2 ACCOUNTING POLICIES
Pension and other post-retirement liability accounting
(CONTINUED)
Critical accounting judgements and key sources of estimation uncertainty (continued)
Critical judgements in applying the Group’s accounting policies
The combined accounting deficit in the Group’s defined benefit pension and post-retirement medical schemes at
31 December 2016 was £69.3 million (31 December 2015 – £46.2 million). In determining the Group’s defined benefit pension
liability, consideration is also given to whether there is a minimum funding requirement under IFRIC 14 The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction which is in excess of the IAS 19 Employee
Benefits liability. If the minimum funding requirement is higher, an additional liability would need to be recognised. Under
Key sources of estimation uncertainty
the trust deed and rules of JLPF, the Group has an ultimate unconditional right to any surplus, accordingly the excess of the
minimum funding requirement over the IAS 19 Employee Benefits liability has not been recognised as an additional liability.
The value of the pension deficit is highly dependent on key assumptions including price inflation, discount rate and life
expectancy. The assumptions applied at 31 December 2016 and the sensitivity of the pension liabilities to certain changes in
these assumptions are illustrated in note 18.
3 OPERATING SEGMENTS
Information is reported to the Group's Board (the chief operating decision maker under IFRS 8 Operating Segments) for the
purposes of resource allocation and assessment of segment performance based on the category of activities undertaken
within the Group. The principal categories of activity, and thus the reportable segments under IFRS 8 Operating Segments,
are: Primary Investment, Secondary Investment and Asset Management.
The results included within each of the reportable segments comprise:
Primary Investment – costs and cost recoveries associated with originating, bidding for and winning greenfield infrastructure
and renewable energy projects; investment returns from and growth in the value of the Primary Investment portfolio, net of
associated costs.
Secondary Investment – investment returns from and growth in the value of the Secondary Investment portfolio, net of
associated costs.
Asset Management – fee income and associated costs from investment management services in respect of both the Primary
and Secondary Investment portfolios and in respect of JLIF's and JLEN's portfolios and the PPP assets in JLPF’s portfolio
plus fee income and associated costs from project management services.
The Board's primary measure of profitability for each segment is profit before tax.
The Board does not monitor on an ongoing basis the results of the Group on a geographical basis. An analysis of the Group’s
investments at FVTPL by foreign currency can be found in note 16.
The following is an analysis of the Group's profit before tax and operating income for the years ended 31 December 2016 and
31 December 2015:
Year ended 31 December 2016
Reportable segments
Primary
Investment
£ million
Secondary
Asset
Investment Management
£ million
£ million
Segment
Sub-total
£ million
Inter-
segment
£ million
Non-
segmental
results
£ million
Total
£ million
Continuing operations
Net gain on investments at FVTPL
Other income
Operating income
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Finance costs
Profit before tax from continuing operations
Profit before tax – statutory
144.4
7.5
151.9
–
151.9
(33.3)
118.6
(5.5)
113.1
113.1
66.9
–
66.9
–
66.9
(7.6)
59.3
(2.2)
57.1
57.1
–
47.4
47.4
–
211.3
54.9
266.2
–
(14.7)
(14.7)
–
–
47.4
266.2
(14.7)
7.5
1.8
9.3
–
9.3
218.8
42.0
260.8
–
260.8
(27.5)
(68.4)
14.7
(4.7)
(58.4)
19.9
197.8
–
19.9
19.9
(7.7)
190.1
190.1
–
–
–
–
4.6
202.4
(2.6)
(10.3)
2.0
2.0
192.1
192.1
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88
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
3 OPERATING SEGMENTS
(CONTINUED)
Reportable segments
Year ended 31 December 2015
Primary
Investment
£ million
Secondary
Asset
Investment Management
£ million
£ million
Segment
Sub-total
£ million
Inter-
segment
£ million
Non-
segmental
results
£ million
Total
£ million
Continuing operations
Net gain on investments at FVTPL
Other income
Operating income
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Finance costs
Profit before tax from continuing operations
Profit before tax from discontinued operations
Profit before tax – pro forma
Reconciliation to statutory results:
Fair value loss on acquisition
of John Laing Holdco Limited
Profit before tax – statutory
82.9
3.4
86.3
–
86.3
(29.3)
57.0
(6.3)
50.7
49.4
–
49.4
–
49.4
(5.9)
43.5
(0.5)
43.0
–
42.4
42.4
–
132.3
45.8
178.1
–
(12.0)
(12.0)
–
–
42.4
178.1
(12.0)
(26.9)
(62.1)
12.0
15.5
116.0
–
(6.8)
15.5
109.2
–
–
–
0.8
0.7
1.5
(0.1)
1.4
(5.2)
(3.8)
(4.5)
(8.3)
133.1
34.5
167.6
(0.1)
167.5
(55.3)
112.2
(11.3)
100.9
5.7
106.6
(3.4)
103.2
Non-segmental results include results from corporate activities and discontinued operations.
For the year ended 31 December 2016, more than 10% of operating income was derived from the IEP (Phase 1) and A1
Gdansk Poland projects (year ended 31 December 2015 – IEP (Phase 1)).
The Group's investment portfolio, comprising investments in project companies and a listed fund included within investments
at FVTPL (see note 11) is allocated between primary and secondary investments. The Primary Investment portfolio includes
investments in projects which are in the construction phase. The Secondary Investment portfolio includes investments in
operational projects.
Segment assets
Primary Investment
Secondary Investment
Total investment portfolio
Other investments
Other assets and liabilities
Total investments at FVTPL
Other assets
Total assets
Retirement benefit obligations
Other liabilities
Total liabilities
Group net assets
31 December
2016
£ million
31 December
2015
£ million
696.3
479.6
1,175.9
0.3
81.3
1,257.5
10.3
1,267.8
(69.3)
(181.7)
(251.0)
1,016.8
405.9
435.5
841.4
0.5
123.4
965.3
12.0
977.3
(46.2)
(41.5)
(87.7)
889.6
Other assets and liabilities above include cash and cash equivalents, trade and other receivables less trade and other
payables within recourse group investment entity subsidiaries.
John Laing Annual Report and Accounts 2016 /
89
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
4 EARNINGS PER SHARE
The calculation of basic earnings per share is based on the following data:
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
Earnings
Profit from continuing operations for the purpose of basic and
diluted earnings per share
Profit from discontinued operations for the purpose of basic and
diluted earnings per share – 5.7 5.7
190.3
95.4
98.8
Profit for the year 190.3 104.5 101.1
Number of shares
Weighted average number of ordinary shares for
the purpose of basic earnings per share
Dilutive effect of ordinary shares potentially issued under
share-based incentives (note 5) 3,313,330 1,255,857 1,255,857
366,923,076
358,305,584
336,935,722
Weighted average number of ordinary shares for the
purpose of diluted earnings per share 370,236,406 359,561,441 338,191,579
Earnings per share from continuing operations (pence/share)
Basic
Diluted
Earnings per share from continuing and discontinued operations (pence/share)
Basic
Diluted
51.9
51.4
51.9
51.4
27.6
27.5
29.2
29.1
28.3
28.2
30.0
29.9
5 SHARE-BASED INCENTIVES
Long-term incentive plan
The Group operates share-based incentive arrangements for Executive Directors, senior executives and other eligible
employees under which awards are granted over the Company's ordinary shares. Awards are conditional on the relevant
employee completing three years' service (the vesting period). The awards vest three years from the grant date, subject to
the Group achieving a target share-based performance condition, total shareholder return (50% of the award), and a non-
market based performance condition, NAV growth per share (50% of the award). The Group has no legal or constructive
obligation to repurchase or settle the awards in cash.
The movement in the number of shares awarded is as follows:
At 1 January
Granted
Lapsed
At 31 December
Number of shares awarded
2015
2016
1,763,030
2,094,460
(83,160)
–
1,795,830
(32,800)
3,774,330
1,763,030
The weighted average fair value of awards granted during the year was 167.25 pence per share (2015 – 130.89p) for the
market-based performance condition, determined using the Stochastic valuation model, and 226.49 pence per share (2015 –
218.11p) for the non-market based performance condition determined using the Black Scholes model. The weighted average
fair value of awards granted during the year from both models is 196.87 pence per share (2015 – 174.46p). The significant
inputs into the model were the weighted average share price of 226.5 pence (2015 – 219.5p) at the grant date, expected
volatility of 12.55% (2015 – 14.17%), expected dividend yield of 3.10% (2015 – 2.17%), an expected award life of three years
and an annual risk-free interest rate of 0.4% (2015 – 0.68%). The volatility measured at the standard deviation of continuously
compounded share returns is based on statistical analysis of daily share prices over three years.
The total expense recognised in the Group Income Statement for awards granted under share-based incentive arrangements
for the year ended 31 December 2016 was £2.0 million (2015 – £0.7 million).
Of the 3,774,330 outstanding awards (2015 – 1,763,030), none were exercisable at 31 December 2016 (2015 – nil). The
weighted average exercise price of the awards granted during 2016 was £nil (2015 – £nil). There were no awards forfeited,
exercised or expired during the year ended 31 December 2016 (2015 – nil). During the year ended 31 December 2016, there
were 83,160 awards (2015 – 32,800) that lapsed.
Of the awards outstanding at the end of the year, 1,695,470 vest on 15 April 2018 and 2,078,860 vest on 15 April 2019 subject
to the conditions described above. The weighted average exercise price of the awards outstanding at 31 December 2016 was
£nil (31 December 2015 – £nil).
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
5 SHARE-BASED INCENTIVES
Deferred Share Bonus Plan
(CONTINUED)
In accordance with the Deferred Share Bonus Plan, 84,439 shares were awarded on 15 March 2016 to Executive Directors and
certain senior executives in relation to that part of their annual bonus for 2015 which exceeded 60% of their base salary.
These awards vest in equal tranches on the first, second and third anniversary of grant, normally subject to continued
employment. For further details on this plan, please refer to the Directors’ Remuneration Report.
The movement in the number of shares awarded is as follows:
At 1 January
Granted
At 31 December
Employee Benefit Trust
Number of shares awarded
2015
2016
–
84,439
84,439
–
–
–
On 19 June 2015 the Company established the John Laing Group Employee Benefit Trust (the EBT) to be used as part of the
remuneration arrangements for employees. The purpose of the EBT is to facilitate the ownership of shares by or for the
benefit of employees by the acquisition and distribution of shares in the Company. The EBT purchases shares in the
Company to satisfy the Company’s obligations under its share-based payment plans.
During the year the EBT purchased no shares in John Laing Group plc and as at 31 December 2016 the EBT held no shares
in the Company.
6 OTHER INCOME
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
Fees from asset management services
28.1
Recoveries on financial close 7.5 3.4 3.4
34.5
31.1
42.0 34.5 31.5
Included within fees from asset management services is £1.9 million received on the sale of the UK Project Management
Services business in November 2016. A further £2.1 million was deferred and recognised in January 2017 on transfer of the
final MSA contracts. Total costs of the sale were £1.4 million (recognised in administrative expenses in the year ended
31 December 2016) leading to an overall profit on sale in the year ended 31 December 2016 of £0.5 million.
7 PROFIT FROM OPERATIONS
Profit from operations has been arrived at after charging:
Fees payable to the Company's auditor and its associates for the audit of the Company's subsidiaries
Total audit fees
Other assurance services
Total non-audit fees
Operating lease charges:
– rental of land and buildings
Depreciation of plant and equipment
Amortisation of intangible assets
Net foreign exchange gain
Year ended
31 December
2016
Statutory
£ million
Year ended
31 December
2015
Pro forma and
statutory
£ million
(0.2)
(0.2)
–
–
(1.3)
(0.6)
(0.2)
–
(0.3)
(0.3)
–
–
(0.8)
(0.7)
(0.5)
1.4
The fee payable to the Company's auditor for the audit of the Company's annual accounts was £6,375 (2015 – £6,312). The
fees payable to the Company’s auditor for the audit of the Company’s subsidiaries were £241,560 (2015 – £295,334). The fees
payable to the Company's auditor for non-audit services comprised: £44,800 for other assurance services (2015 – £44,700).
Other fees were £nil in 2016 (2015 – £1.1 million paid to the Company’s auditor for reporting accountant and other services in
relation to the IPO of the Company in February 2015 which was deducted from share premium in 2015 as an expense on the
issue of equity shares).
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
8 EMPLOYEE COSTS AND DIRECTORS' EMOLUMENTS
Employee costs comprise:
Salaries
Social security costs
Pension charge
John Laing Annual Report and Accounts 2016 /
91
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
(26.8)
(2.9)
(29.9)
(3.4)
(26.0)
(3.0)
– defined benefit schemes (see note 18)
– defined contribution
(1.3)
(1.0)
Share-based incentives (see note 5) (2.0) (0.7) (0.7)
(1.6)
(1.3)
(1.3)
(1.2)
(34.6) (36.5) (32.0)
Employee costs in 2015 include one-off costs of £3.4 million incurred in relation to the IPO.
Annual average employee numbers (including Directors):
Staff
UK
Overseas
Activity
Primary investments, asset management and central activities
Year ended
31 December
2016
Statutory
No.
Year ended
31 December
2015
Pro forma and
statutory
No.
248
191
57
248
247
196
51
247
Details of Directors' remuneration for the year ended 31 December 2016 can be found in the Directors' Remuneration Report.
9 FINANCE COSTS
Finance costs on corporate banking facilities
Amortisation of debt issue costs
Net interest cost of retirement obligations (see note 18)
Total finance costs
10 TAX
The tax charge for the year comprises:
Current tax:
UK corporation tax charge – current year
UK corporation tax charge – prior year
Deferred tax:
Deferred tax charge – current year
Deferred tax charge – prior year
Tax charge on continuing operations
Year ended
31 December
2016
Statutory
£ million
Year ended
31 December
2015
Pro forma and
statutory
£ million
(7.9)
(1.1)
(1.3)
(10.3)
(7.6)
(1.0)
(2.7)
(11.3)
Year ended
31 December
2016
Statutory
£ million
Year ended
31 December
2015
Pro forma and
statutory
£ million
(1.9)
0.5
(1.4)
(0.2)
(0.2)
(0.4)
(1.8)
(2.0)
–
(2.0)
(0.1)
–
(0.1)
(2.1)
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
(CONTINUED)
10 TAX
The tax charge for the year can be reconciled to the profit in the Group Income Statement as follows:
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
Profit before tax on continuing operations
192.1
100.9
97.5
(19.7)
Tax at the UK corporation tax rate
(1.1)
Tax effect of expenses and other similar items that are not deductible
26.3
Non-taxable movement on fair value of investments
(7.4)
Adjustment for management charges to fair value group
(0.1)
Origination and reversal of timing differences
(0.1)
Other movements
Prior period – current tax
–
Prior period – deferred tax (0.2) – –
(38.4)
(0.6)
43.8
(6.6)
–
(0.3)
0.5
(20.4)
(1.1)
27.0
(7.4)
(0.1)
(0.1)
–
Total tax charge on continuing operations for the year (1.8) (2.1) (2.1)
For the year ended 31 December 2016 a tax rate of 20.0% has been applied (2015 – 20.25%). The UK Government has
announced its intention to reduce the main corporation tax rate by 1% to 19% from 1 April 2017 and by a further 2% to 17%
from 1 April 2020.
The Group expects that the majority of deferred tax assets will be realised after 1 April 2020 and therefore the Group has
measured its deferred tax assets at 31 December 2016 at 17% (31 December 2015 – 18%).
11 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Statutory
Opening balance
Distributions
Investment in equity and loans
Realisations
Fair value movement
Net cash transferred to investments held at FVTPL
Closing balance
Pro forma
Opening balance
Distributions
Investment in equity and loans
Realisations
Investments transferred to JLPF
Fair value movement
Net cash transferred to investments held at FVTPL
Closing balance
Project
companies
£ million
31 December 2016
Listed
investments
£ million
Other assets
and liabilities
£ million
825.8
(35.9)
302.1
(140.5)
214.7
–
1,166.2
16.1
(0.9)
–
(6.4)
1.2
–
10.0
123.4
36.8
(302.1)
146.9
2.9
73.4
Total
£ million
965.3
–
–
–
218.8
73.4
81.3
1,257.5
Project
companies
£ million
31 December 2015
Listed
investments
£ million
Other assets
and liabilities
£ million
706.7
(43.4)
142.9
(86.3)
(29.6)
135.5
–
825.8
65.6
(0.9)
–
–
(50.4)
1.8
–
16.1
85.9
44.3
(142.9)
86.3
–
(4.2)
54.0
123.4
Total
£ million
858.2
–
–
–
(80.0)
133.1
54.0
965.3
John Laing Annual Report and Accounts 2016 /
93
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
11 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Statutory
Opening balance
Acquisition of John Laing Holdco Limited
Acquisition of Service Companies
Distributions
Investment in equity and loans
Realisations
Investments transferred to JLPF
Fair value movement
Net cash transferred to investments held at FVTPL
Closing balance
(CONTINUED)
Project
companies
£ million
31 December 2015
Listed
investments
£ million
Other assets
and liabilities
£ million
–
706.7
–
(43.4)
142.9
(86.3)
(29.6)
135.5
–
825.8
–
65.6
–
(0.9)
–
–
(50.4)
1.8
–
16.1
–
(142.3)
231.6
44.3
(142.9)
86.3
–
(7.6)
54.0
123.4
Total
£ million
–
630.0
231.6
–
–
–
(80.0)
129.7
54.0
965.3
On 27 January 2015, the Company acquired the remaining 77.54% interest in John Laing Holdco Limited for £630.0 million as
part of a pre IPO restructuring. On 17 February 2015, the Company acquired from the John Laing Holdco Limited group the
interests in its Service Companies. From this date, these Service Companies have been consolidated in the Group financial
statements. This latter acquisition was treated as an acquisition under common control.
Included within other assets and liabilities at 31 December 2016 above is cash collateral of £23.7 million (31 December 2015
– £123.9 million) in respect of future investment commitments on IEP (Phase 1), I-77 Managed Lanes and New Perth
Stadium (31 December 2015 – IEP (Phase 1), I-77 Managed Lanes, New Perth Stadium and Sydney Light Rail).
The investment disposals that have occurred in the years ended 31 December 2016 and 2015 are as follows:
Year ended 31 December 2016
During the year ended 31 December 2016, the Group disposed of shares and subordinated debt in six PPP and renewable
energy project companies. Total proceeds from all disposals were £146.9 million.
Details were as follows:
Date of
completion
Original
holding
%
Holding
disposed of
%
Retained
holding
%
Sold to John Laing Environmental Assets Group Limited (JLEN)
Dreachmhor Wind Farm (Holdings) Limited
New Albion Wind (Holdings) Limited
29 June 2016
21 July 2016
Sold to John Laing Infrastructure Fund Limited (JLIF)
Inspiral Oldham Holdings Company Limited
Rail Investments (Great Western) Limited*
Services Support (BTP) Holdings Limited
UK Highways (A55) Holdings Limited
Sold to other parties
John Laing Environmental Assets Group Limited
UK Highways Limited**
27 May 2016
29 December 2016
29 February 2016
22 December 2016
2 November 2016
30 November 2016
* Holds the Group’s 24% interest in IEP (Phase 1).
** Sold as part of disposal of UK activities of PMS for £0.3 million.
100.0
100.0
95.0
100.0
54.2
100.0
5.5
100.0
100.0
100.0
95.0
20.0
54.2
100.0
2.2
100.0
–
–
–
80.0
–
–
3.3
–
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
11 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
(CONTINUED)
Year ended 31 December 2015
During the year ended 31 December 2015, the Group disposed of shares and subordinated debt in seven PPP and renewable
energy project companies. Sale proceeds were £86.3 million. The Group also made a contribution of £80.0 million to JLPF
settled by a transfer of shares in JLEN and shares in one PPP project company.
Details were as follows:
Date of
completion
Original
holding
%
Holding
disposed of
%
Retained
holding
%
Sold to John Laing Environmental Assets Group Limited (JLEN)
Carscreugh Holdings Limited
Wear Point Wind Holdco Limited
Branden Solar Park Holdings Limited
Branden Solar Park Holdings Limited
Burton Wold Extension Limited
31 March 2015
31 March 2015
31 March 2015
30 July 2015
2 December 2015
100.0
100.0
100.0
36.0
100.0
100.0
100.0
64.0
36.0
100.0
Sold to John Laing Infrastructure Fund Limited (JLIF)
Healthcare Support (Erdington) Holdings Limited
30 June 2015
100.0
100.0
Sold to other parties
Dhule Palesner Tollway Limited
Services Support (Cleveland) Holdings Limited
Transferred to JLPF
City Greenwich Lewisham Rail Link plc
John Laing Environmental Assets Group Limited (JLEN)
31 October 2015
5 November 2015
17 February 2015
17 February 2015
36.0
27.08
52.0
39.7
36.0
27.08
47.0
29.9
* Shareholding reduced to 5.5% following equity issues by JLEN in 2015 and 2016.
–
–
36.0
–
–
–
–
–
5.0
9.8*
12 TRADE AND OTHER RECEIVABLES
Current assets
Trade receivables
Other receivables
Prepayments and accrued income
31 December
2016
£ million
31 December
2015
£ million
6.3
0.6
0.5
7.4
7.1
0.7
0.5
8.3
Trading amounts receivable from project companies in which the Group holds an interest were previously included at
31 December 2015 in other receivables. The Group has presented these within trade receivables at 31 December 2016 to
better reflect the nature of the asset. The trade receivables and other receivables at 31 December 2015 have consequently
been amended to present a consistent year on year presentation. There is no impact on overall trade and other receivables.
In the opinion of the Directors the fair value of trade and other receivables is equal to their carrying value.
The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:
31 December
2016
£ million
Sterling
Other currencies
5.9
1.5
7.4
31 December
2015
£ million
7.7
0.6
8.3
John Laing Annual Report and Accounts 2016 /
95
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
12 TRADE AND OTHER RECEIVABLES
(CONTINUED)
Other currencies mainly comprise trade and other receivables in Euros (31 December 2015 – Canadian dollars).
Included in the Group's trade receivables are debtors with a carrying value of £0.4 million which were overdue at 31 December
2016 (31 December 2015 – £0.1 million). The overdue balances have an ageing of up to 120 days (31 December 2015 – up to
60 days). The Group has not provided for these debtors as there has not been a significant change in their credit quality since
the amounts became overdue, and they are considered fully recoverable. The Group does not hold any collateral against
these balances.
Included in the Group's trade receivables are debtors with a carrying value of £nil which were impaired at 31 December 2016
(31 December 2015 – £nil).
13 TRADE AND OTHER PAYABLES
Current liabilities
Trade payables
Other taxation
Accruals
Deferred income
31 December
2016
£ million
31 December
2015
£ million
(1.9)
(1.6)
(11.1)
(0.1)
(14.7)
(1.8)
(1.6)
(15.8)
(0.4)
(19.6)
Employee related accruals were previously included at 31 December 2015 in trade payables. The Group has presented these
within accruals at 31 December 2016 to better reflect the nature of the liability. The trade payables and accruals figures at
31 December 2015 have consequently been amended to present a consistent year on year presentation. There is no impact
on overall trade and other payables.
14 BORROWINGS
Current liabilities
Interest-bearing loans and borrowings net of unamortised financing costs (note 15 c)
31 December
2016
£ million
31 December
2015
£ million
(161.4)
(161.4)
(14.9)
(14.9)
15 FINANCIAL INSTRUMENTS
a) Financial instruments by category
Continuing operations
Fair value measurement method
31 December 2016
Non-current assets
Investments at FVTPL*
Current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total financial liabilities
Net financial instruments
Loans and
receivables
£ million
Assets at
FVTPL
£ million
Financial
liabilities at
amortised cost
£ million
Total
£ million
n/a
Level 1 / 3*
n/a
–
7.0
1.6
8.6
–
–
–
1,257.5
–
–
1,257.5
–
–
–
8.6
1,257.5
–
–
–
–
(161.4)
(13.0)
(174.4)
(174.4)
1,257.5
7.0
1.6
1,266.1
(161.4)
(13.0)
(174.4)
1,091.7
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
15 FINANCIAL INSTRUMENTS
(CONTINUED)
a) Financial instruments by category (continued)
Continuing operations
Fair value measurement method
31 December 2015
Non-current assets
Investments at FVTPL*
Current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total financial liabilities
Net financial instruments
Loans and
receivables
£ million
Assets at
FVTPL
£ million
Financial
liabilities at
amortised cost
£ million
Total
£ million
n/a
Level 1 / 3*
n/a
–
8.1
1.1
9.2
–
–
–
9.2
965.3
–
–
965.3
–
–
–
965.3
–
–
–
–
(14.9)
(17.6)
(32.5)
(32.5)
965.3
8.1
1.1
974.5
(14.9)
(17.6)
(32.5)
942.0
*
Investments at FVTPL are split between: Level 1, JLEN, which is a listed investment fair valued at £10.0 million (31 December 2015 – £16.1 million)
using a quoted market price; and Level 3 investments in project companies fair valued at £1,166.2 million (31 December 2015 – £825.8 million).
Level 1 and Level 3 investments are fair valued in accordance with the policy and assumptions set out in note 2 i. The investments at FVTPL
include other assets and liabilities as shown in note 11. Such other assets and liabilities are recorded at amortised cost which the Directors
believe approximates to their fair value.
The tables in section a) provide an analysis of financial instruments that are measured subsequent to their initial
recognition at fair value.
•
•
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 fair value measurements are those derived from valuation techniques that include inputs to the asset or
liability that are not based on observable market data (unobservable inputs).
There were no transfers between Levels 1 and 2 during either year. There were no transfers out of Level 3.
Reconciliation of Level 3 fair value measurement of financial assets and liabilities
An analysis of the movement between opening and closing balances of assets at FVTPL is given in note 11. The carrying
amounts of financial assets and financial liabilities in these financial statements reflect their fair values.
b) Foreign currency and interest rate profile of financial assets (excluding investments at FVTPL)
Currency
Sterling
Euro
Canadian dollar
US dollar
Australian dollar
Other
Total
31 December 2016 31 December 2015
Non-interest
bearing
£ million
Non-interest
bearing
£ million
5.9
1.5
0.4
0.4
0.4
–
8.6
7.7
0.2
0.6
0.4
0.2
0.1
9.2
John Laing Annual Report and Accounts 2016 /
97
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
15 FINANCIAL INSTRUMENTS
(CONTINUED)
c) Foreign currency and interest rate profile of financial liabilities
The Group's financial liabilities at 31 December 2016 were £174.4 million (31 December 2015 – £32.5 million), of which
£161.4 million (31 December 2015 – £14.9 million) related to short-term cash borrowings of £165.0 million net of
unamortised finance costs of £3.6 million.
31 December 2016
31 December 2015
Currency
Sterling
Euro
US dollar
Australian dollar
Other
Total
Fixed
rate
£ million
Non-interest
bearing
£ million
(161.4)
–
–
–
–
(161.4)
(9.8)
(0.5)
(0.9)
(1.4)
(0.4)
(13.0)
Total
£ million
(171.2)
(0.5)
(0.9)
(1.4)
(0.4)
(174.4)
Fixed
rate
£ million
Non-interest
bearing
£ million
Total
£ million
(14.9)
–
–
–
–
(14.9)
(14.2)
(0.6)
(1.4)
(1.1)
(0.3)
(17.6)
(29.1)
(0.6)
(1.4)
(1.1)
(0.3)
(32.5)
16 FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks: market risk (including foreign exchange rate risk, interest rate
risk and inflation risk), credit risk, price risk, liquidity risk and capital risk. The Group's overall risk management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial
performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Market risk – foreign currency exchange rate risk
For the parent company and its recourse subsidiaries, financial risks are managed by a central treasury operation which
operates within Board approved policies. The various types of financial risk are managed as follows:
As at 31 December 2016 the Group held investments in 26 overseas projects (31 December 2015 – 18 overseas projects).
The Group's foreign currency exchange rate risk policy is to determine the total Group exposure to individual currencies;
it may then enter into hedges against certain individual investments. The Group's exposure to exchange rate risk on its
investments is disclosed below.
In addition, the Group policy on managing foreign currency exchange rate risk is to cover significant transactional exposures
arising from receipts and payments in foreign currencies, where appropriate and cost effective. There were 21 forward
currency contracts open as at 31 December 2016 (31 December 2015 – 15). The fair value of these contracts was a net asset
of £3.5 million (31 December 2015 – £3.7 million liability) and is included in investments at FVTPL.
At 31 December 2016, the Group's most significant currency exposure was to the Euro (31 December 2015 – Euro).
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Foreign currency exposure of investments at FVTPL:
Project
31 December 2016
Listed Other assets
companies investments and liabilities
£ million
£ million
£ million
Total
£ million
Project
companies
£ million
31 December 2015
Listed Other assets
investments and liabilities
£ million
£ million
Sterling
Euro
Australian dollar
US dollar
New Zealand dollar
500.5
341.4
181.4
121.0
21.9
1,166.2
10.0
–
–
–
–
10.0
41.4
10.3
5.5
23.7
0.4
81.3
551.9
351.7
186.9
144.7
22.3
1,257.5
421.9
213.3
88.2
83.7
18.7
825.8
16.1
–
–
–
–
16.1
53.3
1.4
50.2
18.0
0.5
123.4
Total
£ million
491.3
214.7
138.4
101.7
19.2
965.3
Investments in project companies are fair valued based on the spot rate at the balance sheet date. As at 31 December 2016,
a 5% movement of each relevant currency against Sterling would decrease or increase the value of investments in overseas
projects by c.£27 million.
/ John Laing Annual Report and Accounts 2016
98
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
Market risk – interest rate risk
16 FINANCIAL RISK MANAGEMENT
(CONTINUED)
The Group's interest rate risk arises due to fluctuations in interest rates which impact on the value of returns from floating
rate deposits and expose the Group to variability in interest payment cash flows on variable rate borrowings. The Group has
assessed its exposure to interest rate risk and considers that this exposure is low as its variable rate borrowings tend to be
short term, its finance costs in relation to letters of credit issued under the corporate banking facilities are at a fixed rate and
the interest earned on its cash and cash equivalents minimal.
The exposure of the Group's financial assets to interest rate risk is as follows:
Financial assets
Investments at FVTPL
Trade and other receivables
Cash and cash equivalents
Financial assets exposed
to interest rate risk
Interest bearing
Floating rate
£ million
–
–
–
–
31 December 2016
Non-interest
bearing
£ million
31 December 2015
Interest bearing
Floating rate
£ million
Non-interest
bearing
£ million
Total
£ million
1,257.5
7.0
1.6
1,257.5
7.0
1.6
965.3
8.1
1.1
–
–
–
–
1,266.1
1,266.1
974.5
974.5
Total
£ million
965.3
8.1
1.1
An analysis of the movement between opening and closing balances of investments at FVTPL is given in note 11. Investments
in project companies are principally valued on a discounted cash flow basis. At 31 December 2016, the weighted average
discount rate was 8.9% (31 December 2015 – 9.5%). For investments in project companies, changing the discount rate used
to value the underlying instruments would alter their fair value. As at 31 December 2016 a 0.25% increase in the discount
rate would reduce the fair value by £32.1 million (31 December 2015 – £26.1 million) and a 0.25% reduction in the discount
rate would increase the fair value by £33.6 million (31 December 2015 – £27.2 million).
The exposure of the Group's financial liabilities to interest rate risk is as follows:
Interest-bearing
Fixed rate
£ million
31 December 2016
Non-interest
bearing
£ million
31 December 2015
Total
£ million
Interest-bearing
Fixed rate
£ million
Non-interest
bearing
£ million
Interest-bearing loans and borrowings
Trade and other payables
Total financial liabilities
Market risk – inflation risk
(161.4)
–
(161.4)
–
(13.0)
(13.0)
(161.4)
(13.0)
(174.4)
(14.9)
–
(14.9)
–
(17.6)
(17.6)
Total
£ million
(14.9)
(17.6)
(32.5)
The Group has limited direct exposure to inflation risk, but the fair value of investments is determined by future project
revenue and costs which can be partly linked to inflation. Sensitivity to inflation can be mitigated by the project company
entering into inflation swaps. Where PPP investments are positively correlated to inflation, an increase in inflation
expectations will tend to increase the value of PPP investments. However, an increase in inflation expectations would tend
to increase JLPF's pension liabilities.
Based on a sample of seven of the larger PPP investments by value at 31 December 2016, a 0.25% increase in inflation
is estimated to increase the value of PPP investments by c.£14 million and a 0.25% decrease in inflation is estimated to
Credit risk
decrease the value of PPP investment by c.£13 million. Certain of the underlying project companies incorporate some
inflation hedging.
Credit risk is managed on a Group basis and arises from a combination of the value and term to settlement of balances due
and payable by counterparties for both financial and trade transactions.
In order to minimise credit risk, cash investments and derivative transactions are limited to financial institutions of a suitable
credit quality and counterparties are carefully screened. The Group's cash balances are invested in line with a policy
approved by the Board, capped with regard to counter-party credit ratings.
A significant majority of the project companies in which the Group invests receive revenue from government departments,
public sector or local authority clients and/or directly from the public. As a result, these projects tend not to be exposed to
significant credit risk.
John Laing Annual Report and Accounts 2016 /
99
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
Price risk
16 FINANCIAL RISK MANAGEMENT
(CONTINUED)
The Group’s investments in PPP assets have limited direct exposure to price risk. The fair value of many such project
companies is dependent on the receipt of fixed fee income from government departments, public sector or local authority
clients. As a result, these projects tend not to be exposed to price risk. The Group also holds investments in renewable
energy projects whose fair value may vary with forecast energy prices to the extent they are not hedged through short to
Liquidity risk
medium term fixed price purchase agreements with electricity suppliers, or do not benefit from governmental support
mechanisms at fixed prices. The Group’s investment in JLEN is valued at its closing market share price.
The Group adopts a prudent approach to liquidity management by maintaining sufficient cash and available committed
facilities to meet its current and upcoming obligations.
The Group's liquidity management policy involves projecting cash flows in major currencies and assessing the level of liquid
assets necessary to meet these. Managing liquidity risk is helped by the relative predictability in both value and timing of
cash flows to and from the project companies in which the Group invests.
Maturity of financial assets
The maturity profile of the Group's financial assets (excluding investments at FVTPL) is as follows:
Trade and other receivables
Cash and cash equivalents
Financial assets (excluding investments at FVTPL)
31 December
2016
Less than
one year
£ million
31 December
2015
Less than
one year
£ million
7.0
1.6
8.6
8.1
1.1
9.2
Other than certain trade and other receivables, as detailed in note 12, none of the financial assets is either overdue or
impaired.
The maturity profile of the Group's financial liabilities is as follows:
In one year or less, or on demand
Total
31 December
2016
£ million
31 December
2015
£ million
(174.4)
(174.4)
(32.5)
(32.5)
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The following table details the remaining contractual maturity of the Group's financial liabilities. The table reflects undiscounted
cash flows relating to financial liabilities based on the earliest date on which the Group is required to pay. The table includes
both interest and principal cash flows:
Weighted average
effective interest rate
%
In one year
or less
£ million
Total
£ million
31 December 2016
(161.4)
Fixed interest rate instruments – loans and borrowings
Non-interest bearing instruments* n/a (13.0) (13.0)
(161.4)
2.75
(174.4) (174.4)
31 December 2015
(14.9)
Fixed interest rate instruments – loans and borrowings
Non-interest bearing instruments* n/a (17.6) (17.6)
(14.9)
3.0
(32.5) (32.5)
* Non-interest bearing instruments relate to trade and other payables.
/ John Laing Annual Report and Accounts 2016
100
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
Capital risk
16 FINANCIAL RISK MANAGEMENT
(CONTINUED)
The Group seeks to adopt efficient financing structures that enable it to manage capital effectively and achieve the Group's
objectives without putting shareholder value at undue risk. The Group's capital structure comprises its equity (as set out in
the Group Statement of Changes in Equity) and its net borrowings.
At 31 December 2016, the Group had committed corporate banking facilities of £400.0 million, expiring in March 2020,
together with additional surety facilities of £50.0 million, backed by committed liquidity facilities, expiring in March 2018.
Issued at 31 December 2016 were letters of credit of £162.6 million (31 December 2015 – £154.2 million), related to future capital
and loan commitments, and contingent commitments and performance and bid bonds of £6.5 million (31 December 2015 –
£1.1 million).
The Group has requirements for both borrowings and letters of credit, which at 31 December 2016 were met by its
£450.0 million committed facilities and related ancillary facilities and uncommitted cash backed facilities (31 December 2015 –
£350.0 million). The committed facilities are summarised below:
31 December 2016
Committed corporate banking facilities
Surety facilities backed by liquidity facilities
Total committed Group facilities
Committed corporate banking facilities
Total committed Group facilities
17 DEFERRED TAX
Total facilities
£ million
Loans drawn
£ million
Letters of credit
in issue/other
commitments
£ million
400.0
50.0
450.0
(165.0)
–
(165.0)
(119.1)
(50.0)
(169.1)
31 December 2015
Total facility
£ million
Loans drawn
£ million
Letters of credit
in issue/other
commitments
£ million
350.0
350.0
(19.0)
(19.0)
(155.3)
(155.3)
Total
undrawn
£ million
115.9
–
115.9
Total
undrawn
£ million
175.7
175.7
The movements in the deferred tax asset relating to other deductible temporary differences were:
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
–
Opening asset
1.5
Arising on acquisition
Charge to income – prior year
(0.2)
Credit to income – current year (0.2) 0.1 0.1
1.4
–
(0.2)
1.5
–
(0.2)
Closing asset 1.0 1.4 1.4
The Group has no losses within its entities which are consolidated but there are tax losses in investment entity subsidiaries
which are held at FVTPL.
18 RETIREMENT BENEFIT OBLIGATIONS
Pension schemes
Post-retirement medical benefits
Retirement benefit obligations
31 December
2016
£ million
31 December
2015
£ million
(61.3)
(8.0)
(69.3)
(38.9)
(7.3)
(46.2)
John Laing Annual Report and Accounts 2016 /
101
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
18 RETIREMENT BENEFIT OBLIGATIONS
(CONTINUED)
a) Pension schemes
The Group operates two defined benefit pension schemes in the UK (the Schemes) – The John Laing Pension Fund (JLPF)
which commenced on 31 May 1957 and The John Laing Pension Plan (the Plan) which commenced on 6 April 1975.
JLPF was closed to future accrual from 1 April 2011 and the Plan was closed to future accrual from September 2003.
Neither Scheme has any active members, only deferred members and pensioners. The assets of both Schemes are held
in separate trustee-administered funds.
UK staff employed since 1 January 2002, who are entitled to retirement benefits, can choose to be members of a defined
JLPF
contribution stakeholder scheme sponsored by the Group in conjunction with Legal and General Assurance Society
Limited. Local defined contribution arrangements are available to overseas staff.
An actuarial valuation of JLPF was carried out as at 31 March 2016 by a qualified independent actuary, Willis Towers
Watson. At that date, JLPF was 85% funded on the technical provision funding basis. This valuation took into account the
Continuous Mortality Investigation Bureau (CMI Bureau) projections of mortality.
The actuarial deficit of £171 million is to be repaid over seven years as follows:
By 31 March
2017
2018
2019
2020
2021
2022
2023
£ million
24.5
26.5
29.1
24.9
25.7
26.4
24.6
The next triennial actuarial valuation of JLPF is due as at 31 March 2019.
During the year ended 31 December 2016, John Laing made deficit reduction contributions of £18.1 million in cash
(2015 – £127.4 million in a mixture of cash, JLEN shares and PPP assets). At 31 December 2016, JLPF's assets included
PPP investments valued at £37.8 million (31 December 2015 – £41.4 million). The Company has guaranteed to fund any
cumulative shortfall in forecast project yield payments for some of these PPP investments up until 2017, but considers it
unlikely that a net shortfall will arise.
The Plan
The liability at 31 December 2016 allows for indexation of deferred pensions and post 5 April 1988 GMP pension increases
based on the Consumer Price Index (CPI).
No contributions were made to the Plan in the year ended 31 December 2016 (31 December 2015 – none). At its last
actuarial valuation as at 31 March 2014, the Plan had assets of £12.3 million and liabilities of £11.4 million resulting in
an actuarial surplus of £0.9 million. The next triennial actuarial valuation of the Plan is due as at 31 March 2017.
An analysis of members of both Schemes is shown below:
31 December 2016
Deferred
Pensioners
Total
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JLPF
8,268
The Plan 109 328 437
4,385
3,883
31 December 2015
Deferred
Pensioners
Total
JLPF
8,356
The Plan 114 334 448
3,787
4,569
The weighted average financial assumptions used in the valuation of JLPF and the Plan under IAS 19 at 31 December were:
31 December
2016
%
31 December
2015
%
Discount rate
Rate of increase in non-GMP pensions in payment
Rate of increase in non-GMP pensions in deferment
Inflation – RPI
Inflation – CPI
2.80
3.10
2.10
3.20
2.10
3.75
2.90
2.00
3.00
2.00
/ John Laing Annual Report and Accounts 2016
102
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
18 RETIREMENT BENEFIT OBLIGATIONS
a) Pension schemes (continued)
(CONTINUED)
The major categories and fair value of assets held by the Schemes were as follows:
Bonds and other debt instruments
Equity instruments
Aviva bulk annuity buy-in agreement
Property
Derivatives
Cash and cash equivalents
UK PPP investments
Total market value of assets
31 December
2016
£ million
31 December
2015
£ million
415.2
374.7
234.1
1.8
(6.1)
52.4
37.8
1,109.9
364.2
337.1
214.2
2.3
(8.3)
5.8
41.4
956.7
The amount of the JLPF deficit is highly dependent upon the assumptions above and may vary significantly from period
to period. The impact of possible future changes to some of the assumptions is shown below, without taking into account
any inter-relationship between the assumptions. In practice, there would be inter-relationships between the
assumptions. The analysis has been prepared in conjunction with the Group's actuarial adviser.
(Increase)/decrease
in pension liabilities
at 31 December 2016
0.25% on discount rate
0.25% on inflation rate
1 year post retirement longevity
Mortality
Increase in
assumption
£ million
Decrease in
assumption
£ million
45.8
(34.1)
(43.7)
(48.9)
33.2
38.4
Mortality assumptions at 31 December 2016 were based on the following tables published by the CMI Bureau:
• SAPS S2 normal (S2NA) year of birth tables for staff members with mortality improvements in line with CMI 2015 core
projections with a long term trend rate of 1.25% per annum; and
• SAPS S2 light (S2NA_L) year of birth tables for executive members with mortality improvements in line with CMI 2015
core projections with a long term trend rate of 1.25% per annum.
Mortality assumptions at 31 December 2015 were based on the following tables published by the CMI Bureau:
• SAPS S2 normal (S2NA) year of birth tables for staff members with mortality improvements in line with CMI 2013 core
projections with a long term trend rate of 1.0% per annum; and
• SAPS S2 light (S2NA_L) year of birth tables for executive members with mortality improvements in line with CMI 2013
core projections with a long term trend rate of 1.0% per annum.
The table below summarises the weighted average life expectancy implied by the mortality assumptions used:
31 December
2016
Years
31 December
2015
Years
Life expectancy – of member reaching age 65 in 2016
Males
Females
Life expectancy – of member aged 65 in 2031
Males
Females
22.4
24.5
23.6
25.9
22.3
24.4
23.4
25.5
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
18 RETIREMENT BENEFIT OBLIGATIONS
Analysis of the major categories of assets held by the Schemes
(CONTINUED)
a) Pension schemes (continued)
Bond and other debt instruments
UK corporate bonds
UK government gilts
UK government gilts – index linked
Equity instruments
UK listed equities
European listed equities
US listed equities
Other international listed equities
Aviva bulk annuity buy-in agreement
Property
Industrial property
Derivatives
Inflation swaps
Cash and equivalents
UK PPP investments
John Laing Annual Report and Accounts 2016 /
103
31 December 2016
31 December 2015
£ million
%
£ million
%
80.9
141.6
192.7
415.2
152.0
34.3
73.8
114.6
374.7
234.1
1.8
1.8
(6.1)
(6.1)
52.4
37.8
37.3
33.8
21.1
0.2
(0.5)
4.7
3.4
114.0
104.7
145.5
364.2
147.5
28.7
80.7
80.2
337.1
214.2
2.3
2.3
(8.3)
(8.3)
5.8
41.4
956.7
(992.9)
(36.2)
(2.7)
(38.9)
38.1
35.3
22.4
0.2
(0.9)
0.6
4.3
100.0
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Total market value of assets
1,109.9
100.0
Present value of Schemes' liabilities
Deficit in the Schemes
Less unrecoverable surplus in the Plan*
Net pension liability
(1,171.2)
(61.3)
–
(61.3)
* The surplus in the Plan, which at 31 December 2016 was £2.9 million, has been treated as recoverable for the first time in 2016.
Virtually all equity and debt instruments held by JLPF have quoted prices in active markets (Level 1). Derivatives can be
classified as Level 2 instruments and property and PPP investments as Level 3 instruments. It is the policy of JLPF to
use inflation swaps to hedge its exposure to inflation risk. The JLPF Trustee invests in return seeking assets, such as
equity, property and PPP investments, whilst balancing the risks of inflation and interest rate movements through the
annuity buy-in agreement, inflation swaps and interest rate hedging.
In February 2009, the JLPF Trustee entered into a bulk annuity buy-in agreement with Aviva to mitigate JLPF's exposure
Analysis of amounts charged to operating profit
to changes in liabilities. At 31 December 2016, the underlying insurance policy was valued at £234.1 million (31 December
2015 – £214.2 million), being very substantially equal to the IAS 19 valuation of the related liabilities.
Current service cost*
Year ended
31 December
2016
Statutory
£ million
Year ended
31 December
2015
Pro forma and
statutory
£ million
(1.6)
(1.3)
* The Schemes no longer have any active members. Therefore, under the projected unit method of valuation the current service cost for JLPF
will increase as a percentage of pensionable payroll as members approach retirement. The current service cost has been included within
administrative expenses.
/ John Laing Annual Report and Accounts 2016
104
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
18 RETIREMENT BENEFIT OBLIGATIONS
Analysis of amounts charged to finance costs
(CONTINUED)
a) Pension schemes (continued)
Interest on Schemes' assets
Interest on Schemes' liabilities
Net charge to finance costs
Analysis of amounts recognised in Group Statement of Comprehensive Income
Year ended
31 December
2016
Statutory
£ million
Year ended
31 December
2015
Pro forma and
statutory
£ million
35.3
(36.3)
(1.0)
34.2
(36.6)
(2.4)
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
Return on Schemes' assets (excluding amounts included
in interest on Schemes' assets above)
Experience (loss)/gain arising on Schemes' liabilities
Changes in financial assumptions underlying the present value
of Schemes' liabilities
Changes in demographic assumptions underlying the present value
–
of Schemes' liabilities
Recognition of surplus in the Plan at 31 December 2015
–
Decrease in unrecoverable surplus – 0.3 0.3
151.5
(5.7)
(23.0)
15.6
(1.1)
2.7
(23.7)
15.6
(185.6)
46.0
22.1
–
–
Actuarial (loss)/gain recognised in Group Statement of Comprehensive Income (38.2) 15.0 38.2
Changes in present value of defined benefit obligations
The cumulative amount recognised in the Group Statement of Changes in Equity is £nil (31 December 2015 –
£38.2 million gain).
2016
Statutory
£ million
2015
Pro forma
£ million
2015
Statutory
£ million
Opening defined benefit obligation
Arising on acquisition
Current service cost
Interest cost
Experience (loss)/gain arising on Schemes' liabilities
Changes in financial assumptions underlying the present value
of Schemes' liabilities
Changes in demographic assumptions underlying the present value
of Schemes' liabilities
–
Benefits paid (including administrative costs paid) 52.0 48.3 42.3
(1,041.0)
–
(1.3)
(36.6)
15.6
–
(1,058.9)
(1.3)
(36.6)
15.6
(992.9)
–
(1.6)
(36.3)
(5.7)
(185.6)
(1.1)
46.0
22.1
–
Closing defined benefit obligation (1,171.2) (992.9) (992.9)
The weighted average life of JLPF liabilities at 31 December 2016 is 16.8 years (31 December 2015 – 15.3 years).
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
John Laing Annual Report and Accounts 2016 /
105
18 RETIREMENT BENEFIT OBLIGATIONS
Changes in the fair value of Schemes’ assets
(CONTINUED)
a) Pension schemes (continued)
31 December 2016
Statutory
£ million
31 December 2015
Pro forma
£ million
Statutory
£ million
Opening fair value of Schemes' assets
Arising on acquisition
Interest on Schemes' assets
Return on Schemes' assets (excluding amounts included
(23.7)
in interest on Schemes' assets above)
Contributions by employer
127.4
Benefits paid (including administrative costs paid) (52.0) (48.3) (42.3)
–
861.1
34.2
956.7
–
35.3
866.4
–
34.2
(23.0)
127.4
151.5
18.4
Closing fair value of Schemes' assets 1,109.9 956.7 956.7
Analysis of the movement in the deficit during the year
31 December 2016
Statutory
£ million
31 December 2015
Pro forma
£ million
Statutory
£ million
–
Opening deficit
(197.8)
Arising on acquisition
(1.3)
Current service cost
(2.4)
Finance cost
Contributions
127.4
Actuarial (loss)/gain (38.2) 14.7 37.9
(174.6)
–
(1.3)
(2.4)
127.4
(38.9)
–
(1.6)
(1.0)
18.4
Closing deficit in Schemes
(36.2)
Less unrecoverable surplus in the Plan – (2.7) (2.7)
(61.3)
(36.2)
Pension deficit (61.3) (38.9) (38.9)
History of the weighted average experience gains and losses
Year ended
31 December 2016
Statutory
Year ended 31 December 2015
Statutory
Pro forma
Difference between actual and expected returns on assets:
Amount (£ million)
% of Schemes' assets
Experience (loss)/gain on Schemes' liabilities:
Amount (£ million)
% of present value of Schemes' liabilities
Total amount recognised in the Group Statement of Comprehensive Income
(excluding deferred tax):
Amount (£ million)
38.2
% of present value of Schemes' liabilities 3.3 1.5 3.8
(23.0)
2.4
151.5
13.6
(5.7)
0.5
15.6
1.6
15.6
1.6
(38.2)
15.0
(23.7)
2.5
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
18 RETIREMENT BENEFIT OBLIGATIONS
b) Post retirement medical benefits
(CONTINUED)
The Company provides post-retirement medical insurance benefits to 62 former employees. This scheme, which was
closed to new members in 1991, is unfunded.
The present value of the future liabilities under this arrangement has been assessed by the Company's actuarial adviser,
Lane Clark & Peacock LLP, and has been included in the Group Balance Sheet under retirement benefit obligations
as follows:
31 December 2016
Statutory
£ million
31 December 2015
Pro forma
£ million
Statutory
£ million
Post-retirement medical liability – opening
– arising on acquisition
Other finance costs
Contributions
Experience (loss)/gain*
Changes in financial assumptions underlying the present value
0.4
of scheme’s liabilities*
Changes in demographic assumptions underlying the present value of liabilities*
–
Curtailment and settlements 0.1 – –
(0.9)
0.1
0.4
–
(7.3)
–
(0.3)
0.5
(0.2)
(8.2)
–
(0.3)
0.4
0.4
–
(8.2)
(0.3)
0.4
0.4
Post-retirement medical liability – closing (8.0) (7.3) (7.3)
* These amounts are actuarial (losses)/gains that go through the Group Statement of Comprehensive Income.
The annual rate of increase in the per capita cost of medical benefits was assumed to be 5.2% in 2016 (2015 – 5.0%).
It is expected to increase in 2017 and thereafter at RPI plus 2.0% per annum (2015 – at RPI plus 2.0% per annum).
Medical cost inflation has a significant effect on the liability reported for this scheme. A 1% change in assumed medical
cost inflation would result in the following liability at 31 December 2016:
1% increase
£ million
1% decrease
£ million
Post-retirement medical liability
(8.9)
(7.3)
Life expectancy also has a significant effect on the liability reported for this scheme. A one-year increase or decrease in
life expectancy would result in the following liability at 31 December 2016:
1% increase
£ million
1% decrease
£ million
Life expectancy
(8.7)
(7.4)
19 PROVISIONS
Retained liabilities
Employee related liabilities
Total provisions
Classified as:
Continuing operations
Discontinued operations
Provisions on continuing operations are analysed as:
Non-current provisions
At 1 January
2016
£ million
Reclassification
£ million
Credit/(charge)
to Group Income
Statement
£ million
Utilised
£ million
At 31 December
2016
£ million
–
–
–
(4.2)
4.2
(0.7)
0.1
(0.6)
(0.6)
–
3.4
–
3.4
3.4
–
(4.2)
(0.1)
(4.3)
(0.1)
(4.2)
(0.1)
(0.1)
(1.5)
–
(1.5)
(1.5)
–
(1.5)
(1.5)
John Laing Annual Report and Accounts 2016 /
107
NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
19 PROVISIONS
(CONTINUED)
Retained liabilities
Employee related liabilities
Onerous property leases
Total provisions
Classified as:
Continuing operations
Discontinued operations
Provisions on continuing
operations are analysed as:
Non-current provisions
At 1 January
2015
£ million
Arising on
acquisition
£ million
Unwinding
of discount
£ million
Credit to Group
Income Statement
£ million
Utilised
£ million
At 31 December
2015
£ million
–
–
–
–
–
–
(8.8)
(0.1)
(2.0)
(10.9)
(2.1)
(8.8)
(2.1)
(2.1)
–
–
–
–
–
–
2.2
–
–
2.2
–
2.2
2.4
–
2.0
4.4
2.0
2.4
(4.2)
(0.1)
–
(4.3)
(0.1)
(4.2)
(0.1)
(0.1)
During the year, provisions relating to retained liabilities were reclassified from discontinued operations to continuing
operations as they are no longer sufficiently material to show separately as discontinued operations.
Provisions of £1.5 million as at 31 December 2016 (31 December 2015 – £4.2 million) relate to retained liabilities from the
sale of the Laing Construction business in 2001.
20 SHARE CAPITAL
Authorised:
Ordinary shares of £0.10 each
Total
31 December
2016
No.
31 December
2015
No.
366,923,076
366,923,076
366,923,076
366,923,076
31 December 2016
No.
£ million
31 December 2015
No.
£ million
Allotted, called up and fully paid:
Statutory
At 1 January – 366,923,076 ordinary shares
of £0.10 each (2015 – 100,000,000 ordinary shares
of £0.00000001 each)
Issue of 100,000,000 ordinary shares of £0.00000001 each
Conversion of 200,000,000 ordinary shares of £0.00000001
each to 20 ordinary shares of £0.10 each
Issue of 299,999,980 ordinary shares of £0.10 each
Issue of 66,923,076 ordinary shares of £0.10 each
366,923,076
–
36.7
–
100,000,000
100,000,000
–
–
–
–
–
–
(199,999,980)
299,999,980
66,923,076
At 31 December
366,923,076
36.7
366,923,076
Pro forma
At 1 January – 300,000,000 ordinary shares of £0.10 each
Issue of 66,923,076 ordinary shares of £0.10 each
At 31 December
300,000,000
66,923,076
366,923,076
The Company has one class of ordinary shares which carry no right to fixed income.
–
–
–
30.0
6.7
36.7
30.0
6.7
36.7
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
21 SHARE PREMIUM
On 26 January 2015 the Company allotted to its shareholder 100,000,000 ordinary shares of £0.00000001 each credited as
fully paid to rank pari passu with its existing ordinary shares. On 27 January 2015 all the ordinary shares were consolidated
into 20 ordinary shares of £0.10 each, each share having the same rights and being subject to the same restrictions (except
as to nominal value) as the existing ordinary shares of £0.00000001 each in the Company as set out in its Articles. On the
same day the Company allotted and issued to its shareholder a further 299,999,980 ordinary shares of £0.10 each at a
premium of £2.00 per share, each to rank pari passu with the existing ordinary shares of £0.10 each in the capital of the
Company. In addition, the Company undertook a reduction of its share premium account by £500 million.
On 17 February 2015, the Company issued 66,923,076 new ordinary shares of £0.10 each at a premium of £1.85 per share in
connection with admission of its shares to listing.
31 December 2016
Statutory
£ million
31 December 2015
Pro forma
£ million
Statutory
£ million
–
Opening balance
723.8
Premium arising on issue of equity shares
Reduction of share premium account
(500.0)
Costs associated with the issue of equity shares – (5.8) (5.8)
218.0
–
–
100.0
123.8
–
Closing balance 218.0 218.0 218.0
22 NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Year ended
31 December 2016
Statutory
£ million
Year ended 31 December 2015
Statutory
Pro forma
£ million
£ million
192.1
Profit before tax from continuing operations
Adjustments for:
Finance costs
Discontinued operations' cash flows
Unrealised profit arising on changes in fair value of investments
(129.7)
in project companies (note 11)
0.7
Depreciation of plant and equipment
0.5
Amortisation of intangible assets
0.7
Share-based incentives
Contribution to JLPF
(47.5)
Decrease in provisions (2.8) (1.9) (1.9)
(218.8)
0.6
0.2
2.0
(18.4)
(133.1)
0.7
0.5
0.7
(47.5)
11.3
1.1
10.3
–
11.3
1.1
100.9
97.5
Operating cash outflow before movements in working capital
(67.3)
(1.0)
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables (3.5) (2.2) (2.2)
(34.8)
1.2
(67.3)
(1.0)
Net cash outflow from operating activities (37.1) (70.5) (70.5)
23 GUARANTEES, CONTINGENT ASSETS AND LIABILITIES AND OTHER COMMITMENTS
At 31 December 2016, the Group had future equity and loan commitments in PPP and renewable energy projects of £186.3 million
(31 December 2015 – £278.1 million) backed by letters of credit of £162.6 million (31 December 2015 – £154.2 million) and
collateralised cash of £23.7 million (31 December 2015 – £123.9 million).
As stated in note 18 a), the Company has provided guarantees in respect of certain PPP investments transferred to JLPF in
settlement of prior annual contribution obligations. Guarantees are provided to fund any cumulative shortfall in forecast
yield payments from these PPP investments up until 2017, and the maximum exposure at 31 December 2016 was £nil
(31 December 2015 – £0.3 million).
The Group has given guarantees to lenders of a normal trading nature, including performance bonds, some of which may
be payable on demand.
Claims arise in the normal course of trading which in some cases involve or may involve litigation. Full provision has been
made for all amounts which the Directors consider are likely to become payable on account of such claims.
John Laing Annual Report and Accounts 2016 /
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
23 GUARANTEES, CONTINGENT ASSETS AND LIABILITIES AND OTHER COMMITMENTS
(CONTINUED)
The Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases for
land and buildings, falling due as follows:
31 December
2016
£ million
31 December
2015
£ million
Within one year
In the second to fifth years inclusive
After five years
1.0
3.0
2.8
6.8
0.9
3.3
4.0
8.2
24 TRANSACTIONS WITH RELATED PARTIES
Group
Details of transactions between the Group and its related parties are disclosed below.
Trading transactions
The Group has entered into the following trading transactions with project companies in which the Group holds interests:
Year ended
31 December
2016
£ million
Year ended
31 December
2015
£ million
Services income*
Amounts owed by project companies
Amounts owed to project companies
18.0
1.6
(0.6)
13.5
3.1
(0.7)
* Services income is generated from project companies through management services agreements and recoveries of bid costs on financial close.
Investment transactions
Net cash transferred to investments at FVTPL (note 11)
Transactions with other related parties
Year ended
31 December
2016
£ million
Year ended
31 December
2015
£ million
(73.4)
(54.0)
There were no transaction with other related parties during the year ended 31 December 2016.
In the year ended 31 December 2015, the Group transferred ownership of shares in JLEN and shares in a PPP project company
to JLPF as partial consideration for agreed deficit reduction contributions. More details are set out in note 11.
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NOTES TO THE GROUP FINANCIAL STATEMENTS
for the year ended 31 December 2016
24 TRANSACTIONS WITH RELATED PARTIES
Remuneration of key management personnel
(CONTINUED)
The remuneration of the Directors of John Laing Group plc together with other members of the Executive Committee, who
were the key management personnel of the Group for the period of the financial statements, is set out below in aggregate for
each of the categories specified in IAS 24 Related Party Disclosures:
Year ended
31 December
2016
£ million
Year ended
31 December
2015
£ million
Cash basis
Short-term employee benefits
Post-employment benefits
Cash payments under long-term incentive plan
Social security costs
Award basis
Short-term employee benefits
Post-employment benefits
Awards under long-term incentive plan
Social security costs
2.8
0.2
1.9
0.7
5.6
2.8
0.2
1.0
0.4
4.4
3.0
0.2
1.9
0.7
5.8
3.0
0.2
2.6
0.7
6.5
In addition to the above amounts, £44,231 (2015 – £nil) was paid to Nalon Management Services Limited, of which Phil Nolan
is a director, for services in the period prior to the Company’s IPO in February 2015.
€
25 EVENTS AFTER BALANCE SHEET DATE
On 2 March 2017, the Group disposed of its investment in the A1 Gdansk project in Poland for proceeds of
137.3 million.
COMPANY BALANCE SHEET
as at 31 December 2016
Non-current assets
Investments at fair value through profit or loss
Total non-current assets
Current assets
Trade and other receivables
Total current assets
Total assets
Current liabilities
Borrowings
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity
John Laing Annual Report and Accounts 2016 /
111
31 December
2016
£ million
31 December
2015
£ million
Notes
4
5
6
7
8
9
952.7
952.7
272.4
272.4
816.1
816.1
130.4
130.4
1,225.1
946.5
(161.4)
(29.3)
(190.7)
(190.7)
(14.9)
(11.4)
(26.3)
(26.3)
1,034.4
920.2
36.7
218.0
2.7
777.0
1,034.4
36.7
218.0
0.7
664.8
920.2
As permitted by Section 408(2) of the Companies Act 2006, the Company’s income statement is not presented in these
financial statements. The amount of profit after tax of the Company for the year ended 31 December 2016 was £138.4 million
(2015 – £170.7 million).
The financial statements of John Laing Group plc, registered number 05975300, were approved by the Board of Directors and
authorised for issue on 6 March 2017. They were signed on its behalf by:
Olivier Brousse
CHIEF EXECUTIVE OFFICER
Patrick O’D Bourke
GROUP FINANCE DIRECTOR
6 March 2017
6 March 2017
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COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
Share capital
£ million
Share premium
£ million
Other reserves Retained earnings
£ million
£ million
Total equity
£ million
Balance at 1 January 2016
Profit for the year
Total comprehensive income for the year
Share-based incentives
Dividends paid
36.7
–
–
–
–
218.0
–
–
–
–
Balance at 31 December 2016
36.7
218.0
0.7
–
–
2.0
–
2.7
664.8
138.4
138.4
–
(26.2)
777.0
920.2
138.4
138.4
2.0
(26.2)
1,034.4
The Company has sufficient distributable reserves at 31 December 2016 to continue to pay dividends at the current level for the
foreseeable future. It also has the ability to increase its distributable reserves through payment of dividends by its subsidiaries.
For the year ended 31 December 2015
Balance at 1 January 2015
Profit for the year
Total comprehensive income for the year
Shares issued in the year
Costs associated with the issue of shares
Reduction in the share premium account
Share-based incentives
Dividends paid
Balance at 31 December 2015
Share capital
£ million
Share premium
£ million
Other reserves Retained earnings
£ million
£ million
Total equity
£ million
–
–
–
36.7
–
–
–
–
36.7
–
–
–
723.8
(5.8)
(500.0)
–
–
218.0
–
–
–
–
–
–
0.7
–
0.7
–
170.7
170.7
–
–
500.0
–
(5.9)
664.8
–
170.7
170.7
760.5
(5.8)
–
0.7
(5.9)
920.2
COMPANY CASH FLOW STATEMENT
for the year ended 31 December 2016
Profit from operations
Unrealised profit on changes in fair value of investments held at FVTPL
Share-based incentives
Increase in trade and other receivables
Increase in trade and other payables
Net cash flow from operating activities
Investing activities
Interest received
Dividends received
Acquisition of subsidiaries
Net cash inflow/(outflow) from investing activities
Financing activities
Interest paid
Dividends paid
Proceeds on issue of shares
Proceeds from borrowings
Repayment of borrowings
Increase in intercompany loans
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of year
John Laing Annual Report and Accounts 2016 /
113
Year ended
Year ended
31 December 2016 31 December 2015
£ million
£ million
134.7
(136.6)
2.0
(0.1)
0.2
0.2
3.6
4.0
–
7.6
(2.9)
(26.2)
–
165.0
(19.0)
(124.7)
(7.8)
–
–
–
170.7
(171.1)
0.7
(0.3)
–
–
–
–
(15.0)
(15.0)
(6.3)
(5.9)
124.7
50.0
(31.0)
(116.5)
15.0
–
–
–
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
1 GENERAL INFORMATION
John Laing Group plc (the "Company") is a public limited company incorporated and domiciled in the United Kingdom.
The Company's ordinary shares are listed on the London Stock Exchange. The principal activity of the Company is that
of an investment holding company.
The remuneration of the Directors of the Company is shown in the Directors’ Remuneration Report on pages 56 to 68.
2 ACCOUNTING POLICIES
a) Basis of accounting
These financial statements have been prepared in accordance with IFRS as adopted by the EU and Investment Entities
(Amendments to IFRS 10, IFRS 12 and IAS 27) as endorsed by the EU.
The financial statements have been prepared under the historical cost convention in accordance with the Companies
Act 2006, except for investments at fair value through profit or loss (FVTPL) which are stated at fair value.
For the reasons set out on page 82, the Company’s financial statements are prepared on a going concern basis.
A summary of the principal accounting policies adopted by the Directors, which have been applied consistently
throughout the current and preceding years, is shown below.
b)
Investments
The Company meets the definition of an Investment Entity under IFRS 10 and as such has adopted Investment Entities
Investments at fair value through profit or loss
(Amendments to IFRS 10, IFRS 12 and IAS 27). In accordance with IAS 27 and the Investment Entities standard, the
Company has accounted for its investments as follows:
Investments at cost
The Company has accounted for its investment in John Laing Holdco Limited at FVTPL, consistent with the Group
financial statements.
During the year ended 31 December 2015, as a result of the restructuring related to its IPO, the Company became the
direct shareholder in subsidiary companies which provide services in relation to the Company’s investment activities or
hold the Group's retirement benefit obligations (Service Companies). These subsidiaries include the investments in
Laing Investments Management Services Limited, Laing Investments Management Services (Australia) Limited, Laing
Investments Management Services (Canada) Limited, Laing Investments Management Services (Netherlands) Limited,
Laing Investments Management Services (New Zealand) Limited, Laing Investments Management Services (Singapore)
Limited, John Laing (USA) Limited, John Laing Projects & Developments Limited, John Laing Services Limited and
John Laing Capital Management Limited.
Under IAS 27, the Company has elected to account for its interest in these subsidiary companies at cost less any amounts
written-off for any permanent diminution in value. In the Group financial statements, these interests are consolidated.
c) Taxation
The tax charge or credit represents the sum of tax currently payable.
Current tax payable is based on taxable profit for the year. Taxable profit differs from net profit because it excludes both
items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.
The Company’s liability for current tax is calculated using tax rates that have been enacted, or substantively enacted,
by the balance sheet date.
John Laing Annual Report and Accounts 2016 /
115
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
2 ACCOUNTING POLICIES
d) Financial instruments
(CONTINUED)
Financial assets and financial liabilities are recognised on the Balance Sheet when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows
i)
from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with
IAS 39 Financial Instruments: Recognition and Measurement and IFRS 13 Fair Value Measurement.
Financial assets
The Company classifies its financial assets in the following categories: investments at FVTPL and loans and
a)
receivables and investments at cost. The classification depends on the purpose for which the financial assets were
acquired. The Company determines the classification of its financial assets at initial recognition.
Investments at fair value through profit or loss
(b) Loans and receivables
The Company's accounting policy in respect of investments at FVTPL is set out in section 2(b) above.
(c) Investments at cost
The Company’s loans and receivables comprise cash and cash equivalents and amounts owed by subsidiary
undertakings and are recorded at amortised cost.
ii) Financial liabilities and equity
The Company’s investments at cost comprise its investments in Service Companies (see note 2 (b) for further
details) which are held at cost less impairments.
a) Equity instruments – share capital
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
b) Financial liabilities
Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or associated with
the establishment of the Company that would otherwise have been avoided are written off against the balance of
the share premium account.
Financial liabilities are classified as other financial liabilities, comprising loans and borrowings which are initially
recognised at the fair value of the consideration received and subsequently at amortised cost using the effective
interest rate method.
e) Dividend payments
Dividends on the Company’s ordinary shares are recognised when they have been appropriately authorised and are no
longer at the Company’s discretion. Accordingly, interim dividends are recognised when they are paid and final dividends
are recognised when they are declared following approval by shareholders at the Company’s AGM. Dividends are
recognised as an appropriation of shareholders’ funds.
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The key area of the financial statements where the Company is required to make critical judgements and material
accounting estimates is in respect of the fair value of investments held by the Company. The methodology for determining
the fair value of investments and the critical accounting judgements and key sources of estimation uncertainty therein are
set out in note 2 to the Group financial statements.
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/ John Laing Annual Report and Accounts 2016
116
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
4 INVESTMENTS
At 1 January 2016
Acquisition of investments at cost less impairment
Acquisition of investments at FVTPL
Fair value movement
Investments at FVTPL*
Investments at cost less impairment
*
Net gain on investments at FVTPL for the year ended 31 December 2016 is £136.6 million (2015 – £171.1 million).
Details of investments and how they are recognised in the accounts are as follows:
Investments
Treatment
John Laing Holdco Limited
John Laing (USA) Limited
John Laing Capital Management Limited
John Laing Projects & Developments Limited
John Laing Services Limited
Laing Investments Management Services (Australia) Limited
Laing Investments Management Services (Canada) Limited
Laing Investments Management Services (Germany) Limited
Laing Investments Management Services (Netherlands) Limited
Laing Investments Management Services (New Zealand) Limited
Laing Investments Management Services (Singapore) Limited
Laing Investments Management Services Limited
All entities are incorporated in the United Kingdom.
Fair valued
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
Cost less impairment
5 TRADE AND OTHER RECEIVABLES
Due within one year:
Amounts owed by subsidiary undertakings
31 December
2016
£ million
31 December
2015
£ million
816.1
–
–
136.6
952.7
937.7
15.0
952.7
2016
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
15.0
630.0
171.1
816.1
801.1
15.0
816.1
2015
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
31 December
2016
£ million
31 December
2015
£ million
272.4
130.4
The amounts owed by subsidiary undertakings at 31 December 2016 and 2015 are repayable on demand and interest is
charged at arm's length interest rates.
6 BORROWINGS
31 December
2016
£ million
31 December
2015
£ million
Interest bearing loans and borrowings net of unamortised financing costs
(161.4)
(14.9)
John Laing Annual Report and Accounts 2016 /
117
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
7 TRADE AND OTHER PAYABLES
Amounts owed to subsidiary undertakings
Accruals and deferred income
8 SHARE CAPITAL
Authorised:
Ordinary shares of £0.10 each
Allotted, called up and fully paid:
366,923,976 ordinary shares of £0.10 (31 December 2015 – 366,923,976 of £0.10) each
The Company has one class of ordinary shares which carry no right to fixed income.
31 December 2016
No.
£ million
31 December
2016
£ million
31 December
2015
£ million
(28.4)
(0.9)
(29.3)
(10.9)
(0.5)
(11.4)
31 December
2016
No.
31 December
2015
No.
366,923,076
366,923,076
366,923,076
366,923,076
£ million
£ million
36.7
36.7
36.7
36.7
31 December 2015
No.
£ million
Allotted, called up and fully paid:
At 1 January – 366,923,076 ordinary shares of £0.10 each
(2015 – 100,000,000 ordinary shares of £0.00000001 each)
26 January 2015 – Issue of 100,000,000 ordinary shares
of £0.00000001 each
27 January 2015 – Conversion of 200,000,000 ordinary shares
of £0.00000001 each to 20 ordinary shares of £0.10 each
27 January 2015 – Issue of 299,999,980 ordinary shares
of £0.10 each
17 February 2015 – Issue of 66,923,076 ordinary shares
of £0.10 each
366,923,076
36.7
100,000,000
–
–
–
–
–
–
–
–
100,000,000
(199,999,980)
299,999,980
66.923.076
At 31 December
366,923,076
36.7
366,923,076
–
–
–
30.0
6.7
36.7
9 SHARE PREMIUM
On 26 January 2015 the Company allotted to its shareholder 100,000,000 ordinary shares of £0.00000001 each credited as
fully paid to rank pari passu with the existing ordinary shares. On 27 January 2015 all the ordinary shares were consolidated
into 20 ordinary shares of £0.10 each, each share having the same rights and being subject to the same restrictions (except
as to nominal value) as the existing ordinary shares of £0.00000001 each in the Company as set out in its Articles. On the
same day the Company allotted and issued to its shareholder a further 299,999,980 ordinary shares of £0.10 each at a
premium of £2.00 per share, each to rank pari passu with the existing ordinary shares of £0.10 each in the capital of the
Company. In addition, the Company undertook a reduction of its share premium account by £500 million.
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On 17 February 2015, the Company issued 66,923,076 new ordinary shares of £0.10 each at a premium of £1.85 per share in
connection with admission of its shares to listing.
31 December
2016
£ million
31 December
2015
£ million
Opening balance
Premium arising on issue of equity shares
Reduction of share premium account
Costs associated with the issue of equity shares
Closing balance
218.0
–
–
–
218.0
–
723.8
(500.0)
(5.8)
218.0
/ John Laing Annual Report and Accounts 2016
118
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
10 FINANCIAL INSTRUMENTS
Financial risk exposure is addressed on a Group basis rather than a company only basis. The Company’s risk management
programme is disclosed in detail in the Group accounts in note 16 and in the Financial Review section.
Loans and
receivables
£ million
Assets
at FVTPL
£ million
Investments
at cost less
impairments
£ million
Financial
liabilities at
amortised
cost
£ million
Total
£ million
Fair value measurement method
31 December 2016
Non-current assets
Investments
Current assets
Trade and other receivables
Total financial assets
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total financial liabilities
Net financial instruments
Fair value measurement method
31 December 2015
Non-current assets
Investments
Current assets
Trade and other receivables
Total financial assets
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total financial liabilities
Net financial instruments
n/a
Level 3
n/a
n/a
–
937.7
15.0
272.4
272.4
–
937.7
–
–
–
–
–
–
–
15.0
–
–
–
–
–
–
952.7
272.4
1,225.1
(161.4)
(29.3)
(161.4)
(29.3)
(190.7)
(190.7)
272.4
937.7
15.0
(190.7)
1,034.4
Loans and
receivables
£ million
Assets
at FVTPL
£ million
Investments
at cost less
impairments
£ million
Financial
liabilities at
amortised
cost
£ million
Total
£ million
n/a Level 1 / 3*
n/a
n/a
–
801.1
130.4
130.4
–
801.1
–
–
–
–
–
–
15.0
–
15.0
–
–
–
130.4
801.1
15.0
–
–
–
(14.9)
(11.4)
(26.3)
(26.3)
816.1
130.4
946.5
(14.9)
(11.4)
(26.3)
920.2
John Laing Annual Report and Accounts 2016 /
119
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
11 TRANSACTIONS WITH RELATED PARTIES
Trading transactions
The Company has entered into loans with its subsidiaries, with interest being charged at arm’s length rates.
31 December
2016
£ million
31 December
2015
£ million
Amounts owed by subsidiary undertakings
Amounts owed to subsidiary undertakings
Dividends received
Interest income received
Interest paid
272.4
(28.4)
4.0
3.5
(0.9)
130.4
(10.9)
–
3.6
(0.6)
12 GUARANTEES AND OTHER COMMITMENTS
At 31 December 2015, the Company was a guarantor under the Group’s £350 million syndicated, committed, revolving
credit facility and associated credit facilities dated 17 February 2015. On 21 June 2016 these facilities were increased to
£400 million. At 31 December 2016, the total amount utilised under these facilities, and hence guaranteed by the Company,
was £284.1 million (2015 – £174.3 million).
On 8 April 2016, the Company became an indemnitor under each of two uncommitted surety facilities, one from Euler
Hermes UK and the other from QBE Insurance Limited, which were each subsequently utilised to the sum of £25.0 million
and which sums were outstanding at 31 December 2016 and hence were guaranteed by the Company.
On 24 November 2016, the Company became a guarantor under each of two committed £25.0 million term liquidity facilities
backing the surety facilities entered into with Euler Hermes UK and QBE Insurance Limited. One facility was provided by
Barclays Bank PLC and the other by HSBC Bank plc. Both of these facilities were undrawn at 31 December 2016.
At 31 December 2016, the Company was a guarantor under an uncommitted bonding facility from Zurich entered into by
John Laing Limited. At 31 December 2016, the total amount utilised under this facility, and hence guaranteed by the Company,
was £nil (2015 – £4.0 million).
13 SUBSIDIARIES AND OTHER INVESTMENTS
Subsidiaries through which the Company holds its investments in project companies, which are held at FVTPL, and
subsidiaries that are Service Companies, which are consolidated, are described as “recourse”. Project companies in which
the Group invests are described as “non-recourse” which means that providers of debt to such project companies do not
have recourse beyond John Laing’s equity commitments in the underlying projects.
Details of the Company's subsidiaries at 31 December 2016 were as follows:
Country of Ownership Registered
Name incorporation interest office
RECOURSE SUBSIDIARIES
Service Companies (consolidated)
John Laing (USA) Limited * United Kingdom 100% Note 1
John Laing and Son BV ** Netherlands 100% Note 3
John Laing Capital Management Limited * United Kingdom 100% Note 1
John Laing Projects & Developments Limited * United Kingdom 100% Note 1
John Laing Services Limited * United Kingdom 100% Note 1
Laing Investments Management Services (Australia) Limited * United Kingdom 100% Note 1
Laing Investments Management Services (Canada) Limited * United Kingdom 100% Note 1
Laing Investments Management Services (Germany) Limited * United Kingdom 100% Note 1
Laing Investments Management Services (Netherlands) Limited * United Kingdom 100% Note 1
Laing Investments Management Services (New Zealand) Limited * United Kingdom 100% Note 1
Laing Investments Management Services (Singapore) Limited * United Kingdom 100% Note 1
Laing Investments Management Services Limited * United Kingdom 100% Note 1
RL Design Solutions Limited ** United Kingdom 100% Note 1
Note 1
Investment Entity subsidiaries (measured at fair value)
Argon Ventures Limited ** United Kingdom 100% Note 1
Croydon PSDH Holdco 2 Limited ** United Kingdom 100% 15 Canada Square,
London, E14 5GL
Croydon PSDH Holdco Limited ** United Kingdom 100% 15 Canada Square,
London, E14 5GL
Denver Rail (Eagle) Holdings Inc. ** United States 100% Note 8
Forum Cambridge Holdco Limited ** United Kingdom 100% Note 1
Hungary M6 Limited ** United Kingdom 100% Note 1
Hyder Investments Limited ** United Kingdom 100% Note 1
John Laing Cambridge Limited ** United Kingdom 100% Note 1
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/ John Laing Annual Report and Accounts 2016
120
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
13 SUBSIDIARIES AND OTHER INVESTMENTS
Country of Ownership
Name incorporation interest
(CONTINUED)
Registered
office
Investment Entity subsidiaries (measured at fair value) (continued)
Note 1
John Laing Funding Limited ** United Kingdom 100%
Note 1
John Laing Holdco Limited * United Kingdom 100%
Note 1
John Laing Homes Limited ** United Kingdom 100%
Note 8
John Laing I-4 Holdco Corp ** United States 100%
Note 8
John Laing I-77 Holdco Corp ** United States 100%
Note 1
John Laing Infrastructure Limited ** United Kingdom 100%
Note 1
John Laing Infrastructure (A1 Mobil Holdings) Limited ** United Kingdom 100%
John Laing Infrastructure (German Holdings) Limited ** United Kingdom 100%
Note 1
John Laing Infrastructure Management Services India ** India 100% Delhi Rectangle, 4th Floor
Rectangle No. 1, Saket
Private Limited
Commercial Complex,
D4 Saket, New Delhi, India
Note 3
Note 1
Note 4
Note 4
Note 3
Note 3
Note 3
Note 3
Note 1
Note 1
Note 3
Note 1
15 Canada Square,
London, E14 5GL
Note 1
Note 1
Note 1
Note 8
Note 1
Note 1
Note 1
Note 1
Note 1
Note 1
John Laing Investments (SLR) BV ** Netherlands 100%
John Laing Investments Limited ** United Kingdom 100%
John Laing Investments (Hornsdale) Pty Limited ** Australia 100%
John Laing Investments (Hornsdale 2) Pty Limited ** Australia 100%
John Laing Investments Netherlands Holdings BV ** Netherlands 100%
John Laing Investments (LBAJQ) BV ** Netherlands 100%
John Laing Investments (NGR) BV ** Netherlands 100%
John Laing Investments (NRAH) BV ** Netherlands 100%
John Laing Investments NZ Holdings Limited ** United Kingdom 100%
John Laing Investments Overseas Holdings Limited ** United Kingdom 100%
John Laing Investments (Perth Stadium) BV ** Netherlands 100%
John Laing Limited ** United Kingdom 100%
John Laing Projects & Developments (Croydon) Limited ** United Kingdom 100%
John Laing Projects & Developments (Holdings) Limited ** United Kingdom 100%
John Laing Regeneration GP Limited ** United Kingdom 99%
John Laing Social Infrastructure Limited ** United Kingdom 100%
John Laing Sterling Wind Holdco Corp ** United States 100%
Laing Infrastructure Holdings Limited ** United Kingdom 100%
Laing Investment Company Limited ** United Kingdom 100%
Laing Investments Greenwich Limited ** United Kingdom 100%
Laing Property Limited ** United Kingdom 100%
Laing Property Holdings Limited ** United Kingdom 100%
Rail Investments (Great Western) Limited ** United Kingdom 80%
NON-RECOURSE SUBSIDIARIES
Subsidiary project companies (measured at fair value)
AEM Holdco LLC ** United States 92.5%
AEM Wind LLC ** United States 92.5%
ALTRAC Light Rail Holdings 3 Pty Limited ** Australia 100%
ALTRAC Light Rail Holdings Trust 3 ** Australia 100%
ALTRAC Light Rail 3 Pty Limited ** Australia 100%
ALTRAC Light Rail 3 Trust ** Australia 100%
CountyRoute (A130) plc ** United Kingdom 100%
CountyRoute 2 Limited ** United Kingdom 100%
CountyRoute Limited ** United Kingdom 100%
Courtibeaux (Holding) Limited ** United Kingdom 100%
Defence Support (St Athan) Holdings Limited ** United Kingdom 100%
Defence Support (St Athan) Limited ** United Kingdom 100%
Dritte Nordergründe Beteiligungs GmbH ** Germany 100%
Education Support (Southend) Limited ** United Kingdom 100%
Glencarbry (Holdings) Limited ** United Kingdom 100%
Glencarbry Supply Company Limited ** Ireland 100%
645 N. Michigan,
Suite 980, Chicago,
IL 60611, USA
645 N. Michigan,
Suite 980, Chicago,
IL 60611, USA
Note 4
Note 4
Note 4
Note 4
Note 2
Note 2
Note 2
Note 1
Note 2
Note 2
Torstrasse 138,
10119 Berlin, Germany
Note 1
Note 1
Arthur Cox Building,
Earlsfort Terrace, Dublin 2,
Ireland
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
John Laing Annual Report and Accounts 2016 /
121
13 SUBSIDIARIES AND OTHER INVESTMENTS
Country of Ownership
Name incorporation interest
(CONTINUED)
Registered
office
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Subsidiary project companies (measured at fair value) (continued)
Glencarbry Windfarm Limited ** Ireland 100%
KGE Windpark Schipkau-Nord GmbH & Co. KG ** Germany 100%
Kiata Wind Farm Pty Limited ** Australia 72.3%
Kiata Wind Farm Holdings Pty Limited ** Australia 72.3%
KGE Schipkau-Nord Infrastruktur GmbH & Co. KG ** Germany 85%
John Laing Rail Infrastructure Limited ** United Kingdom 100%
Kabeltrasse Morbach GmbH & Co. KG ** Germany 81.82%
Klettwitz Schipkau Nord Beteiligungs GmbH ** Germany 100%
Klettwitz SN Holdings GmbH ** Germany 100%
Klettwitz SN Verwaltungs GmbH ** Germany 100%
LBAJQ Holding 4 Pty Limited ** Australia 100%
LBAJQ Holding Trust 4 ** Australia 100%
LBAJQ 4 Pty Limited ** Australia 100%
LBAJQ Trust 4 ** Australia 100%
Llynfi Afan Renewable Energy Park (Holdings) Limited ** United Kingdom 100%
Llynfi Afan Renewable Energy Park Limited ** United Kingdom 100%
Nordergründe Holdco GmbH ** Germany 100%
Arthur Cox Building,
Earlsfort Terrace, Dublin 2,
Ireland
Note 1
Oberdorfstraße 10,
55262 Heidesheim am Rhein,
Germany
Am Nesseufer 40,
26789 Leer,
Germany
Am Nesseufer 40,
26789 Leer,
Germany
Level 4,
30 Marcus Clarke Street,
Canberra City ACT 2601,
Australia
Level 4,
30 Marcus Clarke Street,
Canberra City ACT 2601,
Australia
Note 7
Note 7
Note 7
Note4
Note 4
Note 4
Note 4
Note 1
Note 1
Torstraße 138,
10119 Berlin,
Germany
20 Av de la Paix,
Strasbourg 67000,
France
20 Av de la Paix,
Strasbourg 67000,
France
Taurusavenue 100,
Hoofddorp, Netherlands
Taurusavenue 100,
Hoofddorp, Netherlands
Sveavagen 17, 111 57
Stockholm, Sweden
Sveavagen 17, 111 57
Stockholm, Sweden
Note 1
Note 1
Pasilly Nord les Points,
89310 Pasilly, France
Sterling Wind John Laing Op Co. LLC ** United States 100% 1209 Orange St, Wilmington,
Delaware 19801, USA
Sveavagen 17, 111 57
Stockholm, Sweden
Sveavagen 17, 111 57
Stockholm, Sweden
Note 1
Note 1
Torstrasse 138,
10119 Berlin, Germany
Note 1
Services Support (Surrey) Holdings Limited ** United Kingdom 100%
Services Support (Surrey) Limited ** United Kingdom 100%
Société d'Exploitation du Parc Eolien du Tonnerois ** France 100%
Tonnerois (Holdings) Limited ** United Kingdom 100%
Tournevents (Holding) Limited ** United Kingdom 100%
Vierte Nordergründe Beteiligungs GmbH ** Germany 100%
Wind Hold Co 1 Limited ** United Kingdom 100%
Svartvallsberget Holding AB ** Sweden 100%
Svartvallsberget SPW AB ** Sweden 100%
Rammeldalsberget Holding AB ** Sweden 100%
Parkway 6 Holding BV ** Netherlands 85%
Parkway 6 BV ** Netherlands 85%
Rammeldalsberget Vindkraft AB ** Sweden 100%
Parc Eolien des Courtibeaux SAS ** France 100%
Parc Eolien des Tournevents du Cos SAS ** France 100%
/ John Laing Annual Report and Accounts 2016
122
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
13 SUBSIDIARIES AND OTHER INVESTMENTS
Country of Ownership
Name incorporation interest
(CONTINUED)
Subsidiary project companies (measured at fair value) (continued)
Wind Project Co 1 Limited ** United Kingdom 100%
Windpark Horath Holding GmbH ** Germany 100%
Windpark Horath Verwaltungs GmbH ** Germany 100%
WP Horath GmbH & Co. KG ** Germany 100%
Zweite Nordergründe Beteiligungs GmbH ** Germany 100%
Details of the Company’s joint ventures and other investments at 31 December 2016 were as follows:
NON-RECOURSE
Joint venture project companies (measured at fair value)
Registered
office
Note 1
Note 7
Note 7
Note 7
Torstrasse 138,
10119 Berlin, Germany
A Mobil Services GmbH ** Germany 42.5%
A1 Mobil GmbH & Co. KG ** Germany 42.5%
A1 Mobil Verwaltungs GmbH ** Germany 42.5%
A-Lanes A15 Holding BV ** Netherlands 28%
A-Lanes A15 BV ** Netherlands 28%
A-Lanes Management Services BV ** Netherlands 25%
Agility Trains West (Holdings) Limited ** United Kingdom 24%
Agility Trains West (Midco) Limited ** United Kingdom 24%
Agility Trains West Limited ** United Kingdom 24%
Agility Trains East (Holdings) Limited ** United Kingdom 30%
Agility Trains East (Midco) Limited ** United Kingdom 30%
Agility Trains East Limited ** United Kingdom 30%
Alder Hey Holdco 3 Limited ** United Kingdom 40%
Alder Hey Holdco 2 Limited ** United Kingdom 40%
Alder Hey (Holdco 1 Limited ** United Kingdom 40%
Alder Hey (Special Purpose Vehicle) Limited ** United Kingdom 40%
ALTRAC Light Rail Partnership ** Australia 32.5%
Stader Strasse 36,
27419 Sittensen, Germany
Stader Strasse 36,
27419 Sittensen, Germany
Stader Strasse 36, 27419
Sittensen, Germany
Venkelweg 64, Hoogvliet
Rotterdam, Netherlands
Venkelweg 64, Hoogvliet
Rotterdam, Netherlands
Venkelweg 64, Hoogvliet
Rotterdam, Netherlands
Note 6
Note 6
Note 6
Note 6
Note 6
Note 6
Note 2
Note 2
Note 2
Note 2
Level 7, 280 Elizabeth
St Surry Hills, NSW 2010,
Australia
Note 2
Aylesbury Vale Parkway Limited ** United Kingdom 50%
Note 1
Cramlington Renewable Energy Developments Hold Co Limited ** United Kingdom 44.7%***
Note 1
Cramlington Renewable Energy Developments Limited ** United Kingdom 44.7%***
Note 2
Croydon and Lewisham Lighting Services (Holdings) Limited ** United Kingdom 50%
Note 2
Croydon and Lewisham Lighting Services Limited ** United Kingdom 50%
Note 8
Denver Transit Holdings LLC ** United States 45%
Note 8
Denver Transit Partners LLC ** United States 45%
Note 1
Forum Cambridge LLP ** United Kingdom 50%
Gdansk Transport Company SA ** Poland 29.69% Powstancow Warszawy 19,
81-718 Sopot, Poland
Note 5
Note 5
Note 5
Note 5
Note 5
Note 5
Note 5
Note 5
Note 8
Note 8
Note 8
1209 Orange St,
Wilmington, Delaware
19801, USA
Hornsdale Asset Co Pty Limited ** Australia 30%
Hornsdale Asset Co Pty 2 Limited ** Australia 10%
HWF Holdco 1 Pty Limited ** Australia 15%
HWF FinCo 1 Pty Limited ** Australia 30%
HWF 1 Pty Limited ** Australia 30%
HWF Holdco 2 Pty Limited ** Australia 20%
HWF FinCo 2 Pty Limited ** Australia 20%
HWF 2 Pty Limited ** Australia 20%
I-4 Mobility Partners HoldCo LLC ** United States 50%
I-4 Mobility Partners Midstream LLC ** United States 50%
I-4 Mobility Partners Op Co LLC ** United States 50%
I-77 Mobility Partners Holding LLC ** United States 10%
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
John Laing Annual Report and Accounts 2016 /
123
13 SUBSIDIARIES AND OTHER INVESTMENTS
Country of Ownership
Name incorporation interest
(CONTINUED)
Registered
office
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Joint venture project companies (measured at fair value) (continued)
I-77 Mobility Partners LLC ** United States 10%
INEOS Runcorn (TPS) Holding Limited ** United Kingdom 37.43%
INEOS Runcorn (TPS) Limited ** United Kingdom 37.43%
OWP Nordergründe GmbH & Co. KG ** Germany 30%
NGR Project Company Pty Limited ** Australia 40%
MAK Mecsek Autopalya Koncesszios Zrt. ** Hungary 30%
New Forum Cambridge LLP ** United Kingdom 50%
NGR Holding Company Pty Limited ** Australia 40%
Laing/Gladedale (Hastings) Holdings Limited ** United Kingdom 50%
Laing/Gladedale (Hastings) Limited ** United Kingdom 50%
Laing/Gladedale (St Saviours) Limited ** United Kingdom 50%
Laing Wimpey Alireza Limited ** Saudi Arabia 33%
1209 Orange St,
Wilmington, Delaware
19801, USA
PO BOX 9 Runcorn
Site Hq, South Parade,
Runcorn, Cheshire,
WA7 4JE
PO BOX 9 Runcorn
Site Hq, South Parade,
Runcorn, Cheshire,
WA7 4JE
Note 1
Note 1
Note 1
P.O. Box 2059,
Jeddah, Saudi Arabia
H-1117 Budapest,
Budafoki ut 91-93,
Hungary
Note 1
c/- Allens, Level 33,
101 Collins Street,
Melbourne VIC 3000,
Australia
c/- Allens, Level 33,
101 Collins Street,
Melbourne VIC 3000,
Australia
Stephanitorsbollwerk 3,
28217 Bremen
Note 2
Note 2
Level 19,
177 Pacific Highway
North Sydney, NSW
2060, Australia
Level 19,
177 Pacific Highway
North Sydney, NSW
2060, Australia
Level 3, 37 Galway
Street, Britomart,
Auckland 1010,
New Zealand
Level 3, 37 Galway
Street, Britomart,
Auckland 1010,
New Zealand
Severn River Crossing Plc ** United Kingdom 35% Bridge Access Road, Aust,
South Gloucestershire,
BS35 4BD
Westkanaaldijk 2 Utrecht,
Netherlands
13 Queens Road,
Aberdeen, Scotland,
AB15 4YL
13 Queens Road,
Aberdeen, Scotland,
AB15 4YL
13 Queens Road,
Aberdeen, Scotland,
AB15 4YL
Regenter Myatts Field North Holdings Company Limited ** United Kingdom 50%
Regenter Myatts Field North Limited ** United Kingdom 50%
SA Health Partnership Holding Nominees Pty Limited ** Australia 17.26%
Securefuture Wiri Holdings Limited ** New Zealand 30%
SA Health Partnership Nominees Pty Limited ** Australia 17.26%
Speyside Renewable Energy Partnership Hold Co Limited ** United Kingdom 43.35%****
Speyside Renewable Energy Partnership Limited ** United Kingdom 43.35%****
Speyside Renewable Energy Finance Limited ** United Kingdom 43.35%****
SPC Management Services BV ** Netherlands 33.3%
Securefuture Wiri Limited ** New Zealand 30%
/ John Laing Annual Report and Accounts 2016
124
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2016
13 SUBSIDIARIES AND OTHER INVESTMENTS
Country of Ownership
Name incorporation interest
(CONTINUED)
Joint venture project companies (measured at fair value) (continued)
Transcend Property Limited ** United Kingdom 50%
Viridor Laing (Greater Manchester) Holdings Limited ** United Kingdom 50%
Viridor Laing (Greater Manchester) Limited ** United Kingdom 50%
Westadium Project Holdco Pty Limited ** Australia 50%
Westadium Project Co Pty Limited ** Australia 50%
Wimpey Laing Iran Limited ** United Kingdom 50%
Wimpey Laing Limited ** United Kingdom 50%
Registered
office
Note 1
Note 1
Note 1
Note 4
Note 4
Gate House, Turnpike
Road, High Wycombe,
Buckinghamshire,
HP12 3NR
Gate House, Turnpike
Road, High Wycombe,
Buckinghamshire,
HP12 3NR
Other investments
City Greenwich Lewisham Rail Link plc ** United Kingdom 5%
73 Norman Road,
Greenwich,
London, SE10 9QF
John Laing Environmental Assets Group Limited ** Guernsey 3.3% Sarnia House, Le Truchot,
St Peter Port, Guernsey
GY1 1GR, Channel Islands
*
Entities owned directly by the Company
** Entities owned indirectly by the Company
*** 44.7% of share capital and 55.9% of subordinated debt loan
**** 43.35% of share capital and 51% of subordinated debt loan
Notes:
1
2
3
4
5
6
7
8
The registered office of these companies is: 1 Kingsway, London, WC2B 6AN
The registered office of these companies is: 8 White Oak Square, London Road, Swanley, Kent, BR8 7AG
The registered office of these companies is: Schiphol Boulevard 253 D-building, Schiphol,1118 BH, The Netherlands
The registered office of these companies is: Level 16, 15 Castlereagh Street, Sydney NSW 2000, Australia
The registered office of these companies is: Suite 3 Level 14, 219-227 Elizabeth Street, Sydney NSW 2000, Australia
The registered office of these companies is: 4th Floor 4 Copthall Avenue, London, EC2R 7DA
The registered office of these companies is: Münzstraße 21, 10178 Berlin, Germany
The registered office of these companies is: 2711 Centreville Road Suite 400, Wilmington, Delaware 19808, USA
ADDITIONAL FINANCIAL INFORMATION (UNAUDITED)
Re-presented financial statements
John Laing Annual Report and Accounts 2016 /
125
INCOME STATEMENT
for the year ended 31 December 2015
Fair value movements – investment portfolio
Fair value movements – other
Investment fees from projects
Net gain on investments at fair value
through profit or loss
IMS revenue
PMS revenue
Recoveries on financial close
Other income
Other income
Total income
Cost of sales
Cost of sales
Third party costs
Staff costs
General overheads
Other net costs
Pension and other charges
Administrative expenses
EBIT
Finance charges
Pension and other charges
Finance costs
Profit before tax
Notes:
Pro forma
IFRS
Group Income
Statement
£ million
132.1
(6.7)
7.7
Adjustments
£ million
Re-presented
income
statement
£ million
Re-presented income
statement line items
–
a
(0.8)
–
132.1
(7.5)
7.7
Fair value movements –
investment portfolio
Fair value movements – other
133.1
(0.8)
132.3
13.4
17.0
3.4
0.7
34.5
167.6
(0.1)
(0.1)
(6.9)
(31.8)
(11.7)
(3.4)
(1.5)
(55.3)
112.2
(11.3)
–
(11.3)
100.9
–
–
–
(0.7)
a,c
(0.7)
c
(1.5)
0.1
a
c
c
0.1
0.3
(0.7)
–
b
(0.2)
1.5
0.9
(0.5)
a,b
b
4.7
(4.2)
0.5
–
IMS revenue
PMS revenue
Recoveries on financial close
13.4
17.0
3.4
–
33.8
166.1
–
–
Third party costs
(6.6)
(32.5)
Staff costs
(11.7) General overheads
(3.6) Other net costs
–
(54.4)
111.7
Finance charges
(6.6)
(4.2) Pension and other charges
(10.8)
100.9
a
b
c
Adjustments comprise: £2.0 million interest income reclassified from ‘fair value movements – other’ to ‘finance costs’; £0.7 million cost in respect of the
IFRS 2 charge for share-based incentives reclassified from ‘fair value movements – other’ to ‘staff costs’; £0.5 million fee income from project company
shown as ‘other income’ in Group Income Statement reclassified to ‘fair value movements – other’ in re-presented income statement.
Under IAS 19, the costs of the pension schemes comprise a service cost of £1.5 million, included in administrative expenses in the Group Income
Statement, and a finance charge of £2.7 million, included in finance costs in the Group Income Statement. These amounts are combined together under
management reporting.
Other small reclassifications: (i) £0.1 million costs shown as ‘cost of sales’ in the Group Income Statement reclassified to ‘other net costs’; (ii) £0.3 million
of cost recoveries in ‘other income’ in the Group Income Statement offset against ‘third party costs’ in the re-presented income statement; (iii) other net
costs of £0.1 million reclassified from ‘other income’ to ‘other net costs’.
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ADDITIONAL FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
Re-presented financial statements (continued)
BALANCE SHEET
as at 31 December 2015
Non-current assets
Intangible assets
Plant and equipment
Investments at FVTPL
Deferred tax assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Current tax liabilities
Borrowings
Trade and other payables
Liabilities directly associated with
assets classified as held for sale
Net current liabilities
Non-current liabilities
Retirement benefit obligations
Provisions
Total liabilities
Net assets
Notes:
IFRS Group
Balance Sheet
£ million
Adjustments
£ million
Re-presented
Balance Sheet
£ million
Re-presented balance sheet
line items
c
0.2
1.0
965.3
–
–
1.4
–
967.9
8.3
1.1
9.4
977.3
–
(2.7)
(14.9)
(19.6)
(37.2)
(4.2)
(32.0)
(46.2)
–
(0.1)
(46.3)
(87.7)
889.6
c
a
(0.2)
(1.0)
b
(123.9)
a
123.9
0.5
c,e
(1.4)
5.6
c
3.5
d
a
(8.3)
4.4
(3.9)
(0.4)
b,d,e
e
d
(22.1)
2.7
d
(4.1)
19.6
(3.9)
d
4.2
(3.6)
f
f
7.3
(7.3)
d
0.1
0.1
0.4
–
–
–
841.4
123.9
0.5
–
5.6
971.4
–
5.5
5.5
976.9
Portfolio book value
Cash collateral balances
Non-portfolio investments
Other long term assets
Cash and cash equivalents
(22.1) Working capital and other balances
–
(19.0) Cash borrowings
–
(41.1)
–
(35.6)
(38.9) Pension deficit (IAS 19)
(7.3) Other retirement benefit
obligations
–
(46.2)
(87.3)
889.6
a
b
c
d
e
f
Investments at fair value through profit or loss (FVTPL) comprise: portfolio valuation of £841.4 million, non-portfolio investments of £0.5 million
and other assets and liabilities within recourse investment entity subsidiaries of £123.4 million (see note 11 to the Group financial statements).
Re-presented cash and cash equivalents increased from £1.1 million on the Group Balance Sheet because of the inclusion of available cash balances
in recourse group investment subsidiaries of £4.4 million excluding cash collateral balances of £123.9 million.
Other assets and liabilities within recourse investment entity subsidiaries of £123.4 million referred to in note (a) include (i) cash and cash equivalents
of £128.3 million, of which £123.9 million is held to collateralise future investment commitments, and (ii) negative working capital and other balances
of £4.9 million.
Intangible assets, plant and equipment and deferred tax assets are combined as other long term assets.
Trade and other receivables, current tax liabilities, trade and other payables, liabilities directly associated with assets classified as held for sale and
provisions are combined as working capital and other balances.
Borrowings comprise cash borrowings of £19.0 million net of unamortised financing costs of £4.1 million, with the non-current portion of £3.0 million
re-presented as other long term assets and the current portion of £1.1 million re-presented as working capital and other balances.
Total retirement benefit obligations are shown in their separate components as per note 18 to the Group financial statements.
John Laing Annual Report and Accounts 2016 /
127
DETAILS OF INVESTMENTS IN PROJECT COMPANIES
Details of the Group’s investments in project companies as at 31 December 2016 broken down by infrastructure sector are as follows:
Sector
Company name
Project name
% owned
Description
Period of concession or
estimated operating life
Start
date
No. of
years
Equity committed /
invested (par value)
<
Alder Hey
(Special Purpose
Vehicle) Limited
Alder Hey
Children's
Hospital
40%
Design, build, finance and operate
new hospital in Liverpool costing
£167 million.
July 2015
30
£10 million
New Royal
Adelaide Hospital
17.26%
Design, build, finance and operate
new hospital in Adelaide, South
Australia costing AUD $1,850 million.
Nov 2011
35
£25 – £50 million
Social
Infrastructure
Health
Justice and
Emergency
Services
Defence
Regeneration
SA Health
Partnership
Nominees Pty
Limited
Securefuture
Wiri Limited
Auckland South
Corrections
Facility
30%
Defence Support
(St Athan)
Limited
DARA Red
Dragon
Regenter Myatts
Field North
Limited
Lambeth
Housing
100%
50%
50%
Other
accommodation
Westadium
Project Co Pty
Limited
New Perth
Stadium
Environmental
Waste and
biomass
INEOS Runcorn
(TPS) Limited
Manchester
Waste TPS Co
37.43%
Manchester
Waste VL Co
50%
Design, build, finance and operate
a 960 place prison at Wiri, South
Auckland, New Zealand costing
NZD $270 million.
Design, build and finance aircraft
maintenance facilities at RAF
St. Athan costing £89 million.
Build and refurbish, finance and
operate social housing in Lambeth
costing £72.6 million.
Design, build, finance, maintenance
and operation of new Perth Stadium
in Western Australia comprising total
expenditure of AUD $1.0 billion.
Design, build, finance and operate a
waste CHP plant in Runcorn costing
£233 million.
Design, build and commission
42 facilities comprising waste
processing and recycling services
in the Greater Manchester area with
construction costing £401 million.
Sept 2012
28
£10 – £25 million
Aug 2003
16
<
<
£10 million
May 2012
25
£10 million
Aug 2014
28
£25 – £50 million
Apr 2009
25
£10 – £25 million
Apr 2009
25
£25 – £50 million
Viridor Laing
(Greater
Manchester)
Limited
Speyside
Renewable
Energy
Partnership
Limited
Cramlington
Renewable
Energy
Developments
Limited
Glencarbry
Windfarm
Limited
Kabeltrasse
Morbach GmbH
& Co. KG
Speyside
Biomass
43.35%
Design, build, finance and operate
a 15 MW biomass CHP plant
in Speyside.
Aug 2014
33
£10 – £25 million
Cramlington
Biomass
44.7%
Design, build, finance and operate
a 28 MW biomass CHP plant
in Cramlington.
Sept 2015
22
£25 – £50 million
Wind
Rammeldalsberget
Vindkraft AB
Rammeldalsberget
wind farm
100%
Design, build, finance and operate
six 2.5 MW turbines in Sweden
Nov 2014
Glencarbry wind
farm
100%
Design, build, finance and operate
seven 3.3 MW and five 2.5 MW
turbines in Ireland
Jan 2016
24
26
£10 – £25 million
£10 – £25 million
Horath wind farm 81.82%
Design, build, finance and operate
nine 3.3 MW turbines in Germany
Nov 2016
24
£10 – £25 million
HWF 1 Pty
Limited
Hornsdale wind
farm (Phase 1)
30%
HWF 2 Pty
Limited
Hornsdale wind
farm (Phase 2)
20%
Kiata Wind Farm
Pty Limited
Kiata wind farm 72.3%
Design, build, finance and operate
32 turbines to give 100 MW total
installed capacity in Australia.
Design, build, finance and operate
32 turbines to give 100 MW total
installed capacity in Australia.
Design, build, finance and operate
a nine turbine 30 MW windfarm
in Australia
Aug 2015
26
£10 – £25 million
<
June 2016
26
£10 million
Nov 2016
26
£10 – £25 million
Llynfi Afan
Renewable
Energy Park
Limited
Llynfi wind farm 100%
Design, build, finance and operate
twelve 2 MW turbines in Wales.
June 2016
26
£10 – £25 million
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ADDITIONAL FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
DETAILS OF INVESTMENTS IN PROJECT COMPANIES (CONTINUED)
Sector
Company name
Project name
% owned
Description
Period of concession or
estimated operating life
Start
date
No. of
years
<
Equity committed /
invested (par value)
Wind
(continued)
Société
d'Exploitation du
Parc Eolien du
Tonnerois
Pasilly wind farm 100%
Design, build, finance and operate
ten 2 MW turbines in France.
Dec 2015
26
£10 million
Svartvallsberget
SPW AB
Svartvallsberget
wind farm
Klettwitz wind
farm
Klettwitz Shipkau
Nord
Beteiligungs
GmbH
AEM Wind LLC
100%
100%
Sterling wind
farm
92.5%
Parc Eolien des
Courtibeaux SAS
St. Martin wind
farm
Parc Eolien des
Tournevents du
Cos SAS
Sommette wind
farm
OWP
Nordergründe
GmbH & Co. KG
Nordergründe
offshore wind
farm
100%
100%
30%
Transport
Other
CountyRoute
(A130) plc
A130
100%
Gdansk
Transport
Company SA
I-4 Mobility
Partners Op Co
LLC
A1 Gdansk
Poland
29.69%
I-4 Ultimate
50%
I-77 Mobility
Partners LLC
I-77 Managed
Lanes
10%
Severn River
Crossing Plc
Severn River
Crossing
35%
MAK Mecsek
Autopalya
Koncesszios Zrt.
M6 Hungary
30%
Parkway 6 BV
A6 Parkway
Netherlands
85%
A1 Mobil GmbH
& Co. KG
A1 Germany
42.5%
A-Lanes A15 BV A15 Netherlands 28%
Design, build, finance and operate
ten 2 MW turbines in Sweden
Design, build, finance and operate
the re-powering of a windfarm with
27 turbines to give 89 MW total
installed capacity in Germany
Design, build, finance and operate
13 2.3 MW turbines in New Mexico,
USA
Design, build, finance and operate
five 2.05 MW turbines in France
Design, build, finance and operate
nine 2.4 MW turbines in France
Design, build, finance and operate
18 offshore 6.2 MW turbines in the
German North Sea
Design, build, finance and operate
the A130 bypass linking the A12
and A127 in Essex at a cost of
£76 million.
€
€
Design, build, finance and operate the
A1 motorway in Poland in two phases
at a cost of
and
900 million for phase 2.
651 million for phase 1
Design, build, finance and operate
21 miles of the I-4 Interstate in
Florida, US at a cost of USD
$2.32 billion.
Design, build, finance and operate
25.9 miles of the I-77 Interstate in
Charlotte, North Carolina, US at a
cost of USD $665 million.
Design, build, finance and operate
a second crossing over the Severn
River plus operate and maintain
existing crossing. Construction cost
approximately £320 million.
€
Design, construction, refurbishment,
operation, maintenance and financing
of 48 km section of M6 expressway
and 32 km of M60 expressway at a
cost of
886 million.
Design, build, finance, manage and
maintain for a 20 year operational
period the A6 Almere highway in the
greater Amsterdam region.
€
Construct and operate the A1
Autobahn between Bremen and
Hamburg in Germany at a cost of
417.1 million.
€
Design, build, finance and maintain
the A15 highway south of Rotterdam
(about 40 km) at a construction cost
of
727 million.
Mar 2013
26
£10 – £25 million
Oct 2015
25
£25 – £50 million
Oct 2016
31
£10 – £25 million
<
Nov 2016
27
£10 million
Sept 2016
27
£10 – £25 million
Aug 2016
26
£25 – £50 million
<
Feb 2000
30
£10 million
Aug 2004
35
£10 – £25 million
Sept 2014
40
£10 – £25 million
May 2015
53
£10 – £25 million
£10 – £25 million
Apr 1992
The earlier
of 30 years
or until a
pre-
determined
level of
revenue
achieved
Apr 2010
27
£10 – £25 million
<
Nov 2016
23
£10 million
Aug 2008
30
£25 – £50 million
Dec 2010
25
£10 – £25 million
City Greenwich
Lewisham Rail
Link plc
City Greenwich
Lewisham (DLR)
5%
Construction and operation of
infrastructure on Lewisham extension
of the Docklands Light Railway (DLR)
at a cost of £205 million.
Oct 1996
25
£10 – £25 million
John Laing Annual Report and Accounts 2016 /
129
DETAILS OF INVESTMENTS IN PROJECT COMPANIES (CONTINUED)
Sector
Company name
Project name
% owned
Description
Other
(continued)
Aylesbury Vale
Parkway Limited
Aylesbury Vale
Parkway
50%
John Laing Rail
Infrastructure
Limited
Denver Transit
Partners LLC
Coleshill
Parkway
100%
Denver Eagle P3 45%
ALTRAC Light
Rail Partnership
Sydney Light Rail 32.5%
Croydon and
Lewisham
Lighting Services
Limited
Agility Trains
West Limited
Croydon &
Lewisham SL
50%
IEP (Phase 1)
24%
Rolling stock
Agility Trains
East Limited
IEP (Phase 2)
30%
NGR Project
Company Pty
Limited
New Generation
Rollingstock
40%
Construction and operation of the
Aylesbury Vale Parkway Station.
Construction cost £15.5 million.
Construction and operation of the
Coleshill Parkway Station.
Construction cost £7.1 million.
Design, build, finance, maintenance
and operation of passenger rail
systems in Denver, Colorado.
Construction cost USD $1.27 billion.
Design, build, finance, operate and
maintain the CBD and South East
Light Rail and to operate and
maintain the Inner West Light Rail
in Sydney, Australia.
Installation and maintenance of
street lighting. Programme cost
£74.2 million.
Delivery and maintenance of intercity
train services on the Great Western
Main Line (UK) using a fleet of new
Super Express Trains and maintenance
facilities. Construction cost £1.8 billion.
Delivery and maintenance of intercity
train services on the East Coast Main
Line (UK) using a fleet of new Super
Express Trains and maintenance
facilities. Construction cost
£1.6 billion.
Provision and maintenance of 75
new six-car trains for Queensland
Rail, Australia. Construction cost
AUD $1.8 billion.
Period of concession or
estimated operating life
Start
date
No. of
years
<
Equity committed /
invested (par value)
Aug 2007
21
£10 million
<
Mar 2006
21
£10 million
Aug 2010
34
£10 – £25 million
Feb 2015
19
£50 – £100 million
<
Apr 2011
25
£10 million
May 2012
41
£50 – £100 million
Apr 2014
41
£50 – £100 million
Jan 2014
32
£10 – £25 million
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/ John Laing Annual Report and Accounts 2016
130
NOTICE OF ANNUAL GENERAL MEETING
to be held at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HS on 11 May 2017 at 11.00 am
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you
should seek your own advice from an independent stockbroker, solicitor, accountant, or other professional adviser.
If you have sold or otherwise transferred all of your ordinary shares in John Laing Group plc, please pass this document together
with the accompanying documents to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the
sale or transfer was effected, so they can pass these documents to the person who now holds the shares.
A form of proxy for the annual general meeting (AGM) is enclosed and should be completed and returned as soon as possible in
accordance with the instructions printed on the form of proxy. To be valid, it must reach the Company’s registrar, Equiniti, no
later than 48 hours before the time of the AGM. Alternatively, you may register your vote online by visiting the registrar’s website
at www.sharevote.co.uk or, if you already have a portfolio registered with Equiniti, by logging onto www.shareview.co.uk.
In order to register your vote online you will need to enter the Voting I.D., Task I.D. and Shareholder Reference Number which are
on the enclosed form of proxy. If you are a member of CREST, the electronic settlement system for UK securities, you may
register the appointment of a proxy by using the CREST electronic proxy appointment service. Further details are contained in
the notes to the notice of AGM (see pages 137 and 138 of this document) and in the form of proxy. Electronic and CREST proxy
voting instructions should also be submitted no later than 11.00am on 9 May 2017. Completion of a form of proxy or the
appointment of a proxy electronically will not stop you from attending the AGM and voting in person should you so wish.
John Laing Annual Report and Accounts 2016 /
131
CHAIRMAN’S LETTER
NOTICE OF ANNUAL GENERAL MEETING
Dear Shareholder,
I am writing to you with details of the annual general meeting (AGM) of John Laing Group plc (John Laing or the Company) which
we are holding at the offices of Freshfields Bruckhaus Deringer, 65 Fleet Street, London EC4Y 1HS on 11 May 2017 at 11.00am.
We very much hope that as many shareholders as possible will be able to attend.
Voting on all the proposed resolutions at the AGM will be conducted on a poll rather than on a show of hands. Voting on a poll is
more transparent and equitable because it includes a vote in respect of every share held by each shareholder (present and voting
in person or by proxy), rather than a single vote for each shareholder or proxy who attends the AGM.
Shareholders of the Company will be asked to consider and, if thought fit, approve resolutions in respect of the following matters:
Ordinary resolutions
The Company’s accounts and the reports of the Directors of the Company (the Directors) and the auditor of the Company
(the external auditor);
The final dividend for the year ended 31 December 2016;
Re-election of Directors;
Approval of the Directors’ remuneration report for the year ended 31 December 2016;
Reappointment of Deloitte LLP as auditor for the ensuing year;
Authority to determine the remuneration of the auditor;
Authority to allot shares; and
Authority to make political donations.
Special resolutions
Waiver of pre-emption rights in certain circumstances;
Authority for the Company to purchase its own shares; and
Approval to reduce the notice period for a general meeting, other than an annual general meeting.
A brief description of these matters is set out below.
Notice of AGM
Report and accounts and final dividend
(resolutions 1 and 2)
The formal notice of the AGM is set out on pages 135 to 138 of this document.
The first resolution at the AGM relates to the receipt and consideration of the Company’s accounts and the reports of the
Directors and the external auditor for the financial year ended 31 December 2016.
Separately, shareholders will also be asked to approve the payment of a final dividend of 6.3 pence per ordinary share in respect
of the year ended 31 December 2016, as recommended by the Directors.
If the recommended final dividend is approved, it is proposed that the dividend will be paid on 19 May 2017 to shareholders on
Re-election of Directors
(resolutions 3 to 9)
the Company’s register of members at the close of business on 21 April 2017 (the record date).
In accordance with the UK Corporate Governance Code (the Code), all the Directors of the Company being eligible will offer
themselves for re-election at the AGM. The re-election of Directors will take effect from the conclusion of the AGM.
Following the evaluation exercise conducted in 2016, as Chairman, I believe that the contribution and performance of each of the
Directors continues to be valuable and effective and that it is appropriate for them to continue to serve as Directors of the Company.
In accordance with the Code, the Board has reviewed the independence of its non-executive Directors and has determined that
they remain fully independent of management and that there are no relationships or circumstances likely to affect their
character or judgement.
Biographical details for each of the Directors offering themselves for re-election are set out in pages 44 to 45 of the Annual Report.
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/ John Laing Annual Report and Accounts 2016
132
Directors’ remuneration report
CHAIRMAN’S LETTER
(resolution 10)
(CONTINUED)
The Company believes that the Directors’ remuneration report, which may be found on pages 56 to 68 of the Annual Report,
demonstrates the link between our remuneration policy and practice, and the Company’s strategy and performance.
The Directors’ remuneration policy, a summary of which may be found on pages 63 to 68 of the Annual Report, sets out the
Company’s forward-looking policy on directors’ remuneration and describes the components of the executive and non-executive
Directors’ remuneration.
The Board considers that appropriate executive remuneration plays a vital part in helping to achieve the Company’s overall
objectives and, accordingly, and in compliance with the relevant legislation, shareholders will be invited to approve the Directors’
remuneration report.
The Directors’ remuneration report is included in the Annual Report and provides details of the remuneration paid to the
Directors during the year ended 31 December 2016, including share awards. Shareholders are invited to approve the Directors’
remuneration report under resolution 10. This vote is advisory in nature in that payments made or promised to Directors will not
have to be repaid, reduced or withheld in the event that the resolution is not passed. This vote will be in respect of the content of
the Directors’ remuneration report and not specific to any Director’s level or terms of remuneration.
The Company is required to seek shareholder approval of the Directors’ remuneration policy every three years, except in the
event that a change to the policy is proposed or the advisory vote on the Directors’ remuneration report is not passed at the
preceding AGM. The Directors’ remuneration policy was approved at the 2016 AGM and there have been no changes since it was
approved. It is expected that a resolution approving the Directors’ remuneration policy will next be put to shareholders at the
External Auditor
(resolutions 11 and 12)
2019 AGM.
In the second half of 2016 the Company undertook an audit tender which resulted in Deloitte LLP being selected to continue as
the Company’s external auditor. Resolutions will be proposed to reappoint Deloitte LLP as external auditor until the conclusion of
Directors’ authority to allot shares
(resolution 13)
the AGM in 2018 and to authorise the Directors to determine their remuneration.
Further to the provisions of section 551 of the Companies Act 2006 (the Act), shareholders will be asked to grant the Board the
authority to allot shares, grant rights to subscribe for shares, or convert any security into shares in the Company (the new authority).
The new authority would be valid until the close of the AGM in 2018 or, if earlier, the close of business on 11 August 2018.
If passed, the new authority would be limited to an aggregate nominal value of £12,230,769.20, or 122,307,692 ordinary shares,
(representing approximately 33.3% of the Company’s issued ordinary share capital as at 6 March 2017 being the latest
practicable date prior to the publication of this notice) save that, if the new authority were used in connection with a rights issue,
it would be limited to an aggregate nominal value of £24,461,538.40 ordinary shares, or 244,615,384 ordinary shares,
(representing approximately 66.6% of the Company’s issued share capital as at 6 March 2017).
In each case the number of shares to which the new authority applies is in addition to those committed to employee share plans.
At the date this document was approved by the Board, the Directors had no intention to exercise this authority, although they
considered its grant to be appropriate in order to preserve maximum flexibility for the future. The Directors intend to seek the
Political donations
(resolution 14)
approval of shareholders to renew this authority annually.
The Act restricts companies from making donations to political parties, other political organisations or independent election
candidates and from incurring political expenditure, in each case without shareholders’ consent. It is not proposed or intended
to alter the Company’s policy of not making such donations or incurring such expenditure. However, the Act contains some
potentially broad definitions and it may be that some of the activities of the Company and its subsidiaries fall within these
definitions and, without the necessary authorisation, this could inhibit the Company’s ability to communicate its views effectively
to political audiences and to relevant interest groups. Accordingly, the Company believes that the authority contained in this
resolution is necessary to allow it and its subsidiaries to fund activities which it is in the interests of shareholders that the
John Laing group of companies should support. Such authority will enable the Company and its subsidiaries to be sure that
they do not unintentionally commit a technical breach of the Act. Any expenditure which may be incurred under authority of this
resolution will be disclosed in next year’s Annual Report. It is the Company’s intention to seek renewal of this resolution on an
annual basis.
John Laing Annual Report and Accounts 2016 /
133
Waiver of pre-emption rights
(resolutions 15 and 16)
Under section 561(1) of the Act, if the Directors wish to allot ordinary shares, or grant rights to subscribe for, or convert
securities into, ordinary shares, or sell treasury shares for cash (other than pursuant to an employee share scheme) they must
in the first instance offer them to existing shareholders in proportion to their holdings. There may be occasions, however, when
the Directors need the flexibility to finance business opportunities by the issue of shares without a pre-emptive offer to existing
shareholders. This cannot be done under the Act unless the shareholders have first waived their pre-emption rights, so two
resolutions will be proposed to waive these statutory pre-emption provisions for a period ending at the close of the AGM in 2018
or, if earlier, at the close of business on 11 August 2018.
In line with the Pre-Emption Group’s Statement of Principles, the first resolution will allow the Board to issue equity securities
for cash consideration either on a non-pre-emptive basis: (i) by way of a rights or other pre-emptive issue in order to allow the
Directors to make appropriate exclusions and other arrangements to resolve legal or practical problems which might, for
example, arise in relation to overseas shareholders; or (ii) by way of a non-pre-emptive issue, in the latter case limited to an
aggregate nominal value of £1,834,615.30, or a total of 18,346,153 ordinary shares, representing approximately 5% of the
Company’s issued share capital as at 6 March 2017. The second resolution will permit the Board to issue equity securities
representing a further 18,346,153 ordinary shares or 5% of the Company’s issued share capital to be used only for the purposes
of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the
Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on
Disapplying Pre-Emption Rights in March 2015. Both of these resolutions are conditional on resolution 13 being passed.
At the date this document was approved by the Board, the Directors had no intention to exercise these authorities, although they
considered their grants to be appropriate in order to preserve maximum flexibility for the future. The Directors intend to seek the
Authority to purchase own shares
(resolution 17)
approval of shareholders to renew these authorities annually.
Shareholders will be asked to authorise the market purchase by John Laing of a proportion of its issued ordinary share capital,
subject to the limits referred to below.
The Directors consider it prudent to be able to act at short notice if circumstances warrant. In considering the purchase of
ordinary shares, the Directors will follow the procedures laid down in the Act and will take into account cash resources, capital
requirements and the effect of any purchase on gearing levels and on NAV and earnings per share. They will only consider
exercising the authority when satisfied that it would be in the best interests of the Company and its shareholders as a whole to
do so, having first considered any other investment opportunities open to the Company.
Any purchase by the Company of its own shares pursuant to this authority will be paid for out of distributable profits. Any shares
which are repurchased will be dealt with in accordance with section 724 of the Act. The Company is entitled to hold the shares as
treasury shares, sell them for cash, cancel them or transfer them pursuant to an employee share plan. The authority, which will
expire at the close of the AGM in 2018 or, if earlier, at the close of business on 11 November 2018, will be limited to the purchase
of 36,692,307 ordinary shares, representing approximately 10% of John Laing’s issued ordinary share capital as at 6 March 2017.
The maximum price (excluding expenses) to be paid per ordinary share on any occasion will be restricted to the higher of (i)
105% of the average of the middle market quotations of an ordinary share of the Company derived from the London Stock
Exchange Daily Official List for the five business days immediately preceding the day on which the ordinary share is contracted to
be purchased and (ii) an amount equal to the higher of the price of the last independent trade of an ordinary share and the
highest current bid for an ordinary share as derived from the London Stock Exchange Trading System. The minimum price will
be 10p per ordinary share, which is the nominal value of the shares.
Shareholders should understand that the maximum number of shares and the price range are stated merely for the purposes of
compliance with statutory requirements in seeking this authority and should not be taken as any indication of the terms upon
which the Company intends to make such purchases. At the date this document was approved by the Board, the Directors had no
intention to exercise this authority.
Any purchases of ordinary shares would be by means of market purchases through the London Stock Exchange. Any shares
purchased under this authority may either be cancelled or held as treasury shares. Treasury shares may subsequently be
cancelled, sold for cash or used to satisfy options issued to employees pursuant to the Company’s employee share schemes.
The Company’s issued share capital as at 6 March 2017 (the latest practicable date prior to the publication of this document) was
366,923,076 ordinary shares of 10p each. The total number of awards over ordinary shares which were outstanding as at 6 March
2017 was approximately 3,858,769 which represents approximately 1.07% of the issued share capital of the Company at that date.
If the maximum number of 36,692,307 shares were to be purchased by the Company (under resolution 16), the adjusted issued
share capital would be 330,230,769 and the awards outstanding would represent approximately 1.19% of the adjusted issued
share capital.
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/ John Laing Annual Report and Accounts 2016
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Notice of general meetings
CHAIRMAN’S LETTER
(resolution 18)
(CONTINUED)
The Act sets the notice period required for general meetings of the Company at 21 days unless shareholders approve a shorter
notice period, which cannot however be less than 14 clear days. This resolution seeks such approval. It is intended that the
shorter notice period would not be used as a matter of routine for such meetings but only where the flexibility is merited by the
business of the meeting and is thought to be in the interests of shareholders as a whole. The Company undertakes to meet the
requirements for electronic voting in the Act before calling a general meeting on 14 clear days’ notice. If given, the approval will
be effective until the Company’s next AGM, when it is intended that a renewal of the approval will be proposed.
Annual General Meeting
The resolutions referred to in this letter are included in the notice of AGM set out on page 135 of this document. The AGM is to be
held at the offices of Freshfields Bruckhaus Deringer, 65 Fleet Street, London EC4Y 1HS at 11.00am on 11 May 2017. If you are
unable to attend the AGM, please complete and return the enclosed form of proxy in the prepaid envelope provided so as to reach
the Company’s registrar, Equiniti, not less than 48 hours before the time of the AGM. Alternatively, you may register your vote
online by visiting the registrar’s website at www.sharevote.co.uk or, if you already have a portfolio registered with Equiniti, by
logging onto www.shareview.co.uk. In order to register your vote online you will need to enter the Voting I.D., Task I.D. and
Shareholder Reference Number which are on the enclosed form of proxy. If you are a member of CREST, you may register the
appointment of a proxy by using the CREST electronic proxy appointment service.
Further details are contained in the notes to the notice of AGM and in the form of proxy.
Completion of a form of proxy or the appointment of a proxy electronically, will not stop you from attending the AGM and voting in
person should you so wish. If you are unable to attend the AGM but would like to ask a question, please e-mail
carolyn.cattermole@laing.com.
Recommendation
The Directors consider that all the resolutions to be put to the AGM are in the best interests of the Company and its shareholders
as a whole and are most likely to promote the success of the Company. Your Board will be voting in favour of all the proposed
resolutions and unanimously recommends that you do so as well.
Yours sincerely,
Phil Nolan
CHAIRMAN
Registered Office:
1 Kingsway
London WC2B 6AN
United Kingdom
John Laing Group plc
Registered in England and Wales No. 05975300
John Laing Annual Report and Accounts 2016 /
135
NOTICE OF ANNUAL GENERAL MEETING
The Annual General Meeting will be held at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HS
on 11 May 2017 at 11.00am. You will be asked to consider and vote on the resolutions below. Resolutions 15 to 18 (inclusive) will
be proposed as special resolutions and will be passed if at least three-quarters of the votes cast (in person or by proxy) are in
favour. All other resolutions will be proposed as ordinary resolutions and will be passed if a majority of the votes cast (in person
or by proxy) are in favour.
ORDINARY RESOLUTIONS
To consider and, if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive and consider the audited accounts of the Company for the year ended 31 December 2016 and the report of the
Directors and auditor thereon.
2. To declare a final dividend of 6.3 pence per ordinary share for the year ended 31 December 2016 recommended by the Directors.
3. To re-elect Phil Nolan as Director of the Company with effect from the end of the AGM.
4. To re-elect Olivier Brousse as Director of the Company with effect from the end of the AGM.
5. To re-elect Patrick O’Donnell Bourke as Director of the Company with effect from the end of the AGM.
6. To re-elect David Rough as Director of the Company with effect from the end of the AGM.
7. To re-elect Jeremy Beeton as Director of the Company with effect from the end of the AGM.
8. To re-elect Toby Hiscock as Director of the Company with effect from the end of the AGM.
9. To re-elect Anne Wade as Director of the Company with effect from the end of the AGM.
10. To receive and approve the Directors’ Remuneration Report contained within the Annual Report for the year ended
31 December 2016, in accordance with section 439 of the Companies Act 2006 (the Act).
11. To re-appoint Deloitte LLP as the Company’s auditor to hold office until the conclusion of the next general meeting of the
Company at which accounts are laid.
12. To authorise the Directors to agree the auditor’s remuneration.
13. THAT, pursuant to section 551 of the Act, the Board be authorised to allot shares in the Company and to grant rights to
subscribe for or to convert any security into shares in the Company:
(i) up to an aggregate nominal amount of £12,230,769.20; and
(ii) comprising equity securities, as defined in section 560 of the Act, up to an aggregate nominal amount of £24,461,538.40
(including within such limit any shares or rights issued or granted under (i) above) in connection with an offer by way of a
rights issue:
(A) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
(B) to people who are holders of other equity securities if this is required by the rights of those securities or, if the Board
considers it necessary, as permitted by the rights of those securities;
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or
appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or
under the laws of, any territory or any other matter, such authorities to expire (unless previously reviewed, varied or revoked
by the Company in general meeting) at the close of the AGM in 2018 (or, if earlier, at the close of business on 11 August
2018) provided that, in each case, the Company may make offers and enter into agreements during the relevant period which
would, or might, require shares in the Company to be allotted or rights to subscribe for, or convert any security into, shares
to be granted, after the authority expires and the Board may allot shares in the Company and grant rights under any such
offer or agreement as if the authority had not expired.
14. THAT the Company and all companies that are its subsidiaries, at any time up to the end of the AGM in 2018, be authorised,
in aggregate, to:
(i) make political donations to political parties and/or independent election candidates not exceeding £50,000 in total;
(ii) make political donations to political organisations other than political parties not exceeding £100,000 in total; and
(iii) incur political expenditure not exceeding £50,000 in total.
For the purposes of this authority the terms “political donation”, “political parties”, “independent election candidates”,
“political organisation” and “political expenditure” have the meanings given by sections 363 to 365 of the Act.
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/ John Laing Annual Report and Accounts 2016
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NOTICE OF ANNUAL GENERAL MEETING
(CONTINUED)
SPECIAL RESOLUTIONS
15. To consider and, if thought fit, to pass the following resolutions which will be proposed as special resolutions: THAT, subject
to resolution 13 being passed, the Board be authorised, pursuant to section 570 of the Act, to allot equity securities (as
defined in the Act) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company
as treasury shares for cash as if section 561(1) of the Act did not apply to any such allotment or sale, such authority to be
limited:
(i)
to the allotment of equity securities in connection with an offer of equity securities (but in the case of the authority
granted under resolution 13(a)(ii), by way of a rights issue only):
(A) to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings; and
(B) to people who are holders of other equity securities, if this is required by the rights of those securities or, if the Board
considers it necessary, as permitted by the rights of those securities;
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or
appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in,
or under the laws of, any territory or any other matter; and
(ii) to the allotment of equity securities or sale of treasury shares (otherwise than under paragraph (i) above) up to a
nominal amount of £1,834,615, being approximately 5 per cent of the issued ordinary share capital of the Company as at
6 March 2017.
such authority to expire at the end of the next AGM of the Company (or, if earlier, at the close of business on 11 August
2018) but, in each case, prior to its expiry the Company may make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Board
may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired.
16. THAT if resolution 13 is passed, the Board be authorised, pursuant to section 570 and section 573 of the Act, and in addition
to any authority granted under resolution 15, to allot equity securities (as defined in the Act) for cash under the authority
given by that resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of
the Act did not apply to any such allotment or sale, such authority to be:
(i)
limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £1,834,615, being
approximately 5 per cent of the issued ordinary share capital of the Company as at 6 March 2017; and
(ii) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original
transaction) a transaction which the Board of the Company determines to be an acquisition or other capital investment of
a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the
Pre-Emption Group prior to the date of this notice,
such authority to expire at the end of the next AGM of the Company (or, if earlier, at the close of business on 11 August
2018) but, in each case, prior to its expiry the Company may make offers, and enter into agreements, which would, or
might, require equity securities to be allotted (and treasury shares to be sold) after the authority expires and the Board
may allot equity securities (and sell treasury shares) under any such offer or agreement as if the authority had not expired.
17. THAT the Company is hereby generally and unconditionally authorised in accordance with section 701 of the Act to make
market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 10p each in the capital of the
Company provided that: (i) the maximum number of ordinary shares hereby authorised to be purchased is 36,692,307;
(ii) the minimum price (exclusive of expenses) which may be paid for an ordinary share is 10p per share; (iii) the maximum
price (exclusive of expenses) which may be paid for an ordinary share is, in respect of an ordinary share contracted to be
purchased on any day, the higher of (a) an amount equal to 105% of the average of the middle market quotations of an
ordinary share of the Company derived from the London Stock Exchange Daily Official List for the five business days
immediately preceding the day on which the ordinary share is contracted to be purchased and (b) an amount equal to the
higher of the price of the last independent trade of an ordinary share and the highest current independent bid for an ordinary
share as derived from the London Stock Exchange Trading System; (iv) the authority hereby conferred shall expire at the
close of the AGM in 2018 (or, if earlier, at the close of business on 11 November 2018); and (v) during the relevant period the
Company may make a contract to purchase ordinary shares under this authority prior to the expiry of such authority which
will or may be executed wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in
pursuance of any such contract as if the authority had not expired.
John Laing Annual Report and Accounts 2016 /
137
18. THAT a general meeting of the Company, other than an annual general meeting, may be called on not less than 14 clear
days’ notice.
By order of the Board
Carolyn Cattermole
COMPANY SECRETARY
6 March 2017
Registered Office:
1 Kingsway
London WC2B 6AN
United Kingdom
John Laing Group plc
Registered in England and Wales No. 05975300
Notes
1. The right to attend and vote at the AGM is determined by reference to the Company’s register of members. Only a member entered in
the register of members at 6.30p.m. on 9 May 2017 (or, if this AGM is adjourned, in the register of members at 6.30p.m. two business
days before the time of any adjourned meeting) is entitled to attend and vote at the AGM and a member may vote in respect of the
number of ordinary shares registered in the member’s name at that time. Changes to the entries in the register of members after
that time shall be disregarded in determining the rights of any person to attend and vote at the AGM.
2. Any shareholder or nominee shareholder may appoint one or more persons (whether shareholders of the Company or not) to act
as his/her proxy or proxies to attend, speak and vote instead of him/her. The form of proxy for use at the AGM must be deposited,
together with any power of attorney or authority under which it is signed, at Equiniti, Aspect House, Spencer Road, Lancing, West
Sussex BN99 6DA, not less than 48 hours before the time appointed for the AGM or any adjournment thereof. An appropriate form
of proxy is enclosed. Alternatively, you may register your vote online by visiting www.sharevote.co.uk or, if you already have a portfolio
registered with Equiniti, by logging onto www.shareview.co.uk. In order to register your vote online you will need to enter the Voting I.D.,
Task I.D. and Shareholder Reference Number which are on the enclosed form of proxy.
3. CREST members who wish to appoint a proxy or proxies, or amend an instruction to a previously appointed proxy, through the CREST
electronic proxy appointment service may do so for the AGM to be held at 11.00am on 11 May 2017 and any adjournment(s) thereof,
by using the procedures described in the CREST manual (available via www.euroclear.com). CREST personal members or other
CREST sponsored members, and those CREST members who have appointed (a) voting service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a CREST
Proxy Instruction) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must
contain the information required for such instructions, as described in the CREST manual. The message, regardless of whether it
relates to the appointment of a proxy or to an instruction to a previously appointed proxy, must be transmitted so as to be received by
the issuer’s agent (ID: RA19) by no later than 11.00am on 9 May 2017. For this purpose, the time of receipt will be taken to be the
time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able
to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations
will therefore apply in relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to
take (or, if the CREST member is a CREST personal member or sponsored member or has appointed (a) voting service provider(s),
to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a
message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST manual
concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
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NOTICE OF ANNUAL GENERAL MEETING
(CONTINUED)
4. Completion of a form of proxy, or the appointment of a proxy electronically, will not stop you from attending the AGM and voting in
person should you so wish.
Shareholders may change proxy instructions by submitting a new proxy appointment using the methods set out above. Note that the
cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy
appointment received after the relevant cut-off time will be disregarded. If you submit more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of proxies will take precedence.
Shareholders may revoke a proxy instruction delivered pursuant to note 2, but to do so must inform the Company in writing by
sending a signed hard copy notice clearly stating their intention to revoke the proxy appointment to Equiniti, Aspect House, Spencer
Road, Lancing, West Sussex, BN99 6DA. In the case of a shareholder which is a company, the revocation notice must be executed
under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or
any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included
with the revocation notice. The revocation notice must be received by the Company no later than the cut-off time (48 hours before the
time appointed for the AGM) set out above. If a shareholder attempts to revoke his or her proxy appointment but the revocation is
received after the time specified, such shareholder’s original proxy appointment will remain valid unless the shareholder attends the
AGM and votes in person.
The 2017 AGM will be held at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HS on 11 May 2017
at 11.00am.
In the case of joint holders, where more than one of the joint holders completes a proxy appointment, only the appointment
submitted by the most senior holder will be accepted. For this purpose seniority is determined by the order in which the names of
the joint holders appear in the Company’s register of members (the first-named being the most senior).
5. Any corporation which is a shareholder can appoint one or more corporate representatives who may exercise, on its behalf, all of its
powers as a shareholder, provided that no more than one corporate representative exercises powers over the same share.
6. Any person to whom this notice is sent who is a person nominated under section 146 of the Act to enjoy information rights (a Nominated
Person) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be
appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment right
or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
The statement of the rights of shareholders in relation to the appointment of proxies in paragraph 2 above does not apply to
Nominated Persons. The rights described in that paragraph can only be exercised by shareholders of the Company.
7. As at 6 March 2017 (being the last practicable date prior to the publication of this Notice) the Company’s issued share capital
consisted of 366,923,076 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 6 March 2017
are 366,923,076 votes.
8. Under section 527 of the Act, members meeting the threshold requirements set out in that section have the right to require the
Company to publish a statement on a website setting out any matter relating to:
• the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the
AGM; or
• any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual
accounts and reports were laid.
The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with
sections 527 or 528 of the Act. Where the Company is required to place a statement on a website under section 527 of the Act, it
must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website.
The business which may be dealt with at the AGM includes any statement that the Company has been required under section 527
of the Act to publish on a website.
9. Any shareholder, proxy or corporate representative attending the AGM has the right to ask questions. The Company must cause to
be answered any such question relating to the business being dealt with at the AGM but no such answer need be given if:
• to do so would interfere unduly with the preparation for the AGM or involve the disclosure of confidential information;
• the answer has already been given on a website in the form of an answer to a question; or
• it is undesirable in the interests of the Company or the good order of the AGM that the question be answered.
10. The following documents will be available for inspection during normal business hours on any business day at the Company’s
registered office and will also be available during the AGM and for 15 minutes beforehand:
• copies of the Directors’ service contracts with, or letters of appointment by, the Company; and
• the articles of association of the Company.
11. A copy of this notice, and other information required by section 311A of the Act, can be found at www.laing.com.
12. You may not use any electronic address provided either in this notice or any related documents (including the form of proxy) to
communicate with the Company for any purpose other than those expressly stated.
The results of the voting at the AGM will be announced through a Regulatory Information Service and will appear on the Company’s
website (www.laing.com/investor-relations/regulatory-news.html) as soon as possible following the AGM.
SHAREHOLDER INFORMATION
FINANCIAL DIARY
20 April 2017
21 April 2017
11 May 2017
19 May 2017
August 2017
October 2017
Ex-dividend date for final dividend
Record date for final dividend
Annual General Meeting
Payment of final dividend
Announcement of half year results
Interim dividend expected to be paid
REGISTERED OFFICE AND ADVISERS
Secretary and Registered Office
C Cattermole
1 Kingsway
London WC2B 6AN
Registered No: 05975300
AUDITOR
Deloitte LLP
2 New Street Square
London EC4A 3BZ
SOLICITORS
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
PRINCIPAL GROUP BANKS
Barclays Bank PLC
1 Churchill Place
London E14 5HP
HSBC Bank plc
60 Queen Victoria Street
London EC4N 4TR
Australia and New Zealand Banking Group Limited
40 Bank Street
London E14 5EJ
The Bank of Tokyo-Mitsubishi UFJ, Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9AN
Sumitomo Mitsui Banking Corporation
99 Queen Victoria Street
London EC4V 4EH
Crédit Agricole Corporate and Investment Bank
Broadwalk House
5 Appold Street
London EC2A 2DA
JOINT STOCKBROKERS
Barclays Bank PLC
5 The North Colonnade
London E14 4BB
HSBC Bank plc
8 Canada Square
London E14 5HQ
INDEPENDENT VALUERS
KPMG LLP
15 Canada Square
Canary Wharf
London E14 5GL
John Laing Annual Report and Accounts 2016 /
139
REGISTRARS
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Please contact the Registrars at the address above to advise
of a change of address or for any enquiries relating to dividend
payments, lost share certificates or other share registration
matters. The Registrars provide on-line facilities at
www.shareview.co.uk. Once you have registered you will be
able to access information on your John Laing Group plc
shareholding, update your personal details and amend your
dividend payment instructions on-line without having to call
or write to the Registrars.
REGISTRARS QUERIES
Information on how to manage your shareholdings can be
found at https://help.shareview.co.uk. The pages at this web
address provide answers to commonly asked questions
regarding shareholder registration, links to downloadable
forms and guidance notes.
If your question is not answered by the information provided,
you can send your enquiry via secure email from the pages at
https://help.shareview.co.uk. You will be asked to complete a
structured form and to provide your Shareholder Reference,
name and address. You will also need to provide your email
address if this is how you would like to receive your response.
Alternatively you can telephone: 0371 384 2030. Lines are open
8.30am to 5.30pm Monday to Friday.
Calls from overseas: +44 121 415 7047.
COMPANY WEBSITE
The Company’s website at www.laing.com contains the latest
information for shareholders, including press releases and an
updated financial diary. Email alerts of the latest news, press
releases and financial reports about John Laing Group plc may
be obtained by registering for the email news alert service on
the website.
SHARE PRICE INFORMATION
The latest price of the Company’s ordinary shares is
available on www.laing.com. Alternatively click on
www.londonstockexchange.com. John Laing's ticker symbol
is JLG. John Laing is classified in the Speciality Finance
Sector of Financial Services on The London Stock Exchange.
It is recommended that you consult your financial adviser
and verify information obtained from these services before
making any investment decision.
DIVIDENDS
Shareholders who wish to have their dividends paid directly into
a bank or building society account should contact the Registrars.
SHARE DEALING SERVICES
The Registrars offer a real-time telephone and internet
dealing service for the UK. Further details including terms
and rates can be obtained by logging on to the website at
www.shareview.co.uk/dealing or by calling 0345 603 7037.
Lines are open between 8am and 4.30pm, Monday to Friday.
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Designed and produced by MAGEE (www.magee.co.uk)
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Further copies of this Annual Report & Accounts
are available by visiting the Company’s
website or at the address below
www.laing.com
John Laing Group plc
Registered Office:
1 Kingsway
London
WC2B 6AN
United Kingdom
Registered No. 05975300
Tel: +44 (0)20 7901 3200
JOHN LAING GROUP PLC
Annual Report
& Accounts
2016